Chicago-based Stoltmann Law Offices represents investors who’ve suffered losses from esoteric investments like the Infinity Q funds. Although some investment vehicles restrict withdrawals over a certain period of time, it’s a bad sign for investors when redemptions are suddenly halted without any warning. That was the situation recently with the $1.8 billion Infinity Q Diversified Alpha Fund, which shut down redemptions and locked out its founder, James Velissaris.
On Feb. 22, the parent company of the fund – Infinity Q Innovative Investments – “informed investors in the fund that it had received approval from the Securities and Exchange Commission (SEC) to suspend redemptions and postpone the date of redemption payments beyond seven days because it is `unable to value certain assets held in the fund,’” according to Investment News.
The SEC’s order states that “the fund learned on Feb. 18 that Infinity Q chief investment officer and company founder James Velissaris had been tweaking the methodology for counting certain asset valuations, which raised doubts about the accuracy of the reported fair value of those fund holdings.” Infinity Q could not be reached for comment by Investment News. Infinity posted on its website confirming the SEC findings on Feb. 19 stating that “it could not value the assets for purposes of calculating the fund’s net asset value.”
The Infinity Fund is one of hundreds of vehicles that employ derivatives, which are complex financial instruments used in “alternative” investments. They are notoriously difficult to value, often volatile, expensive to own and usually make it difficult for investors withdraw their money. According to Bloomberg, “the SEC had obtained evidence Velissaris adjusted models used to price swap contracts held by the Infinity Q Diversified Alpha Fund, likely resulting in incorrect valuations being reported to investors.”
“Infinity Q has independently verified that Mr. Velissaris did access and alter the third party’s valuation models but has not yet assessed the impact of those alterations,” the company said. Its website says the firm uses a “quantamental” strategy blending quantitative research with a private equity discipline. Alternative investments often use futures or options contracts to hedge or speculate. They promise higher returns through “quantitative” or “quant” strategies that employ complex formulas. They are difficult to understand unless you have a background in financial engineering. The fees in these vehicles are well above average.
Did you lose money investing in Infinity Q or similar alternative investments? When brokerage firms don’t vet money-losing investments, called “due diligence,” investors can take action against them. Under federal and state rules, broker-advisors are paid to ensure that the investments they sell to investors are sound. When they aren’t – or they don’t disclose the risks to clients — they can be cited in arbitration cases, in which case their clients have a chance to get their money back.
Have you invested with brokers who have invested your money in high-risk investments or not honestly reported their performance? FINRA and the SEC have strict rules on disclosing risk profiles on all investments sold by brokers and investment advisers. If they fail to fully inform you of downside risk, you may have a case in arbitration. Firms are also legally required by FINRA to monitor and supervise what their brokers are selling – their investments must be vetted and authorized by the firms – and have an obligation to investors to fully reveal true risk and return information about the vehicles sold. Investors can file FINRA arbitration complaints if these rules are broken.
If you invested with a broker-advisor and lost money as a result, you may have a claim to pursue through FINRA Arbitration. Please contact Stoltmann Law Offices, P.C. at 312-332-4200 for a free, no obligation consultation with a securities attorney. Stoltmann Law Offices is a contingency fee law firm which means we do not get paid until you do!