On Thursday the US Securities and Exchange Commission (SEC) charged Chicago-based investment advisor Joseph Hennessy and his firm, Resource Planning Group (RPG), with defrauding private equity investors.
The complaint, filed in the Illinois district courts, alleges that Hennessy and RPG began marketing a failing fund so that money could be raised to repay promissory notes to earlier investors.
According to the SEC's complaint the trouble started in 2007 when Hennessy financed the fund’s acquisition of its largest portfolio company, in part by having the fund issue $1.65 million in promissory notes which he personally guaranteed. When the fund’s portfolio companies were unable to pay management fees later that year the fund wasn't able to repay the notes.
Hennessy then misappropriated money from RPG clients, according to the SEC’s complaint. It is alleged that in November 2007 Hennessy raised $750,000 from three RPG clients supposedly to invest in the fund. Hennessy then used that money to redeem another client's investment in the fund.
Then in 2009 Hennessy twice forged letters of authorisation from a widowed RPG client to transfer $100,000 from her account to the fund in exchange for promissory notes that have yet to be repaid, according to the SEC.
Through falsification Hennessy and RPG were able to raise more than $1.3 million for the Midwest Opportunity Fund, alleged the SEC.
This is the second time this year that the SEC has charged private equity professionals with misleading investors. In September the SEC charged Advanced Equities co-founder Dwight Badger for using false figures to entice investors into an unnamed energy portfolio company.