The founder and CEO of a New York investment firm will spend more than four years in prison after being convicted of lying about the value of hedge funds that included residential mortgage-backed securities.
The Attorney’s Office for the Southern District of New York announced this week that Anilesh Ahuja, the founder, chief executive officer, and chief investment officer of Premium Point Investments, was sentenced to 50 months in prison after being convicted of engaging in a securities mismarking scheme.
According to the Attorney’s Office, Ahuja and Jeremy Shor, a former trader at Premium Point who focused on non-agency RMBS, participated in a scheme to overinflate the net asset of the value of firm-managed hedge funds by more than $100 million between 2014 and 2016.
Court documents show that Ahuja co-founded PPI in 2008. The company managed hedge funds that primarily focused on structured credit products, including residential mortgage-backed securities.
One of PPI funds, launched in 2013, focused on purchasing and securitizing pools of mortgages that were not issued or guaranteed by a government agency.
According to court documents, from at least 2014 through 2016, Ahuja and Shor participated in a scheme to defraud PPI’s investors and potential investors in the company’s various funds by “deceptively mismarking each month the value of certain securities held in these funds, and thus fraudulently inflating the (net asset value) of those funds as reported to investors and potential investors.”
In order to accomplish this, 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 U.S. Attorney’s Office stated.
These actions allowed PPI to materially overstate the reported net asset value of the funds by more than $100 million, which benefited the firm in two ways.
First, the firm was able to charge its investors higher management and performance fees. Second, the firm was able to delay investors who would have requested their money back had they known about the funds’ true performance and operating health.
According to court documents, the scheme was conducted as a result of Ahuja demanding that the firm maintain its image of success and “keep pace” with the performance of other similar funds, despite market conditions and the actual performance of the funds.
As a result of the scheme, Ahuja was sentenced to 50 months in prison, while Shor received a sentence of 40 months. Both Ahuja and Shor will also be required to serve three years of supervised release upon the termination of their prison sentence.
“Anilesh Ahuja, founder of Premium Point Investments, was convicted of participating in a scheme to mismark securities and thereby mislead investors as to the true value of the funds that Premium Point managed,” U.S. Attorney Audrey Strauss said in a release.
“Ahuja conspired with others in his company and corrupt brokers to fraudulently inflate the value of the assets under their management, which in turn allowed them charge higher fees and avoid redemptions by investors who otherwise would have pulled their money from Premium Point,” Strauss continued. “The substantial prison term imposed on Ahuja appropriately holds him accountable for his criminal acts.”
