The use of accelerated monitoring fees in violation of the Advisers Act is back in the spotlight, even though it did not become part of the recently adopted new Private Fund Rules. First surfacing as a priority area for the SEC back in 2016, the recent case against American Infrastructure Funds shows that the regulator is focused on violations of fiduciary duty and disclosure failures by private funds. The SEC will likely continue to rely on the Advisers Act in this way to pursue more enforcement cases as it awaits the new Private Fund Rules compliance dates. FrontLine’s Founder and President Amy Lynch states that it’s not a coincidence the case came out just after the new Private Fund Rules were finalized. Since the use of accelerated monitoring fees already falls under an adviser’s fiduciary duty, she explains that the SEC is using these types of enforcement actions to demonstrate themes that go hand-in-hand with the new Rules and to clarify their rulemaking and enforcement objectives. Ms. Lynch adds that private fund managers will likely see more enforcement cases related to disclosures next year under the new Rules, with the limits on preferential treatment requiring disclosures of side letter agreements to be an initial target area for the SEC. See FundFire (subscription required), “New SEC Enforcement Action Slams Door on Alts Fund Monitoring Fees”
