Premium Point Investments LP, a Securities and Exchange Commission (SEC) registered investment advisor headquartered in New York, New York, as well as its chief executive officer, Anilesh Ahuja (also known as Neil Ahuja), portfolio manager, Amin Majidi, and trader, Jeremy Shor, have collectively been charged by SEC in a Complaint alleging that they have committed, inter alia, securities fraud . Securities and Exchange Commission v. Premium Point Investments LP, et al., Case No. 1:18-cv-04145 (S.D.N.Y. May 8, 2018).

According to the Complaint, between September of 2015 and March of 2016, Premium Point – an adviser which at one point managed billions of dollars in assets – experienced deterioration in the performance of its investment funds, wherein some of the primary investors of those funds requested substantial redemptions. Apparently, Majidi and Ahuja aimed to conceal the poor performance of the funds by inflating the value of securities held within those funds in order to prevent redemptions and encourage the funds’ investors to contribute to a new fund offered by the adviser.

The Complaint stated that Shor and another trader working for Premium Point were pressured by Majidi and Ahuja to utilize two levers as a mechanism to inflate the securities’ values. The first lever seemingly involved the two traders procuring inflated price quotes from a registered representative of a brokerage firm in the region. The Complaint alleged that in return, the traders promised to direct securities trades to that brokerage firm so that the brokerage firm could generate commissions. Apparently, the inflated price quotes were utilized by Premium Point to produce calculations of Premium Point funds’ valuations, and those valuations were subsequently reported to the funds’ investors.

The Complaint stated that the second lever involved the use of imputed mid-point prices by the traders to inflate values of securities held within the funds. Premium Point ostensibly informed investors about its use of mid-point pricing in the portfolios of the funds for purposes of valuing those funds. However, investors were reportedly unaware that Premium Point imputed the securities’ mid-point prices despite its capability of instead procuring the securities’ mid-point price from a broker. This imputation was seemingly accomplished by Premium Point taking a security’s bid price and adding one-half the spread between the bid and ask prices on a sector of securities rather than the spread of a specific security.

Majidi, Ahuja and Shor were alleged in the Complaint to have been knowledgeable about imputed mid-point pricing substantially inflating values of the securities held within portfolios of the funds. Majidi and Ahuja were apparently informed by a large prospective Premium Point investor that the prospective investor would not make a contribution to the fund based upon Premium Point’s proposed use of mid-point pricing in the portfolio valuation process due to Premium Point having too much control over how the fund’s portfolio would be valued.

The Complaint stated that the imputed mid-point pricing provision had eventually been removed from Premium Point’s proposed pricing policy. Once the final pricing policy was adopted by Premium Point, that large investor contributed a significant sum in one of Premium Point’s funds. The Complaint alleged that unbeknownst to that investor and others that followed, the removal of the mid-point pricing provision from the policy did not prevent the firm from utilizing imputed mid-point prices in the valuation of the portfolios – Premium Point persisted in utilizing imputed mid-point prices for years.

SEC alleged that the execution of Premium Point’s fraudulent valuation scheme resulted in Premium Point reporting inflated month-end net asset values as well as inflated month-end and annual fund performance to Premium Point’s existing and prospective investor base. Premium Point was seemingly able to generate exorbitant fees as a result.

Apparently, Premium Point’s scheme buckled when the firm faced serious obstacles in satisfying redemption requests – the securities were not able to be sold at inflated prices. The Complaint stated that between September of 2015 and March of 2016, Premium Point funds were overvalued by fourteen percent per month on average.

Consequently, SEC alleged that the defendants’ actions were violative of Securities Exchange Act of 1934 Section 10(b), Rule 10b-5(a) and (c), as well as Securities Act of 1933 Section 17(a)(1) and (3). SEC also alleged that the firm, Majidi and Ahuja violated Investment Advisers Act of 1940 Sections 206(1), 206(2), 206(4) and Rule 206(4)-8(a)(2). Shor was alleged to have aided and abetted the firm’s, Ahuja’s and Majidi’s Advisers Act violations.

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