Founder And Previous Main Investment Officer Of New York Dependent Investment decision Adviser Charged With Securities Fraud And Obstruction Of Justice | USAO-SDNY

Damian Williams, United States Lawyer for the Southern District of New York, and Michael J. Driscoll, the Assistant Director-in-Charge of the New York Place of work of the Federal Bureau of Investigation (“FBI”), introduced that JAMES VELISSARIS, the founder and previous main investment decision officer of Infinity Q Money Management (“Infinity Q”), a New York centered financial commitment adviser that ran a mutual fund and a hedge fund that purported to have about $3 billion in assets beneath administration, was charged with securities fraud and obstruction of justice for orchestrating a plan to lie to buyers and falsify documents.  VELISSARIS created bogus and misleading statements to investors and some others relating to Infinity Q’s system for valuing sure about-the-counter (“OTC”) spinoff positions that designed up a substantial portion of the holdings of the mutual and hedge cash, and also fraudulently mismarked those securities in approaches that did not mirror their fair price. VELISSARIS fully commited the mismarking plan in buy to inflate the worth of the investment decision funds as claimed to buyers, to attract and keep funds, and to maximize his very own payment. In order to steer clear of detection of the scheme, VELISSARIS provided the two Infinity Q’s auditor and the Securities and Trade Fee (“SEC”) with falsified or altered documents, together with providing the auditor with altered term sheets that served to supply fabricated support for the fraudulently inflated values.  VELISSARIS surrendered to FBI agents in Atlanta, Georgia this morning and is expected to be introduced afterwards right now.

U.S. Legal professional Damian Williams reported:  “As alleged, James Velissaris violated his obligation to place the pursuits of his buyers ahead of his personal revenue.  In purchase to appeal to and keep investments in the funds that he operated, Velissaris lied about the independence of the method that he utilized to value fund assets, and he manipulated that process to convince investors that the funds were executing considerably better than they were being.  He then experimented with to cover his tracks by distributing fabricated or altered paperwork to the funds’ auditor and the SEC.  This case more demonstrates the Office’s continued motivation to stamping out economical fraud, whether it be in non-public money or the community markets.”

FBI Assistant Director Michael J. Driscoll explained: “Financial commitment fraud schemes might appear like a tried out and legitimate way to get prosperous fast, but the perpetrators are often way too self-assured in their qualities to hide their illegal activity from investigators. As was the situation with Velissaris, the fact caught up with him, and his alleged lies were exposed. Now he faces the penalties of his actions.”

In accordance to the allegations contained in a six-rely Indictment unsealed nowadays in Federal court docket and other publicly-readily available information and facts:[1]


VELISSARIS was the founder and chief investment officer of Infinity Q, an expense adviser that ran both of those a mutual fund (the “Mutual Fund”), begun in about 2014, and a hedge fund (the “Hedge Fund,” and collectively the “Investment Funds”), commenced in about 2017.  As of 2021, the two cash purported to have somewhere around $3 billion in assets underneath administration.  Infinity Q was headquartered in New York, New York, and employed a tiny staff members like a main compliance and main threat officer (“Employee-1”). 

A major ingredient of both the Mutual Fund and the Hedge Fund’s holdings were being more than-the-counter (“OTC”) by-product positions that included custom-made contracts that authorized the counterparties to get positions on the volatility, or price motion, of fundamental belongings or indices.  VELISSARIS, via Infinity Q, represented to its buyers that it valued these OTC derivative positions based mostly on good benefit, and that in purchase to do so, it used the providers of an unbiased 3rd-bash service provider.  In unique, Infinity Q represented to buyers and other stakeholders that it made use of Bloomberg Valuations Services (“BVAL”) to independently compute the honest worth of these positions, in accordance with the conditions of the underlying derivative contracts.  These OTC derivative positions comprised hundreds of millions of pounds of the Financial investment Funds’ portfolios.   

Velissaris’ Scheme to Lie to Investors and Inflate Spinoff Swap Positions

In point, nonetheless, VELISSARIS defrauded Infinity Q’s investors by taking an lively function in the valuation of Infinity Q’s positions, and by modeling the positions in strategies that were not based mostly on the precise conditions of the fundamental contracts and had been inconsistent with reasonable worth.  VELISSARIS’ input into the BVAL valuation course of action was inconsistent with Infinity Q’s representations about the independence of the approach and permitted VELISSARIS to fraudulently mismark positions in BVAL.  VELISSARS engaged in the mismarking of positions in BVAL by making fake entries in BVAL’s technique which includes by secretly altering the pc code employed by BVAL that brought on BVAL to alter and disregard certain critical phrases.  Altering and disregarding conditions in this vogue prompted BVAL to report values that ended up artificially inflated and, normally, substantially larger than reasonable value. 

By manipulating OTC spinoff positions in BVAL in this way, VELISSARIS brought about quite a few positions in the Investment decision Money to have anomalous and, at times, impossible valuations.  For case in point, at situations, VELISSARIS produced manipulations in both the Mutual Fund and/or the Hedge Fund that prompted sure identical positions that have been held by the two the Mutual Fund and the Hedge Fund (particularly, a posture wherever all the substance terms are the identical) to have significantly divergent values.  In other cases, some of VELISSARIS’ manipulations prompted specific positions held by the Investment Resources to have not possible values, these as in which less than the legitimate phrases of the swap, the benefit adopted by VELISSARIS could only be legitimate if volatility ended up adverse – a affliction which is mathematically unachievable.

Eventually, following VELISSARIS’ mismarking plan was uncovered in or about February 2021, Infinity Q liquidated the Expenditure Cash and sold its OTC by-product positions.  These positions were bought for hundreds of thousands and thousands of pounds significantly less than their purported market place values in BVAL thereby resulting in significant losses to the traders in the Investment decision Resources.

Velissaris Lies to Auditors and Obstructs the SEC’s Investigation

In buy to conceal this plan and avoid its detection, VELISSARIS lied to a lot of outside stakeholders and regulators.  Very first, in purchase to avert Infinity Q’s exterior auditor (the “Auditor”) from identifying the fraud VELISSARIS supplied the Auditor with falsified time period sheets from counterparties that he had altered to alter the true terms of particular OTC derivative positions.  In unique, in link with a quantity of audits, the Auditor selected certain OTC positions that it would independently price in purchase to validate the reasonableness of Infinity Q’s values from BVAL.  In order to ensure that the Auditor would not arrive at materially unique outcomes when independently valuing positions that VELISSARIS had manipulated in BVAL, VELISSARIS altered the phrases of certain deal documents and offered them to the Auditor.  Right after obtaining these falsified files and relying on them in its independent analysis, the Auditor confirmed the reasonableness of VELISSARIS’ valuations in BVAL.

Additionally, starting in May perhaps 2020, the SEC opened an inquiry and later on an investigation into Infinity Q’s valuation practices.  In link with that investigation, VELISSARIS provided false and misleading data to the SEC.  For illustration, when the SEC requested for initial files that had been furnished to traders, VELISSARIS altered the files right before giving them to the SEC, together with certain alterations that would enable disguise his mismarking scheme.  For case in point, Infinity Q’s first trader supplies mentioned that “[o]nce a selling price is founded for a portfolio safety, it shall be used for all Cash that maintain the protection.”  As discussed over, this was untrue and on several situations, manipulations in BVAL manufactured by VELISSARIS triggered the very same positions in the Mutual Fund and the Hedge Fund to have significantly unique values.  To conceal the falsity of Infinity Q’s disclosures, VELISSARIS alongside with Worker-1 taken off this line from investor files that were being presented to the SEC.

In June 2020, the SEC requested that Infinity Q give more supplies, which includes files with regards to Infinity Q’s valuation committee and all of its meeting minutes.  Infinity Q’s investor supplies had represented that Infinity Q had a valuation committee, which includes VELISSARIS, that the committee would satisfy every month or much more normally, and that VELISSARIS would be dependable for making ready minutes of such conferences.  In actuality, however, VELISSARIS experienced not saved notes of any these types of meetings.  Accordingly, days before responding to the SEC, VELISSARIS manufactured up notes purporting to be from valuation committee conferences in 2019 and 2020 and submitted them to the SEC.

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VELISSARIS, 37, of Atlanta, Georgia, is charged with securities fraud, wire fraud, lying to auditors, and obstruction of justice, each individual of which carries a utmost sentence of 20 many years in jail and expense adviser fraud and conspiracy to impede justice, every single of which carries a most sentence of 5 several years in prison.  The maximum opportunity sentences in this circumstance are approved by Congress and are delivered right here for informational applications only, as any sentencing of the defendant will be determined by a choose.

Mr. Williams praised the perform of the Federal Bureau of Investigation.  He additional thanked the Securities and Exchange Fee and the Commodity Futures Buying and selling Commission for their cooperation and guidance in this investigation.   

This circumstance is being dealt with by the Office’s Securities and Commodities Fraud Process Drive.  Assistant U.S. Lawyers Daniel Loss and Daniel Tracer are in cost of the prosecution.   

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