A recent decision by the U.S. Supreme Court that curbed the government’s enforcement powers over Wall Street could hurt efforts to penalize private-equity managers over fees that the government considers poorly disclosed to investors, the Wall Street Journal reported today. The opinion, handed down last week, said that the SEC has just five years to order firms to give back profits that it says were wrongfully taken. That means the regulator can no longer object to fees received long ago, significantly reducing the amount it could force a buyout firm to give up. Before the decision there was no limit to how far back the SEC could go in seeking “disgorgement” of fees. The SEC is investigating private-equity managers Carlyle Group and Silver Lake over large one-time fees from companies they sold or took public. It settled milestone cases over disclosure of similar fees against Blackstone Group LP and Apollo Global Management LLC in 2015 and 2016, respectively. The decision in Kokesh v. SEC affects the private-equity industry in particular because private-equity funds usually last 10 to 12 years — meaning the five-year statute of limitations imposed by the Supreme Court’s ruling prevents the regulator from objecting to fees taken or expenses charged during the earlier years of a fund’s life.
