SEC charges former Oppenheimer PE fund manager over misleading valuation/performance claims
The SEC has charged an ex-Oppenheimer & Co portfolio manager with misleading investors about the performance and valuation of a private equity fund of funds.
An SEC investigation found that Brian Williamson disseminated quarterly reports and marketing materials to prospective investors misstating that the valuation of the Oppenheimer fund’s holdings was based on values received from the portfolio managers of those underlying funds. Williamson actually valued the fund’s largest investment at a significant mark-up to the manager’s estimated value. He also sent marketing materials reporting an internal rate of return that failed to deduct fees and expenses. As a result, the fund’s reported performance as measured by its internal rate of return – a key indicator of the fund’s performance – was significantly enhanced.
Earlier this year, Oppenheimer agreed to pay USD2.8m in a settlement of related charges.
"Investors deserve and the law requires honest disclosure about how their investments are valued,” says Andrew J Ceresney, co-director of the SEC’s division of enforcement. “Williamson improperly lured investors to the private equity fund he managed by providing false and misleading information about the fund’s performance.”
According to the SEC’s order instituting administrative proceedings against Williamson, he was an Oppenheimer employee from 2005 to 2011. Williamson marketed Oppenheimer Global Resource Private Equity Fund I to pensions, foundations, endowments, and high net worth individuals and families. From September to October 2009, Williamson marketed the fund using materials that reported an internal rate of return that did not take into account any fees and expenses that the fund paid to underlying fund managers or the additional fees and expenses that the fund paid Oppenheimer. Furthermore, Williamson modified the Oppenheimer fund’s marketing materials in October 2009 by increasing the reported value of the fund’s largest investment – Cartesian Investors-A LLC – from USD6m to approximately USD9m. This increase was a significant mark-up to the underlying manager’s estimated value. Nonetheless, the marketing materials falsely stated that underlying fund values were “based on the underlying manager’s estimated values.”
According to the SEC’s order, Williamson made or approved additional material misrepresentations that created the misleading impression that the Oppenheimer fund’s increased internal rate of return was due to increased performance or third party valuations. In fact, it was Williamson’s revised valuation of Cartesian that resulted in a material increase in the Oppenheimer fund’s reported performance. For example, for the quarter ended 30 June 2009, Williamson’s mark-up of the Cartesian investment increased the reported internal rate of return from approximately 3.8 per cent to 38.3 per cent.
“Interim valuations are especially important when used to raise funds in the private equity industry,” says Julie M. Riewe, co-chief of the SEC division of enforcement’s asset management unit. “Private fund managers must provide investors with accurate disclosures about valuation methodologies as well as fund fees and expenses so they can make fully informed investment choices.”
The SEC’s order alleges that Williamson, who lives in Newtown, Pennsylvania, wilfully violated Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5, and Section 206(4) of the Investment Advisers Act of 1940 and Rule 206(4)-8.
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