SEC official says ‘opaque’ restructurings provided ‘cover’ for alleged Caspersen scheme

  • Restructurings are complex, opaque, says SEC official Rozenblit
  • The nature of these processes helped provide ‘cover’ for alleged scheme
  • SEC has increased scrutiny of restructurings

Igor Rozenblit, co-head of the Securities and Exchange Commission’s private funds unit in the Office of Compliance Inspections and Examinations, said in a recent speech that the opacity and complexity of private equity fund restructurings helped provide “cover” for Andrew Caspersen’s alleged fraud.

“Many people say, ‘this guy’s a bad guy, he would’ve done it any other context, it’s not a restructuring issue,’” Rozenblit said during an April 19 speech at the SEC National Compliance Outreach seminar, according to a story by Secondaries Investor. “But these transactions are complicated and opaque, and that provided the perfect cover for him.”

Rozenblit’s comments seemed to argue against the idea that Caspersen’s alleged scheme was a one-off event and not an indication of broader deficiencies with restructuring processes. Several sources told Buyouts in recent interviews that the Caspersen case was not a sign of bigger problems with restructurings.

A follow-up interview conducted by Buyouts with Rozenblit Wednesday was prematurely ended by SEC spokeswoman Judith Burns, who objected to general questions about fund restructurings.

A buyer in the secondary market disagreed with Rozenblit’s sentiment, explaining that restructurings are not all that complicated. Participants just need to be aware of all the details, the buyer said.

Restructurings have evolved over the past few years because limited partners in funds targeted for restructuring have become more vocal about their own interests.

“A year or two ago there was a backlash against the GPs [on fund restructurings] with the LPs saying, ‘what’s in it for us, I see what’s in it for you but what’s in it for us?’” the buyer said. “In conversations more recently, the principal discussion element has been, ‘how do we create a win-win and how is this something good for LPs,’” the buyer said.

Caspersen was arrested March 28, charged with one count of wire fraud and one count of securities fraud by the U.S. Attorney for the Southern District of New York.

PJT Partners, the parent of Park Hill Group, fired Caspersen. The company said it was “stunned and outraged” when it learned of the alleged scheme. The SEC filed parallel charges against Caspersen.

Caspersen’s alleged scheme used the name of a large restructuring process in the market last year: Irving Place Capital Partners III. Park Hill ran the process, in which Coller Capital led an investor group that bought out existing Fund III LPs and kicked in fresh capital for new investments.

Caspersen is alleged to have created a shell entity using Irving Place’s name into which he wanted to raise $95 million. He allegedly got $25 million out of the Moore Charitable Foundation and used the bulk of it to make options trades.

He also allegedly solicited another potential investor for $50 million but never got the money, according to a complaint filed by the U.S. Department of Justice.

The SEC, which has increased its scrutiny of the private equity industry over the past few years, has been keeping a close eye on restructurings.

Rozenblit has talked about restructurings at public forums, stating he doesn’t want existing LPs in funds offered two bad options: either selling their interests at a discount or sticking with a manager that has underperformed and to whom they’d have to pay more fees to stay in the fund.

In October, Mary Jo White, chairwoman of the SEC, said the agency was creating guidelines to help firms wind down funds, Dow Jones reported, based on a transcript of the speech White gave at the Managed Funds Association conference.

Action Item: Check out the DOJ’s complaint against Caspersen here:

Photo: A general exterior view of the U.S. Securities and Exchange Commission (SEC) building in Washington, June 24, 2011. REUTERS/Jonathan Ernst