IIG Capital: Difference between revisions - Wikipedia

Line 1:

{{short description|American financial institution that ran a Ponzi scheme}}

{{db-g11}}

{{notability|Companies|date=March 2012}}

{{Infobox company

| name = International Investment Group LLC

Line 9 ⟶ 7:

| fate =

| founded = {{Start date and age|1995}}

| founder = Martin Silver, David Hu (cofounders)

| hq_location_city = [[New York City]]

| hq_location_country = [[United States]]

| key_people =

| products = [[Trade finance]]

| owner =

| num_employees =

| num_employees_year = <!-- Year of num_employees data (if known) -->

Line 20 ⟶ 19:

}}

'''International Investment Group''' ('''IIG''') is an American [[financial institution]] that specializes in [[Short-term trading|short-term [[trade finance]] finance and commercial finance with a focus on [[emerging markets]]. Through its affiliate ''IIG Capital'' it is instrumental in providingprovides financing to small- and medium-sized merchants, traders and processors with a need for [[supply chain]] financing.<ref>{{Cite book | last =Blessing | first =Sona | title = Alternative Alternatives: Risk, Returns and Investment Strategy | publisher=Wiley Finance | year =2011 | page =125 | url = | isbn = 0470683961978-0470683965}}</ref>

David Hu (胡大韦 ''Hu Dawei''), cofounder of IIG Capital, served as its [[chief investment officer]] (CIO). In April 2022, Hu was sentenced to 12 years in prison for running a [[Ponzi scheme]], [[defrauding]] and scamming customers of more than $120 million. Moreover, Hu fabricated documents to hide his financial losses.<ref name=":0">{{Cite news |last=Dolmetsch |first=Chris |date=2022-04-11 |title=Investment Chief Gets 12 Years for Running $100 Million Scam |language=en |work=Bloomberg.com |url=https://www.bloomberg.com/news/articles/2022-04-11/investment-chief-gets-12-years-for-running-100-million-scam |access-date=2023-03-06}}</ref><ref name=":2" /><ref name=":4">{{Cite web |title=NY Fund Manager Gets 13 Months for $100 Million Ponzi Fraud (1) |url=https://news.bloomberglaw.com/white-collar-and-criminal-law/fund-manager-gets-13-months-for-100-million-ponzi-scheme-theft |access-date=2023-03-06 |website=news.bloomberglaw.com |language=en}}</ref> Hu's partner Martin Silver was also found guilty of running the Ponzi scheme.<ref name=":0" /><ref name=":2">{{Cite web |date=2022-04-11 |title=Former Managing Partner Of Manhattan Investment Advisory Firm Sentenced To 12 Years For Defrauding Investors In An Over $120 Million Ponzi-Like Scheme |url=https://www.justice.gov/usao-sdny/pr/former-managing-partner-manhattan-investment-advisory-firm-sentenced-12-years |access-date=2023-03-06 |website=www.justice.gov |language=en}}</ref><ref>{{Cite news |title=Investment Chief Gets 12 Years for Running $100 Million Scam |language=en-US |work=Washington Post |url=https://www.washingtonpost.com/business/on-small-business/investment-chief-gets-12-years-for-running-100-million-scam/2022/04/11/a7bdb1da-b9c0-11ec-a92d-c763de818c21_story.html |access-date=2023-03-06 |issn=0190-8286}}</ref><ref name=":1">{{Cite web |last=Berman |first=Jeff |title=Ex-Head of RIA Sentenced to 12 Years in Prison Over $120M Scam |url=https://www.thinkadvisor.com/2022/04/14/ex-head-of-ria-sentenced-to-12-years-in-prison-over-120m-ponzi-like-scheme/ |access-date=2023-03-06 |website=ThinkAdvisor |language=en}}</ref>

David Hu's case was handled by the Securities and Commodities Task Force and the [[United States Department of Justice]] (DOJ). Attorneys Drew Skinner, Negar Tekeei, and Alex Rossmiller were in charge of prosecuting Hu, and Judge [[Alvin K. Hellerstein]] sentenced Hu to 12 years in prison.<ref name=":2" /><ref name=":7" /><ref>{{Cite web |title=United States v. Hu, 20 Cr. 360 (AKH) {{!}} Casetext Search + Citator |url=https://casetext.com/case/united-states-v-hu-2012 |access-date=2023-03-19 |website=casetext.com}}</ref> The [[FBI]] and [[U.S. Securities and Exchange Commission]] (SEC) also assisted with the investigation.<ref name=":2" />

== Founders ==

The company was confounded by David Hu and Martin Silver.<ref name=":10">{{Cite news |date=2022-04-11 |title=Investment Chief Gets 12 Years for Running $100 Million Scam |language=en |work=Bloomberg.com |url=https://www.bloomberg.com/news/articles/2022-04-11/investment-chief-gets-12-years-for-running-100-million-scam |access-date=2023-03-06}}</ref><ref name=":11">{{Cite web |last=Berman |first=Jeff |title=Ex-Head of RIA Sentenced to 12 Years in Prison Over $120M Scam |url=https://www.thinkadvisor.com/2022/04/14/ex-head-of-ria-sentenced-to-12-years-in-prison-over-120m-ponzi-like-scheme/ |access-date=2023-03-06 |website=ThinkAdvisor |language=en}}</ref> Hu served as its CIO and managing partner and held a 50% stake in IIG. Hu's main role was giving financial advice to clients while investing on their behalf.<ref name=":12">{{Cite web |last=Berger |first=Marc P. |last2=Wadhwa |first2=Sanjay |last3=Pollock |first3=Sheldon L. |last4=Michael |first4=Daniel |last5=Nawaz |first5=Osman |last6=Fortino |first6=Philip A. |last7=Moilanen |first7=Lindsay S. |title=SECURITIES AND EXCHANGE COMMISSION, Plaintiff against DAVID HU, Defendant. |url=https://www.sec.gov/litigation/complaints/2020/comp-pr2020-157.pdf}}</ref>

From 1982 to 1987, Hu started his career at [[Mellon Financial|Mellon Bank]]. He then worked at [[American Express]] trading debt from the [[Latin American debt crisis]] (LDC debt). From 1991 to 1993, David Hu worked at [[Nomura Securities|Nomura Securities International]]. From 1993 to 1994, Hu worked at [[Smith Barney]] (now part of [[Morgan Stanley]]). From March 1997 to February 2012, Hu worked at IIG Horizons Securities.<ref name=":12" /> While at Nomura and Smith-Barney, Hu worked as a trader and managing director specializing in [[fixed income]], [[emerging markets]], and [[underwriting]].<ref name=":13">{{Cite web |date=2015-03-13 |title=IIG Capital, LLC - David Hu |url=http://iigcapital.com/our-team/managing-partners/david-hu.html |archive-url=https://web.archive.org/web/20150313131637/http://iigcapital.com/our-team/managing-partners/david-hu.html |url-status=dead |archive-date=2015-03-13 |access-date=2023-04-19 }}</ref>

Hu held securities licenses (Series 7, 24, 63) while working at these broker-dealers.<ref name=":12" />

Later David Hu was sentenced to 12 years in prison for running a scam and defrauding customers of over $120 million.<ref name=":10" /><ref name=":11" />

=== Personal life ===

Hu was 64 years old at the time of his sentencing in 2022. Hu lived in [[West Orange, New Jersey]], with his wife and two children.<ref name=":0" /><ref name=":9" /> Hu could speak [[Mandarin Chinese]], [[Cantonese]], [[Spanish language|Spanish]], and [[English language|English]]. Hu obtained his MBA from the [[Thunderbird School of Global Management]] (Arizona) and his [[bachelor's degree]] in civil engineering from [[Universidad de San Carlos de Guatemala]].<ref name=":13" />

== Background ==

The company is headquartered in [[New York City]], and has representatives around the world.,<ref>{{Cite book | last =Marks | first =Kenneth H. | title =The Handbook of Financing Growth: Strategies, Capital Structure, and M&A Transactions | publisher =Wiley | year =2009 | pages =356–358 | url =http://www.wiley.com/WileyCDA/WileyTitle/productCd-0470390158.htm | isbn =0470390158978-0470390153 }}{{Dead link|date=May 2019 |bot=InternetArchiveBot |fix-attempted=yes }}</ref> It servesserving clients internationally.<ref>{{cite web|last =Schaap | first =Paula|title= Trade Finance Firm Sees Opportunities from G20 Meeting |url= http://news.hedgefund.net/default.aspx?story=9956|work= HedgeFund.net|accessdateaccess-date=March 19, 2011|date=April 2009}}{{dead link|date=August 2015}}</ref> The company primarily focuses on facilitating the financing of trade transactions involving commodities that can be hedged and liquidated easily.<ref>{{Cite news| last =Rocchi | first =Cate|title=A Safe Bet|url= http://www.hedgefundsreview.com/hedge-funds-review/feature/1552950/a-safe-bet|date=June 2001|work=Hedge Funds Review|location=|accessdateaccess-date= March 19, 2011}}{{subscription required}}</ref> These transactions are often between sellers in emerging markets and large companies in developed markets. The company uses a structure it developed called “transactional equity,” in which the firm helps fund the down payment required from a merchant seeking financing from a bank. This enables the merchant to qualify for the [[bank financing]].<ref>{{Cite book | last =Marks | first =Kenneth H. | title = The Handbook of Financing Growth: Strategies, Capital Structure, and M&A Transactions | publisher=Wiley | year =2009 | page =113 | url = http://www.wiley.com/WileyCDA/WileyTitle/productCd-0470390158.html | isbn = 0470390158978-0470390153}}</ref>▼

Another of its affiliates ''IIG Bank Malta'', provides private banking, wealth management, corporate banking and [[trade finance]] in [[Malta]].<ref>{{cite web |url=https://www.iigbank-malta.com/page/about-iig |title=Welcome to IIG Bank |accessdateaccess-date=June 8, 2017 |publisher=IIG Bank}}</ref>▼

==History==

In 1994, David Hu and Martin Silver cofounded IIG Capital, an [[Registered investment adviser|RIA]] firm based in [[Manhattan]], and registered their company with the SEC.<ref name=":1" /> IIG was a New Jersey [[limited liability company]] that operated in New York.<ref name=":9">{{Cite web |last=NJ.com |first=Noah Cohen {{!}} NJ Advance Media for |date=2021-01-29 |title=N.J. man pleads guilty in $100M Ponzi scheme, feds say |url=https://www.nj.com/essex/2021/01/nj-man-pleads-guilty-in-100m-ponzi-scheme-feds-say.html |access-date=2023-03-12 |website=nj |language=en}}</ref> David Hu worked as its chief investment officer, while Martin worked as its [[chief operating officer]]. Their company specialized in [[global trade]], [[investment funds]], and loans. The company also provided advisory services and [[Wealth management|management]] through three private funds: the IIG Global Trade Finance Fund (GTFF), Structured Trade Finance Fund (STFF), and Trade Opportunities Fund (TOF).<ref name=":1" /><ref name=":2" />

Specifically, they provided loans for [[Central America|Central]] and [[South American]] [[small and medium-sized enterprises]] using food products like fish and coffee as [[Collateral (finance)|collateral]].<ref name=":0" /> For example, they advised the Venezuela Recovery Fund (VRF) for a failed bank in [[Venezuela]].<ref name=":1" /><ref name=":2" />

The GTFF, STFF, and TOF were marketed to [[Institutional investor|institutional investors]], including hedge funds, [[pension funds]], and insurance funds. IIG advertised that they would follow due diligence and abide by risk controls for investors. Hu made money based on a management fee and performance fee on IIG funds.<ref name=":2" />

== Ponzi scheme ==

For more than a decade from 2007 to 2019,<ref name=":1" /><ref name=":9" /> David Hu defrauded customers, stealing over $100 million in investor's money at IIG. David Hu and Martin deceived their customers by falsifying documents and lying saying fake and defaulted loans were doing well.<ref name=":0" />

For example, in December 2012, the firm began advising a retail [[mutual fund]] for [[retail investors]]. IIG recommended the fund to invest in a $6 million loan to an Argentina borrower. However, in 2017, the borrower did not pay back the [[Principal (finance)|principal]]. Hu then tried to conceal the default by mismarking and falsifying documents.<ref name=":6">{{Cite web |date=2021-02-10 |title=Former RIA Pleads Guilty in $100M Fraud Scheme |url=https://www.wealthmanagement.com/regulation-compliance/former-ria-pleads-guilty-100m-fraud-scheme |access-date=2023-03-06 |website=Wealth Management |language=en}}</ref><ref name=":2" />

Furthermore, Hu would overvalue negatively-performing loans, fabricate paperwork to create fake loans, mismark the fake loans as positively-performing, and then sell these fake loans to a [[collateralized loan obligation]] trust (CLO trust) and other private funds managed by IIG. Hu then used the proceeds from these fraudulent transactions to repay earlier investors, thereby running a Ponzi scheme for a decade.<ref name=":1" />

In March 2018, IIG informed the SEC that it had more than $373 million in [[assets under management]].<ref name=":0" />

=== Arrest ===

On November 21, 2019, the SEC charged IIG with fraud. On November 26, 2019, the SEC further revoked IIG's registration.<ref name=":8">{{Cite web |title=David Hu (Release No. LR-25530; Sep. 28, 2022) |url=https://www.sec.gov/litigation/litreleases/2022/lr25530.htm |access-date=2023-03-06 |website=www.sec.gov}}</ref>

In 2020, Hu was arrested by authorities and charged with fraud by government regulators.<ref name=":1" /> In March 2020, IIG agreed to pay $35 million in [[disgorgement]] and interest to settle the fraud.<ref name=":0" /><ref name=":6" /> Furthermore, the SEC [[enjoined]] IIG from further violating federal anti-fraud laws.<ref name=":8" />

On July 17, 2020, the SEC and DOJ filed a complaint stipulating that Hu violated Section 17(a) of the [[Securities Act of 1933]], Section 10(b) of the [[Securities Exchange Act of 1934]], and various rules of the [[Investment Advisers Act of 1940]].<ref name=":8" /><ref name=":6" /><ref name=":5" /><ref>{{Cite web |title=UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK: JUDGMENT AS TO DEFENDANT DAVID HU |url=https://www.sec.gov/litigation/litreleases/2021/judgment25028.pdf |website=sec.gov}}</ref>

The SEC accused Hu of organizing multiple frauds since October 2013, overvaluing assets, charging inflated fees, selling $60 million in fake loans, using the proceeds to pay earlier investors, hoodwinking clients by providing fake documentation for non-existent loans, forging credit, and fabricating [[promissory notes]].<ref name=":8" />

The SEC investigation of Hu was spearheaded by Philip A. Fortino, Lindsay Moilanen, Diego Brucculeri, Eli Bass and was supervised by Sheldon L. Pollock and Osman Nawaz. The FBI also assisted the SEC in the investigation.<ref name=":8" />

== Prosecution ==

David Hu was charged in the case U.S. v Hu, 20-cr-360. The trial took place in the U.S. District Court, Southern District of New York in Manhattan.<ref name=":0" />

On January 28, 2021, Hu pleaded guilty of fraud, including [[wire fraud]], [[securities fraud]], investment adviser fraud, and [[Conspiracy (crime)|conspiracy]].<ref name=":1" /><ref name=":2" /><ref name=":7">{{Cite web |date=2021-01-28 |title=Managing Partner Of Investment Advisory Firm Pleads Guilty To Defrauding Clients And Investors In Over $100 Million Ponzi-Like Fraud Scheme |url=https://www.justice.gov/usao-sdny/pr/managing-partner-investment-advisory-firm-pleads-guilty-defrauding-clients-and |access-date=2023-03-06 |website=www.justice.gov |language=en}}</ref> In April 2021, Martin also pleaded guilty.<ref name=":3" /><ref name=":5">{{Cite web |date=2020-07-17 |title=SEC Charges Head of Former RIA With Running Ponzi Scheme |url=https://www.wealthmanagement.com/people/sec-charges-head-former-ria-running-ponzi-scheme |access-date=2023-03-06 |website=Wealth Management |language=en}}</ref>

=== Crimes ===

Hu was charged with the following crimes:<ref name=":2" />

* [[Mismarking]] defaulted loans

* Mismarking distressed loans, including loans where the borrowers missed several scheduled payments

* Fabricating fake loans to cover up losses of defaulting loans of TOF from auditors

* Abusing a CLO trust to create [[liquidity]] on fake loans

* Abusing [[Panama]] shell entities created by IIG to hide losses

* Selling more than $200 million in fake loans to GTFF and STFF to create liquidity

* Getting a mutual fund to invest in a fake $6 million loan in December 2012. The borrower failed to repay the loan in February 2017. Hu forged documents to conceal the fraud and cover up the Ponzi scheme.

For his crimes, Hu faced a maximum prison sentence of 20 years.<ref name=":9" />

=== Sentence ===

In April 2022, U.S. District Manhattan Judge [[Alvin Hellerstein]]<ref name=":7" /> sentenced David Hu to 12 years in prison. Hellerstein said the 12-year sentence was to deter others in the financial industry from engaging in a similar kind of fraud.<ref name=":0" /> According to U.S. New York Attorney [[Damian Williams (lawyer)|Damian Williams]], Hu defrauded clients of over $120 million.<ref name=":1" /> Damian Williams accused Hu of falsifying documents, lying to auditors, selling fake loans, and losing millions of dollars of client's money.<ref name=":2" /> Manhattan Attorney [[Audrey Strauss]] accused Hu of failing to fulfill his fiduciary responsibilities, creating fake loans, and using the gains from those to pay earlier customers.<ref name=":6" />

In addition to 12 years in prison, Hu was ordered to serve three years of [[supervised release]].<ref name=":1" /> Hu's ill-gotten assets of $4,798,232 plus interest $461,477 were also ordered to be disgorged. In a parallel proceeding, Hu was found guilty and ordered to forfeit these assets and pay [[restitution]].<ref name=":8" /> In total, Hu was also forced to forfeit more than $129 million in funds related to his crimes.<ref name=":9" /><ref name=":6" />

Initially, federal prosecutors asked for Hu to be sentenced for 15 years in prison, arguing that Hu's lies, deception, and the damage caused to customers warranted a longer sentence.<ref name=":0" /> Hu's lawyers lobbied for a 5-year term, arguing that Hu was trying to pursue the [[American Dream]] and that Hu's old age and health problems would make a long prison term equivalent to a life sentence.<ref name=":0" />

Hu apologized to his clients and admitted that he betrayed and failed them.<ref name=":0" />

Hu was sent to be confined in [[Lompoc, California]] in a federal prison.<ref name=":3" />

On September 22, 2022, the U.S. District Court enjoined Hu from further violating antifraud laws.<ref name=":8" />

▲The company is headquartered in [[New York City]], and has representatives around the world.<ref>{{Cite book | last =Marks | first =Kenneth H. | title =The Handbook of Financing Growth: Strategies, Capital Structure, and M&A Transactions | publisher =Wiley | year =2009 | pages =356–358 | url =http://www.wiley.com/WileyCDA/WileyTitle/productCd-0470390158.htm | isbn =0470390158 }}{{Dead link|date=May 2019 |bot=InternetArchiveBot |fix-attempted=yes }}</ref> It serves clients internationally.<ref>{{cite web|last =Schaap | first =Paula|title= Trade Finance Firm Sees Opportunities from G20 Meeting |url= http://news.hedgefund.net/default.aspx?story=9956|work= HedgeFund.net|accessdate=March 19, 2011|date=April 2009}}{{dead link|date=August 2015}}</ref> The company primarily focuses on facilitating the financing of trade transactions involving commodities that can be hedged and liquidated easily.<ref>{{Cite news| last =Rocchi | first =Cate|title=A Safe Bet|url= http://www.hedgefundsreview.com/hedge-funds-review/feature/1552950/a-safe-bet|date=June 2001|work=Hedge Funds Review|location=|accessdate= March 19, 2011}}{{subscription required}}</ref> These transactions are often between sellers in emerging markets and large companies in developed markets. The company uses a structure it developed called “transactional equity,” in which the firm helps fund the down payment required from a merchant seeking financing from a bank. This enables the merchant to qualify for the [[bank financing]].<ref>{{Cite book | last =Marks | first =Kenneth H. | title = The Handbook of Financing Growth: Strategies, Capital Structure, and M&A Transactions | publisher=Wiley | year =2009 | page =113 | url = http://www.wiley.com/WileyCDA/WileyTitle/productCd-0470390158.html | isbn = 0470390158}}</ref>

In February 2023, Martin was sentenced to 13 months in prison. Martin was given a shorter sentence as it was mainly Hu who masterminded the Ponzi scheme.<ref name=":3">{{Cite web |title=Fund Manager Gets 13 Months for $100 Million Ponzi-Scheme Theft in New York |url=https://www.yahoo.com/now/fund-manager-gets-13-months-190610567.html |archive-url=https://web.archive.org/web/20230306033906/https://www.yahoo.com/now/fund-manager-gets-13-months-190610567.html |archive-date=March 6, 2023 |access-date=2023-03-06 |website=www.yahoo.com |language=en-US}}</ref> Martin was 65 years old at the time of his sentence.<ref name=":3" /><ref name=":4" />

▲Another of its affiliates ''IIG Bank Malta'', provides private banking, wealth management, corporate banking and trade finance in [[Malta]].<ref>{{cite web |url=https://www.iigbank-malta.com/page/about-iig |title=Welcome to IIG Bank |accessdate=June 8, 2017 |publisher=IIG Bank}}</ref>

==References==