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Duff & Phelps Inaccurate Valuation Reports for Investors Class Action

Underlying this class action is a company known as Direct Lending Investments, Inc. (DLI) and its DLI Capital, Inc. Master Fund. This comes from a list of investors DLI’s funds, now that a case has been brought against DLI by the Securities and Exchange Commission (SEC). However, the defendant in this case is not DLI, but Duff & Phelps, LLC, a company that provided the investors with purported valuations of the Master Fund investment portfolio.

The class for this action is all persons or entities who were limited partners during the relevant period and who were damaged thereby.

The plaintiffs in this case were investors and limited partners in two feeder funds, a Domestic Fund and an Offshore Fund. These funds’ assets were invested in the Master Fund, which was managed by DLI and its principal, Brendan Ross. According to the complaint, the Master Fund was meant to invest in or make loans to third-party borrowers who then made loans to others.

In October 2016, Duff & Phelps was hired to make valuations of the Master Fund’s investment portfolio, initially on a quarterly basis, but later on a monthly basis. According to the complaint, the limited partners and investors received the reports in monthly investor letters from DLI and Ross.

The complaint quotes the February 2017 letter as saying that the firm was “provid[ing] quarterly valuation ranges for the funds assets. Using their independently formulated valuation range at the portfolio level…”

The complaint alleges that, because the investors had no way to evaluate the Master Fund’s assets themselves, “third-party independent valuations were central to DLI’s scheme. Duff & Phelps’s valuations confirmed year after year that the Funds’ non-marketable ‘Level 3’ assets were accurately and fairly valued.”

However, the complaint alleges that the firm was not providing “independent” valuation reporting. According to the complaint, “Duff & Phelps knowingly abrogated its independent and professional duties, aiding and abetting Ross and certain other parties in committing a fraud” on the investors and were “merely complying with Ross’s demands, turning a blind eye to numerous red flags and failing to perform basic valuation procedures, including those identified in its engagement agreement with DLI.”

On March 22, 2019, the SEC filed a case against DLI; the following month, it appointed a permanent receiver for the company.

The receiver issued a report in November 2020 that said, among other things, that the investors would have a loss of more than $250 million. The complaint claims that the reports given to investors “did not reflect appropriate reserves for uncollectable assets and included inflated ‘mark-ups’ relative to appropriate asset valuations, both of which resulted in a misrepresentation of income, value of assets and net worth as well as overstated net asset values” (NAVs).

The receiver’s report, the complaint concludes, “describe[ed] the Funds as a Ponzi scheme and reporting, inter alia, that the Funds’ NAVs were grossly overstated.”

The counts include aiding and abetting fraud, among other things.

Article Type: Lawsuit
Topic: Accounting and Charges

Most Recent Case Event

Duff & Phelps Inaccurate Valuation Reports for Investors Complaint

February 3, 2022

Underlying this class action is a company known as Direct Lending Investments, Inc. (DLI) and its DLI Capital, Inc. Master Fund. This comes from a list of investors DLI’s funds, now that a case has been brought against DLI by the Securities and Exchange Commission (SEC). However, the defendant in this case is not DLI, but Duff & Phelps, LLC, a company that provided the investors with purported valuations of the Master Fund investment portfolio.

Duff & Phelps Inaccurate Valuation Reports for Investors Complaint

Case Event History

Duff & Phelps Inaccurate Valuation Reports for Investors Complaint

February 3, 2022

Underlying this class action is a company known as Direct Lending Investments, Inc. (DLI) and its DLI Capital, Inc. Master Fund. This comes from a list of investors DLI’s funds, now that a case has been brought against DLI by the Securities and Exchange Commission (SEC). However, the defendant in this case is not DLI, but Duff & Phelps, LLC, a company that provided the investors with purported valuations of the Master Fund investment portfolio.

Duff & Phelps Inaccurate Valuation Reports for Investors Complaint
Tags: Aiding and Abetting Fraud, Negligent Misrepresentation