SEC Charges Infinity Q's Former Senior Officer for Role in Massive Valuation Fraud
Litigation Release No. 25542 / September 30, 2022
Securities and Exchange Commission v. Scott Lindell, No. 1:22-cv-08368 (S.D.N.Y. filed September 30, 2022)
The Securities and Exchange Commission today charged Scott Lindell-the former Chief Risk Officer, head of operations, and Chief Compliance Officer, and a former portfolio manager and Valuation Committee member of SEC-registered investment adviser Infinity Q Capital Management LLC-with misconduct concerning a more than $1 billion overvaluation scheme.
According to the SEC's complaint, Lindell failed to appropriately discharge his responsibilities in the face of multiple red flags regarding Infinity Q's valuations. The SEC alleges that, from at least February 2017 through February 2021, James Velissaris, Infinity Q's founder and former Chief Investment Officer, actively manipulated the valuation models available from a certain third-party pricing service and altered inputs to mask the poor performance of the mutual fund and hedge fund that Infinity Q advised. As alleged, Lindell negligently misrepresented to investors and potential investors, representatives of the mutual fund's board, and others that the pricing service was "independent" of Infinity Q when, in fact, Velissaris exercised control over the pricing service. As further alleged, Lindell, at Velissaris's direction, helped Velissaris submit misleading documents to the SEC staff in response to the SEC's initial inquiries in this matter and, on one occasion, helped Velissaris mislead the mutual fund's auditor. As set forth in the complaint, Lindell also made misstatements on various Infinity Q filings with the Commission.
The SEC's complaint, filed today in the U.S. District Court for the Southern District of New York, charges Lindell with violations of Sections 17(a)(2) and (3) of the Securities Act of 1933, Rule 13b2-2 of the Securities Exchange Act of 1934, Sections 206(2), 206(4), and 207 of the Investment Advisers Act of 1940, and Rule 206(4)-8 thereunder, and with aiding and abetting Infinity Q's violations of Sections 204(a) and 206(4) of the Advisers Act and Rules 204-2(a) and 206(4)-7 thereunder.
Lindell has agreed to settle the charges. The settlement, which permanently enjoins Lindell from violating the above provisions of the federal securities laws, is subject to court approval with determination of disgorgement, prejudgment interest, and civil money penalties as well as whether to impose an officer-and-director bar to be decided by the court at a later date.
On February 17, 2022, the SEC commenced a civil action against Velissaris for violating the anti-fraud and other provisions of the federal securities laws concerning his mismarking of the assets held by the Infinity Q funds. See SEC v. Velissaris, 22 Civ. 1346 (S.D.N.Y.).
The SEC's ongoing investigation is being conducted by David H. Tutor of the Asset Management Unit, Joshua Brodsky of the Complex Financial Instruments Unit, and Neal Jacobson, Alistaire Bambach, Kerri Palen and James Addison of the New York Regional Office. It is being supervised by Andrew Dean, Co-Chief of the Asset Management Unit, and Osman Nawaz, Chief of the Complex Financial Instruments Unit. The litigation will be led by Mr. Tutor, Mr. Brodsky, and Preethi Krishnamurthy. The SEC acknowledges the assistance and cooperation of the U.S. Attorney's Office for the Southern District of New York, the FBI, and the CFTC.