Oppenheimer Asset Management and Oppenheimer Alternative Investment Management have settled with the SEC over charges that the firms inflated the value of a private equity fund's holdings, causing several Massachusetts pension funds and other investors to lose more than $2 million as a result.
Two of those investors, the $333 million Brockton (Mass.) Contributory Retirement System and the $290 million Quincy (Mass.) Contributory Retirement System, lost their legal bid against the firms on March 1, when a U.S. District Court judge ruled federal securities laws didn't apply because it was a private transaction.
Both the SEC and U.S. District Court cases involved valuation of shares of S.C. Fondul Proprietatea SA, a Romanian company that is the lone holding in private equity fund Cartesian Investors-A. Cartesian was one of four investment vehicles of the Oppenheimer Global Resource Private Equity Fund I.
According to Securities and Exchange Commission documents, the portfolio manager for the Oppenheimer fund OGR changed the valuation method for Cartesian while the fund was being marketed to investors from 2009 to 2010, without disclosing the change to Cartesian or investors. The change “resulted in a significant increase in the value of Cartesian,” according to the documents.
In the SEC settlement announced Monday, Oppenheimer agreed to pay $2.23 million in a disgorgement fund to investors who invested in the Oppenheimer fund from October 2009 to June 2010. The disgorgement fund represents the management fees collected plus interest during that period.
Oppenheimer neither admits nor denies the findings in the settlement, and cooperated fully with the SEC, an Oppenheimer spokesman said.
“Oppenheimer Asset Management believes it has put in place additional policies and procedures designed to ensure that valuations of portfolio positions in its marketing documents are determined in a manner consistent with its obligations to investors,” said the spokesman, who declined to be identified.
Julie Riewe, SEC asset management enforcement deputy chief, said in an e-mail that the agency will continue scrutinizing valuation practices of money managers. “As pension funds, trusts and endowments increase their exposure to alternative investments, it is important that they understand private funds' valuation methodologies,” Ms. Riewe said.