Glenmede Trust Co., N.A. v Infinity Q Capital Mgt.

LLC

2024 NY Slip Op 30809(U)

March 13, 2024

Supreme Court, New York County

Docket Number: Index No. 160830/2022

Judge: Melissa A. Crane

Cases posted with a "30000" identifier, i.e., 2013 NY Slip

Op 30001(U), are republished from various New York

State and local government sources, including the New

York State Unified Court System's eCourts Service.

This opinion is uncorrected and not selected for official

publication.
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PRESENT: 

SUPREME COURT OF THE STATE OF NEW YORK 

NEW YORK COUNTY 

HON. MELISSA A. CRANE PART 

Justice 

SOM 

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THE GLENMEDE TRUST COMPANY, N.A., 

Plaintiff, 

- V -

INFINITY Q CAPITAL MANAGEMENT LLC,JAMES 

VELISSARIS, LEONARD POTTER, SCOTT LINDELL, 

SONDERMAN FAMILY LIMITED PARTNERSHIP, LP, 

INFINITY Q MANAGEMENT EQUITY LLC,TRUST FOR 

ADVISED PORTFOLIOS, U.S. BANCORP FUND 

SERVICES, LLC,EISNERAMPER LLP, QUASAR 

DISTRIBUTORS, LLC,JOHN C. CHRYSTAL, ALBERT J. 

DIULIO, CHRISTOPHER E. KASHMERICK, HARRY E. 

RESIS, RUSSELL B. SIMON, STEVEN J. JENSEN, 

Defendant. 

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MOTION DATE 11/16/2023 

MOTION SEQ. NO. 013 

DECISION + ORDER ON 

MOTION 

The following e-filed documents, listed by NYSCEF document number (Motion 013) 142, 143, 144, 145, 

146, 152, 157, 162, 181 

were read on this motion to/for DISMISSAL 

Defendant Scott Lindell ("Lindell") has moved to dismiss Plaintiff The Glenmede Trust 

Company, N.A.'s ("Glenmede" or "Plaintiff') amended complaint pursuant to CPLR 321 l(a)(7). 

The amended complaint alleges causes of action against Lindell for violation of sections 11 and 

15 of the Securities Act of 1933. For the following reasons, the court dismisses both causes of 

action against Lindell. 

FACTUAL AND PROCEDURAL BACKGROUND 

This matter arises in connection to the collapse of a mutual fund called Infinity Q 

Diversified Alpha Fund ("Mutual Fund"). Defendant Infinity Q Capital Management ("Infinity Q 

Mgmt.") managed the Mutual Fund, selecting the Mutual Fund's portfolio of investments 

(Amended Complaint, NYSCEF Doc. No. 101, ,r,r 28, 54). Individual defendants Lindell, James 

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Velissaris ("Velissaris") and Leonard Potter ("Potter") launched Infinity Q Mgmt. in 2014 with 

non-party David Bonderman ("Bonderman"), allegedly to act as investment advisor for both the 

Mutual Fund and a separate private hedge fund ("Hedge Fund") (id., ,i 4). Rather than stock the 

Mutual Fund with traditional stocks and bonds, Infinity Q Mgmt. purchased variance swaps as part 

of its strategy to "generate absolute returns that did not depend on what direction the market 

moved, but rather on how much the market moved (i.e., how volatile the market was)" (id., ,i 5). 1 

These types of securities had no readily available market prices (id., ,i 7). Therefore, Infinity Q 

Mgmt. had to generate its own net asset value ("NA V") of the assets in the Mutual Fund on a daily 

basis (id., ,i,i 6-7). Infinity Q Mgmt. generated this NAV using the third-party valuation service 

Bloomberg offered, called BV AL (id., ,i 131 ). However, for many years, Velissaris managed to 

inflate artificially the value of the Mutual Fund by hundreds of millions of dollars (id., ,i,i 9-11 ). 

This resulted in an SEC investigation beginning in 2020 and the subsequent collapse of the Mutual 

Fund (id., ,i,i 11-13). 

US Bank allegedly has established multiple series trusts as part of its mutual fund business, 

of which Defendant Trust for Advised Portfolios ("Trust") is one (id., ,i,i 64, 67). The Trust 

established the Mutual Fund under its umbrella (id., ,i 69). As is relevant for this motion, the Trust 

issued shares in the Mutual Fund pursuant to a Post-Effective Amendment to its Registration 

Statement on December 20, 2019 ("December 2019 Registration Statement") (id., ,i 142). 

Defendant Christopher Kashmerick signed the December 2019 Registration Statement as the 

President and Principal Executive Officer of the Trust (December 2019 Registration Statement, 

NYSCEF Doc. 127, p. 118). A number of other individuals signed the December 2019 Registration 

1 According to the amended complaint, variance swaps allow buyers to "bet on the volatility of an underlying asset, 

security, index, or currency exchange" (see Amended Complaint, ,i 116). For each variance swap, the parties 

determine a "strike price" (id., ,i 118). If volatility "exceeds the strike price, the buyer of the swap ... receives the 

payment," but if volatility "is below the strike price, the seller of the swap ... receives the payment" (id.). 

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Statement, including Treasurer and Principal Financial Officer Russell Simon and Mutual Fund 

trustees John Chrystal, Albert DiUlio, and Harry Resis (id.; Amended Complaint, ,r,r 37-40). 

Potter, Velissaris, and non-party Director Neil Gray all signed on behalf of non-party Infinity Q 

Commodity Fund, Ltd. (December 2019 Registration Statement, p. 119). Despite the amended 

complaint alleging that Lindell was one of the multiple defendants who "signed or authorized the 

signing of the December 2019 Securities Act Filing and/or[] otherwise actively participated in the 

sales process" (Amended Complaint, ,r 297), Lindell did not sign the December 2019 Registration 

Statement (see December 2019 Registration Statement, pp. 118-119). Nor did Lindell "consent[] 

to having been named as the person[] who prepared or certified parts of the December 2019 

Securities Act Filing" anywhere in the document or its exhibits (see Amended Complaint, ,r 274; 

December 2019 Registration Statement). The focal point of Plaintiff's case against Lindell and the 

other defendants is that the December 2019 Registration Statement "contained false statements of 

material fact and/or omitted material facts that were required to be disclosed or necessary to make 

the statements therein not misleading" (Amended Complaint, ,r 270). 

Aside from his alleged role in the execution of the December 2019 Registration Statement, 

Plaintiff alleges that Lindell was the "Chief Risk Officer ('CRO'), head of operations, Chief 

Compliance Officer, a portfolio manager, and a member of the valuation committee oflnfinity Q 

Mgmt. (id., ,r 30). According to the amended complaint, Lindell, despite being in a position to 

learn ofVelissaris's fraud, ignored red flags. In particular, Plaintiff alleges that Infinity Q Mgmt., 

as a result of Velissaris improperly adjusting inputs to BV AL, reported valuations on variance 

swaps that were mathematically impossible (id., ,r,r 204-206). Infinity Q allegedly reported 

valuations high enough that volatility would have needed to be negative for the remainder of the 

term, which is not possible (id., ,r 205). The amended complaint alleges that Mutual Fund Treasurer 

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and CFO Russell Simon asked Lindell in an email about one instance of a mathematically 

impossible valuation, and Lindell failed to provide a satisfactory response (id., ,i 208). 

Plaintiff also alleges that Lindell "noticed that there were inputs in BV AL that were 

inconsistent with the term sheets," that he "reviewed the counterparty marks that were different 

from Infinity Q [Mgmt.]'s marks," and that he "recognized a trend whereby Infinity Q [Mgmt.J's 

final valuations of variance swaps upon settlement dropped drastically from Velissaris's interim 

valuations (id., ,i 214). Despite being aware of these red flags related to Infinity Q [Mgmt.]'s 

valuations, Lindell allegedly "turned a blind eye to Velissaris's manipulated valuations" (id., ,i 

215). 

After the Mutual Fund collapsed in March 2021, shareholders filed class action lawsuits 

related to the collapse of the Mutual Fund, and the parties reached a settlement that the court 

preliminarily approved on October 17, 2022 (In re Infinity Q Diversified Alpha Fund Securities 

Litig., Index No. 651295/2021, NYSCEF Doc. No. 181 ). The court then held a final approval 

hearing on June 14, 2023. Plaintiff determined to opt out of the class action settlement and filed 

the complaint in this action on December 19, 2022 (Complaint, NYSCEF Doc. No. 2). Defendants, 

including Lindell, then moved to dismiss. However, on May 3, 2023, after Plaintiff informed 

Defendants that it intended to amend its complaint as of right, Defendants, including Lindell, 

stipulated to withdraw their pending motions to dismiss (Stipulation Withdrawing Motions to 

Dismiss, NYSCEF Doc. No. 94). Plaintiff then filed the amended complaint on May 26, 2023. 

Defendants, including Lindell, moved to dismiss the amended complaint for failure to state a claim 

pursuant to CPLR 321 l(a)(7), and the court held oral argument on the motions to dismiss on 

November 15-16, 2023. For the following reasons, the court dismisses the causes of action against 

Lindell in their entirety. 

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On a motion to dismiss pursuant to CPLR 321 l(a)(7), the court must "accept the facts as 

alleged in the complaint as true, accord plaintiffs the benefit of every possible favorable inference, 

and determine only whether the facts as alleged fit within any cognizable legal theory" (Leon v 

Martinez, 84 NY2d 83, 87-88 [1994]; see also Chapman, Spira & Carson, LLC v Helix BioPharma 

Corp., 115 AD3d 526, 527 [1st Dept 2014]). 

The court notes that, despite attaching to his motion papers the affirmation of Deepa 

Devanathan (NYSCEF Doc. No. 144) and exhibits referenced therein (NYSCEF Doc. Nos. 145-

146), Lindell has not moved to dismiss the amended complaint pursuant to CPLR 321 l(a)(l) on 

the basis of a "defense [] founded upon documentary evidence" (CPLR 3211 (a)(l ); Opening 

Memo., NYSCEF Doc. No. 143, p. 1 ). Rather, the motion is limited to failure to state a cause of 

action under CPLR 321 l(a)(7). Nevertheless, dismissal may be appropriate based on documentary 

evidence where the documentary evidence "flatly reject[s]" the plaintiffs cause of action (see 

Basis Yield Alpha Fund (Master) v Goldman Sachs Group, Inc., 115 AD3d 128, 134-135 [ I st Dept 

2014]). When a defendant submits documentary evidence, the standard shifts from "whether the 

plaintiff stated a cause of action to whether it has one" (id. at 135 [internal citations and quotation 

marks omitted]; Kaplan v Conway & Conway, 173 AD3d 452, 453 [1st Dept 2019] [finding that 

the motion court "properly considered the emails submitted by defendants in dismissing the 

complaint"]). Therefore, the court will consider the documentary evidence that Lindell has 

submitted. 

1. Section 11 

Section 11 of the Securities Act of 1933 allows a purchaser of securities to sue where a 

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registration statement "contained an untrue statement of a material fact or omitted to state a 

material fact required to be stated therein or necessary to make the statements therein not 

misleading" (15 USCA § 77k[a]). To state a cause of action under section 11, a plaintiff must 

allege that they "(l) purchased a registered security . . . (2) the defendant participated in the 

offering in the manner specified by the statute; and (3) the registration statement contained an 

untrue statement of a material fact or omitted to state a material fact" (Mahar v General Electric 

Company, 188 AD3d 534, 535 [l st Dept 2020] [internal citation and quotation marks omitted]; 

Hoffman v AT & T Inc., 67 Misc3d 1212(A), *5 [Sup Ct, NY County 2020]). 

However, liability under section 11 is limited to discrete categories of defendants, and 

"courts have construed the list strictly" (In re Global Crossing, Ltd. Sec. Litig., 2005 WL 1907005, 

*8 [SDNY Aug 8, 2005]). Section 11 liability may apply to signatories of the registration 

statement, directors or partners of the issuer, whether named in the registration statement or not, 

underwriters, and "every accountant, engineer, or appraiser, or any person whose profession gives 

authority to a statement made by him, who has with his consent been named as having prepared 

or certified any part of the registration statement" (15 USC § 77k[a]; Winter v Stronghold Digital 

Mining, Inc., 2023 WL 5152177, *5 [SONY Aug 10, 2023] ["Section 11 applies to registration 

statements filed with the SEC and provides redress against a security's issuer, underwriter, and 

certain other statutorily enumerated parties."]; Banerjee v Zhangmen Education Inc., 2023 WL 

2711279, *5 [SONY Mar 30, 2023]). While liability is "virtually absolute" for issuers of securities, 

"experts such as accountants" are accorded a "due diligence defense" (In re Wachovia Equity 

Securities Litigation, 753 F Supp 2d 326, 378-379 [SDNY 2011] [internal citations and quotation 

marks omitted]; Winter, 2023 WL 5152177, at *5 ["Section 11 thus imposes strict liability on 

issuers of securities, and negligence liability on the issuers' officers, directors and experts."]). 

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The court grants Lindell' s motion to dismiss the section 11 claim because Lindell has 

established that he did not fall into any of the enumerated categories of defendants. First, 

notwithstanding the amended complaint's allegation that Lindell was one of the individuals liable 

for "having signed or authorized the signing of the December 2019 Securities Act Filing" 

(Amended Complaint, ,r 297), Plaintiff admits in its opposition papers that Lindell did not sign the 

December 2019 Registration Statement (Opposition, NYSCEF Doc. No. 162, p. 20). The only 

individuals who signed the December 2019 Registration Statement were Christopher Kashmerick, 

John Chrystal, Albert DiUlio, Harry Resis, Russell Simon, Potter, Velissaris, and Neil Gray 

(December 2019 Registration Statement, pp. 118-119; Ex. I to Devanathan Aff., NYSCEF Doc. 

No. 145). Further, Plaintiff makes no allegation that Lindell was a director or partner of the issuer, 

the Trust. Rather, the December 2019 Registration Statement makes it clear that Lindell was the 

Chief Risk Officer of Infinity Q Mgmt., who was "primarily responsible for the day-to-day 

management of the Fund" (id., pp. 14, 25). Nor does the amended complaint allege that Lindell 

was in any way an underwriter for purposes of section 11. 

Rather, Plaintiffs theory of section 11 liability against Lindell relies on the assertion that 

Lindell is "referenced as Infinity Q's risk-management expert throughout the [December 2019 

Registration Statement]" (Opposition, p. 20). However, this characterization of Lindell as an 

"expert" appears nowhere in the December 2019 Registration Statement. Nor does the December 

2019 Registration Statement refer to Lindell as either an "accountant, engineer, or appraiser," 

which are examples of individuals who can be held liable under section l l(a)(4). Even if Lindell 

could have been treated as a "person whose profession gives authority to a statement made by him" 

pursuant to section 11 (a)( 4), Lindell correctly argued that no liability would attach because the 

December 2019 Registration Statement does not reflect Lindell's consent to being named (Reply, 

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NYSCEF Doc. No. 181. pp. 4-5; see In re Lehman Bros. Mortgage-Backed Securities Litigation, 

650 F3d 167, 175 [2d Cir 2011] [noting that section 11 is limited to "statutorily enumerated 

parties," including "accountants or other experts consenting to be named as preparing or certifying 

part of the registration statement"] [ emphasis added]). Contrary to the conclusory allegation that 

Lindell "consented to having been named as [a] person[] who prepared or certified parts of the 

December 2019 Securities Act Filing" (Amended Complaint, ,r 274), the December 2019 

Registration Statement contains no reference to such consent. Rather, the only reference in the 

December 2019 Registration Statement to a consent by any purported expert is the Index of 

Exhibits' reference to the "Consent of Independent Registered Public Accounting Firm," which 

allegedly relates to EisnerAmper (December 2019 Registration Statement, p. 120; Ex. 2 to 

Devanathan Aff., NYSCEF Doc. No. 146; Amended Complaint, ,r 145). Therefore, because 

Lindell does not fall within one of the strictly construed statutorily enumerated categories of 

defendants, the court dismisses the section 11 claim against him. 

2. Section 15 

The court also dismisses the section 15 claim against Lindell. Section 15 provides that 

"[ e ]very person who, by or through stock ownership, agency, or otherwise ... controls any person 

liable under sections [11] or [12] of[the Securities Act], shall also be liable jointly and severally 

with and to the same extent as such controlled person to any person to whom such controlled 

person is liable" (15 USCA § 770; Matter of NIO Inc. Securities Litigation, 211 AD3d 464, 466 

[1st Dept 2022]; Erie County Employees' Retirement System v NN, Inc., 205 AD3d 644, 646 [1st 

Dept 2022]). To state a claim for a section 15 violation, a plaintiff must allege "( a) a primary 

violation by a controlled person, and (b) control by the defendant of the primary violator" (In re 

Global Crossing. Ltd. Securities Litig., 2005 WL 1907005, * 11 [SDNY Aug 8, 2005]; Erie County 

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. ; 

Employees' Retirement System, 205 AD3d at 646). In order to allege control, a plaintiff must allege 

the "power to direct or cause the direction of the management and policies of [the primary 

violators], whether through the ownership of voting securities, by contract, or otherwise" (City of 

Omaha Police and Fire Retirement System v Evoqua Water Technologies Corp., 450 F Supp 3d 

379, 427 [SONY 2020]). 

The amended complaint alleges that Lindell was a "control person[] of Infinity Q, the 

Mutual Fund, and/or [the Trust] by virtue of [his] management position[] with and/or ownership 

of Infinity Q" (Amended Complaint, ,r 295). However, Lindell cannot be held liable as a control 

person of either Infinity Q Mgmt. or the Mutual Fund because the amended complaint lacks any 

remaining underlying section 11 or 12(a)(2) claims against those parties. A section 15 claim is 

"dependent on the existence of an underlying Securities Act claim" (Feinberg v Marathon Patent 

Group Inc., 193 AD3d 568, 571 [1st Dept 2021] [finding lower court properly dismissed section 

15 claim after dismissing underlying section 11 and 12(a)(2) claims]; Matter ofNIO Inc. Securities 

Litigation, 211 AD3d 464, 466 [1st Dept 2022] [holding that lower court properly dismissed 

control person liability claims under section 15 because plaintiffs failed to allege a primary 

violation under sections 11 or 12(a)(2)]). The amended complaint never claimed an underlying 

section 11 or 12(a)(2) violation by the Mutual Fund, and the court dismissed any section 11 or 

12(a)(2) claim against Infinity Q Mgmt. in the decision and order on Infinity Q Mgmt.'s motion 

to dismiss (see February 26, 2024 Decision and Order, NYSCEF Doc. No. 205). 

Nor does Plaintiff sufficiently allege control person liability over the Trust. Plaintiff's 

opposition apparently abandoned the claim of control person liability over the Trust, focusing 

solely on alleged control of Infinity Q Mgmt. (Opposition, p. 16). In any event, neither the 

amended complaint nor the December 2019 Registration Statement provide any basis for a claim 

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of control person liability as to the Trust. The amended complaint alleges that, along with 

Sonderman, Potter, and Velissaris, Lindell "created Infinity O" and took on a number of roles at 

Infinity 0, including Chief Risk Officer (Amended Complaint, ,r,r 4, 30, 214 [ emphasis added]). 

The December 2019 Registration Statement confirms that any role Lindell had was with Infinity 

Q, describing that "Scott Lindell is the Chief Risk Officer of Infinity Q, and joined the firm in 

2014" (December 2019 Registration Statement, p. 25). The court dismisses the section 15 claim 

against Lindell because there are no non-conclusory allegations that indicate Lindell had any role 

in the Trust, much less control of the Trust. 

Accordingly, it is 

ORDERED that Lindell's motion to dismiss the amended complaint's causes of action 

against him under sections 11 and 15 of the Securities Act is granted in its entirety. 

\1 

03""2024 

DATE MELISSA A. CRANE, J.S.C. 

CHECK ONE: 

APPLICATION: 

CHECK IF APPROPRIATE: 

§

ASE DISPOSED 

GRANTED DENIED 

ETTLE ORDER 

NCLUDES TRANSFER/REASSIGN §

ON-FINAL DISPOSITION 

RANTED IN PART 

UBMITORDER 

IDUCIARY APPOINTMENT 

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DTHER 

REFERENCE 

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