(The following is a reformatted version of a press release
issued by The U.S. Securities and Exchange Commission and
received via electronic mail. The release was confirmed by the
Contact: SEC Office of Public Affairs - 202-551-4120
Web version: http://www.sec.gov/news/press/2013/2013-38.htm
The SEC’s order is available at:
Defense Counsel: Nader Salehi at Bingham McCutchen LLP in New
York - 212-705-7230
SEC CHARGES NEW YORK-BASED PRIVATE EQUITY FUND ADVISERS WITH
MISLEADING INVESTORS ABOUT VALUATION AND PERFORMANCE
Washington, D.C., March 11, 2013 - The Securities and Exchange
Commission today charged two investment advisers at Oppenheimer
& Co. with misleading investors about the valuation policies and
performance of a private equity fund they manage.
An SEC investigation found that Oppenheimer Asset Management and
Oppenheimer Alternative Investment Management disseminated
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.”
However, the portfolio manager of the Oppenheimer fund actually
valued the fund’s largest investment at a significant markup to
the underlying manager’s estimated value, a change that made the
fund’s performance appear significantly better as measured by
its internal rate of return.
Oppenheimer agreed to pay more than $2.8 million to settle the
SEC’s charges. The Massachusetts Attorney General’s office
today announced a related action and additional financial
penalty against Oppenheimer.
“Honest disclosure about how investments are valued and how
performance is measured is vital to private equity investors,”
said George S. Canellos, Acting Director of the SEC’s Division
of Enforcement. “This action against Oppenheimer for
misleadingly writing up the value of illiquid investments is
clear warning that the SEC will not tolerate lax disclosure
practices in the marketing of private equity funds.”
According to the SEC’s order instituting settled administrative
proceedings, the Oppenheimer advisers marketed Oppenheimer
Global Resource Private Equity Fund I L.P. (OGR) to investors
from around October 2009 to June 2010. OGR is a fund that
invests in other private equity funds, and it was marketed
primarily to pensions, foundations, and endowments as well as
high net worth individuals and families.
According to the SEC’s order, OGR’s largest investment -
Cartesian Investors-A LLC - was not valued based on the
underlying managers’ estimated values. OGR’s portfolio manager
himself valued Cartesian at a significant markup to the
underlying manager’s estimated value. OAM’s change in valuation
methodology resulted in a material increase in OGR’s performance
as measured by its internal rate of return, which is a metric
commonly used to compare the profitability of various
investments. For the quarter ended June 30, 2009, the portfolio
manager’s markup of OGR’s Cartesian investment increased the
internal rate of return from approximately 3.8 to 38.3 percent.
“Particularly in the current difficult fundraising environment
that can incentivize private equity managers to artificially
inflate portfolio valuations, firms must implement policies and
procedures to ensure that investors receive performance data
derived from the disclosed valuation methodology,” said Julie M.
Riewe, Deputy Chief of the SEC Enforcement Division’s Asset
Management Unit. “Oppenheimer failed to implement such
procedures and provided investors with misleading information
about its valuation policies and performance numbers.”
The SEC’s order found that former OAM employees made the
following misrepresentations to potential investors:
The increase in Cartesian’s value was due to an increase in
Cartesian’s performance when, in fact, the increase was
attributable to the portfolio manager’s new valuation method.
A third-party valuation firm used by Cartesian’s underlying
manager wrote up the value of Cartesian, which was untrue.
OGR’s underlying funds were audited by independent third-party
auditors when, in fact, Cartesian was unaudited.
The SEC’s order also found that Oppenheimer Asset Management’s
written policies and procedures were not reasonably designed to
ensure that valuations provided to prospective and existing
investors were presented in a manner consistent with written
representations to investors and prospective investors.
Oppenheimer Asset Management’s conduct violated Sections
17(a)(2) and 17(a)(3) of the Securities Act of 1933 and Section
206(4) of the Investment Advisers Act of 1940 and Rules 206(4)-7
and 206(4)-8. Without admitting or denying the findings,
Oppenheimer agreed to pay a $617,579 penalty and return
$2,269,098 to those who invested in OGR during the time period
when the misrepresentations were made. Oppenheimer consented to
a censure and agreed to cease and desist from committing or
causing any future violations of the securities laws. The firm
is required to retain an independent consultant to conduct a
review of its valuation policies and procedures.
Oppenheimer will pay an additional penalty of $132,421 to the
Commonwealth of Massachusetts in the related action taken by the
Massachusetts Attorney General.
The SEC’s investigation, which is continuing, was conducted by
Panayiota K. Bougiamas and Igor Rozenblit of the Asset
Management Unit and Lisa Knoop. It was supervised by Valerie A.
Szczepanik. The SEC acknowledges the assistance of the
Massachusetts Attorney General’s office.
Press spacebar to pause and continue. Press esc to stop.