TCA Fund Fraud Investor Alert: Securities Lawyers Preparing Claims for Investors

TCA Fund Investigation Update

TCA Fund fraud charges recently filed by the Securities Exchange Commission (“SEC”) have unveiled important, alleged misconduct by Florida-based investment adviser TCA Fund Management Group Corp., its affiliate TCA Global Credit Fund GP Ltd. (TCA-GP), and several funds managed by TCA, including TCA Global Credit Fund and TCA Global Credit Master Fund.

Securities lawyer Alan Rosca and his colleagues have been investigating potential claims on behalf of TCA Fund investors, and are preparing to take action and seek compensation for investors. TCA investors may contact attorney Alan Rosca or his colleagues to provide useful information or for a free, no-obligation evaluation of their recovery options at 888-998-0530 or arosca@rscounsel.law .

TCA Fund Fraud Charges Filed by SEC

In its TCA Fund fraud Complaint, the SEC alleges that the TCA Fund managers misrepresented the value of the funds, inflating the net value of the assets by at least $130 million. The SEC also sought a receiver in order to protect investors from further TCA Fund investment fraud and to enjoin TCA from perpetrating its fraudulent scheme.

Additionally, the SEC filed its Complaint to ensure a proper windup of TCA’s business and a fair and appropriate distribution to the Feeder Funds’ approximately 470 investors. As of November 2019, the Funds may have had assets under management of approximately $516 million.

Feeder Funds raise money from investors and “feed” that money to a Master Fund, which provides financing and investment banking services to small and medium-sized businesses. TCA, the investment adviser to the Funds, was entitled to compensation based on the amount of the Funds’ assets (the “net asset value,” or “NAV”). The general partner of a Master Fund and Feeder Fund LP was contractually entitled to compensation on the amount of Master Fund’s profitability. Since 2010 and continuing through at least November 2019, TCA fraudulently engaged in revenue recognition practices that inflated the Master Fund’s revenue and the Funds’ NAV in order to paint the false picture that the Funds were worth more than they actually were, to the detriment of investors, all according to the SEC records reviewed by investor rights lawyer Alan Rosca.

Use of Fraudulent Methods

The first of these fraudulent methods involved the Master Fund’s lending business between in or about April 2010 and December 2016. At an early stage of the loan process, the prospective borrower and Master Fund would sign a term sheet outlining the terms of the loan, including the amount of fees the borrower would pay the Master Fund when the loan transactions took place. TCA caused the Master Fund to recognize these prospective loan fees as revenue upon execution of the term sheet (as opposed to at the closing of the loan), knowing or being severely reckless in not knowing the term sheets were not binding and, in many cases, did not lead to a funded loan. Recognizing this loan fee revenue at the time of term sheet execution artificially increased Master Fund’s profits and the NAV, which remained inflated until the fee revenue was actually earned or removed from the books entirely, all according to documents from the SEC case reviewed by attorney Rosca.

The second of these methods involved agreements in which the Master Fund would provide investment banking services to a company between in or about the latter half of 2016 and November 2019. The agreement provided for the company to pay the Master Fund a fee for these services ranging from hundreds of thousands to millions of dollars. TCA would cause the Master Fund to recognize these investment banking fees as revenue at the time the agreement was signed, even though these companies lacked the financial wherewithal to pay these fees unless Master Fund was successful in obtaining financing for the company, which rarely occurred, and Master Fund had provided few, if any, services to the company at the time the agreement was signed. This conduct continued until at least November 2019, according to case documents in the SEC matter, reviewed by attorney Rosca.

As a result of these practices, Defendants caused the Funds to report to investors that the Funds were profitable every month, with an ever-increasing NAV. However, the booking of loan fees at the time of term sheet execution misleadingly inflated the NAV, sometimes by as much as $29 million. The booking of investment banking revenue at the time of agreement execution inflated the NAV by at least $130 million as of November 2019. The inflated performance and NAV values were provided to investors, and the inflated asset values were included in forms (“Forms ADV”) that TCA filed with the SEC, the Commission charged.

According to the allegations in the SEC’s Complaint, the Funds’ situation appears to be dire. For 2017 and 2018, the Funds’ auditor issued a qualified opinion with respect to the Master Fund’s income and assets, including, for 2018, a qualified opinion with respect to 89% of Master Fund’s NAV. By May 2019, Master Fund had only 5% of its assets in cash, with most of the balance of the assets consisting of amounts owed to Master Fund on loans to thinly capitalized borrowers, a substantial amount of which are in default. On January 21, 2020, the Feeder Funds notified their investors that the Feeder Funds had suspended redemptions and would begin to wind-up their affairs.

By engaging in this conduct, Defendants violated various section of the Securities Act of 1933 and the Securities the Securities Exchange Act of 1934. The SEC maintains that unless enjoined, Defendants are reasonably likely to continue to violate the federal securities laws.

What TCA Fund Investors Can Do

Investment fraud lawyer Alan Rosca, along with his team of attorneys at Rosca Scarlato LLC, have already begun investigating this case. Their main focus is on investment advisors and advisory firms that recommended and sold the TGA Fund investments to their customers without first conducting adequate due diligence as to the TGA Funds or their manager. Investment advisors and securities broker-dealers have a duty to conduct adequate due diligence before recommending securities to potential investors. Purveyors of this fraudulent product would have discovered the nature and, more importantly, the effect of the TCA scheme on investors prior to recommending the investment.

If you have invested in the TCA Funds or its affiliates, please contact Rosca Scarlato to learn your rights and for an evaluation of your case, or to provide useful information.  All consultations are free.  The Rosca Scarlato attorneys typically take cases like this on a contingency fee basis, advance all case costs, and only get paid for their fees and expenses if and when they recover money for their clients.  If there is no recovery, no fees or expenses are charged.

The Rosca Scarlato lawyers have represented thousands of investors across the country and around the world in cases arising out of investment fraud or misconduct. Investors who are concerned they may have lost money in the TCA Fund scheme may contact attorney Alan Rosca or his colleagues at 888-998-0530 or arosca@rscounsel.law .