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Apollo Global (APO) to Pay $52.7M to Settle SEC Charges
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Apollo Global Management, LLC’s (APO - Free Report) four private equity fund advisers have entered into a deal with the U.S. Securities and Exchange Commission (SEC) to pay $52.7 million to resolve the charges filed against the company.
Allegations
Apollo Global advisers failed to properly disclose the benefits they had received by accelerating the payment of future monitoring fees, owed by the funds' portfolio companies, when those companies were sold or became the subject of an IPO. This incident is anticipated by the SEC to have taken place between 2011 and 2015.
This act was detrimental to the interests of the fund investors as the lump sum payments received by the advisers reduced the value of the portfolio companies, leading to a decline in the amount available for distribution to the investors.
Further, the SEC also found that between 2008 and 2013, one of the Apollo Global advisers misled the investors by failing to disclose some information about the interest payments made by the company on a $19 million loan.
The purpose of the loan was to defer taxes on carried interest, which was due to the general partner. The general partner paid interest on the loan, which was disclosed in the fund’s financial statements as interest accrued on an asset of the fund. However, the interest was actually being allocated to the general partner, which in turn made the disclosure misleading.
Moreover, Apollo Global also failed to manage one of its former senior partners. Between 2010 and 2013, the partner charged personal items and services to the Apollo funds and its companies.
Earlier, Apollo Global verbally reprimanded the partner after he admitted to charging personal expenses and reimbursed the company for the same. Again in 2012, when more personal expenses resurfaced, the company verbally reprimanded the partner, but it did not impose further discipline or supervision.
However in 2013, a forensic review of the partner’s expenses reflected that he has charged even more personal expenses to the fund’s clients. Hence, Apollo Global and the partner entered into a separation agreement in 2014 and the company was once again reimbursed.
What’s Next?
Apollo Global’s failure to take a proper action when it first learned that a partner was improperly expensing personal items and services to the funds’ clients resulted in a repeated misconduct. Further, the company should be cautious about its accelerated fee receipt activities as the SEC conducts a multi-year investigation into fee disclosure at private equity firms, resulting in several enforcement actions against firms, which often involve accelerated monitoring fees.
Currently, Apollo Global carries a Zacks Rank #3 (Hold).
Some better-ranked investment management stocks include Eaton Vance Corp. (EV - Free Report) , Federated Investors, Inc. and Principal Financial Group Inc. (PFG - Free Report) , each holding a Zacks Rank #2 (Buy).
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Apollo Global (APO) to Pay $52.7M to Settle SEC Charges
Apollo Global Management, LLC’s (APO - Free Report) four private equity fund advisers have entered into a deal with the U.S. Securities and Exchange Commission (SEC) to pay $52.7 million to resolve the charges filed against the company.
Allegations
Apollo Global advisers failed to properly disclose the benefits they had received by accelerating the payment of future monitoring fees, owed by the funds' portfolio companies, when those companies were sold or became the subject of an IPO. This incident is anticipated by the SEC to have taken place between 2011 and 2015.
This act was detrimental to the interests of the fund investors as the lump sum payments received by the advisers reduced the value of the portfolio companies, leading to a decline in the amount available for distribution to the investors.
Further, the SEC also found that between 2008 and 2013, one of the Apollo Global advisers misled the investors by failing to disclose some information about the interest payments made by the company on a $19 million loan.
The purpose of the loan was to defer taxes on carried interest, which was due to the general partner. The general partner paid interest on the loan, which was disclosed in the fund’s financial statements as interest accrued on an asset of the fund. However, the interest was actually being allocated to the general partner, which in turn made the disclosure misleading.
Moreover, Apollo Global also failed to manage one of its former senior partners. Between 2010 and 2013, the partner charged personal items and services to the Apollo funds and its companies.
Earlier, Apollo Global verbally reprimanded the partner after he admitted to charging personal expenses and reimbursed the company for the same. Again in 2012, when more personal expenses resurfaced, the company verbally reprimanded the partner, but it did not impose further discipline or supervision.
However in 2013, a forensic review of the partner’s expenses reflected that he has charged even more personal expenses to the fund’s clients. Hence, Apollo Global and the partner entered into a separation agreement in 2014 and the company was once again reimbursed.
What’s Next?
Apollo Global’s failure to take a proper action when it first learned that a partner was improperly expensing personal items and services to the funds’ clients resulted in a repeated misconduct. Further, the company should be cautious about its accelerated fee receipt activities as the SEC conducts a multi-year investigation into fee disclosure at private equity firms, resulting in several enforcement actions against firms, which often involve accelerated monitoring fees.
Currently, Apollo Global carries a Zacks Rank #3 (Hold).
Some better-ranked investment management stocks include Eaton Vance Corp. (EV - Free Report) , Federated Investors, Inc. and Principal Financial Group Inc. (PFG - Free Report) , each holding a Zacks Rank #2 (Buy).
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report >>