Infinity Q fund settles with U.S. regulator over asset inflation

(Reuters) – The U.S. Securities and Exchange Commission on Thursday tentatively settled civil charges against an Infinity Q Capital Management mutual fund over its founder’s alleged scheme to inflate the fund’s value.

In papers filed in federal court in Manhattan, the SEC and Infinity Q Diversified Alpha Fund asked a judge to appoint a special master to oversee the fund’s ongoing liquidation. The fund also agreed to an order barring it from future violations of U.S. securities law.

The fund did not admit to wrongdoing.

Attorneys for the fund and Infinity Q did not immediately reply to requests for comment.

The SEC said Thursday that $670 million from the fund has been returned to shareholders, while $570 million remains to be distributed.

Infinity Q liquidated its mutual funds after the SEC found that the firm’s founder and former chief investment officer, James Velissaris, made potentially unreasonable adjustments to a pricing model used to value fund investments.

Before it suspended investor redemptions in February 2021, the Diversified Alpha Fund’s assets were valued at $1.73 billion. A review by the fund as part of its liquidation has since found that the assets were overvalued, at times by more than 30%.

The fund said in September that it had set aside approximately $74.1 million for expenses including legal fees incurred in the liquidation.

If appointed, a special master would oversee such expenditures.

U.S. authorities filed criminal and civil charges against Velissaris in February, alleging he fraudulently overvalued assets by more than $1 billion. He has pleaded not guilty and is scheduled to face trial in the criminal case on Nov. 28.

The case is SEC v. Infinity Q Diversified Alpha Fund, U.S. District Court, Southern District of New York, No. 22-cv-09608.

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