On March 11, 2013, the SEC announced the settlement of charges against two affiliated registered investment advisers – Oppenheimer Asset Management Inc. (“OAM”) and Oppenheimer Alternative Investment Management, LLC (“OAIM,” and, together with OAM, the “Advisers”) – for misleading investors about the valuation policies and performance of Oppenheimer Global Resource Private Equity Fund I L.P. (“OGR”), a fund-of-funds managed by the Advisers that was marketed primarily to sophisticated investors. According to the SEC, from October 2009 to June 2010, the Advisers sent quarterly reports and marketing materials to investors that stated that OGR’s assets were valued “based on the underlying managers’ estimated values.” According to the SEC, the quarterly reports and marketing materials were misleading because OGR’s portfolio manager instead valued OGR’s largest investment using a different valuation method. According to the SEC, the change in the valuation method as it related to OGR’s largest investment caused OGR’s internal rate of return to increase from approximately 3.8% to 38.3% for the quarter ended June 30, 2009.
Further, the SEC alleged that OAIM’s employees misrepresented to potential investors that (i) the increase in the value of OGR’s largest investment was a result of the underlying fund’s performance (as opposed to the result of the different valuation method used by the Advisers’ portfolio manager), (ii) the value of the largest investment came from a third party valuation firm retained by the underlying fund manager and (iii) the funds in OGR’s investment portfolio were audited (when, in fact, the fund that was the largest investment was not audited).
In addition, the SEC alleged that the Advisers’ written policies and procedures “were not reasonably designed to ensure that valuations provided to prospective and existing investors were presented in a manner consistent with written representations to investors and prospective investors.”
Based on this conduct, the SEC charged the Advisers with violating Sections 17(a)(2) and 17(a)(3) of the Securities Act and Section 206(4) of the Investment Advisers Act of 1940, as amended (the “Advisers Act”), and Rules 206(4)-7 and 206(4)-8 promulgated thereunder. Without admitting or denying the SEC’s findings, the Advisers agreed to settle the charges. The SEC censured the Advisers, ordered them to cease and desist from future violations of the relevant provisions of the Securities Act and the Advisers Act and ordered them to pay a civil penalty of $617,579. In addition, the Advisers agreed (1) to disgorge $2,128,232 and pay prejudgment interest, (2) to provide a copy of the SEC’s order to its existing advisory clients and to prospective advisory clients for a one-year period and (3) to retain an independent compliance consultant to conduct a comprehensive compliance review of the Advisers’ valuation policies and procedures and to adopt all of the consultant’s recommendations (or propose an alternative policy if any recommendation is considered unduly burdensome).
According to the SEC’s press release, the Advisers also agreed to pay an additional penalty of $132,421 in a related state-law action.