Anilesh Ahuja, the founder, chief executive, and chief investment officer of hedge fund Premium Point Investments, and former Premium Point trader Jeremy Shor were convicted on Thursday of charges that they fraudulently inflated the value of investments by more than $100 million.
Authorities arrested Ahuja and Shor last May, along with portfolio manager Amin Majidi. They were charged with participating in a scheme to commit wire and securities fraud for allegedly mismarking certain securities held in their structured credit hedge funds from roughly 2014 to 2016, according to a complaint filed by the U.S. attorney’s office in the Southern District of New York at the time. The Department alleged that Ahuja and his co-defendants manipulated the firm’s performance figures and lied to investors about it. The Securities and Exchange Commission filed parallel civil charges at the time.
“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,” said Audrey Strauss, U.S. attorney, in a statement from the Department of Justice regarding the guilty verdict. “As the jury’s verdict reflects, Ahuja and Shor failed to live up to that fundamental responsibility and investors lost significant money as a result.”
In May 2018, the Justice Department also announced charges against Ashish Dole, a former chief risk officer and trader at the firm, and Frank DiNucci, a former trader at Nomura. Majidi, Dole, and DiNucci pleaded guilty and cooperated with the government.
[II Deep Dive: Hedge Fund Managers Arrested for Inflating Asset Values]
Ahuja co-founded Premium Point in 2008 and launch its flagship mortgage credit fund in October 2009, the government said in its announcement last May. The firm launched a mortgage-backed securities fund in 2013 and managed excess of $5 billion at its peak. Performance was strong in the beginning, with the firm posting double-digit gains as the mortgage market recovered from the financial crisis, but began to deteriorate in later years.
The government alleged that’s when Ahuja, his co-defendants, and others including Dole and Dinucci began to deceptively mismark the value of the securities in its funds, overstating their net asset values by more than $100 million at times. This enabled the firm to charge investors higher management and performance fees and stave off redemptions by investors who may have asked for their money back had they realized the firm’s true performance, the government said in its complaint.
To do this, Ahuja and Hajidi set an inflated target return for the hedge fund at the end of each month, based in part on the performance of their peers, and tasked its employees with reverse engineering the marks to meet those targets, the government alleged. The defendants used “inflated quotes” from “corrupt brokers” and then used those bogus quotes to set correspondingly inflated prices for their bonds, and also used those same brokers to secure spreads that could be used to inflate the funds’ net asset value (NAV), the government claimed.
In 2016, the firm suspended redemptions and told investors it would have to restate its NAV for that year as well as 2015. At the time, Ahuja told investors in a letter that “markedly increased volatility and widening spreads” may have led to an improper valuation starting in late 2015.
An attorney for Ahuja did not respond to a request for comment. An attorney for Shor said his client plans to appeal, but declined to comment further on the verdict.
