PE Firm Bought Insurance Company Clients and Sold Them Over-Valued Illiquid Assets
The SEC barred and censured the principal of a private equity firm for using his position to mislead advisory clients, sell them over-valued assets, and loot the funds. The SEC accuses the respondent of acquiring insurance companies, entering into investment management agreements, and then selling over-valued illiquid assets (e.g. paintings, private company venture interests) to the insurance companies to siphon off the general funds. The respondents did not reveal that the valuation agent for the illiquid assets was an affiliated company controlled by the principals.
This case has all the features of an advisory fraud: illiquid assets, conflicts of interest, an affiliated valuation agent, and individuals with questionable backgrounds. It is a cautionary tale for investors, compli-pros, and regulators about how far wrongdoers will go to pursue their illicit intents.