The founder and former chief executive of an investment firm was sentenced Monday to more than three years in federal prison for falsifying financial records to fraudulently inflate the value of the funds he managed, allowing him to charge investors millions of dollars in unauthorized fees.
Brendan Ross, 52, of La Cañada Flintridge was sentenced by U.S. District Judge Dale S. Fischer, who ordered him to pay $5.9 million in restitution along with the 40-month prison term, according to the U.S. Attorney’s Office.
Ross pleaded guilty in August 2022 in Los Angeles federal court to one count of wire fraud.
In 2012, Ross founded Direct Lending Investments LLC, a La Cañada Flintridge-based investment firm. He served as the firm’s sole owner and chief executive until his resignation in March 2019.
By the summer of 2017, the firm had more than $1 billion in assets under management. According to the indictment, Ross directed DLI to invest the funds’ assets in, among other things, 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, court papers show.
Rather than disclose some of the loans were not performing, Ross falsified monthly reports to make it appear borrowers were making payments. The “payments” came from fee rebates given by the company originating the loans, authorities said.
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. Specifically, Ross caused the monthly asset values of the funds to be cumulatively inflated by more than $300 million over the course of about 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, according to his plea agreement.
To further his scheme and help conceal it, according to the U.S. Attorney’s Office, Ross arranged for the sale of nearly $55 million of the loans to a third-party buyer in the summer of 2017. Ross once again 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.