An Indian-origin founder of a Manhattan-based hedge fund firm and a former trader of the enterprise have been found guilty of securities fraud for their participation in a scheme to inflate the net asset value for hedge funds managed by the company by over USD 100 million.
Anilesh Ahuja, also known as Neil, was the founder, CEO and chief investment officer of the Premium Point Investments LP (PPI), an investment firm that managed hedge funds.
The 51-year-old resident of New York's New Rochelle area and 44-year-old former PPI trader Jeremy Shor, also from New York, were found guilty on four counts of conspiracy to commit securities fraud and wire fraud.
The two carry a minimum of 25 years in prison.
Audrey Strauss, the Attorney for the US, said Anilesh Ahuja and Jeremy Shor were convicted after a six-week trial in Manhattan federal court presided over by US district Judge Katherine Polk Failla for their participation in a scheme to inflate the net asset value reported to investors for hedge funds managed by PPI by more than USD 100 million.
"Investors in our markets must be able to count on the truth and accuracy of the information they receive from those they entrust with their money. As the jury's verdict reflects, Anilesh Ahuja and Jeremy Shor failed to live up to that fundamental responsibility and investors lost significant money as a result," Audrey Strauss said.
According to the indictment and based on the evidence presented at trial, in 2008, Anilesh Ahuja co-founded the PPI, which managed hedge funds focused primarily on structured credit products, including residential mortgage backed securities (RMBS).
The PPI's flagship mortgage credit fund (the Hedge Fund) was launched in October 2009. In 2013, the PPI launched a new fund that purchased and securitised pools of mortgages that were not issued or guaranteed by a government agency.
At various relevant times between 2008 and 2016, the PPI managed billions in assets.
Jeremy Shor was employed by the PPI as a trader, where he focused on non-agency RMBS, which are securities that were not issued by a government agency.
From in or about 2014 through 2016, the duo participated in a scheme to defraud PPI's investors by mismarking certain securities held in hedge funds that the firm managed, thus fraudulently inflating the net asset value of those funds as reported to investors and potential investors.
PPI fraudulently obtained inflated quotes, including from corrupt brokers, and manipulated its valuation process to inflate the purported value of securities held by the funds.
The effect of the mismarking scheme was to materially overstate the reported net asset value - at times by more than USD 100 million across the funds managed by the PPI.
This benefited the PPI as it was able to charge its investors higher management and performance fees and was able to forestall redemptions by investors who would have requested a return of their funds had they known the PPI''s true performance and operating health.
The mismarking scheme evolved as a result of demands by Anilesh Ahuja that the PPI maintain its track record of success and keep pace with the performance of peer funds, regardless of market conditions or the actual performance of the funds.
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