SEC Charges Hedge Fund Advisor for Inflating Fund Performance
The SEC, in cooperation with the the U.S Attorney’s Office and the FBI investigated the allegedly secret deals and brought charges against a hedge fund advisor for inflating fund performance. A summary of the case follows:
The CEO and Chief Investment Officer, as well as a former partner and portfolio manager at the firm, and a former trader inflated the value of private funds it advised by hundreds of millions of dollars. How did they do it? In exchange for sending trades to a broker-dealer, Premium Point received inflated broker quotes for mortgage-backed securities. This practice increased the value of many of Premium Point’s mortgage-backed securities holdings and further overstated returns. Investors saw these inflated returns and purchased more securities and also didn’t realize that the fund performance was poor.
These guys allegedly ran this scheme from September through March 2016, possibly longer.
Daniel Michael, Chief of the Enforcement Division’s Complex Financial said: ‘’Investors relied on their investment advisers to fairly and accurately value securities, … As we allege, Premium Point masked its true performance, which denied investors the opportunity to make informed investment decisions.’’
The SEC is still investigating, but for now Ahuja, Majidi and Shor were charged with fraud, with aiding and abetting fraud, or both. The SEC is also looking for permanent injunctions, return of allegedly ill-gotten gains, with interest, and civil penalties.