Entrepreneurs and investors, beware! A con is sweeping across the globe involving the identity theft of private equity firms. And, so far, Battery Ventures and The Carlyle Group are known to be affected.
Mike Kessler, whose computer forensics firm was retained by Battery, says that his discussions with Interpol and other law enforcement agencies suggest that the scams are probably perpetrated by a global syndicate.
“What they do is charge upfront fees for financing, or for access to an IPO,” says Kessler from his New York office. “The IPOs are for non-existent companies but they are very good at mocking up websites that make it appear as if they are legitimate transactions.”
The case involving Carlyle came to light last month when Beijing-based financial advisor Jor Law met with the American Union International Investment Group (AUIIG), on behalf of a Chinese textile entrepreneur who was searching for a loan.
Law, a founding member and executive director of Axiom Group, says that his firm was asked to draw up a formal business plan for the textile manufacturer, which had already agreed in principal to accept an undisclosed loan amount from AUIIG. Axiom prefers to walk clients through the financing process, so Lor insisted that he have a due diligence meeting with the prospective lender at AUIIG’s offices in Beijing’s well-known CITIC building (which is across the street from the St. Regis Hotel).
At the AUIGG offices, Law was led past a bullpen-type area with lots of small cubicles until he arrived in a conference room. There were U.S. and China flags on small stands on the tables and a pair of larger flags hanging on floor-stands. It was the meeting itself that caused Law to wonder if he was sitting in the middle of a boiler room.
“I was just looking for a brief introduction, but they were very secretive,” Law recalls. “They refused to provide even basic details … and said that if I didn’t know enough about them, that I could get any information I needed from their website. Then they handed me a piece of paper with their website address on it, and that was basically the meeting.” Law looked up the website, and he began to notice that AUIIG’s profile looked suspiciously like that of U.S.-based private equity giant Carlyle, with which Law had a relationship.
Most obvious was the profile of AUIIG’s “Peter J. Siemens,” who the website biography identified as having “played a leading role in several of AUIIG’s most successful investments, including Magnavox Electronics, Aviall Inc. and Federal Data Corp.” This reminded Law of Peter J. Clare, a managing director with Carlyle who had invested in Magnovox, Aviall and First Data. When he compared both biographies, he found four identical paragraphs, including the claim that Siemens had received an MBA from the Wharton, the alma mater of Law and Clare.
Law contacted Carlyle and sent over a series of screenshots of the AUIIG pages. Carlyle, in turn, contacted federal authorities, and unsuccessfully began trying to reach AUIIG. Soon after, AUIIG removed some of its more biographical information (including any mention of a “Peter J. Siemens”), and then changed it again after more plagiarized information was reported last week by PE Week Wire. As of late last week, however, the www.auiig.com site still displayed material lifted directly from www.carlyle.com. The AUIIG situation is troubling to investigators because it is hardly an anomaly.
Battery Ventures, for example, recently learned that an organization calling itself American Battery Investment Group (ABIG) launched a website that featured headshots of Battery partners, an identical investment portfolio and links to news articles discussing Battery Ventures. Similar to AUIIG, ABIG is domiciled in China, but features a California mailing address that investigators believe is one of a series of mail drops worldwide.
While it is easy to characterize victims in these cases as unsophisticated businesspeople, Kessler, the computer forensics expert, says that he has seen wire transfers to the suspected Chinese companies come from educated individuals who are anything but first-time investors.
Law says that AUIIG was charging an upfront fee for the loan and that AUIGG was planning to charge an interest rate so extreme that he described it as “loan sharking.”
John Stark, head of Internet Enforcement for the Securities and Exchange Commission, declined to discuss ongoing investigations – nor would he confirm that investigations of AUIIG and ABIG existed. But he says that possible charges can run the gamut from securities and wire fraud to copyright and trademark fraud.
Stark and Kessler suggest that firms search the Internet to see if their site is being used in a similar manner. A basic search of certain key, firm-specific phrases should work, although it also might be worth doing a Chinese-language translation and running it on Baidu.com.
Stark adds that anyone who learns of a mimicked site should contact his office by sending an email to enforcement@sec.gov. “The main way we become aware of these situations is through tips from the public, particularly when we’re dealing with private equity,” he says.
PE Week tried contacting AUIIG and ABIG, but was unsuccessful.
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