SEC charges ex-Oppenheimer manager with misleading investors

The company earlier this year agreed to settle related charges with the SEC and pay $2.8 mn

Federal securities regulators accused a former portfolio manager at Oppenheimer & Company  on Tuesday of misleading investors about the performance of a fund, a rare enforcement action involving the private equity industry.

The Securities and Exchange Commission (SEC) contends Brian Williamson issued quarterly reports and marketing materials that inflated the performance results of an Oppenheimer private equity fund.

“Investors deserve and the law requires honest disclosure about how their investments are valued,” said Andrew J Ceresney, the co-head of the SEC’s enforcement division. “Williamson improperly lured investors to the private equity fund he managed by providing false and misleading information about the fund’s performance.”

In March, Oppenheimer agreed to pay $2.8 million to resolve its role in the case. But Williamson is fighting the charges and has hired Andrew J Levander, a leading criminal defence lawyer with the law firm Dechert, to represent him.

“We are deeply disappointed with the SEC’s decision to bring an enforcement action in this matter,” Levander said. “In its zeal to pursue cases in the private equity space, the SEC has alleged fraud where none exists.”

In recent years, the SEC’s asset management unit, which brought the Oppenheimer case, has stepped up its focus on the private equity business. One area of focus has been with how private equity firms value their holdings and calculate performance. Unlike funds that invest in publicly traded stocks, private equity firms own companies whose values can be hard to measure.

Last January, Bruce Karpati, the head of the enforcement division’s asset management unit at the time, who left the agency in May, said he was concerned that firms could be propping up returns to impress investors and potential clients.

That, in effect, is the SEC’s charge against Williamson, who worked at Oppenheimer from 2005 to 2011 and lives in Newtown, Pa. An accountant and lawyer by training, Williamson, 42, fudged the fund’s performance numbers, the SEC contends.

The fund Williamson managed — the Oppenheimer Global Resource Private Equity Fund I — is a so-called fund of funds that invests in a portfolio of other private equity vehicles with holdings in the energy sector. It was a relatively small fund, managing about $100 million for public pension funds, school endowments and others. Among the SEC’s accusations is that Williamson reported an internal rate of return — a popular performance metric for private equity vehicles — that failed to take into account the fees and expenses that the fund paid to the underlying fund managers.

In one instance, the government said, Williamson altered the Oppenheimer marketing materials and inflated the value of its largest investment — Cartesian Investors — to $9 million from $6 million. Cartesian had provided Oppenheimer with the lower valuation.

The phony valuation had a substantial effect on the fund’s performance, in one quarter lifting returns to about 38 per cent from about four per cent, according to the SEC

Cartesian’s sole holding were shares in SC Fondul Proprietatea, a company created by Romania to compensate citizens whose property was seized under the former Communist regime.

The legal filing highlights an e-mail that Williamson sent to a colleague in which he explained the higher valuation for Fondul.

“Big change is the valuation of Fondul – still valued at a discount to par but marked up b/c we now have Franklin Templeton working on some near term liquidity options,” he wrote, referring to Franklin Templeton, another fund company.

The SEC contends Williamson’s  e-mail was false and misleading. In a statement, Levander, the defence lawyer, noted that today, the valuation of the Romanian company exceeded Williamson’s earlier valuation that the SEC claimed was embellished.

© 2013 The New York Times News Service