The founder and former CEO of an investment firm specializing in debt instruments has been sentenced to 40 months in federal prison. Brendan Ross, aged 52, from La Cañada Flintridge, was convicted for falsifying financial records to inflate the value of the funds he managed, which allowed him to charge investors millions in unauthorized fees. The sentence was handed down by United States District Judge Dale S. Fischer, who also ordered Ross to pay $5.9 million in restitution.
Ross pleaded guilty to one count of wire fraud in August 2022. He established Direct Lending Investments LLC (DLI) in 2012 and served as its sole owner and CEO until his resignation in March 2019. By mid-2017, DLI had over $1 billion in assets under management.
According to the indictment, Ross directed DLI to invest in a company that loaned money to small businesses and retailers. The funds profited when loans performed well through timely payments by borrowers. However, instead of disclosing non-performing loans, Ross falsified monthly reports to make it appear as though borrowers were making payments using fee rebates from the loan-originating company.
By misrepresenting the status of these loans, Ross caused DLI to overstate their value on the funds’ books by more than $300 million over approximately four years. This fraudulent inflation allowed him to collect millions of dollars in fees that he would not have otherwise been able to charge clients.
To further conceal his scheme, Ross arranged for the sale of about $55 million worth of loans to a third-party buyer in summer 2017. He again inflated their value by falsely claiming that borrowers had made payments on many of these loans.
Prosecutors highlighted the severe financial hardships suffered by investors due to Ross’s actions: “These losses reflect intense financial hardships, including the decimation of retirement and investment accounts, as well as negative professional and reputational consequences suffered by many of the investors…and even DLI employees who were defrauded by [Ross].”
The FBI conducted an investigation into this matter with substantial assistance from the U.S. Securities and Exchange Commission (SEC), which filed a civil complaint against Ross in August 2020. Assistant United States Attorney Scott Paetty from the Major Frauds Section prosecuted this case.
