Former Zwirn CFO Accused Of Making Improper Transfers

Apr 11 2011 | 2:33pm ET

The Securities and Exchange Commission has sued the former finance chief of D.B. Zwirn & Co. over his alleged role in the accounting scandal that brought the hedge fund down.

Perry Gruss "knowingly misused" $870 million in client capital to, among other things, keep the firm afloat and help pay for a private jet purchased by one of the hedge fund's partners, the regulator said. The "unauthorized transfers" occurred between March 2004 and July 2006, according to the SEC. The agency began its probe more than four years ago; firm founder Daniel Zwirn was cleared earlier this year.

Gruss' lawyer, Nick Akerman, said that his client "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."

Those transactions included $576 million in transfers from D.B. Zwirn's offshore fund to its onshore fund, $273 million from the offshore fund to pay a revolving credit facility, a $22 million withdrawal to cover the firm's operating shortfalls and $3.8 million to help pay for the private jet.

Gruss left D.B. Zwirn in 2006, after an internal audit at the firm turned up the alleged irregularities. He sued the firm in 2009, accusing it of making him a scapegoat by making "a series of false and misleading statements" to investors "which sought to blame Gruss for any conceivable control issues at the company, and to shift the blame to Gruss without implicating Zwirn."

Investors headed for the exits at D.B. Zwirn after the firm, which once managed $5 billion, disclosed the accounting issues. The firm closed its largest hedge funds in February 2008, handing over control of the funds to Fortress Investment Group in 2009.

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