Washington, D.C. — The Commodity Futures Trading Commission today filed a civil enforcement action in the U.S. District Court for the Southern District of New York, charging James R. Velissaris of Atlanta, Ga. with fraud in connection with a multi-faceted scheme to overvalue the assets managed by his multi-billion dollar hedge fund.
The CFTC seeks restitution to defrauded pool participants, disgorgement of ill-gotten gains, civil monetary penalties, permanent registration and trading bans, and permanent injunctions against further violations of the Commodity Exchange Act (CEA) and CFTC regulations, as charged.
“This action demonstrates that the Commission will continue to focus on customer protection across the multifarious markets and products under its jurisdiction,” said Acting Director of Enforcement Vincent McGonagle. “Misvaluing financial instruments such as the swaps in this matter violates core provisions of the Commodity Exchange Act’s anti-fraud prohibitions and the Commission will vigorously seek to prosecute such violations.”
Case Background
The complaint alleges that during the relevant period, from at least January 1, 2018 through at least February 28, 2021, by and through Infinity Q Capital Management, LLC (Infinity Q), the company he founded, controlled, and of which he was the Chief Investment Officer and majority owner, Velissaris engaged in a fraudulent valuation scheme to show false gains on hundreds of swaps held by two commodity pools managed by Infinity Q, a CFTC-registered commodity pool operator.
The complaint states that Velissaris engaged in this fraud prior to the COVID-19 global pandemic, but the scope and scale of the fraud increased as he tried simultaneously to mitigate against, and also take advantage of, the unprecedented market volatility caused by the pandemic. As alleged, Velissaris executed his scheme by intentionally corrupting the independent, third-party pricing service models that Infinity Q used and touted to customers to value swaps held by the two commodity pools.
The complaint also alleges that Velissaris accomplished his scheme by, among other methods, surreptitiously inputting false information into the models; changing the models’ standard underlying computation codes; and using improper pricing templates to guarantee the pricing service would return whatever artificial values he wanted rather than the values that the independent pricing service models would produce without Velissaris’s nefarious actions. Using these fraudulent valuations, the complaint alleges, Velissaris successfully caused Infinity Q to show hundreds of millions of dollars in false, exaggerated gains, creating a false record of success that Infinity Q in turn used to charge inflated fees, induce existing pool participants to commit additional monies, and lure in new participants.
According to the complaint, Velissaris also took various steps to conceal his fraud, including providing falsified swap term sheets to Infinity Q’s auditors; surreptitiously making retroactive changes to Infinity Q’s written valuation policy; and creating phony minutes for meetings of Infinity Q’s valuation committee that never happened. The impact of Velissaris’s fraudulent scheme was massive, resulting in the overvaluation of the funds managed by Infinity Q in certain months by more than $1 billion.
Related Criminal and Civil Actions
In a separate, parallel matter, U.S. Attorney’s Office for the Southern District of New York today announced the indictment of Velissaris. In another parallel matter, the Securities and Exchange Commission (SEC) today announced the filing of a civil complaint against Velissaris.
The Division of Enforcement thanks and acknowledges the assistance of the National Futures Association, the U.S. Attorney’s Office for the Southern District of New York and the SEC.
Division of Enforcement staff members responsible for this case are Jonah E. McCarthy, Traci Rodriguez, John Buffington, Catherine Brescia, Hillary Van Tassel, and Paul G. Hayeck.
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Customers and other individuals can report suspicious activities or information, such as possible violations of commodity trading laws, to the Division of Enforcement via a toll-free hotline 866-FON-CFTC (866-366-2382), file a tip or complaint online, or contact the Whistleblower Office at whistleblower.gov. Whistleblowers are eligible to receive between 10 and 30 percent of the monetary sanctions collected paid from the CFTC Customer Protection Fund financed through monetary sanctions paid to the CFTC by violators of the CEA.
Source: CFTC
