23-6379-cr (L) United States v. Velissaris

UNITED STATES COURT OF APPEALS FOR THE SECOND CIRCUIT

SUMMARY ORDER RULINGS BY SUMMARY ORDER DO NOT HAVE PRECEDENTIAL EFFECT. CITATION TO A SUMMARY ORDER FILED ON OR AFTER JANUARY 1, 2007, IS PERMITTED AND IS GOVERNED BY FEDERAL RULE OF APPELLATE PROCEDURE 32.1 AND THIS COURT’S LOCAL RULE 32.1.1. WHEN CITING A SUMMARY ORDER IN A DOCUMENT FILED WITH THIS COURT, A PARTY MUST CITE EITHER THE FEDERAL APPENDIX OR AN ELECTRONIC DATABASE (WITH THE NOTATION “SUMMARY ORDER”). A PARTY CITING A SUMMARY ORDER MUST SERVE A COPY OF IT ON ANY PARTY NOT REPRESENTED BY COUNSEL.

At a stated term of the United States Court of Appeals for the Second Circuit, held at the Thurgood Marshall United States Courthouse, 40 Foley Square, in the City of New York, on the 16th day of October, two thousand twenty-four.

Present: BARRINGTON D. PARKER, JR., WILLIAM J. NARDINI, BETH ROBINSON,

Circuit Judges. _____________________________________

UNITED STATES OF AMERICA, Appellee,

v. 23-6379-cr (Lead) 23-6953-cr (Con) JAMES VELISSARIS, AKA Sealed Defendant 1, Defendant-Appellant.

_____________________________________

For Appellee: MARGARET GRAHAM (Nathan Rehn, on the brief) Assistant United States Attorneys, for Damian Williams, United States Attorney for the Southern District of New York, New York, NY.

For Defendant-Appellant: AARON D. LINDSTROM, Barnes & Thornburg LLP, Grand Rapids, MI.

1 Appeal from a judgment of the United States District Court for the Southern District of

New York (Denise L. Cote, District Judge).

UPON DUE CONSIDERATION, IT IS HEREBY ORDERED, ADJUDGED, AND

DECREED that the appeal is DISMISSED with respect to the term of imprisonment, and the

judgment is AFFIRMED in all other respects.

Defendant-Appellant James Velissaris appeals from a judgment of the United States

District Court for the Southern District of New York (Denise L. Cote, District Judge) sentencing

him to a 180-month prison term, three years of supervised release, a $50,000 fine, a $100 special

assessment, forfeiture of $22 million, and approximately $126 million in restitution for securities

fraud in violation of 15 U.S.C. §§ 78j(b) and 78ff. Following a six-count indictment, Velissaris

pled guilty to one count of securities fraud stemming from his time as majority owner and Chief

Investment Officer (CIO) of investment advisory firm Infinity Q Capital Management, LLC

(“Infinity Q”), where, between 2018 and 2021, he fraudulently manipulated the valuation of over-

the-counter derivative positions to increase Infinity Q’s reported net asset value. Prior to

sentencing, the district court denied Velissaris’s motion to withdraw his guilty plea, which he had

filed four months after entering the plea. United States v. Velissaris, No. 22 CR 105 (DLC),

, at *20 (S.D.N.Y. April 10, 2023). In a separate opinion and amended judgment,

the district court ordered restitution of roughly $126 million. United States v. Velissaris, No. 22

CR 105 (DLC),

, at *1, *7-10 (S.D.N.Y. July 24, 2023). On appeal, Velissaris

argues that the district court (1) abused its discretion by denying the motion to withdraw his guilty

plea and (2) erred in calculating loss to investors at sentencing, resulting in an erroneous

calculation of his offense level under the U.S. Sentencing Guidelines and of the restitution amount.

2 We disagree on all points and, accordingly, dismiss in part and affirm in part. We assume the

parties’ familiarity with the case.

I. Motion to Withdraw Guilty Plea

“A defendant may withdraw a plea of guilty or nolo contendere . . . after the court accepts

the plea, but before it imposes sentence if . . . the defendant can show a fair and just reason for

requesting the withdrawal.” Fed. R. Crim. P. 11(d)(2)(B). A defendant “bears the burden of

demonstrating both that there are valid grounds for withdrawal and that such grounds are not

outweighed by any prejudice to the government.” United States v. Avellino,

(2d Cir. 1998). 1 We review the denial of a motion to withdraw a guilty plea for abuse of

discretion. United States v. Juncal,

, 170–71 (2d Cir. 2001).

“To determine whether the defendant has proffered a ‘fair and just reason’ to justify

withdrawal, a district court should consider, inter alia: (1) the amount of time that has elapsed

between the plea and the motion; (2) whether the defendant has asserted a claim of legal innocence;

and (3) whether the government would be prejudiced by a withdrawal of the plea.” United States

v. Doe,

(2d Cir. 2008). Here, four months after entering his plea, Velissaris

consulted new counsel and changed his mind about whether his conduct amounted to a crime.

But “[t]he fact that a defendant ha[d] a change of heart prompted by his reevaluation of either the

Government’s case against him or the penalty that might be imposed is not a sufficient reason to

permit withdrawal of a plea.”

at 212 (quoting United States v. Gonzalez,

(2d Cir. 1992)). In his plea allocution, Velissaris freely admitted as follows:

1 Unless otherwise indicated, when quoting cases, all internal quotation marks, alteration marks, emphases, footnotes, and citations are omitted. 3 I made false statements of material fact to investors in the Infinity Q funds that I managed, and I did so knowingly, willfully, and with the intent to defraud. Specifically, I told investors that I was using an independent Bloomberg system to value the fund’s over-the-counter derivatives. However, I was making manual adjustments in the system which increased the values of over-the-counter derivative positions that were reported. I knew that if I disclosed what I was doing, investors might have decided to redeem their investments or maybe would not have made the investments in the first place. Some of the communications with investors occurred over the phone and by email in the Southern District of New York. I acknowledge that my actions caused investors to lose money, and for this I am truly sorry.

Appellant’s App’x at 424-25. When the court asked what Vellisaris’s purpose was when he

adjusted the values, Vellisaris replied: “To increase the value of the securities being held by the

fund.” Id. at 425. This allocution—which Vellisaris does not challenge here—was sufficient to

satisfy the elements of securities fraud, meaning that he is not, as he contends, legally innocent of

that crime. See United States v. Vilar,

(2d Cir. 2013) (“[T]he government must

prove that in connection with the purchase or sale of a security the defendant, acting with scienter,

made a material misrepresentation . . . . [T]o impose criminal liability, the government must also

prove that the defendant willfully violated the law.”). Therefore, we conclude that Velissaris has

not carried his burden of showing a fair and just reason for withdrawing his plea.

Velissaris’s arguments to the contrary are unpersuasive. First, he argues that his

representations to investors that he would be using the independent valuation tool known as

Bloomberg Valuation Service (“BVAL”) cannot have been material, because Infinity Q had

already disclosed to investors that the valuations could be adjusted. However, Infinity Q’s

disclosures were far more circumscribed than Velissaris alleges. The company disclosed that it

could alter derivative valuations only after following specific company protocols and approvals—

procedures that Velissaris does not claim to have followed when he unilaterally altered the asset

valuations while representing to investors that he relied on independent BVAL evaluations.

4 Velissaris also argues that his guilty plea allocution did not support the district court’s conclusion

that his alterations constituted fraudulent mismarking of Infinity Q’s derivative positions if his

alterations were objectively correct. But in his allocution, Velissaris admitted that if he had

disclosed his routine reprogramming of valuation models to increase Infinity Q derivative

valuations, “investors might have decided to redeem their investments or maybe would not have

made the investments in the first place.” Appellant’s App’x 425. These admissions demonstrate

that his misrepresentations were material, that is, that there was “a substantial likelihood that a

reasonable investor would find [those misrepresentations] important in making an investment

decision.” United States v. Contorinis,

(2d Cir. 2012). And Velissaris

admitted in his plea colloquy that he acted with “intent to defraud,” which in these circumstances

can only be understood as a deliberate choice to conceal from investors what he knew to be

material information. Appellant’s App’x 425.

Relatedly, Velissaris suggests that because Infinity Q generally disclosed that it could alter

derivative valuations, his misrepresentations cannot have been material in light of the “bespeaks

caution” doctrine. That doctrine provides that a “forward-looking statement accompanied by

sufficient cautionary language is not actionable because no reasonable investor could have found

the statement materially misleading.” Iowa Pub. Employees’ Ret. Sys. v. MF Glob. Ltd.,

(2d Cir. 2010). But that safe harbor is inapplicable here because Velissaris was not

charged with making misleading forward-looking statements. Rather, he was charged with and

pled guilty to making material misrepresentations about his ongoing administration of the asset

valuation process within Infinity Q–that is, an omission of present fact.

5 Velissaris also contends that the district court abused its discretion when it considered

evidence beyond his plea allocution in denying his plea withdrawal. This argument is also

unavailing. We have long recognized a district court’s ability to consider evidence in the record

beyond a defendant’s plea allocution in ruling on a motion to withdraw a plea. See, e.g., United

States v. Maher,

, 1528–31 (2d Cir. 1997) (affirming denial of plea withdrawal

where the district court had considered “the evidence presented at trial” in addition to the plea

allocution).

Velissaris does not contend that the district court abused its discretion in finding that the

four-month delay between his plea and withdrawal motion weighed in favor of denying his motion.

See United States v. Albarran,

, 123 (2d Cir. 2019) (“The four-month lapse between

his guilty plea and his motion to withdraw the plea further supports the District Court’s exercise

of discretion in denying Albarran’s request.”). With this concession and finding no merit to

Velissaris’s legal innocence theory, we conclude that the district court acted well within its

discretion when it denied Velissaris’s motion to withdraw his guilty plea.

II. Restitution

Next, Velissaris argues that the district court erred in determining that he caused almost

$126 million in losses to investors. Specifically, he contends that BVAL is an unsound derivative

pricing tool, and that the district court erred in relying upon it. This methodology, he claims,

overstated loss for purposes of both determining his offense level under the Sentencing Guidelines

and calculating restitution. We disagree.

We review a district court’s loss determination for clear error, see United States v. Lacey,

(2d Cir. 2012), and we will find such error “only if, after reviewing all of the

6 evidence, [we are] left with the definite and firm conviction that a mistake has been committed,”

United States v. Cramer,

(2d Cir. 2015). Separately, an order of restitution

under the Mandatory Victims Restitution Act (MVRA), which may be awarded only in the amount

of losses proximately caused by a defendant’s conduct, see United States v. Reifler,

(2d Cir. 2006), is reviewed “deferentially, and we will reverse only for abuse of discretion.”

United States v. Gushlak,

(2d Cir. 2013). A district court abuses its discretion

when a “challenged ruling rests on an error of law, a clearly erroneous finding of fact, or otherwise

cannot be located within the range of permissible decisions.” United States v. Boccagna,

(2d Cir. 2006).

As a preliminary matter, we conclude that Velissaris waived any right to appeal his prison

sentence, and hence his offense level calculation. The parties stipulated that the offense caused a

loss of between $65 million and $150 million, yielding a 24-level enhancement to his base offense

level under U.S.S.G. § 2B1.1. His total offense level of 38, combined with his criminal history

category of I, yielded an advisory sentencing range of 235 to 240 months. During his guilty plea

colloquy, Velissaris waived his right to appeal any prison sentence to the extent it was within or

below that stipulated range, and the district court confirmed that Velissaris understood the

appellate waiver. Because the district court ultimately imposed a prison term of 180 months, and

because Velissaris raises no basis for invalidating the waiver, we dismiss his appeal with respect

to the calculation of loss as it pertains to the Guidelines. See United States v. Burden,

(2d Cir. 2017).

The plea agreement contains no appeal waiver with respect to restitution, and so we

consider the merits of Velissaris’s challenge to that portion of his sentence. We conclude that the

7 district court did not err, let alone clearly so, in finding that the loss from Velissaris’s fraud was

nearly $126 million. In securities fraud cases, “[t]he challenge . . . is to determine if and to what

extent particular investors have been harmed by artificial prices that are the result of deliberate

misinformation of one sort or another (including manipulative trading practices designed to inflate

the price).” Gushlak,

. The district court’s loss calculation included two

components: (1) the loss to those who held their positions in the fund resulting from overpayments

from the fund to shareholders who sold their positions at the inflated rates, and (2) excess

management fees to Infinity Q. The district court determined that the excess payouts caused

around $99.4 million in loss resulting from Velissaris’s manipulation of fund asset values. Of

this amount, Velissaris contests only $54 million. Velissaris faults the district court for

calculating this figure by revaluing a portion of Infinity Q’s securities (excluding Velissaris’s

fraudulent alterations) using BVAL—which he claims is an unreliable tool. Yet, BVAL was the

pricing device that Velissaris told investors he would use when valuing Infinity Q’s derivative

positions and which he surreptitiously changed to alter those valuations—and it was those

increased valuations that caused Infinity Q to extract higher fee payments. Thus, revaluing

Infinity Q’s securities as investors had expected—that is, using BVAL without Velissaris’s

alterations—was a reasonable, albeit imperfect, method of approximating the losses caused by the

defendant’s fraud. Gushlak,

(“So long as the basis for a reasonable approximation

is at hand, difficulties in achieving exact measurements will not preclude a trial court from ordering

restitution.”).

Velissaris directs our attention to two cases that he says offer support for his claim that the

restitution order should be vacated: United States v. Tanner,

(2d Cir. 2019), and

8 United States v. Finazzo,

(2d Cir. 2017). Both cases support the general

proposition that a court must rely on a sound methodology when calculating loss, but neither

suggests that the district court failed to do so here. In both Tanner and Finazzo, which involved

kickback schemes, our Court vacated restitution orders because the financial loss amounts were

not clearly attributable to the defendant’s criminal conduct. See Tanner,

; Finazzo,

850 F.3d at 117–19. In this case, by contrast, Velissaris admitted that his manipulation of the

BVAL models yielded increased valuations of Infinity Q’s derivative holdings; and it is undisputed

that higher valuations resulted in corresponding increases in management fees and payments to

redeeming shareholders. Thus, there is no question surrounding loss attribution here.

* * *

Accordingly, we DISMISS the appeal with respect to the term of imprisonment and

AFFIRM the judgment in all other respects.

FOR THE COURT: Catherine O’Hagan Wolfe, Clerk of Court

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