An investment adviser and his firm and affiliates will pay $23.5 million to settle civil fraud charges brought by federal regulators in one of the earliest cases related to the financial crisis.
The Securities and Exchange Commission announced the settlement Friday with Thomas Priore and ICP Asset Management, and two affiliated firms. The SEC accused Priore and the firms in June 2010 of misleading investors in the sale of complex, multibillion-dollar mortgage securities. The investors lost tens of millions of dollars while Priore and the firms reaped millions in fees and undisclosed profits, the SEC said.
Wall Street banks sold the pooled securities, known as collateralized debt obligations, at the height of the housing boom. CDOs combine slices of debt with varying levels of risk. As U.S. homeowners started falling behind on their mortgages and defaulted in droves in 2007, buyers of CDOs lost billions.
Goldman Sachs agreed to pay $550 million in July 2010 to settle similar charges with the SEC. The Wall Street powerhouse was accused of misleading investors by failing to tell them the mortgage securities had been chosen with help from a Goldman hedge fund client that was betting the investments would fail.
Priore, who is the founder and president of ICP Asset Management, and the New York-based firms neither admitted nor denied the SEC's allegations but did agree to refrain from future violations of the securities laws.
Priore also will be barred for at least five years from working for any brokerage firm, investment advisory firm, municipal securities dealer or transfer agent.
Under terms of the settlement, Priore himself agreed to pay a $487,618 civil fine and about $1 million in restitution plus interest. ICP Asset Management and parent Institution Credit Partners are paying about $17.6 million in restitution and interest. ICP Asset Management pay a $650,000 fine. Affiliated brokerage firm ICP Securities is paying a $1.9 million fine and about $1.9 million in restitution plus interest.
The settlement "sends a clear message that investment advisers must always act in the best interests of their advisory clients, even if those clients are sophisticated investors," George Canellos, the SEC's deputy enforcement director, said in a statement.
The SEC conducted a wide-ranging investigation of financial firms' actions in the run-up to the financial crisis of 2008, and CDO transactions were a major focus. The big banks that put together and sold CDOs retained investment firms like ICP to manage the transactions as third parties.
JPMorgan Chase & Co. resolved similar charges with the SEC in June 2011, agreeing to pay $153.6 million. Citigroup Inc. agreed to pay $285 million to settle, though that was struck down by a federal judge last November.
Last month Wells Fargo's brokerage firm agreed to pay $6.58 million to settle SEC charges that it failed to adequately inform investors about the risks tied to mortgage securities it sold. The firm improperly sold the high-risk investments to cities and towns, nonprofit institutions and other investors in 2007, when the housing market was unraveling, according to the SEC.
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