Hedge Fund Analyst Admits Soliciting Fake Bond Quotes In $200 Million Investor Fraud Conspiracy



On Thursday, a former chief risk analyst at hedge fund Premium Point Investments, which is now defunct, testified that he sought out fake mortgage bond quotes from brokers in order to inflate the firm’s portfolio value to investors, according to Bloomberg.

Ashish Dole was the first witness in the New York fraud trial of Premium Point co-founder Anilesh “Neil” Ahuja and former trader Jeremy Shor. The defendants are accused of participating in a $200 million conspiracy to overvalue their securities, allowing them to charge higher fees and hide the true financial health of the firm from clients.

Dole told a federal jury on Thursday that he started to solicit fake valuations from brokers shortly after he started working as a trading assistant to Shor in 2014. In exchange for the fake quotes, the brokers would get more business from the hedge fund.

Dole testified:

“Shor said that he liked to use friendly brokers who would provide us the valuations that we want on our securities. He said that depending on the values that we need for the securities, if we need higher values, we could go to these brokers and they would give these values in exchange for trading with them.”

Ahuja

Ahuja and portfolio manager Amin Majidi are accused of setting falsely inflated targets for their portfolio returns at the end of each month and then reverse engineering their way to these targets by backing into sham valuations.

Lawyers representing the two men have argued that the valuations they assigned were within appropriate ranges for securities that are illiquid and can be difficult to price. They also claim that investors were aware of the fund’s methods for valuation.

Dole and Majidi both pleaded guilty and are cooperating with prosecutors, as is broker Frank DiNucci, Jr., formerly of Nomura. Dole said that him and Shor would go to DiNucci Jr. at the end of the month to get the fake quotes.

Dole said:

 “We could tell Frank to give us the prices that we want and get to that target. That’s not how it’s supposed to work. Mr. DiNucci should be providing his independent evaluation of each security.”

Jurors were shown emails and text messages between Dole, Ahuja and Shor that showed discussions about getting the false valuations. In June 2015, Shor jokingly asked: “am I gonna promise frank a reach-around? Should I put pressure to get the
loans marked?”

Dole then explained to the jury: “It’s a crude reference to a sexual favor but really refers to the quid-pro-quo relationship.”

Ahuja started Premium Point in 2008 after leaving Deutsche Bank, where he was the head of the residential mortgage bond desk.

The firm focused primarily on US residential real estate and sought to acquire undervalued assets by using granular research, including attending foreclosure auctions and tapping broker networks to monitor borrower behavior. The company began stockpiling mostly subprime residential mortgage bonds after the global credit crisis.

The fund started to wind down in 2016 amidst an investigation by the US Securities and Exchange Commission. Its CFO stepped down in January 2017 and by May, federal prosecutors were investigating funds that included Premium Point, suspected of inflating the value of debt securities in their portfolios.

The firm’s mortgage credit funds filed for bankruptcy protection last year.

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