Non-U.S. Exempt Reporting Adviser Bilked Private Equity Investors
The Managing Principal of an exempt reporting private equity sponsor, who pleaded guilty to securities fraud, was barred from the industry and agreed to cooperate with the SEC in connection with his firm’s alleged misappropriation and misrepresentations. The Dubai-based fund sponsor (incorporated in the Cayman Islands) used investor proceeds to cover expenses at the management company and affiliates to stave off bankruptcy. The fund manager, an exempt reporting adviser under U.S. law, also misled investors about its financial situation and use of proceeds.
Exempt reporting advisers are not required to implement a compliance program or appoint a Chief Compliance Officer. Consequently, they do not offer investors the security of an independent testing regime and assurance. When the ERA is also domiciled outside the U.S., investors have even less security because of the limitations on SEC jurisdiction as well as the difficulties in bringing lawsuits and enforcing judgments.