U.S. regulators have charged a prominent New York-based investment manager with civil fraud in a case that delves into the murky world of collateralized debt obligations and the actions that financial players took as the subprime mortgage crisis brewed.
The case against ICP Asset Management LLC and its owner, Thomas Priore, 41, alleges that they directed more than $1-billion (U.S.) worth of trades for four collateralized debt obligations, or CDOs, at what they knew to be inflated prices. The Securities and Exchange Commission alleges that they obtained tens of millions of dollars in advisory fees and undisclosed profits, at the expense of their clients and investors.
"Instead of acting as fiduciaries, they took advantage of a distressed market to line their own pockets," Robert Khuzami, director of the SEC's enforcement division, said in a press release.
A CDO is a highly complicated financial instrument made up of various slices of debt. ICP was the collateral manager to four such investments, known as the Triaxx CDOs, that were launched in 2006 and 2007 and that invested in residential mortgage-backed bonds.
The allegations outlined in the SEC's lawsuit also say that ICP committed the Triaxx CDOs to buying a $1.3-billion portfolio of bonds without obtaining permission from Triaxx's bond insurers – which it was not permitted to do. One of its key insurers was a subsidiary of American International Group, the giant U.S. insurer that collapsed in 2008 because of massive losses on credit derivatives, and the company was bailed out by the U.S. government.
Institutional Credit Partners LLC, one of the ICP affiliates named in the SEC lawsuit, is also named in a suit that Toronto-based Fairfax Financial Holdings Ltd. launched in 2006. That suit alleges that a group of powerful U.S. hedge funds shorted Fairfax shares and then schemed to drive down its stock price using a series of tactics, including intimidating executives and influencing analysts.