Amin Majidi, a partner in the firm who is accused of operating the scheme, was arrested at his home in Armonk.
Ashish Dole of White Plains, a former chief risk officer and trader, pleaded guilty to securities fraud and wire fraud in November. His indictment was kept secret until yesterday because he was providing investigators with detailed information.
If his cooperation became known before others were charged, an assistant federal prosecutor wrote in a November application to seal Dole’s court records, “there would be a substantial risk that those targets would destroy documents or harass or threaten the defendant who remains in contact with certain subjects.”
The criminal and civil cases also name Anilesh “Neil” Ahuja, the CEO and co-founder of the firm, and Jeremy Shor, a trader. Premium Point was established in 2008 and it was once considered a top trader of residential mortgage-backed securities, the indictment says.
It posted double-digit annualized returns, and at its peak it managed more than $5 billion in assets. But by 2015 performance was deteriorating and major investors were asking for redemptions.
“We cannot take more NAV hits,” Majidi allegedly told Shor in July 2015, in referring to the net asset value of its bonds.
“We need to show performance,” he said. “We’re like the bottom third of hedge funds.”
Ahuja and Majidi analyzed the performance of funds that used similar investment strategies, the SEC complaint says, and they expected their funds to track or exceed the competition. They set high asset value targets, the feds claim, and inflated the reported value of their portfolio every month.
One method was to enlist the help of corrupt brokers, like Frank Dinucci Jr., who provided false bond prices. Dinucci has pleaded guilty to securities and wire fraud for his role in the scheme.
He had resisted at first, the feds say, but there was a quid pro quo. Dinucci earned commissions on trades that Premium Point steered to him. “Tell Ashish dog to chuck me a damn trade,” Dinucci wrote in an encrypted WhatsApp message to Shor, “if I keep marking up all his bonds.”
The scheme benefited the firm in a couple of ways. Premium Point could charge higher management and performance fees, and it could forestall redemptions. It also sewed the seeds of failure.
In 2016, an auditor declined to complete the 2015 audit, over concerns that assets were over-valued. Premium Point publicly restated the value of the funds for September 2015 through March 2016, by 13 to 15 percent. Even that was misleading, according to the indictment.
The portfolio was mismarked by about 24 percent, the indictment says, and values had been altered as far back as January 2014. The funds were over-valued by an average of $100 million a month and by more than $200 million at its peak.
As the scheme collapsed, Premium Point found it difficult to satisfy investors’ redemptions, the SEC says, because it could not sell securities at the inflated prices. Four funds that were incorporated in the Cayman Islands are in voluntary liquidation proceedings there.
Ahuja, Majidi and Shor were accused of criminal conspiracy, securities fraud and wire fraud charges that carry maximum sentences of five to 20 years and maximum fines up to $5 million or twice the gross gain or loss from the offense.
The SEC is seeking court orders requiring the men and the firm to “disgorge all ill-gotten gains” and pay civil penalties.
Dole is scheduled to be sentenced in 2019.