Home > News > Newsmakers > Founder, Former CIO of Infinity Q Sentenced to 15 Years
Newsmakers

Founder, Former CIO of Infinity Q Sentenced to 15 Years

Ohio and Texas pension funds were among investors who lost millions as a result of James Velissaris’ fraud.

By Michael Katz



James Velissaris, the founder and former CIO of Infinity Q Capital Management, has been sentenced to 15 years in prison for overvaluing by more than $1 billion the assets of funds he ran. Velissaris, who took in nearly $27 million in illegal fees, pled guilty to securities fraud in November 2022.

“Velissaris wove a complex scheme to defraud investors in Infinity Q’s investment funds, and he continuously lied to investors, auditors, and even the SEC in order to hide his crimes,” U.S. Attorney Damian Williams said in a release. “Velissaris’s massive scheme was calculated and deceptive, and he now justly faces 15 years in federal prison.”

Never miss a story — sign up for CIO newsletters to stay up-to-date on the latest institutional investment industry news.

In addition to the prison term, Velissaris was also sentenced to three years of supervised release and agreed to pay approximately $22 million in forfeiture.

According to the indictment against him, Velissaris defrauded Infinity Q’s investors by modeling the valuation of the firm’s positions in ways that were not based on the actual terms of the underlying contracts and were inconsistent with fair value. He claimed to have used the Bloomberg Valuations Service to independently calculate the fair value of these positions, which comprised hundreds of millions of dollars of the investment funds’ portfolios.  

However, Velissaris’ input into the Bloomberg Valuations Service process was inconsistent with Infinity Q’s representations about the independence of the process and allowed him to mismark positions. He did this by making false entries in Bloomberg Valuations Service’s system. He secretly altered the computer code to cause the service to alter and disregard certain critical terms, resulting in report values that were artificially inflated. By manipulating OTC derivative positions, Velissaris caused anomalous and even impossible valuations.

The mismarking by Velissaris was discovered in February 2021, when Infinity Q liquidated the investment funds and sold its OTC derivative positions for hundreds of millions of dollars less than their purported market values.

Among Infinity Q’s institutional clients were the Texas Municipal Retirement System, which allocated $125 million to one of the firm’s funds, and the State Teachers Retirement System of Ohio, which reportedly had a $53 million investment in an Infinity Q hedge fund.

Gurbir Grewal, director of the SEC’s enforcement division, said last year that the $18 trillion private fund market is “attracting more and more institutional investors, including public pension funds, university endowments and charitable foundations.” 


Related Stories:

Former CIO Charged With Overvaluing Funds by $1 Billion

Infinity Q Agrees to Settle SEC Overvaluation Charges

SEC Charges Hedge Fund Adviser With $39 Million Fraud

Tags: , , , , , , ,

Home > News > Regulation > SEC’s ESG and Climate Task Force Levies First Enforcement Action
Regulation

SEC’s ESG and Climate Task Force Levies First Enforcement Action

Brazilian mining firm Vale SA fined $56 million for fraud that led to fatal 2019 dam collapse.
By Paul Mulholland



Brazilian iron mining firm Vale SA settled with the Securities and Exchange Commission for $55.9 million on March 28, more than four years after one of its dams collapsed in Brazil in January 2019, resulting in the deaths of 270 people. The SEC charged that Vale had lied to investors about the safety of its dams in its environmental, social and governance disclosures and other filings.

Mining companies such as Vale sometimes maintain dams near their mining operations as a way to segregate contaminated water containing “tailings,” or mine waste, from nearby bodies of water. When the Brumadinho mine collapsed, the waste water contaminated the nearby river and buried 270 people.

According to an SEC complaint brought in April 2022, Vale lied repeatedly to investors and Brazilian authorities about the integrity of their dams. This included concealing material information from auditors, bribing auditors, disregarding industry best practices, presenting low quality lab data on their dams and making false statements to investors. It also alleged that Vale’s pattern of misleading investors also included private webinars on their ESG practices.

In the wake of the collapse, Vale lost $4 billion in market value, and its credit rating was downgraded to junk status.

For more stories like this, sign up for the CIO Alert newsletter.

Neel Maitra, a partner at the Wilson Sonini Goodrich and Rosati law firm, says that the settlement amount might seem like a small amount if it had been a personal injury lawsuit, but this settlement was for misleading investors, not for the damage caused by the collapse. This is only one subset of claims related to the catastrophe. Vale was also required to pay $7 billion in compensation to the victims by the Brazilian state of Minas Gerais.

This settlement was the first enforcement action brought by the SEC’s ESG and Climate Task Force, a 22-member team in the SEC’s enforcement division. The task force is focused on disclosures related to climate risk and ESG policies. In this case, Vale had misrepresented the integrity of its dams in ESG-related disclosures, according to the SEC.

Maitra explains that the settlement is part of SEC’s increasing focus on ESG filings. He highlighted an SEC proposal from May 2022, which would require ESG funds and their advisers to standardize their related disclosures and to disclose to investors information related to achieving specific ESG related goals.

A separate SEC proposal from March 2022 which would require companies registered with the SEC to disclose material climate risks and greenhouse gas emissions, has come under increased scrutiny from Republicans in Congress who claim that reporting greenhouse gas emissions is immaterial for many issuers and investors.

Tags: , ,

«