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Corporate Compliance Audit for Private Equity Funds

Experienced Corporate Compliance Audit Team

Do you need assistance regarding corporate compliance audits for a proposed investment company for your portfolio? Are you worried about compliance of the portfolio company and legal liability of your fund and fund managers? If so, then you need the services of a corporation investigations professional.

If you are considering purchasing a company to become a part of your portfolio, it is imperative that you make sure the company is compliant with federal law. Failure to do so could expose you to liability based on the actions of the companies in your portfolio.

The Securities and Exchange Commission’s implementation of the Dodd-Frank Wall Street Reform and Consumer Protection Act is responsible for regulating the private equity fund industry in the nation. Federal investigations of private equity funds have increased over the past decade.

This makes it even more vital to organize a compliance audit in order to guard against purchasing a company that may be riddled with fraud, crime, and other forms of misconduct.

At Oberheiden, P.C., we help private equity funds find suitable portfolio companies that match their objectives and finalize their deals with the company to be purchased. We also conduct vigorous corporate compliance audits of the portfolio company to ensure that it is compliant with federal law and will not expose the fund and its managers to liability.

Our attorneys are skilled in providing the highest rates of return for our private equity fund clients. We can do the same for you.

Put Oberheiden, P.C. on your side today to safeguard your business, prevent your exposure to liability, and protect your reputation.

Put our highly experienced team on your side

Dr. Nick Oberheiden
Dr. Nick Oberheiden



John W. Sellers
John W. Sellers

Former Senior Trial Attorney
U.S. Department of Justice

Local Counsel

Joanne Fine DeLena
Joanne Fine DeLena

Former Assistant U.S. Attorney

Local Counsel

Joe Brown
Joe Brown

Former U.S. Attorney & Former District Attorney

Local Trial & Defense Counsel

Amanda Marshall
Amanda Marshall

Former U.S. Attorney

Local Counsel

Aaron L. Wiley
Aaron L. Wiley

Former Federal Prosecutor

Local Counsel

Roger Bach
Roger Bach

Former Special Agent (OIG)

Michael Koslow
Michael Koslow

Former Supervisory Special Agent (FBI)

Chris Quick
Chris Quick

Former Special Agent (FBI & IRS-CI)

Kevin M. Sheridan
Kevin M. Sheridan

Former Special Agent (FBI)

Ray Yuen
Ray Yuen

Former Supervisory Special Agent (FBI)

Dennis A. Wichern
Dennis A. Wichern

Former Special Agent-in-Charge (DEA)

What are Private Equity Funds and Portfolio Companies?

Private equity funds are investment vehicles that pool capital from the investors in the fund that are used to make investments on behalf of the fund. In other words, the pooled capital is invested in portfolio companies that the fund believes will lead to high rates of return.

Portfolio companies are businesses with which private equity funds seek to invest and manage. Funds often identify companies that have a strong potential for business growth if they were to receive capital.

The funds typically focus on long-term investments—investments that may take ten or more years to fully develop. The value of the portfolio company is increased because the funds take a controlling interest in the company and manage it in order to mature into a fast-growing business that returns a substantial profit.

Oftentimes, private equity funds will sell their portfolio companies after re-organizing the structure of the business for significant improvement and profit return. Purchasing, investing in the success, and then selling these companies for a profit is the core of a private equity fund’s function.

What is a Corporate Compliance Policy?

A compliance policy is a business-wide program that aims to identify, prevent, monitor, and correct risks and misconduct. It acts as a safeguard against federal liability by instilling a culture of full compliance within its company personnel and by demonstrating to federal authorities that the company had the intention of following the law.

Compliance also seeks to prevent corruption and bribery. Violations of federal legislation on corruption and bribery can lead to civil and criminal penalties. Robust compliance policies are therefore a necessity.

The presence of a compliance policy within the company is also important because it is a factor that the Department of Justice (“DOJ”) considers when making charging decisions.

Not only is it important for private equity funds to consider companies that maintain effective compliance policies, but it is also important for funds to hire competent professionals that can perform a detailed corporate compliance audit of the company as an additional safeguard.

What is a Corporate Compliance Audit?

Private equity funds have increasingly found it useful to hire independent professionals to conduct a corporate compliance audit of a company with which they seek to invest before proceeding with any purchases.

A corporate compliance audit is a rigorous review of a company’s internal policies and procedures conducted by an independent firm of professionals.

Its objective is to evaluate the company’s bylaws, codes, and various internal procedures in addition to ensuring its compliance with federal laws and regulations.

A corporate compliance audit also seeks to determine whether the company is free from fraud, crime, and other forms of misconduct both by its upper management and executives as well as its lower-level employees.

Below are critical checkpoints that every company should satisfy as a part of a corporate compliance audit:

  • Board of director and upper management engagement with the corporate compliance policy;
  • Strong and effective personnel code of conduct and code of ethics;
  • Regular and consistent personnel compliance training;
  • Effective risk assessment procedures and thorough due diligence procedures in place;
  • Periodic monitoring of company-wide internal processes;
  • Regular modifications to compliance policy to account for the evolving legal and regulatory landscape of the company;
  • Strong internal controls;
  • Detailed and consistent recordkeeping and documentation procedures.

Regulatory Scrutiny of Private Equity Funds

In the United States, private equity funds are regulated by federal statutes and can also be governed in accordance with state law. The following are the primary means of regulating private equity funds:

  • The Securities Act of 1933
  • The Exchange Act of 1934
  • The Investment Company Act of 1940
  • The Investment Advisers Act of 1940
  • The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (“Dodd-Frank”)
  • State legislation

Dodd-Frank requires all private equity funds with more than $150 million in assets to register as an investment adviser with the SEC under the Investment Advisers Act.

Over the past decade, federal agencies have taken a special interest in regulating and investigating private equity funds. These funds manage an incredible amount of assets and are key managers of many portfolio companies with which the funds often have substantial interests.

Private equity funds may also be investigated for the activities and conduct of the companies within their portfolio. This demonstrates the importance of ensuring that any company you intend to purchase is fully compliant with federal law.

A rigours corporate compliance audit performed by an independent team of corporate investigation professionals can help you achieve this.

The Importance of Compliance for Private Equity Funds

Because the legal and regulatory landscape of U.S. businesses is constantly changing, companies have numerous ways to expand and mature. Companies that demonstrate a potential for grow and profit in the future quickly catch the eye of private equity funds.

However, the failure to ensure that your portfolio companies are compliant with federal law can be devastating to the future of your fund, fund managers, and investors.

The companies you decide to purchase will also reflect on your reputation. If one of your portfolio companies is the subject of an active DOJ investigation or is known for continuously failing to maintain effective compliance on anti-corruption, this may have a negative effect upon your reputation. Because if this, your profit potential from this investment may be substantially reduced.

Additionally, you may have to expend additional costs shall you choose to purchase a company without undertaking a corporate compliance audit. For instance, discovering later that the company needs additional resources to satisfy federal law will cost you time and money.

Private equity funds are starting to recognize the importance of ensuring compliance before purchase. Make sure that you do the same. We can help you with a thorough and rigorous corporate compliance audit.

Need Advice with Corporate Compliance Audits?

Private equity funds thrive on the increase in profit potential from the purchase and sale of companies. These actions can produce high economic returns and be a source of significant revenue for the funds who maintain a considerable interest in the purchased companies.

However, companies that are inundated with fraud, crime, and other forms of misconduct can lead to serious problems for the funds and fund managers down the road.

Oftentimes, funds will not know that their purchased companies are not compliant with federal law or that upper management of the company is engaging in criminal acts such as corruption or bribing foreign officials.

Liability of the purchased company often leads to significant liability exposure of the fund and its managers. The actions and conduct of the portfolio company reflect upon the operations of the private equity funds.

This is why it is so important to invest sufficient resources into ensuring that your purchased company is fully compliant with federal law and maintains effective internal compliance standards.

At Oberheiden, P.C., our corporation investigations professionals can conduct an aggressive and thorough audit of your proposed purchases to ensure that they are complaint with federal law.

Do not wait until after purchase to discover that your portfolio company is the target of a federal criminal investigation. Prevent this from ever occurring by obtaining a complete corporate compliance audit.

Call or contact our office today for a free consultation to protect your business and your future.

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