Embattled hedge fund Visium Asset Management will pay more than $10 million to settle a U.S. regulator's allegations that it illegally profited from former traders' misconduct, likely closing a sweeping investigation that led to criminal charges against individuals and the collapse of the firm.
Visium's investment returns were inflated from July 2011 to December 2012 because two ex-credit traders relied on phony broker quotes to mismark bond prices, the U.S. Securities and Exchange Commission said in a Tuesday order. Steven Ku, Visium's former chief financial officer, also agreed to pay $100,000 to settle the agency's allegations that he failed to supervise the portfolio managers, Christopher Plaford and Stefan Lumiere.
Mr. Plaford in 2016 pleaded guilty to criminal charges, while Mr. Lumiere was sentenced to 18 months in prison last June. Separate from the alleged mismarking of bonds, U.S. officials also accused Visium partner Sanjay Valvani in 2016 of obtaining inside information about generic drug approvals from a former U.S. Food and Drug Administration official. Mr. Valvani committed suicide shortly after he was charged.
Visium, which managed $8 billion at its peak, decided to return money to outside investors and close funds as a result of the government's investigation.
"Advisory firms must create a culture of zero tolerance when it comes to unlawful conduct, and supervisors at those firms must take reasonable measures necessary to detect and prevent securities law-related violations," Marc Berger, director of the SEC's New York regional office, said in a statement. "Visium's portfolio managers engaged in illegal asset mismarking and insider trading, and Ku failed to act in the face of red flags."
Visium, founded by former medical doctor Jacob Gottlieb, is deeply disappointed that the rogue employees and outside forces led to the firm closing and 200 people losing their jobs, a spokesman for the firm said in an emailed statement.
"Mr. Ku is happy to have this matter resolved," his lawyers, James Benjamin and Robert Hotz, said in a statement.
Mr. Ku didn't admit or deny the SEC's allegations. In addition to paying a fine, he agreed to a one-year suspension from working at a money manager or a brokerage firm. Visium, which will pay a $4.76 million fine and another $4.76 million in disgorgement, also didn't admit or deny the SEC's allegations.
