Private Equity Fund Fraud and How Our Experienced Brokerage Firm Arbitration Lawyers Can Help

What Is a Private Equity Fund?

These are investing vehicles in which investors’ funds are pooled together and used by the fund to make investments. Private equity funds are closed-end funds and they are not listed on public exchanges. Often, a private equity fund will take a controlling interest in a company or a business that becomes what is called a “portfolio company” for the fund. The private equity fund then actively manages this enterprise in order to enhance its value. 

Private equity funds are usually only suitable for accredited investors, including high-net-worth individual investors and institutional investors (pension funds, family offices, insurance companies, and others). They are generally unsuitable for small retail investors. 

Considered to be a long-term opportunity with investment time horizons that can last for years, the investing minimum for a private equity fund is usually pretty high—anywhere from around $250K into the millions of dollars. Private equity funds do not have to register with the US Securities and Exchange Commission (SEC), and they are not required to abide by regular public disclosure requirements. Different investors in a single fund even may be subject to different fees, return rates, and redemption rights.

Shepherd Smith Edwards and Kantas ( represents private equity fund investors against their broker-dealers that engaged in broker misconduct or negligence when marketing and selling this investment to them. 

What Are a Few of The Risks Involving Private Equity Funds?

Illiquidity: Due to having long-term investment horizons, private equity funds are usually illiquid. Early withdrawals can be challenging and costly. It can be years before there are any returns. 

High fees and costs: Private equity firms often charge high fees to investors. An example of a typical fee structure might be a yearly management fee comprised of 2% of assets under management and 20% of gross profits upon the company’s sale. Meanwhile, broker-dealers and their financial advisors usually earn high commissions for marketing the fund to customers. There also may be other costs incurred from investing in a private equity fund. 

A lack of transparency: This type of fund doesn’t need to have a prospectus and it can be hard for investors to have access to information about investing strategies, portfolio holdings, and other pertinent information. Conflicts of interest can easily go undisclosed. 

What Is Private Equity Fraud?

Unfortunately, private equity fraud does happen. Here are some examples: 

  • In May 2022, Elliot Smerling, a private equity fund CEO and the head of private equity firm JES Global Capital, was sentenced to 97 months behind bars. He admitted to obtaining money for his private equity fund through false documents and assurances provided to lenders, which caused about $133M in collateralized loans to be issued. 
  • October 2020, private equity firmsH.I.G. Capital and HIG Growth Partners paid nearly $20M to settle a fraud case involving portfolio company South Bay Mental Health Center. The latter was accused of fraudulently billing federal and Massachusetts health care programs for certain service involving employees that were unlicensed and unqualified. 
  • In the alleged $110M Horizon Private Equity III Ponzi Scam, Southport Capital owner and ex-Oppenheimer stockbroker John Woods is accused of defrauding investors, including Oppenheimerclients. Among his purported victims were senior investors and retirees. Although Oppenheimer wasn’t involved in the alleged Ponzi scam, FINRA found that it failed to properly supervise Woods. The broker-dealer is being sued by investors. 
How Can Our Skilled Private Equity Fund Fraud Attorneys Help You?

Contrary to what some may think, high-net-worth investors, accredited investors, and institutional investors can suffer devastating investment losses due to unsuitable investment recommendations, overconcentration, or misrepresentations and omissions by their financial advisors. You want to work with seasoned private equity investor loss attorneys that have the knowledge, experience, and resources to fight for you. 

At Shepherd Smith Edwards and Kantas, not only have we been fighting for investors for over 30 years, but a number of us used to work for broker-dealers and are very familiar with that side of the industry. We know that there are unscrupulous firms and advisors out there, which is why we have dedicated our law practice to recovering damages for investors through FINRA arbitration, meditation, and litigation. 

Even if your brokerage firm had nothing to do with the alleged private equity fraud, you still may have grounds for a FINRA lawsuit against them. Contact our savvy investor loss attorneys online or call (800) 259-9010 today.

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