SEC Charges Infinity Q Founder with Orchestrating Massive Valuation Fraud
Litigation Release No. 25331 / February 17, 2022
Securities and Exchange Commission v. James Velissaris, No. 1:22-cv-01346 (S.D.N.Y. filed Feb. 17, 2022)
The Securities and Exchange Commission today charged James Velissaris, the former Chief Investment Officer and founder of Infinity Q Capital Management, with 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, 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 also alleges 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 alleges 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 after SEC staff confronted the firm with information suggesting that Velissaris had been adjusting the third-party pricing model. Several days later, at Infinity Q's request and to protect shareholders, the Commission issued an order (Investment Company Act Rel. No. 34198 (Feb. 22, 2021)) to suspend redemptions of the mutual fund.
The SEC's complaint, filed in the U.S. District Court for the Southern District of New York, charges Velissaris with violating antifraud and other provisions of the federal securities laws. Specifically, the SEC's complaint alleges that Velissaris violated Section 17(a) of the Securities Act of 1933 ("Securities Act"), Section 10(b) of the Securities Exchange Act of 1934 ("Exchange Act"), and Rule 10b-5 thereunder, Sections 206(1), 206(2), 206(4) and 207 of the Investment Advisers Act of 1940 ("Advisers Act"), and Rule 206(4)-8 thereunder, and Sections 34(b) and 37 of the Investment Company Act of 1940 ("Investment Company Act"); in the alternative to the claim that Velissaris violated Exchange Act Section 10(b) and Rule 10b-5 thereunder, Velissaris, as a control person of Infinity Q under Exchange Act Section 20(a), is liable for violations by Infinity Q of Exchange Act Section 10(b) and Rule 10b-5(b) thereunder. The complaint further alleges that Velissaris aided and abetted Infinity Q's violations of Sections 17(a) of the Securities Act, Section 10(b) of the Exchange Act and Rule 10b-5(a)-(c) thereunder, Sections 204(a), 206(1), 206(2), 206(4), and 207 of the Advisers Act and Rules 204-2(a), 206(4)-7, and 206(4)-8 thereunder, and Section 34(b) of the Investment Company Act, and that Velissaris aided and abetted the Infinity Q Diversified Alpha Fund's violations of Rule 22c-1 under the Investment Company Act.
The 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 today announced criminal charges against Velissaris, and the Commodity Futures Trading Commission (CFTC) announced civil charges against him.
The SEC's ongoing investigation is being conducted by David H. Tutor and Brian Fitzpatrick of the Asset Management Unit, Joshua Brodsky of the Complex Financial Instruments Unit, and Kerri Palen of the New York Regional Office. It is being supervised by Andrew Dean of the Asset Management Unit and Osman Nawaz of the Complex Financial Instruments Unit. The litigation will be led by Mr. Tutor and Preethi Krishnamurthy. The SEC's Division of Investment Management's Analytics Office initiated a parallel examination of Infinity Q. The examination was conducted by Jon Hertzke, Kenneth O'Connor, Luis Casais, and Timothy Husson. Additional assistance to the investigation and examination was provided by Daniel Gallagher, David Bartels, Janet Grossnickle, Jennifer Sawin, Jenson Wayne, and Alexander Bradford of the SEC's Division of Investment Management; Ethan Coombs of the SEC's Division of Trading and Markets; and Dennis Hamilton of the SEC's Division of Economic and Risk Analysis. 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.