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Regulatory Sanctions

Hedge Fund Adviser Mismarked Securities, Abetted by Nomura Trader

May 10, 2018

The SEC charged NYC-based investment adviser Premium Point Investments with inflating the value of private funds it advised by hundreds of millions of dollars.  Also charged were the firm’s co-founder/CEO/CIO and 2 former employees. 


PLAYERS.    Premium Point was founded in 2008 and in 2009 became an SEC-registered investment advisor when it launched its flagship credit mortgage fund. At its high point, the firm had over $5 billion in assets under management. Premium Point and/or its affiliates had custody of assets of the investment funds that Premium Point advised based on access to the funds’ securities.


Anilesh Ahuja, 49, founded Premium Point in 2008 after a 4-year stint at Deutsche Bank where he headed the mortgage-backed securities group. At all relevant times, Ahuja served as Premium Point’s chief executive, chief investment officer and majority owner. Amin Majidi, 51, served initially as the firm’s chief risk officer and then as portfolio manager of one of its funds. Majidi received a percentage of Premium Point’s net annual income and any incentive fees. Jeremy Shor, 45, served as a director and trader of non-agency securities at the firm.


SEC FINDINGS.    From 2014 to early 2016, Ahuja, Majidi and Shor engaged in a scheme to mark up the value of assets held by hedge funds managed by Premium in reports to investors and potential investors. Premium Point provided order flow to “corrupt brokers” in exchange for inflated broker quotes on mortgage-backed securities (MBS). The defendants further inflated the values of the funds’ securities by using “imputed” mid-point prices – by taking a bid price for a particular security and adding half the spread between the bid and ask prices on a broad sector of securities, not the spread on that particular security.


The fraudulent scheme eventually collapsed as Premium Point faced difficulties in meeting investors’ redemptions because it could not sell securities in the funds’ portfolios at the inflated valuation prices and as the funds’ auditor questioned Premium Point’s valuations.


The SEC’s investigation continues.


FEDERAL PROBE INTO MISMARKING.    At the same time that the SEC issued its charges, federal prosecutors announced indictments against the 3 named defendants. It’s been almost a year since 3 former Nomura Holdings traders were tried in federal court on charges they lied to their customers about bond prices. A former Nomura trader who pleaded guilty and testified for prosecutors in that case, Frank DiNucci Jr., said he provided bogus quotes to Premium Point’s Jeremy Shor and was cooperating with the government probe of Premium Point. A former chief risk offer at Premium Point, Ashish Doles, who pleaded guilty to conspiracy and fraud charges in November, is also cooperating with the government.  [Bloomberg News]