The founder and former CEO of an investment firm who defrauded investors by overstating the value of fund investments and charging fees on the inflated valuation has been sentenced to prison.
A judge in the U.S. district court in central California sentenced Brendan Ross, founder of Direct Lending Investments LLC — a private debt fund manager — to 40 months in federal prison and ordered him to pay US$5.9 million in restitution.
Ross previously pleaded guilty to one count of wire fraud in connection with a scheme to inflate the value of the funds managed by the firm, and charging investors unauthorized fees.
According to court filings, between 2014 and 2017, Ross falsified financial records to hide the fact that certain loans made by one of its investments, a private lender to small businesses, were not performing.
“By lying about the true status of the loans, Ross caused DLI to overstate the value of these loans on the funds’ books and fraudulently inflate the funds’ value,” U.S. authorities alleged.
Over four years, this resulted in the value of the funds being overstated by a total of US$300 million, which translated into millions worth of unearned fees charged to fund investors.
In a parallel action, the U.S. Securities and Exchange Commission (SEC) also charged Ross with violating securities rules. It sought disgorgement, civil penalties and a permanent injunction win that case. The SEC previously charged the firm with regulatory violations, which led to it being placed into receivership.