AA Capital Partners and some of its partners have a lot of explaining to do about some missing money. The Securities and Exchange Commission slapped the Chicago-based private equity firm with a temporary restraining order and appointed a manager after the agency charged AA with misappropriating some $10.7 million from half dozen union pension fund clients. The firm, a spinoff five years ago from ABN Amro Fund Investment Group, has been accused of using the money for renting private jets, Super Bowl tickets, political campaign contributions and for running a strip club in Detroit. The SEC says the firm made more than $2 million in management fees last year, which are supposed to be used to keep the firm going, but had more than $7 million in “operating expenses,” and allegedly dipped its hands into the client pot. More specifically, the commission is focusing on one of the firm’s managing partners, John Orecchio, who the SEC says helped himself to “at least $5.7 million” from client trust accounts in 20 small payments for the above-mentioned expenses, as well as a horse farm he owns in Michigan and repayment to himself after he allegedly paid out a tax miscalculation with his own money. Now here’s the strange part: According to Daniel Primack, who reported details of the case in PE Week Wire, the other managing partners did not suspend Orecchio until after the SEC confronted the firm with the charges. “What I cannot understand is why those partners did not immediately throw Orecchio out the door once they found out, or at least resign themselves,” Primack writes. “And there is an outstanding question as to how a firm of this size had so few financial controls that Orecchio was so easily allowed to divert cash into inappropriate accounts.” For now, the law firm Barack Ferrazzano has been put in charge of minding the cookie jar, and other things, at the firm.
