SEC Charges Former Oppenheimer Private Equity Fund Manager with Misleading Investors about Valuation and Performance
The Securities and Exchange Commission today charged a former portfolio manager at Oppenheimer & Co. with misleading investors about the valuation and performance of a fund consisting of other private equity funds.
An SEC investigation found that Brian Williamson disseminated quarterly reports and marketing materials to prospective investors misstating that the valuation of the Oppenheimer fund’s holdings was based on values received from the portfolio managers of those underlying funds. Williamson actually valued the fund’s largest investment at a significant markup to the manager’s estimated value. He also sent marketing materials reporting an internal rate of return that failed to deduct fees and expenses. As a result, the fund’s reported performance as measured by its internal rate of return – a key indicator of the fund’s performance – was significantly enhanced.
Earlier this year, Oppenheimer agreed to pay $2.8 million in a settlement of related charges.
"Investors deserve and the law requires honest disclosure about how their investments are valued,” said Andrew J. Ceresney, Co-Director of the SEC’s Division of Enforcement. “Williamson improperly lured investors to the private equity fund he managed by providing false and misleading information about the fund’s performance.”
According to the SEC’s order instituting administrative proceedings against Williamson, he was an Oppenheimer employee from 2005 to 2011. Williamson marketed Oppenheimer Global Resource Private Equity Fund I, L.P. to pensions, foundations, endowments, and high net worth individuals and families. From September to October 2009, Williamson marketed the fund using materials that reported an internal rate of return that did not take into account any fees and expenses that the fund paid to underlying fund managers or the additional fees and expenses that the fund paid Oppenheimer. Furthermore, Williamson modified the Oppenheimer fund’s marketing materials in October 2009 by increasing the reported value of the fund’s largest investment – Cartesian Investors-A LLC – from $6 million to approximately $9 million. This increase was a significant markup to the underlying manager’s estimated value. Nonetheless, the marketing materials falsely stated that underlying fund values were “based on the underlying manager’s estimated values.”
According to the SEC’s order, Williamson made or approved additional material misrepresentations that created the misleading impression that the Oppenheimer fund’s increased internal rate of return was due to increased performance or third party valuations. In fact, it was Williamson’s revised valuation of Cartesian that resulted in a material increase in the Oppenheimer fund’s reported performance. For example, for the quarter ended June 30, 2009, Williamson’s markup of the Cartesian investment increased the reported internal rate of return from approximately 3.8 percent to 38.3 percent.
“Interim valuations are especially important when used to raise funds in the private equity industry,” said Julie M. Riewe, Co-Chief of the SEC Division of Enforcement’s Asset Management Unit. “Private fund managers must provide investors with accurate disclosures about valuation methodologies as well as fund fees and expenses so they can make fully informed investment choices.”
The SEC’s order alleges that Williamson, who lives in Newtown, Pa., willfully violated Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5, and Section 206(4) of the Investment Advisers Act of 1940 and Rule 206(4)-8.
The SEC’s investigation was conducted by Panayiota K. Bougiamas, Joshua M. Newville, and Igor Rozenblit of the Enforcement Division’s Asset Management Unit along with Jack Kaufman and Lisa Knoop of the New York Regional Office. The case was supervised by Valerie A. Szczepanik. Mr. Kaufman, Mr. Newville and, Charu Chandrasekhar will lead the SEC’s litigation. The SEC acknowledges the assistance of the Massachusetts Attorney General’s office.