SDNY Probes Private Credit Valuations Amid Fraud Allegations

The private credit market, valued between $1.8 trillion and $3 trillion, is under investigation by the Southern District of New York (SDNY). Authorities are probing potential misconduct in asset valuations, including "cherry-picking," which may inflate management fees.

BlackRock TCP Capital Corp. (TCPC) slashed its net asset value (NAV) by 19% in January 2026, from $8.71 to between $7.05 and $7.09. This triggered a 13% stock drop and multiple investor fraud lawsuits.

The probe follows 2025 bankruptcies revealing valuation manipulation. Tricolor Holdings attempted to double-dip $2.2 billion in collateral, while First Brands inflated invoices. The SEC and DOJ have joined the investigation.

SEC Chairman Paul Atkins confirmed a coordinated crackdown on fraud in private credit. For investors, this scrutiny may reveal inflated performance numbers and lead to tighter compliance. Regulatory changes could reshape asset valuation reporting standards.