Financial Law Blog

Updates on Banking Law, Investment Management Law, Securities Law, Commodities/Derivatives Law

Tag: Private Equity

RBC settles SEC enforcement action for false and misleading statements in fairness presentation

The SEC last week settled enforcement action against RBC for false and misleading statements in a fairness presentation regarding the sale of a public company.

RBC was the sell-side financial adviser to a listed company in connection with its sale to Warburg Pincus. RBC’s fairness presentation to the company’s Board incorrectly described company EBITDA figures as analyst “consensus projections.” This lowered the company’s valuation, because in fact analysts would have at least added back $6.3 million of one-time expenses. In related shareholder litigation, the Court of Chancery found that “RBC knew that the Board was uninformed … but failed to disclose the relevant information to further its own opportunity to close a deal, get paid its contingent fee, and receive additional and far greater fees for buy-side financing work.” As the court observed, “On Saturday morning, the ‘consensus’ precedent transaction range was $13.31 to $19.15. On Saturday afternoon, it was $8.19 to $16.71, entirely below the deal price.” The final offer made by Warburg Pincus was $17.25.

RBC’s figures were subsequently used in the company’s proxy statement. Consequently, RBC was found to have caused the company’s violation of Exchange Act rule 14a-9, the general antifraud rule for proxies.

Apollo to pay $52.7 million for failure to adequately disclose right to accelerate monitoring fees (and other violations)

Apollo agreed to pay $52.7 million on Tuesday to settle enforcement action by the SEC for failure to disclose to investors that it may accelerate monitoring fees paid by portfolio companies, along with other violations. While Apollo did disclose that it “may receive monitoring fees,” the SEC found that Apollo failed to adequately disclose that it “may accelerate future monitoring fees upon termination of the monitoring agreements.” When monitoring fees were accelerated with respect to a portfolio company (following an IPO or sale), Apollo did disclose the amount accelerated after the fact. However, the right to accelerate was not disclosed to LPs prior to commitments of capital (i.e., in fund documents). This type of nondisclosure is viewed as a breach of fiduciary duty for an investment adviser, which in turn is viewed as a violation of the antifraud provisions of the Advisers Act.

Apollo joins private equity advisers Blackstone ($39 million) and KKR ($30 million) which had settled SEC enforcement actions for fiduciary duty breaches in 2015. Apollo is at least the ninth private equity adviser to be subject to SEC enforcement action since statutory exclusions relied upon by private fund advisers were narrowed by Dodd-Frank. SEC Staff noted that the enforcement program with respect to private equity fund advisers has so far focused on three broad areas: (1) advisers that receive undisclosed fees and expenses; (2) advisers that impermissibly shift and misallocate expenses; and (3) advisers that fail to adequately disclose conflicts of interests, including conflicts arising from fee and expense issues.

Carlyle Group, Lee Equity and HarbourVest invest in Carlile Bancshares, pending regulatory approval

Carlyle Group, along with prior Carlile Bancshares investors Lee Equity and HarbourVest, are investing in a round of Carlile Bancshares securities. Carlile Bancshares, which “was established to invest in community banks throughout the Southwest including Texas, New Mexico, Oklahoma and Colorado” completed its last bank acquisition in 2014. Pending regulatory approval, Carlile Bancshares will have cash for more buys.

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