SEC Charges Infinity Q Founder with Orchestrating Massive Valuation Fraud
The SEC announced charges against the former CIO and founder of Infinity Q Capital Management for overvaluing assets by more than $1 billion while pocketing tens of millions of dollars in fees. The SEC’s complaint alleges that, from at least 2017 through February 2021, James Velissaris engaged in a fraudulent scheme to overvalue assets held by the Infinity Q Diversified Alpha mutual fund and the Infinity Q Volatility Alpha private fund. According to the complaint, Velissaris executed the overvaluation scheme by altering inputs and manipulating the code of a third-party pricing service used to value the funds’ assets. Velissaris allegedly collected more than $26 million in profit distributions through his fraudulent conduct and without disclosing his activities to investors. The SEC alleged that Velissaris, in an attempt to cover up his scheme, sought to actively deceive SEC staff by creating backdated minutes of valuation meetings that never occurred; altering documents that described Infinity Q’s valuation policies; and forging term sheets to the auditor of the mutual fund and the private fund. The SEC also alleged that, by masking actual performance, Velissaris sought to thwart redemptions by investors who likely would have requested a return of their money had they known the funds’ actual performance, particularly in the volatile markets in the wake of the COVID-19 pandemic. The complaint alleged that at times during the pandemic, the funds’ actual values were half of what investors were told. In February 2021, Velissaris was removed from his role with Infinity Q and several days later, at Infinity Q’s request and to protect shareholders, the SEC issued an order (Investment Company Act Rel. No. 34198 (Feb. 22, 2021)) to suspend redemptions of the mutual fund. The SEC’s complaint seeks permanent injunctive relief, return of allegedly ill-gotten gains, and civil penalties. The SEC also seeks to bar Velissaris from serving as a public company officer and director. In parallel actions, the U.S. Attorney’s Office for the Southern District of New York announced criminal charges against Velissaris, and the CFTC announced civil charges against him.