Articles Tagged with Kohlberg Kravis Roberts & Co.

The U.S. Securities and Exchange Commission announced that Kohlberg Kravis Roberts & Co. (KKR) would pay close to $30 million, including a $10 million penalty, to settle charges that it misallocated over $17 million in “broken deal” expenses to its flagship private equity funds. According to the regulator, over a six-year period ending in 2011, KKR incurred $338 million in diligence expenses, also known as broken deal costs, related to buyout opportunities that were unsuccessful, as well as other similar expenses.

This is the first time the SEC has charged a private equity adviser over the misallocation of broken deal costs. During the period in question, KKR was overseeing two money pools—the private equity funds and its co-investment vehicles. As the private equity funds invested $30.2 billion, KKR co-investors put in $4.6 billion alongside the funds. Yet even though the firm raised billions of dollars of deal capital from co-investors, it was the flagship funds funds that ended up bearing all the costs of these broken deals.

The SEC said that as a result of the firm’s allocation practices, firm insiders and certain major clients who had invested via the co-investment vehicles benefited as none of the broken deal costs were allocated them for years even as they also availed of deal sourcing activities. The regulator said that not notifying investors of its allocation practices was a breach of fiduciary duty by KKR.

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