Providence Weighed Down By Snowden-Vetting Co.

Jan 24 2014 | 11:56am ET

The fallout from the Edward Snowden controversy is proving extremely costly for one hedge fund.

Providence Equity Partners owns Altegrity, the parent of United States Investigations Service. USIS ran the background check on Snowden, the former Central Intelligence Agency employee and National Security Agency consultant who revealed the extent of the latter agency's surveillance efforts, including of U.S. citizens and foreign leaders.

The U.S. Justice Department this week filed fraud charges against USIS, alleging that it filed at least 665,000 flawed background checks over a four-and-a-half year period. The company is charged with completing its reviews without going through a mandatory process.

"USIS management devised and executed a scheme to deliberately circumvent contractually-required reviews of completed background investigations in order to increase the company's revenues and profits," Justice said.

USIS also did the background check on Aaron Alexis, the contractor who shot and killed 12 people at the Washington Navy Yard last year. The lawsuit does not cover the company's work on either Snowden or Alexis.

Providence bought Altegrity from the Carlyle Group and Welsh Carson Anderson & Stow for $1.5 billion. The hedge fund has some $782 million in equity invested in Altegrity, which is one of its largest investments.

The civil charges against the company aren't Altegrity's only problems: The company is facing a March deadline to recapitalize its huge debt load or default.

USIS said it is cooperating with the government and that the alleged misconduct related to only a small group of employees.

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