US financial regulators are turning their sights on private equity firms after winning a string of legal cases against hedge funds, according to law firms working with the buyout industry.
The Securities and Exchange Commission's clampdown on the hedge fund sector, which culminated in a record $1.8bn fine for insider dealing slapped on SAC Capital in November, is expected to lead to closer scrutiny of other corners of the alternative investment industry, particularly private equity firms, lawyers said.
(Read more: Private equity needs to act 'maturely': Report)
"Private equity investigations are at the stage where hedge funds were five years ago," said Timothy Spangler, a partner at law firm Sidley Austin.
John Carney, a former securities fraud chief at the SEC and currently co-head of corporate investigations at BakerHostetler, another law firm, said there was growing "scrutiny" of the private equity industry as "fraud follows money".
Mr Carney said Mary Jo White, who became chair of the SEC in April, "has filled her enforcement ranks with a number of her former lieutenants" from her time as attorney for the Southern District of New York who have a "native comfort" using aggressive tactics such as undercover agents, paying bounties to whistleblowers or setting up offshore funds to "attract the mice to the trap" and uncover white-collar crime.
Mr Spangler said there had been few prosecutions of private equity firms in the past five years, but this was likely to change.
"These proven investigatory techniques and the young generation of prosecutors looking to make a name for themselves look like a volatile combination," he said. He added that US prosecutors are making greater use of techniques such as wiretapping, informants and "witness flipping" – turning junior employees into co-operative witnesses and getting them to draw senior staff into an investigation.