ANOTHER SIGNIFICANT MARKET CRISIS CASE

The SEC brought another significant market crisis case, SEC v. ICP Asset Management, LLC (S.D.N.Y. Filed June 21, 2010). The action is against ICP Asset Management, LLC, a registered investment adviser owned by ICP Holdco; ICP Securities, LLC, a registered broker dealer owned by ICP Holdco; and Institutional Credit Partners, LLC or ICP Holdco, controlled by Thomas Priore, also a defendant.

The Commission’s complaint centers on a series of transactions involving four multi-billion dollar collateralized debt obligations know as Triaxx CDOs. It alleges violations of Securities Act Section 17(a), Exchange Act Sections 10(b) and 15(c)(1)(a) and Advisers Act Section 206.

ICP Asset Management has managed the Triaxx CDOs since 2006. As the markets declined, according to the SEC, ICP Asset Management and the other defendants engaged in repeated fraudulent conduct to the detriment of its clients. In one series of transactions, it caused the Triaxx CDOs to repeatedly overpay for bonds. Frequently, those transactions were undertaken to protect other clients. For example, in one transaction, ICP Asset Management had a CDO buy about $22 million of mortgage bonds from another client for $75 per bond. Earlier the same day ICP Asset Management had purchased the same bonds for that client at $63.50 per bond. As a result, the CDO lost about $2.5 million. According to the complaint, ICP Asset Management directed more than a billion dollars in fraudulent trades for Triaxx CDOs that were similar and at inflated prices.

Defendant ICP Asset Management also structured trades which benefited its affiliates at the expense of the CDOs. In one purchase of a large portfolio of mortgage bonds, ICP altered the trade so its affiliates could make a $14 million profit at the expense of the CDOs. In other transactions ICP Asset Management and its affiliates benefited from undisclosed mark ups. The defendants also caused the CDOs to enter into prohibited transactions and misrepresented the value of holdings.

By early 2010, the bulk of the bonds held by the Triaxx CDOs which had once been AAA rated were downgraded to junk status. In sum, the defendants put their profits and interest before those of their clients, according to the complaint. The case is in litigation.