Securities and Exchange Commission filed a lawsuit in the United States District Court against owner, founder Thomas Priore, and his firm ICP Asset Management, alleging that they violated federal securities laws by engaging in unlawful transactions that defrauded four multibillion-dollar “Triaxx” CDOs, which were primarily invested in mortgage-backed securities worth tens of millions of dollars.
According to the lawsuit, ICP engaged in fraudulent practices and misrepresentations concerning its management of the Triaxx CDOs, causing the CDOs to lose tens of millions of dollars.
Thomas Priore and his companies fraudulently acquired tens of millions of dollars in consulting fees and hidden profits at the cost of their clients and investors.
How Thomas Priore Fraudulently Acquired Tens Of Millions Of Dollars
The SEC further claims that ICP and Priore made over a billion dollars in trades for the Triaxx CDOs at inflated pricing. ICP and Priore regularly caused the Triaxx CDOs to overpay for securities to profit from ICP and cover other ICP clients from losses.
The prices for such exchanges frequently exceeded market prices by a wide margin. In some trades, ICP forced the CDOs to pay a fee significantly higher than the price paid for the securities by another ICP client earlier that day.
Thomas Priore Accused Of Multiple Illegal Transactions
According to the SEC’s complaint, ICP and Thomas Priore generated the CDOs to conduct several illegal transactions without getting the necessary licenses. They then later misrepresented those investments to the CDO trustee and investors.
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Many of these investments’ prices should have been more accurately estimated for ICP to obtain millions of dollars in advising fees from the CDOs. The SEC further claims that ICP and Priore made covert financial transfers from a hedge fund they operated to help another ICP customer to pay one of its creditors’ margin calls. Priore later misled the hedge fund’s investors about the transfers.
Lawsuit Against Thomas Priore
According to the complaint, ICP, ICP Securities, Institutional Credit Partners, and Thomas Priore violated Section 17(a) of the Securities Act of 1933 and violated Section 10(b) of the Securities Exchange Act of 1934, and Rule 10b-5 thereunder.
The lawsuit further claims that ICP and Priore violated Sections 206(1), (2), and (4) of the Investment Advisers Act of 1940 (Advisers Act) and Rule 206(4)-8 thereunder, and that ICP Securities, Institutional Credit Partners, and Priore aided and abetted breaches.
According to the accusation, ICP and Priore breached Section 206(3) of the Advisers Act. According to the complaint, ICP breached Sections 204 and 206(4) of the Advisers Act and Rules 204-2 and 206(4)-7 thereunder.
Allegations Of Violence Against Thomas Priore
The complaint additionally alleges that ICP Securities violated Section 15(c)(1)(A) of the Exchange Act and Rule 10b-3 thereunder and that ICP and Priore assisted and encouraged such breaches. Finally, the complaint claims that Priore violated Sections 10(b) and 15(c)(1)(A) of the Exchange Act, as well as Rules 10b-3 and 10b-5 thereunder, as a control person.
The SEC’s complaint seeks an indefinite order prohibiting the defendants from future violations of federal securities laws, civil fines, disgorgement of ill-gotten gains, and prejudgment interest.
SEC Reached A Settlement Agreement With Thomas Priore
The Securities and Exchange Commission has agreed in principle in its complaint charging ICP Asset Management and its founder, Thomas Priore, of fraudulently managing four collateralized debt obligations.
The settlement of the lawsuit, one of several found by the SEC during the financial crisis and the collapse of the U.S. housing market, was disclosed in a letter filed on Wednesday in U.S. District Court in Manhattan by lawyers for the parties.
It was the commission’s first case against a CDO collateral manager.
Lawyers for the SEC, ICP, and individual defendants, including founder Thomas Priore, said they expect to submit the settlement for court approval by the end of August.
Regarding the settlement, U.S. District Judge Lewis Kaplan said that a trial was scheduled to start on September 11 and will be postponed until September 25.
The terms of the settlement were not disclosed. According to the letter, the deal is subject to the approval of the SEC’s five commissioners. Any compensation would also be subject to Kaplan’s approval.
About Thomas Priore
Thomas Priore has been the Executive Chairman and a founding member of Priority since August 2005, and he was recently appointed Chief Executive Officer in December 2018.
Thomas Priore established Triaxx Asset Management LLC. He is the Chairman, President, and Chief Executive Officer of Priority Technology Holdings, Inc., and the Chairman and Chief Executive Officer of Pipeline Cynergy Holdings LLC.
He previously held the positions of Executive Chairman of Priority Holdings LLC, Chief Executive & Investment Officer of Triaxx Asset Management LLC, and Sales Professional of Painewebber Group, Inc.
Thomas Priore received a bachelor’s degree from Harvard University and an MBA from The Trustees of Columbia University in New York City.
Priore worked at Guggenheim Securities from 1999 to 2003, developing the Structured Finance Trading and Origination company and leading the Fixed Income Sales and Trading division.
Priore previously worked with PaineWebber’s Fixed Income Sales and Trading department for eight years, rising to Vice President. Priore is a Harvard University graduate with an MBA from Columbia University. Priority’s Vice Chairman, John Priore, is Thomas Priore’s brother.
Conclusion
In June 2010, the SEC filed a lawsuit against ICP and Thomas Priore, alleging that they violated federal securities laws by engaging in unlawful transactions that defrauded four multibillion-dollar “Triaxx” CDOs, which were primarily invested in mortgage-backed securities worth tens of millions of dollars.
An updated complaint filed in June 2011 added new accusations, alleging that Priore tried to move millions of dollars in real estate holdings after learning the SEC was about to sue him. Priore’s wife Lori and his friend Bertrand Smyers were both included in the latest complaint.
The agreement would also include claims against Lori Priore and Smyers. Their attorneys, S. Robert Schrager for Lori Priore and Simon Miller for Smyers, did not reply to requests for comment.
