In an offshoot of its enforcement action against Apollo Management L.P. (Apollo) last year, the Securities and Exchange Commission (SEC) on October 25 charged a former senior partner at Apollo with defrauding his fund clients by improperly billing them for approximately $290,000 in personal expenditures. The SEC’s complaint alleges that the individual used client money to fund extravagant lifestyle expenses and falsified receipts and expense reports, even after he was admonished by Apollo’s CFO on two prior occasions for similar conduct.
Despite reaching a $52.7 million settlement with Apollo last year, the SEC’s pursuit of an individual demonstrates not only its ongoing focus on private equity fund adviser disclosure of fee and expense allocations, but also its continued aversion to recidivist behavior. Additionally, because Apollo’s policies and procedures required that any employee expenses charged to clients be “necessary, reasonable and appropriately documented,” the categories and specific examples of inappropriate expenses cited in the complaint may be instructive of where the SEC staff draws the line in gray areas. Finally, the statutory lynchpin in the SEC’s complaint is the allegation that the conduct constitutes a “breach of fiduciary duty,” which is not curable by disclosure.