An Infinity Q Capital Management investor is taking legal action against the embattled firm, with the expectation that others will join in the class action lawsuit.
The complaint, filed in the Eastern District of New York on February 26, alleges that Liang Yang and other investors “suffered significant losses and damages” after Infinity Q’s chief investment officer altered the firm’s pricing models.
The lawsuit follows news that Infinity Q would gate and liquidate certain portfolios after learning from the Securities and Exchange Commission that its CIO, James Velissaris, had intervened in the fund valuation process.
A statement on the firm’s website says it independently verified the SEC’s findings and that Velissaris has been “relieved of his duties.”
After the news broke, a flurry of law firms descended, publishing shareholder action alerts that urged investors in the fund to participate in a class action lawsuit. So far, Yang’s is the only complaint that has been filed.
Yang is not only suing Velissaris and Infinity Q Capital Management, but also the firm’s non-executive chairman Leonard Potter and Infinity Q’s trustees, who work for the Trust for Advised Portfolios.
The class action suit is seeking for the defendants to pay damages, prejudgment and post-judgment interest, reasonable attorneys’ fees, expert fees, and other costs, according to the complaint.
A spokesperson for Infinity Q declined to comment on Wednesday. Yang’s lawyer did not respond to an email seeking comment.
According to the lawsuit, the statements Infinity Q made regarding how it valued funds in 2019 and 2020 were “materially false and/or misleading.” Yang alleged that the defendants knew or “recklessly disregarded” information pertaining to its fund valuations, including failing to disclose that CIO “made adjustments... that affected the valuation of the swaps held by the fund.”
Central to the case is Infinity Q’s $1.8 billion Diversified Alpha Fund. The fund’s investments included exposures to swaps and other difficult-to-price, illiquid investments.
Infinity Q confirmed in late February that Velissaris had been altering the fund’s third-party valuation models. In the statement on its website, the firm said that it has been “unable to value certain assets held by the fund.”
Infinity Q had originally closed the Diversified Alpha Fund to new investors in December 2020, roughly two months before gating and liquidating the fund, according to an SEC filing.
The firm has since locked Velissaris out of its trading accounts and placed him on administrative leave, according to the statement. Potter will now manage the firm, which has hired an independent expert to conduct a valuation of its portfolio and to oversee its liquidation, the statement said.
“The fund intends to proceed with a liquidation plan and distribution to shareholders, both of which will be presented to the SEC for approval. At this time, there is no estimate of when the liquidation and distribution will be completed,” the firm said. “Until then, redemptions of fund shares will remain suspended.”