Wednesday, March 13, 2013

Private Equity Fund Advisers Charged with Misleading Investors about Valuation and Performance

By Tim Dulaney, PhD and Tim Husson, PhD

Earlier this week, the SEC charged Oppenheimer Asset Management (OAM) and Oppenheimer Alternative Investment Management (OAIM) with misrepresenting the performance of the Oppenheimer Global Resource Private Equity Fund I L.P. (OGR) in their marketing materials.  The SEC found that OGR's manager used his own valuation methodology to value the fund's largest investment, Cartesian Investors-A LLC ("Cartesian"), at a significant markup.  This inflated valuation led to a ten-fold increase in OGR's internal rate of return.

Cartesian is managed by Cartesian Capital Group, LLC and was formed solely to purchase shares of S.C. Fondul Proprietatea S.A. which is a "holding company set up by the Romanian government to compensate citizens whose property was seized by the communist regime."

The former Oppenheimer employees also represented that the inflated value of Cartesian was due to a third-party and that the funds held by OGR had been audited by third-party auditors when in fact Cartesian had not been.   According to the order instituting proceedings (PDF), OAIM's former employees "succeeded in raising approximately $61 million in new investments in OGR" during the period in which the misrepresentations occurred.

Oppenheimer has been ordered to pay nearly $3 million in forfeitures and penalties to settle the SEC charges as well as related charged by the Massachusetts Attorney General--some of which will be returned to two Massachusetts pension funds.

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