The former private equity arm of Oppenheimer Holdings may have exaggerated the valuation of one of its holdings. The Securities and Exchange Commission and Massachusetts authorities are investigating the Oppenheimer Global Resource Private Equity Fund, a fund of private equity funds launched by Oppenheimer in 2008. Among the fund’s holdings was a $6 million investment with Cartesian Capital Group’s Cartesian Investors A. That fund, in turn, invested all of its capital in a closed-end fund established by the Romanian government to benefit victims of the country’s Communist era.
In the fall of 2009, as Oppenheimer sought to raise more money for the fund, it valued its investment in Cartesian A at 33 cents a share. That valuation was well above the 20 cents that Cartesian placed on the investment, and almost five times as high as the roughly seven cents that the closed-end fund, S.C. Fondul Proprietatea, was trading at the time. Oppenheimer’s valuation added more than $4 million to its bottom line, and turned an internal rate of return from a 6.3% loss to a 38% gain, The Wall Street Journal reports. Oppenheimer used those figures as it raised more than $55 million from investors, including two Massachusetts cities and an Illinois university.
The SEC is currently conducting an “informal inquiry” into private equity valuations. The regulator sent information requests to about a dozen firms in December.