U.S. SEC alleges accounting fraud at Florida direct lender TCA

By Lawrence Delevingne

BOSTON (Reuters) – The U.S. Securities and Exchange Commission on Monday lodged a civil complaint against Miami-area direct lending firm TCA Fund Management Group Corp and affiliates for alleged fraudulent revenue recognition that inflated the value of the group’s funds.

TCA, which lends money at high interest rates to small businesses, allegedly inflated the revenue and net asset value of its private funds in two ways between 2010 and at least November 2019, according to the SEC’s complaint, filed in a U.S. Florida district court. The first was to book loan fees from prospective clients up front before the loan was actually made. The second was to recognize investment banking fees from clients before any such services were provided or paid for.

Those alleged phantom fees allowed TCA’s funds to report gains to investors every month and inflated the value of TCA’s group of funds by as much as $159 million, according to the complaint, a sizable amount of the funds’ $516 million in overall assets under management.

Robert “Bob” Press, TCA’s founder, and Carl Schoeppl, previously an attorney for TCA, did not immediately respond to a request for comment.

The SEC is seeking disgorgement of ill-gotten gains, a civil penalty and the appointment of a receiver to oversee an orderly wind down of the funds for TCA’s approximately 470 investors.

In January, TCA disclosed to investors that it was the subject of an SEC probe and was liquidating its main fund (story here https://www.reuters.com/article/hedgefunds-tca-sec/sec-probes-florida-private-lender-over-accounting-questions-idUSL1N29S114).

Reuters previously reported that TCA employees had filed multiple whistleblower complaints to the SEC over the firm’s accounting practices, according to a person familiar with the situation and an NBC News report.

The SEC has recently stepped up its scrutiny of private debt and direct lending funds given the surge in assets to such strategies and the increased incentive to smooth over loan losses in a recession (story here https://www.reuters.com/article/us-usa-funds-directlending-exclusive/exclusive-u-s-sec-steps-up-scrutiny-of-private-debt-financial-games-idUSKBN20Y261).