Illiquid Assets

The cases against Plaford and Lumiere allege that mismarking securities was a regular practice at the company’s credit fund. From July 2011 to January 2013, the two men overrode an independent administrator’s valuations in their favor 284 times, according to the SEC’s complaint.

Lumiere’s attorney Eric Creizman said the SEC’s allegation is false.

During that time, Visium may have been using its main fund to prop up the credit strategy, people with knowledge of the matter said.

Starting in late 2012, the firm reclassified some of the fund’s investments as illiquid and put them in a separate vehicle to sell them. Around that time, Visium’s main healthcare fund more than doubled its allocation to fixed income. While Visium told clients the shift was opportunistic, the people familiar with the matter said in interviews they believed the move was intended to buttress credit assets at a time when investors were redeeming from the team’s fund. By April, Visium announced the fund’s liquidation.

Increasing investments in a failing strategy raises questions about whether Visium acted in investors’ interests, said Boston University’s Frankel.

Double Standard

When news of the government’s probe first surfaced, Gottlieb emphasized his firm’s code of ethics. The company prohibited personal trading of stocks and bonds, for employees as well as their spouses and minor children, according to the June 2012 compliance manual and code of ethics. But in January 2014, a regulatory filing showed that Gottlieb directly owned 25,703 shares of Intercept Pharmaceuticals Inc., a company in which Visium also had a 5.2 percent stake.

Gottlieb had owned stock in Intercept since it was a private company, according to one person familiar with the matter. But employees interviewed for this article said they were angry at what they saw as a double standard, and at least one investor complained that Gottlieb owned stock in a company in which the fund also invested.

Visium staffers who worked there at the time recall another peculiar event in January 2015: Morgan Stanley abruptly rescinded Gottlieb’s invitation to attend the industry’s pre-eminent matchmaking confab, its annual conference at The Breakers hotel in Palm Beach, Florida.