Category: Accounting

Gatekeeper Failure for a Taking Management Fees in Advance

Steven Burrill was using his venture capital fund as a persona piggy bank and the fund’s auditor failed to do anything when it saw the red flags. Now the auditor partner is subject to charges by the Securities and Exchange Commission. Private funds typically take management fees in advance. That is not unusual or illegal.

Auditor Independence Enforcement Actions

The Securities and Exchange Commission announced its first enforcement actions for auditor independence failures. I expect your auditors may have a bunch of new restrictions and questionnaires when it is time for the annual audit. The SEC announced two separate enforcement actions, both involving Ernst & Young. In one case, Gregory S. Bednar got too cozy with

Taking Management Fees In Advance, and Then More

It is not uncommon for fund managers and investment advisers to take management fees payable in advance. At some point, taking fees in advance is just stealing from investors. Steven Burrill and his firm reached that point and went well beyond it. To be clear, taking management fees in advance is not illegal. In fact,

New ILPA Fee Reporting Template

Investors look for transparency in fees. The Institutional Limited Partners Association published a Fee Reporting Template Last Week to encourage uniformity in the fee disclosures being made to private fund investors. The aim of this proposed template is to encourage increased uniformity in the fee disclosures the fund managers provide to limited partners in private

The SEC Goes After the Gatekeepers: Grant Thornton Edition

“Audit firms must be held responsible when systemic failures such as inadequate engagement procedures, staffing, or supervision cause the firms’ work to fall significantly short of expected standards, particularly when multiple audits and engagements are involved.” – Andrew J. Ceresney, Director of the SEC’s Division of Enforcement. The SEC recently brought separate cases against senior

The SEC Goes After the Gatekeepers

When a fraud is uncovered, the Securities and Exchange Commission not only wants to get the fraudsters, it also wants to get those who should have stopped the fraud: the gatekeepers. The SEC recently brought a case against an investment advisory firm and its CEO for fraudulently inflating the values of investments in the portfolio

Management Fee “Waiver” Tax Treatment

The Treasury and the Internal Revenue Service issued proposed regulations relating to disguised payments for services rendered by a partner to a partnership. Private fund managers have used management fee “waiver” mechanisms by reducing the management fee payable to the fund’s manager and the receipt of a corresponding profits interest by the general partner. The

Do Law Firms Need Compliance Programs?

Do as I say; Not as I do. The bankruptcy of Dewey & LeBoeuf sent shivers throughout big law firms. The firm could trace its history back 100 years and employed over 1000 lawyers when it exploded. Last week, key leaders of the firm were charged with securities law violations and criminal theft charges related

Borrowings and Form PF

A question popped up during a meeting of some real estate compliance folks talking about Form PF. How do you treat subsidiary mortgage borrowings? Question 12(a) asks for the dollar amount of borrowings for the fund. Two main issues came into play: write-downs and recourse. As many real estate funds are still recovering from the

Goodbye SAS 70; Hello SSAE 16

Apparently I missed this big change. Statement on Auditing Standards No. 70 (SAS 70) was a widely used reporting tool for service organizations all throughout the globe. However, the migration towards more globally accepted accounting principles has put SAS 70 in the rearview mirror. Statement on Standards for Attestation Engagements (SSAE) No. 16, Reporting on