Visium Star Witness Taped Gottlieb While Working Undercover

  • Jacob Gottlieb’s words likely to be replayed at fraud trial
  • Visium trader on trial for inflating value of credit holdings

The government’s star witness against a former Visium Asset Management LP trader recorded dozens of conversations with colleagues. One of those he secretly taped was firm founder Jacob Gottlieb, according to a confidential court document.

A transcript of that conversation from 2013 could be made public at the fraud trial of former Visium trader Stefan Lumiere, which now begins Wednesday after a postponement. The recording may begin to answer whether Gottlieb knew about illicit practices at his firm, which once managed $8 billion but is now almost defunct. Gottlieb has not been accused of wrongdoing.

Jacob Gottlieb

Photographer: Jacob Kepler/Bloomberg

Lumiere is accused of scheming to inflate the value of distressed-debt holdings in Visium’s credit portfolio. Prosecutors say he and others solicited sham quotes from brokers hundreds of times between 2011 and 2013, enabling them to override the assessment of an independent administrator each month when their positions were valued. Lumiere was also Gottlieb’s brother-in-law.

Jason Thorell, a onetime junior trader at Visium, spent more than two years working with the FBI, and prosecutors have said they may use recordings he made secretly, according to court records. Two other Visium executives were charged in the case. The most senior one, Sanjay Valvani, committed suicide days after the June indictment. He had denied wrongdoing. The other, Christopher Plaford, pleaded guilty and is cooperating.

Distressed Debt

Lumiere denies wrongdoing. He hasn’t outlined his defense, though his lawyers have signaled in court filings that they intend to raise challenges about the difficulty of pricing distressed debt.

The confidential document detailing the taping of Gottlieb was briefly made public on Jan. 5 when Lumiere’s attorney, Eric Creizman, filed a list of the evidence prosecutors plan to offer. The list, which a judge subsequently sealed, indicated that prosecutors wanted to offer as evidence a transcript of Gottlieb’s June 24, 2013, conversation with Thorell as well as an e-mail between them about the pricing of securities.

“E-mail dated 6/24/2013 from Jason Thorell to Jacob Gottlieb re: monthly pricing process meeting,” reads one entry on the document. “Transcript of meeting between Jason Thorell and Jacob Gottlieb on 6/24/2013,” reads another.

Creizman declined to comment, as did Nathaniel Garnick, a spokesman for Gottlieb and Visium. A spokeswoman for U.S. Attorney Preet Bharara also declined to comment. Thorell, who is testifying under a grant of immunity from prosecutors, didn’t respond to a text message.

Visium was a health-care focused hedge fund that last year told clients it would return their money. The firm was launched in 2005 by Gottlieb, who earned a degree from New York University School of Medicine before switching to finance. The Brooklyn-born manager once told Institutional Investor that he was committed to running a "very high quality, high integrity firm" that would compete with large multistrategy hedge funds, a step beyond the health-care fund that was Visium’s first offering.

Active Participant

Thorell is portrayed in court filings as an active participant in the mis-marking scheme, going so far as to volunteer the name of a broker at a "bottom of the barrel" firm who might be willing to furnish sham quotes for them. Along with cooperating with the Federal Bureau of Investigation, he entered the U.S. Securities and Exchange Commission’s whistle-blower program and may receive a financial payout. He’ll testify with a grant of immunity from prosecutors.

Lumiere joined Visium in 2007, two years after his sister Alexandra got engaged to Gottlieb. He was in charge of overseeing distressed assets within the credit fund, which managed $470 million at its peak. In early 2013, Visium funneled money from its flagship fund to the credit team, but the portfolio was liquidated that September after a string of investor redemptions.

At the trial, prosecutors plan to offer as evidence as many as 24 transcripts, 19 recordings, 83 e-mails, 12 chats and three memos or letters, according to the government’s document.

Among the memos is one from Gottlieb to Lumiere in July 2012 referring to the "Nebraska Book," a term that isn’t explained. A May 2013 e-mail to Gottlieb from another executive discusses Lumiere’s resignation from the firm, according to the document.

A December 2012 memo to Lumiere from Gottlieb -- who despite a 2013 net worth of $188 million was known as frugal on compensation -- is simply labeled, "re: expenses."

FBI agents raided Lumiere’s apartment in 2014, and he initially tried to cooperate with prosecutors, according to court papers. It is unclear why the cooperation faltered.

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