Update on the Direct Lending Investments Case
More than two years after the SEC charged Direct Lending Investments with fraud, work is still being done to manage the fallout. The firm was placed into receivership and since then $102.83M has been distributed back to 739 investors. Overall, the Receiver expects to recover somewhere between $215M and $265M, far short of the $789.6M supposed portfolio value at the time the Receiver took over.
Much of the shortfall can be attributed to poor investments in businesses that fell outside of what it promoted to investors. For example, $191M is tied up (and likely unrecoverable) in international telecom receivables, a far cry from the online lending industry it claimed to deal exclusively with.
Direct Lending’s former CEO, Brendan Ross, is still out on bail pending trial on related criminal fraud charges. He was indicted in August 2020. The trial was recently postponed and is now scheduled to take place on March 1, 2022.
One party that took heat over Direct Lending Investments, was the firm’s auditor, Deloitte. The Receiver sued Deloitte over the firm’s “improper clean audit opinions” in 2016 and 2017 that helped create the perception that Direct Lending Investments was managing its business on the up and up. Deloitte settled the case and agreed to pay $31M.