On February 25, 2014, the SEC issued an administrative order (Order) against a private equity fund manager and one of its founders and principals accusing the respondents of securities fraud in misappropriating more that $3 million from the funds they managed through improper allocations of operating expenses.  See “How Should Hedge Fund Managers Approach the Allocation of Expenses Among Their Firms and Their Funds? (Part Two of Two),” Hedge Fund Law Report, Vol. 6, No. 19 (May 9, 2013).  The SEC also claims that the respondents violated provisions of the Investment Advisers Act of 1940 that require securities to be held by a “qualified custodian,” prohibit principal transactions, require effective compliance policies and procedures and prohibit false filings with the SEC.  See “ACA Compliance Report Facilitates Benchmarking of Private Fund Manager Compliance Practices (Part Two of Two),” Hedge Fund Law Report, Vol. 6, No. 39 (Oct. 11, 2013) (in particular, discussion under subheading Allocations by Private Equity Fund Managers).  This article describes the factual and legal allegations in the Order.