Broker-dealers who inflate investment fund performance to retain business
and gain new clients deny investors the opportunity to make informed investment
Inflating Fund Performance is Illegal
In May 2018, the Securities and Exchange Commission (SEC) filed charges
against Premium Point Investments, a New York investment firm, for
inflating fund performance to retain and attract investors. The SEC alleges that the firm engaged
in a high-level, six-month investment scam where a firm's adviser
exchanged trades with a broker-dealer who inflated valuations on mortgage-backed
securities. The firm allegedly inflated fund performance even further
by using mid-point valuations. The scam allegedly inflated the value of
Premium Point’s securities holdings and grossly exaggerated investment
returns to investors.
The recent SEC complaint filed charges against the CEO and chief investment
officer of Premium Point Investments, Anilesh Ahuja, as well as a former
portfolio manager, Amin Majidi, and a former trader, Jeremy Shor. All
three men were charged with fraud and aiding and abetting fraud. The SEC
is seeking permanent injunctions against the men, as well as the return
of illegally obtained gains including interest and civil penalties.
Hedge funds commonly use pooled funds from large institutional investors
and high-net-worth individuals with private investments. When investors
invest in hedge funds, cash is distributed into a variety of investments
chosen by fund managers who usually receive a percentage of returns. This
often creates an opportunity for hedge fund fraud by unethical hedge fund
managers. Since hedge funds do not have to register with the SEC, they
are not regulated by mandatory reporting rules like other types of investment
funds. It's easier for dishonest hedge fund promoters to entice potential
investors by promising fast, high returns on their investments.
Most hedge funds do not engage in unethical or illegal behavior. However,
large investments and intense competition can lead to
investment fraud. Although hedge funds are not subject to mandated reporting rules, mandated
fiduciary duties may still apply. Hedge fund managers and promoters must
comply with the same duties as other securities brokers. If they don't,
they can be charged with investment fraud.
Investors rely on their brokers to accurately value their investments so
they can make informed investment decisions. When the true performance
or value of an investment is masked and an investor loses money, he or
she can file a lawsuit or arbitration case to hold the broker liable for
damages. Investors who lose money may be able to recover the purchase
price of the securities, the gains he or she reasonably should have expected
to make had the funds been invested appropriately, arbitration costs,
and reasonable attorney fees. In some situations, when egregious misconduct
is involved, the investor may be entitled to punitive damages.
Dishonest brokers often defraud investors by inflating hedge fund performance
to show profits that do not exist. If you have been a victim of securities
fraud and need legal assistance with loss recovery, contact the attorneys
at Meyer Wilson at 888-390-6491 for a
free consultation today.