Ex-Visium Manager Was Scapegoat for Colleagues, Lawyer Says

  • Stefan Lumiere on trial for scheme to inflate fund’s value
  • U.S. describe ‘cutthroat’ Visium, say Lumiere ‘knew full well’

A former portfolio manager at Visium Asset Management LP -- accused of participating in a scheme to inflate the value of his fund’s holdings -- was an unwitting scapegoat for the misdeeds of others, his lawyer told jurors Thursday.

Stefan Lumiere was the victim of colleagues who admitted their own wrongdoing and stand to gain from shifting the blame to others, according to his lawyer, Eric Creizman. Lumiere faces charges of working with other Visium executives to obtain inflated price quotes from brokers for securities in the firm’s credit portfolio, in an attempt to hide losses and boost the firm’s compensation.

Those colleagues include former junior trader Jason Thorell, who became a government informant and could receive hundreds of thousands of dollars for his cooperation in a related Securities and Exchange Commission case, and Lumiere’s boss, Christopher Plaford, who pleaded guilty and agreed to cooperate in the hope of avoiding a prison sentence, Creizman said. Both testified against Lumiere during the trial.

“They all have a ton to gain by saying what the government wants to hear,” Creizman said. “Can you put Mr. Lumiere’s life in their hands?”

The jury began deliberating Thursday afternoon.

Knowing Partner

Prosecutors described Lumiere as a knowing partner, one who knew that the price quotes he fielded from brokers were fraudulent, and that they were being used to deceive investors. As a securities-industry veteran overseeing $100 million in complex distressed-debt investments, with multiple licenses and a Chartered Financial Analyst designation, he knew the prices he was getting were well above the market’s value and that what he was doing was wrong, they maintained.

“Lumiere put garbage into the process, and garbage got spit right back out to the investors,” said Joshua Naftalis, an assistant U.S. attorney, in the government’s closing remarks. “Lumiere knew the brokers were just parroting back to him the quotes he wanted to hear.”

Lumiere is the only one of three Visium executives to contest the charges and go to trial. Plaford pleaded guilty, and the other, Sanjay Valvani, killed himself after being indicted.

During the week-long trial in New York federal court, jurors heard recorded conversations, saw e-mail and phone records and heard testimony from witnesses who laid out the alleged scheme.

Weak Controls

Some of the evidence pointed to weak controls at Visium, including firm executives who downplayed concerns brought to their attention and limited oversight from the compliance department into how assets were being priced.

“Ladies and gentlemen, it was the Wild West at Visium,” Naftalis, the prosecutor, told the jury. He called Visium a “cutthroat place to work” and suggested Lumiere’s motive for hiding the losses was that he would lose his job if they were revealed.

“If a portfolio manager lost money, they didn’t get those big Wall Street bonuses,” he continued. “They likely got fired.”

The inflated valuations allowed Visium to claim its credit-fund assets were consistently $20 million or more than reality over the two-year period, the government maintained. Some of the fund’s holdings were valued as much as 16 times higher than prices other market-data services indicated.

Fund Headwinds

Visium’s employees began inflating numbers when the fund started to run into headwinds, the U.S. said. After posting a 20 percent return in 2009 and a 32 percent return in 2010, the hedge fund returned just 0.7 percent in 2011. Without the number fudging, prosecutors said, 2011 would have resulted in a 4 percent loss, and 2012 would have been only marginally profitable.

After he left Visium, Lumiere contemplated demanding $100 million from Plaford and firm founder Jacob Gottlieb to keep quiet, according to a recorded conversation. "If any of this stuff gets out, they’ll be shut down," Lumiere said on the tape.

But Creizman said the evidence fails to show that Lumiere doubted the veracity of the quotes he was getting. Furthermore, he said, the opaque market for distressed-debt securities was complicated, and arriving at the correct price was more art than science.

"There is no single uniform way to value these securities," Creizman told the jury. "This is a situation where the market price isn’t clear."

The case is U.S. v. Lumiere, 16-cr-00483, U.S. District Court, Southern District of New York (Manhattan).

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