Investment Adviser Charged With Overvaluation of Assets
One of the issues frequently seen in matters where insiders manipulate the numbers to increase revenue or decrease costs, is the impossibility of stopping once the process begins until they are caught. Frequently, the insiders involved convince themselves that once will be enough or maybe twice, but usually not. The Commission’s most recent case in this area is a good example, SEC v. Infinity Q Capital Management, LLC, Civil Action No. 1:23-cv-05081 (S.D.N.Y. Filed June 16, 2023).
Named as defendant is a registered investment adviser based in New York City. The owners are Infinity Q Management Equity, LLC and Wildcat Partner Holdings, LP.
Over a four-year period, beginning in February 2017, Infinity Q told investors and others that the Infinity Q Funds were valued by an independent third party pricing service. The statement is not true. In fact, the firm was manipulating the valuation models available from the pricing service to conceal poor performance by the funds managed.
Infinity used four approaches: 1) the computer code for the models was altered; 2) inputs were incorrect; 3) certain valuation models were selected that could not properly value the assets; and 4) it cherry picked one of the key valuation inputs. The result was materially inflated values. The manipulative actions were so pervasive that at times the same security in different funds had different values.
COVID presented a challenge. The funds were not in a position to sustain increased market turmoil. An effort to secure a $100 million cash infusion from affiliates failed. The only possible choice was to step-up the manipulation. This effort resulted in asset increases by hundreds of millions of dollars. In one mutual fund, for example, the increases were about 42%. In a private fund the increase was about 137%. It also resulted in reported values for the funds being out of sync with those at similar funds.
Defendant did try to conceal the scheme form investors and the independent auditors. The auditors, for example, were convinced that the valuations were reasonable. Yet the overvaluation was by about $1 billion. The complaint alleges violations of Securities Act Section 17(a), Exchange Act Section 10(b) and Advisers Act Sections 204(a), 206(1), 206(2), 206(4), 207 and aiding and abetting violations of Rule 22c-1 under the Investment Company Act. The case is in litigation.
James R. Velissaris, the founder and CIO of Infinity Q and majority owner of Infinity Q Management Equity LLC pleaded guilty to one count of securities fraud. He has been sentenced to 180 months in prison. See Lit. Rel. No. 25750 June 16, 2023.
Investment Adviser Charged With Overvaluation of Assets
One of the issues frequently seen in matters where insiders manipulate the numbers to increase revenue or decrease costs, is the impossibility of stopping once the process begins until they are caught. Frequently, the insiders involved convince themselves that once will be enough or maybe twice, but usually not. The Commission’s most recent case in this area is a good example, SEC v. Infinity Q Capital Management, LLC, Civil Action No. 1:23-cv-05081 (S.D.N.Y. Filed June 16, 2023).
Named as defendant is a registered investment adviser based in New York City. The owners are Infinity Q Management Equity, LLC and Wildcat Partner Holdings, LP.
Over a four-year period, beginning in February 2017, Infinity Q told investors and others that the Infinity Q Funds were valued by an independent third party pricing service. The statement is not true. In fact, the firm was manipulating the valuation models available from the pricing service to conceal poor performance by the funds managed.
Infinity used four approaches: 1) the computer code for the models was altered; 2) inputs were incorrect; 3) certain valuation models were selected that could not properly value the assets; and 4) it cherry picked one of the key valuation inputs. The result was materially inflated values. The manipulative actions were so pervasive that at times the same security in different funds had different values.
COVID presented a challenge. The funds were not in a position to sustain increased market turmoil. An effort to secure a $100 million cash infusion from affiliates failed. The only possible choice was to step-up the manipulation. This effort resulted in asset increases by hundreds of millions of dollars. In one mutual fund, for example, the increases were about 42%. In a private fund the increase was about 137%. It also resulted in reported values for the funds being out of sync with those at similar funds.
Defendant did try to conceal the scheme form investors and the independent auditors. The auditors, for example, were convinced that the valuations were reasonable. Yet the overvaluation was by about $1 billion. The complaint alleges violations of Securities Act Section 17(a), Exchange Act Section 10(b) and Advisers Act Sections 204(a), 206(1), 206(2), 206(4), 207 and aiding and abetting violations of Rule 22c-1 under the Investment Company Act. The case is in litigation.
James R. Velissaris, the founder and CIO of Infinity Q and majority owner of Infinity Q Management Equity LLC pleaded guilty to one count of securities fraud. He has been sentenced to 180 months in prison. See Lit. Rel. No. 25750 June 16, 2023.