Zamansky LLC warns investors about possible fraud by hedge or private equity funds focusing on PIPEs, or private investments in public entity. Typically, PIPE deals are attractive to hedge funds because buyers get preferred stock or bonds which convert into shares at discounted prices. Often, PIPE deals may include warrants as “sweeteners” which can be exercised at prices well below the public markets. PIPE funds purport to yield large profits for investors by acquiring stock at steep discounts.
However, PIPE funds can engage in various types of fraud which put investor funds at risk.
For example, PIPE funds may artificially or over inflate the valuation of its illiquid stock, which are unjustifiable. A PIPE fund can boost its performance by manipulating the values of its illiquid holdings, to give investors the appearance of success or financial health. Another technique is for a fund to stash an illiquid investment in a “side-pocket account”, while it is valued at an unsustainable level.
Recently, several PIPE funds received subpoenas from the SEC including Vision Capital and Yorkville Advisors (which operates the YA Global Investments fund), reportedly over valuation issues. The SEC and Connecticut State Banking Commission filed a lawsuit against Southridge Advisors and founder Stephen Hicks for misvaluing a portfolio of bridge loans it held, and keeping the value high even after it sued to collect on the loans.
If you invested in PIPE fund and suffered a loss and/or suspect that you may be the victim of misvaluation, please contact Jake Zamansky at (212) 742-1414, or email at Jake@Zamansky.com.