Photograph by Jonathan Ernst—Reuters
By Dan Primack
April 7, 2015

Andrew Bowden is leaving the Securities and Exchange Commission at the end of April, in order to “return to the private sector.”

Bowden has been with the SEC since Nov. 2011, serving as director of the agency’s Office of Compliance Inspections and Examinations. It’s not a position that generally garners too much public attention, but Bowden made waves last May by saying the following at a private equity industry conference:

By far, the most common observation our examiners have made when examining private equity firms has to do with the adviser’s collection of fees and allocation of expenses. When we have examined how fees and expenses are handled by advisers to private equity funds, we have identified what we believe are violations of law or material weaknesses in controls over 50% of the time.

Most private equity firms had avoided government examination prior to the Dodd-Frank financial reform package, but Bowden’s comments suggested a pattern of misbehavior that effectively justified the bill’s controversial private equity registration requirements.

Included in Bowden’s critique was the industry’s rampant use of “operating partners,” or professionals who appear to be firm employees but who actually are compensated by portfolio companies (thus creating what Bowden called a “back-door fee” for limited partners in private equity funds). He also railed against unequal sharing of “accelerated monitoring fees,” whereby private equity firms guarantee themselves portfolio company-related payments for 10 years, even though they rarely hold fees for that long.

His comments were like a nuclear bomb in private equity circles, causing many firms to dramatically alter operating partner and fee-sharing arrangements on new funds. It also emboldened prospective investors to request various concessions.

What they have not led to yet, however, is much enforcement action. Remember, “violations of law or material weaknesses in controls over 50% of the time.”

There have been settlements with a few small firms, some Wells notices sent and settlement negotiations with mega-firm Kohlberg Kravis Roberts & Co. (KKR). Sources close to the process suggest that the lack of litigation is about a natural lag between inspection and enforcement, rather than an indication that no enforcement will be forthcoming. Moreover, they add that Bowden’s departure could signal that his side’s role is largely completed.

No word yet on where Bowden is headed. Prior to joining the SEC, he spent 17 years with Legg Mason Capital Management (LM) , including as an executive director, general counsel and chief operating officer.

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