[ by Melanie Gretchen ] The SEC charged a San Francisco investment adviser with defrauding investors of more than $4.5 million with a bogus audit report that embellished the financial performance of the fund in which they were investing.  Investors of various funds received an audit report by a bogus accounting firm secretly created and controlled by the adviser who faces criminal charges from the U.S. Attorney’s Office for the Northern District of California. SEC Findings and Allegations. James Michael Murray raised millions from hedge funds including purported hedge fund Market Neutral Trading LLC, which claimed to invest primarily in domestic equities.  Toward that end, he provided investors with a report prepared by a shell company that the adviser set up. Murray's fundraising scheme began in 2008.  The following year, MNT distributed the phony audit report to investors claiming the audit was conducted by third-party accounting firm Jones, Moore & Associates (JMA).  However, JMA is not registered or licensed as an accounting firm in Delaware, where it purports to do business. Complete Creative Control. Rather, its website was paid for by a Murray-controlled entity.  In addition, of the 12 professionals listed with specific degrees and licenses, 5 do not exist, including the 2 named principals of the firm, "Richard Jones" and "Joseph Moore." Since then, Murray has attempted to open brokerage accounts in the name of JMA, identified himself as JMA’s chief financial officer, and called brokerage firms falsely claiming to be the principal listed on most JMA documents. Numbers Game. The SEC alleged that JMA's bogus audit report understated the costs of MNT’s investments and thus overstated the fund’s investment gains by approximately 90%.  In addition, the report overstated MNT’s income by approximately 35%, its member capital by approximately 18%, and its total assets by approximately 10%. The SEC has charged Murray with violating an SEC rule prohibiting fraud by investment advisers on investors in a pooled investment vehicle.  Going forward, the complaint seeks injunctive relief and financial penalties from Murray. The SEC’s investigation. Conducted by Karen Kreuzkamp and Robert S. Leach of the San Francisco Regional Office, it followed an examination of MNT conducted by Yvette Panetta and Doreen Piccirillo of the New York Regional Office’s broker-dealer examination program. The SEC’s litigation will be overseen by Robert L. Mitchell of the San Francisco Regional Office.  The Commission was asisted by the U.S. Attorney’s Office for the Northern District of California and the U.S. Secret Service. For further details, go to [SEC, 3/15/12].