A former Visium Asset Management analyst was sentenced to 18 months in prison for helping inflate the value of the firm's bond holdings by millions of dollars to hide losses from investors.
Stefan Lumiere's prosecution was one of the first in a crackdown on bond traders who lied to customers about pricing or inflated the value of their holdings. His lawyers sought leniency, telling the judge that Mr. Lumiere didn't profit from the two-year scheme while two former colleagues who testified against him had pocketed bonuses from Visium.
Under federal sentencing guidelines, Mr. Lumiere could have faced as many as eight years in prison. U.S. District Judge Jed Rakoff, an outspoken critic of the guidelines, termed them "barbaric." He set the sentence well below the guideline and fined him $1 million, citing unspecified "psychological vulnerabilities," while noting that Mr. Lumiere's conviction did merit prison time.
Prosecutors said tapes played at trial showed Mr. Lumiere sought to blackmail executives at Visium over the mismarking scheme.
"Even when he was on the verge of being caught, he sought ways to turn the scheme to his advantage through attempted bribery," Mr. Rakoff said. "The testimony, tapes and evidence were overwhelming and showed a Mr. Lumiere who had no compunction about lying and cheating."
Visium, which managed $8 billion at its peak, returned money to investors and wound down operations after Mr. Lumiere and others were charged in an investigation that started with the mismarking of securities and led to one of the biggest insider-trading cases at a hedge fund in recent years. Investigators said some Visium managers were paying for tips from a U.S. Food and Drug Administration official for an inside line on generic drug approvals. Mr. Lumiere wasn't accused of insider trading.
"This crime was the defendant's brainchild," Assistant U.S. Attorney Ian McGinley said during the hearing in Manhattan federal court. "It started when his investments began to tank."
Mr. Lumiere's lawyer, Jonathan Halpern, called him a "hapless soul" who was following the orders of superiors who ultimately cooperated with the government, and derived no financial benefit from his actions. "He was exploited," Mr. Halpern said.
In a statement to the judge, Mr. Lumiere stopped short of accepting responsibility or apologizing for his role in the scheme but asked for mercy, saying his career has been destroyed and his dream of one day running his own investment fund is ruined.
Mr. Lumiere submitted dozens of testimonials from friends and family who vouched for his kindness, consideration and selflessness. His lawyers said in a court filing that he was unemployed, insolvent and “humiliated.”
The investigations started after a junior credit trader, Jason Thorell, grew nervous about the mismarking scheme and agreed to work as a confidential informant for the government, recording meetings and telephone calls.
Jurors heard those recordings, and were shown extensive evidence of communications between Mr. Lumiere and brokers who provided him with bogus quotes for securities. After a week-long trial in January, jurors convicted Mr. Lumiere on all counts after deliberating for 90 minutes.
Mr. Lumiere was the only one from Visium to fight the charges. Sanjay Valvani, a star portfolio manager who ran part of the firm's flagship fund, committed suicide after he was arrested. His boss, Christopher Plaford, pleaded guilty and cooperated with investigators.
Mr. Lumiere was the brother-in-law of Visium founder Jacob Gottlieb, before his marriage ended in divorce. Mr. Gottlieb wasn't accused of wrongdoing.
The bogus quotes on securities Mr. Lumiere received from corrupt brokers allowed the fund to apply valuations to its holdings that were better than the real prices they would fetch in the market. The fund was able to collect inflated management and performance fees and hide the deteriorating condition of certain positions.
Many of those holdings eventually had to be liquidated at steep losses, according to evidence at the trial.