Federal prosecutors in the Southern District of New York are examining valuation practices at BlackRock's TCP Capital Corp, a publicly traded private credit fund. The investigation centers on whether the fund properly valued illiquid assets amid growing scrutiny of the private credit industry's broad discretion in pricing.

Jay Clayton, who leads the office, recently warned that mismarking assets to generate fees constitutes misconduct, though he did not reference any specific fund. The probe follows investor concerns about artificial inflation of private credit valuations to boost fees and mask financial distress in underlying loans.

TCPC disclosed a 19% asset write-down in late January, affecting loans to companies including Razor Group and SellerX. A class-action lawsuit alleges the fund overstated its net asset value, causing investor losses when shares dropped nearly 13%. The investigation does not indicate wrongdoing or guarantee criminal charges.

BlackRock acquired TCP Capital through its 2018 purchase of Tennenbaum Capital Partners. Investors have pulled billions from private credit funds amid worries about software company exposure, particularly as AI threatens to disrupt business models. The industry faces mounting pressure to justify valuation methodologies to regulators and clients.