SEC Releases Visium Asset Management Investigation Charges

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As a result of the most high-profile corporate financial meltdown since SAC Capital in 2013, Visium Asset Management continues to wind down its business after closing its doors in June 2016. The destruction of the $8 billion investment firm was a sad last chapter in the aggressive prosecution of hedge funds in the post-crisis era.

Started by Jacob Gottlieb in 2005 and backed with $300 million in seed capital, Visium was quickly able to acquire prominent managers and investors. From its inception, Visium was positioned to become a major player in the industry, and by 2016, it had over 170 employees and offices in New York, London, and San Francisco. In the last few years before its closure, Visium was on a growth trajectory: growing from $4 billion in assets in 2013 to $8 billion in 2016.

When Gottlieb sought out to create Visium in 2005, it didn’t take him long to amass a founding team of 20 investment partners. Gottlieb’s success at firms like Sanford C. Bernstein & Co., Merlin Biomed Group, and Balyasny Asset Management helped him build a reputation as an industry veteran known for good returns and an even keeled management style. Gottlieb’s reputation also allowed him to earn the trust of prominent pension fund investors including the Blackstone Group, New Jersey State Investment Council, the School Employees Retirement System of Ohio, and the Missouri State Employees’ Retirement System.

Although Visium was poised for long-term success, Gottlieb was forced to close the firm as a result of charges brought against Lumiere, Valvani, and Christopher Plaford. The charges against the three employees were the result of a long investigation incited by government whistleblower Jason Thorell who recorded hundreds of hours of conversations. The company itself and Gottlieb have never been charged and have been cleared of any legal wrongdoing.

In his position as a trader at Visium from 2011 to 2013, Thorell claims he became concerned about the firm’s pricing process. With the knowledge that the government is awarding whisteleblowers money, Thorell then spent two years gathering evidence in cooperation with the SEC and the FBI. The subsequent investigation into Visium’s holdings resulting in charges against Lumiere, Valvani, and Plaford.

By evading strict compliance measures and conspiring with three external brokers, they were able to divert $4 million in funds for their personal gain. During the period that this was happening, Visium engaged two separate auditors and an outside administrator, but none of them could detect the improper activities.

Although only three rogue employees were found responsible, there are other parties that should have been held accountable for their role in the scandal. The brokers who conspired with the Visium managers to divert millions of dollars were never charged despite the critical role that they played.

Additionally, in a very unusual turn of events, the SEC settled with Chief Financial Officer, Steven Ku. Given Ku’s prominent position in the firm and his ultimate accountability for financial activities, the SEC forced on him a failure to supervise settlement which is a nebulous standard. A review of the facts seems equivocal. Steven Ku has since taken his life in a different direction and has become an Executive Minister at NextGen Church.

Industry experts have speculated that the activities of the three Visium employees may have been a result of the company’s unorthodox payment practices. At 10-12% of gains, Visium’s bonuses were lower than others in the industry such as Citadel, Balyasny and Millenium . Lower employee bonuses allowed Visium to maintain lower investor fees and, thus, made them a more attractive investment option to investors. A good deed never goes unpunished.

As CEO, and the only employee still standing at Visium, Gottlieb has worked tirelessly without management fees, and with significant costs, for two years to wind down the funds. He has incurred a tremendous amount of personal and professional costs, but he continues his work with the best interests of his investors in mind. He looks forward to future productive endeavors, focusing on his charitable work and in curing difficult to treat diseases.

A Visium spokesman said, “We are deeply disappointed that the rogue employees and outside forces led to Visium’s closing, and 200 people losing their jobs”

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