Infinity Q Founder and Former Chief Funding Officer Pleads Responsible to Securities Fraud | USAO-SDNY

Damian Williams, the USA Legal professional for the Southern District of New York, introduced that JAMES VELISSARIS, the founder and former Chief Funding Officer of Infinity Q Capital Administration (“Infinity Q”), a New York-based funding adviser who managed a mutual fund and a hedge fund that presupposed to have roughly $3 billion in property below administration, pleaded responsible to securities fraud. VELISSARIS made false and deceptive statements to traders and others in reference to Infinity Q’s course of to worth sure over-the-counter (“OTC”) spinoff positions that constituted a considerable portion of the mutual and hedge fund’s holdings and in addition incorrectly marked these values ​​fraudulently. in ways in which didn’t replicate their truthful worth. VELISSARIS engaged within the demarcation scheme to inflate the worth of funding funds as reported to traders, to draw and retain capital, and to extend its personal compensation. So as to keep away from detection of the scheme, VELISSARIS offered each the Infinity Q auditor and the Securities and Change Fee (“SEC”) with falsified or altered paperwork, together with offering the auditor with altered time period sheets that served to supply fabricated assist for fraudulent inflation. values. Right this moment’s responsible plea was entered by US District Courtroom Choose Denise Cote.

US Legal professional Damian Williams stated: “Right this moment’s responsible plea demonstrates this Workplace’s dedication to prosecute even essentially the most subtle monetary crimes. James Velissaris thought he may get away with misbranding a few of Wall Road’s extra esoteric spinoff merchandise by manipulating subtle monetary fashions and pc code. This case has uncovered that fraud and has proven that Velissaris lied to his traders to line his pockets with inflated charges. Velissaris will now be held accountable for his actions.”

In accordance with the allegations contained within the Indictment, different publicly accessible data, and statements made in court docket:

Background

VELISSARIS was the founder and chief funding officer of Infinity Q, an funding adviser that managed a mutual fund (the “Mutual Fund”), which started in roughly 2014, and a hedge fund (the “Hedge Fund” and, in collectively, the “Funding Fund”). Funds”), started in roughly 2017. As of 2021, the 2 funds meant to have roughly $3 billion in property below administration. Infinity Q was headquartered in New York, New York, and employed a small employees, together with a chief compliance officer and chief threat officer (“Worker-1”).

A significant factor of the holdings of each the Mutual Fund and the Hedge Fund had been over-the-counter (“OTC”) spinoff positions that concerned personalized contracts that allowed counterparties to take positions on the volatility or worth motion of property or indices. underlying. . VELISSARIS, by means of Infinity Q, advised its traders that it valued these OTC spinoff positions primarily based on truthful worth and that it used the providers of an impartial third-party supplier to take action. Specifically, Infinity Q has represented to traders and different events that it used the Bloomberg Valuation Service (“BVAL”) to independently calculate the truthful worth of those positions, in accordance with the phrases of the underlying spinoff contracts. These OTC spinoff positions comprised tons of of tens of millions of {dollars} within the Mutual Funds’ portfolios.

VELISSARIS’s plan to misinform traders and inflate derivatives swap positions

In truth, nonetheless, VELISSARIS defrauded Infinity Q traders by taking part in an lively position in valuing Infinity Q’s positions and by modeling the positions in ways in which weren’t primarily based on the precise phrases of the underlying contracts and had been inconsistent with truthful worth. VELISSARIS’s enter into BVAL’s valuation course of was inconsistent with Infinity Q’s representations in regards to the independence of the method and allowed VELISSARIS to fraudulently mismark positions in BVAL. VELISSARIS engaged within the incorrect marking of positions in BVAL by making false entries into BVAL’s system, together with secretly altering the pc code employed by BVAL that brought about BVAL to change and ignore sure vital phrases. Altering and ignoring the phrases on this manner brought about BVAL to report values ​​that had been artificially inflated and infrequently a lot larger than truthful worth.

By manipulating OTC spinoff positions in BVAL on this manner, VELISSARIS brought about quite a few positions within the Funding Funds to have anomalous and typically not possible valuations. For instance, every so often, VELISSARIS engaged in manipulations within the Mutual Fund and/or the Hedge Fund that brought about sure similar positions held by each the Mutual Fund and the Hedge Fund (i.e., a place through which all materials phrases are the identical ) have considerably divergent values. In different circumstances, a few of VELISSARIS’s manipulations brought about sure positions held by the Funding Funds to have not possible values, akin to when, below the true phrases of the swap, the worth adopted by VELISSARIS may solely be true if the volatility had been damaging, a situation which is mathematically not possible.

In the end, after VELISSARIS’ misbranding scheme was found round February 2021, Infinity Q liquidated the funding funds and offered its OTC derivatives positions. These positions had been offered for tons of of tens of millions of {dollars} lower than their supposed market values ​​in BVAL, which resulted in substantial losses for traders within the Funding Funds.

VELISSARIS Lies to Auditors and Obstructs SEC Investigation

To cover this scheme and keep away from detection, VELISSARIS lied to quite a few exterior stakeholders and regulators. First, to forestall Infinity Q’s third-party auditor (the “Auditor”) from discovering the fraud, VELISSARIS offered Auditor with solid counterparty time period sheets that it had altered to vary the precise phrases of sure OTC spinoff positions. Specifically, in reference to a collection of audits, the Auditor chosen sure OTC positions that he would independently assess to verify the reasonableness of BVAL’s Infinity Q securities. So as to be sure that the Auditor didn’t attain materially completely different outcomes when independently assessing the positions that VELISSARIS had manipulated in BVAL, VELISSARIS modified the phrases of sure buying and selling paperwork and offered them to the Auditor. After receiving these falsified paperwork and counting on them in his impartial evaluation, the Auditor confirmed the reasonableness of VELISSARIS’ valuations in BVAL.

As well as, starting in Might 2020, the SEC opened an investigation after which an investigation into Infinity Q’s valuation practices. In reference to that investigation, VELISSARIS offered false and deceptive data to the SEC. For instance, when the SEC requested the unique paperwork that had been offered to traders, VELISSARIS modified the paperwork earlier than offering them to the SEC, together with sure modifications that may assist cover its misbranding scheme. For instance, Infinity Q’s authentic investor supplies said that “[o]As soon as a worth is established for a portfolio safety, it is going to be used for all Funds that personal it.” As defined above, this was not true and, on quite a few events, manipulations in BVAL by VELISSARIS brought about the identical positions within the Mutual Fund and the Hedge Fund to have considerably completely different values. To cover the falsity of the Infinity Q disclosures, VELISSARIS, together with Worker-1, eliminated this line from investor paperwork that had been offered to the SEC.

In June 2020, the SEC requested that Infinity Q present further supplies, together with paperwork associated to Infinity Q’s valuation committee and all minutes of its conferences. Infinity Q’s investor supplies had indicated that Infinity Q had a valuation committee, together with VELISSARIS, that the committee would meet month-to-month or extra often, and that VELISSARIS can be answerable for making ready minutes of such conferences. In truth, nonetheless, VELISSARIS had not taken notes of any of these conferences. Consequently, days earlier than responding to the SEC, VELISSARIS wrote notes purporting to be from valuation committee conferences in 2019 and 2020 and filed them with the SEC.

* * *

VELISSARIS, 38, of Atlanta, Georgia, pleaded responsible to at least one rely of securities fraud, which carries a most sentence of 20 years in jail.

The potential most sentence on this case is prescribed by Congress and is offered right here for informational functions solely. Sentencing is scheduled for March 3, 2023, in entrance of Choose Cote.

Mr. Williams praised the work of the Federal Bureau of Investigation. As well as, he thanked the SEC and the Commodity Futures Buying and selling Fee for his or her cooperation and help on this investigation.

This case is being dealt with by the Bureau’s Securities and Commodities Fraud Process Power. Assistant US Attorneys Margaret Graham, Daniel Loss and Daniel Tracer are prosecuting.

Leave a Comment