SEC Charges Investment Adviser with Fraudulent Management of CDOs

June 22, 2010

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On June 21, 2010, the U.S. Securities and Exchange Commission (“SEC”) charged a New York based registered investment adviser and three affiliated firms with the fraudulent management of collateralized debt obligations (“CDOs”) tied to mortgage backed securities.  The SEC alleges that ICP Asset Management LLC, and its owner/president Thomas Priore, made fraudulent misrepresentations that earned the firm several million dollars in advisory fees and also caused four CDOs to lose tens of millions of dollars.  

According to the SEC’s complaint, the defendants caused the CDOs to enter into several prohibited transactions at inflated prices so the firm could collect larger advisory fees.  In some instances, the defendants caused the CDOs to purchase assets from other firm clients at prices well above the market price.  The SEC further alleges that the defendants made misrepresentations about these transactions to both investors and the trustees of the CDOs. 

The defendants are charged with violating their fiduciary duty as investment adviser, which requires all investment advisers to conduct their business in a manner that is in their clients’ best interest.  Robert Khuzami, the Director of the SEC’s Enforcement Division, characterized the firm’s actions as violating their fiduciary duty by putting their own interests ahead of their clients and taking “advantage of a distressed market to line their own pockets.” 

Seeking a permanent injunction, disgorgement of profits, and other monetary penalties, the SEC’s complaint also charges the defendants with participation in prohibited transactions, failure to maintain required books and records, and other charges in violation of Sections 204 and 206(1)-(4) of the Investment Advisers Act of 1940; SEC Rules 204-2, 206(4)-7, and 206(4)-8; the Securities Act of 1933; and the Securities Exchange Act of 1934.

Posted by Bryan Hill
Labels: Enforcement, SEC