International Investment Group LLC
TypePrivate
IndustryFinance
Founded1995 (1995)
FounderMartin Silver, David Hu (cofounders)
Headquarters
New York City
,
United States
ProductsTrade finance
Websitewww.iigcapital.com

International Investment Group (IIG) is an American financial institution that specializes in short-term trade finance and commercial finance with a focus on emerging markets. Through its affiliate IIG Capital it provides financing to small and medium-sized merchants, traders and processors with a need for supply chain financing.[1]

David Hu (胡大韦 Hu Dawei), cofounder of IIG Capital, served as its chief investment officer (CIO). In April 2022, Hu was sentenced to 12 years in prison for running a Ponzi scheme, defrauding and scamming customers of more than $120 million. Moreover, Hu fabricated documents to hide his financial losses.[2][3][4] Hu's partner Martin Silver was also found guilty of running the Ponzi scheme.[2][3][5][6]

David Hu's case was handled by the Securities and Commodities Task Force and the United States Department of Justice (DOJ). Attorneys Drew Skinner, Negar Tekeei, and Alex Rossmiller were in charge of prosecuting Hu, and Judge Alvin K. Hellerstein sentenced Hu to 12 years in prison.[3][7][8] The FBI and U.S. Securities and Exchange Commission (SEC) also assisted with the investigation.[3]

Founders

The company was confounded by David Hu and Martin Silver.[9][10] Hu served as its CIO and managing partner and held a 50% stake in IIG. Hu's main role was giving financial advice to clients while investing on their behalf.[11]

From 1982 to 1987, Hu started his career at Mellon Bank. He then worked at American Express trading debt from the Latin American debt crisis (LDC debt). From 1991 to 1993, David Hu worked at Nomura Securities International. From 1993 to 1994, Hu worked at Smith Barney (now part of Morgan Stanley). From March 1997 to February 2012, Hu worked at IIG Horizons Securities.[11] While at Nomura and Smith-Barney, Hu worked as a trader and managing director specializing in fixed income, emerging markets, and underwriting.[12]

Hu held securities licenses (Series 7, 24, 63) while working at these broker-dealers.[11]

Later David Hu was sentenced to 12 years in prison for running a scam and defrauding customers of over $120 million.[9][10]

Personal life

Hu was 64 years old at the time of his sentencing in 2022. Hu lived in West Orange, New Jersey, with his wife and two children.[2][13] Hu could speak Mandarin Chinese, Cantonese, Spanish, and English. Hu obtained his MBA from the Thunderbird School of Global Management (Arizona) and his bachelor's degree in civil engineering from Universidad de San Carlos de Guatemala.[12]

Background

The company is headquartered in New York City and has representatives around the world,[14] serving clients internationally.[15] The company primarily focuses on facilitating the financing of trade transactions involving commodities that can be hedged and liquidated easily.[16] These transactions are often between sellers in emerging markets and large companies in developed markets. The company uses a structure it developed called “transactional equity,” in which the firm helps fund the down payment required from a merchant seeking financing from a bank. This enables the merchant to qualify for the bank financing.[17]

Another of its affiliates IIG Bank Malta, provides private banking, wealth management, corporate banking and trade finance in Malta.[18]

History

In 1994, David Hu and Martin Silver cofounded IIG Capital, an RIA firm based in Manhattan, and registered their company with the SEC.[6] IIG was a New Jersey limited liability company that operated in New York.[13] David Hu worked as its chief investment officer, while Martin worked as its chief operating officer. Their company specialized in global trade, investment funds, and loans. The company also provided advisory services and management through three private funds: the IIG Global Trade Finance Fund (GTFF), Structured Trade Finance Fund (STFF), and Trade Opportunities Fund (TOF).[6][3]

Specifically, they provided loans for Central and South American small and medium-sized enterprises using food products like fish and coffee as collateral.[2] For example, they advised the Venezuela Recovery Fund (VRF) for a failed bank in Venezuela.[6][3]

The GTFF, STFF, and TOF were marketed to institutional investors, including hedge funds, pension funds, and insurance funds. IIG advertised that they would follow due diligence and abide by risk controls for investors. Hu made money based on a management fee and performance fee on IIG funds.[3]

Ponzi scheme

For more than a decade from 2007 to 2019,[6][13] David Hu defrauded customers, stealing over $100 million in investor's money at IIG. David Hu and Martin deceived their customers by falsifying documents and lying saying fake and defaulted loans were doing well.[2]

For example, in December 2012, the firm began advising a retail mutual fund for retail investors. IIG recommended the fund to invest in a $6 million loan to an Argentina borrower. However, in 2017, the borrower did not pay back the principal. Hu then tried to conceal the default by mismarking and falsifying documents.[19][3]

Furthermore, Hu would overvalue negatively-performing loans, fabricate paperwork to create fake loans, mismark the fake loans as positively-performing, and then sell these fake loans to a collateralized loan obligation trust (CLO trust) and other private funds managed by IIG. Hu then used the proceeds from these fraudulent transactions to repay earlier investors, thereby running a Ponzi scheme for a decade.[6]

In March 2018, IIG informed the SEC that it had more than $373 million in assets under management.[2]

Arrest

On November 21, 2019, the SEC charged IIG with fraud. On November 26, 2019, the SEC further revoked IIG's registration.[20]

In 2020, Hu was arrested by authorities and charged with fraud by government regulators.[6] In March 2020, IIG agreed to pay $35 million in disgorgement and interest to settle the fraud.[2][19] Furthermore, the SEC enjoined IIG from further violating federal anti-fraud laws.[20]

On July 17, 2020, the SEC and DOJ filed a complaint stipulating that Hu violated Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934, and various rules of the Investment Advisers Act of 1940.[20][19][21][22]

The SEC accused Hu of organizing multiple frauds since October 2013, overvaluing assets, charging inflated fees, selling $60 million in fake loans, using the proceeds to pay earlier investors, hoodwinking clients by providing fake documentation for non-existent loans, forging credit, and fabricating promissory notes.[20]

The SEC investigation of Hu was spearheaded by Philip A. Fortino, Lindsay Moilanen, Diego Brucculeri, Eli Bass and was supervised by Sheldon L. Pollock and Osman Nawaz. The FBI also assisted the SEC in the investigation.[20]

Prosecution

David Hu was charged in the case U.S. v Hu, 20-cr-360. The trial took place in the U.S. District Court, Southern District of New York in Manhattan.[2]

On January 28, 2021, Hu pleaded guilty of fraud, including wire fraud, securities fraud, investment adviser fraud, and conspiracy.[6][3][7] In April 2021, Martin also pleaded guilty.[23][21]

Crimes

Hu was charged with the following crimes:[3]

  • Mismarking defaulted loans
  • Mismarking distressed loans, including loans where the borrowers missed several scheduled payments
  • Fabricating fake loans to cover up losses of defaulting loans of TOF from auditors
  • Abusing a CLO trust to create liquidity on fake loans
  • Abusing Panama shell entities created by IIG to hide losses
  • Selling more than $200 million in fake loans to GTFF and STFF to create liquidity
  • Getting a mutual fund to invest in a fake $6 million loan in December 2012. The borrower failed to repay the loan in February 2017. Hu forged documents to conceal the fraud and cover up the Ponzi scheme.

For his crimes, Hu faced a maximum prison sentence of 20 years.[13]

Sentence

In April 2022, U.S. District Manhattan Judge Alvin Hellerstein[7] sentenced David Hu to 12 years in prison. Hellerstein said the 12-year sentence was to deter others in the financial industry from engaging in a similar kind of fraud.[2] According to U.S. New York Attorney Damian Williams, Hu defrauded clients of over $120 million.[6] Damian Williams accused Hu of falsifying documents, lying to auditors, selling fake loans, and losing millions of dollars of client's money.[3] Manhattan Attorney Audrey Strauss accused Hu of failing to fulfill his fiduciary responsibilities, creating fake loans, and using the gains from those to pay earlier customers.[19]

In addition to 12 years in prison, Hu was ordered to serve three years of supervised release.[6] Hu's ill-gotten assets of $4,798,232 plus interest $461,477 were also ordered to be disgorged. In a parallel proceeding, Hu was found guilty and ordered to forfeit these assets and pay restitution.[20] In total, Hu was also forced to forfeit more than $129 million in funds related to his crimes.[13][19]

Initially, federal prosecutors asked for Hu to be sentenced for 15 years in prison, arguing that Hu's lies, deception, and the damage caused to customers warranted a longer sentence.[2] Hu's lawyers lobbied for a 5-year term, arguing that Hu was trying to pursue the American Dream and that Hu's old age and health problems would make a long prison term equivalent to a life sentence.[2]

Hu apologized to his clients and admitted that he betrayed and failed them.[2]

Hu was sent to be confined in Lompoc, California in a federal prison.[23]

On September 22, 2022, the U.S. District Court enjoined Hu from further violating antifraud laws.[20]

In February 2023, Martin was sentenced to 13 months in prison. Martin was given a shorter sentence as it was mainly Hu who masterminded the Ponzi scheme.[23] Martin was 65 years old at the time of his sentence.[23][4]

References

  1. ↑ Blessing, Sona (2011). Alternative Alternatives: Risk, Returns and Investment Strategy. Wiley Finance. p. 125. ISBN 978-0470683965.
  2. 1 2 3 4 5 6 7 8 9 10 11 12 Dolmetsch, Chris (2022-04-11). "Investment Chief Gets 12 Years for Running $100 Million Scam". Bloomberg.com. Retrieved 2023-03-06.
  3. 1 2 3 4 5 6 7 8 9 10 11 "Former Managing Partner Of Manhattan Investment Advisory Firm Sentenced To 12 Years For Defrauding Investors In An Over $120 Million Ponzi-Like Scheme". www.justice.gov. 2022-04-11. Retrieved 2023-03-06.
  4. 1 2 "NY Fund Manager Gets 13 Months for $100 Million Ponzi Fraud (1)". news.bloomberglaw.com. Retrieved 2023-03-06.
  5. ↑ "Investment Chief Gets 12 Years for Running $100 Million Scam". Washington Post. ISSN 0190-8286. Retrieved 2023-03-06.
  6. 1 2 3 4 5 6 7 8 9 10 Berman, Jeff. "Ex-Head of RIA Sentenced to 12 Years in Prison Over $120M Scam". ThinkAdvisor. Retrieved 2023-03-06.
  7. 1 2 3 "Managing Partner Of Investment Advisory Firm Pleads Guilty To Defrauding Clients And Investors In Over $100 Million Ponzi-Like Fraud Scheme". www.justice.gov. 2021-01-28. Retrieved 2023-03-06.
  8. ↑ "United States v. Hu, 20 Cr. 360 (AKH) | Casetext Search + Citator". casetext.com. Retrieved 2023-03-19.
  9. 1 2 "Investment Chief Gets 12 Years for Running $100 Million Scam". Bloomberg.com. 2022-04-11. Retrieved 2023-03-06.
  10. 1 2 Berman, Jeff. "Ex-Head of RIA Sentenced to 12 Years in Prison Over $120M Scam". ThinkAdvisor. Retrieved 2023-03-06.
  11. 1 2 3 Berger, Marc P.; Wadhwa, Sanjay; Pollock, Sheldon L.; Michael, Daniel; Nawaz, Osman; Fortino, Philip A.; Moilanen, Lindsay S. "SECURITIES AND EXCHANGE COMMISSION, Plaintiff against DAVID HU, Defendant" (PDF).
  12. 1 2 "IIG Capital, LLC - David Hu". 2015-03-13. Archived from the original on 2015-03-13. Retrieved 2023-04-19.
  13. 1 2 3 4 5 NJ.com, Noah Cohen | NJ Advance Media for (2021-01-29). "N.J. man pleads guilty in $100M Ponzi scheme, feds say". nj. Retrieved 2023-03-12.
  14. ↑ Marks, Kenneth H. (2009). The Handbook of Financing Growth: Strategies, Capital Structure, and M&A Transactions. Wiley. pp. 356–358. ISBN 978-0470390153.
  15. ↑ Schaap, Paula (April 2009). "Trade Finance Firm Sees Opportunities from G20 Meeting". HedgeFund.net. Retrieved March 19, 2011.
  16. ↑ Rocchi, Cate (June 2001). "A Safe Bet". Hedge Funds Review. Retrieved March 19, 2011.(subscription required)
  17. ↑ Marks, Kenneth H. (2009). The Handbook of Financing Growth: Strategies, Capital Structure, and M&A Transactions. Wiley. p. 113. ISBN 978-0470390153.
  18. ↑ "Welcome to IIG Bank". IIG Bank. Retrieved June 8, 2017.
  19. 1 2 3 4 5 "Former RIA Pleads Guilty in $100M Fraud Scheme". Wealth Management. 2021-02-10. Retrieved 2023-03-06.
  20. 1 2 3 4 5 6 7 "David Hu (Release No. LR-25530; Sep. 28, 2022)". www.sec.gov. Retrieved 2023-03-06.
  21. 1 2 "SEC Charges Head of Former RIA With Running Ponzi Scheme". Wealth Management. 2020-07-17. Retrieved 2023-03-06.
  22. ↑ "UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK: JUDGMENT AS TO DEFENDANT DAVID HU" (PDF). sec.gov.
  23. 1 2 3 4 "Fund Manager Gets 13 Months for $100 Million Ponzi-Scheme Theft in New York". www.yahoo.com. Archived from the original on March 6, 2023. Retrieved 2023-03-06.


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