Securities Law Prof Blog

Editor: Eric C. Chaffee
Univ. of Toledo College of Law

Monday, March 19, 2012

SEC Charges Adviser with Providing Fund Investors with Bogus Audit Report

The SEC recently charged James Michael Murray, a San Francisco-area investment adviser, with defrauding investors by giving them a bogus audit report that embellished the financial performance of the fund in which they were investing.  According to the SEC, Murray raised more than $4.5 million from investors in his various funds including Market Neutral Trading LLC (MNT), a purported hedge fund that claimed to invest primarily in domestic equities. Murray provided MNT investors with a report purportedly prepared by independent auditor Jones, Moore & Associates (JMA). However, JMA is not a legitimate accounting firm but rather a shell company that Murray secretly created and controlled. The phony audit report misstated the financial condition and performance of MNT to investors.

The U.S. Attorney’s Office for the Northern District of California also has filed criminal charges against Murray.

The SEC alleges that the bogus audit report provided to investors understated the costs of MNT’s investments and thus overstated the fund’s investment gains by approximately 90 percent. The JMA audit report also overstated MNT’s income by approximately 35 percent, its member capital by approximately 18 percent, and its total assets by approximately 10 percent.

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