The Securities and Exchange Commission (SEC) accused on Friday that the former chief compliance officer of Infinity Q Capital Management assisted the firm's founder in carrying out a $1 billion overvaluation fraud scheme.
Scott Lindell, who formerly worked at Infinity Q as the company's chief risk officer, head of operations, portfolio manager, and member of the valuation committee, consented to a settlement. In addition to being accused of aiding and abetting Infinity Q's alleged violations of the Advisers Act, Lindell was accused of breaking other securities laws in the SEC's complaint, which was submitted to the Southern District of New York's federal court.
The court must approve the settlement before making decisions on disgorgement, prejudgment interest, civil fines, and whether to impose an officer-and-director ban.
James Velissaris, the founder and chief investment officer of Infinity Q, was the target of many proceedings in February before the lawsuit was filed against Lindell. The Department of Justice (DOJ) filed charges against Velissaris for securities fraud, wire fraud, lying to auditors, obstruction of justice, fraud against investment advisers, and conspiracy to obstruct justice. Civil charges were levied against him by the SEC and Commodity Futures Trading Commission, respectively.
The agencies at the time did not identify Lindell.
The SEC charged Lindell with concealing Velissaris' ownership of the third-party pricing service that was utilized for Infinity Q's valuations from investors, potential investors, and board members from at least February 2017 through February 2021. Infinity Q was started in 2014 by Velissaris.
The SEC charged that Lindell further distorted Velissaris' manipulation of the ostensibly independent valuation models to give the impression that the mutual funds and hedge funds Infinity Q recommended were not underperforming. According to the agency, Velissaris changed the results of the appraisals, including by altering the pricing service's computer code.
The Securities and Exchange Commission (SEC) stated that Lindell "failed to exercise reasonable care and failed to undertake an appropriate investigation concerning multiple red flags that indicated Velissaris’s valuations of the Infinity Q funds’ positions were inappropriate."
The SEC claims that Lindell also assisted Velissaris in deceiving Infinity Q's auditor, "with at least reckless disregard of the truth."
The agency claimed that "this scheme allowed the Infinity Q funds to attract investor funds and keep investors from redeeming their investments and allowed Velissaris to enrich himself through performance and management fees."
According to the SEC, Velissaris and Lindell's activities increased the value of Infinity Q funds by more than $1 billion by September 2020.
According to the SEC, Lindell was paid through advisory fees levied against the hedge fund and mutual fund. Since 2017, Lindell has gotten yearly and incentive bonuses worth millions of dollars. Since 2019, he has also gotten profit distributions from management and performance fees for millions of dollars.
The SEC claimed that Lindell assisted Velissaris in filing deceptive paperwork with the agency after it made initial questions regarding Infinity Q and knowingly made false representations on the company's Form ADV filings.
The DOJ said in its case against the founder that after learning of Velissaris' alleged conduct in February 2021, Infinity Q liquidated its investment funds and sold derivative contracts at a price that reflected significant losses to investors. Cases against Velissaris are still ongoing.
By fLEXI tEAM