SEC Fines Apollo Global Management $52.7 Million for Misleading Investors

On Tuesday, the Securities and Exchange Commission (SEC) fined Apollo Global Management $52.7 million for allegedly breaching its fiduciary duty. Apollo was accused of failing to disclose fees and conflicts of interest to investors. It also failed to adequately disclose to its limited partners that it may accelerate future fees for monitoring portfolio companies when it ended consulting and services agreements. The firm also allegedly failed to supervise a senior partner who charged personal expenses to the funds. The executive who was charged was not named, but was twice caught “improperly charging personal items and services” to Apollo’s funds and its investors. His misconduct took place from early 2010 until mid-2013 and his transgressions included “fabricating information to Apollo in an effort to conceal his conduct.” His investigation is ongoing.

This is the latest in the SEC’s crackdown of private equity firms. Over the last years, the SEC has taken action against 10 private equity firms, including the Blackstone Group and Kohlberg Kravis Roberts & Company. Most of the firms were investigated and fined because of their failure to properly disclose fees and conflicts of interest to fund investors. In the case of Apollo, the SEC claims that the firm failed to fully inform its investors about so-called monitoring fees. The firm charges those fees to some of the companies it owns, and Apollo claims that it is entitled to collect on the consulting and advice it provides these companies.

The SEC also found that Apollo was “accelerating” the monitoring fees when one of its companies was sold or went public. Upon the sale of an IPO, for example, Apollo would turn the years of fees into one lump-sum payment, which would effectively reduce the “amounts available for distribution to fund investors.” Apollo was also accused of failing to fully disclose its practice of accelerating monitoring fees before clients invested in the firm. Apollo was also supposed to pay interest to funds from which it took out loans. The SEC found that that interest was “instead ultimately allocated solely” to the Apollo affiliate itself.