Fund manager sues Kandeo, alleges $100 million FinSocial loss

A New York fund manager thought it was buying a healthy Colombian lender. Instead, it says, it bought "a house of cards."

That is the core of a lawsuit Christofferson Robb & Company and General Investments (Cayman) filed on July 8 in federal court in Manhattan. CRC, a privately owned fund manager based in New York, is going after Kandeo Investment Advisors, related Kandeo private-equity entities, a Colombian holding company, and the man the complaint identifies as FinSocial's founder and former chief executive.

For anyone who runs a fund and buys companies, this one is worth a read. It is a due-diligence story with a bad ending.

The complaint tells it this way. In 2020, Kandeo pitched CRC on buying FinSocial, a lender that made payroll- and pension-deduction loans to teachers, pensioners and low-income borrowers. The books looked fine. CRC signed a purchase agreement in March 2021 and paid about $36 million for the whole company.

The books were not fine, the filing alleges. It says the sellers provided "cooked" financials - padded assets, buried delinquencies, and loan collateral that was fake or already in default. When the numbers were restated in 2024, the complaint says, assets were overstated and liabilities understated by a combined $95 million.

One line will make compliance officers wince. The complaint says those financials carried a clean, unqualified certification from an outside auditor. A tidy audit, in other words, told CRC almost nothing.

Then things went further, according to the complaint. Shortly after the deal, CRC says it was pushed to lend FinSocial another $19 million through a bridge loan, secured by collateral the filing calls fictitious or non-performing.

After that, the complaint alleges, the cash disappeared. The founder, who stayed on as CEO after the sale, is accused of routing money to himself and a web of more than 40 related companies he is said to have controlled. More than $50 million went directly to him, the filing says, with tens of millions more moving to insiders and affiliates for "no legitimate business purpose."

The takeaways for advisors are plain. Leaving the founder in the CEO chair after closing, the complaint says, helped keep the alleged scheme alive. And the sellers allegedly wrote arbitration and Colombian choice-of-law clauses into the contracts to keep any fight out of US courts - a move CRC is asking the judge to throw out.

CRC's claims include securities fraud under Section 10(b) and Rule 10b-5, control-person liability, fraudulent inducement, conspiracy, aiding and abetting, and unjust enrichment. It wants damages the complaint puts above $150 million.

The allegations have not been tested in court, and no judge has ruled.