U. S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 21846 / February 9, 2011
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 ORDER SETTING DISGORGEMENT, PREJUDGMENT INTEREST, AND CIVIL PENALTIES IN MINNESOTA HEDGE FUND FRAUD CASE
The Securities and Exchange Commission announced that on February 7, 2011, an Order was entered in the U.S. District Court of Minnesota, setting disgorgement, prejudgment interest, and civil penalties against John W. Lawton and Crossroad Capital Management, LLC, the owner and investment adviser to hedge fund Paramount Partners, LP. Lawton was ordered to pay disgorgement of $1,758,788 plus prejudgment interest and a civil penalty in the amount of $100,000. Crossroad was ordered to pay disgorgement of $2,075,670 plus prejudgment interest and a civil penalty in the amount of $500,000. As of February 8, 2011, approximately $1,441,249, previously frozen by the Court, had been transferred to the Registry of the Court.
The Commission originally filed its action against the Defendants on February 18, 2009. The Commission's complaint alleged that Paramount was a hedge fund to which approximately 50 to 60 investors provided $9 million. The complaint alleged that Lawton and Crossroad fraudulently misrepresented Paramount's assets and returns to investors. The complaint further alleged that in January 2009, Defendants sent account statements to investors that reflected investments totaling about $17 million as of December 31, 2008. In fact, Paramount allegedly had about $5.3 million of assets at that time and less than $2 million in January 2009.
On February 25, 2009, the Defendants voluntarily consented to the entry of a Preliminary Injunctive Order and Asset Freeze. On July 13, 2009, the Honorable Judge Ann Montgomery issued an Order of Permanent Injunction and Other Relief against the Defendants, by consent, enjoining 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 against Crossroad and Lawton with respect to violations of the antifraud provisions of the Investment Advisers Act of 1940 [Sections 206(1), 206(2), and 206(4) and Rule 206(4)-8 thereunder] and Lawton for aiding and abetting Crossroad’s violations.