Caspersen Fraud Reminds Institutional Investors to Look Beyond a Hedge or Private Equity Fund’s Name to Verify Its Structure and Management

Unlike alternative mutual funds and other registered investment companies, hedge and private equity funds are not subject to regulations regarding what they can be named. See “Hedge Fund Names: What a Hedge Fund Manager Should Do Before It Starts Using a Name” (Mar. 16, 2012). It is therefore incumbent on investors to look beyond the name of any fund in which it is considering investing and conduct due diligence to verify the actual structure, sponsorship and management of the entity. The recent guilty plea of Andrew Caspersen is a reminder of this and the peril faced by institutional and other sophisticated investors that fail to conduct this necessary due diligence. Using confusingly named entities and bank accounts, Caspersen, an investment principal and partner in two alternative asset management firms, perpetrated a scheme of securities and wire fraud. This article summarizes the DOJ’s criminal complaint against Caspersen and details several lessons for institutional investors to protect themselves from fraud. For another scheme involving the sale of bogus promissory notes in the hedge fund industry, see “Federal Judge Approves Settlement Agreements Arising out of Marc Dreier’s Criminal Fraud; Hedge Fund Victims ‘Squabble’ Over Proposed Recovery” (Feb. 17, 2010). For more on conducting due diligence, see “Why Should Hedge Fund Investors Perform On-Site Due Diligence in Addition to Remote Gathering of Information on Managers and Funds?”: Part One (Jan. 29, 2015); Part Two (Feb. 5, 2015); and Part Three (Feb. 12, 2015).

To read the full article

Continue reading your article with a PELR subscription.