The former chief compliance officer of Infinity Q Capital Management helped the founder of the investment adviser conceal a $1 billion overvaluation fraud scheme, according to the Securities and Exchange Commission (SEC).
Scott Lindell, who also formerly served as chief risk officer, head of operations, portfolio manager, and a member of the valuation committee at Infinity Q, agreed to settle with the agency. The SEC’s complaint, filed Friday in U.S. District Court for the Southern District of New York, charged Lindell with violating multiple securities laws in addition to aiding and abetting Infinity Q’s alleged violations of the Advisers Act.
The settlement is subject to court approval; determinations regarding disgorgement, prejudgment interest, civil penalties, and whether to impose an officer-and-director bar will be made by the court later.
The complaint against Lindell follows multiple actions against Infinity Q Founder and Chief Investment Officer James Velissaris in February. Velissaris was charged by the Department of Justice (DOJ) with securities fraud, wire fraud, lying to auditors, obstruction of justice, investment adviser fraud, and conspiracy to obstruct justice. The SEC and Commodity Futures Trading Commission each added civil charges against him.
Lindell was not identified by the agencies at the time. His actions were done at Velissaris’s behest, the SEC stated.
Lindell “negligently misrepresented” to investors, potential investors, representatives of the board of the mutual fund the third-party pricing service Infinity Q used was “independent” despite its being controlled by Velissaris, according to the SEC.
Lindell “failed to exercise reasonable care and failed to undertake an appropriate investigation concerning multiple red flags that indicated Velissaris’s valuations of the Infinity Q funds’ positions were inappropriate,” the SEC said.
Lindell also helped Velissaris mislead Infinity Q’s auditor, “with at least reckless disregard of the truth,” according to the SEC.
“This scheme allowed the Infinity Q funds to attract investor funds and keep investors from redeeming their investments and allowed Velissaris to enrich himself through performance and management fees,” the agency alleged.
By September 2020, the actions of Velissaris had inflated the value of Infinity Q funds by more than $1 billion, the SEC said.
Lindell received compensation through advisory fees charged to the mutual fund and hedge fund, the SEC noted. Since 2017, Lindell received annual and incentive bonuses totaling millions of dollars, and since 2019, he received profit distributions of management and performance fees, also totaling millions of dollars.
After the SEC made initial inquiries about Infinity Q, Lindell helped Velissaris file misleading documents to the agency and willfully made misstatements on the company’s Form ADV filings, the SEC alleged.
Upon discovery of Velissaris’s alleged activities in February 2021, Infinity Q liquidated its investment funds and sold derivative positions at a value that represented substantial losses to investors, the DOJ stated in its action against the founder. The cases against Velissaris are ongoing.
Editor’s note: This story was updated April 25 with language changes to better mirror the SEC’s complaint. The words “carry out” were changed to “conceal” in the first paragraph; the fifth paragraph was updated to note Lindell’s actions were done at Velissaris’s behest; the word “hid” was changed to “negligently misrepresented” and other edits were made to paragraph 6; and Lindell’s name was removed in the 10th paragraph. A paragraph stating Lindell made misrepresentations that Velissaris was manipulating independent valuation models to make it appear mutual funds and hedge funds Infinity Q advised were not performing poorly was removed.