Manager and founder of a $1.7 billion mutual fund that collapsed last year has been charged by federal prosecutors with securities fraud and obstruction of justice for allegedly inflating fund asset values to keep investor money flowing, then falsifying records to conceal the improprieties. 

Infinity Q Diversified Alpha Fund, seven years after its founding, stopped investors from redeeming their money in February 2021. It was founded by James Velissaris (37) who is also the chief investment officer. A government inquiry began, Velissaris stepped down and the mutual fund and a parallel hedge fund he oversaw began liquidating. 

In a bullish market, it was rare to see a large mutual fund fail. David Bonderman was a billionaire investor and co-founder at TPG. private-equity firm that went public this year. Regulatory documents reveal that the Bonderman Family had been a significant investor in Infinity Q Capital Management. Velissaris managed it. Before he founded Infinity Q Capital Management, Velissaris worked as a Bonderman Family employee. 

Prosecutors said Velissaris inflated the value of the funds’ holdings by $1 billion and manipulated the results for at least four years to mask poor performance. Prosecutors said that funds’ true values were only 50% of what investors believed they were during the Pandemic in 2020. According to the Securities and Exchange Commission’s civil complaint against Velissaris filed on Thursday, certain mutual funds positions “were reported at mathematically unimaginable valuations.”

In addition to securities fraud and obstruction of justice, Velissaris has been charged with wire fraud and lying to auditors. Each of these charges carries a maximum term of 20 years imprisonment. 

Velissaris is also being accused by the SEC of taking $27 Million in management fees from Velissaris for a wrong valuation of fund holdings. SEC stated that its investigation is still ongoing.

Mark Schonfeld is a Gibson Dunn lawyer who represented Velissaris. He stated that James managed Infinity Q’s investments with integrity and in compliance with all applicable principles. We look forward in vindicating James who was made the victim of others’ compliance failings and losses caused by the portfolio’s irresponsible sale.

Infinity Q Capital Management spokespeople declined to comment.

Velissaris was responsible for overseeing funds which were designed to provide returns that weren’t in sync with stock and bond market movements. They held a lot of exotic investments, which are called derivatives because they can be derived from other securities. They claimed an annual return of about 9.5 per cent before being liquidated.

Infinity Q used the Bonderman ties as a selling point. The fund’s presentation boasted that it would offer its investors the same “alternative investing strategies created” by the family. Infinity Q Capital Management spokeswoman said that the Bonderman family was an investor who had no direct control over their investments. According to the spokesman, the family was able to lose “a significant amount” during the collapse. Bonderman’s private-equity company TPG did not reply to his request for comment on Bonderman’s charges.

The prosecution claimed that the mispricing occurred between 2017 and 2021. Velissaris applied for a $100 million loan to Infinity Q Capital Management around March 2020. The funds were in such a mess that they couldn’t pay back, according to the SEC. However, the loan was never granted. 

Infinity Q portfolios are accused of being mispriced by the prosecutor. This is a repeat of previous issues at the mutual funds. In 2016, the fund was late in filing a regulatory report because an independent pricing service had been unable to “support” some of its valuations. After that incident, the fund’s trustees, charged with overseeing it for investors, noted they had “worked closely” with Infinity Q Capital Management “to ensure that the appropriate source documentation for its valuation determinations are maintainedThis was done to improve the ability of the advisor’s trade allocation oversight to spot any misallocations or errors.

Marshall Glickman, aggrieved investor of Infinity Q, stated that Velissaris may have manipulated asset prices and returns over four years. Why was Velissaris able to price the assets incorrectly for four years? He inquired. 

Glickman also said that the trustees are holding back investor funds to pay for legal and other costs incurred by the fund. Trustees had set aside $750million last year for potential liability related to Infinity Q litigation. According to the trustees, this is because the insurance that was held for lawsuit costs might not be sufficient and may not cover some expenses such as those related to the liquidation.

Glickman claimed that only 30% of his initial investment has been returned due to this set-aside. 

According to records, fund investors who were harmed by the fraud also pay approximately $900,000. per month in expenses. The expenses totaled $7.24 Million between June 2021-February 2019. Glickman indicated that the case could continue for many years. If this case is delayed for three years, $36 million will be gone.

Glickman claimed that the SEC ought to have established an independent group to supervise the liquidation and disbursement of the fund, rather than allowing trustees to do so during the fraud. 

The trustees did not respond to an email sent. They approved creating a committee to examine and investigate potential claims for the fund’s investors.