Subscription credit facilities are generally recognized as a useful tool for PE funds to navigate complicated timing issues when making investments while also potentially improving their internal rates of return. Due to those benefits, subscription facilities have become increasingly popular over the last few years and are now nearly ubiquitous among PE funds. Recently, however, subscription credit facilities have been in the spotlight for less favorable reasons following the alleged fraud by the managing director of a PE sponsor. A complaint (Complaint) filed in the U.S. District Court in the Southern District of New York accuses the managing director of wire fraud and aggravated identity theft based on his use of falsified documents to improperly prompt a bank to advance millions of dollars under the fund’s subscription credit facility. Despite being only the second incident of fraud involving a fund financing facility, the circumstances have raised concerns in the industry that a new set of bank or LP restrictions may be imposed on the facilities to prevent future misconduct. This article summarizes the Complaint and provides insights from attorneys about the potential implications of the case for PE sponsors. See our two-part series on trends in the use of subscription credit facilities: “Advantages for PE Investors and Sponsors Have Led to Adoption by Some Hedge Funds and Credit Funds” (Jan. 24, 2019); and “Structuring Considerations Negotiated With Lenders and Important LPA and Side Letter Provisions” (Feb. 7, 2019).