Hedge Fund Manager Charged with Altering Audit Firm’s Performance Report
The SEC has filed an emergency enforcement action against a hedge fund manager alleged to have altered an audit firm’s report on its performance history. The SEC states that the firm engaged the audit firm to prepare a report on the strategy’s performance and that the audit report showed negative performance for the period reviewed. The SEC alleges that one of the defendants altered the report by changing time periods and fees and then distributed the report to potential investors through an unknowing employee. A potential investor uncovered the alteration when it contacted the audit firm to verify the report. The audit firm withdrew the report and withdrew from the engagement. The SEC has charged the firm and its principals with securities fraud.
OUR TAKE: There have been several recent fraud cases where a fund manager has baldly misrepresented activities or statements by third party service providers. Firms (and compliance officers) conducting due diligence should ensure direct verification of statements or reports purportedly rendered by custodians, administrators, lawyers, and auditors.