Two global investment funds with offices in Dallas, Texas, USA, have agreed to pay $11.2m in civil penalties after the SEC issued an order finding they failed over a 13-year period to disclose the inclusion of their owners’ anticipated income tax liability in fees charged to private equity clients.

Hudson Advisors LP and Lone Star Global Investments have, without admitting or denying the SEC’s findings, agreed to a cease-and-desist order, to pay the fine, and to reimburse $68.5m to 14 private equity funds they managed.

The SEC found that Hudson included $54.6m of its owner’s anticipated US tax liability in fees charged to the funds between 2005 and 2017. The order found that Hudson and Lone Star never disclosed the inclusion of these liabilities to their clients, and that the advisers were not authorized to include these fees without full and fair disclosure to the funds.

“As fiduciaries, investment advisers must provide full and fair disclosure of their fees and charges to clients,” said David Peavler, Director of the SEC’s Fort Worth Regional Office. “According to the SEC’s order, Hudson and Lone Star Global failed this duty for 13 years, and today’s action confirms that the Commission will hold firms accountable for such failures.”

The advisers were found to have violated Sections 206(2) and 206(4) of the Investment Advisers Act of 1940 and Rules 204(6)-7 and 206(4)-8 thereunder.

The SEC investigation was conducted by the Fort Worth Regional Office, with the assistance of the US Attorney’s Office for the Southern District of New York.