Christofferson Robb & Company (CRC), a New York-based fund manager, has filed a lawsuit alleging that its $36 million acquisition of a Colombian lender was based on fraudulent financial statements. The complaint, filed July 8 in federal court in Manhattan, targets Kandeo Investment Advisors, related private-equity entities, a Colombian holding company, and the former CEO of FinSocial, the lender at the center of the dispute.
According to the filing, CRC was approached by Kandeo in 2020 to purchase FinSocial, a lender specializing in payroll- and pension-deduction loans to teachers, pensioners, and low-income borrowers. The deal closed in March 2021, with CRC paying approximately $36 million for full ownership. However, CRC now claims the financials provided were "cooked," with padded assets, concealed delinquencies, and collateral that was either fake or already in default.
When FinSocial's books were restated in 2024, the complaint alleges that assets were overstated and liabilities understated by a combined $95 million. Notably, the financial statements had received a clean, unqualified certification from an outside auditor, raising questions about due diligence practices. This case echoes other recent fraud allegations, such as the CFTC suit alleging a North Carolina fund manager fabricated returns.
Shortly after the acquisition, CRC says it was pressured to provide a $19 million bridge loan to FinSocial, secured by collateral the filing describes as fictitious or non-performing. The complaint further alleges that more than $50 million was diverted directly to the founder, with tens of millions more funneled to insiders and over 40 related companies for "no legitimate business purpose."
The lawsuit highlights several red flags for financial advisors and compliance officers. Leaving the founder in the CEO role after the sale allegedly enabled the scheme to continue. Additionally, the sellers reportedly included arbitration and Colombian choice-of-law clauses in the contracts to keep disputes out of U.S. courts—a move CRC is asking the judge to invalidate. This tactic is reminiscent of other complex legal battles, such as the Inspired Healthcare bankruptcy where fees exceeded $100 million.
CRC's claims include securities fraud under Section 10(b) and Rule 10b-5, control-person liability, fraudulent inducement, conspiracy, aiding and abetting, and unjust enrichment. The fund manager is seeking damages exceeding $150 million. The case serves as a cautionary tale about the importance of rigorous due diligence, especially in cross-border transactions.
For advisors, the case underscores the need to scrutinize audit reports and consider the risks of retaining key personnel from acquired entities. It also highlights the potential pitfalls of arbitration clauses that may limit legal recourse. As regulatory scrutiny intensifies, firms may want to review their own compliance frameworks, similar to how asset managers are rethinking structures amid state tax audits.
