The Securities and Exchange Commission has obtained a temporary restraining order against AA Capital Partners, after alleging that the Chicago-based private equity firm misappropriated nearly $11 million from clients and distributed the money to a strip club and other businesses owned by AA Capital Managing Director John Orecchio.
AA Capital was formed in 2001 as a spinout from the ABN Amro Fund Investment Group to make direct investments and fund-of-funds commitments. It manages more than $194 million for six union pension funds, including the Detroit Police and Fire Retirement System.
AA Capital’s fund-of-fund portfolio includes Charterhouse, ComVentures, De Novo Ventures, Evergreen, Gabriel Venture Partners, Leonard Green & Partners, Mission Ventures, Quantum Value Management, Sterling Partners, The Jordon Co. and Veritas Capital. Its direct investment portfolio includes a number of hotel, casino and housing projects, plus a music publishing company.
According to an SEC summary of the complaint:
“AA Capital withdrew at least $5.7 million from its client trust accounts in more than 20 separate installments and sent the client funds to various accounts Orecchio designated, including those of a Michigan horse farm owned by Orecchio and a company that manages a Detroit strip club. The complaint further alleges that Orecchio told AA Capital’s CFO that the withdrawals were needed to reimburse him for what he claimed was a miscalculation of taxes he owed relating to at least one of AA Capital’s affiliated private equity funds. The Commission’s complaint also alleges that, during 2005, AA Capital misappropriated at least $5 million in client funds to cover the shortfall between its revenues and its operating expenses. The complaint further alleges that AA Capital misrepresented the nature of the withdrawals by sending monthly account statements to its advisory clients that falsely characterized the withdrawals as “capital calls” on the clients’ existing investments.”
Orecchio is one of three managing partners of AA Capital, but the complaint puts most of the direct bad acts on him. It adds, however, that other senior AA Capital managers knew of the fraud by early 2006, but continued to make payments into accounts designated by Orecchio. This included more than $1 million to the strip club operator and $610,000 to the horse farm, the complaint alleges.
AA Capital suspended Orecchio on Aug. 31, after having met with the SEC. Orecchio continues to be listed on the firm’s website as an active member, and he still has equity stakes in AA funds and owns 50% of the general partnership. Fellow Managing Partners Paul Oliver and Charles Walls continue to retain their positions, although law firm Barack Ferrazzano has been appointed temporary overseer of the AA Capital portfolio.
Oliver directed all questions to in-house Marketing Director Jennifer Pedigo, but she did not return messages left for her by PE Week.
According to AA Capital’s website, Orecchio joined the firm in November 2000 after serving as a managing director of Bank of America Capital Corp. (BACC), a subsidiary of Bank of America Corp. The website states: “At BACC, Mr. Orecchio was one of two Managing Directors responsible for the day to day management of its $5.0 billion private equity fund investments portfolio and was a member of the firm’s Investment Committee, which was responsible for all investment decisions related to the portfolio.”
Orecchio is said to have a master’s degree from Northwestern University’s Kellogg Graduate School of Business and a bachelor’s in finance from the University of Notre Dame.