Among recent enforcement actions by the SEC and FINRA were charges against a private equity firm, a former executive and an unregistered broker over some $500 million in improper investment solicitations; a $2.8 million settlement over misleading investors about fund performance; censure of a firm for not reporting its involvement in civil litigation related to securities; and censure of another firm for failure to execute short sales properly.
Ranieri Partners Charged by SEC Over Unregistered Broker
Ranieri Partners, a New York-based private equity firm, together with a former executive and an unregistered broker, were charged by the SEC for improperly soliciting more than $500 million for the private funds it managed.
The unregistered broker, William Stephens of Hinsdale, Ill., was hired by former senior managing director Donald Phillips; Phillips, who lives in Barrington, Ill., was a longtime friend of Stephens and was in charge of efforts to raise capital. He was also responsible for overseeing Stephens’ activities; Stephens was supposed to be a “finder” and simply introduce prospective investors.
The finder, however, went far beyond that role, staying in constant contact with investors and providing them with important documentation on investments supplied to him by the firm. He also shared confidential information about other investors and their commitments to the funds, and brought about investments.
Instead of curtailing Stephens’ activities, Phillips not only ignored the signs that his friend was exceeding his supposed role, but provided him with the data he needed to bring about investments for the firm. According to the SEC, Phillips aided and abetted Stephens in his illegal actions.
While neither admitting nor denying the SEC’s findings, all three agreed to settle the charges. Ranieri Partners agreed to pay a penalty of $375,000 and Phillips $75,000, in addition to other actions, and Stephens agreed to be barred from the securities industry.
SEC Charges Oppenheimer & Co. Advisors With Misrepresentation
Two investment advisors at Oppenheimer & Co. (not affiliated with OppenheimerFunds) were charged by the SEC with misrepresenting to investors the valuation policies and performance of a private equity fund that they manage.
Oppenheimer Asset Management and Oppenheimer Alternative Investment Management were found by the SEC to distribute misleading quarterly reports and marketing materials stating that the fund’s holdings of other private equity funds were valued “based on the underlying managers’ estimated values.” In fact, that was not the case at all, and the difference in valuations was substantial.
Oppenheimer Global Resource Private Equity Fund I (OGR), which invests in other private equity funds, was marketed primarily to pensions, foundations, and endowments, as well as wealthy individuals and families, from around October 2009 to June 2010.
OGR’s single largest investment, Cartesian Investors-A, was valued not by its underlying manager, but by OGR’s portfolio manager, who bumped up the value and improved the appearance of OGR’s performance considerably. For the quarter ended June 30, 2009, the internal rate of return for OGR jumped from approximately 3.8% to 38.3%. But the increase was credited to overall performance, and not, as was the case, to the change in valuation methods.