Hercules Capital Plunges as CEO Charged in Admissions Scheme

(Bloomberg) -- Hercules Capital Inc. investors took a beating Tuesday as its Chief Executive Officer Manuel Henriquez was among those charged in an alleged college-admission cheating conspiracy.

The company’s shares dropped as much as 10 percent during the day, before closing down 8.9 percent. The firm facilitates loans to startups and venture capitalists, and lists Facebook Inc. and Pinterest Inc. among companies it has worked with.

Federal prosecutors allege that Henriquez, along with his wife, participated in the cheating scheme on four separate occasions for their two daughters. Dozens of people including wealthy parents, university coaches and a college-admissions counselor were involved in the sweeping conspiracy to help applicants win admission to elite schools, according to the U.S. Attorney in Boston.

“While we do not want to underestimate the importance of Mr. Henriquez to the company, it is important to point out that the indictment is a personal matter and does not in any way involve Hercules itself,” Wedbush analyst Henry Coffey wrote in a note to clients. Coffey also pointed that apart from founding the company, Henriquez also led it through the financial crisis, and was responsible for its current prominence and growth.

An investor relations representative for Hercules didn’t immediately reply to an emailed request for comment.

Though it is hard to predict how the situation will play out, the selloff in the stock potentially reflects the distraction that investors expect to result from the charges, as well as the possibility of any eventual restrictions on Henriquez.

Raymond James analyst Robert Dodd echoed the idea that the charges did not appear to have any relation to activities at the company, but noted that “could obviously have some impact on management.”

Manuel and Elizabeth Henriquez surrendered to the FBI on Tuesday and were each released on a $500,000 bond following a court appearance. Jeff Brown, an attorney for the couple, declined to comment on the charges outside the courtroom. Both appeared stunned in court, with Manuel Henriquez shaking his head and looking down as the judge detailed the charges against them.

According to a statement submitted by an FBI agent in the case, the Henriquezes allegedly paid for phony proctors to help their two daughters cheat on standardized tests and arranged to bribe the head tennis coach at Georgetown University to designate their older daughter as a recruited athlete to help her win admission to the prestigious Washington school. The tennis coach was also charged.

The FBI agent said the payments were disguised in a $400,000 contribution to a phony charity for disadvantaged youth set up by the ringleader of the scam. Manuel Henriquez is also accused of making a deal to cover costs for one of the hired test proctors by using his clout as a former member of a governing body of his alma mater, Northeastern University in Boston, to help a high school student win admission.

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