SEC Wins $35M Judgment Against Investment Group

The Securities and Exchange Commission won a $35 million judgment last week against International Investment Group for massive securities fraud.

IIG hid losses, doctored records and sold millions in fake loan assets to clients, according to the SEC complaint. Judge Denise Cote with the U.S. District Court for the Southern District of New York approved the settlement.

'To Conceal Losses'

Filed on Nov. 21, 2019, the SEC complaint alleged that IIG grossly overstated the value of defaulted loans in the fund’s portfolio to conceal losses in its flagship hedge fund. The deception began in about 2007, the SEC said.

In an effort to continue its deception, IIG allegedly doctored the firm's records to show that the defaulted loans had been repaid and that the proceeds had been used to make new loans, when in fact there had been no repayment and the purported new loans were fake.

In addition to private funds, IIG also advised an open-end mutual fund marketed to retail investors and selected trade finance loans for the fund’s portfolio.

The scheme came apart in March 2017, the SEC complaint said, when one of the loans IIG had recommended defaulted on a $6 million payment. Concerned that the default would lead its mutual fund investors to end their advisory relationship, IIG used funds from an account under its control to make the defaulted payment, making it appear that the borrower was creditworthy and current in its payments, the complaint said.

The transactions quickly resembled a classic Ponzi scheme, SEC investigators said.

"To plug the $6 million hole it had created in the other account, IIG sold the retail fund a new fake $6 million loan and used those funds to reimburse the account it had raided to make the earlier payment to the retail fund," the complaint said.

Fake Trade Finance Loans

IIG further sought to raise money to meet investor redemption requests and other liabilities by selling at least $60 million in fake trade finance loans to other clients, the complaint said.

To deceive clients into purchasing these loans, an IIG employee allegedly had fake documentation created to substantiate the non-existent loans, including fake promissory notes and a forged credit agreement.

"This case shows that even sophisticated professional investors can fall victim to Ponzi schemes," said Daniel Michael, chief of the SEC's Complex Financial Instruments Unit. "The revocation of IIG's registration is necessary to protect the public in light of IIG's egregious breaches of its fiduciary duty as an investment adviser."

Without admitting or denying the SEC's allegations, IIG consented to the final judgment, which requires the company to pay more than $35 million is disgorgement and prejudgment interest. The SEC previously revoked IIG's registration as an investment adviser on Nov. 26, 2019.

InsuranceNewsNet Senior Editor John Hilton has covered business and other beats in more than 20 years of daily journalism. John may be reached at john.hilton@innfeedback.com. Follow him on Twitter @INNJohnH.

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