Background of IIG

HU and co-conspirator MARTIN SILVER founded IIG in 1994.  HU was a managing partner and the chief investment officer of IIG.  IIG, an SEC-registered investment adviser, provided investment management and advisory services, including for three private funds that it operated: (1) the IIG Trade Opportunities Fund N.V. ("TOF"); (2) the IIG Global Trade Finance Fund, Ltd. ("GTFF"); and (3) the IIG Structured Trade Finance Fund, Ltd. ("STFF").  IIG also advised the Venezuela Recovery Fund ("VRF"), a fund that managed the remaining assets of a failed Venezuelan bank (VRF, together with TOF, GTFF, and STFF, the "IIG Funds").  In March 2018, IIG reported to the SEC that it had approximately $373 million in assets under management.

IIG advertised itself as specializing in global trade financing, particularly in providing trade finance loans to small and medium-sized businesses.  IIG's principal investment advisory strategy, including with respect to the IIG Funds, was investing in trade finance loans that it also originated.  Trade finance loans are used by small and medium-sized companies, typically exporters and importers, to facilitate international trade.  IIG's purported expertise was in trade finance loans to borrowers located in Central or South America, and in a variety of industries, with a stated focus on "soft commodities," such as coffee, agriculture, fishing, and other food products.  IIG's trade finance loans were purportedly secured by collateral, such as the underlying traded goods, assets held by the borrowers, or expected payments by third parties.

Investments in TOF, STFF, and GTFF were marketed by IIG to institutional investors, such as pension funds, hedge funds, and insurers.  In offering memoranda and communications with investors, IIG advertised strict risk controls, such as promises to use diligence to carefully select borrowers or issuers with trusted management and marketable assets, and portfolio concentration limits based on borrower, developing country, and industry.

IIG purported to value the trade finance loans in the IIG Funds on a regular basis.  IIG and, in turn, HU, received a performance fee with respect to the IIG Funds, as well as a management fee, which was calculated as a percentage of the assets under management held in the Funds.

The Scheme

From approximately 2007 to 2019, HU conspired to defraud investors in IIG-managed funds by: (i) overvaluing distressed loans held by the IIG Funds, (ii) falsifying paperwork to create a series of fake loans that were classified, fraudulently, as positively performing loans, and to otherwise hide losses, (iii) selling overvalued and fake loans to a collateralized loan obligation trust and new private funds established and advised by IIG, and (iv) using the proceeds from those fraudulent sales to generate liquidity required to pay off earlier investors in a Ponzi-like manner.

The scheme HU participated in involved, among other things:

• Mismarking the value of multiple loans that had, in reality, defaulted (the "Defaulted Loans").  
• Mismarking multiple loans that were distressed (the "Distressed Loans").  These Distressed Loans included, for example, loans for which the borrowers had missed multiple scheduled payments.  
• Creating fictitious loans in order to hide the losses resulting from the Defaulted Loans, including from auditors reviewing TOF's financials, by removing the Defaulted Loans from the TOF portfolio and replacing them with tens of millions of dollars in fictitious loans to purported borrowers in foreign countries (the "Fake Loans"). 
• Using a collateralized loan obligation trust (the "CLO Trust") to create liquidity through investments in fraudulent loans. 
• Using the CLO Trust and Panamanian shell entities to cover up losses.  Specifically, HU caused the creation of shell entities domiciled in Panama ("Panamanian Shell Entities") that were controlled by an IIG nominee.  Then, HU caused the CLO Trust to enter into fake loan transactions with the Panamanian Shell Entities.  HU caused the creation of fake promissory notes and other paperwork to conceal the fraudulent nature of the loans to the Panamanian Shell Entities.  Finally, under the guise of the fake loan transactions with the Panamanian Shell Entities, the CLO Trust disbursed funds that HU diverted to TOF in order to pay off TOF's various debts and obligations.
• Generating liquidity by selling fraudulent loans to two new private IIG managed funds: GTFF and STFF.  A foreign institutional investor provided $70 million as the seed investment for GTFF, and, later, $130 million as the seed investment for STFF. 
• Inducing a retail mutual fund to invest in a fictitious $6 million loan.  Specifically,  in or about December 2012, IIG became an investment adviser to an open-ended mutual fund marketed to retail investors (the "Retail Fund"). As an investment adviser to the Retail Fund, IIG made investment recommendations, including recommendations that the Retail Fund invest in trade finance loans originated by IIG.  In or about February 2017, a borrower (the "Argentine Borrower") had failed to pay the principal on an approximately $6 million loan ("Loan-1") in which the Retail Fund had invested and which was nearing its maturity date.  In or about March 2017, HU caused approximately $6 million to be transferred into an account associated with the Argentine Borrower from the account of a different borrower ("Borrower-1"), and further directed the funds from Borrower-1's account to pay off the debt owed by the Argentine Borrower to the Retail Fund.  To replace the funds from Borrower-1's account that were used to make it appear as though the Argentine Borrower had repaid its debt to the Retail Fund, HU fraudulently induced the Retail Fund to invest in a new, fake $6 million loan to the Argentine Borrower (the "New Loan").  HU then directed that the proceeds from the fraudulently induced New Loan be transferred into Borrower-1's account, effectively reimbursing the account for the earlier $6 million transfer to the Retail Fund.  To further conceal the fraudulent nature of the New Loan, HU caused the creation of forged documents to make it appear as though the New Loan was a legitimate loan to the Argentine Borrower.
  
  

The SEC's complaint alleges that Retire Happy LLC, a company owned by Minuskin, and her sales agent, Stoll, engaged in the unregistered offer and sale of securities - typically high-yield promissory notes issued by corporate borrowers. The complaint alleges that they targeted investors' retirement assets, vouching for the safety of the investments even though Minuskin knew that certain issuers of the notes were using new investor principal to pay returns due earlier investors. Per the complaint, neither Minuskin nor Stoll was licensed as a broker-dealer while selling securities to investors.

The complaint further alleges that Casey and DiRicco, the principals of Golden Genesis and Until Tomorrow Drivetrains, respectively, issuers of two of the notes sold by Retire Happy, conducted an unregistered and fraudulent offering of securities. More specifically, the complaint alleges that they misused and misappropriated investor funds to make Ponzi-like payments, where they used new investor monies to make interest payments due to prior investors. The complaint further alleges that Minuskin aided and abetted DiRicco and Casey in their fraudulent schemes.

[T]he SEC previously charged 1 Global, its owner, and others with operating an allegedly fraudulent scheme that raised $322 million from at least 3,600 investors. The SEC also previously charged ten of 1 Global's top sales agents, for various registration violations.

In separate complaints, the SEC alleges that 1 Global's former chief financial officer, Eric A. Alexander, and its former director of business development, Scott A. Merkelson, participated in 1 Global's fraud on retail investors. According to the complaints, Alexander, a certified public accountant, and Merkelson, a former licensed securities professional, manipulated 1 Global's management fee to artificially raise or lower investors' monthly rates of return and signed monthly investor account statements that they knew contained these false rates of return. Additionally, according to the complaints, the monthly account statements Alexander and Merkelson signed falsely represented that an independent auditor had endorsed 1 Global's method of calculating investor returns.

[S]alandra, Ross and a third individual created false rumors about purported market-moving events, such as corporate mergers or acquisitions, involving publicly-traded companies. As alleged, the false rumors were then shared with Melnick and another individual who disseminated the false rumors through real-time financial news services, financial chat rooms, and message boards, causing the prices of the subject companies' securities to rise temporarily. Between October 2017 and January 2020, Salandra allegedly was involved in the creation of and traded around at least 92 false rumors, generating over $132,000 in illicit profits. The other scheme participants also traded around the false rumors, generating significant profits.