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.”
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.”