SEC official: some try to delay settlements during leadership transition

  • Shops try and take advantage of transition periods
  • Try and delay settlement to get better deal
  • Practice is not wide-spread, SEC official says

Some firms have attempted to delay settling with the SEC on enforcement issues as the agency transitions to new leadership, said David Glockner, director of the Chicago regional office.

Buyouts reported in April that some GPs were delaying settlements with the SEC to gauge just how tough the new leadership was going to be on the industry and potentially try to get better deals.

“There has been a little of that, not a lot of that,” Glockner said at Buyouts’ PartnerConnect Midwest conference in Chicago in late June. Glockner gave a keynote interview at the conference.

Glockner, who has worked in other government agencies during his career, said leadership transitions can motivate people under investigation to try and get better outcomes. “Hope springs eternal,” he said. “As a general matter, that doesn’t work out for them.”

Two attorneys told Buyouts in April they had seen investment advisers push for better deals with the SEC as the agency leadership changed. “There have been several advisers that have been emboldened and maybe not willing to settle for the same amounts they would have before,” said Nabil Sabki, a partner at Latham & Watkins, in a prior interview.

It’s not clear which firms have tried to delay settlements.

Despite the leadership transition, the SEC continues to examine firms and work on enforcement actions, Glockner said.

In January the SEC announced a pay-to-play settlement with 10 investment firms, including Lime Rock Management, Banc Funds and FFL Partners. That was the last major settlement announcement made by the SEC that involved PE this year.

SEC examiners focus on certain firms considered higher risk, like so-called zombie firms, PE shops with active funds that are not likely to raise new money. “We’re a risk-based exam program,” he said. “We look at a variety of factors about where we put those resources.”

The SEC also reaches out to new firms to help provide advice about best practices, Glockner said.

Action Item: Check out SEC’s pay-to-play settlement:

The U.S. Securities and Exchange Commission headquarters in Washington on June 24, 2011. Photo courtesy Reuters/Jonathan Ernst