The Securities and Exchange Commission said Monday it charged ICP Asset Management LLC and its founder and president, Thomas Priore, with defrauding investors in four multi-billion-dollar collateralized debt obligations that were insured by American International Group.
ICP's affiliated broker-dealer, ICP Securities LLC, and its parent company, Institutional Credit Partners LLC, also are charged in the SEC's complaint.
According to the complaint, which was 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.
The SEC alleges that, as the markets declined, ICP repeatedly caused the CDOs to overpay for bonds, often in order to protect other ICP clients from realizing losses or to make money for ICP.
ICP also defrauded the CDOs by structuring trades in ways that "disadvantaged the CDOs and allowed ICP and its affiliates to reap massive, risk-free and undisclosed profits at the CDO's expense."
According to the complaint, the defendants' abuses of their fiduciary duties to clients included numerous other improper practices, such as entering into prohibited investments, failing to obtain required approvals for trades, misprepresenting the value of holdings, and deceiving clients, investors and other parties about the CDOs' investments.
"By early 2010, the bulk of the bonds held by the Triaxx CDOs, which had once been AAA-rated, had been downgraded to junk bond status, leaving investors with heavily impaired collateral and exposing them to potentially massive losses as the CDOs mature."
As a result, ICP improperly obtained tens of millions of dollars of fees and undisclosed profits at the expense of clients and investors.
"ICP and Priore repeatedly put themselves ahead of their clients," Robert Khuzami, director of the SEC's enforcement division, said in a press release. "Instead of acting as fiduciaries, they took advantage of a distressed market to line their own pockets."
Priore, reached by telephone said, "We at all times acted in the best interests of our clients and intend to vigorously defend ourselves against these allegations."
The lawsuit is part of a broader probe of conflicts of interests at investment advisers that manage structured financial products. The SEC sued Goldman Sachs Group Inc. in April, claiming it didn’t disclose to investors the role played by hedge fund Paulson & Co. in devising and betting against mortgage
ICP was formed in 2004 as an affiliate of Bank of New York and was spun off in 2006. Priore is the majority owner.
In March, PrinceRidge Holdings LP subsequently announced plans to take over ICP's domestic and international capital markets business. Bloomberg reported that PrinceRidge subsequently abandoned the deal after learning about the transaction. No one at PrinceRidge was immediately available to comment.
The SEC said its complaints it wants the defendents to disgorge any illicit profits or ill-gotten gains received and all amounts by which they have been unjustly enriched as a result of the alleged misconduct and to pay civil monetary penalties.