Corporate Counsel Daily, INVESTMENT ADVISERS -- SEC charges ex-IA audit chief with fraudulent expense scheme, (May 21, 2024)

By Suzanne Cosgrove

The audit chief assisted certain vendors controlled by friends and family in either overcharging the adviser for services performed or billing the adviser for services never executed.

The SEC has announced settled charges against Varun Aggarwal, the former head of internal audit and information technology of a registered investment adviser, for fraudulent conduct involving irregular billing practices. Aggarwal passed on some of the billed expenditures to three REITs that were clients of the company, then received kickbacks from the vendors after the invoices were paid (In the Matter of Varun Aggarwal, CPA, Securities Exchange Act Release No. 100165 (May 17, 2024)).

According to the SEC’s filing, Aggarwal received more than $1 million in kickbacks attributable to the fraudulent expenses that were passed on to the REITs.

Aggarwal held several positions at the company, becoming its director of internal audit in 2009 and chief audit executive in 2015, and serving as a compliance officer to the REITs. From 2020 to 2021, he also was the adviser’s head of IT.

As part of his duties, Aggarwal was instrumental in hiring, and approving payments to, internal audit and IT contractors. The SEC said he exploited his involvement in those processes to hire and direct payments to vendors controlled by his friends and family.

Suspended from accounting practice. The SEC's order finds that Aggarwal aided and abetted and caused the adviser to violate federal securities laws and breach its fiduciary duty to the REITs, causing the adviser to violate antifraud provisions of the Investment Advisers Act of 1940.

Aggarwal consented to the order, which requires him to cease and desist from any violations of the Investment Advisers Act provisions and imposes an associational bar and an investment company prohibition.

In addition, Aggarwal agreed to be suspended from practicing before the SEC as an accountant. The SEC order did not provide Aggarwal with an express right to apply for reinstatement.

Prior conviction and restitution. Aggarwal also agreed to pay disgorgement of $1,100,948 and prejudgment interest of $90,349, which will be deemed satisfied by an order of restitution in a related criminal matter, U.S. v. Aggarwal, No. SA CR 22-173-CJC, filed in the U.S. District Court for the Central District of California.

Aggarwal had pleaded guilty to one count of wire fraud on August 21, 2023, in U.S. v. Varun Aggarwal. He pled guilty to the count of the indictment alleging, among other things, that he engaged in a scheme to defraud his employer by submitting fictitious invoices from service vendors controlled by his family and friends, when those services were not performed, or charging inflated amounts for services that were performed, and that he executed the fraud scheme by means of wire and radio communication in interstate and foreign commerce.

Aggarwal was sentenced to a prison term for the wire fraud conviction and was ordered to pay restitution of $2,729,717.91.

LitigationEnforcement: Enforcement FiduciaryDuties FormsFilings GCNNews InvestmentAdvisers SECNewsSpeeches