The SEC recently charged the founder and chief investment officer at Infinity Q Capital Management with a massive over-valuation scam. The man allegedly pocketed millions in fees by overvaluing its private fund and mutual fund and masking their real performance.
The U.S. Attorney’s Office for the Southern District of New York simultaneously announced criminal charges, and the Commodity Futures Trading Commission issued a civil complaint against the man.
How was this over-valuation accomplished?
Usually, funds don’t get to just announce their own value. Instead, they are valued by third-party pricing services that are brought in to examine the funds’ assets. In this case, according to the SEC, Infinity Q’s founder actually altered inputs and manipulated the code of the third-party pricing service that had been hired.
The SEC says that the man attempted to cover up the scam by deceiving his staff, creating back-dated minutes for nonexistent valuation meetings, and altering documents describing Infinity Q’s valuation policies. He allegedly also sent forged term sheets to the private fund’s and mutual fund’s auditors.
“We allege that, while [Infinity Q’s founder] marketed the mutual fund as a way for retail investors to access investment strategies typically reserved for high net worth clients,” said an SEC spokesperson, “what he actually offered them were fraudulent documents, altered performance results, and manipulated valuations.”
Ultimately, this scam masked the poor performance of Infinity Q’s funds, which probably thwarted some investors who would have asked for refunds if they knew that the funds’ values were actually half of what they were being told. And, the founder allegedly collected over $26 million in profit distributions for himself through the valuation fraud.
The man has already been removed from his position at Infinity Q, as of February 2021. Shortly thereafter, at Infinity Q’s request, the SEC suspended redemptions of the mutual fund in order to protect shareholders. Now, he is charged with fraud and other violations of securities law. The criminal complaint seeks an injunction, return of the ill-gotten gains, and civil penalties. The SEC also wants to bar the man from ever serving as an officer or director of a public company again.
Will investors get their money back?
The SEC is actively seeking return of any ill-gotten gains, but that process may not adequately protect every shareholder’s interests. Individuals who have lost a substantial sum in a fraud like this one should consider having an attorney determine the most effective way to seek reimbursement, and that may include bringing a lawsuit or a FINRA arbitration claim.