Private credit and fraud are teaming up to hit the news cycle again. The latest story relates to the conflicts among private credit, private equity, and insurance.[1] This has resulted in one of the most successful sports franchise owners abruptly selling stakes in teams he owns.
The Los Angeles Lakers NBA team was just sold for a cool $2.5 billion profit, after only 14 months of ownership. While this sounds like it was a great return on investment, the transaction was likely a forced sale by the owner, Mark Walter, after a federal probe into Walter’s financial empire. The implications for this recent liquidity event are not limited to the sports sphere. Rather, it is a case study on the agency costs highlighted by our recent article[2] and portends future conflicts of interest in private credit, private equity, and, more recently, insurance.
At its core, private credit is nothing more than non-bank lending. In recent years, however, the sector has exploded in size, led by Apollo, KKR, and Blackstone. Since the 2008 financial crisis, large providers of both private equity and private credit, coupled with insurance affiliates or partnerships, have grown into “Mega Funds,” with a full suite of options to meet the capital financing needs of companies.[3] This alone would not be a reason for heightened attention or concern.
The development of private equity and private credit funds as a means of deploying capital more quickly, flexibly, and on bespoke terms has been a source of substantial improvement in capital market efficiency for firms in need of financing.[4] Perhaps most important, this has enabled firms to go private, or to stay private for longer, and achieve requisite financing in new equity investment or credit extensions through private markets.[5] In practice, this has also meant a substantial decline in Initial Public Offerings (IPOs) relative to the 1980s and 1990s.[6] In parallel, there has been an explosion of firm financing through private markets, first in the maturation of private equity markets, followed in more recent years by the development of private credit markets.[7]
The quiet revolution in how firms are financed might at first seem innocuous. After all, sophisticated investors such as Blue Owl, Ares, and Walter (Guggenheim Partners) can take risks and earn the returns that those investments generate. Take on too much risk, or estimate incorrectly, and the market will penalize those poor decisions. Play stupid games, win stupid prizes.
Walter controls two life insurers, which are both part of a holding company called Group 1001. Federal prosecutors are examining approximately $16 billion in loans that ended up on the books of these two insurance companies after passing through a third entity, connected to yet another Walter-controlled conglomerate, TWG Global. One concern is that these were related party transactions between entities controlled by Walter. Related party transactions above a 3 percent threshold need to be disclosed under Delaware insurance law[8]. Since policyholder money is supposed to be invested with real arm’s length scrutiny, the lack of disclosure to state regulators raises some important questions about circular financing in Walter’s own businesses.
One of the two life insurers, Delaware Life Insurance Co., had previously told regulators that just below 3 percent of its invested assets, or $1.4 billion, involved related party investments connected to Walter’s other businesses[9]. However, after federal subpoenas arrived in February 2026, the company restated that amount. It turns out that the actual estimate of related party exposure was significantly off the reported mark at more than $17 billion, more than 39 percent of Delaware Life’s total invested assets[10]. That is not a rounding error, but a material difference.
Insurance regulation treats related party or “affiliated” investments as a distinct risk category, separate from ordinary investment risk. There are obvious conflicts of interest when the same person controls both the insurer taking receipt of policyholder funds and the entity receiving the loan. The terms of that loan are not necessarily arrived at through arm’s length negotiation in the way that a loan to an unrelated third party would be evaluated. Regulators and rating agencies require insurers to disclose this sort of concentration risk so it can be scrutinized accordingly.
Moreover, this is not Walter’s first tango with regulators related to affiliated transactions. Just over a decade prior, “in 2014, two policyholders at Security Benefit sued Guggenheim and other related insurance companies in federal court, alleging that Walter and his associates treated the insurance companies like a cash machine to buy the Los Angeles Dodgers.”[11] What is perhaps distinct this time around is the size and scale of the conflicted exposure.
We have written extensively on the risks associated with private credit, and why you should indeed care about it, long before it made the front pages. Jamie Dimon, the influential CEO of JPMorgan Chase, has called attention to private credit problems with his excellent cockroach analogy, “when you see one, there are probably more.”[12] Unfortunately, almost everything we hypothesized, and even more risks than we had anticipated, have started to materialize.
The issues at Guggenheim, and Walter related-party insurance transactions, come on the heels of several cases over the past year that illustrate how integral private credit is to capital markets, where limited disclosure and asymmetric information can exacerbate risks to investors.
One notable example is that of First Brands, a prominent U.S. auto-parts maker, that filed for bankruptcy almost a year ago. First Brands created significant risks for both private credit and bank-led financing through arcane and lesser-known supply chain finance vehicles. In the bankruptcy filing, First Brands disclosed liabilities of over $10 billion against significantly smaller assets. Over the course of the bankruptcy, First Brands lenders investigated numerous irregularities in the financial reporting of the company and its complex financing arrangements.[13] First Brands is alleged to have engaged in classic collateral fraud, centered on multiple pledging of the same receivables and inventory for overlapping factoring and supply-chain finance programs.[14] The founder and former CEO, and his brother, were both indicted on multiple fraud and conspiracy counts.[15]
First Brands was only the early start of what has been a series of alleged frauds, deteriorating fundamentals, and liquidity events in private credit. In 2025, Alexander Goldman sued Blue Owl Capital Inc., and three of its senior executives, on the basis that investors were allegedly misled into believing that there was no meaningful redemption pressure on Blue Owl Capital Corporation II, one of its Business Development Companies and a private credit access point for retail investors.[16] A shareholder then sued Blue Owl Credit Advisors LLC on behalf of Blue Owl Capital Corporation for excessive adviser compensation under Section 36(b) of the Investment Company Act.[17] The suit alleges that Blue Owl Credit Advisors collected $414 million dollars in fees in 2025 while acting as both portfolio manager and the “valuation designee” who sets the fair value of the fund’s own illiquid private credit loans.[18]
Although no charges have been filed against Walter thus far in this latest issue involving private credit, and his alleged lack of disclosure is notably different from First Brands, the ease with which irregularities and conflicts in private credit have spilled over to other sectors in the real economy should be a cause for concern. Recent reporting by Bloomberg suggests that Guggenheim Investments has advised lenders that, “affiliates may look to buy portions of a loan issued by its financing entity, after the debt’s value collapsed in recent weeks.”[19] This encapsulates the inherent conflicts of interest when an owner sits on both sides of a transaction, and investors should hope that these assets will be bought at what is an actual fair market value, as opposed to subsidizing a bailout.
The private credit market is too concentrated, with more than 50 percent of global credit managed by only 10 funds.[20] It is opaque, with almost none of the regulatory supervision faced by traditional bank lenders. It is risky, with rising defaults, and a growing percentage of private credit loans having fewer protections for lenders. It is entangled and connected to a web of private equity and insurance companies rife with conflicts of interest. It is also often neither rated nor audited to proper standards, largely reviewed by small-firm pay-to-play ratings factories and audit shops that do not have the capacity to monitor loans effectively.
Our worry is not just current and future losses to investors. Sophisticated institutional investors should understand the risks they take. We are much more concerned about the ripple effects into the real economy, and what that will mean for ordinary investors, since private credit is coming soon to a 401(k) near you. And as illustrated by the Walter related-party transactions, riskier loans can be dumped onto the balance sheets of affiliated insurance companies and affect policyholders in “safer” insurance products too.
Retail investors are entering the market through retirement accounts right as asset values are impaired and declining. Blue Owl Capital, which has suspended redemptions at some funds, is just one of several private credit funds over the past year to freeze investor funds and fail to meet withdrawal requests. For investors relying on their retirement assets, a frozen distribution is as harmful as a default.
Our concern is that the changes allowing retail investors, coupled with the existing private-credit conflicts, risks throwing a match into the fire of “shadow banking,” with widespread poor monitoring, and with the negative externalities borne by workers, retirees, and possibly insurance policyholders[21]. This latest alleged fraud is not the first connected to private credit, and unlikely to be the last.
While this saga plays out, basketball fans need not worry too much, except for increasing ticket prices implied by the sky-high valuation for the Lakers. However, baseball fans, especially those of the LA Dodgers, are waiting to see if Walter may be forced to sell that storied franchise as well in order to raise needed liquidity to address the current private credit and insurance crisis in his financial empire.
ENDNOTES
[1] See, e.g., Michael Rand & Melinda Roth, Private Credit’s Public Consequences, VILL. L. REV. ___ (forthcoming 2026), https://dx.doi.org/10.2139/ssrn.6029995; Drall, Pranjal and Granato, Andrew, Private Credit’s State Backstop: How Private Equity Socializes Risk Through Insurers, 115 California Law Review ___ (forthcoming 2027),
[2] See Michael Rand & Melinda Roth, Private Credit’s Private Conflicts, L. REV. ___ (forthcoming 2026), https://ssrn.com/abstract=7274700.
[3] See Rand & Roth, supra note 1 at 19-21 (explaining how private credit is dominated by a small group of “mega funds” and the benefits that level of scale affords them); see also Toby Nangle, If Private Credit Breaks, Insurers Will Fall Under the Microscope, Fin. Times (Nov. 14, 2025) (describing how insurers are increasing their exposure to private credit and the potential risks that reliance creates); Drall & Granato, supra note 1.
[4] See generally Sergey Chernenko et al., Bank Capital and the Growth of Private Credit (Working Paper, 2025).
[5] See generally Craig Doidge, G. Andrew Karolyi & René M. Stulz, The U.S. Listing Gap, 123 J. FIN. ECON. 464 (2017); Michael Ewens & Joan Farre-Mensa, The Deregulation of Private Capital Markets and the Decline in IPOs, 33 REV. FIN. STUD. 5463 (2020).
[6] See generally Xiaohui Gao, Jay R. Ritter & Zhongyan Zhu, Where Have All the IPOs Gone?, 48 J. FIN. & QUANT. ANAL. 1663 (2013).
[7] See generally How Private Credit Is Bringing Change to Corporate Lending, Wall St. J. CFO J. (Mar. 17, 2025),https://deloitte.wsj.com/cfo/how-private-credit-is-bringing-change-to-corporate-lending-e6fb0575; See generally Sirio Aramonte & Fernando Avalos, The Rise of Private Markets, Bis. Q. Rev., December 2021 at 69.
[8] See Code Ann. tit. 18, § 5005 (FindLaw through 84 Del. Laws, c. 250).
[9] See Matthew Sellers, Mark Walter’s Insurers Face Federal Probe Over Undisclosed Related-Party Investments, Ins. Bus. Am. (July 21, 2026), https://www.insurancebusinessmag.com/us/news/life-insurance/mark-walters-insurers-face-federal-probe-over-undisclosed-relatedparty-investments-583106.aspx.
[10] Id.
[11] See Justin Baer, Margot Patrick, Joe Wallace & Andrew Beaton, The Web of Hidden Deals That Snared the Dodgers Owner in a Federal Probe, Wall St. J. (Aug. 17, 2026), https://www.wsj.com/finance/walter-dodgers-lakers-investigation-3e114ef9; see generally Bill Shaikin, Dodgers’ Guggenheim Group Isn’t Afraid to Spend, L.A. Times (Dec. 15, 2012), https://www.latimes.com/sports/la-xpm-2012-dec-15-la-sp-dodgers-guggenheim-20121216-story.html.
[12] Jim Edwards, Jamie Dimon Issues Private Credit Warning: “When You See One Cockroach, There Are Probably More,” Fortune (Oct. 15, 2025, 7:15 AM ET), https://fortune.com/2025/10/15/jamie-dimon-issues-private-credit-warning-when-you-see-one-cockroach-there-are-probably-more (quoting Jamie Dimon on JPMorgan’s Q3 2025 earnings call: “I probably shouldn’t say this, but when you see one cockroach, there are probably more. And so we should—everyone should be forewarned on this one.”).
[13] Robert Smith, et. al., First Brands files for bankruptcy, threatening multibillion-dollar losses, FIN. TIMES (Sep. 29, 2025),https://www.ft.com/content/095a60a4-9bde-4f40-bb20-95c02c95727b, (discussing market reactions and lender exposures).
[14] See Shivani Tanna, First Brands’ Creditor Says $2.3 Billion “Simply Vanished,” Seeks Probe, Reuters
(Oct. 9, 2025), https://www.reuters.com/world/us/first-brands-creditor-says-23-billion-simply-vanished-seeks-probe-2025-10-09/.
[15] Jonathan Stempel, First Brands founder indicted for fraud after bankruptcy that hit lenders, Ford, GM, Reuters (Jan. 29, 2026),
[16] Complaint, Goldman v. Blue Owl Capital Inc., No. 1:25-cv-10047 (S.D.N.Y. filed Dec. 3, 2025).
[17] Complaint, Delman v. Blue Owl Credit Advisors LLC, No. 7:26-cv-03468 (S.D.N.Y. filed Apr. 27, 2026).
[18] Id.
[19] Reshmi Basu, Guggenheim Investments Says Affiliates May Buy Its Hard-Hit Loan, Bloomberg (Aug. 25, 2026), https://www.bloomberg.com/news/articles/2026-08-25/guggenheim-investments-says-affiliates-may-buy-its-hard-hit-loan.
[20] CT Acquisitions Editorial Team, Best Private Credit Funds in 2026: Top 20 Ranked by AUM + Returns, CT Acquisitions (June 2026), https://ctacquisitions.com/private-credit-funds-list/.
[21] Supra note 1 at 64.
Melinda Roth is a professor at New England Law School, and Michael Rand is assistant dean for business and finance law at The George Washington University Law School. This post is based on their forthcoming article, “Private Credit’s Private Conflicts,” available here.