The SEC settled another significant market crisis case at the close of last week when the founder and president of investment advisory firm ICP Asset Management, Thomas C. Priore and his firm, along with the related entities, agreed to settle a fraud action brought over two years ago. SEC v. ICP Asset Management, LLC, Civil action No. 10-cv-4791 (S.D.N.Y. Filed June 21, 2010). The action alleged violations of Securities Act Section 17(a), Exchange Act Sections 10(b) and 15(c)(1)(a) and Advisers Act Section 206(1), (2), (3) and (4) by the adviser, ICP Holdco, ICP Securities, LLC, a registered broker dealer owned by ICP Holdco, Institutional Credit Partners, LLC and Mr. Priore. .

The Commission’s complaint focused a series of transactions related to four multi-billion dollar collateralized debt obligations know as Triaxx CDOs. ICP Asset Management has managed the Triaxx CDOs since 2006. As the markets declined the adviser and other defendants engaged in repeated fraudulent conduct to the detriment of the clients. For example, in one series of transactions, it caused the Triaxx CDOs to repeatedly overpay for bonds. Frequently, those transactions were undertaken to protect other clients. In one transaction, ICP Asset Management had a CDO purchase 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, most of the bonds held by the Triaxx CDOs which had once been AAA rated were downgraded to junk status.

After litigating the case for two years each of the defendants agreed to settle, consenting to the entry of permanent injunctions based on each of the sections cited in the complaint. In addition, Mr. Priore agreed to pay disgorgement of $797,337, prejudgment interest and a penalty of $487,337. ICP and its holding company, Institutional Credit Partners, on a joint and several basis, will pay disgorgement of $13,916,005 along with prejudgment interest. The adviser was also ordered to pay a penalty of $650,000. ICP Securities agreed to pay disgorgement of $1,637,581 along with prejudgment interest and a penalty of $1,939,474. Mr. Priore also agreed to settle an administrative proceeding against him. Under the terms of that settlement he will be barred from the securities business and from participating in any penny stock offering with a right to reapply after five years. As part of the settlement the Commission withdrew certain unjust enrishment and fraudulent conveyance claims, without prejudice, against Mr. Priore, his wife and Bertrand Smyers. See also Lit. Rel. No. 22477 (Sept. 10, 2012).