Billionaire Hedge Fund Crook James Velissaris Charged with Fraud
Federal prosecutors charged James Velissaris, the former chief investment officer of Infinity Q Capital Management, on Thursday with securities fraud and obstruction of justice following the collapse of the investment firm.
The U.S. attorney’s office in Manhattan charged Mr. Velissaris with securities fraud, wire fraud, lying to auditors and obstruction of justice. He faces up to 20 years in prison on each count.
Prosecutors said he orchestrated a massive scheme to inflate the value of securities in his portfolio at Infinity Q. The Securities and Exchange Commission and Commodity Futures Trading Commission also filed civil complaints against Mr. Velissaris, saying he inflated the value of assets at the firm by more than $1 billion.
Investors in the mutual fund dealt with big losses after the fund was liquidated last year.
“James Velissaris violated his obligation to put the interests of his investors before his own profits,” said U.S. Attorney Damian Williams. “Velissaris lied about the independence of the process that he used to value fund assets, and he manipulated that process to convince investors that the funds were performing much better than they were. He then tried to cover his tracks.”
A lawyer representing Mr. Velissaris said he “managed investments at Infinity Q with the highest integrity in accordance with all applicable principles. We look forward to vindicating James, who has been scapegoated by others who will have to answer in court for their own compliance failures and the losses incurred by their irresponsible liquidation of the portfolio.”
Mr. Velissaris surrendered to Federal Bureau of Investigation agents in Atlanta on Thursday, prosecutors said.
The U.S. attorney’s office said Mr. Velissaris made false statements to investors about the firm’s derivatives portfolio and mismarked positions, leading to inflated positions at the mutual fund and hedge fund, which claimed to oversee around $3 billion in assets.
The U.S. attorney’s office said Mr. Velissaris overvalued derivatives positions by tweaking inputs to the Bloomberg Valuations Service, which was used to calculate the positions values.
In some cases, Mr. Velissaris made adjustments that caused positions to have anomalous and “impossible valuations,” prosecutors said. In others, identical positions in the mutual fund and hedge fund had diverging values.
When the SEC started investigating the matter, Mr. Velissaris sought to cover it up, prosecutors said. He provided Infinity Q’s auditor with false documents that tried to support the “fraudulently inflated values” and provided false information to regulators.
Mr. Velissaris oversaw a highflying mutual fund that attracted assets as volatility roiled markets during the Covid-19 pandemic. The mutual fund had wide-ranging bets across the derivatives markets and significant positions in the over-the-counter market for derivatives.
The SEC said Mr. Velissaris overvalued assets in the Infinity Q Diversified Alpha mutual fund and the Infinity Q Volatility Alpha private fund from 2017 to February 2021.
“At times during the pandemic, the funds’ actual values were half of what investors were told,” the SEC said in a statement.
Along the way, Mr. Velissaris collected more than $26 million in profit distributions, according to the SEC.
News Zoom Click reported last year that the Infinity Q Diversified Alpha Fund disclosed valuations that were incorrect or inconsistent with market conditions. One valuation was mathematically impossible.
The firm made the unusual move of halting redemptions to investors last February, saying it could no longer value its holdings. At least two people had raised concerns about the fund to the SEC, the financial press reported.