SEC Enforcement Action Update: Fee Transparency and Private Fund Compliance Priorities

Who

• SEC – Division of Enforcement
• TZP Management Associates, LLC – New York–based private fund adviser with approximately $2.4 billion AUM
• Private Fund Advisers broadly – particularly private equity managers with transaction fee arrangements

What

• SEC Enforcement (IA-6908):
  • TZP improperly allocated deferred transaction fees across funds
  • Resulted in over $500,000 in excess management fees and deficient disclosure
  • Violated Section 206(2) of the Advisers Act (negligent conduct deemed deceptive)
  • SEC imposed censure, cease-and-desist, disgorgement + interest, $175,000 penalty, and created a Fair Fund for investors

When

• Enforcement Order issued August 15, 2025

Why This Matters

• SEC’s action against TZP highlights risks in private equity fee practices, particularly around portfolio company transaction fees and offsets
• Negligence suffices: Section 206(2) does not require intent—failure to properly allocate or disclose fees can be actionable
• Investor fairness and transparency remain top SEC priorities
• Although the Private Fund Adviser Rules are vacated, their policy objectives live on in examinations and enforcement:
  • Fee offsets and allocation methodologies
  • Conflicts of interest and preferential treatment
  • Transparency in investor communications
• CCOs should anticipate scrutiny of areas once covered by the vacated rules, despite their technical withdrawal

How CCOs Should Respond

Despite the vacation of the Private Fund Adviser Rules, the SEC’s enforcement agenda has not shifted away from private funds. The TZP action underscores that fee transparency, conflicts management, and adherence to LPA terms remain high-risk areas. CCOs should view this as a reminder to consider institutionalizing best-practice controls now, rather than waiting for future rulemaking.

Private equity CCOs in particular should:

1. Audit fee practices – verify that offsets and allocations strictly align with LPA terms
2. Review disclosures – ensure all transaction fee and deferral practices are fully transparent to LPs
3. Enhance governance – establish periodic independent testing of fee calculations and allocations
4. Train staff – emphasize Section 206(2) liability standards (negligence vs. scienter)
5. Engage investors – communicate proactively on fairness, conflicts, and methodologies
6. Monitor rulemaking – track SEC and CFTC Form PF amendments and watch for any reintroduced rule proposals covering conflicts, outsourcing, ESG, or custody

How We Can Help

Navigating SEC scrutiny requires more than reactive fixes, rather, it demands a proactive, structured compliance framework. Our team at CRC supports private fund advisers by:

• Conducting targeted reviews of fee-offset calculations, allocation methodologies, and LPA compliance.
• Designing robust governance and testing protocols to catch issues before they become enforcement risks.
• Enhancing investor disclosure frameworks to ensure clarity, fairness, and alignment with regulatory expectations.
• Building and sustaining compliance programs that meet the SEC’s evolving standards, from ongoing monitoring and forensic testing to staff training and regulatory change management. We partner with CCOs to integrate regulatory best practices into day-to-day operations, delivering not only immediate remediation but also the infrastructure to withstand the rigors of ongoing SEC oversight.