(Bloomberg) -- A former Apollo Global Management senior partner accused by the Securities and Exchange Commission of defrauding the firm’s private equity funds got a judgment against him reversed on appeal.

Mohammed Ali Rashid was found liable in 2020 of submitting $290,000 in fraudulent expenses to Apollo funds, getting them to pay for items including trips to Brazil and Hawaii, salon hair cuts, spa treatments and dinners at high-end Manhattan restaurants.

The federal appeals court in Manhattan on Wednesday said he clearly committed fraud but overturned the earlier ruling, saying that the SEC failed to prove he knew the phony expenses would be charged to the Apollo funds, rather than to the firm itself. That distinction was fatal to the regulator’s suit because it was filed under a federal law that protects the clients of investment advisers, the appellate judges said in a 2-1 ruling. 

Unless the SEC can get that decision reversed, possibly by the US Supreme Court, the agency will be more restricted in its use of the law, the Investment Advisers Act, in civil enforcement actions going forward. 

Faith Gay, a lawyer for Rashid, said they were “grateful” for the court’s “affirmation that there was no fraud upon any client or prospective client.” The SEC didn’t immediately respond to a request for comment.

US Circuit Judge John M. Walker Jr., writing for the majority, called Rashid’s actions “serious, and almost certainly criminal.” But Walker also said, “We must not confuse the fraud Rashid committed against his employer with fraud committed against the funds.” 

Rashid was not criminally charged.

US Circuit Judge Amalya Kearse dissented, noting the expense forms Rashid used required fund managers to identify the companies and projects for which the expenses were incurred.

Rashid was found liable by US District Judge P. Kevin Castel after a nine-day non-jury trial that featured testimony from 33 witnesses. Rashid paid the money back to Apollo before leaving the firm in 2014, but Castel ordered him to pay an additional penalty of $240,000.

The allegations involving Rashid were part of a broad 2016 settlement in which Apollo agreed to pay $52.7 million to resolve claims that it misled investors about fees.

The case is Securities and Exchange Commission v. Rashid, 20-4080, 2nd US Circuit Court of Appeals (Manhattan).

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