Authorities said when it became untenable to continue to carry the loan on TOF’s books, as a performing asset due to auditor scrutiny, Hu and Silver removed it from the firm’s books and replaced it with fake loans to different borrowers, purported to be in foreign companies operating in other industries that were controlled by a business associate of IIG. The purported borrowers, the court said, never received anything of value from TOF, and there was no expectation they ever would make any payments to TOF.
Also, in 2010, they engaged in similar tactics when a seafood producer defaulted on another TOF loan of about $30 million. By overvaluing loans, Hu and Silver allowed IIG receiving management and performance fees to which it was not entitled, the court said.
In another instance in 2012 IIG induced a retail mutual fund to invest in a fictitious $6 million loan and recommended loans that his firm had originated. In 2017, when an Argentinian borrower failed to make a principal payment on the loan, Hu facilitated a transfer of $6 million from another borrower’s account to pay off the loan, then raised another $6 million in a new loan for the Argentinian borrower, reimbursing the account for the earlier $6 million transfer to the retail fund. To further hide the fraudulent nature of the new loan, Hu created forged documents to make it appear as though the loan was legitimate to the Argentine borrower.
“David Hu shirked his fiduciary responsibilities and defrauded IIG funds and investors for more than a decade. Hu’s lies caused millions of dollars of losses,” U.S. Attorney Damian Williams said I a statement. “Today’s sentence sends the message that brazen fraud does not pay and will be appropriately punished.”