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Ex-Hedge Fund Trader Gets Prison for Mismarking Scheme

Chris Dolmetsch

(Bloomberg) -- A former trader at the defunct hedge fund Premium Point Investments was ordered to spend almost 3 1/2 years in prison for conspiring with the firm’s co-founder to overvalue its assets in order to attract new investors and keep clients from leaving.

A federal judge handed down the 40-month sentence against Jeremy Shor, 48, who was convicted by a jury in July of fraudulently “mismarking” the value of fund holdings. Prosecutors said Premium Point co-founder Anilesh “Neil” Ahuja, who was also found guilty in July and faces sentencing next week, and portfolio manager Amin Majidi set inflated monthly targets for returns then ordered Shor and other traders to manipulate the valuations accordingly.

Prosecutors had asked the judge to sentence Shor to “a substantial period” behind bars, saying he played an “instrumental role” in inflating the fund’s assets. Court probation officials had recommended a term of three years.

Addressing U.S. District Judge Katherine Polk Failla before his sentencing in Manhattan federal court on Monday, Shor said he should have raised more questions about the valuations of the firm’s assets, beyond alerting a compliance officer. Not doing so “has left me with an indescribable pain and sense of failure I will feel for the rest of my life,” he said.

But Failla rejected Shor’s claim that he was an unwilling participant in the fraud. “I think that Mr. Shor saw the cesspool pretty quickly and jumped right in,” she said.

In recent years, federal prosecutors have brought a number of mismarking cases against firms and individuals. Former Visium Asset Management LP analyst Stefan Lumiere was sentenced to 18 months in 2017 for helping inflate the value of bond holdings to hide losses, and Michael C. Hild, the chief executive officer of Virginia-based Live Well Financial Inc., was charged in August with defrauding the company’s lenders by artificially inflating the value of bonds used as collateral for loans.

Prosecutors said the goal of the scheme was to burnish the fund’s performance and charge Premium Point clients, including a hedge fund founded by former White House communications director Anthony Scaramucci, higher investment fees and keep them from taking their money out of its funds.

Bankruptcy Protection

Majidi pleaded guilty in October 2018 and testified for prosecutors at Shor and Ahuja’s trial.

Premium Point’s mortgage-credit funds filed for bankruptcy protection from creditors in March 2018 and Ahuja, Majidi and Shor were charged two months later. Along with Majidi, the firm’s former chief risk officer, Ashish Dole, also testified for the prosecution, admitting he received bogus quotes and spreads from brokers.

Shor approached brokers eager for business from Premium Point and asked them to provide sham prices and spreads on mortgage-backed bonds the fund held, according to prosecutors.

Ahuja co-founded Premium Point in 2008 after leaving Deutsche Bank AG, where he had headed global residential mortgage-bond trading. The fund began amassing the distressed bonds after the global credit crisis, managing about $2 billion of assets at its peak.

Premium Point begun winding down in September 2016 after posting large losses. It revealed in 2017 the Securities and Exchange Commission was probing its valuations, and the criminal probe emerged in a separate mismarking case brought by federal prosecutors in Connecticut against three former Nomura Holdings Inc. traders.

Lawyers for Shor and Ahuja said the valuations were within appropriate ranges and investors and third parties were aware of their methods. Shor’s attorneys said Ahuja was solely responsible for determining valuations at Premium Point.

The case is U.S. v Ahuja, 18-cr-328, U.S. District Court, Southern District of New York (Manhattan).

(Corrects defendant’s comment in court, in fourth paragraph)

To contact the reporter on this story: Chris Dolmetsch in Federal Court in Manhattan at cdolmetsch@bloomberg.net

To contact the editors responsible for this story: David Glovin at dglovin@bloomberg.net, Anthony Lin

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