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Ex-Head of RIA Sentenced to 12 Years in Prison Over $120M Scam

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What You Need to Know

  • In addition to a 12-year prison sentence, the ex-IIG head was ordered to serve three years of supervised release.
  • The court also plans to impose restitution to victims and forfeiture of the proceeds.
  • The amounts he must pay will be determined at a later date.

The managing partner and chief investment officer of a former New York RIA firm who was arrested in 2020 has been sentenced to 12 years in prison for his role in a “Ponzi-like” scheme that defrauded his firm’s clients out of more than $120 million, according to Damian Williams, U.S. Attorney for the Southern District of New York.

David Hu, who had co-founded SEC-registered, Manhattan-based International Investment Group, pleaded guilty in January 2021 to investment advisor fraud, securities fraud and wire fraud offenses.

U.S. District Judge Alvin K. Hellerstein announced the sentence Monday and it will be formally imposed following the conclusion of forfeiture and restitution proceedings in the case, Williams said.

In addition to the prison sentence, Hu, 64, of West Orange, New Jersey, was ordered to serve three years of supervised release, according to Williams. The court also announced it planned to impose restitution to victims and forfeiture of the proceeds of the offenses involved in the case, with the amounts to be determined at a later date.

Attorneys representing Hu did not immediately respond to a request for comment on Thursday.

“David Hu shirked his fiduciary responsibilities and defrauded IIG funds and investors for more than a decade,” Williams said in a news release.

“Hu’s lies caused millions of dollars of losses,” he added. “Hu mismarked millions of dollars of loan assets, falsified paperwork to create fake loans, sold overvalued and fake loans, used the proceeds from those sales to pay off earlier investors, and falsified paperwork to deceive auditors and avoid scrutiny. Today’s sentence sends the message that brazen fraud does not pay and will be appropriately punished.”

According to the information filed against Hu by the Justice Department in 2020, as well as statements made and documents filed in U.S. District Court for the Southern District of New York, Hu and “co-conspirator” Martin Silver, who founded IIG together in 1994, provided investment management and advisory services through the firm, including for three private funds that it operated: IIG Trade Opportunities Fund, IIG Global Trade Finance Fund, and IIG Structured Trade Finance Fund.

IIG also advised the Venezuela Recovery Fund, a fund that managed the remaining assets of a failed Venezuelan bank. In March 2018, IIG reported to the SEC that it had about $373 million in assets under management.

From about 2007 to 2019, Hu conspired to defraud investors in IIG-managed funds, the Justice Department had alleged.

Hu did that by: overvaluing distressed loans held by the IIG Funds; falsifying paperwork to create a series of fake loans that were fraudulently classified as positively performing loans; and selling overvalued and fake loans to a collateralized loan obligation trust and new private funds established and advised by IIG, according to the Justice Department.

In addition, the proceeds from those fraudulent sales were used to generate liquidity required to pay off earlier investors in a Ponzi-like way, the Justice Department charged.

In April 2021, Silver also pleaded guilty to investment advisor fraud, securities fraud and wire fraud offenses. His sentencing is pending, Williams said.

The SEC’s Case

The SEC also filed a complaint in the same court against Hu in 2020 over the scheme. That parallel case was stayed since Sept. 21, 2020, until the conclusion of the Justice Department criminal case.

On Feb. 1, 2021, the court lifted the stay for the limited purpose of considering the parties’ motion for entry of a consent judgment against Hu partially resolving the case, and the court granted the motion that day, according to court documents.

The Feb. 1 judgment “resolved all the issues in this action, except the Commission’s claims for monetary relief against Hu,” the documents said.

The SEC expected that, after Hu’s sentencing occurred, the parties would discuss a settlement of the Commission’s claims for monetary relief.

(Image: Shutterstock)