Attention Hedge Fund Advisers: Inflating Fund Performance is Illegal

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Inflating Fund Performance

The Securities and Exchange Commission announces charges for New York-based investment adviser Premium Point Investments LP. The charges are for inflating fund performance. Altogether, the firm inflates the value of private funds it advises, by hundreds of millions of dollars. The SEC charges Premium Point’s CEO and chief investment officer Anilesh Ahuja. In like manner, the SEC charges Amin Majidi, a former portfolio manager at the firm, and former trader Jeremy Shor.

According to the SEC’s complaint, the scheme’s duration lasts for roughly six months. The high-level scam relies on a secret deal. Specifically, within the confines of the deal, the firm exchanges trades to a broker-dealer, in return for inflated broker quotes for mortgage-backed securities (MBS). Not to mention, the defendants use “imputed” mid-point valuations. Undoubtedly, the valuations prove useful for further inflating the value of the securities. For context, the aforementioned practice allegedly boosts the value of many of Premium Point’s MBS holdings and further exaggerates investment returns. Finally, the complaint alleges the defendants overstate the funds’ value in order to conceal poor fund performance, and attract and retain investors.

“Investors rely on their investment advisers to fairly and accurately value securities, and that is especially true when the securities trade in opaque markets,” said Daniel Michael, Chief of the Enforcement Division’s Complex Financial Instruments Unit. “As we allege, Premium Point masked its true performance, which denied investors the opportunity to make informed investment decisions.”

Serious Implications Realized

The SEC’s complaint, filed in U.S. District Court for the Southern District of New York, charges the defendants with fraud, with aiding and abetting fraud, or both. The SEC complaint seeks permanent injunctions, return of all ill-gotten gains with interest, and civil penalties. Correspondingly, the U.S. Attorney’s Office for the Southern District of New York charges Ahuja, Majidi, and Shor.