The U.S. Securities and Exchange Commission (SEC) is scrutinizing the private equity industry in order to protect investors from unfair expenses and to ensure firms are not misallocating fees.

The probe is part of an effort to ensure fund managers aren't misallocating fees associated with broken deals and due diligence operations. Broken deals are potential investment opportunities that are pursued but not completed. Many of these fees and expenses are linked to unsuccessful buyouts.

The SEC's heightened enforcement activity is highlighted by a recent action in which a private equity adviser agreed to pay $30 million to settle an administrative investigation. The settlement, which included a $10 million fine, came after the SEC charged the firm with misallocating $17 million. The proceeding was based on the SEC's contention that the firm in question required funds to shoulder the full cost of broken deal expenses, while co-investors and executives participating in private equity transactions were not assessed the same expenses.

The administrative action, which was handled by the SEC Enforcement Division's Asset Management Unit, is the first of its kind. More are likely to follow as the SEC continues to examine the industry.

Officials from the SEC are encouraging firms in the private equity industry to adopt "robust" compliance programs. Written compliance policies, including rules governing fund expense allocation practices, help ensure clients receive full disclosure about the allocation of fund expenses. Strong compliance measures also help ensure advisers remain true to their fiduciary duties.

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