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FILED: NEW YORK COUNTY CLERK 06/01/2021 09:15 PM INDEX NO. 651295/2021
NYSCEF DOC. NO. 55 RECEIVED NYSCEF: 06/01/2021
EXHIBIT 1
FILED: NEW YORK COUNTY CLERK 04/16/2021
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NYSCEF DOC. NO. 13
55 RECEIVED NYSCEF: 04/16/2021
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SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF NEW YORK
) Index No. 651295/2021
In re INFINITY Q DIVERSIFIED )
ALPHA FUND SECURITIES )
LITIGATION ) CLASS ACTION
) Part 53: Justice Andrew S. Borrok
_____________________________ )
) CONSOLIDATED COMPLAINT FOR
This Document Relates To: ) VIOLATIONS OF THE SECURITIES
) ACT OF 1933
The Consolidated Action )
_____________________________ ) DEMAND FOR JURY TRIAL
Plaintiffs Andrea Hunter (“Hunter”), David Rosenstein (“Rosenstein”), and Neil O’Connor
(“O’Connor”) (together, “Plaintiffs”), individually and on behalf of all other persons similarly
situated, by Plaintiffs’ undersigned attorneys, for Plaintiffs’ complaint against Defendants, allege
the following based upon personal knowledge as to Plaintiffs and Plaintiffs’ own acts, and upon
information and belief as to all other matters, based upon, inter alia, the investigation conducted
by and through Plaintiffs’ attorneys, which included, among other things, a review of the
Defendants’ public documents, conference calls and announcements made by Defendants, United
States (“U.S.”) Securities and Exchange Commission (“SEC”) filings, wire and press releases
published by and regarding Infinity Q Diversified Alpha Fund (the “Fund”), analysts’ reports and
advisories about the Fund, and information readily obtainable on the Internet. Plaintiffs believe
that substantial evidentiary support will exist for the allegations set forth herein after a reasonable
opportunity for discovery.
NATURE OF THE ACTION
1. This is a federal securities class action on behalf of a class consisting of all persons
and entities other than Defendants (defined herein) that purchased Infinity Q Diversified Alpha
Fund Investor Class (IQDAX) or Institutional Class (IQDNX) shares during the period of February
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25, 2018 through February 18, 2021, inclusive (the “Class Period”) pursuant and/or traceable to
prospectuses dated February 1, 2018, December 31, 2018, or December 31, 2019 (the
“Prospectuses”), which were filed with the SEC as part of registration statements, seeking to
recover compensable damages caused by Defendants’ violations of the federal securities laws and
to pursue remedies under Sections 11, 12, and 15 of the Securities Act of 1933 (the “1933 Act” or
“Securities Act”).
2. Plaintiffs, individually and on behalf of all other persons similarly situated, allege
the following upon personal knowledge as to themselves and their own acts, and as to all other
matters upon information and belief, based upon the investigation made by and through their
undersigned counsel, which included, inter alia, review of SEC filings, various websites and
Internet sources, analyst reports, news articles, and other publicly available information.
3. Plaintiffs allege that the Fund, through its investment advisor, trustees, underwriter,
auditor and other Defendants violated the Securities Act by registering, offering, and selling shares
of the Fund pursuant to false and misleading registration statements and prospectuses. This action
asserts strict liability, non-fraud claims under Sections 11, 12, and 15 of the Securities Act.
4. Infinity Q Diversified Alpha Strategy Fund launched in 2014 and held itself out
from the very beginning as a hedge fund for the masses. Its website proclaimed: “Innovative Hedge
Fund Strategies – Providing innovative hedge fund strategies to institutional and retail investors.”
5. The Fund’s allure came from the close connection between founder and Chief
Investment Officer, James Velissaris, and the veteran private equity billionaire, David Bonderman.
6. Bloomberg, for example, ran an article in 2015 entitled: “Private Equity Billionaire
Is Now Selling a Hedge Fund for the Masses.” The article stated:
David Bonderman amassed a $3 billion fortune in private equity for
sophisticated investors. He’s now selling hedge fund strategies to the masses.
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Bonderman, whose TPG Capital has owned companies such as Continental
Airlines and retailer J Crew Group Inc., is using a family office that manages a
portion of his money – Wildcat Capital Management – to back a startup
investment business. Infinity Q Capital Management is offering retail and other
investors a version of the hedge fund programs it uses for the billionaire, said
James Velissaris, chief investment officer for the new firm.
Run by Wildcat employees, Infinity Q can sell products such as liquid alternative
mutual funds to outside investors. It means Bonderman, 72, can profit from the
expertise of his personal money managers, who in turn can earn more money.
(Emphasis added.)
7. The Fund’s website further underscored the link between Bonderman and the Fund:
Infinity Q Capital Management is a pioneering investment advisor managed by
David Bonderman’s family office. The Investment team at InfinityQ develops
next generation forecasting models to identify persistent behavioral biases across
global markets. Infinity Q uses volatility strategies to manage mutual funds,
hedge funds and separately managed accounts.
Our “quantamental” approach combines the depth of private equity with the
breadth of quantitative research to blend next generation forecasting models
with rigorous fundamental analysis.
(Emphasis added.)
8. The Fund’s Annual Reports to Shareholders also touted the Fund’s ability to
provide exposure to alternative strategies used by hedge fund and private equity investors like
Bonderman:
Dear Shareholder:
Infinity Q Capital Management is a pioneering investment firm managed by a
team of professionals who also manage assets for Wildcat Capital Management,
the family investment office for David Bonderman, the co-founder of $75
Billion private equity firm TPG. The Infinity Q Diversified Alpha Fund (the
“Fund”) attempts to generate positive absolute returns by providing exposure to
several “alternative” strategies including Volatility, Equity Long/Short, Relative
Value, and Global Macro. Our strategies are intended to have a low correlation
to equity, fixed income, and credit markets.
We believe our “quantamental” approach provides a unique investment
framework. Our strategies seek to combine the breadth of quantitative investing
with the depth of private equity investing.
(Emphasis added.)
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9. The Fund’s “alternative strategies” referred, in large part, to investments in total
return swaps. Total return swaps (or “swap contacts” or “swaps”) are contracts by which parties
agree to exchange sums equal to the income streams produced by specified assets.
10. Because the value of swap contracts can depend on a variety of factors, they have
the potential to offer returns that do not move in sync with overall stock and bond markets.
11. For a time, attracted by the connection to David Bonderman and ostensibly market-
beating returns, investors flocked to the Fund. According to an SEC filing, $787 million poured
into the Fund in the 12 months ended last August alone.
12. Mutual funds like the Fund are required to value their assets every day in order to
compute their net asset value (“NAV”). NAV is calculated by dividing the total value of the cash
and securities in a fund, less any liabilities, by the number of shares outstanding. The daily
calculation of the NAV is critical to market confidence and necessary for the market to value the
shares of any mutual fund.
13. The opaque nature of swap contracts can make them notoriously difficult to value.
For this reason, Infinity Q relied on models provided by third-party pricing services to determine
the value of certain of the Fund’s swap contracts for the purpose of calculating the daily NAV.
14. On February 22, 2021, in a filing with the SEC, the Fund publicly disclosed that
Infinity Q’s Chief Investment Officer, James Velissaris, had been “adjusting certain parameters
within the third-party pricing model that affected the valuation of the Swaps” held by the Fund.
According to the filing, the Fund had learned of Velissaris’s conduct from an SEC investigation.
15. The Fund admitted that “it was unable to verify that the values it had previously
determined for the Swaps were reflective of fair value.” The Fund further admitted that it was
unable to verify whether the values for positions other than Swaps were reliable, and that it could
not calculate a NAV that would enable it to satisfy requests for redemptions of Fund shares.
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16. The Fund’s disclosure made clear that unreliable and very likely inflated valuations
of Fund assets had been reported to investors in SEC filings and the Fund’s daily NAV calculations
for an untold period of time.
17. Due to Velissaris’s malfeasance, the Fund requested that the SEC halt redemptions
in the Fund while the Fund liquidates its assets.
18. The SEC took the extraordinary step of indefinitely halting redemptions in the
Fund’s shares the same day, effective as of February 19, 2021.
19. As a result, the Fund’s investors are unable to take their money out of the Fund, and
are left to wait and wonder what their investment in the Fund is actually worth.
20. An update posted to the Fund’s website on March 11, 2021 stated:
Although the Fund is still calculating the proceeds from the liquidations to date,
it anticipates that the proceeds from liquidating the swaps and other portfolio
positions liquidated to date will be less than the aggregate value ascribed to those
instruments by Infinity Q and the Fund on February 18, 2021, the last day an NAV
was calculated for the Fund. As a result, the amount of Fund assets available for
possible distribution to shareholders, before taking into account the reserve
described below, will be less than the net assets of the Fund as valued on
February 18, 2021.
21. The update went on to state that, as of March 9, 2021, the Fund held a total of
approximately $1.2 billion in cash or cash equivalents, over $500 million less than the NAV that
the Fund had calculated just a few weeks before.
22. As a result of Defendants’ wrongful acts and omissions, Plaintiffs and other Class
Members have suffered significant damages.
JURISDICTION AND VENUE
23. The claims alleged herein arise under Sections 11, 12(a)(2), and 15 of the 1933
Act, 15 U.S.C. §§77k, 771(a)(2), and 77o, and this Court has original subject matter jurisdiction
of those claims.
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24. This Court also has jurisdiction over the subject matter of this action pursuant to
Section 22 of the 1933 Act. Section 22 of the 1933 Act expressly prohibits removal of this action
to federal court. See Cyan, Inc. v. Beaver Cty. Emps. Ret. Fund, 138 S. Ct. 1061, 1075 (2018).
25. The Court has personal jurisdiction over each of the Defendants under N.Y.
C.P.L.R. §§301 and 302, and venue is proper in this County pursuant to §22 of the 1933 Act and
N.Y. C.P.L.R. §503. The Defendants conducted business in this District, the false and misleading
Registration Statements and Prospectuses were in part prepared and reviewed in this District, and
Infinity Q is located in this District. The Fund’s shares trade on a market located in New York as
well.
PARTIES
26. Plaintiffs each purchased Fund shares pursuant and/or traceable to the Prospectuses
and suffered damages as a result of the federal securities law violations and false and/or misleading
statements and/or material omissions alleged herein.
27. Defendant Trust for Advised Portfolios (“Trust”) is the registrant and issuer of the
Fund, a mutual fund registered as an investment company under the Investment Company Act of
1940. The Trust is a Delaware statutory trust registered as an open-end, management investment
company with 18 series, including the Fund. The Trust is run by a Board of Trustees (the “Board”
or the “Trustees”).
28. Defendant Infinity Q Capital Management, LLC (“Infinity Q”) is a registered
investment advisor under the Investment Advisers Act of 1940 that purports to provide hedge fund
strategies to institutional and retail investors. Infinity Q acts as investment advisor to the Fund
pursuant to an Investment Advisory Agreement. Infinity Q’s principal executive offices are located
at 888 7th Avenue, Suite 3700, New York, New York 10106. As of January 31, 2021, Infinity Q
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valued its assets under management at approximately $3 billion, approximately $1.8 billion of
which was attributable to the Fund.
29. Defendant Quasar Distributors, LLC (“Quasar”) was the principal underwriter of
the Fund during the relevant period. Quasar has executed an agreement with the Trust for the sale
of Fund shares to the public, and received fees, commissions and/or profits from these sales.
Quasar is a registered broker-dealer and a member of the Financial Industry Regulatory Authority.
Quasar’s failure to conduct an adequate due diligence investigation was a substantial factor leading
to the harm complained of herein.
30. Defendant Christopher E. Kashmerick (“Kashmerick”) served as the President,
Principal Executive Officer, and Trustee for the Trust. Kashmerick signed the Trust’s
Prospectuses.
31. Defendant John C. Chrystal (“Chrystal”) served as a Trustee for the Trust. Chrystal
signed the Trust’s Prospectuses.
32. Defendant Albert J. DiUlio, S.J. (“DiUlio”) served as a Trustee for the Trust.
DiUlio signed the Trust’s Prospectuses.
33. Defendant Harry E. Resis (“Resis”) served as a Trustee for the Trust. Resis signed
the Trust’s Prospectuses.
34. Defendants Kashmerick, Chrystal, DiUlio, and Resis shall be collectively referred
to as the “Trustee Defendants.”
35. Defendant Russell B. Simon (“Simon”) served as a Treasurer and Principal
Financial Officer for the Trust. Simon signed the Trust’s Prospectuses.
36. Defendant Steven J. Jensen (“Jensen”) is the Vice President and Chief Compliance
and AML Officer of the Trust. Jensen is a control person of the Trust.
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37. Scott Lindell (“Lindell”) is the Chief Risk Officer of Infinity Q. Lindell is a control
person of Infinity Q.
38. Defendant Leonard Potter (“Potter”) is the Chief Executive Officer and a control
person of Infinity Q. Potter is also employed by Wildcat Capital Management, LLC, an affiliate
of Defendant Bonderman Family Limited Partnership, LP.
39. Defendant James Velissaris (“Velissaris”) is a Director of Infinity Q. He is the
founder of Infinity Q and served as its Chief Investment Officer until his termination on
February 21, 2021.
40. Defendants Velissaris, Potter, and Lindell shall be collectively referred to as the
“Advisor Control Defendants.” The Advisor Control Defendants are the portfolio managers who
were principally responsible for the day-to-day management of the Fund’s portfolio.
41. Defendants Kashmerick, Chrystal, DiUlio, Resis, Simon, Jensen, Lindell, Potter,
and Velissaris shall be collectively referred to as the “Individual Defendants.” As directors and/or
executive officers of the Trust or Infinity Q, the Individual Defendants participated in the
solicitation and sale of Fund shares to investors for their own benefit and/or the benefit of Infinity
Q.
42. Defendant EisnerAmper LLP (“EisnerAmper”) was the auditor of the Fund at all
relevant times. EisnerAmper audited the Fund’s consolidated financial statements, which were
filed annually with the SEC as part of the Fund’s Annual Reports.
43. Defendant Bonderman Family Limited Partnership, LP (“Bonderman”) owns more
than 25% of Infinity Q. Bonderman is a control person of Infinity Q.
44. Defendant Infinity Q Management Equity, LLC (“IQME”) owns more than 25% of
Infinity Q. IQME is a control person of Infinity Q.
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45. The Defendants Trust, Infinity Q, Quasar, EisnerAmper, Bonderman, IQME, and
the Individual Defendants are sometimes collectively, in whole or in part, referred to herein as the
“Defendants.”
DEFENDANTS’ VIOLATIONS OF THE
SECURITIES LAWS
Background
46. The Fund launched in 2014, offering a “quantamental” investment strategy said to
combine quantitative research with private equity-style diligence. The Fund sought to generate
positive returns using “alternative strategies” uncorrelated to equity, fixed income and credit
markets.
47. The Fund, like all mutual funds, is registered as an investment company under the
Investment Company Act of 1940. The Fund offers securities to the public. The securities are
registered under the Securities Act.
48. The Investment Company Act of 1940 requires mutual fund advisors to file periodic
reports with the SEC, provide certain disclosures to mutual fund investors, act in the best interest
of their clients, and implement strict risk management and other internal controls.
49. The SEC also requires that all mutual funds price their shares daily at NAV, which
is calculated by dividing the total value of the cash and securities in a fund, less any liabilities, by
the number of shares outstanding. The daily calculation of the NAV is critical to market confidence
and necessary for the market to value the shares of any mutual fund.
50. Absent an order from the SEC halting trading in a mutual fund, mutual fund
investors must be able to freely redeem their shares.
51. In order to ensure that mutual funds remain liquid and able to satisfy redemption
requests from shareholders, the SEC imposes various restrictions on the investments, risk and
leverage that are available to mutual funds.
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52. The reason for the SEC’s extensive regulation of mutual funds under the Investment
Company Act of 1940 is that – unlike hedge funds – the funds are marketed to retail investors.
53. At the heart of the Fund’s “quantamental” investment strategy was the Fund’s
investment in swap contracts, contracts by which parties agree to exchange sums equal to the
income streams produced by specified assets. Investing in swaps introduces an added layer of
complexity as compared to simply investing in the underlying assets, which can be stocks, bonds,
currencies, derivatives, futures, options, or other financial instruments.
54. According to the Fund’s most recent report filed with the SEC, the Fund held swap
contracts with a purportedly fair value of $449 million at the end of November, representing about
26% of its $1.71 billion in net assets held at that time. That figure includes so-called variance swap
contracts, especially complex swaps that derive their value from such multifaceted factors as
market volatility or the way in which global markets, foreign currencies, or other assets move in
relation to one another.
55. Because the Fund was dealing in so many complex and opaque swap contracts, the
Fund used statistical models provided by third-party pricing services to comply with its legal duty
to calculate its NAV on a daily basis. However, it turns out that the Fund was not relying on the
third-party prices, but improperly tampering with the pricing models as part of a brazen scheme to
boost its asset valuations and defraud investors.
Materially False and Misleading Statements Issued in the Prospectuses
56. On February 1, 2018, the Trust filed a post-effective amendment to its Registration
Statement pursuant to Rule 485B on Form N-1A, to become effective immediately (the “2018
Prospectus”). The 2018 Prospectus was signed by the Trustee Defendants, Simon, Potter, and
Velissaris.
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57. The 2018 Prospectus stated the following concerning Fund pricing, or NAV
determination:
Shares of the Fund are sold at NAV per share which is calculated as of the close
of regular trading (generally, 4:00 p.m., Eastern Time) on each day that the New
York Stock Exchange (“NYSE”) is open for unrestricted business. However, the
Fund’s NAV may be calculated earlier if trading on the NYSE is restricted or as
permitted by the SEC. The NYSE is closed on weekends and most national
holidays, including New Year’s Day, Martin Luther King, Jr. Day, Washington’s
Birthday/Presidents’ Day, Good Friday, Memorial Day, Independence Day,
Labor Day, Thanksgiving Day and Christmas Day. The NAV will not be
calculated on days when the NYSE is closed for trading.
Purchase and redemption requests are priced based on the next NAV per share
calculated after receipt of such requests. The NAV is the value of the Fund’s
securities, cash and other assets, minus all expenses and liabilities (assets –
liabilities = NAV). NAV per share is determined by dividing NAV by the number
of shares outstanding (NAV/ # of shares = NAV per share). The NAV takes into
account the expenses and fees of the Fund, including management and
administration fees, which are accrued daily.
In calculating the NAV, portfolio securities are valued using current market
values or official closing prices, if available. Each security owned by the Fund
that is listed on a securities exchange is valued at its last sale price on that
exchange on the date as of which assets are valued. Where the security is listed
on more than one exchange, the Fund will use the price of the exchange that the
Fund generally considers to be the principal exchange on which the security is
traded.
When market quotations are not readily available, a security or other asset is
valued at its fair value as determined under procedures approved by the Board.
These fair value procedures will also be used to price a security when corporate
events, events in the securities market and/or world events cause the Adviser to
believe that a security’s last sale price may not reflect its actual market value.
The intended effect of using fair value pricing procedures is to ensure that the
Fund is accurately priced. The Board will regularly evaluate whether the Fund’s
fair valuation pricing procedures continue to be appropriate in light of the specific
circumstances of the Fund and the quality of prices obtained through their
application by the Adviser.
...
The fair value of an investment is the amount, as determined by the Adviser in
good faith using procedures approved by the Board, that the Fund might
reasonably expect to receive upon a current sale of the investment. The Fund
employs fair value pricing selectively to ensure greater accuracy in its daily NAV
and to prevent dilution by frequent traders or market timers who seek to take
advantage of temporary market anomalies. Fair value pricing is used when market
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quotations are not readily available, the Fund’s pricing service does not provide a
valuation (or provides a valuation that in the judgment of the Adviser does not
represent the security’s fair value), or when, in the judgment of the Adviser, events
have rendered the market value unreliable. Valuing securities and other
investments at fair value involves reliance on judgment. There can be no
assurance that the Fund will obtain the fair value assigned to a security if it were
to sell the security at approximately the time at which the Fund determines its
NAV per share.
Fair value pricing may be applied to non-U.S. securities. The trading hours for
most non-U.S. securities end prior to the close of the NYSE, the time that the
Fund’s NAV is calculated. The occurrence of certain events after the close of
non-U.S. markets, but prior to the close of the NYSE (such as a significant surge
or decline in the U.S. market) often will result in an adjustment to the trading
prices of non-U.S. securities when non-U.S. markets open on the following
business day. If such events occur, the Fund may value non-U.S. securities at fair
value, taking into account such events, when it calculates its NAV. Other types
of investments that the Fund may hold for which fair value pricing might be
required include, but are not limited to: (a) investments which are not frequently
traded and/or the market price of which the Adviser believes may be stale;
(b) illiquid securities, including “restricted” securities and private placements for
which there is no public market; (c) securities of an issuer that has entered into a
restructuring; (d) securities whose trading has been halted or suspended; (e) fixed
income securities that have gone into default and for which there is not a current
market value quotation; and (f) derivatives for which there are no current market
value quotations.
(Emphasis added.)
58. The 2018 Prospectus stated the following concerning valuation of securities that did
not have current market quotations:
The Board has delegated day-to-day valuation issues to a Valuation Committee
that is comprised of the Trust’s President, Treasurer and Assistant Treasurer and
is overseen by the Trustees. The function of the Valuation Committee is to
review each Adviser’s valuation of securities held by any series of the Trust for
which current and reliable market quotations are not readily available. Such
securities are valued at their respective fair values as determined in good faith
by each Adviser, and the Valuation Committee gathers and reviews Fair
Valuation Forms that are completed by an Adviser to support its
determinations, and which are subsequently reviewed and ratified by the
Board. The Valuation Committee meets as needed. The Valuation Committee
met five times during the fiscal year ended August 31, 2017, with respect to the
Fund.
(Emphasis added.)
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59. The 2018 Prospectus explained that the Fund implemented its strategy by investing
in swaps:
The Fund implements these strategies by investing globally (including in
emerging markets) either directly in, or through total return swaps on, a broad
range of instruments, including, but not limited to, equities, bonds (including but
not limited to high-yield or “junk” bonds), currencies, commodities, MLPs,
credit derivatives, convertible securities, futures, forwards, options, including
complex options such as barrier options, and swaps. The Fund may also invest
up to 25% of its assets in a subsidiary that is invested in these types of derivative
instruments (the “Subsidiary”) as described further below. The Fund has no
limits with respect to the credit rating, maturity or duration of the debt securities
in which it may invest.
60. The 2018 Prospectus stated the following concerning valuation risk:
Valuation Risk. The sales price the Fund could receive for any particular
portfolio investment may differ from the Fund’s valuation of the investment,
particularly for securities or other investments that trade in thin or volatile
markets or that are valued using a fair value methodology. Investors who
purchase or redeem Fund shares on days when the Fund is holding fair-valued
securities may receive fewer or more shares or lower or higher redemption
proceeds than they would have received if the Fund had not fair-valued securities
or had used a different valuation methodology. Valuation may be more difficult
in times of market turmoil since many investors and market makers may be
reluctant to purchase complex instruments or quote prices for them. The Fund’s
ability to value its investments may be impacted by technological issues and/or
errors by pricing services or other third party service providers.
61. The 2018 Prospectus also misleadingly touted the Fund’s purported risk oversight
procedures stating, in pertinent part:
T
Preview
FILED: NEW YORK COUNTY CLERK 06/01/2021 09:15 PM INDEX NO. 651295/2021 NYSCEF DOC. NO. 55 RECEIVED NYSCEF: 06/01/2021 EXHIBIT 1 FILED: NEW YORK COUNTY CLERK 04/16/2021 06/01/2021 05:22 09:15 PM INDEX NO. 651295/2021 NYSCEF DOC. NO. 13 55 RECEIVED NYSCEF: 04/16/2021 06/01/2021 SUPREME COURT OF THE STATE OF NEW YORK COUNTY OF NEW YORK ) Index No. 651295/2021 In re INFINITY Q DIVERSIFIED ) ALPHA FUND SECURITIES ) LITIGATION ) CLASS ACTION ) Part 53: Justice Andrew S. Borrok _____________________________ ) ) CONSOLIDATED COMPLAINT FOR This Document Relates To: ) VIOLATIONS OF THE SECURITIES ) ACT OF 1933 The Consolidated Action ) _____________________________ ) DEMAND FOR JURY TRIAL Plaintiffs Andrea Hunter (“Hunter”), David Rosenstein (“Rosenstein”), and Neil O’Connor (“O’Connor”) (together, “Plaintiffs”), individually and on behalf of all other persons similarly situated, by Plaintiffs’ undersigned attorneys, for Plaintiffs’ complaint against Defendants, allege the following based upon personal knowledge as to Plaintiffs and Plaintiffs’ own acts, and upon information and belief as to all other matters, based upon, inter alia, the investigation conducted by and through Plaintiffs’ attorneys, which included, among other things, a review of the Defendants’ public documents, conference calls and announcements made by Defendants, United States (“U.S.”) Securities and Exchange Commission (“SEC”) filings, wire and press releases published by and regarding Infinity Q Diversified Alpha Fund (the “Fund”), analysts’ reports and advisories about the Fund, and information readily obtainable on the Internet. Plaintiffs believe that substantial evidentiary support will exist for the allegations set forth herein after a reasonable opportunity for discovery. NATURE OF THE ACTION 1. This is a federal securities class action on behalf of a class consisting of all persons and entities other than Defendants (defined herein) that purchased Infinity Q Diversified Alpha Fund Investor Class (IQDAX) or Institutional Class (IQDNX) shares during the period of February 1 1 of 28 FILED: NEW YORK COUNTY CLERK 04/16/2021 06/01/2021 05:22 09:15 PM INDEX NO. 651295/2021 NYSCEF DOC. NO. 13 55 RECEIVED NYSCEF: 04/16/2021 06/01/2021 25, 2018 through February 18, 2021, inclusive (the “Class Period”) pursuant and/or traceable to prospectuses dated February 1, 2018, December 31, 2018, or December 31, 2019 (the “Prospectuses”), which were filed with the SEC as part of registration statements, seeking to recover compensable damages caused by Defendants’ violations of the federal securities laws and to pursue remedies under Sections 11, 12, and 15 of the Securities Act of 1933 (the “1933 Act” or “Securities Act”). 2. Plaintiffs, individually and on behalf of all other persons similarly situated, allege the following upon personal knowledge as to themselves and their own acts, and as to all other matters upon information and belief, based upon the investigation made by and through their undersigned counsel, which included, inter alia, review of SEC filings, various websites and Internet sources, analyst reports, news articles, and other publicly available information. 3. Plaintiffs allege that the Fund, through its investment advisor, trustees, underwriter, auditor and other Defendants violated the Securities Act by registering, offering, and selling shares of the Fund pursuant to false and misleading registration statements and prospectuses. This action asserts strict liability, non-fraud claims under Sections 11, 12, and 15 of the Securities Act. 4. Infinity Q Diversified Alpha Strategy Fund launched in 2014 and held itself out from the very beginning as a hedge fund for the masses. Its website proclaimed: “Innovative Hedge Fund Strategies – Providing innovative hedge fund strategies to institutional and retail investors.” 5. The Fund’s allure came from the close connection between founder and Chief Investment Officer, James Velissaris, and the veteran private equity billionaire, David Bonderman. 6. Bloomberg, for example, ran an article in 2015 entitled: “Private Equity Billionaire Is Now Selling a Hedge Fund for the Masses.” The article stated: David Bonderman amassed a $3 billion fortune in private equity for sophisticated investors. He’s now selling hedge fund strategies to the masses. 2 2 of 28 FILED: NEW YORK COUNTY CLERK 04/16/2021 06/01/2021 05:22 09:15 PM INDEX NO. 651295/2021 NYSCEF DOC. NO. 13 55 RECEIVED NYSCEF: 04/16/2021 06/01/2021 Bonderman, whose TPG Capital has owned companies such as Continental Airlines and retailer J Crew Group Inc., is using a family office that manages a portion of his money – Wildcat Capital Management – to back a startup investment business. Infinity Q Capital Management is offering retail and other investors a version of the hedge fund programs it uses for the billionaire, said James Velissaris, chief investment officer for the new firm. Run by Wildcat employees, Infinity Q can sell products such as liquid alternative mutual funds to outside investors. It means Bonderman, 72, can profit from the expertise of his personal money managers, who in turn can earn more money. (Emphasis added.) 7. The Fund’s website further underscored the link between Bonderman and the Fund: Infinity Q Capital Management is a pioneering investment advisor managed by David Bonderman’s family office. The Investment team at InfinityQ develops next generation forecasting models to identify persistent behavioral biases across global markets. Infinity Q uses volatility strategies to manage mutual funds, hedge funds and separately managed accounts. Our “quantamental” approach combines the depth of private equity with the breadth of quantitative research to blend next generation forecasting models with rigorous fundamental analysis. (Emphasis added.) 8. The Fund’s Annual Reports to Shareholders also touted the Fund’s ability to provide exposure to alternative strategies used by hedge fund and private equity investors like Bonderman: Dear Shareholder: Infinity Q Capital Management is a pioneering investment firm managed by a team of professionals who also manage assets for Wildcat Capital Management, the family investment office for David Bonderman, the co-founder of $75 Billion private equity firm TPG. The Infinity Q Diversified Alpha Fund (the “Fund”) attempts to generate positive absolute returns by providing exposure to several “alternative” strategies including Volatility, Equity Long/Short, Relative Value, and Global Macro. Our strategies are intended to have a low correlation to equity, fixed income, and credit markets. We believe our “quantamental” approach provides a unique investment framework. Our strategies seek to combine the breadth of quantitative investing with the depth of private equity investing. (Emphasis added.) 3 3 of 28 FILED: NEW YORK COUNTY CLERK 04/16/2021 06/01/2021 05:22 09:15 PM INDEX NO. 651295/2021 NYSCEF DOC. NO. 13 55 RECEIVED NYSCEF: 04/16/2021 06/01/2021 9. The Fund’s “alternative strategies” referred, in large part, to investments in total return swaps. Total return swaps (or “swap contacts” or “swaps”) are contracts by which parties agree to exchange sums equal to the income streams produced by specified assets. 10. Because the value of swap contracts can depend on a variety of factors, they have the potential to offer returns that do not move in sync with overall stock and bond markets. 11. For a time, attracted by the connection to David Bonderman and ostensibly market- beating returns, investors flocked to the Fund. According to an SEC filing, $787 million poured into the Fund in the 12 months ended last August alone. 12. Mutual funds like the Fund are required to value their assets every day in order to compute their net asset value (“NAV”). NAV is calculated by dividing the total value of the cash and securities in a fund, less any liabilities, by the number of shares outstanding. The daily calculation of the NAV is critical to market confidence and necessary for the market to value the shares of any mutual fund. 13. The opaque nature of swap contracts can make them notoriously difficult to value. For this reason, Infinity Q relied on models provided by third-party pricing services to determine the value of certain of the Fund’s swap contracts for the purpose of calculating the daily NAV. 14. On February 22, 2021, in a filing with the SEC, the Fund publicly disclosed that Infinity Q’s Chief Investment Officer, James Velissaris, had been “adjusting certain parameters within the third-party pricing model that affected the valuation of the Swaps” held by the Fund. According to the filing, the Fund had learned of Velissaris’s conduct from an SEC investigation. 15. The Fund admitted that “it was unable to verify that the values it had previously determined for the Swaps were reflective of fair value.” The Fund further admitted that it was unable to verify whether the values for positions other than Swaps were reliable, and that it could not calculate a NAV that would enable it to satisfy requests for redemptions of Fund shares. 4 4 of 28 FILED: NEW YORK COUNTY CLERK 04/16/2021 06/01/2021 05:22 09:15 PM INDEX NO. 651295/2021 NYSCEF DOC. NO. 13 55 RECEIVED NYSCEF: 04/16/2021 06/01/2021 16. The Fund’s disclosure made clear that unreliable and very likely inflated valuations of Fund assets had been reported to investors in SEC filings and the Fund’s daily NAV calculations for an untold period of time. 17. Due to Velissaris’s malfeasance, the Fund requested that the SEC halt redemptions in the Fund while the Fund liquidates its assets. 18. The SEC took the extraordinary step of indefinitely halting redemptions in the Fund’s shares the same day, effective as of February 19, 2021. 19. As a result, the Fund’s investors are unable to take their money out of the Fund, and are left to wait and wonder what their investment in the Fund is actually worth. 20. An update posted to the Fund’s website on March 11, 2021 stated: Although the Fund is still calculating the proceeds from the liquidations to date, it anticipates that the proceeds from liquidating the swaps and other portfolio positions liquidated to date will be less than the aggregate value ascribed to those instruments by Infinity Q and the Fund on February 18, 2021, the last day an NAV was calculated for the Fund. As a result, the amount of Fund assets available for possible distribution to shareholders, before taking into account the reserve described below, will be less than the net assets of the Fund as valued on February 18, 2021. 21. The update went on to state that, as of March 9, 2021, the Fund held a total of approximately $1.2 billion in cash or cash equivalents, over $500 million less than the NAV that the Fund had calculated just a few weeks before. 22. As a result of Defendants’ wrongful acts and omissions, Plaintiffs and other Class Members have suffered significant damages. JURISDICTION AND VENUE 23. The claims alleged herein arise under Sections 11, 12(a)(2), and 15 of the 1933 Act, 15 U.S.C. §§77k, 771(a)(2), and 77o, and this Court has original subject matter jurisdiction of those claims. 5 5 of 28 FILED: NEW YORK COUNTY CLERK 04/16/2021 06/01/2021 05:22 09:15 PM INDEX NO. 651295/2021 NYSCEF DOC. NO. 13 55 RECEIVED NYSCEF: 04/16/2021 06/01/2021 24. This Court also has jurisdiction over the subject matter of this action pursuant to Section 22 of the 1933 Act. Section 22 of the 1933 Act expressly prohibits removal of this action to federal court. See Cyan, Inc. v. Beaver Cty. Emps. Ret. Fund, 138 S. Ct. 1061, 1075 (2018). 25. The Court has personal jurisdiction over each of the Defendants under N.Y. C.P.L.R. §§301 and 302, and venue is proper in this County pursuant to §22 of the 1933 Act and N.Y. C.P.L.R. §503. The Defendants conducted business in this District, the false and misleading Registration Statements and Prospectuses were in part prepared and reviewed in this District, and Infinity Q is located in this District. The Fund’s shares trade on a market located in New York as well. PARTIES 26. Plaintiffs each purchased Fund shares pursuant and/or traceable to the Prospectuses and suffered damages as a result of the federal securities law violations and false and/or misleading statements and/or material omissions alleged herein. 27. Defendant Trust for Advised Portfolios (“Trust”) is the registrant and issuer of the Fund, a mutual fund registered as an investment company under the Investment Company Act of 1940. The Trust is a Delaware statutory trust registered as an open-end, management investment company with 18 series, including the Fund. The Trust is run by a Board of Trustees (the “Board” or the “Trustees”). 28. Defendant Infinity Q Capital Management, LLC (“Infinity Q”) is a registered investment advisor under the Investment Advisers Act of 1940 that purports to provide hedge fund strategies to institutional and retail investors. Infinity Q acts as investment advisor to the Fund pursuant to an Investment Advisory Agreement. Infinity Q’s principal executive offices are located at 888 7th Avenue, Suite 3700, New York, New York 10106. As of January 31, 2021, Infinity Q 6 6 of 28 FILED: NEW YORK COUNTY CLERK 04/16/2021 06/01/2021 05:22 09:15 PM INDEX NO. 651295/2021 NYSCEF DOC. NO. 13 55 RECEIVED NYSCEF: 04/16/2021 06/01/2021 valued its assets under management at approximately $3 billion, approximately $1.8 billion of which was attributable to the Fund. 29. Defendant Quasar Distributors, LLC (“Quasar”) was the principal underwriter of the Fund during the relevant period. Quasar has executed an agreement with the Trust for the sale of Fund shares to the public, and received fees, commissions and/or profits from these sales. Quasar is a registered broker-dealer and a member of the Financial Industry Regulatory Authority. Quasar’s failure to conduct an adequate due diligence investigation was a substantial factor leading to the harm complained of herein. 30. Defendant Christopher E. Kashmerick (“Kashmerick”) served as the President, Principal Executive Officer, and Trustee for the Trust. Kashmerick signed the Trust’s Prospectuses. 31. Defendant John C. Chrystal (“Chrystal”) served as a Trustee for the Trust. Chrystal signed the Trust’s Prospectuses. 32. Defendant Albert J. DiUlio, S.J. (“DiUlio”) served as a Trustee for the Trust. DiUlio signed the Trust’s Prospectuses. 33. Defendant Harry E. Resis (“Resis”) served as a Trustee for the Trust. Resis signed the Trust’s Prospectuses. 34. Defendants Kashmerick, Chrystal, DiUlio, and Resis shall be collectively referred to as the “Trustee Defendants.” 35. Defendant Russell B. Simon (“Simon”) served as a Treasurer and Principal Financial Officer for the Trust. Simon signed the Trust’s Prospectuses. 36. Defendant Steven J. Jensen (“Jensen”) is the Vice President and Chief Compliance and AML Officer of the Trust. Jensen is a control person of the Trust. 7 7 of 28 FILED: NEW YORK COUNTY CLERK 04/16/2021 06/01/2021 05:22 09:15 PM INDEX NO. 651295/2021 NYSCEF DOC. NO. 13 55 RECEIVED NYSCEF: 04/16/2021 06/01/2021 37. Scott Lindell (“Lindell”) is the Chief Risk Officer of Infinity Q. Lindell is a control person of Infinity Q. 38. Defendant Leonard Potter (“Potter”) is the Chief Executive Officer and a control person of Infinity Q. Potter is also employed by Wildcat Capital Management, LLC, an affiliate of Defendant Bonderman Family Limited Partnership, LP. 39. Defendant James Velissaris (“Velissaris”) is a Director of Infinity Q. He is the founder of Infinity Q and served as its Chief Investment Officer until his termination on February 21, 2021. 40. Defendants Velissaris, Potter, and Lindell shall be collectively referred to as the “Advisor Control Defendants.” The Advisor Control Defendants are the portfolio managers who were principally responsible for the day-to-day management of the Fund’s portfolio. 41. Defendants Kashmerick, Chrystal, DiUlio, Resis, Simon, Jensen, Lindell, Potter, and Velissaris shall be collectively referred to as the “Individual Defendants.” As directors and/or executive officers of the Trust or Infinity Q, the Individual Defendants participated in the solicitation and sale of Fund shares to investors for their own benefit and/or the benefit of Infinity Q. 42. Defendant EisnerAmper LLP (“EisnerAmper”) was the auditor of the Fund at all relevant times. EisnerAmper audited the Fund’s consolidated financial statements, which were filed annually with the SEC as part of the Fund’s Annual Reports. 43. Defendant Bonderman Family Limited Partnership, LP (“Bonderman”) owns more than 25% of Infinity Q. Bonderman is a control person of Infinity Q. 44. Defendant Infinity Q Management Equity, LLC (“IQME”) owns more than 25% of Infinity Q. IQME is a control person of Infinity Q. 8 8 of 28 FILED: NEW YORK COUNTY CLERK 04/16/2021 06/01/2021 05:22 09:15 PM INDEX NO. 651295/2021 NYSCEF DOC. NO. 13 55 RECEIVED NYSCEF: 04/16/2021 06/01/2021 45. The Defendants Trust, Infinity Q, Quasar, EisnerAmper, Bonderman, IQME, and the Individual Defendants are sometimes collectively, in whole or in part, referred to herein as the “Defendants.” DEFENDANTS’ VIOLATIONS OF THE SECURITIES LAWS Background 46. The Fund launched in 2014, offering a “quantamental” investment strategy said to combine quantitative research with private equity-style diligence. The Fund sought to generate positive returns using “alternative strategies” uncorrelated to equity, fixed income and credit markets. 47. The Fund, like all mutual funds, is registered as an investment company under the Investment Company Act of 1940. The Fund offers securities to the public. The securities are registered under the Securities Act. 48. The Investment Company Act of 1940 requires mutual fund advisors to file periodic reports with the SEC, provide certain disclosures to mutual fund investors, act in the best interest of their clients, and implement strict risk management and other internal controls. 49. The SEC also requires that all mutual funds price their shares daily at NAV, which is calculated by dividing the total value of the cash and securities in a fund, less any liabilities, by the number of shares outstanding. The daily calculation of the NAV is critical to market confidence and necessary for the market to value the shares of any mutual fund. 50. Absent an order from the SEC halting trading in a mutual fund, mutual fund investors must be able to freely redeem their shares. 51. In order to ensure that mutual funds remain liquid and able to satisfy redemption requests from shareholders, the SEC imposes various restrictions on the investments, risk and leverage that are available to mutual funds. 9 9 of 28 FILED: NEW YORK COUNTY CLERK 04/16/2021 06/01/2021 05:22 09:15 PM INDEX NO. 651295/2021 NYSCEF DOC. NO. 13 55 RECEIVED NYSCEF: 04/16/2021 06/01/2021 52. The reason for the SEC’s extensive regulation of mutual funds under the Investment Company Act of 1940 is that – unlike hedge funds – the funds are marketed to retail investors. 53. At the heart of the Fund’s “quantamental” investment strategy was the Fund’s investment in swap contracts, contracts by which parties agree to exchange sums equal to the income streams produced by specified assets. Investing in swaps introduces an added layer of complexity as compared to simply investing in the underlying assets, which can be stocks, bonds, currencies, derivatives, futures, options, or other financial instruments. 54. According to the Fund’s most recent report filed with the SEC, the Fund held swap contracts with a purportedly fair value of $449 million at the end of November, representing about 26% of its $1.71 billion in net assets held at that time. That figure includes so-called variance swap contracts, especially complex swaps that derive their value from such multifaceted factors as market volatility or the way in which global markets, foreign currencies, or other assets move in relation to one another. 55. Because the Fund was dealing in so many complex and opaque swap contracts, the Fund used statistical models provided by third-party pricing services to comply with its legal duty to calculate its NAV on a daily basis. However, it turns out that the Fund was not relying on the third-party prices, but improperly tampering with the pricing models as part of a brazen scheme to boost its asset valuations and defraud investors. Materially False and Misleading Statements Issued in the Prospectuses 56. On February 1, 2018, the Trust filed a post-effective amendment to its Registration Statement pursuant to Rule 485B on Form N-1A, to become effective immediately (the “2018 Prospectus”). The 2018 Prospectus was signed by the Trustee Defendants, Simon, Potter, and Velissaris. 10 10 of 28 FILED: NEW YORK COUNTY CLERK 04/16/2021 06/01/2021 05:22 09:15 PM INDEX NO. 651295/2021 NYSCEF DOC. NO. 13 55 RECEIVED NYSCEF: 04/16/2021 06/01/2021 57. The 2018 Prospectus stated the following concerning Fund pricing, or NAV determination: Shares of the Fund are sold at NAV per share which is calculated as of the close of regular trading (generally, 4:00 p.m., Eastern Time) on each day that the New York Stock Exchange (“NYSE”) is open for unrestricted business. However, the Fund’s NAV may be calculated earlier if trading on the NYSE is restricted or as permitted by the SEC. The NYSE is closed on weekends and most national holidays, including New Year’s Day, Martin Luther King, Jr. Day, Washington’s Birthday/Presidents’ Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day. The NAV will not be calculated on days when the NYSE is closed for trading. Purchase and redemption requests are priced based on the next NAV per share calculated after receipt of such requests. The NAV is the value of the Fund’s securities, cash and other assets, minus all expenses and liabilities (assets – liabilities = NAV). NAV per share is determined by dividing NAV by the number of shares outstanding (NAV/ # of shares = NAV per share). The NAV takes into account the expenses and fees of the Fund, including management and administration fees, which are accrued daily. In calculating the NAV, portfolio securities are valued using current market values or official closing prices, if available. Each security owned by the Fund that is listed on a securities exchange is valued at its last sale price on that exchange on the date as of which assets are valued. Where the security is listed on more than one exchange, the Fund will use the price of the exchange that the Fund generally considers to be the principal exchange on which the security is traded. When market quotations are not readily available, a security or other asset is valued at its fair value as determined under procedures approved by the Board. These fair value procedures will also be used to price a security when corporate events, events in the securities market and/or world events cause the Adviser to believe that a security’s last sale price may not reflect its actual market value. The intended effect of using fair value pricing procedures is to ensure that the Fund is accurately priced. The Board will regularly evaluate whether the Fund’s fair valuation pricing procedures continue to be appropriate in light of the specific circumstances of the Fund and the quality of prices obtained through their application by the Adviser. ... The fair value of an investment is the amount, as determined by the Adviser in good faith using procedures approved by the Board, that the Fund might reasonably expect to receive upon a current sale of the investment. The Fund employs fair value pricing selectively to ensure greater accuracy in its daily NAV and to prevent dilution by frequent traders or market timers who seek to take advantage of temporary market anomalies. Fair value pricing is used when market 11 11 of 28 FILED: NEW YORK COUNTY CLERK 04/16/2021 06/01/2021 05:22 09:15 PM INDEX NO. 651295/2021 NYSCEF DOC. NO. 13 55 RECEIVED NYSCEF: 04/16/2021 06/01/2021 quotations are not readily available, the Fund’s pricing service does not provide a valuation (or provides a valuation that in the judgment of the Adviser does not represent the security’s fair value), or when, in the judgment of the Adviser, events have rendered the market value unreliable. Valuing securities and other investments at fair value involves reliance on judgment. There can be no assurance that the Fund will obtain the fair value assigned to a security if it were to sell the security at approximately the time at which the Fund determines its NAV per share. Fair value pricing may be applied to non-U.S. securities. The trading hours for most non-U.S. securities end prior to the close of the NYSE, the time that the Fund’s NAV is calculated. The occurrence of certain events after the close of non-U.S. markets, but prior to the close of the NYSE (such as a significant surge or decline in the U.S. market) often will result in an adjustment to the trading prices of non-U.S. securities when non-U.S. markets open on the following business day. If such events occur, the Fund may value non-U.S. securities at fair value, taking into account such events, when it calculates its NAV. Other types of investments that the Fund may hold for which fair value pricing might be required include, but are not limited to: (a) investments which are not frequently traded and/or the market price of which the Adviser believes may be stale; (b) illiquid securities, including “restricted” securities and private placements for which there is no public market; (c) securities of an issuer that has entered into a restructuring; (d) securities whose trading has been halted or suspended; (e) fixed income securities that have gone into default and for which there is not a current market value quotation; and (f) derivatives for which there are no current market value quotations. (Emphasis added.) 58. The 2018 Prospectus stated the following concerning valuation of securities that did not have current market quotations: The Board has delegated day-to-day valuation issues to a Valuation Committee that is comprised of the Trust’s President, Treasurer and Assistant Treasurer and is overseen by the Trustees. The function of the Valuation Committee is to review each Adviser’s valuation of securities held by any series of the Trust for which current and reliable market quotations are not readily available. Such securities are valued at their respective fair values as determined in good faith by each Adviser, and the Valuation Committee gathers and reviews Fair Valuation Forms that are completed by an Adviser to support its determinations, and which are subsequently reviewed and ratified by the Board. The Valuation Committee meets as needed. The Valuation Committee met five times during the fiscal year ended August 31, 2017, with respect to the Fund. (Emphasis added.) 12 12 of 28 FILED: NEW YORK COUNTY CLERK 04/16/2021 06/01/2021 05:22 09:15 PM INDEX NO. 651295/2021 NYSCEF DOC. NO. 13 55 RECEIVED NYSCEF: 04/16/2021 06/01/2021 59. The 2018 Prospectus explained that the Fund implemented its strategy by investing in swaps: The Fund implements these strategies by investing globally (including in emerging markets) either directly in, or through total return swaps on, a broad range of instruments, including, but not limited to, equities, bonds (including but not limited to high-yield or “junk” bonds), currencies, commodities, MLPs, credit derivatives, convertible securities, futures, forwards, options, including complex options such as barrier options, and swaps. The Fund may also invest up to 25% of its assets in a subsidiary that is invested in these types of derivative instruments (the “Subsidiary”) as described further below. The Fund has no limits with respect to the credit rating, maturity or duration of the debt securities in which it may invest. 60. The 2018 Prospectus stated the following concerning valuation risk: Valuation Risk. The sales price the Fund could receive for any particular portfolio investment may differ from the Fund’s valuation of the investment, particularly for securities or other investments that trade in thin or volatile markets or that are valued using a fair value methodology. Investors who purchase or redeem Fund shares on days when the Fund is holding fair-valued securities may receive fewer or more shares or lower or higher redemption proceeds than they would have received if the Fund had not fair-valued securities or had used a different valuation methodology. Valuation may be more difficult in times of market turmoil since many investors and market makers may be reluctant to purchase complex instruments or quote prices for them. The Fund’s ability to value its investments may be impacted by technological issues and/or errors by pricing services or other third party service providers. 61. The 2018 Prospectus also misleadingly touted the Fund’s purported risk oversight procedures stating, in pertinent part: T