Lightyear Capital LLC agreed to pay $400,000 to settle SEC claims that the private equity firm failed to properly disclose its fee structure to investors in its flagship funds and overcharged those funds based on the fee structure in question.
Between 2000 and 2016, Lightyear allocated certain expenses related to broken deals, legal, consulting and other expenses solely to its flagship funds when it should have also been allocating the expenses to employee funds and other co-investors that invested in portfolio companies alongside the flagship funds, the SEC said in a filing. Lightyear also failed to inform flagship-fund investors that the employee funds and co-investors would not pay their proportional amount of the expenses. Altogether, the funds paid about $388,000 more in expenses than they should have.
Also, between 2010 and 2015, the SEC argued, Lightyear failed to properly distribute advisory fees collected from portfolio companies to the flagship funds to offset the expenses they were paying. Instead, some of the advisory fees from the portfolio companies — approximately $1 million — were paid to co-investors, who provided no services to the portfolio companies, thus reducing the expense offset that the flagship funds received, the SEC found, adding that Lightyear also failed to disclose this to the funds.
Besides the $400,000 penalty, Lightyear reimbursed the flagship funds back to 2001, plus interest. Lightyear did not admit to any wrongdoing by entering into the settlement.