Search Results

November 14, 2018  

Princeton Alternative Funding Probed by SEC

The SEC is investigating Princeton Alternative Funding, a direct-lending operation that filed for bankruptcy earlier this year.

The SEC is examining the Princeton, N.J., firm for possible violations of securities law stemming from “certain pre-bankruptcy transactions and practices,” according to a filing in U.S. Bankruptcy Court in Trenton. The regulator put the court on notice that it may file a civil complaint against Princeton Alternative that could result in fines and other penalties — and put the SEC in line with other unsecured creditors.

During a hearing on Nov. 6, bankruptcy Judge Michael Kaplan cited the SEC probe in ordering a trustee to take control of Princeton Alternative, which no longer has any employees and apparently is being managed by an affiliate. A trustee has yet to be named.

The investment manager filed for Chapter 11 bankruptcy protection in March amid a nasty legal battle with its largest investor, Ranger Capital of Dallas, which plowed more than $60 million into Princeton Alternative Income Fund when it launched in 2015. Ranger deployed most of that capital from its Ranger Direct Lending Fund, a publicly traded vehicle that debuted on the London Stock Exchange in 2015. Ranger’s investment accounted for the vast majority of Princeton Alternative’s assets.

The relationship quickly soured, however, prompting Ranger to submit a redemption request in late 2016. Princeton Alternative didn’t honor the withdrawal, in part because it had invested $37 million in a consumer-finance company called Argon Credit that filed for bankruptcy around the same time Ranger was trying to get its money back.

The result was an arbitration dispute in which Ranger accuses Princeton Alternative of providing little information about the Argon Credit position and inflating the value of its assets. Ranger also alleges that Princeton Alternative concealed the fact that its business is controlled by Philip Burgess, whose family owns consumer-credit data supplier MicroBilt of Princeton. Burgess was convicted of tax evasion in 2009.

In August, an arbitration panel ordered Princeton Alternative to pay Ranger $30.7 million — an amount that’s uncollectable pending the outcome of the bankruptcy case. Although the case was filed under Chapter 11, which typically signals an intent to keep the business afloat, Judge Kaplan has said he plans to liquidate Princeton Alternative’s fund, which encompasses all of the firm’s remaining assets.

In deciding a trustee should be in charge, Judge Kaplan said he was concerned about the potential for abuse given the “extreme animosity” between Princeton Alternative and Ranger. Their relationship, he said, had “devolved into a warring and litigious conflict.”

Despite the turmoil, Princeton Alternative reported that its fund was up 8% year-to-date through August — excluding a side pocket containing the Argon Credit position. The firm also reported assets of $60 million.

Ranger has about $2 billion under management. Earlier this year, the board of Ranger Direct Lending Fund said it would seek to replace Ranger as the fund’s investment manager and install Ares Management in its place. But facing opposition from Oaktree Capital, which owns about 19% of the fund, Ares withdrew from consideration. The board of Ranger Direct Lending Fund subsequently began liquidating the vehicle.

The SEC’s filing in the Princeton Alternative case was submitted by agency attorney Neal Jacobson, who also has played a lead role in the SEC’s case against Platinum Partners.