The Securities and Exchange Commission today filed civil fraud charges against ICP Asset Management and its founder, Thomas Priore, for fraudulently managing an $11 billion pool of mortgage-backed collateralized debt obligations (CDO) during the housing market bust in 2007.
According to the SEC's complaint, New York-based ICP and Priore defrauded clients by overcharging them for securities purchases and structuring trades in ways that disadvantaged them, enabling ICP and its affiliates to reap "massive, risk-free, and undisclosed profits." The scheme cost investors tens of millions of dollars, the AP reports.
In 2006, ICP began serving as a collateral manager for what was known as the Triaxx CDOs, an investment vehicle whose assets primarily consisted of mortgage-backed bonds. As the markets declined in 2007, ICP and Priore directed more than a billion dollars of trades by the Triaxx CDOs at what they knew were artificially inflated prices, the complaint alleges.
"The CDOs were complex but the lesson is simple," said the director of the SEC's New York Regional Office, George S. Canellos, in the agency's press release. "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."
American International Group and Financial Guaranty Insurance Co. provided insurance on the CDOs, reports the WSJ, but ICP and Priore failed to gain the insurers' required approval for many of the securities purchases.
The SEC suit comes at a time when the agency is trying to step up its financial fraud prevention. Earlier this month, the Washington Post noted that the agency is hiring Wall Street veterans and experts with specialized quantitative skills to better police complex financial systems.