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In another win for investors represented by RKS seeking redress following the collapse of the Infinity Q Diversified Alpha Fund, the Appellate Division of the New York Supreme Court last week reversed the dismissal of investors’ securities claims against Infinity Q Capital Management LLC, the investment adviser to the Infinity Q mutual fund; its CEO, Leonard Potter; and Bonderman Family Limited Partnership, the equity sponsor of Infinity Q Capital Management.
Infinity Q Capital Management was the investment advisor to the Infinity Q mutual fund, which was shuttered by the SEC in 2021 after it discovered a fraudulent mismarking scheme overvaluing the mutual fund’s assets by hundreds of millions of dollars. The mutual fund’s Chief Investment Officer, James Velissaris, later pled guilty to securities fraud and was sentenced to fifteen years imprisonment. David Bonderman—the co-founder of TPG Capital— founded Infinity Q Capital Management and entrusted its management to Potter and Velissaris, who had together managed Bonderman’s private wealth.
Following the fund’s collapse, numerous investors represented by RKS filed claims under the Securities Act of 1933 in New York state court. They allege that Potter is liable under Section 11 because he signed the fund’s registration statement containing the false and misleading statements and NAV figures at issue; that Infinity Q Capital Management is liable under an agency theory because its CEO, Potter, is liable; and that Bonderman LP, which held a substantial ownership stake in Infinity Q Capital Management, is liable as a control person.
The Appellate Division reversed the trial court’s dismissal of these claims. In doing so, it rejected Potter’s argument that he had signed the registration statement only in a limited capacity and agreed with RKS that Section 11 does not allow a signatory of a registration statement to somehow qualify or limit the parts of the registration statement for which they are responsible. The Appellate Division likewise agreed that plaintiffs had adequately stated claims against Infinity Q Capital Management and Bonderman LP under agency and control person theories, respectively.