The US Securities and Exchange Commission’s co-head of the private funds unit, Igor Rozenblit, has criticised the restructuring industry within private equity for allowing a scandal like the one allegedly involving former Park Hill partner Andrew Caspersen to happen.
Speaking at the SEC National Compliance Outreach seminar on 19 April, Rozenblit addressed whether or not Caspersen could have carried out his alleged attempt to defraud institutional investors of over $95 million in other financial sectors.
“Many people say, ‘This guy’s a bad guy, he would’ve done it any other context, it’s not a restructuring issue,’” Rozenblit said. “But these transactions are complicated and opaque, and that provided the perfect cover for him.”
Caspersen allegedly solicited two institutions to invest in a shell company he controlled. One of the institutions, the Moore Charitable Foundation, invested $25 million, while relatives and friends also invested about $14 million, according to a statement from Park Hill’s parent company PJT Partners. The statement said that the unauthorised transactions were conducted between late 2014 and last month.
As Secondaries Investor reported this month, some sources pointed out that fraud happens in any industry, and should the allegations against Caspersen prove to be true, his scheme had little connection to secondaries or private equity. Others, however, blame the way the restructuring sector operates, and said that the opacity and complexity of the secondaries market, coupled with being part of an asset class that thrives on relationships, may have played a role in the alleged wrongdoing.
Caspersen allegedly created and controlled a shell company whose name, Irving Place III SPV, was similar to that of a legitimate private equity fund Park Hill and Coller Capital helped restructure, Irving Place Capital Partners III SPV.
Speaking about future risks in private fund compliance, Rozenblit said that restructuring is inherently conflicted because the general partner is trying to “breathe new life into the business” at the same time it looks out for itself as a fiduciary to the fund.
Another issue, related to fundraising, is created by general partners who continue to manage their fund past the 10-year cycle via extensions. Sometimes the management fee charged to the investors is paid throughout the extension, and managers can collect monitoring fees from portfolio companies in this period, Rozenblit said.