Investors in the Infinity Q Diversified Alpha Fund may have claims to recover their losses through securities arbitration before the Financial Industry Regulatory Authority (FINRA), provided the investment was recommended by a financial advisor, and furthermore, the recommendation to invest lacked a reasonable basis. Headquartered in New York, NY, Infinity Q is registered with the Securities and Exchange Commission (SEC) as an investment adviser, and in connection with its business operations, advised a now-shuttered mutual fund, the Infinity Q Diversified Alpha Fund (Ticker: IQDNX) (Diversified Alpha Fund, or the Fund), in addition to a certain parallel hedge fund, the Infinity Q Volatility Alpha Fund, L.P.

The founder and manager of Infinity Q, James Velissaris, is currently the named Defendant in a Complaint initiated by the SEC in the Southern District of New York, as filed February 17, 2022. As alleged by the SEC, from approximately February 2017 through February 2021, “Velissaris engaged in a fraudulent scheme to overvalue assets held by the Infinity Q Diversified Alpha mutual fund and the Infinity Q Volatility Alpha private fund.” Moreover, the SEC observed that with respect to Infinity Q’s mutual fund offering, “Velissaris marketed the mutual fund as a way for retail investors to access investment strategies typically reserved for high net worth clients….” The SEC’s Complaint charges Velissaris, among other allegations, with violating the antifraud provisions of the federal securities laws, and seeks the return of allegedly ill-gotten gains, as well as other civil penalties.

The Diversified Alpha Fund and the parallel private hedge fund, Infinity Q Volatility Alpha Fund, L.P., were marketed to investors as investment vehicles designed to generate returns that did not move in tandem with the overall stock and bond markets. Infinity Q’s investment holdings and strategy entailed what amounted to bets on exotic investment products known as derivatives, because such products are derived from other securities. Example of such derivate products that were held by the Diversified Alpha Fund include swaps, and more specifically, variance swaps. Swaps are types of derivate investments in which two counterparties agree to exchange or “swap” payments with each other based on the result of such things as changes in a stock price, interest rate -- or in the case of variance swaps -- the volatility or variance of a financial instrument.

Any financial advisor recommending an investment in a complex mutual fund utilizing derivatives such as the Diversified Alpha Fund has a duty to understand how the underlying strategy works. Furthermore, a financial advisor, and by extension his or her brokerage firm, who recommended an investment in the Diversified Alpha Fund must have first sought to ensure that the purchase of the Fund was in keeping with a customer’s stated investment objective and risk profile. Notably, NASD Rule 3010 and FINRA Rule 3110 requires brokerage firms to have a system in place to supervise the sales activities of their financial advisors.

The attorneys at Giarrusso Law Group LLC have considerable experience with complex and esoteric investments, including alternative investment products utilizing derivates or derivative strategies such as the Diversified Alpha Fund. Investors may pursue a claim to recover their losses through FINRA arbitration, or in some instances, by litigation. Investors who wish to discuss a possible claim may contact us by telephone at (201) 771-1115 or by email at info@gialawgroup.com for a no-cost, no-obligation consultation.