NY fund manager, firm charged with $9m theft

The SEC alleges The Camelot Group's Lawrence Penn charged LPs millions in fake due diligence costs.

On Thursday, the US Securities and Exchange Commission (SEC) charged Lawrence Penn III and his firm Camelot Acquisitions Secondary Opportunities Management with stealing $9 million from investors.

The SEC alleges that Penn and his acquaintance Altura Ewers charged a fund under management with fake fees made to a front company controlled by Ewers. Investors were told the fees were for due diligence on potential investments but Ewers’ company, Ssecurion, promptly kicked the money back to companies and accounts controlled by Penn.

Investors in the fund include Kentucky Retirement Systems and the Illinois Student Assistance Commission, according to PEI’s in-house Research and Analytics division. Both institutions were not immediately available for comment by press time. Camelot also did not return a request for comment by press time.

While Camelot specifically recorded the due diligence expenses under question in the fund’s general ledger and provided invoices for the expenses to the fund’s administrators and auditors, none of the documents ever provided to investors disclosed these due diligence-related payments, the SEC said. Growing suspicious, Camelot’s auditors requested backup documentation for payments made to Ssecurion in the previous three fiscal years. Penn and Ewers forged documents corresponding to the invoices and lied to the auditors to cover their tracks, according to the SEC.

During the audit, Penn allegedly presented electronic due diligence records on certain investments that contained “generic information easily obtained from the internet and/or the portfolio company” that showed no “credible evidence of significant work performed by Ssecurion”, the SEC said.

In the complaint, the SEC also highlighted that Penn “avoided the Camelot offices when the exam staff was on-site” and “repeatedly failed to appear for scheduled meetings with them”.

The SEC added Penn paid hefty commissions to third-parties to secure investments from pension funds. Penn also rented luxury office space and used the funds to project the false image that Camelot was a thriving international private equity operation.

“Penn held himself out as an ultra-sophisticated and well-connected investor in the private equity world,” Andrew Calamari, the director of the SEC's New York regional office said in a statement. “Behind the scenes, Penn disregarded his obligations to the fund's investors and treated their assets as his own personal and professional slush fund.”

The SEC’s complaint charges Penn, two Camelot entities, Ewers, and Ssecurion with violating the antifraud, books and records, and registration application provisions of federal securities laws. The complaint seeks Penn and accomplices to disgorge ill-gotten gains with interest and pay financial penalties.

In 2010, Penn managed to raise $120 million from pension funds, high-net worth individuals and overseas investors for Camelot Acquisitions Secondary Opportunities LP, according to the SEC. The fund is currently invested in growth-stage private companies that are seeking to go public.