Infinity Q Securities Enforcement Case: The SEC Says the Audit Checked an Altered Contract

In the Infinity Q securities enforcement case, the SEC alleged that the investment adviser’s founder and former chief investment officer inflated the reported value of two funds’ assets by more than $1 billion through manipulated pricing models. Its civil complaint describes prices presented as independent, code that ignored contractual limits, and altered documents supplied to the auditor. If you worked with the original trade terms, pricing system or audit files, you may recognize the distance between the investment the fund owned and the one its model priced.

This page follows the Infinity Q allegations from the trading desk through investor reports, fees and suspended redemptions. Our page on fund valuation and NAV fraud explains the broader pricing controls. The SEC brought this complaint against the founder and former chief investment officer.

The pricing failure reached investors’ ability to withdraw their money. In its February 22, 2021 temporary order, the SEC permitted the mutual fund to suspend redemptions after the fund’s trust and Infinity Q said it could no longer calculate an accurate net asset value.

What Were the Infinity Q Funds?

Infinity Q Capital Management advised the Infinity Q Diversified Alpha Fund, a mutual fund, and the Infinity Q Volatility Alpha Fund, a private hedge fund. The complaint describes a mutual fund marketed to retail investors and a private fund seeking institutional investors, including public pension funds, university endowments and charitable foundations.

The mutual fund was a series of Trust for Advised Portfolios, with the trust’s board overseeing it. A fund administrator served as its accountant, transfer agent and custodian, while an outside auditor audited both funds. The administrator obtained values directly from the pricing service to calculate the mutual fund’s daily NAV and the private fund’s monthly profit and loss report.

Many of the funds’ derivatives were privately negotiated contracts without readily available market prices. Their portfolios included variance swaps, whose value was tied to volatility. The funds needed values before the contracts ended, so the assumptions and transaction terms entered into the pricing models mattered to the numbers investors saw.

What Did Infinity Q Tell Investors About Valuation?

Infinity Q represented that outside sources supported its valuations and that counterparty prices provided a check. Its policy said month-end valuations would be compared with counterparties’ values for reasonableness, and that a security held by both funds would carry the same price. The SEC alleged that the actual process departed from those assurances.

The complaint quotes an explanation sent to the administrator after the chief investment officer edited it. It began with a particularly firm assurance:

According to the SEC, the executive could choose models, enter transaction terms, select market assumptions and edit the underlying code in custom models. The administrator downloaded the resulting values from the pricing service. We would call that checking your own work.

How Did the SEC Say the Prices Were Changed?

The SEC alleged four ways of inflating the funds’ valuations: edited code, false inputs, unsuitable models and selectively chosen volatility assumptions. Each acted before the value reached the administrator, making the original contract and the pricing history central to the story.

Code Removed the Contract’s Boundaries

A corridor variance swap accrues variance only while an index stays within agreed boundaries. The complaint alleged that the executive changed the code for one position from requiring the index to be above the lower boundary and below the upper boundary to accepting either condition. Replacing and with or effectively erased the corridor.

SEC staff obtained read-only access and simulated the correct code, reducing the position’s calculated value by approximately $5 million. The complaint also alleged that code changes did not automatically appear in the visible input fields. The screen could show the contractual boundaries while the calculation ignored them.

Inputs Changed After the Trade Was Loaded

The pricing service’s audit trail showed changes to notional amounts, effective dates and expiration dates, according to the complaint. Those entries could diverge from the agreed term sheet after a position had already been loaded. For one trade allocated equally between the funds, the SEC described repeated changes to its effective date in each portfolio.

That gives someone in operations a specific comparison: the transaction’s agreed terms against the terms used to calculate each reported value. The SEC alleged that the underlying agreements for its examples had not changed, even as the pricing entries did.

The Selected Model Left Out the Corridor

The pricing service told the executive to use newer standard models for corridor swaps, whose underlying code he could not edit. The SEC alleged that he largely continued using editable custom models and sometimes selected ordinary variance-swap models that did not account for corridor limits at all.

Market Snapshots Favored the Position

The service offered different volatility surfaces, snapshots of market information used to estimate the volatility input. According to the SEC, the executive chose inconsistent snapshots for comparable positions depending on which side of the trade the fund held.

For swaps referencing the same index with the same maturity, the complaint describes a London afternoon snapshot for the short position and a London morning snapshot for the long position. The SEC alleged that these choices inflated the funds’ values.

Which Records Showed the Mismatch?

The SEC complaint describes discrepancies visible across fund accounts, counterparty reports, public filings and actual swap settlements. It alleged that equally allocated portions of the same trade carried different values in the two funds, despite the written promise of a common price.

Counterparties supplied another comparison. According to the complaint, the chief compliance officer sent the investment chief a comparison showing substantial differences between counterparty margin reports and the funds’ marks. Counterparties then demanded additional cash based on their valuations of positions that were losing value.

The complaint also alleged that some public filings showed mathematically impossible swap values, including values that assumed negative volatility. Other positions expired worthless or settled below their recent reported values. The SEC alleged that the executive concealed those losses by adding new derivatives and inflating their valuations.

These are connected pieces of securities fraud evidence: the agreed trade, the model version, the counterparty’s mark, the investor report and the cash paid when the position ended. An insider may know why a change was made, who received a warning or which version went into the accounts. That knowledge can explain a discrepancy the published number leaves unexplained.

What Did the SEC Allege About the Audit Documents?

The SEC alleged that the executive changed the documents used to check his prices. When the auditor selected a mutual-fund swap for independent revaluation, he allegedly reduced the lower boundary in its term sheet and directed other employees to replace the original file in the auditor’s portal.

According to the complaint, the valuation expert used the altered document and reached a value close to Infinity Q’s. The position had been reported at more than $22 million, while a later revaluation using the actual term sheet put it at $4.569 million.

The complaint described a similar replacement during the private fund’s audit. This time, the auditor noticed the deletion and asked about it:

The alleged concealment extended to the SEC’s requests. The complaint said the executive removed counterparty comparisons and the common-price requirement from policy documents while retaining their original dates, supplied screenshots that omitted the underlying code, and backdated minutes for valuation-committee meetings that had never occurred. For an employee who saw the original upload or knew whether a meeting happened, the review package could tell a very different story from the work.

A related reporting practice appeared at Allianz Global Investors U.S., where the SEC alleged manipulation of risk and performance reports supplied to institutional investors. At Infinity Q, the complaint reaches into the documents behind the review itself.

How Did the Valuation Reach Fees and Redemptions?

Inflated values helped attract subscriptions, discourage redemptions and increase fees, the SEC alleged. The complaint put that incentive beside the funds’ cash needs during the market turmoil of March 2020, when counterparties were demanding additional margin.

For that month, the SEC said certain mutual-fund derivatives had been marked at a positive value of more than $253 million. A later independent revaluation put those positions at a negative $165 million. Investors saw positive values. The counterparties wanted cash.

Both funds paid management fees based on assets under management, and the private fund also paid performance fees. The complaint alleged that inflated values caused excessive fees, with profits flowing through Infinity Q Management Equity, the adviser’s majority owner. It identified at least $26.9 million in profit distributions received by the executive from 2019 through February 2021, separate from his salary and bonuses. For an insider working on fund accounting or fees, the calculation connects the allegedly inflated price to money paid out of the fund.

What Happened When the Mutual Fund Could Not Calculate NAV?

The mutual fund suspended redemptions after Infinity Q said it could not verify the swap values or calculate an accurate NAV. The SEC’s temporary order made the suspension effective February 19, 2021, and allowed postponement of payment on redemption orders already received but unpaid.

The order required independent help to value the holdings and reassess historical valuations. It also required plans for liquidating assets and distributing proceeds to current and former shareholders, including people whose redemption orders remained unpaid. Those plans were subject to SEC supervision.

The order put direct limits on the adviser’s control: without prior written approval from the board or its designee other than Infinity Q, the adviser and associated persons could not direct transactions, access fund assets or change portfolio valuations. It also prohibited management fees during the wind-down.

What Can a Fund Insider Add?

Someone who saw the original term sheet, a pricing edit or an audit upload can explain a part of the valuation process that the final report conceals. The useful comparison puts the reported estimate beside its historical data, assumptions, model versions and contemporaneous reviews. In this case, the SEC’s allegations make that comparison unusually tangible.

A 2018 study in the Journal of Forensic & Investigative Accounting, The Significance of Whistleblowing as an Anti-Fraud Measure, examined 4,943 occupational frauds with complete detection data and found whistleblowing was the most common detection method. Its finding gives weight to the person who knows what happened between the original document and the finished review. At Infinity Q, the SEC alleged changes to the contract uploaded for an audit and code concealed behind a pricing screen.

For qualifying securities information, eligible whistleblowers can share 10% to 30% of collected monetary sanctions when the SEC action exceeds $1 million in sanctions. We work with you on how your knowledge of fund pricing fits the SEC whistleblower award program. Separately, a whistleblower case under the False Claims Act can pay 15% to 30% of what the government recovers for fraud against government money.

You Saw the Price Before It Reached Investors

If you know who changed a swap’s terms in the pricing system or replaced a document sent for audit, bring that account to our whistleblower experts. We connect your knowledge of the fund’s operations to the evidence and bring in securities fraud whistleblower lawyers who understand valuation disputes. We stay with you as partners, working to build your strongest SEC whistleblower case.