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SEC charges Chicago-based investment adviser over failing PE fund

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The Securities and Exchange Commission has filed a complaint in the US District Court for the Northern District of Illinois against Joseph J Hennessy and his firm, investment adviser Resources Planning Group (RPG), for defrauding clients and others who were promised returns that would "beat the market" for investing in a private equity fund they managed.



What investors did not know was the fund was failing and they were being used to raise money to repay promissory notes to earlier investors.

The SEC alleges that Hennessy and RPG raised more than USD1.3m by misrepresenting the Midwest Opportunity Fund (MOF) as a viable private equity fund that could offer high returns. Hennessy failed to tell investors about the fund’s poor financial condition or that their money was being used to repay MOF promissory notes that he had personally guaranteed. He therefore misappropriated client funds to make payments on the notes and prop up the fund.

According to the SEC’s complaint, Hennessy financed MOF’s acquisition of its largest portfolio company in 2007 in part by having the fund issue USD1.65m in promissory notes, all of which he personally guaranteed. When MOF’s portfolio companies were unable to pay management fees later that year, MOF lacked sufficient funds to repay the notes. From September 2007 to March 2010, Hennessy raised USD1.36m from RPG clients and other investors to make payments on the notes. Hennessy falsely told investors that MOF was viable and offered high returns.

The SEC further alleges that Hennessy misappropriated money from RPG clients. In November 2007, he raised USD750,000 from three RPG clients purportedly to invest in MOF. But then Hennessy used that money to redeem another client’s investment in the fund. Twice in mid-2009, Hennessy forged letters of authorisation from a widowed RPG client to transfer USD100,000 from her account to MOF in exchange for promissory notes that have yet to be repaid.

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