Shares in boutique investment bank PJT Partners Inc. fell by as much as 24 percent on Monday after a former partner was arrested on Saturday on charges he orchestrated a $95 million scheme to defraud investors, U.S. prosecutors said.
Andrew Caspersen, who had worked at PJT's Park Hill Group since 2013, was named in a criminal complaint filed in federal court in Manhattan, charging him with securities fraud and wire fraud.
The U.S. Securities and Exchange Commission filed a parallel civil lawsuit, accusing Caspersen of engaging in the fraud using a shell company he controlled whose name was deceptively similar to that of an Irving Place Capital private equity fund.
PJT said in a statement it was "stunned and outraged to learn of the fraudulent circumvention and violation of the firm's compliance policies and ethical standards" by Caspersen.
PJT dimissed Caspersen on Monday, according to a source.
Caspersen, 39, appeared in federal court on Monday. His lawyer did not immediately respond to a request for comment.
Headquartered in New York, PJT was founded by veteran dealmaker Paul Taubman in 2013, and has muscled its way into high-profile deals.
The bank is advising China's Anbang Insurance Group on its $14 billion bid to buy Starwood Hotels & Resorts Worldwide Inc .
"Looking at it from the outside, it looks like it was just a bad apple as opposed to some kind of a systemic problem," said Jeffery Harte, an equity analyst at Sandler O'Neill + Partners L.P., a boutique investment bank.
"But I suspect people will ask how do we know this won't happen again," Harte said.
PJT's stock was down 11.8 percent on Monday afternoon, after dropping as much as 24.3 percent to a record low earlier in the day.
Prosecutors said that beginning in July 2015, Caspersen fraudulently solicited investments by falsely claiming he had authority to conduct deals on behalf of his employer with another private equity fund.
"Caspersen allegedly put on a shameful charade - creating fake email addresses, setting up misleading domain names, and inventing fictional financiers," U.S. Attorney Preet Bharara said in a statement.
Authorities said Caspersen obtained $25 million from a foundation affiliated with a New York hedge fund and one of the fund's employees claiming their investment would be secured by $900 million of assets of Irving Place Capital Partners III SPV.
Instead, Caspersen took control of the funds for his own use, trading securities in his personal brokerage account, and largely lost the money due to aggressive options trading, prosecutors said.
Shortly before his arrest, Caspersen sought another $20 million from the same foundation and $50 million from another New York private equity firm, prosecutors said.
A source with knowledge of the matter said the fraud started while Caspersen's employer, Park Hill, belonged to Blackstone Group LP, the world's largest asset manager among buyout firms. The source declined to be named due to the sensitivity of the matter.
Park Hill, a leading financial services firm in the private equity industry, was sold by Blackstone to PJT in 2014. The sale was completed in Oct 2015. Blackstone said it is cooperating in the investigations.
PJT was alerted to the fraud on March 14 by an unnamed third party, upon which it hired an outside counsel and alerted the U.S. Attorney's Office in Manhattan, the source said.
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