Long before Jacob Gottlieb was forced to unwind his Visium Asset Management last month amid insider trading allegations, red flags were emerging at the once $8 billion hedge fund.

In its early days, Visium employed Gottlieb’s younger brother as compliance chief, a potential conflict of interest. The founder at one point owned shares in a company that his hedge fund invested in. And in early 2013, Visium funneled money from its main healthcare fund to its struggling credit team just before their bond fund shut down.

Interviews with a dozen investors and former employees portray a company that was built on the cheap, with tight limits on compensation, and compliance that was at times lacking. Gottlieb, who had ambitions to build a firm rivaling the biggest hedge funds, all but shuttered Visium last month when the federal government accused three traders of securities fraud. While neither the company nor its founder were accused of wrongdoing, the allegations raise questions about oversight, said Tamar Frankel, a professor at Boston University School of Law.

“Investment advisers can’t say, ‘I didn’t see. I didn’t hear,”’ said Frankel, who specializes in fiduciary law. “As far as management is concerned, it’s their duty to know.”

Visium and Gottlieb declined to comment for this story, said Jonathan Gasthalter, a spokesman for the firm. When Visium first revealed in March it was being probed over the valuation of securities and trading in certain securities, the firm said it was cooperating and expected “only the highest ethical conduct from all our employees.”

Mismarking Bonds

Federal prosecutors on June 15 accused  Sanjay Valvani, the star money manager who ran part of Visium’s flagship healthcare fund, with trading on confidential information from a former Food and Drug Administration official, going back as early as 2005. Five days after pleading not guilty, Valvani took his own life.

Separately, Chris Plaford, who ran credit investments, pleaded guilty to mismarking bonds using sham quotes from brokers, and trading on inside information. He’s cooperating with the government. Stefan Lumiere, Gottlieb’s brother-in-law, was also charged with mispricing assets. He pleaded not guilty.

For an examination of insider trading and hedge funds, see QuickTake

The accusations effectively ended Gottlieb’s big plans for the firm he founded in 2005, and which is now in the process of returning client capital. The firm said yesterday it’s cutting 33 employees in New York, starting in October.