Bourgeois Case Concerning Private Equity Valuation Manipulation During Fundraising

Mark Bourgeois headed investor relations for Abraaj Investment Management (“Abraaj”).
In March 2022, the Securities and Exchange Commission entered into a settlement with Bourgeois alleging that he recommended that portfolio write‐downs be delayed until after the completion of a fundraising.

From 2017 through the beginning of 2018, while marketing a new private equity fund, Abraaj personnel responsible for valuations stated internally that certain write‐downs were needed for a number of portfolio companies.
While Bourgeois did not develop or approve the valuations himself, he recommended that Abraaj delay the write‐downs because they would negatively affect fundraising.
Abraaj accepted Bourgeois’ recommendation.
- Analysis: Discussing valuations internally and opining on how a change in valuation might affect a fundraising is a very common and normal occurrence at private equity firms. However, the line between valuation manipulation and simple deliberation can be thin and gray. We believe that similar fact patterns are common across the industry and that this case should be carefully analyzed by compliance departments.

Pressure on Marketing and Valuations: This case demonstrates that pressure on fundraising could spawn non‐compliant behavior. This pressure will be exacerbated in the coming months as we believe that we have entered into a bear market for private equity fundraising. Given that dynamic, valuations as well as marketing should now be a key focus for compliance.
Documentation: Internal disagreements about the value of holdings frequently occur in private equity and could be recorded in valuation committee minutes, notes or emails. A record of those disagreements could be misinterpreted by regulators and establishing clarity around the reasoning for a chosen value is important. Therefore, managers should create sufficient documentation to evidence that only appropriate factors were considered in striking a value.
Need for Expertise: This case also demonstrates the limitations of process at tightly controlled managers. In many instances, compliance programs need to review the substance of valuations, not just the process. However, compliance departments have been slow to develop sufficient expertise to do so. Managers should consider developing such expertise either internally – through hiring or partnership with finance, or externally – by hiring advisers or valuation agents.
Testing: Selectively testing the substance of private equity valuations will become critical as fundraising becomes challenged.