We’ve seen securities fraud, hedge fund fraud, now private equity fraud? Prosecutors have charged Danny Pang who ran Private Equity Management Group in California with an up to $654 million fraud. The Wall Street Journal reported Friday that Pang allegedly extracted at least $83 million in inflated fees. The Pang case is the first high profile private equity fraud publicly reported.
Considering the enormous size of the private equity market, institutional and individual investors should ensure that any private equity investments in their portfolios are with well established, reputable managers. Just like in the hedge fund world, private equity investments often lack complete transparency. The private investment structure leaves room for potential fraud. A place to start is by doing proper due diligence on a private equity funds’ auditor.
We expect as the hedge fund industry is heading toward greater regulation due to the recent string of Ponzi schemes such as Madoff, that the private equity space will attract its own share of fraudsters. Be careful.