Expenses charged by private equity managers to their portfolio companies and their funds has been on the SEC’s radar since Dodd-Frank. Apollo Management was one of those caught with improper fee calculations last year. One item mentioned was the inappropriate expenses charged to the funds by one of its partners. We got more detail on that issue when the SEC brought charges against Mohammed Ali Rashid, a former senior partner at Apollo Management.
From at least January 2010 to June 2013, Mr. Rashid allegedly misappropriated $290,000 from the Apollo funds my charging personal expenses to the funds and their portfolio companies. The SEC states that there more than one thousand personal items and services charged to the funds.
Apparently, it first started in 2010 when Apollo discovered the personal charges and made Mr. Rashid repay those costs. But that did not stop him. Apollo found more instances and ended his employment in February 2014.
According to the complaint, he took steps to conceal the charges. He identified a personal salon trip as a business lunch in one instance. It was his administrative assistant that turned him in the first time. She found problems with the expense reimbursement forms for a restaurant she could not find. She ran the problems up the management chain.
Undeterred by the scolding, he continued using the corporate account as a personal charge card. He claimed to purchase items identified as gifts to portfolio company executives. Gifts they never received. He charged a personal vacation to the fund, claiming it was a business trip.
His assistant turned him in again when he falsified a clothing purchased. He had pre-approval from compliance to spend $3500 on ties to some of the portfolio company executives. When his assistant called the store for a receipt, it turned out to be a charge for Rashid’s father’s suit. Apollo slapped him on the wrist again and made him re-pay these inappropriate charges.
The firm took what seems to have been the appropriate steps and ran a full forensic review of Mr. Rahid’s expense account. As a result of the review, Apollo placed him on unpaid leave. Mr Rashid self-identified $220,000 in improper charges. The review came up with an additional $60,000. All of which he re-paid as Apollo showed him the door.
According to the SEC complaint against the firm, Apollo had self-reported the problem to the SEC. That did not stop the SEC from including this problem in the larger order related to improper fee charges to the funds last year.