US authorities are suing Infinity Q Capital Management, alleging fraud

Signage is seen at the headquarters of the U.S. Securities and Exchange Commission (SEC) in Washington, DC, U.S., May 12, 2021. Picture taken May 12, 2021. REUTERS/Andrew Kelly

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WASHINGTON, Feb 17 (Reuters) – U.S. authorities have filed criminal and civil charges against the founder and former chief investment officer of investment adviser Infinity Q Capital Management LLC, alleging he engaged in a fraudulent scheme to inflate the value of the assets advised by the company.

Infinity Q was forced to liquidate its mutual funds last year after the U.S. Securities and Exchange Commission discovered that James Velissaris had made potentially unreasonable adjustments to a pricing model used to price the funds’ investments. .

On Thursday, the Southern District of New York (SDNY) also filed a lawsuit against Velissaris for inflating the value of the funds by $1 billion. As a result, he received management and performance fees — totaling at least about $26.9 million since 2019 — to which he was not entitled.

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According to the SEC, Velissaris inflated valuations by manipulating computer code in the valuation models of third-party pricing services that the company used to price funds; he entered data that he knew was incorrect in the rating service; selected certain valuation models which he knew were incapable of correctly valuing the positions concerned; and knowingly selected one of the main evaluation data.

“Velissaris’ price manipulations significantly inflated the mutual fund’s net asset value and the private fund’s total assets, as well as reported performance,” the SEC said in its charge.

“The manipulations were so widespread that Velissaris could not follow his deceptions,” he added.

He also falsified investor compliance manuals before providing them to investigators, the SDNY said in its charges, adding that Infinity Q and Velissaris disseminated materially false and misleading information to investors.

The Commodity Futures Trading Commission (CFTC) also filed a complaint with SDNY on Thursday, alleging similarly that Velissaris manipulated the pricing model to overvalue derivatives held by mutual funds.

Reuters could not immediately contact Velissaris for comment.

Velissaris lawyer Mark Schonfeld told Reuters his client handled investments at Infinity Q with the “utmost integrity”.

“We look forward to vindicating James, who has been scapegoated by others who will have to answer in court for their own compliance failures and losses incurred from their irresponsible portfolio liquidation,” Schonfeld said.

Thursday’s charges come amid pressure from regulators to strengthen disclosure of hedge funds and private equity funds in a bid to guard against fraud, increase oversight of the private funds industry and better monitor systemic risks.

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Reporting by Michelle Price and Katanga Johnson in Washington; Editing by Andrea Ricci

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