Hedge fund manager registration revoked during $60m fraud case

International Investment Group (IIG) is no longer a registered advisor with the Securities Exchange Commission following recent charges of securities fraud for hiding losses in its flagship hedge fund and selling at least $60 million in fake loan assets to clients. The SEC filed its complaint on November 21 and the last week IIG received notice of its registration being revoked. Authorities allege that IIG grossly overstated the value of defaulted loans in the fund’s portfolio to conceal losses in its flagship fund. The firm allegedly doctored records to show that the defaulted loans had been repaid and that the proceeds had been used to make new loans, when in fact there had been no repayment and purported new loans were fake. In its complaint, the SEC further claims that IIG sought to raise money to meet investor redemptions and other liabilities by selling at least $60 million in fake trade finance loans to other clients. An IIG employee used fake documents to substantiate the non-existent loans, including fake promissory notes and a forged credit agreement, according to the SEC. "This case shows that even sophisticated professional investors can fall victim to Ponzi schemes," said Daniel Michael, chief of the SEC's Complex Financial Instruments Unit, in a statement. "The revocation of IIG's registration is necessary to protect the public in light of IIG's egregious breaches of its fiduciary duty as an investment adviser." The SEC’s investigation is ongoing, but a November 26 judgement imposes a preliminary asset freeze, but reserves the issue of any monetary relief for further determination by the court. According to the firm’s most recent ADV filing, the SEC began investing its loan operations in 2017. “In today’s environment, there is not a specific set of questions that could have avoided exposure to this firm’s fraud,” said Andrew Borowiec, executive director of the Investment Management Due Diligence Association. He added that his organization is now making reports available to help investors thoroughly understand the business conditions that may have contributed to the action as a way to help investors recognize patters that may lead to a similar situation with other funds. “The way to prevent these types of situations is to conduct ongoing, meaningful due diligence that includes a continual review of regulatory filings, operational reports, interviews with management, onsite visits with the firm, and interviews with service providers,” said Borowiec. As for IIG, the firm was founded in 1994 by David Hu and Martin Silver. Hu serves as CIO and prior to co-founding IIG was managing director and head trader for emerging markets and fixed income at Smith Barney and Nomura Securities International, as well as senior trader of LDC debt at American Express Bank. Silver, managing partner and COO, served in several executive management positions with American Express Bank, including executive director and comptroller, holding responsibility for the bank’s global financial management prior to founding IIG. According to the group’s website, IIG completed a pioneering securitization of non-bank Latin America-based trade finance loans through the issuance of a $220 million collateralized loan obligation with the help of Deutsche Bank Securities, who arranged and placed the vehicle. In November 2013, IIG completed a pioneering securitization of non-bank Latin America-based trade finance loans through the issuance of a $220 million CLO with the help of Deutsche Bank Securities, Inc. who arranged and placed the vehicle.

Hedge fund manager registration revoked during $60m fraud case

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