Indian-American hedge fund founder convicted of securities fraud in Manhattan

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An Indian-American hedge fund founder, CEO, and CIO was convicted July 11 in a Manhattan federal court, along with a former trader, for securities fraud related offenses.

A street sign for Wall Street is seen outside the New York Stock Exchange (NYSE) in Manhattan, New York City, U.S. December 28, 2016. REUTERS/Andrew Kelly/Files

U.S. Attorney Audrey Strauss announced that Anilesh Ahuja,  a/k/a “Neil,” the founder, chief executive officer, and chief investment officer of Premium Point Investments LP (“PPI”), a Manhattan-based investment firm that managed hedge funds, and Jeremy Shor, a former trader at PPI, were found guilty July 11, of securities fraud-related offenses.

Ahuja and Shor were convicted after a six-week trial in Manhattan federal court presided over by U.S. District Judge Katherine Polk Failla, for their participation in a scheme to inflate the net asset value (“NAV”) reported to investors for hedge funds managed by PPI, by more than $100 million.

Ahuja, 51, of New Rochelle, New York, and Shor, 44, of New York, New York, were each found guilty on all four counts of the indictment: one count of conspiracy to commit securities fraud, which carries a maximum potential sentence of five years in prison, and one count each of securities fraud, conspiracy to commit wire fraud, and wire fraud, each of which carries a maximum potential sentence of 20 years in prison.

They will be sentenced by Judge Failla at a future date, not specified in the press release from the U.S. Attorney’s Office.

According to the press release which gave as its source the Indictment and the evidence presented at trial, Ahuja co-founded PPI, around 2008, and served as its CEO and CIO.  The new company (PPI) managed hedge funds focused primarily on structured credit products, including residential mortgage backed securities (“RMBS”).   Its flagship mortgage credit fund was launched around October 2009.  A segregated ERISA fund held the same positions as the Mortgage Credit Fund.

In 2013, PPI launched a new fund that purchased and securitized pools of mortgages that were not issued or guaranteed by a government agency.

At various times between 2008 and 2016, PPI managed billions in assets.

Shor was employed by PPI as a trader, where he focused on non-agency RMBS – i.e., RMBS securities that were not issued by a government agency.

From at least in or about 2014 through at least in or about 2016, Ahuja and Shor participated in a scheme to defraud PPI’s investors and potential investors in the Hedge Fund and the New Issue Fund by deceptively mismarking each month the value of certain securities held in these funds, and thus fraudulently inflating the NAV of those funds as reported to investors and potential investors, prosecutors said.

Their company, 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 NAV – at times by more than $100 million across the funds managed by PPI.

This benefited PPI in at least two ways, prosecutors said.  First, PPI was able to charge its investors higher management and performance fees.  Second, the PPI was able to forestall redemptions by investors who would have requested a return of their funds had they known PPI’s true performance and operating health.

To achieve the goal of posting competitive returns, Ahuja, along with another partner, set an inflated “target” return for the Hedge Fund and New Issue Fund at the end of each month, which was at times based in part on the performance of peer funds.  The traders at PPI were then tasked with “reverse engineering” marks to meet the “targets.”

 

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