D.B. Zwirn & Co. is a defunct hedge fund, decimated when investors learned through an internal audit about improper transfers of funds. The accounting scandal resulted in the investigation of founder Daniel Zwirm, who was subsequently cleared of any wrongdoing.
Perry Gruss, the form CFO who made the transfers, may not be so lucky. Gruss is being sued by the Securities and Exchange Commission for knowingly making unauthorized transfers to help pay for a corporate jet and other expenses. The jet was for the use of one of the firm’s partners. Apparently, the transfers were needed to keep the firm afloat.
The transfers covered a two year span beginning in 2004. The SEC began probing D.B. Zwirn over four years ago, but founder Zwirn was only cleared this year.
The internal audit that turned up the accounting irregularities included transfers from D.B. Zwirn’s offshore fund to its onshore fund ($576 million), transfers from the offshore fund to a revolving credit line ($273 million), money transferred to plug up cash flow shortfalls ($22 million), and of course the private jet ($3.8 million). Every failing company needs a private jet, right?
After the 2006 internal audit and his subsequent departure, Gruss sued D.B. Zwirn in 2009 for telling investors:
"a series of false and misleading statements … which sought to blame Gruss for any conceivable control issues at the company, and to shift the blame to Gruss without implicating Zwirn."
Gruss’ attorney, Nick Ackerman said of the current lawsuit that Gruss:
“…categorically denies the allegations in the SEC's complaint as being without merit. At all times, Mr. Gruss acted in the best interests of the shareholders, and there is not even an allegation that he obtained any financial gain whatsoever from any of the transactions alleged in the complaint."
© 2011 Hedge Fund Writer LLC
