SEC Brings Enforcement Action Towards Private Fund Adviser for Payment Offset Associated Conduct | Insights

On August 15, 2025, the U.S. Securities and Exchange Commission (SEC) introduced a settled enforcement motion towards TZP Management Associates, LLC (TZP), a registered funding adviser to a number of personal funds, regarding its calculation of credit and offsets to administration charges (the Order).¹ The price provisions within the related agreements for a number of of TZP’s personal fund shoppers seem to have been open to a number of interpretations. This is the primary price calculation-related enforcement motion introduced towards a personal fund adviser beneath Chair Paul Atkins. While the enforcement motion was issued quietly (i.e., with no press launch) and included a comparatively small $175,000 civil penalty (in contrast with sanctions imposed beneath Chair Gary Gensler), this enforcement motion ought to function a reminder that personal fund charges and bills stay an space of focus for the SEC. 

The SEC’s Enforcement Action

The SEC’s order described TZP as a registered funding adviser to a number of personal fairness funds that invested in lower-middle market corporations. According to the Order, every fund’s restricted partnership settlement (LPA) permitted TZP to obtain transaction charges, advisory charges, and monitoring charges, amongst others (collectively Transaction Fees) and required TZP to credit score again to every fund a portion of the Transaction Fees. These credit would scale back or offset the administration charges the funds owed to TZP.  

The SEC took difficulty with how TZP calculated credit and offsets in two respects. First, TZP’s administration companies agreements with portfolio corporations, which sure restricted companions obtained, permitted sure portfolio firm associated Transaction Fees to be deferred, both at TZP’s discretion or due to mortgage covenants, and allowed TZP to cost 8% annual curiosity on these Transaction Fees in the course of the deferral interval. The SEC Order discovered that for 5 portfolio firm investments, TZP collected curiosity on deferred Transaction Fees however didn’t embody curiosity obtained in the course of the deferral interval within the corresponding administration price offsets (and administration charges weren’t offset in the course of the deferral interval). Notably, a studying of the Order suggests the administration companies settlement might have been silent with respect whether or not curiosity on sure Transaction Fees have to be included within the credit score calculation and offset towards administration charges. Nonetheless, the SEC discovered that TZP didn’t disclose the association and ensuing conflicts of curiosity.  

Second, for at the very least one portfolio firm through which a number of funds have been invested, TZP initially allotted to every fund a portion of the Transaction Fees obtained primarily based on every fund’s professional rata share of the overall quantity of capital the funds had invested as an alternative of allocating “all” transaction-based Transaction Fees obtained by TZP as required by the LPAs. The Order discovered that the agency then diminished every fund’s allocation a second time primarily based on every fund’s diluted fairness possession. The SEC discovered that this calculation was inconsistent with the LPAs, amounted to “double counting,” and diminished offsets owed to the funds, finally rising administration charges retained by TZP.

The SEC concluded that these practices violated Section 206(2) of the Investment Advisers Act of 1940, which prohibits advisers from participating in transactions that function as a fraud or deceit upon shoppers. To settle the matter, TZP agreed to pay a complete of $683,877, together with $502,041 in disgorgement, $6,836 in prejudgment curiosity, and a $175,000 civil penalty.  

Takeaways

Although the SEC didn’t conclude that the LPAs prohibited amassing curiosity on deferred charges, the motion illustrates that the SEC will proceed to look at, examine, and problem price and expense practices and related disclosure of the practices and related conflicts of personal fund advisers.

At the identical time, the $175,000 civil penalty is decrease than these imposed in different current price instances introduced beneath SEC Chair Gensler² and as an alternative is extra consistent with the strategy to civil cash penalties taken in comparable instances beneath the Clayton Commission.³ Furthermore, the SEC Order doesn’t discover a compliance rule violation beneath Section 206(4)-7, which has been a typical extra cost included in comparable varieties of instances in recent times. While the information and circumstances of every case issue into their respective penalties and charging selections, at the very least with respect to penalties, this can be an early signal that the SEC’s strategy for at the very least some issues beneath Chair Atkins could also be extra akin to these of the earlier Republican administration than beneath Chair Gensler.

Regardless, this motion ought to dispel the concept that the Atkins Commission won’t pursue issues regarding doubtlessly improper charges and associated disclosures for charges, price offsets, and bills charged by advisers to their personal fund shoppers. Moreover, this matter seems to have originated from the SEC Division of Examinations, which is according to our statement that examiners evaluation price and expense practices within the regular course of personal fund adviser examinations. Private fund advisers must be notably centered on price and expense practices and disclosures as they take into account alternatives to entry retail buyers, on condition that the SEC views disclosures in gentle of the sophistication of the viewers. Advisers can all the time profit from reviewing price and expense preparations, together with whether or not all facets of administration companies agreements, price deferral, and allocation methodologies and associated conflicts of curiosity are totally and clearly disclosed to buyers and whether or not precise apply is according to such disclosures. Even the place contract provisions are moderately topic to differing interpretations, this motion underscores that the SEC continues to anticipate transparency in disclosures of potential conflicts.

---

¹ Link here.

² See, e.g., 2024 SEC enforcement motion imposing a civil penalty of $350,000, hyperlink here; 2023 SEC enforcement motion imposing a civil penalty of $1.5 million, hyperlink here. 

³ See, e.g., 2020 SEC enforcement motion imposing a civil penalty of $175,000, hyperlink here.