SEC Imposes $2.3m Fine on Wilbur Ross Firm for Non-Disclosure of Fees

Wilbur Ross' investment firm WL Ross & Co has agreed to pay a $2.3 million fine to the US Securities and Exchange Exchange An exchange is known as a marketplace that supports the trading of derivatives, commodities, securities, and other financial instruments.Generally, an exchange is accessible through a digital platform or sometimes at a tangible address where investors organize to perform trading. Among the chief responsibilities of an exchange would be to uphold honest and fair-trading practices. These are instrumental in making sure that the distribution of supported security rates on that exchange are effectiv An exchange is known as a marketplace that supports the trading of derivatives, commodities, securities, and other financial instruments.Generally, an exchange is accessible through a digital platform or sometimes at a tangible address where investors organize to perform trading. Among the chief responsibilities of an exchange would be to uphold honest and fair-trading practices. These are instrumental in making sure that the distribution of supported security rates on that exchange are effectiv Read this Term Commission (SEC) to settle charges that it did not adequately disclose some of the fees it charged investors, according to a report in Reuters today.

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The SEC’s fine is the latest in a series of actions taken by the financial watchdog against the private equity sector, as it seeks to crack down on undisclosed fee collection by fund managers and increase transparency in the sector.

Case History

According to the SEC, WL Ross failed to disclose how it calculates its fees for some funds. This led to investors paying around $10.4 million of management fees more than they should have in the decade prior to 2011.

The SEC said that WL Ross had initially agreed with its investors to discount its quarterly management fees by between 50 percent and 80 percent of any transaction fee it had collected the previous quarter from its funds.

Instead, between 2001 and 2011, the firm used a fee calculation formula which allowed it to keep a "significant" part of the transaction fees for itself, instead of assigning them to funds to offset the management fee as agreed.

The firm’s investors were not informed of the fee calculation methodology, indicating that WL Ross had created "ambiguous provisions" in its agreement with investors.

Disgorgement of Fees

In exchange for promises to deliver annual returns of greater than 15 percent, US buyout firms charge their investors an array of fees for their services.

Private equity firms tend to charge a management fee worth around 1.5 percent of the total cash managed and often also charge companies they invest in transaction and monitoring fees.

WL Ross is reported to have voluntarily agreed to return the excess fees collected to investors, along with interest.