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SEC Charges N.Y.-Based Investment Adviser With Fraudulent Management of CDOs Tied to Mortgage-Backed Securities


Washington, D.C., June 21, 2010 — The Securities and Exchange Commission today charged a New York-based investment adviser and three of his affiliated firms with fraudulently managing investment products tied to the mortgage markets as they came under pressure in 2007.

The SEC alleges that, at the direction of its owner and president Thomas Priore, ICP Asset Management LLC defrauded four multi-billion-dollar collateralized debt obligations (CDOs) by engaging in fraudulent practices and misrepresentations that caused the CDOs to lose tens of millions of dollars. Priore and his companies also improperly obtained tens of millions of dollars in advisory fees and undisclosed profits at the expense of their clients and investors.

"ICP and Priore repeatedly put themselves ahead of their clients," said Robert Khuzami, Director of the SEC's Enforcement Division. "Instead of acting as fiduciaries, they took advantage of a distressed market to line their own pockets."

According to the SEC's complaint, filed in the U.S. District Court for the Southern District of New York, ICP began serving in 2006 as the collateral manager for what were known as the Triaxx CDOs, which invested primarily in mortgage-backed securities. ICP's affiliated broker-dealer ICP Securities LLC and its parent company Institutional Credit Partners LLC also are charged in the SEC's complaint.

The SEC alleges that ICP and Priore directed more than a billion dollars of trades for the Triaxx CDOs at what they knew were inflated prices. ICP and Priore repeatedly caused the Triaxx CDOs to overpay for securities in order to make money for ICP and protect other ICP clients from realizing losses. The prices for such trades often exceeded market prices by substantial margins. In some trades, ICP caused the CDOs to pay a price that was substantially higher than the price another ICP client paid for the security earlier the same day.

George S. Canellos, Director of the SEC's New York Regional Office, said, "The CDOs were complex but the lesson is simple: collateral managers bear the same responsibilities to their clients as every other investment adviser. When they violate their clients' trust, we will hold them accountable."

According to the SEC's complaint, ICP and Priore caused the CDOs to make numerous prohibited investments without obtaining necessary approvals, and they later misrepresented those investments to the trustee of the CDOs and to investors. The prices of many of these investments were intentionally inflated to allow ICP to collect millions of dollars in advisory fees from the CDOs. The SEC further alleges that ICP and Priore executed undisclosed cash transfers from a hedge fund they managed in order to allow another ICP client to meet the margin calls of one of its creditors. Priore subsequently misrepresented the transfers to the hedge fund's investors.

The SEC's complaint charges the defendants with violations of Section 17(a) of the Securities Act of 1933, Sections 10(b) and 15(c)(1)(a) of the Securities Exchange Act of 1934 and Rules 10b-3 and 10b-5 thereunder, and Sections 204, 206(1), 206(2), 206(3), and 206(4) of the Investment Advisers Act of 1940 and Rules 204-2, 206(4)-7, and 206(4)-8 thereunder. The SEC's complaint seeks permanent injunctions barring future violations of the federal securities laws, disgorgement of the defendants' ill-gotten gains with pre-judgment interest, and monetary penalties.

Celeste A. Chase, Joseph O. Boryshansky, Susannah M. Dunn, Joshua R. Pater, and Kenneth Gottlieb of the New York Regional Office conducted the SEC's investigation, which is continuing.

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For more information about this enforcement action, contact:

George S. Canellos
Regional Director, SEC's New York Regional Office
(212) 336-1020

Andrew M. Calamari
Associate Regional Director, SEC's New York Regional Office
(212) 336-0042

Celeste A. Chase
Assistant Regional Director, SEC's New York Regional Office
(212) 336-0049



Modified: 06/21/2010