SEC Charges Private Equity Fund Manager With Misleading Investors About Valuation And Performance

The SEC has charged a former portfolio manager at Oppenheimer & Co. with misleading investors about the valuation and performance of a fund consisting of other private equity funds.  Previously, Oppenheimer had settled its role the case.

According to the SEC,  investigation found that the fund manager disseminated quarterly reports and marketing materials to prospective investors misstating that the valuation of the Oppenheimer fund’s holdings was based on values received from the portfolio managers of those underlying funds.  The manager actually valued the fund’s largest investment at a significant markup to the manager’s estimated value.  He also sent marketing materials reporting an internal rate of return that failed to deduct fees and expenses.  As a result, the fund’s reported performance as measured by its internal rate of return – a key indicator of the fund’s performance – was significantly enhanced.

The SEC offered a word to the wise to private equity funds that wish to avoid enforcement actions:  “Interim valuations are especially important when used to raise funds in the private equity industry,” said the Co-Chief of the SEC Division of Enforcement’s Asset Management Unit.  “Private fund managers must provide investors with accurate disclosures about valuation methodologies as well as fund fees and expenses so they can make fully informed investment choices.”

Check dodd-frank.com frequently for updated information on the JOBS Act, the Dodd-Frank Act and other important securities law matters.


DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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