The U.S. Securities and Exchange Commission (SEC) has settled allegations against two investment adviser firms at Oppenheimer & Co. over concerns that they misled investors about the valuation policies and performance of a private equity fund they manage.
The SEC said Monday its investigation found that Oppenheimer Asset Management and Oppenheimer Alternative Investment Management disseminated misleading quarterly reports and marketing materials stating that the fund’s holdings of other private equity funds were valued ‘based on the underlying managers’ estimated values’.
However, it found that the portfolio manager of the fund actually valued the fund’s largest investment at a significant markup to the underlying manager’s estimated value, which made the fund’s performance appear significantly better as measured by its internal rate of return.
Oppenheimer agreed to pay more than US$2.8 million to settle the SEC’s charges, without admitting or denying the regulator’s findings. It agreed to pay a US$617,579 penalty and return US$2,269,098 to those who invested in the fund during the time period when the misrepresentations were made. It also consented to a censure, agreed to cease and desist from committing any future violations of the securities laws, and is to retain an independent consultant to conduct a review of its valuation policies and procedures.
The Massachusetts attorney general’s office also announced a related action, which will see the firm will pay an additional penalty of US$132,421.
“Honest disclosure about how investments are valued and how performance is measured is vital to private equity investors,” said George Canellos, acting director of the SEC.s division of enforcement. “This action against Oppenheimer for misleadingly writing up the value of illiquid investments is clear warning that the SEC will not tolerate lax disclosure practices in the marketing of private equity funds.”