The US Securities and Exchange Commission, SEC has arrested a New York New York investment adviser, David Hu of International Investment Group on allegations of running a Ponzi scheme.
The SEC alleged that Hu covered up his plot for more than 10 years with falsified paperwork and fake entities.
“David Hu directed a multimillion-dollar, years-long scheme to defraud investors,” Acting U.S. Attorney Audrey Strauss said in a press release. “Putting profit ahead of his fiduciary duties, Hu allegedly mismarked millions of dollars of loan assets to cover up millions in losses.”
Hu, 62, appeared in court on Friday and was released on a $500,000 bond. His lawyer, Barry Bohrer, said he and his client look forward to a “fair and compassionate disposition of this matter.”
Hu and an unnamed co-conspirator founded International Investment Group in 1994, prosecutors said. The firm specialized in providing financing to small and medium-sized exporters and importers operating in Central and South America, with most of its loans secured by imported goods or the proceeds of exports, according to the government. The company agreed to pay $35 million in March to settle fraud charges brought by the U.S. Securities and Exchange Commission, but has only paid $400,000 so far, according to a court filing by the agency last month.
Hu, who lives in West Orange, New Jersey, and his co-conspirator cheated investors by overvaluing defaulted or distressed loans held by the funds and falsifying documents to create fake loans that were portrayed as performing positively to of, the U.S. said. He conspired to sell the loans to a trust and to new funds created by the firm, and then used the proceeds to pay off earlier investors, they said.
While the victims of the alleged fraud weren’t named by prosecutors, they said the firm’s investments were often marketed to hedge funds, insurers and pension funds. The firm provided investment management and advisory services to businesses, as well as three private funds it operated, including one that held the remaining assets of a failed Venezuelan bank. International Investment told the SEC in March 2018 it had more than $373 million in assets under management.
Prosecutors said Hu and his co-conspirator also raised $220 million to create a collateralized loan obligation trust in 2014. This trust was used to hide losses at one of its funds and generate liquidity as demands for redemptions by investors and loan repayments by international development banks mounted.
The case is U.S. v Hu, 20-cr-360, U.S. District Court, Southern District of New York (Manhattan).