Infinity Q Founder Accused of $1B Valuation Fraud

Brokerage Firms Sold Infinity Q Diversified Alpha Fund and Volatility Alpha Fund to Investors

The US Securities and Exchange Commission (SEC) has filed civil charges against James Velissaris, the founder and ex-chief investment officer of Infinity Q Capital Management. According to the regulator, Velissaris allegedly overvalued assets by over $1B while “pocketing” tens of millions of dollars in fees.

This is bad news for investors who were marketed and sold the Infinity Q Diversified Alpha mutual fund and the Volatility Alpha private fund by broker-dealers and their financial advisors. The two funds purportedly had about $3B in assets under management.

The Commission contends that from at least 2017 to February 2021, James Velissaris overvalued assets held by these two funds. According to the SEC’s complaint, Velissaris conducted his valuation scheme by modifying inputs and manipulating the code from a third-party pricing service that the company used to value these assets.

Meanwhile, he allegedly garnered over $26M in profit distributions through his fraudulent activities and did not disclose what he was doing to investors.

SEC Alleges Velissaris Took Actions to Cover Up Investment Fraud

Velissaris promoted the Infinity Q Diversified Alpha mutual fund as an opportunity for retail investors to get involved in investment strategies typically only presented to high net worth customers. He purposely took action to conceal the investor fraud.

Velissaris tried to “thwart redemption requests” by masking actual investment performance because if investors had known how the Fund was doing, they would likely have wanted their money back. During the pandemic, the funds’ actual values were purportedly half of what investors were told they were.

In February 2021, Velissaris was removed from his position at the firm following allegations by the SEC that he had modified the third-party pricing model. On February 22, 2021, and at the request of Infinity Q, the regulator suspended redemptions of the Diversified Alpha mutual fund. The Fund started liquidation proceedings in the wake of a government probe.

According to an NBC News article, the difference between the valuation of the mutual fund’s holdings and what was obtained when they were sold was around $500M. $1.2B in cash was left.

An expert who was interviewed noted that given that “complex bets on interest rates, commodities, currencies, and corporate defaults” were among the firm’s assets, it wasn’t surprising that the mutual fund failed. The Commission seeks permanent injunctive relief, restoration of allegedly ill-gotten gains, and civil penalties.

On February 17, 2022, the US Attorney’s Office for the Southern District of New York filed criminal charges against Velissaris over the alleged mismarking scheme. Prosecutors say that he sought to inflate the value of the investment funds to draw in and keep capital and increase his compensation.

CFTC Also Charges Velissaris With Fraud

On the same day, The Commodity Futures Trading Commission (CFTC) filed its own civil fraud case against Velissaris. The regulator accused him of using Infinity Q to run a fraudulent valuation scam. He allegedly made it appear as if there had been false gains on hundreds of swaps involving two commodity pools run by the company.

Seasoned Mutual Fund Fraud Attorneys

Our experienced mutual fund investment lawyers at Shepherd Smith Edwards and Kantas (SSEK Law Firm at investorlawyers.com) are looking into claims of losses involving the Infinity Q Diversified Alpha Fund and Infinity Q Volatility Alpha Fund. Call SSEK Law Firm at (800) 259-9010 today or contact us online to request your free, no-obligation case assessment.