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The complaint outlined a "profound disparity between the due diligence Fairfield represented to its investors that it would conduct and the due diligence it actually conducted."
The complaint also seeks to require Fairfield to pay back Massachusetts investors for the losses they incurred with certain funds as well as the management fees and other fees clients paid to the firm.
According to Ken Springer, founder and president of Corporate Resolutions Inc., a firm that conducts background checks for hedge funds, private equity firms and others, the fraud complaint is a positive sign that regulators are holding firms accountable and more could be on the way.
"It may not put the money back in people's pockets, but at least they are doing something," he said. "In my view they were negligent. But were they complicit? I don't know, but they allowed this fraud to go on and dragged in so many companies, there was something terribly wrong there."
Springer says that Fairfield had the responsibility for overseeing their funds investments described clearly in their contracts, saying they were monitoring the funds and performing due diligence around the accounting firm, etc.
"The operational due diligence they were supposed to be performing " those are the things that justify them reaping such a big fee - but they weren't doing any of it," he adds.
Springer is a former FBI agent and says that when his firm conducts background checks they generally look into several areas: non-disclosed business interests or directorships; suing of former employers or lenders; being sued for mismanagement or fraud; criminal records or adverse regulatory histories; controversial media attention; resume fraud or puffing of accomplishments and other key areas.
"It's an essential part of the due diligence process that people do things like this," he says. "Unfortunately a lot of investors are stilly flying in the dark even though a lot of the information they need is publicly available through the Web, FINRA, the SEC."
