Due Diligence on the Investment Is Not Enough: Why People With Fund Access Need Review

A federal indictment filed in Puerto Rico has charged a former private equity fund manager with one count of embezzlement of bank funds, five counts of money laundering, and one count of conspiracy to commit money laundering. According to court filings, the individual allegedly conducted a series of unauthorized asset transfers from a private equity fund he managed between May 2024 and July 2024, using those funds for personal purposes unrelated to allowable investments under the fund. The transactions were not approved by the fund's investment committee. According to regulatory filings, the individual was subsequently terminated by his former firm following the identification of these unauthorized transactions. 

In 2025, he was barred by the Financial Industry Regulatory Authority (FINRA) for allegedly failing to respond to a request for information from the regulator following that termination. The allegations in the federal indictment have not been proven.

The diligence question this case raises Cases like this are a reminder that due diligence on a fund or investment opportunity is not the same as due diligence on the individuals who control access to its assets. Financial review, fund structure analysis, and investment strategy evaluation are standard components of any serious pre-investment process. What receives less consistent attention is the background of the people with operational authority over fund assets who have the ability to initiate transfers, approve transactions, or otherwise direct how capital moves.

That is a separate and material question.

What a thorough background review surfaces For individuals in positions of financial control, a thorough background check covers more than identity verification. It includes:

• Employment history and the circumstances of prior departures

• Regulatory registration status and disciplinary history

• Litigation records, liens, and financial exposure

• Sanctions and watchlist screening

• Prior regulatory actions or inquiries

• Reputational analysis and media coverage

For registered representatives or individuals with FINRA registration history, regulatory records are publicly accessible and contain meaningful information about disciplinary actions, terminations for cause, and pending investigations. That information is part of the diligence picture and it belongs in a review of someone with material access to fund assets.

Why the sequence of events matters The timeline described in this case illustrates why diligence cannot function as a point-in-time exercise. An initial background check captures what is known at a given moment. It cannot capture what happens next.

In this case, a 2026 federal indictment followed a 2025 regulatory bar. The regulatory bar followed a 2024 termination, which followed an internal review of unauthorized transactions that had already occurred. Each development — the internal findings, the termination, the regulatory inquiry, the federal indictment — represents information that would be material to any investor or institution with ongoing exposure to that individual.

For parties who had conducted initial diligence, continuous monitoring would have surfaced those subsequent developments as they occurred. Without it, that information reaches investors only if they go looking, or when it is too late to be actionable.

Knowing who controls the fund is a diligence question Investment due diligence focuses, appropriately, on the quality of underlying assets, the soundness of strategy, and the financial structure of the opportunity. But capital does not move on its own. The individuals with operational authority over fund assets, the ability to transfer funds, authorize transactions, or act on behalf of the fund, represent a category of risk that belongs in the diligence process.

Knowing who has access to the money is not a separate exercise from investment due diligence, it’s part of it.

What this case continues to illustrate Enforcement actions in private markets follow patterns the investment community has seen before: a gap between what was known at the outset and what became visible over time, and a lag between when risk developed and when it was reflected in the information being relied upon.

Thorough initial diligence on the individuals behind a fund, not just the fund itself, reduces exposure at entry. Continuous monitoring ensures that changes to regulatory status, employment history, or legal circumstances are surfaced as they occur, not after the fact.

Due diligence that covers the financial structure of an investment but not the people with authority over it is not complete.

Source: Langton, J. 2026, July 9. PE fund manager charged with embezzlement. Investment Executive. Link.