Ex-Visium hedge fund manager pleads not guilty to fraud scheme

By Nate Raymond

NEW YORK (Reuters) - A former portfolio manager at Visium Asset Management LP pleaded not guilty on Monday to charges that he engaged in a scheme to defraud investors by inflating the value of a bond fund and overstating its liquidity.

Stefan Lumiere, 45, entered his plea to conspiracy, securities fraud and wire fraud charges in federal court in Manhattan, about a month after he was first arrested in connection with the investigation.

The charges stemmed from a probe that has already resulted in two people pleading guilty and insider trading charges against Sanjay Valvani, a portfolio manager at Visium who committed suicide in June following his indictment.

U.S. District Judge Jed Rakoff scheduled a trial for Lumiere on Dec. 19. Eric Creizman, Lumiere's attorney, outside of court said he planned to fight the charges.

"We're ready to go forward and do what we have to do and get him exonerated," Creizman said.

The probe prompted New York-based Visium, which under founder Jacob Gottlieb came to manage about $8 billion, to last month announce it would close down its flagship fund and sell another portfolio to asset manager Alliance Bernstein.

Prosecutors said that from 2011 to 2013, Lumiere and two other Visium employees participated in a scheme to each month mismark the value of securities held by a fund that invested in debt issued by healthcare companies.

Prosecutors said the mismarking caused the fund's net asset value to be overstated often by tens of millions of dollars each month, resulting in higher payments to Visium and bigger bonuses for Lumiere.

The scheme also had the effect of deceiving investors into believing the bonds were relatively liquid, when they actually were entirely illiquid, prosecutors said.

Authorities said Lumiere's co-conspirators included Christopher Plaford, a Visium portfolio manager who oversaw the fund from its inception through its liquidation in 2013.

Plaford pleaded guilty on June 9 to charges related to the mismarking and has agreed to cooperate with authorities.

He also pleaded guilty to participating in an insider trading scheme with Valvani that prosecutors say made $25 million based on tips about U.S. Food and Drug Administration approvals of generic drug applications.

Valvani had plead not guilty before his death.

The case is U.S. v. Lumiere, U.S. District Court, Southern District of New York, No. 16-cr-483.

(Reporting by Nate Raymond in New York; Editing by Andrew Hay)

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