Monday, September 26, 2022

PEU Unethical Waves

The SEC fined Wave Equity Partners LLC, an ESG oriented private equity underwriter (PEU).  

From May 2018 through October 2020, Respondent caused Fund II to pay certain organizational expenses specified in Fund II’s governing documents, including placement agent fees to a third-party vendor. The placement agent fees that Respondent borrowed from Fund II over this period of time totaled $1,096,443.

Pursuant to the terms of Fund II’s partnership agreement and private placement memorandum, this borrowed money was required to be paid back to Fund II promptly through an offset of the quarterly management fees charged and collected by Respondent for its management of Fund II. 

Respondent did not offset any of the money borrowed from Fund II against the receipt of management fees for 11 consecutive quarters, beginning with the second quarter of 2018 (the quarter ended June 30, 2018) and continuing through the fourth quarter of 2020 (the quarter ended December 31, 2020). Instead of paying back Fund II during this time period, Respondent used the management fees it charged and collected for its own operating expenses. 

From July 2018 to October 2021, Respondent never informed investors and potential investors in Fund II that it had failed to repay Fund II timely and was thereby in violation of Fund II’s governing documents.

Glenn Youngkin was once an ESG fan while co-CEO of The Carlyle Group He flipped his position after winning the Virginia Governor's race.

FT ran another story on PEU continuation deals and conflicts of interest in moving affiliates from one fund to another.  A Dutch pension fund investment professional equated continuation deals with ponzi schemes.

FT also reported that a PEU billionaire lamented that crypto is not as ethical as private equity.   

“I’ve gotten to know that world a little bit more, and some of the business practices don’t rise to the level of ethics that we’re all used to in private equity with your investors and your customers and your community, and that has been a bit disappointing.”

Opaque fees, a history of collusion via club deals, pay for play settlements indicate questionable PEU ethics.  The intense profit pressure put on affiliates frequently causes bad behavior (Carlyle = ARINC, SemGroup, Synagro, ManorCare)

Consider that Carlyle co-founder/crypto fan and policy making billionaire David Rubenstein has access to D.C.'s hallowed halls of governance.  He kept PEU preferred taxation despite widespread public opinion to the contrary.

Failing to meet the already low ethical standards of the greed and leverage boys...that shouldn't be the future of finance, much less its present.