U.S. Prosecutors: Visium Asset Management PM Inflated Distressed Debt Values

Jan 11 2017 | 10:21pm ET

By Nate Raymond (Reuters) - An ex-portfolio manager at Visium Asset Management corruptly sought to boost the value of one of its hedge fund's holdings, defrauding investors while enabling the investment firm to earn millions of dollars, a U.S. prosecutor told jurors on Wednesday.

Stefan Lumiere, the former brother-in-law of Visium founder Jacob Gottlieb, violated the trust of investors through "fraud and lies," Assistant U.S. Attorney Damian Williams told jurors at the start of a trial in federal court in Manhattan.

Lumiere and others rigged the process of valuing the bond fund's distressed-debt holdings by, among other things, obtaining sham quotes from brokers, who gave them the inflated values they wanted, Williams said in his opening statement.

"Ladies and gentleman, it is easy to look like a winner when you can make up the score," Williams said.

But defense lawyer Eric Creizman said Lumiere, 46, was innocent. He urged jurors to be skeptical of two cooperating witnesses formerly with Visium, and contended Lumiere acted in "good faith" in obtaining values for the fund's securities.

"This is not picking a price out of the air," he said. "It was based on a number of things."

The trial follows a probe of Visium that prompted the $8 billion firm's wind-down and charges against three others, including Sanjay Valvani, a portfolio manager who committed suicide in June after being accused of insider trading.

Lumiere, who faces securities fraud and other charges, began working at Visium in 2007 and served as portfolio manager for Visium Credit Opportunities Fund from May 2009 to April 2013.

From 2011 to 2013, prosecutors said, Lumiere and others, including portfolio manager Christopher Plaford, schemed to defraud investors by mismarking the value of securities held by the fund, which invested in debt issued by healthcare companies.

Prosecutors said the practices caused the fund's net asset value to be overstated by tens of millions of dollars each month and deceived investors into believing the bonds were relatively liquid, when they were not.

At trial, prosecutors plan to call as cooperating witnesses Plaford, who pleaded guilty in June, and Jason Thorell, a former Visium trader who Williams said turned whistleblower by taking the matter to the U.S. Securities and Exchange Commission.

Thorell, who is expected to testify on Thursday, stands to potentially earn a monetary reward for cooperating, a fact Lumiere's attorneys say indicates he is seeking a recovery from the SEC's whistleblower program.

The case is U.S. v. Lumiere, U.S. District Court, Southern District of New York, No. 16-cr-00483

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