Michigan investor sues Kohlberg Capital over alleged fraud

Kohlberg Capital Corp. has been sued by Dennis Angeleri, a Michigan investor who said the investment company taken public in 2006 by a firm affiliated with buyout specialist Jerome Kohlberg fraudulently misstated the value of its portfolio.

The lawsuit filed on New Year’s Eve in Manhattan, N.Y., federal court seeks class-action status, and names CEO Dayl Pearson and CFO Michael Wirth as other defendants. The suit alleges that Kohlberg Capital misled investors about how it valued its holdings as early as March 2009.

In November, auditor Deloitte & Touche questioned how the company was valuing its loan portfolio, and Kohlberg Capital delayed filing third-quarter results.

Then on Dec. 15, Kohlberg Capital said investors should not rely on its financial statements for 2008 and the first half of 2009. Nine days later it released a letter from Deloitte saying that management “essentially ceased providing substantive information” on Dec. 14 and that “significant unanswered questions and unfulfilled information requests” remained.

In his complaint, Angeleri said Pearson and Wirth’s conduct “artificially inflated Kohlberg’s stock price and operated as a fraud or deceit on purchasers of Kohlberg stock by misrepresenting the company’s financial condition and business prospects.”

The lawsuit seeks compensatory damages and other remedies. The class period covers March 16 to Dec. 24. While Kohlberg Capital shares more than doubled in that period, they have lost one-third of their value since peaking at $6.90 on July 2.

Denise Rodriguez, a Kohlberg Capital spokeswoman, did not immediately return a call seeking comment. —Jonathan Stempel, Reuters