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SEC fines private-equity firm where Bayh works record $53M

August 24, 2016

Apollo Global Management LLC—the private-equity firm where U.S. Senate candidate Evan Bayh is a senior adviser—will pay $52.7 million to settle allegations that it made misleading disclosures about fees and didn’t prevent a senior partner from charging personal expenses to clients, the U.S. Securities and Exchange Commission announced Tuesday.

Apollo is the latest company sanctioned in an industrywide sweep into whether private equity firms put their own interests ahead of investors. The Wall Street Journal said Apollo must pay more than $40 million back to pension funds and university endowments in the largest private equity settlement to date.

Bayh, a Democrat who is running against U.S. Congressman Todd Young, R-Indiana, for the U.S. Senate seat being vacated by Sen. Dan Coats, has worked for Apollo since January 2011. Bayh, a former Indiana governor, is seeking to return to the Senate after serving there from 1999 to 2011. He joined Apollo less than three weeks after leaving the Senate.

Jeff Cardwell, chairman of the Indiana Republican Party, called for Bayh to resign from the firm Wednesday.

"It's bad enough that Evan Bayh used his public position to make millions for himself," Cardwell said in a written statement. "If he truly stands for Hoosiers, it's time for Bayh to resign from Apollo and distance himself from this corporate corruption. Hoosiers deserve to know whether Evan Bayh stands for bankers on Wall Street or Hoosiers on Main Street."

Four fund advisers affiliated with Apollo failed to adequately disclose lump-sum payments it expects to receive from the sale of portfolio companies, the SEC said in a statement Tuesday. That reduced amounts available for distribution to fund investors, the SEC said. New York-based Apollo, which didn’t admit or deny wrongdoing, agreed to pay a $12.5 million penalty and about $40 million in disgorgement and interest.

Wall Street’s top cop has made policing private equity fees a priority. Blackstone Group LP and KKR & Co. were both fined last year by the regulator over how they informed investors of fund costs. The agency has focused on what’s known as accelerated monitoring fees, which firms charge the companies they own for services like advisory and legal work. The practice lowers the value of portfolio companies, which reduces potential profits available to clients.

“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, head of the SEC’s division of enforcement, said in the statement.

The former senior partner, whom the SEC didn’t name, was caught twice for improperly charging personal expenses to Apollo funds and portfolio companies from January 2010 through June 2013, according to the agency. That partner was Ali Rashid, according to two people with knowledge of the matter. Rashid left the firm in 2014.

With only repayment and a verbal reprimand as punishment, Apollo failed to find other instances where the partner saddled the fund with personal expenses. A firm-wide review led to the discovery of the additional charges, which resulted in the partner’s January 2014 departure from the firm.

“Apollo seeks to act appropriately and in the best interest of the funds it manages at all times,” Eric Kuo, an outside spokesman for Apollo, said in an e-mailed statement. “Long before the SEC inquiry began, Apollo had enhanced its disclosure and compliance relating to these matters.”

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