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Press Release
Damian Williams, United States Attorney for the Southern District of New York, announced that DAVID HU, former managing partner and chief investment officer of the Manhattan-based investment advisory firm International Investment Group (“IIG”), was sentenced today to 12 years in prison for his role in an over $120 million scheme to defraud IIG’s clients and investors. HU pled guilty in January 2021 to investment adviser fraud, securities fraud, and wire fraud offenses. U.S. District Judge Alvin K. Hellerstein announced today’s sentence, which will be formally imposed following the conclusion of forfeiture and restitution proceedings in the case.
U.S. Attorney Damian Williams said: “David Hu shirked his fiduciary responsibilities and defrauded IIG funds and investors for more than a decade. Hu’s lies caused millions of dollars of losses. Hu mismarked millions of dollars of loan assets, falsified paperwork to create fake loans, sold overvalued and fake loans, used the proceeds from those sales to pay off earlier investors, and falsified paperwork to deceive auditors and avoid scrutiny. Today’s sentence sends the message that brazen fraud does not pay and will be appropriately punished.”
According to the Information and based on statements made and documents filed in federal court in this case:
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:
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In addition to the prison sentence, HU, 64, of West Orange, New Jersey, was ordered to serve three years of supervised release. The Court also announced that it would impose restitution to victims and forfeiture of the proceeds of the offenses, with the amounts to be determined at a later date.
SILVER pled guilty to investment adviser fraud, securities fraud, and wire fraud offenses in April 2021 and his sentencing is pending.
Mr. Williams praised the investigative work of the FBI and also thanked the U.S. Securities and Exchange Commission for its assistance.
This case is being handled by the Office’s Securities and Commodities Fraud Task Force. Assistant U.S. Attorneys Drew Skinner, Negar Tekeei, and Alex Rossmiller are in charge of the prosecution.
Nicholas Biase
Victoria Bosah
(212) 637-2600