Brendan Ross, founder of La Cañada Flintridge-based investment advisor Direct Lending Investments, has been arrested by the FBI on fraud charges. The Department of Justice alleges that Ross defrauded investors of millions of dollars by falsely inflating the value of funds he managed.
The arrest follows Ross’ July 30 grand jury indictment on 10 counts of wire fraud committed from 2013 to 2019. Each of the 10 counts carries a maximum of 20 years in federal prison, according to a Department of Justice statement on the arrest.
Ross’ firm, which was placed in court-ordered receivership last year, amassed roughly $1 billion in assets under management at its 2017 height by recording years of continuous profits on loans to small businesses. The founder used his success to become a vocal advocate for the practice of direct lending and made appearances on both CNBC and Fox Business.
Direct Lending Investments’ business model was designed to provide payouts to investors based on regular payments by small business borrowers. The Department of Justice charges allege that, when some of these borrowers did not make their payments, Ross falsified reports to make it appear that they had. He then, the DOJ said, used fee rebates from loan originators to pay investors and sustain the illusion of flawless performance.
In total, Ross’ actions inflated the monthly asset value of funds he managed by more than $300 million over four years, according to the DOJ, allowing him to collect millions in undue fees.
In addition, the DOJ alleges that the Direct Lending Investments founder defrauded a third-party buyer in 2017 by lying about the status of $55 million in loans he sold to them. Ross falsely indicated that the borrowers had been making payments on significant numbers of the loans, according to the DOJ.
The receiver for Direct Lending Investments estimates that investors will recover a maximum of $265 million on the company’s liquidation, or 34% of its assets under management as of March 31, 2019, according to a July court filing.
