SEC Charges Chicago-Based Investment Adviser With Defrauding Investors in Failing Private Equity Fund

Friday, November 30th, 2012

The Securities and Exchange Commission (the SEC) recently charged a Chicago-based investment adviser and his firm with defrauding clients and others who were promised returns that would “beat the market” for investing in a private equity fund they managed.  What investors didn’t know was the fund was failing and they were being used to raise money to repay promissory notes to earlier investors.

The SEC alleges that Joseph J. Hennessy and Resources Planning Group raised more than $1.3 million by misrepresenting the Midwest Opportunity Fund as a viable private equity fund that could offer high returns.  Hennessy purportedly failed to tell investors about the fund’s poor financial condition or that their money was being used to repay Midwest Opportunity Fund promissory notes that he had personally guaranteed.  He then, allegedly, misappropriated client funds to make payments on the notes and prop up the fund.  The SEC claims that Hennessy used at least $641,408 to make partial payments to certain note holders, substantially reducing his personal liability on the notes.

According to the SEC’s complaint filed against Hennessy and Resources Planning Group in federal court in Chicago, Hennessy financed the Midwest Opportunity Fund’s acquisition of its largest portfolio company in 2007 in part by having the fund issue $1.65 million in promissory notes, all of which he personally guaranteed.  When the Midwest Opportunity Fund’s portfolio companies were unable to pay management fees later that year, the Midwest Opportunity Fund lacked sufficient funds to repay the notes.  From September 2007 to March 2010, Hennessy raised $1.36 million from Resources Planning Group clients and other investors to make payments on the notes.  Hennessy allegedly falsely told investors that the Midwest Opportunity Fund was viable and offered high returns.

The SEC further alleges that Hennessy misappropriated money from Resources Planning Group clients.  In November 2007, he raised $750,000 from three Resources Planning Group clients purportedly to invest in the Midwest Opportunity Fund.  But then Hennessy used that money to redeem another client’s investment in the fund.  Finally, the SEC alleges that twice in mid-2009 Hennessy forged letters of authorization from a widowed Resources Planning Group client to transfer $100,000 from her account to Midwest Opportunity Fund in exchange for promissory notes that have yet to be repaid.

The foregoing information, which is publicly available on the SEC’s website, is being provided by The White Law Group.  The White Law Group is a national securities fraud, securities arbitration, and investor protection law firm with offices in Chicago, Illinois and Boca Raton, Florida.

For more information on The White Law Group, visit http://www.whitesecuritieslaw.com.  For a free consultation with a securities attorney, please call the firm’s Chicago office at 312/238-9650.

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