Fund Manager Did Not Conduct Adequate Investment Due Diligence
A formerly-registered fund manager was fined and censured for failing to conduct sufficient due diligence on underlying investments, which resulted in significant losses for the funds. The fund manager invested $4 Million in a Norwegian trading strategy that promised repayment plus $40 Million in interest. The fund manager represented that he conducted significant due diligence and that his financial advisers approved the investment. In fact, the fund manager’s due diligence consisted of several phone calls and some Google searches. Also, his lawyer, accountant, and fund administrator counseled further due diligence before investing.
It is unclear how much due diligence is enough, but an investment that promises a 1000% return likely requires more than a few phone calls. When financial professionals recommend a losing investment, they bear the burden of proving that their recommendations and due diligence satisfied their fiduciary and/or suitability obligations.