Private Credit’s Trillion-Dollar Blind Spot Is Drawing Prosecutors

Private credit refers to loans made by investment funds rather than traditional banks. Companies use it to finance everything from daily operations to major acquisitions. The market has grown explosively, and that growth has attracted growing scrutiny over concerns that range from murky asset valuations to opaque lending practices and an increasing number of everyday investors getting exposure to these complex products.

Law firm Proskauer Rose, in a new analysis of the landscape, argues that neither panic nor complacency is the right response, but that managers in this space need to be paying very close attention.

“A balanced look at recent events suggests neither crisis nor complacency is justified,” Proskauer writes. “Instead, private credit managers must realize that rising sentiment — whether justified or not — calls for vigilance and discipline.”

The legal and regulatory picture is evolving fast. In the UK, the Bank of England has launched stress tests specifically targeting private equity and private credit, trying to understand how a market shock could ripple through the financial system. Major U.S. private credit firms have reportedly agreed to voluntarily participate.

In the U.S., the picture looks different. The Financial Stability Oversight Council and the Federal Reserve have acknowledged the rapid growth of private credit, but the American response has remained focused on monitoring and data collection rather than on formal testing. U.S. Securities and Exchange Commission Chair Paul Atkins has downplayed systemic risk concerns, characterizing recent disruptions as isolated incidents and signaling a preference for lighter regulation, particularly as the agency moves to expand ordinary investors’ access to private markets.

But the market has already produced some troubling episodes. Proskauer points to a federal indictment against the CEO and top executives of Tricolor, a subprime auto lender accused of a years-long scheme to defraud its lenders, allegedly by pledging the same collateral to multiple lenders simultaneously and manipulating loan data to disguise bad assets. The firm is careful to note this may be fraud rather than a sign of broader credit-market weakness. But the case has sent a signal.

That signal came with a name attached. On Nov. 25, 2025, Jay Clayton — the U.S. Attorney for the Southern District of New York and former SEC Chair — publicly warned that questionable valuations in private markets have drawn prosecutorial attention. In other words, the question of how private credit firms value their assets is no longer just a compliance issue. It’s potentially a criminal one.

Proskauer advises that firms should act now: review whether their actual valuation practices match their written policies, tighten governance and documentation, examine their exposure to banks and counterparties, and be ready for regulators or prosecutors to come knocking. The firm is particularly focused on one issue: firms offering private credit products to retail investors face the highest transparency expectations.

The bottom line, according to Proskauer: the industry won’t be able to count on a hands-off approach forever. Regulatory frameworks on both sides of the Atlantic are tightening, enforcement interest is rising, and the era of private credit operating largely in the shadows may be coming to an end.