U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 20930 / March 5, 2009
SEC v. John W. Lawton, Paramount Partners LP, and Crossroad Capital Management, LLC , Civil Case No. 09-368 ADM/AJB, USDC, D. Minn.
SEC Obtains Preliminary Injunction In Minnesota Hedge Fund Fraud Case
The Securities and Exchange Commission ("Commission") announced that on February 25, 2009, a preliminary injunction and other relief was entered, by consent, in the U.S. District Court of Minnesota against Paramount Partners, LP ("Paramount"), a hedge fund, Crossroad Capital Management, LLC ("Crossroad"), Paramount's investment adviser, and John W. Lawton ("Lawton"), who runs Crossroad.
The Commission's complaint, filed on February 18, 2009, alleges that Paramount is a hedge fund in which approximately 50 to 60 investors, many of whom live in Minnesota, have invested as much as $9 million. The complaint alleges that Lawton, a resident of San Francisco, California, and Crossroad have engaged in a fraud in which they misrepresented Paramount's assets and returns to investors. The complaint alleges that the defendants represented to investors that Paramount has produced annual returns of 65% to 19% since 2001. The complaint alleges that in January 2009, defendants sent account statements to investors that reflected investments totaling about $17 million as of December 31, 2008. The complaint alleges that, in fact, Paramount only had $5.3 million of assets in its accounts at that time. The complaint alleges that as of February 13, Paramount's assets amounted to less than $2 million, and that defendants withdrew $900,000 in January. The complaint further alleges that when the Commission requested documents from the defendants to verify defendants' claims about Paramount's assets, the defendants provided account statements showing a false $12 million account balance in a brokerage account that had long been closed.
In the Order, the Honorable Judge Ann Montgomery preliminarily enjoins Paramount, Crossroad, and Lawton from violating the antifraud provisions of the Securities Act of 1933 [Section 17(a)] and the Securities Exchange Act of 1934 [Section 10(b) and Rule 10b-5 thereunder], and Crossroad and Lawton with respect to violations of the Investment Advisers Act of 1940 [Sections 206(1), 206(2), and 206(4) and Rule 206(4)-8 thereunder] and aiding and abetting of Crossroad's violations of those provisions by Lawton. The Order, among other things, continues to freeze assets of Paramount, Crossroad, and Lawton until further order of the court. Defendants consented to the Order without admitting or denying the allegations in the Complaint.