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Hedge Fund Founder Gets 50 Months for Asset Inflation Scam

Chris Dolmetsch

(Bloomberg) -- Premium Point Investments co-founder Anilesh “Neil” Ahuja was sentenced to 50 months in prison for conspiring to overvalue the hedge fund’s assets by more than $100 million to attract new investors and prevent withdrawals, in what the U.S. called “one of the largest mismarking schemes ever prosecuted.”

Before U.S. District Judge Katherine Polk Failla handed down his sentence on Monday, Ahuja apologized to dozens of friends and family members who had packed the Manhattan courtroom and said he’d failed as a leader of the firm.

“I take full responsibility for those failures,” he said.

Yet in requesting an 18-month term, Ahuja called portfolio manager Amin Majidi, who pleaded guilty and testified for prosecutors, the architect of the plot.

The judge rejected that argument, saying Ahuja drove the conspiracy from the top.

“I do not believe all of this was going on without his assent,” Failla said.

Prosecutors have been cracking down on mismarking, the use of questionable methods to make assets appear more valuable than they are. The chief executive officer of Live Well Financial Inc. was charged in August with defrauding lenders by artificially inflating the value of bonds used as loan collateral. He has pleaded not guilty. A former analyst at Visium Asset Management LP got more than 18 months in 2017 for helping inflate the value of bond holdings to hide losses.

Ahuja was convicted of conspiracy and fraud by a federal jury following a monthlong trial, along with a former trader at the now-defunct firm, Jeremy Shor, who was sentenced to 40 months last week. Prosecutors said Ahuja and Majidi, the portfolio manager, set inflated monthly targets for returns, then ordered Shor and other traders to manipulate the valuations accordingly.

Prosecutors had asked Failla to impose a “substantial period” of prison time, saying Ahuja was the chief culprit. Assistant U.S. Attorney Joshua Naftalis told the judge on Monday that Ahuja was a “leader of the fraud.”

“He lied to investors for years, and over the course of his fraud his victims lost tens of millions of dollars,” Naftalis said. “This case was about a hedge fund director who led, concealed and directed one of the largest mismarking schemes ever prosecuted.”

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Ahuja’s attorney Roberto Finzi said Ahuja only wanted his clients to make money.

“Nothing in this record suggests that Mr. Ahuja took any comfort, joy or pleasure in what happened,” Finzi said. Lawyers for Ahuja and Shor had argued that the firm’s valuations were within appropriate ranges for assets that are mostly illiquid and difficult to price, and that its methods were known to employees throughout the firm and to investors.

Ahuja headed mortgage structuring at Lehman Brothers, was responsible for several trading desks at RBS Greenwich Capital and led global residential mortgage bond trading at Deutsche Bank AG for four years before leaving to found Premium Point in 2008.

The firm initially focused on the U.S. residential loan market and began amassing subprime mortgage bonds made up of distressed assets after the global credit crisis by monitoring borrower behavior. It later expanded into the jumbo loan and home rental businesses and managed about $2 billion of assets at its peak.

Premium Point began winding down in late 2016 after posting large losses and revealed the following year that federal securities regulators were examining the way it valued its assets. Its mortgage credit funds filed for bankruptcy protection in March 2018, and Ahuja, Majidi and Shor were charged two months later. Former chief risk officer Ashish Dole also pleaded guilty and testified for the prosecution at the trial.

Prosecutors said the goal of the scheme was to make the firm’s performance seem better than it was and to charge its clients -- including a hedge fund founded by former White House communications director Anthony Scaramucci that lost more than $51 million in the plot -- higher fees and keep them from withdrawing their investments.

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

Read More: Ahuja, Shor Convicted in Hedge-Fund-Fee Scam

(Updates with remarks by Ahuja, the judge and lawyers for both sides)

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, Peter Jeffrey, Joe Schneider

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