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KKR paying $30M SEC settlement

KKR will pay $30 million to settle allegations the private equity giant breached its fiduciary duty by misallocating more than $17 million in so-called broken deal costs to its flagship private equity funds. Announcing the settlement Monday, a Securities and Exchange Commission order said KKR amassed $338 million in broken deal or due diligence expenses related to unsuccessful buyout opportunities and related issues during a six-year span that ended in 2011.635630546629745884-AP-SEC-Money-Market-Funds-002

KKR co-investors, including the company’s executives, participated in the firm’s private equity transactions and benefited from deal-sourcing efforts during that time, the SEC said. Yet KKR for years failed to require them to shoulder any of the broken deal expenses, the SEC said. Additionally, the regulator said KKR’s limited-partnership agreements and related offering materials did not disclose the misallocation. KKR failed to implement a written compliance policy for its fund allocation expenses until 2011, the SEC said.

KKR, which neither admitted nor denied the SEC findings, said the decision to settle the allegations over what it termed “historical expense allocation disclosures and policies” enables the firm “to focus on delivering value for those who invest with us.” The SEC investigation focused in part on allocation of expenses related to the KKR 2006 Fund L.P., the company’s largest private equity fund with $17.6 billion in committed capital, from 2006-2011. During that period, KKR’s flagship private equity funds invested $30.2 billion in 95 transactions. KKR coinvestment vehicles, including those involving company executives, invested $4.6 billion during the six years, according to the the SEC order.

KKR reported that it had $99.1 billion under management as of March 31. In all, 99 portfolio companies in the firm’s private equity funds generate nearly $200 billion in annual revenues and employ a total global workforce of approximately 940,000. The SEC agreement calls for KKR to pay more than $14 million in disgorgement, apart from $3.26 million previously refunded to its clients. The company will also pay more than $4.5 million in prejudgment interest and a $10 million penalty, the SEC said.