SEC says ex-CIO of Infinity Q Capital orchestrated fund valuation fraud

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The Securities and Exchange Commission on Thursday filed a lawsuit in federal court against the founder and former chief investment officer of Infinity Q Capital Management, alleging he overvalued assets by more than $1 billion while pocketing dozens millions of dollars in costs.

The SEC complaint, filed in the U.S. District Court for the Southern District of New York, alleges that James Velissaris engaged in a scheme to overvalue the assets held by the Infinity Q Diversified Alpha mutual fund and the fund. speculative Infinity Q Volatility Alpha since at least 2017. until February 2021.

The complaint alleges that Mr. Velissaris executed the overvaluation scheme by altering entries and manipulating the code of a third-party pricing service used to value fund assets. He allegedly received about $26.9 million in profit distributions through his fraudulent conduct and did not disclose his activities to investors, according to the complaint.

Mr. Velissaris was removed from his position at Infinity Q in February 2021 after the SEC confronted the company with information suggesting that he had adjusted the third-party pricing model.

“We allege that, while Velissaris marketed the mutual fund as a way for retail investors to access investment strategies typically reserved for high net worth clients, what it actually offered them were documents fraud, altered performance results and manipulated valuations,” Gurbir S. Grewal, director of the SEC’s Enforcement Division, said in a press release.

Additionally, the SEC alleges that Mr. Velissaris attempted to obstruct SEC staff during its investigation of Infinity Q. In response to a request for documents from the SEC, Mr. Velissaris “modified and produced the SEC compliance and private placement ratings that differed from had been sent to investors in order to conceal that Infinity Q’s actual valuation policy was inconsistent with its practices,” according to the complaint.

Infinity Q was forced to liquidate its mutual fund, the Infinity Q Diversified Alpha Fund, after the SEC filed the initial claims against Mr. Velissaris in February 2021. In a March 2021 statement on its website, Infinity Q said the mutual fund was liquidated and assets totaling $1.2 billion in cash and cash equivalents were transferred to the fund’s custodian.

In its complaint, the SEC accuses Mr. Velissaris of violating anti-fraud and other provisions of federal securities laws and seeks a permanent injunction, restitution of allegedly ill-gotten gains and civil penalties. The SEC is also seeking to prohibit Mr. Velissaris from serving as an officer and director of a public company.

In parallel actions Thursday, the U.S. Attorney’s Office for the Southern District of New York announced criminal charges against Mr. Velissaris, and the Commodity Futures Trading Commission announced civil charges against him.

A lawyer for Mr. Velissaris could not immediately be reached for comment.

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