On September 23, 2022, the SEC settled charges against Wave Equity Partners LLC, a registered investment adviser, for failing to promptly repay management fees owed to Wave Equity Fund II, a private equity fund. The SEC action is one of a number of enforcement actions brought this year against private fund advisers for fee, expense and valuation violations.
From May 2018 through October 2020, Wave Equity borrowed nearly $1.1 million from the Fund to pay placement agent fees to a third-party vendor. The Fund’s partnership agreement and private placement memorandum required prompt repayment of the borrowed funds through an offset of the quarterly management fees paid to Wave Equity. According to the Order, Wave Equity did not repay the loan or reduce its management fees charged to investors for 11 consecutive quarters. Instead, the Fund used the management fees it collected to pay its own operating expenses. Moreover, for nearly a two-year period, the Fund did not disclose the loan to investors and potential investors and was thereby in violation of its governing documents.
Without admitting or denying the SEC’s findings, Wave Equity agreed to pay a $325,000 civil monetary penalty. In reaching a settlement, the SEC took into consideration Wave Equity’s remedial efforts, which included fully paying back the Fund with interest and hiring a new chief compliance officer and outside compliance consultant.
In the Matter of Wave Equity Partners LLC, SEC Admin. Proc. File No. 3-21144 (September 23, 2022), available at: https://www.sec.gov/litigation/admin/2022/ia-6146.pdf.