This case involves an alleged Ponzi scheme at a hedge fund in which approximately 30 investors lost between $250,000 and $300,000 each, for total losses of about $10 million. The fund’s investment manager chose to invest in unknown companies, rather than the blue chip stocks they had initially invested in. The fund administrator was instructed to send the values of these positions to investors on a regular basis, as determined by the investment manager. The hedge fund administrator never received those valuations from the investment manager. At the time, investors believed that the fund administrator was performing proper due diligence, vetting the positions they were invested in, but they received little to no response from the investment manager. The fund administrator also knew that the investment manager had not obtained an audit for 3 years.
The plaintiff alleges that the defendant failed to verify the existence of the hedge fund’s holdings, ignored a multitude of red flags and inconsistencies in the fund’s accounting practices and even manipulated the fund’s accounting in order to support an inflated net asset value calculation and communicated this false information to the fund investors. Ultimately, the fund collapsed, the investors lost all of their investments and the hedge fund manager pleaded guilty to criminal fraud. The plaintiff believes the hedge fund administrator had more responsibility in ensuring their investments were legal, safe and transparent.