Ex-Visium Manager Found Guilty of Fraud in About 90 Minutes

Updated on
  • Jury convicts Stefan Lumiere for inflating prices in portfolio
  • Conviction comes as U.S. steps up policing of bond markets

A onetime portfolio manager for hedge fund firm Visium Asset Management LP was convicted of federal securities-fraud charges in the culmination of a three-year case that included the suicide of a fellow executive who was also charged.

The jury deliberated for a little more than 90 minutes before finding Stefan Lumiere guilty on all three counts related to inflating the price of bonds in the firm’s credit fund to hide losses from investors. His conviction comes as the U.S. steps up efforts to police multitrillion-dollar bond markets, where securities are traded between parties and not over an exchange.

Lumiere, 46, didn’t react as the verdict was read. His sentencing is scheduled for May 23, and he could face as much as 45 years in prison and a $5 million fine, though maximum penalties are rarely imposed. Jurors declined to comment.

“I can tell you he’s innocent,” said Alexandra Lumiere Gottlieb, as she left the courtroom after the verdict was read. She sat behind her brother during the trial. “This is not a court looking for the truth.”

A Visium spokesman declined to comment.

In the week-long trial, prosecutors said Lumiere solicited sham quotes from brokers to justify inflated valuations on distressed-debt holdings. Jurors rejected his claim that he thought the prices he was assigning were legitimate and done at the behest of his boss, who pleaded guilty and testified against him.

Confidential Informant

The case was launched after Jason Thorell, a junior trader who told jurors he was asked to field fake quotes from brokers to justify the portfolio’s inflated prices, became a confidential informant for authorities. The U.S. investigation grew to include charges of insider trading based on leaks of pending health-care policy changes by the government.

The government claimed the firm reaped more than $32 million from trades on drug companies.

Visium, which managed $8 billion at its peak, returned money to investors after the charges were filed last year. Christopher Plaford, the portfolio manager who oversaw the $480 million credit fund and Lumiere’s supervisor, pleaded guilty and cooperated with prosecutors during the trial. Sanjay Valvani, a more senior portfolio manager, killed himself days after he was indicted.

Prosecutors claimed Lumiere and other Visium executives inflated the value of holdings in the firm’s credit portfolio from 2011 to 2013. They allegedly did so by getting brokers to furnish fake quotes for securities hundreds of times, allowing them to override the valuation of the fund’s independent administrator.

The inflated valuations enabled the firm to generate more than $5.9 million in extra fees and juiced bonuses for the executives who oversaw it, according to the U.S. The credit fund, which oversaw $470 million, wound down in 2013 after a wave of investor redemptions.

For more on the whistle-blower’s guilty conscience, click here

After Thorell agreed to act as a government informant, he wore a hidden device to record conversations with former colleagues and supervisors. Thorell, who was the government’s star witness, stands to receive a financial payout under the whistle-blower reward program operated by the U.S. Securities and Exchange Commission.

Lumiere was the brother-in-law of firm founder Jacob Gottlieb, who has not been accused of wrongdoing. After Lumiere’s apartment was raided by FBI agents in early 2014, he initially agreed to cooperate, but ultimately the agreement faltered.

Visium notified investors and clients of the investigation in March and wound down operations after the charges were filed in June, liquidating some funds and selling another to AllianceBernstein Holding LP.

After Lumiere was convicted, Creizman said, “We thought we tried our case as best as we possibly could.”

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

— With assistance by Bob Van Voris, and Katherine Burton

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