Lawyers: Private Equity In Investigators' Sights

Dec 3 2013 | 10:41am ET

As another hedge fund insider-trading trial grinds on, there's an ominous warning to the private-equity industry from the legal: Your turn is coming.

U.S. regulators, having won dozens of convictions for hedge fund fraud in recent years, are turning their attention towards private equity, law firms working with buyout firms tell the Financial Times. And while the crimes may differ—insider trading, for one, requires dealing in publicly-traded securities—the tactics will likely be recognizable.

Former Securities and Exchange Commission lawyer John Carney, now at law firm BakerHostetler, notes that SEC Chairman Mary Jo White "has filled her enforcement ranks with a number of her former lieutenants" from when she was a federal prosecutor, men and women itching to use some of the new methods that have sent the likes of Raj Rajaratnam to prison.

"These proven investigatory techniques and the young generation of prosecutors looking to make a name for themselves look like a volatile combination," Timothy Spangler of Sidley Austin told the FT. And, he warns ominously, "private-equity investigations are at the stage where hedge funds were five years ago."

"These tools were hallmarks of mafia investigations, and they have proven very effective in hedge fund investigations," Spangler continued. "There is no limit to how these investigations could be replicated across other areas of financial services."

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