Private Equity Fund Manager and Principal of Investee Company Charged
The SEC has filed a complaint against a private equity fund manager and the principal of one of the companies in which the fund invested in connection with alleged fraudulent statements made to pension fund investors. The SEC alleges that 80% of the fund’s assets were invested in one group of companies so that the fund manager could claim its management fees, which were based on committed capital. The SEC charges that the principal of the investee companies aided and abetted the fund manager’s violations by funneling money back to the fund manager. The SEC claims the fund manager misrepresented the investments and the relationship.
OUR TAKE: It is somewhat unusual to charge the investee company with aiding and abetting fraud violations. Here, the principal appeared to have funneled money back to the fund manager.