Retained as financial advisor for private equity firm fraud case

Retained as financial advisor for private equity firm fraud case

Stout has been retained as the financial advisor (FA) to a Receiver appointed by the Southern District of New York (Receiver) to take control of a private equity investment management firms (the Company) assets, finances, and business operations. The Securities and Exchange Commission (the SEC) brought an emergency action to halt an ongoing alleged fraud perpetrated by individual defendants of the Company in connection with their illegal sales of unregistered securities in investment vehicles that provided access to shares of private companies prior to going public through an initial public offering (IPO) process.

The SECs allegations include the following: (1) The individual defendants did not own all the shares of private company, as they represented to investors; (2) the investors paid high fees undisclosed to them, allowing the individual defendants to pocket tens of millions of dollars; and (3) the individual defendants commingled investor funds across multiple funds. This case involves over $400 million from more than 2,200 investors across the United States and around the world who made investments in one or more of 25 different pre-IPO companies.

Since our retention, we have been reviewing the books and records of the Company and reconstructing the investors contributions and distributions across nine different funds while managing over $300 million of assets under management (AUM). This has been a challenging and difficult task due to the Companys books and records, which were not centralized, incomplete, and missing. We have collected and identified data to determine the share shortfall across various pre-IPO company holdings and found that the funds of the Company were commingled, and investor funds were not segregated. We are continuing to assist the Receiver with identifying and taking control of all of Companys assets, taking over the business operations, and making ongoing investment decisions so that the Receiver can propose and execute on a liquidation/distribution plan to recover assets to the investors and creditors in the most equitable manner.

This matter is complex, large in scope, and ongoing. It requires cross-discipline expertise across multiple practices at Stout, including DCI (forensic, litigation, and bankruptcy), valuation, investment banking, and complex securities.