CEO Of Private Equity Fund Charged In Manhattan Federal Court With Lying To Bank To Secure $95 Million Loan

 

Elliot Smerling Charged with Wire Fraud, Bank Fraud, and Aggravated Identity Theft for Falsifying Capital Commitments, Fund Finances, to Secure $95 Million Loan

 Audrey Strauss, the United States Attorney for the Southern District of New York, and William F. Sweeney Jr., the Assistant Director-in-Charge of the New York Field Office of the Federal Bureau of Investigation (“FBI”), announced today that ELLIOT SMERLING was indicted this morning on charges of wire fraud, bank fraud, and aggravated identity theft for seeking and obtaining an approximately $95 million subscription-backed line of credit for his $500 million private equity fund on the basis of a forged audit letter, falsified subscription agreements, and falsified bank account statements.

Manhattan U.S. Attorney Audrey Strauss said:  “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.  Through a forged audit letter and falsified subscription agreements and bank statements, Smerling allegedly induced a California bank to make a loan commitment it never would have made had it known the truth.  Now, the truth has landed Elliot Smerling in federal court.”

FBI Assistant Director William F. Sweeney Jr. said:  “Falsifying information in order to secure a loan, regardless of the amount, is a crime.  When the loan secured is nearly $100 million, the stakes are even higher.  As alleged, Smerling engaged in illegal practices in order to benefit his interests.  Today he’s learned the consequences of his alleged actions.”

According to the Indictment filed today in Manhattan federal court, and the Complaint[1] unsealed February 26, 2021, in the Southern District of Florida:

From at least in or about December 2020 through at least in or about February 2021, ELLIOT SMERLING, the defendant, solicited and obtained on behalf of the general partner (“General Partnership-1”) of a private equity fund (“Private Equity Fund-1”), a loan of approximately $95 million from a commercial bank headquartered in California (“Victim Bank-1”), which was secured by purported capital commitments made by the limited partnership of investors in Private Equity Fund-1 (“Limited Partnership-1”).  SMERLING obtained the approximately $95 million loan on the basis of falsified documents and material misrepresentations, including:  (1) a forged audit letter, purportedly prepared by an international network of accounting, audit, tax, and professional services firms (“Audit Firm-1”), attesting to the audited financial statements of Limited Partnership-1; (2) forged subscription agreements that falsely represented that the investment fund of a private university based in New York, New York (“University Endowment Fund-1”), and the chief investment officer of that fund (“Chief Investment Officer-1”) had committed $45 million to fund Limited Partnership-1, and that the investment management division of a banking and financial services firm headquartered in New York, New York (“Investment Manager-1”), and the chief executive officer of Investment Manager-1 had committed $40 million to fund Limited Partnership-1; and (3) falsified bank records purporting to attest to a $4.5 million wire transfer from University Endowment Fund-1 to Limited Partnership-1. 

On or around December 1, 2020, SMERLING contacted an employee of Victim Bank-1 concerning SMERLING’s interest in acquiring an approximately $95 million loan for SMERLING’s $500 million private equity fund, Limited Partnership-1.  The loan sought by SMERLING would substitute for an existing line of credit SMERLING had secured from a multinational financial services company (“Commercial Bank-1”), where Limited Partnership-1 purported to have an existing line of credit with an outstanding loan balance equal to the amount sought by SMERLING from Victim Bank-1.  The employee of Victim Bank-1 referred SMERLING to a director in the Global Fund Banking Group at Victim Bank-1 (“Witness-1”).

Thereafter, in or around December 2020, Witness-1 requested from SMERLING materials concerning Limited Partnership-1 and General Partnership-1 in order to evaluate SMERLING’s loan request.  In response, SMERLING sent Victim Bank-1 materially false materials, the veracity of which Victim Bank-1 relied upon in ultimately deciding to make the loan sought by SMERLING, including:     

i.          An audit letter (the “Audit Letter”), purportedly prepared by Audit Firm-1, attesting to the sound finances of Limited Partnership-1.

ii.         Subscription agreements purportedly signed by investors in the fund, including an agreement reflecting a purported commitment of $45 million by University Endowment Fund-1 and the purported signature of Chief Investment Officer-1 (“Subscription Agreement-1”), and an agreement reflecting a purported commitment of $40 million by Investment Manager-1 and the purported signature of the chief executive officer of Investment Manager-1 (“Subscription Agreement-2”).  

iii.        A table (the “Capital Commitment Table”) listing $500 million in paid and unpaid capital commitments purportedly made to Limited Partnership-1 as of December 13, 2019, including a purported $45 million commitment by University Endowment Fund-1, consisting of a “call amount” of $4.5 million and an “unpaid commitment” of $40.5 million as of that date, as well as a purported $40 million commitment by Investment Manager-1, consisting of a “call amount” of $4 million and an “unpaid commitment” of $36 million as of that date. 

Following receipt of the materials, employees of Victim Bank-1, including at least one employee based in Victim Bank-1’s office in New York, New York, reviewed the materials as part of Victim Bank-1’s diligence process.

On or around January 7, 2021, Witness-1 wrote an email to the chief financial officer of Private Equity Fund-1, with a copy to SMERLING, in which Witness-1, in substance and in part, advised that Victim Bank-1 was in the process of finalizing its approvals for the loan.  Witness-1 requested bank statements “evidencing receipt of the most recent capital call.”  On the same date, SMERLING replied with an email to which he attached a December 2019 bank statement (the “Bank Statement”) for an account purportedly held in the name of Limited Partnership-1 at Commercial Bank-1’s Americas headquarters in New York, New York.  The statement reflected wires into the account with a combined value of $50 million, including a purported wire of $4.5 million from University Endowment Fund-1 and a purported wire of $4 million from Investment Manager-1.

The materials that SMERLING submitted to Victim-Bank-1 were materially false.  For example, the Audit Letter was not prepared by Audit Firm-1.  Chief Investment Officer-1 of the University Endowment Fund-1 has no knowledge of ELLIOT SMERLING, Limited Partnership-1, or General Partnership-1, and the signature appearing on the Subscription Agreement-1 is not that of Chief Investment Officer-1.  University Endowment Fund-1 has found no indication that it made the $4.5 million wire transfer reflected in the Bank Statement or made any other investment or capital commitment to ELLIOT SMERLING, the defendant, Limited Partnership-1, or General Partnership-1.

Similarly, Investment Manager-1 has found no indication that Investment Manager-1 in fact made the $4 million wire transfer reflected in the Bank Statement or made any other investment or capital commitment to ELLIOT SMERLING, the defendant, Limited Partnership-1, or General Partnership-1.

SMERLING was arrested and presented in the Southern District of Florida on February 26, 2021, before United States Magistrate Judge William Matthewman.

SMERLING, 52, of Lake Worth, Florida, is charged in three counts, with wire fraud, bank fraud, and aggravated identity theft.  Wire fraud affecting a financial institution carries a maximum sentence of 30 years in prison, and a maximum fine of $1 million or twice the gross gain or loss from the offense.  Bank fraud carries a maximum sentence of 30 years in prison, and a maximum fine of $1 million or twice the gross gain or loss from the offense.  Aggravated identity theft carries a mandatory sentence of two years in prison consecutive to any other sentence imposed and a maximum fine of $250,000 or twice the gross gain or loss from the offense.  The maximum potential sentences are prescribed by Congress and are provided here for informational purposes only, as any sentencing of the defendant will be determined by the judge.

Ms. Strauss praised the work of the Federal Bureau of Investigation. 

This case is being handled by the Office’s Complex Frauds and Cybercrime Unit.  Assistant U.S. Attorney Jilan J. Kamal and Timothy V. Capozzi are in charge of the prosecution. 

The charges contained in the Indictment are merely accusations, and the defendant is presumed innocent unless and until proven guilty.

[1] As the introductory phrase signifies, the entirety of the texts of the Indictment and the Complaint, and the descriptions of the Indictment and the Complaint set forth in this release, constitute only allegations, and every fact described should be treated as an allegation.