Apollo Global settles securities case as SEC issues $53 million fine

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NEW YORK — Federal regulators on Tuesday delivered the latest blow to a giant private equity firm, announcing an enforcement action against affiliates of Apollo Global Management for an array of securities law violations.

The Securities and Exchange Commission issued a roughly $53 million punishment to Apollo, one of Wall Street's most prominent private equity firms, and Apollo agreed to settle the case.

The settlement resolves accusations that Apollo misled its investors — about two different issues — and separately failed to supervise a senior executive suspected of misconduct. The executive, who was not named or charged in the SEC case, was twice caught "improperly charging personal items and services" to Apollo's funds and, by extension, its investors, the SEC said.


The case represents a continuation of the SEC's crackdown on private equity misdeeds. Over the last few years, the agency has taken action against nearly 10 private equity firms, including such prominent players as the Blackstone Group and Kohlberg Kravis Roberts & Co.

At its core, the SEC scrutiny stems from a concern that private equity firms are not always transparent with their investors, even as those investors reap significant returns. In some cases, the SEC says, the firms hid crucial details that would have revealed conflicts of interest.

"A common theme in our recent enforcement actions against private equity firms is their failure to properly disclose fees and conflicts of interest to fund investors," Andrew J. Ceresney, the SEC's head of enforcement, said in a statement on Tuesday announcing the case against Apollo.

In its own statement, Apollo said that it "seeks to act appropriately and in the best interest of the funds it manages at all times." Apollo, which neither admitted nor denied the accusations, added, "Long before the SEC inquiry began, Apollo had enhanced its disclosure and compliance relating to these matters."


Ceresney said Apollo failed to fully inform its investors about so-called monitoring fees. Apollo charges monitoring fees to some of the companies it owns, arguing that it is entitled to collect on the consulting and advice it provides these companies.

The fees might extract crucial resources from a company, but they also theoretically benefit a private equity firm's investors. For example, monitoring fees might help offset the roughly 2 percent fees private equity firms charge their investors, which include some of the world's biggest pension funds.

However, the SEC found that in Apollo's case the firm was "accelerating" the monitoring fees when one of its companies was sold or went public. In other words, upon the sale or IPO, Apollo would accelerate the remaining years of monitoring fees into lump-sum payments.

The accelerated lump-sum payments, the SEC said, effectively reduced the "amounts available for distribution to fund investors." And compounding the problem, Apollo failed to fully disclose its practice of accelerating monitoring fees before clients invested in the firm.

The SEC also discovered that an Apollo affiliate failed to accurately disclose details about a loan it took from some of Apollo's private equity funds. Under the loan agreement, the Apollo affiliate was supposed to pay interest to the funds — and yet that interest was "instead ultimately allocated solely" to the Apollo affiliate itself.

While executive misdeeds cannot always be pinned on an employer, Apollo in this case knew about the misconduct and failed to act, the SEC said. Instead, it said, the firm simply issued a verbal reprimand and prompted the executive to repay the expenses. Apollo did not discipline him in any other way.


Eventually, after hiring an independent firm to audit the expenses, Apollo cut ties with the executive.

Although the executive was not named or charged Tuesday, the SEC said its investigation was continuing.

"As the SEC acknowledges, Apollo itself discovered and remediated the expense account misconduct committed by a partner several years ago as part of a periodic compliance review of expenses," the firm said in its statement. "Apollo reimbursed its funds for any improper expenses, voluntarily reported the matter to the SEC and cooperated fully with the agency's review."