Private Equity

Securities Fraud News: Andrew Caspersen Pleads Guilty to $40M Fraud, Massachusetts Investment Advisor to Pay $8M to Investors, & CFTC Orders Florida Man and His Companies to Pay Almost $175M in Sanctions in FX Ponzi Scam

Published on: July 6, 2016 | by Shepherd Smith Edwards & Kantas, LLP

Ex-Wall Street Executive Admits to Bilking Friends and Relatives
Andrew Caspersen has pleaded guilty to federal criminal charges accusing him of defrauding relatives, friends, and Moore Charitable Foundation of $40M. Caspersen is an ex-Wall Street executive and a member of the wealthy Caspersen family. The charitable foundation he bilked belongs to billionaire hedge fund manager Louis Bacon and his investment firm Moore Capital Management.

Caspersen, 39, pleaded guilty to one charge of wire fraud and one charge of security fraud. Each criminal charge comes with a maximum term of 20 years behind bars.

Caspersen’s defense team initially argued that he was addicted to gambling and suffered from mental illness, which were what supposedly compelled him to run his multi-million dollar Ponzi-like scam. His mother, close friends, the family of an ex-girlfriend, and others were among those whom he bilked.

SEC Headlines: Regulator Settles Private Equity Fund Fraud Case for $6.8M, Accuses R.T. Jones of Not implementing Cybersecurity Measures, and Files A Securities Case Over Stock Manipulation

Published on: September 21, 2015 | by Shepherd Smith Edwards & Kantas, LLP

Men Accused of $6.8M Private Equity Fund Fraud Allegedly Bilked Friends and Family
The Securities and Exchange Commission has settled charges with two men and their unregistered investment advisory firm for allegedly bilking investors in a private equity fund. Under the agreement, William B. Fretz, John P. Freeman, and their Covenant Capital Management Partners, L.P. will owe the regulator about $6.8 million. Any money collected will go to investors that were defrauded.

According to the SEC order instituting administrative proceedings over the alleged private equity fund fraud, the two men, their firm, and Covenant Partners, L.P., which is the fund they managed, sold partnership interests in the fund to friends and family. However, instead of investing the money, they used the cash for themselves and their other business.

Fritz and Freeman are accused of taking more than $1 million and placing it with their brokerage firm, Keystone Equities Group L.P., which was failing. They also purportedly paid close to $600,000 in performance fees they didn’t make and used assets from the fund to pay back personal obligations.

Freeman, Fretz, and CCMP consented to settle charges accusing them of willfully violating federal securities laws and SEC anti-fraud laws. However, they are not denying or admitting to the SEC fraud charges.

Investment Adviser R.T. Jones Capital Settles SEC Charges Related to Cybersecurity
R.T. Jones Capital Equities Management has settled SEC charges accusing it of not putting into placed required cyber security procedures and policies prior to a breach that compromised the personal identifiable (PII) information of thousands of its clients. Without denying or admitting to the findings, the investment adviser agreed to pay a $75,000 penalty and consented to cease and desist from future violations of the Securities Act of 1933’s Rule 30(a) of Regulation S-P.

According to an SEC probe, R.T. Jones violated federal securities laws’ “safeguard rule.” The rule mandates that registered investment advisers put into place written procedures and policies that are designed in a manner reasonable enough that they protect customers’ information and records from security threats. The regulator said that for four years R.T. Jones did not adopt any such policies.
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As SEC Examines Private-Equity Consultant Salaries, Blackstone Stops Monitoring Fees

Published on: October 8, 2014 | by Shepherd Smith Edwards & Kantas, LLP

According to The Wall Street Journal, the operating partners of private equity firms, are coming under closer scrutiny. These professionals are typically retained when acquiring a company with the intention of enhancing its operations.

These operating partners are usually listed with full-time employees. Regulators are worried that buyout firms are not providing private equity fund investors enough information about the way these consultants are compensated.

The firm usually doesn’t pay its operating partners. Instead, their salary usually comes from the company they are advising or the investors of the buyout firm. However, the WSJ’s examination of regulator filings regarding 80 private equity companies found that only about fifty percent of them disclosed where the money paid to operating partners comes from.

T.J. Malone’s Lincolnshire Management Settles with SEC for $2.3M Over Purportedly Improper Allocations That Cost Its Funds

Published on: September 23, 2014 | by Shepherd Smith Edwards & Kantas, LLP

Lincolnshire Management has consented to pay $2.3 million to the Securities and Exchange Commission to settle charges alleging improper expense allocations involving two of its funds’ investments in the same company. The New York-based private equity firm, which is run by businessman T.J. Maloney, claims to oversee $1.7 billion.

Lincolnshire acquired PCS Inc. via its debut fund. Several years later it acquired Computer Technology Solutions with the intention of merging the two. However, reports Forbes.com, the first fund ran out of money, so Lincolnshire used its second fund to pay for the acquisition.

Commingling investments can be precarious, especially as each fund had a slightly different investor base. Because of this, the firm created expense allocation policies that were paid directly to it. This meant that each company’s allocation would be determined by the percentage of respective contributions to the total revenue of the overall revenue. However, the policies were never put in writing, which sometimes led to misallocations.

Private Equity Firms, Including Blackstone, Settle ‘Club Deals’ Case with $325M Settlement

Published on: August 9, 2014 | by Shepherd Smith Edwards & Kantas, LLP

Blackstone Group (BX) LP, TPG, and KKR (KKR) will collectively pay $325 million to resolve a securities case accusing several private equity firms of working together to keep the prices they paid to acquire companies down during the takeover frenzy right before the financial crisis. The firms settled without denying or admitting to wrongdoing just three months before the lawsuit was scheduled to go to trial.

Their settlements follow those reached with former case defendants Bain Capital LLC and Goldman Sachs Group Inc. (GC) (collectively, the two paid $121 million) and Silver Lake, which paid $29.5 million. Carlyle Group (CG) LP is the only defendant left. It maintains that the investors’ claims have no merit.

The plaintiffs, who filed their securities case in 2007, sold their shares in numerous companies to private-equity firms during the boom-era buyouts. They contend that firms collude together to acquire companies via club deals and agreed not to compete with each other to lower the shareholders were paid. The investors claim that, as a result, they lost billions of dollars.

Pennsylvania Private Equity Firm Settles SEC Charges Over “Pay to Play” Violations Related to Political Campaign Contributions

Published on: June 23, 2014 | by Shepherd Smith Edwards & Kantas, LLP

TL Ventures Inc. has agreed to pay almost $300,000 to settle Securities and Exchange Commission charges. The regulator contends that the Pennsylvania-based private equity firm violated “pay-to-play” rules for advisory fees it continued to get from state pension funds and the city of Philadelphia even after an associate made campaign contributions to the mayoral candidate and the state’s governor.

This is the SEC’s first case under the investment advisers’ pay-to-play rules, which went into effect in 2010. Under the rules, investment adviser are not allowed to provide compensatory services via pooled investment vehicles or to a government client for two years after a firm or one of its associates makes campaign contributions to political candidates or anyone able to impact the retention of advisers to oversee government client assets.

Philadelphia’s mayor gets to appoint three members of the Philadelphia Board of Pensions and Retirement. Pennsylvania’s governor gets to choose six of the state’s retirement system board members.

SEC Says At Least 200 Private-Equity Firms Imposed Bogus Fees

Published on: April 9, 2014 | by Shepherd Smith Edwards & Kantas, LLP

According to the US Securities and Exchange Commission, over half of the approximately private-equity firms that it examined have charged unjustified expenses and fees to investors without their knowledge. The regulator’s findings are from its review of the $3.5 trillion industry.

It was the 2010 Dodd-Frank Act that gave the SEC more oversight over money managers, which allowed the agency to scrutinize some firms for the very first time. By the end of 2012, examiners had discovered that certain advisers were wrongly collecting money from companies included in their portfolio, improperly calculating fees, and using assets from the funds to pay for their own expenses. Bloomberg reports that a source in the know about the regulator’s findings said that while some of the issues seem to stem from mistakes, others might have been intentional.

SEC to Look Even More Closely At Private Funds

SEC Accuses Private Equity Manager of $9M Securities Fraud

Published on: January 30, 2014 | by Shepherd Smith Edwards & Kantas, LLP

The SEC says that Camelot Acquisitions Secondary Opportunities Management and owner Lawrence E. Penn III of stealing $9 million from a private equity fund. Also named in the securities fraud complaint are Altura Ewers and three entities, two of which are Camelot entities owned by Penn.

The regulator says that Penn, a private equity manager, reached out to overseas investors, public pension funds, and high net worth individuals to raise funds for Camelot Acquisitions Secondary Opportunities LP, a private equity fund that invests in companies that want to become public entities. He was able to get about $120 million of capital commitments.

According to the Commission, Penn paid over $9.3 million of the money to Ssecurion, a company owned by Ewer, as fake fees/ The two of them purportedly misled auditors about the fees that were supposedly related to due diligence, even forging documents up to as recently as last year.

Two Oppenheimer Investment Advisers Settle for Over $2.8M SEC Fraud Charges Over Private Equity Fund

Published on: March 14, 2013 | by Shepherd Smith Edwards & Kantas, LLP

The SEC is charging Oppenheimer Alternative Investment Management and Oppenheimer Asset Management, which are two Oppenheimer & Co. investment advisers, with misleading customers about the valuation policies and performance of a private equity fund under their management. To settle the allegations, Oppenheimer will pay over $2.8M. It has also resolved the related action that was filed by Massachusetts Attorney General Martha Coakley.

According to the SEC, from 10/09 to 6/10, the two Oppenheimer investment advisers put out marketing collaterals and quarterly reports that were misleading and claimed that Oppenheimer Global Resource Private Equity Fund I L.P.’s holdings in private equity funds had values that were determined according to the estimated values of the underlying manager. In truth, contends the regulator, Oppenheimer’s portfolio manager actually valued the largest investment of the fund, Cartesian Investors-A LLC, at a markup that was considerable to the underlying manager’s estimated value. This discrepancy made it appear as if the fund’s performance was much better, per its internal rate of return. For example, at the conclusion of the quarter ending on June 30, 2009, the markup of the investment upped the internal return rate from 3.8% to 38.3%

Among the alleged misrepresentations made by ex-OAM employees to potential investors were:

Plaintiffs Can Pursue Narrowed Claims Against Private Equity Firms

Published on: March 9, 2013 | by Shepherd Smith Edwards & Kantas, LLP

According to the U.S. District Court for the District of Massachusetts, plaintiffs should be able to pursue narrowed claims against large private equity firms accused of colluding to keep competition away. In Dahl v. Bain Capital Partners LLC, Judge Edward Harrington noted that although the bulk of the securities lawsuit focused on PE firm’s routine business practices, there was evidence that showed an inference of conspiracy in regards of some of the claims.

Also, Harrington refused to grant an “omnibus” motion for summary judgment requested by several of the defendants, including Bain Capital Partners LLC, Carlyle Group LLC, and Kohlberg Kravis Roberts & Co. LP. JPMorgan Chase and Co.’s (JPM) own motion for summary judgment, however, was granted, on the grounds that evidence did not support that the financial firm had taken part in the alleged “narrowed overarching conspiracy.”

The plaintiffs previously owned shares in different public companies that private equity firms later acquired. They contend that between 2003 and 2007, the defendants were involved in an “overarching” conspiracy to artificially manipulate securities prices in specific transactions. The plaintiffs believe that the private equity firms knew that by working together they could keep the competition down and prevent prices from going up.

Harrington, however, decided to narrow the plaintiffs’ claims, finding that a lot of the lawsuit had to do with practices in the industry that were considered “appropriate” and “established.” He noted that rather than depicting a portrait of an “overreaching conspiracy,” the evidence of transaction appears to demonstrate interactions among defendants that were “ever-rotating and overlapping.”

Dahl v. Bain Capital Partners LLC https://www.securities-fraud-attorneys.com(PDF)

More Blog Posts:
Investment Fraud Lawsuit Against BlackRock Over Exchange-Traded Funds Could Shed More Light on Securities Lending, Institutional Investor Securities Blog, February 18, 2013

Texas Courts Show Preference for Arbitration to Resolve Securities Fraud Claims and Other Business Disputes, Stockbroker Fraud Blog, February 15, 2013