The end of 2018 was notable for two SEC enforcement actions against private equity fund managers for violations of the Investment Advisers Act of 1940 arising from improper allocations of expenses, undisclosed conflicts of interest, and insufficient compliance policies and procedures.  The two actions demonstrate the SEC’s continued focus on private equity fund managers’ use

The SEC has brought the first action under the “pay-to-play” rule adopted under the Investment Advisers Act.  The SEC also found that two affiliated exempt reporting advisers were operationally integrated and as such should have registered as an investment adviser.

Pay-to-Play Violation.  Rule 206(4)-5 under the Investment Advisers Act provides that investment advisers (whether