David Hu, the co-founder and chief investment officer of International Investment Group LLC (IIG), was charged by the Securities and Exchange Commission (SEC) for operating a Ponzi Scheme that mainly targeted small to medium-sized businesses.
IIG, which specialises in trade finance loans, is alleged to have raised over $60 million from selling fake loan assets to clients. The SEC has revoked its license in December 2019 following what the regulator calls “a string of frauds”.
The complaint further states that IIG had exaggerated the value of defaulted loans in the fund’s portfolio to obscure losses in its flagship hedge fund, which allowed the company to collect inflated fees from investors.
Hu deceived IIG clients through false documents showing that the defaulted loans to have been paid and that the proceeds had been used to take out new loans. In fact, there had been no repayment and the new loans were also fake. In order to do this, the company altered its records and also distributed artificial promissory notes and forged credit agreements.
To trick clients into purchasing these loans, the New York-based investment adviser touted its risk control strategies, supported by numerous individual short-term transactions. However, a series of defaults soon saw the firm getting into trouble even after it used funds from an account under its control to make the defaulted payment.
Beginning around 2007, IIG engaged in a typical Ponzi scheme by overvaluing troubled loans and replacing defaulted loans with fake performing loan assets. As the SEC documents relating to this case show, when it was in need for liquidity to meet redemption requests, the company sold its fictitious loans to new investors and used the proceeds to pay off earlier investors.
The complaint charges Hu with violating the antifraud provisions of the federal securities laws and seeks permanent injunctive relief, disgorgement, and civil penalties.
In a parallel action, the U.S. Attorney’s Office for the Southern District of New York today announced criminal charges against Hu.