Authorities Probe Oppenheimer Private Equity Valuation

Feb 24 2012 | 8:54am ET

The former private equity arm of Oppenheimer Holdings may have exaggerated the valuation of one of its holdings.

The Securities and Exchange Commission and Massachusetts authorities are investigating the Oppenheimer Global Resource Private Equity Fund, a fund of private equity funds launched by Oppenheimer in 2008. Among the fund's holdings was a $6 million investment with Cartesian Capital Group's Cartesian Investors A. That fund, in turn, invested all of its capital in a closed-end fund established by the Romanian government to benefit victims of the country's Communist era.

In the fall of 2009, as Oppenheimer sought to raise more money for the fund, it valued its investment in Cartesian A at 33 cents a share. That valuation was well above the 20 cents that Cartesian placed on the investment, and almost five times as high as the roughly seven cents that the closed-end fund, S.C. Fondul Proprietatea, was trading at the time.

Oppenheimer's valuation added more than $4 million to its bottom line, and turned an internal rate of return from a 6.3% loss to a 38% gain, The Wall Street Journal reports. Oppenheimer used those figures as it raised more than $55 million from investors, including two Massachusetts cities and an Illinois university.

In an e-mail from November 2009, Brian Williamson, who managed the fund, asked colleagues if the performance figures in the fund's marketing materials included "the mark up to Fondul." He indicated that he could "take care of it and resend."

Williamson was later named head of Oppenheimer's p.e. unit and now runs Princeton, N.J.-based Roc Resources, as the spun-out business is now known.

Oppenheimer Global Resource later invested another $2.6 million in Fondul Proprietatea, and again valued it much more than Cartesian, which said it was cooperating with the probe and that it did not think it was a target.

The probe into the Oppenheimer fund, spun off with the rest of the p.e. unit in January, has been ongoing since at least the fall. Employees of that unit as well as Oppenheimer's asset management unit have received subpoenas, and investors have provided information to the SEC and Massachusetts.

Oppenheimer said that it looked into the matter last year, and concluded "that the valuation increase was within U.S. accounting standards and the allegations were without merit." The firm said it told the fund's investors in November about the regulatory probe, but has not informed its shareholders.

The SEC is currently conducting an "informal inquiry" into private equity valuations. The regulator sent information requests to about a dozen firms in December.

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