The Securities and Exchange Commission charged David Hu, the co-founder and chief investment officer of International Investment Group, a former registered investment adviser, with fraud for his role in a $60 million Ponzi-like scheme.
The SEC's complaint, filed in federal district court in Manhattan, alleges that, from October 2013, Hu orchestrated multiple frauds on IIG's investment advisory clients. According to the complaint, Hu grossly overvalued the assets in IIG's flagship hedge fund, resulting in the fund paying inflated fees to IIG.
In addition, through IIG, Hu allegedly sold at least $60 million in fake trade finance loans to other investors and used the proceeds to pay the redemption requests of earlier investors and other liabilities. The complaint alleges that Hu deceived IIG clients into purchasing these loans by directing others at IIG to create and provide to the clients fake loan documentation to substantiate the non-existent loans, including fake promissory notes and a forged credit agreement.
"As alleged, Hu's deception caused substantial losses to a retail mutual fund, and other funds IIG advised," said Sanjay Wadhwa, senior associate director of the SEC's New York Regional Office. "The SEC remains committed to holding accountable individual wrongdoers who seek to take advantage of investors for personal gain, including when they employ elaborate means to cover up their fraud."
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.
The SEC previously charged IIG with fraud on Nov. 21, 2019, and revoked IIG's registration as an investment adviser on Nov. 26, 2019. On March 30, 2020, the SEC obtained a final judgment on consent that enjoins IIG from violating the antifraud provisions of the federal securities laws and requires IIG to pay more than $35 million in disgorgement and prejudgment interest.
The SEC's ongoing investigation is being conducted by Philip A. Fortino, Lindsay Moilanen, Diego Brucculeri, and Sheldon L. Pollock of the New York Regional Office and Osman Nawaz of the Complex Financial Instruments Unit, with assistance from Eli Bass of the Office of Compliance Inspections and Examinations, and is being supervised by Mr. Wadhwa and Daniel Michael.
The SEC's litigation is being handled by Mr. Fortino and Ms. Moilanen. The SEC appreciates the assistance of the U.S. Attorney's Office for the Southern District of New York and the Federal Bureau of Investigation.