BEVERLY HILLS—The 2017 Milken Institute Speaker, Brendan Ross, was arrested on August 11 on federal charges alleging he falsified financial records to fraudulently inflate the value of the funds he managed, allowing him to charge investors millions of dollars in unauthorized fees. The defendant is the founder of Direct Lending Investments, LLC (DLI) that was previously located at 550 N. Brand Blvd. in Glendale, California.
The defendant is facing 10 counts of wire fraud based on a scheme he executed between late 2013 and early 2019 to defraud investors in funds managed by DLI. Ross resigned as CEO in March 2019 after the U.S. Securities and Exchange Commission filed a civil complaint against the LLC which resulted in the appointment of a court-ordered mandate in early April 2019.
Five years after Ross founded DLI in 2012, the firm had over $1 billion in assets under management. According to the criminal indictment, the defendant allegedly directed DLI to invest the funds’ assets in a company that loaned money to small businesses and retailers. The DLI funds made money when the loans performed meaning that the borrowers made timely payments. The indictment alleges that rather than disclose some of the loans were not performing, Ross falsified monthly reports to make it appear borrowers were making payments.
According to the indictment, Ross directed DLI to overstate the value of these loans on the funds’ accounting books and fraudulently inflated the funds’ value. The defendant allegedly caused the monthly asset values of the funds to be cumulatively inflated by over $300 million over the course of four years. By fraudulently inflating the value of the funds, Ross was able to collect millions of dollars in fees he otherwise would not have been able to charge to clients.
The defendant allegedly arranged for the sale of approximately $55 million of the loans to a third-party buyer in the summer of 2017. Ross inflated the value of these loans by lying about their status, falsely telling the buyer that borrowers had been making payments on many of these loans, according to the indictment.
Each of the 10 wire fraud counts in the indictment carries a statutory maximum sentence of 20 years in federal prison. This matter was investigated by the FBI. The SEC provided substantial assistance during the criminal investigation.
