Jailed Florida fund manager accused of lying about investors

Elliot Smerling

Elliot Smerling

Florida private equity manager Elliot Smerling lied about his investors and his biography to secure a $ 150 million line of credit, according to a lawsuit filed this week by Silicon Valley Bank, which approved the loan in February and is now trying to get her money back.

Supposed investors in Smerling’s fund included billionaire hedge fund manager and New York Mets owner Steven A. Cohen; the investment firm of late Blockbuster founder and former Miami Dolphins owner Wayne Huizenga, the University of Miami and New York University endowments; a financial firm co-founded by NFL Hall of Fame quarterback Steve Young, as well as several financial institutions, including Bank of New York Mellon and BBVA and SunTrust Bank.

Smerling also told the bank that he previously served as chief investment officer for the company owned in co-ownership by the former big 49ers Young.

All of the lies, according to the bank and the companies mentioned, are part of what the bank called Smerling’s “shameless fraud”.

The lawsuit comes nearly a month after Smerling, who oversees funds apparently holding $ 1.8 billion in assets, was arrested by the FBI and accused of fraud for allegedly forging documents to obtain the Silicon Valley Bank loan.

Assistant US Attorney Adam McMichael said in a hearing on March 3 that Smerling leads a life of luxury, with several homes in Florida, New York and Brazil, and a fleet of luxury cars including a Ferrari, a Cadillac. Climbing and a Corvette. His access to wealth, coupled with the possibility of a prison sentence of up to 30 years and a fine of up to $ 190 million, put Smerling at risk of fleeing the country to avoid the charges, McMichael said at the hearing.

“With this extreme wealth comes opportunities that most people don’t have,” he said.

US magistrate judge William Matthewman agreed, denying Smerling’s bail. He is currently being held at the Miami Federal Detention Center pending his transfer to New York.

The lawsuit aims to recover nearly $ 80 million that Smerling still owes the bank, as well as the bank’s interest and fees to bring the lawsuit.

It is not known why Smerling listed these particular investors in the loan documentation. The fund indicated in a filing with the United States Securities and Exchange Commission last year it held $ 561,833,998 in assets.

Smerling, who earned an MBA from the University of Miami, served on the business school’s entrepreneurship program advisory board, but the university said Friday morning that Smerling had been removed from his post. He did not say whether the university had invested with its funds. In a table of purported investors, Smerling’s fund indicated that the university’s endowment had pledged to invest $ 25 million in the fund.

Global capitalization table JES.png
Table purported to show investments in Elliot Smerling’s JES Global Capital GP III fund following a lawsuit alleging that “most or all” of the investors did not invest in the fund. Trial exhibition

The fund said that HGGC, the investment fund co-founded by former big 49ers Young, had pledged to invest $ 50 million in Smerling’s fund and a presentation of the fund he provided to the bank has reported that Smerling had previously served as the company’s chief investment officer. , which is not true, a company representative said.

Representatives of other suspected investors have denied buying the fund or having any connection with Smerling.

“We have nothing to do with it,” said Chris Brandon, chief financial officer of Huizenga Holdings. “It’s unfortunate that someone tried to change our name.” The table showed that Huizenga Holdings had pledged to invest a total of $ 35 million, of which $ 10 million was believed to be linked to Steven Berrard, the former CEO of AutoNation and Blockbuster, both of whom were owned by Huizenga. .

Berrard also said he had no connection with Smerling.

“Until a few days ago, I had never heard of this gentleman. Never invested in any of his funds, I didn’t know anything about him, ”he said.

NYU also said it has no affiliation with Smerling.

“NYU had neither had any involvement with the defendant, and NYU never invested any money with him,” said NYU spokesman John Beckman. “We don’t know why he implicated NYU in his scheme, and we didn’t know until we were contacted by law enforcement, with whom we readily cooperated. We are saddened and disturbed to learn that the name of our institution is used in this way.

A spokesperson for Mets owner Cohen said neither he nor any related entity had invested in any of Smerling’s funds and a Bank of New York representative Mellon also said he did not. invested in JES Global Capital GP III or one of the other funds.

A spokesperson for BBVA declined to comment, saying the bank is not discussing the pending litigation.

A lawyer representing Smerling declined to comment.

Smerling’s arrest in February sparked calls for greater due diligence by banks and financial institutions that provide so-called “underwriting credits” to private equity firms that use investors’ promise of future investments, called underwriting agreements, as collateral for loans. The loans allow private equity firms to make investments before they have asked investors to pay in money and they have grown in popularity in recent years, according to a 2019 study by business professors at Carnegie Mellon University – driven in part by low interest rates.

The researchers found that private equity funds used the money they got from loans to manipulate and inflate the returns they brought in to their investors, potentially allowing them to charge higher fees in the process.

The bank’s lawsuit accuses Smerling of providing a forged audit of BDO USA, LLP which the company said it never issued and contained a forged signature and other financial documents that the bank claims to be false .

The documents included a letter to Hong Kong billionaire Michael Kadoorie requesting that his company, CLP Holdings, send the fund the money he had promised.

[Update: After publication, a representative for CLP Holdings provided the following statement: “It has come to our attention that certain parties are alleged to have made false representations that CLP was an investor in investment fund JES Global Capital III. We can confirm that neither CLP Holdings nor Sir Michael Kadoorie has any association with the investment fund and any of Mr Elliot Smerling’s other funds.”]

The bank approved Smerling’s fund for a $ 150 million line of credit in early February and immediately wired nearly $ 95 million to an account in the fund’s name at Japanese bank Sumitomo Mitsui Bank Corporation, which Smerling had said. that the bank would close a previous line of credit. credit the fund held with the Japanese bank.

Once the loan was approved, the bank asked Smerling’s fund to provide additional information as part of its post-closing due diligence, such as the name of the auditor who performed the audit and corporate documents. for fund investments. The fund refused to provide the documents and Smerling angrily wrote to the bank that he was “baffled” by the request and “extremely concerned about the way we are being treated”. A week later, Smerling was arrested by the FBI.

Ben Wieder is a data and investigative reporter in McClatchy’s Washington office. He previously worked at the Center for Public Integrity and Stateline. Her work has been honored by the Society of American Business Editors and Writers, the National Press Foundation, the Online News Association, and the Association of Health Care Journalists.

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