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Caspersen’s out of prison; has anything changed?

The release of former restructurings expert Andrew Caspersen should remind the private equity industry more scrutiny is a good thing.

United States Penitentiary Lewisburg is a high-security US federal prison for male inmates in Kelly Township, Pennsylvania. Since early 2017 the facility has been the home of Andrew Caspersen, the former Park Hill GP-led restructurings expert who was convicted of securities and wires fraud and sentenced to four years in prison for his crimes.

Two-and-a-half years later and Caspersen is out of prison, counting down his days in a halfway house in Brooklyn until his final release on 26 June. Having been banned from working in the industry, it’s unclear what he will do next.

For anyone who needs a refresher, the Caspersen case rocked the secondaries and financial services world. A former Coller Capital principal, Caspersen attempted to defraud two institutional investors out of $95 million to support a gambling habit. According to the US Department of Justice’s complaint at the time, Caspersen created a fake credit facility related to a real stapled secondaries transaction. You can read more about how the DOJ said Caspersen’s scheme worked here.

The case was important because it raised questions about whether the opacity and complexity of the GP-led secondaries market – a sector that has since exploded to account for around a third of the total market – had a role to play in Caspersen’s attempted fraud. Indeed, Igor Rozenblit, the Securities and Exchange Commission’s co-head of private equity funds unit, criticised the fund restructurings industry at the time for allowing something like this to happen, saying it provided “the perfect cover” for Caspersen.

Three years on, there are signs the industry is trying to move towards more transparency and greater disclosure. While a case such as Abraaj highlights the continuing challenges of conducting proper due diligence in the wider private equity industry, developments such as the Institutional Limited Partners Association’s April guidance on GP-led restructurings show the industry is open to suggestions on how it can improve.

The SEC also appears to be taking a closer look at the secondaries industry, as last year’s settlement against Veronis Suhler Stevenson showed.

“The SEC is looking at private equity more like hedge funds,” says Anne Beaumont, a partner at Friedman Kaplan Seiler & Adelman who works on financial services litigation. “They’re getting more attention than they used to get and are being treated with the same level of scrutiny which I think they had avoided.”

The industry should expect more such scrutiny – and wakeup calls – to come.

Write to the author: adam.l@peimedia.com or @adamtuyenle