Home > Law Enforcement > PE Fund CEO Charged With Lying to Secure $95 Million Loan

May 20, 2021

PE Fund CEO Charged With Lying to Secure $95 Million Loan

Elliot Smerling could face more than 60 years in prison for wire fraud, bank fraud, and identity theft.

The CEO of a private equity fund has been indicted on wire fraud, bank fraud, and identity theft charges for allegedly using a forged audit letter, as well as fake subscription agreements and bank statements, to obtain a $95 million subscription-backed line of credit.

According to an indictment unsealed in the US District Court for the Southern District of New York, Elliot Smerling “willfully and knowingly executed a scheme and artifice to defraud a financial institution.” The indictment said he solicited and obtained the loan from an unnamed California-based commercial bank on behalf of the general partner of his private equity fund. The loan was allegedly secured by purported capital commitments made by the limited partnership of investors in the fund.

Late last year, Smerling allegedly contacted an employee of the commercial bank about acquiring an approximately $95 million loan for his private equity fund. The employee referred Smerling to a director in the bank’s global fund banking group, who requested materials from Smerling concerning the private equity fund and its general partner to evaluate the loan request. Smerling, according to the indictment, sent the director materially false documents that the bank used in deciding to approve the loan.

The allegedly falsified documents and material misrepresentations included a forged audit letter—purportedly prepared by an international network of accounting, audit, tax, and professional services firms—and forged subscription agreements that falsely represented that the investment fund of a private New York City university and its CIO had committed $45 million to the fund. Smerling also allegedly represented that the investment management division of a New York banking and financial services firm and its CEO committed $40 million to the fund.

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“As alleged, Elliot Smerling went to elaborate measures to create a blatantly false picture of the financial underpinnings of a private equity fund in order to obtain a $95 million line of credit,” Audrey Strauss, US Attorney for the Southern District of New York, said in a statement. “Smerling allegedly induced a California bank to make a loan commitment it never would have made had it known the truth.”

Smerling, 52, of Lake Worth, Florida, faces a maximum sentence of 30 years in prison and a maximum fine of $1 million or twice the gross gain or loss for each of the counts of wire fraud and bank fraud. Aggravated identity theft carries a mandatory sentence of two years in prison and a maximum fine of $250,000 or twice the gross gain or loss from the offense.

The Weird Reason Gold Will Head Still Higher

Oddly, ETFs that track the yellow metal aren’t gaining new money, a paradoxical bullish sign, says market sage.

By Larry Light

When gold prices rise, especially after a tumble, fresh money usually rushes into the exchange-traded funds (ETFs) that track the shiny metal. Not this time, though.

The well-respected newsletter, McClellan Market Report, finds that the two biggest such funds, SPDR Gold Shares and iShares Gold Trust, aren’t getting investor inflows—they’ve been flat for a while.

The analysis concludes that’s a bullish sign for bullion. Historically, of course, gold benefits amid economic turmoil, like what the coronavirus triggered last spring.

“What that means is that the rise in gold prices has not reached the consciousness of the public, not yet anyway,” wrote Tom McClellan, the newsletter’s chief. “And that implies there is more yet to come for the gold price rally.”

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In price terms, gold is up from its recent low in March, but far below its all-time pandemic-propelled peak reached last August. Last summer, gold hit its apex of $2,051 per ounce. But as optimism about ending the virus swelled, gold fell to $1,698.

Lately, though, the trend has bent upward once more. Gold closed in Tuesday’s trading at $1,868, up 10% from the recent bottom two months before. The World Gold Council, a trade group, attributed the turnaround to renewed concern about climbing inflation (the Consumer Price Index jumped 4.2% year-over-year in April) and interest rates.

Another possible factor in the metal’s bounce back, some Wall Streeters say, is the waning of gold’s new virtual rival, Bitcoin. Often called “digital gold,” the cryptocurrency has taken a dive since mid-April, down by almost a third. That may be owing to the sense that Bitcoin has gotten ahead of itself, rocketing to six times its value a year ago. Or the souring of big-name investors in the currency, like mogul Elon Musk.

Speaking of the two gold ETFs, McClellan wrote that investors liked to “push money into them and pull money out as gold prices rise and fall. The real fun comes when investors don’t follow that model.”

The delayed reaction of investors toward gold’s increase is paradoxical, but a reason for optimism, he wrote. In his view, “it means that the crowd has not yet gotten in on the rebound in gold prices. They are not yet believing in it.”

The upshot is “the uptrend is not mature yet. It still has more to go, before we get to the point when everyone starts piling in.”