The US Department of Justice is investigating whether or not a private-equity fund under Oppenheimer Holdings Inc NYSE:OPY" target="_blank" rel="nofollow" >(NYSE:OPY) is claiming that the value of its holdings are higher than they actually are.
Oppenheimer said that they received a notice from the US Attorney’s Office in Boston, Massachusetts saying that they intend to look for information regarding the overvaluation of certain assets held by the fund. According to a filing, the DOJ contacted Oppenheimer on February 24th regarding the investigation.
An Oppenheimer 10-k filing also shows us that since October of last year, the firm has been complying with the Massachusetts attorney general regarding the overvaluing of assets and questionable marketing practices. An Oppenheimer representative said that the firm has complied with all information requests asked of them.
According to people who are involved , the overvaluation may have topped $4 million. It is expected that this markup was due to the fund trying to reach out to new investors during the fall of 2009. This skewed overall results of the fund by showing that the fund earned 38% after fees, which was up from its 6.3% loss leading up to the accused overvaluation.
The rise in performance gave way to the fund raising over $55 million over the next year. The fund and its assets were spun off by Oppenheimer Holdings Inc this year.
A spokesman for Oppenheimer last month said that company had begun its own internal investigation on the accused overvaluation on June 2011. The investigation showed that the valuation was within the standards of US accounting regulations and that the accusations were not accurate.
Unfortunately, it is unknown whether or not Oppenheimer is guilty of falsifying valuations. It was unclear how the valuation increase was “within US accounting standards” but according to Oppenheimer they are innocent.
It is a little fishy how a fund could be down 6.3% YTD, then all of the sudden be up 38% for the year. The company did not state whether the actual trades conducted by the fund have been examined by authorities but I bet that is what will tell the whole story. It is possible, however, that the trade statements are falsified as well. In the US you are innocent until proven guilty but all things must be considered here. That is quite a comeback for a fund to achieve and something just doesn’t seem right here. We will keep you updated on what the Department of Justice finds in their probe of an Oppenheimer fund.