International scam of mystery


It's a global business that relies on the prestige that private equity firms have built over the years. We speak now not of actual private equity firms, but of the growing collection of international fraudsters who steal the names and trademarks of private equity firms in an attempt to scam unsuspecting businesspeople.

Michael Kessler, the president and chief executive officer of New York private investigation firm Kessler International, is working on at least two cases now in which con artists have used fake websites and other online lies to portray themselves as legitimate venture capital firms. Kessler may be working on other cases, but he won't say.

Two clients include the National Venture Capital Association and Wellesley, Massachusetts venture capital veteran Battery Ventures. Both have recently seen their brands and Web properties getused by lookalike entities also claiming to be in the venture capital business.

In the case of the NVCA, a group calling itself the International Venture Capital Association developed a Web site (now gone missing) that bore a striking resemblance to that of the NVCA.

Battery Ventures has lately had to deal with a group calling itself American Battery Investment Group. At one pointABIG, based in China, featured a website with headshots of Battery's partners.

These frauds are similar to yet another instance of VC impersonation emanating from China ? a ?private equity? firm called the American Union International Group appears to have stolen most of its website text from The Carlyle Group (see screen shot).

Kessler calls these frauds ?just regular old confidence games? adapted to a world that places great confidence in American business in general and private equity in particular. He says all of the targeted victims he's identified, who are typically asked to pay an up-front fee to the fake firms in exchange for the promise of some future service or investment, are either in Asia or Europe. But the fugazi firms always have US identities, says Kessler.

In the case of the fraudulent IVCA, Kessler says his firm's investigation traced myriad IP addresses and e-mail headers to China, but also discovered mail drop locations in the UK. Recently, Kessler worked with law enforcement agencies in the UK to conduct raids on various mail facilities, and items of computer equipment were seized. Police have now linked this network to bank accounts in China, Taiwan and Bangkok. The investigation is ongoing.

There may be more than one IVCA. Details are still murky, but an organization calling itself the IVCA appears to be linked to a certain Paulsmeier Group of Cape Town, South Africa, which claims in its Website to have ?direct access to more than 4,000 funding syndicates, venture capital funders and investment angels? with the ?funding capacity of the said funders exceed[ing] $115 billion.? Paulsmeier claims to be affiliated with the Global Association of Billionaires and Millionaires as well as the founder of the IVCA.

In addition to fake Websites, shysters also portray themselves as real private equity investors in chat rooms, where they can lure victims with astute-sounding advice. Kessler says his firm discovered that fake posters were using the actual trademark symbol of Battery Ventures when participating on chat boards.

Kessler says he advises his clients, including private equity firms, to regularly conduct ?web sweeps? in search of trademark violations and other forms of plagiary. Failure to do so could cause ?your trademark to go down the toilet,? says Kessler.

A fraudulent private equity operation can have many types of victims. Kessler was aided in his investigation by the operator of a web hosting company that had helped the mysterious parties in question build and maintain their VC-lookalike sites. The company was more than happy to say what it knew about the fraudsters ? they hadn't paid their bills in months.

Macquarie nabs PCG trio
Three professionals have left La Jolla, California-based private equity investment advisor Pacific Corporate Group to join the US business of Macquarie Funds Management. Peter Martenson, a former director at PCG, will work in the Carlsbad, California office of Australia-based Macquarie, where he will be a division director. Martenson will be joined by former PCG colleagues Eric Becker and Rick Fratus, who will be associate directors. Macquarie Funds Management manages funds of funds programs and separate accounts. The firm has more than $1 billion under management. In June, the Washington State Investment Board, one of the largest private equity investors, dropped PCG in favor of Capital Dynamics as exclusive private equity investment advisor.

Goldman Sachs hires senior European banker
The global investment bank has recruited Guy du Parc Braham to its European leveraged finance group in London. In his new role, du Parc Braham will report to Tim Flynn and Doug Henderson, coheads of European leveraged finance. Du Parc Braham becomes the second senior hire made by Goldman's European leveraged finance group in the last two months. In May, it announced the recruitment of Ian Gilday as a managing director. Gilday was previously head of European leveraged capital markets at Merrill Lynch. According to Standard & Poor's, leveraged loan volume in Europe in the first six months of 2005 totalled €56 billion, compared with €65 billion for the whole of 2004. This virtually ensures that 2005 will be the busiest year on record for the European leveraged loan market.

New SEC offering rules mum on private placements
The Securities and Exchange Commission has adopted amendments to rules that will update restrictions surrounding the offering of securities. However, the new rules, to become effective 120 days from their publication in the Federal Register, do not address the offering of private securities, including the raising of private equity funds. Among other changes, the amendments to the Securities Act of 1933 will now allow issuers of public securities to disseminate ?factually correct? information, including forward-looking information, at any time during the offering process. Until now, initial public offerings have been shrouded in a so-called ?quiet period? that has prohibited many forms of communication with the public during the process. Many in the private equity industry hope that the new rules are an indication that the rules surrounding the offering of private securities will eventually be updated.

Antares is for sale
Antares Capital, a major supplier of debt to the private equity middle market, is reportedly for sale. According to an article in The Deal, Antares has hired Lehman Brothers to run an auction. Several sources reportedly named GE Capital as the lead bidder. Antares, based in Chicago, is led by David Bracket, Michael Chirillo, John Martin and Barry Shear, all of whom left Heller Financial in 1996 following its acquisition by General Electric. Antares is currently owned by The MassMutual Financial Group, a diversified financial services organization with more than $285 billion in total assets under management. MassMutual is currently under investigation following the dismissal of its CEO, Robert O'Connell, for ?abuse of authority.?