Subscription Credit Facilities Fraud Highlighted by Elliot Smerling Case
Posted on 05/20/2021
An executive from Florida-based JES Global Capital has been indicted on charges he lied about his investors in order to obtain a US$ 95 million bank loan for his $500 million fund, according to federal prosecutors in Manhattan. Fraud in subscription credit facilities are a crime.
Elliot S. Smerling (age 52) of Lake Worth, Florida was charged with wire fraud and bank fraud, each carrying a maximum 30-year prison term, as well as aggravated identity theft. Silicon Valley Bank sued Smerling on March 24, 2021, complaining he fraudulently obtained the loan after saying he had backing from prominent investors like billionaire hedge fund manager and New York Mets owner Steven Cohen of Point72 Asset Management. Prosecutors said Smerling submitted a forged audit letter and falsified bank records for a wire transfer. Silicon Valley Bank disclosed Smerling drew the US$ 95 million from a US$ 150 million credit line it provided, and had yet to repay US$ 80 million. Smerling forged the signature of the chief investment officer of an endowment fund of a private university in New York, falsifying a US$ 45 million subscription commitment.
Manhattan U.S. Attorney Audrey Strauss said: “As alleged, Elliot Smerling went to elaborate measures to create a blatantly false picture of the financial underpinnings of a private equity fund in order to obtain a $95 million line of credit. Through a forged audit letter and falsified subscription agreements and bank statements, Smerling allegedly induced a California bank to make a loan commitment it never would have made had it known the truth. Now, the truth has landed Elliot Smerling in federal court.”
FBI Assistant Director William F. Sweeney Jr. said: “Falsifying information in order to secure a loan, regardless of the amount, is a crime. When the loan secured is nearly $100 million, the stakes are even higher. As alleged, Smerling engaged in illegal practices in order to benefit his interests. Today he’s learned the consequences of his alleged actions.”
Smerling was arrested in February 2021, and a federal judge in West Palm Beach, Florida on March 3, 2021 ordered him jailed.
JES Global Capital has a GoDaddy hosted website at http://jesglobalcapital.com/.
SVB Financial Group (parent of Silicon Valley Bank) reported in an SEC filing, “Includes anticipated loan charge-offs due to JES Global Capital, L.P. fraud (a potential credit exposure currently estimated to be up to $70 million, net of tax).”
On his LinkedIn page, Elliot S. Smerling claims to have been a Partner at Huntsman Gay Partners (now known as HGGC) from October 2006 to November 2013.
Image credit: LinkedIn.
Keywords: JES Global Capital GP III, LLC.