The recent efforts of the U.S. Securities and Exchange Commission to regulate the private equity industry are causing concern and dismay in the middle market. Armed with broad authority to police private funds through the Dodd–Frank Wall Street Reform and Consumer Protection Act of 2010, the SEC has been conducting “presence exams” of newly-registered investment advisers, including private equity firms and hedge funds. SEC chair Mary Jo White doesn’t like what she’s seen so far.

“Some of the common deficiencies from the examinations of these advisers that the staff has identified included: misallocating fees and expenses; charging improper fees to portfolio companies or the funds they manage; disclosing fee monitoring inadequately; and using bogus service providers to charge false fees in order to kick back part of the fee to the adviser,” White said in testimony before the U.S. House of Representatives.

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