Lincolnshire Pays $2.3M To Settle SEC Charges

Sep 22 2014 | 1:05pm ET

Middle-market private equity firm Lincolnshire Management will pay $2.3 million to settle SEC charges it misallocated portfolio company expenses.

According to an SEC statement, Lincolnshire, which neither admits nor denies wrongdoing, breached its fiduciary duty to a pair of private equity funds by sharing expenses between a company in one portfolio and a company in the other portfolio “in a manner that improperly benefited one fund over the other.”

The SEC said that while Lincolnshire integrated the two portfolio companies and managed them as one, the funds were separately advised and had distinct sets of investors. Despite developing an expense allocation policy as part of the integration, it was not followed on some occasions, resulting in the portfolio company owned by one fund paying more than its fair share of joint expenses that benefited the companies of both funds.

“Advisers that commingle assets across funds must do so in a manner that satisfies their fiduciary duties to each fund and prevents one fund from benefiting to the detriment of the other,” said Julie M. Riewe, co-chief of the SEC enforcement division’s asset management unit.

The SEC announced earlier this year that it had identified “violations of law or material weaknesses in controls” in over half of the private equity managers that had undergone presence exams, although Forbes reports that Lincolnshire did not undergo such an exam.

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