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JES Global, a Florida-based exempt reporting adviser, and its principal, Elliot Smerling, have been charged with multiple crimes in relation to making false claims in a loan application for $95 million.
Smerling allegedly presented fraudulent subscription documents and a forged audit letter and falsified banking statement in order to establish a $95 million credit facility with Silicon Valley Bank. The subscription documents, for $45 million and $40 million, were purported to be for commitments from a New York University endowment and an investment manager respectively. However, the University endowment had no record of the subscription document and the signature on the document did not match that of the CIO of endowment. Similarly, the investment manager had no record of the subscription document and the signature also did not match.
The audit firm from the audit letter had not been engaged by the fund or Smerling and the letterhead address was a previous address of the audit firm not used for several years. Smerling used the letter as proof of the financial health of the fund in addition to the falsified bank statement. The falsified bank statement showed transfers of $4 million and $4.5 million from the University endowment and the investment manager.
The charges are largely based on an affidavit from an FBI Special Agent. If true, the actions are clearly fraudulent and actionable. However, the malfeasance may spur changes in the credit loan facility application process potentially increasing the burden of proof on private equity fund managers going forward.