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APRIL 15, 2009

Highflying Financier Faces Questions Over Fund Empire

By MARK MAREMONT

LOS ANGELES -- At a charity gala in Los Angeles, a young private-equity executive named Danny Pang showed he had
made it to the big time. Mr. Pang paid $100,000 to help stage the breast-cancer fund-raiser 18 months ago. Media
mogul Sumner Redstone was one of his co-sponsors. Mr. Pang had his picture taken with actress Felicity Huffman of
"Desperate Housewives."

Mr. Pang's résumé depicts a glittering success story: a Taiwanese immigrant who earned an M.B.A., worked on Wall
Street and now heads a $4 billion investment fund. He also became a partner in another fund firm with business
luminaries such as Frank Carlucci, the former defense secretary and ex-Carlyle Group chairman, and former
Lockheed Martin Chief Executive Norman Augustine.

But both Mr. Pang's past and his business may not be quite as they appear. The university from which he says he has
an M.B.A. and another degree says it has no record of either. Morgan Stanley, where Mr. Pang's bio says he was a
senior vice president and senior high-tech merger adviser, says it can find no record it ever employed him.

A former president of the firm Mr. Pang heads -- Private Equity Management Group Inc. in Irvine, Calif. -- says Mr.
Pang told him in 2007 that part of the enterprise involved a Ponzi scheme. The executive also alleges that Mr. Pang
improperly used some of investors' cash for the firm's benefit and once told him to deceive investors with a fake
insurance policy.

And at a venture-capital firm where Mr. Pang worked earlier, the CEO says he fired Mr. Pang for stealing $3 million
from an escrow account in June 1997.

That was a few weeks after a well-dressed man came to Mr. Pang's California home, confirmed that the woman who
answered the door was Mr. Pang's wife, and shot her dead. The murder remains unsolved.

Mr. Pang declined to be interviewed. Through a spokesman, he described almost every allegation about him as a
fabrication. There is no claim of any impropriety at the private-equity firm where he was a partner with Messrs.
Carlucci and Augustine. This week, after The Wall Street Journal had inquired about Mr. Pang's role at that firm,
called Frontier Group, a representative of the firm said Mr. Pang was no longer a partner there.

PEMGroup recently sought to get its ex-president to withdraw the allegations he had made. As part of an effort to settle
a legal dispute, the firm asked him to tell the Journal that what he told it before was untrue. It also offered a $500,000
initial payment that would be triggered by evidence the Journal wasn't doing an article. The ex-president refused the
offer.

A second accuser did retract one assertion. The venture-capital CEO who said Mr. Pang stole money and was fired later
sent the Journal a letter saying Mr. Pang left voluntarily. He didn't address his theft allegation.

Danny Pang was born Dec. 15, 1966, in Taiwan, where, according to people who know him, his mother's family was the
wealthy owner of a furniture-making business. He came to the U.S. as a youth. Later, at the University of California,
Irvine, he became a student leader, chairman of the Asian Pacific Student & Staff Association in 1988-89.

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University records, however, show a "Danny Pang" with his Social Security number and birth date enrolled only for a
single summer term, in 1986, and don't show that anyone with his name or Social Security number ever received the
degrees he lists. Asked how someone unenrolled could be a student leader, a university spokeswoman said, "He could
just walk on campus, be Mr. Personality and get elected chairman. How would they know if he was a student?"

Mr. Pang said through PEMGroup's spokesman that he got his degrees under a Chinese name he won't disclose. He
said several weeks ago he would provide proof of the degrees, but hasn't. He similarly said he would track down a
former colleague at Morgan Stanley to verify his employment there, but hasn't.

In the mid-1990s Mr. Pang became a partner at Sky Capital Partners, a venture-capital firm with offices in San Mateo,
Calif., and Taiwan. Its president and CEO, Michael Hsu, said in an interview that Mr. Pang later "stole my personal
money" by getting Mr. Hsu to set up a brokerage account and then using some of the cash in it himself.

Later, in June 1997, as Sky Capital was about to close an investment in a Silicon Valley start-up, Mr. Hsu said in an
email Mr. Pang "stole 3 million dollars from an investment escrow account by faking signature of mine and CEO of our
investment target." When confronted, according to Mr. Hsu, Mr. Pang said he "just needed the money."

Mr. Hsu says he didn't report the theft to police because it was an embarrassing internal scandal and he was asked not
to by Mr. Pang's family, a big investor in Sky Capital. Mr. Hsu says Mr. Pang traveled to Taiwan and confessed the theft
to Sky Capital's board. Mr. Hsu also says he recovered about two-thirds of the stolen money, in part by seizing Mr.
Pang's share of the venture-capital firm. In a March interview and in his email, Mr. Hsu said Sky Capital fired Mr.
Pang.

Through his spokesman, Mr. Pang denied either stealing or being fired, and provided a letter from Mr. Hsu, dated
April 8, that didn't address his theft allegations but that called Mr. Pang's departure voluntary. Asked about the letter,
Mr. Hsu said he wrote it because he didn't want to "get involved into a dispute."

PEMGroup took shape several years later. A local entrepreneur named Hiep Trinh says he met Mr. Pang and floated
the idea of a fund that would buy life-insurance policies from elderly people and collect when they died. The two men
and five others formed PEMGroup.

"We started talking to [Mr. Pang] because we thought he had a lot of money," says Mr. Trinh. He says he later realized
his new partner was in debt. He also says he was disturbed when Mr. Pang would make improbable claims about his
wealth and falsely tell outsiders the partners knew each other from college. "He was a consummate liar," Mr. Trinh
says. "He could lie about anything with a straight face."

Mr. Trinh says he concluded Mr. Pang was a big gambler, because "I would hear him on the phone making bets all the
time," and tough-looking men kept dropping by to see him. The PEMGroup spokesman said Mr. Pang visits Las Vegas
about three times a year and has no idea what the reference to tough-looking men is about.

Mr. Trinh, one of several partners who resigned in 2003, is involved in a lawsuit with PEMGroup, which has accused
him of improperly using a similar firm name to raise money for other ventures. He denies doing so.

Starting with its first fund in 2004, PEMGroup has raised hundreds of millions of dollars through Taiwanese banks. It
offers them notes that pay above-market interest, notes the banks can reoffer to individual clients. (PEMGroup says it
doesn't raise money in the U.S.) The Asian banks include SinoPac Financial Holdings Co., Taichung Commercial Bank
Co., Hua Nan Financial Holdings Co. and a unit of Standard Chartered PLC.

One way PEMGroup has used cash it raises is to invest in debt of U.S. companies. For instance, it lent money to Emrise
Corp., an electronics concern in Rancho Cucamonga, Calif. That firm's chief financial officer, John Donovan, calls Mr.
Pang "a very sharp guy." PEMGroup also invests in U.S. time-share properties and buys the rights to payouts on
life-insurance policies.

Several associates describe Mr. Pang, who speaks in heavily accented English, as a shrewd judge of character, adept at
discerning what motivates people. They say he wins trust in part by projecting an air of success -- wearing expensive
suits, staying in top hotels and reciting career accomplishments. "He's very, very convincing in the beginning," says
Nasar Aboubakare, a California entrepreneur who put up most of PEMGroup's initial capital, became its president --
and now is a detractor.

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Mr. Aboubakare, 42 years old, who says he and Mr. Pang were once like brothers, was fired in 2007 and is embroiled
in a bitter battle with Mr. Pang and PEMGroup, both in California state court and in an arbitration action.

PEMGroup's spokesman says Mr. Aboubakare was fired for taking $3 million in kickbacks from a vendor and for
sexual misconduct. Mr. Aboubakare admits taking the kickbacks, which he says he returned, and notes that he wasn't
fired until many months later. He says he had an affair with an employee but denies that it constituted misconduct.

In turn, he makes numerous allegations. As PEMGroup's No. 2 executive, he says, he participated in, and heard about,
instances of improper conduct.

Mr. Pang made frequent trips to Taiwan to recruit bank investors and would stay in the presidential suite at the Grand
Formosa Regent Taipei. There, according to Mr. Aboubakare, to Mr. Trinh and to one other ex-partner, Mr. Pang
frequently entertained prostitutes. The PEMGroup spokesman called the allegation false.

In 2006, according to Mr. Aboubakare, PEMGroup raised a fund that was supposed to be invested in time-share
resorts in the U.S. But when PEMGroup couldn't find enough properties to invest in, he says, Mr. Pang decided to use
about $15 million of the money to buy the firm a Gulfstream IV jet. Mr. Aboubakare said Mr. Pang often used it for
personal travel; he called the purchase a misuse of investor funds.

The PEMGroup spokesman denied any misuse of money, saying the fund's prospectus permitted investing unused
proceeds in "other instruments." The spokesman said this was done by making a secured loan to an affiliated firm that
used the cash to buy the jet, a loan that was repaid in six months.

On July 12, 2007, Mr. Pang used the jet to take a group of women from PEMGroup's California offices to Las Vegas for
a party. Mr. Aboubakare says that on the return flight the next day, Mr. Pang, having won at a casino, "had a briefcase
stuffed with cash and he started throwing money to the girls, stacks of $10,000. I thought it wasn't right to treat the
girls from the office that way, like we were pimps and gamblers."

PEMGroup's spokesman confirmed the firm took the women to Las Vegas -- "as a reward for good work" -- and said
Mr. Pang "did show them his winnings."

To reassure investors, PEMGroup often purchased insurance on its investments. Mr. Aboubakare says some of this
coverage was fake.

In early 2007, he says, a PEMGroup affiliate called GVEC Resource IV bought a $31.6 million policy from a unit of
HCC Insurance Holdings Inc. to cover investments in time-share properties. But because the policy wasn't large
enough, Mr. Aboubakare says, Mr. Pang directed him and another executive to create a phony document raising the
covered amount to $108 million. Mr. Aboubakare says he personally showed this fake policy to investors and sent it to
PEMGroup's Taiwan office.

HCC, shown documents, confirmed that the $31.6 million policy was genuine but said the $108 million policy was not.
"It looks to me like a forgery," an HCC official said.

The spokesman for PEMGroup said the firm and Mr. Pang never authorized any forgery and didn't discover the
insurance document until after Mr. Aboubakare left, adding that to the firm's knowledge, the document wasn't shown
to investors or sent to Taiwan.

Part of PEMGroup's business is buying life-insurance policies from older people at a discount, collecting after they die.
But a problem arose in 2007, Mr. Aboubakare says, when policies weren't paying off at the projected rate -- "everybody
lived a long time."

According to him, the remedy was a Ponzi scheme, an arrangement in which existing investors are paid with money
from new ones. Mr. Aboubakare says that to meet the above-market interest due investors in Taiwan, PEMGroup used
cash from a new fund to "pay earlier life settlements that were nonperforming. That's when the whole Ponzi scheme
started." One day in mid-2007, he says, Mr. Pang came into his office and said: "Nasar, I want you to know we are in a
Ponzi scheme." He adds that Mr. Pang stated he would fix the problem by doing well on another investment.

Mr. Aboubakare says when he persisted in asking questions about the arrangement, he was "kept out of the loop" and

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then in September 2007 was fired. He made his Ponzi-scheme allegation both in interviews and in the arbitration
action that followed his firing.

The PEMGroup spokesman, Mike Sitrick, called the idea of a Ponzi scheme a "total fabrication." He said the firm set
aside all the money needed to pay investors. Several investors say the firm has always met its interest and principal
obligations.

The arbitration action after Mr. Aboubakare's firing involved, among other things, the value of his 27% share of
PEMGroup. Settlement talks began a few months ago. They intensified after PEMGroup learned Mr. Aboubakare was
in touch with the Journal and Barry Minkow. Mr. Minkow is a onetime teenage investment whiz who went to prison for
the ZZZZ Best affair, a prominent 1980s scandal,and now is a pastor who seeks to expose frauds.

A lawyer for PEMGroup, Charles Schmerler of Fulbright & Jaworski, proposed on March 17 that PEMGroup would pay
Mr. Aboubakare at least $500,000 to settle the dispute. The letter states that the $500,000 payment would be
triggered by evidence the Journal had dropped plans for an article. The lawyer drafted a letter for Mr. Aboubakare to
send the Journal. In it, he was to say that his statements to the Journal and to Mr. Minkow were false and that he had
made them partly because stress "affected my judgment and mental well-being."

PEMGroup said this draft letter was part of lengthy settlement negotiations. It said the language was suggested by Mr.
Aboubakare's attorney, who denies this. Mr. Schmerler declined to comment.

Mr. Aboubakare acknowledges that he would have been willing to stop talking to the Journal to obtain a settlement,
and that he initially talked to the paper to put pressure on his former company. But Mr. Aboubakare says he "was
flabbergasted" by the proposal and rejected the idea out of hand. He says he stands by his allegations.

Last week, PEMGroup took down its extensive Web site, which included Mr. Pang's biography, leaving a message that a
new site was being developed.

—John Hechinger in Boston and Ting-I Tsai in Taipei, Taiwan, contributed to this article.

Write to Mark Maremont at mark.maremont@wsj.com

Printed in The Wall Street Journal, page A1

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