The Securities and Exchange Commission accused Thomas Priore and ICP Asset Management of fraudulently managing the securities in a way that cost investors tens of millions of dollars. The SEC also said Priore and the New York firm he owns and heads as president improperly reaped millions in fees and undisclosed profits at the expense of clients.
The SEC is seeking injunctions, and unspecified restitution and fines.
Priore and ICP denied the SEC's charges and said they would contest them in court. In a statement, Priore and the firm said they "at all times acted in the best interests of their clients and intend to vigorously defend themselves against the SEC's allegations."
The allegations involve four multibillion-dollar collateralized debt obligations, the type of pool of securities that also are the focus of the SEC's civil fraud charges against Wall Street titan Goldman Sachs Group Inc.
Wall Street firms packaged and sold CDOs tied to mortgages to investors at the height of the housing boom. Buyers of CDOs, mostly banks, pension funds and other big investors, made money from the investments if the underlying debt was paid off. But as U.S. homeowners started falling behind on their mortgages and defaulted in droves in 2007, CDO buyers lost billions.
The SEC has been conducting a wide-ranging investigation of financial firms' conduct in the run-up to the financial crisis of 2008, and CDO transactions have been a focus. In the high-profile Goldman Sachs case, the firm is accused of misleading investors by failing to tell them the mortgae securities had been chosen with help from a Goldman hedge fund client, Paulson & Co., that was betting the investments would fail. Goldman has denied wrongdoing and said it will contest the allegations in court.
In its civil lawsuit against Priore and ICP Asset Management, filed in federal court in New York City, the SEC alleged that the defendants channeled more than $1 billion of trades into the so-called Triaxx CDOs at what they knew were inflated prices. They repeatedly caused investors in the CDOs to overpay for securities with an eye to making money for ICP Asset Management and shielding certain ICP clients from losses, the SEC said.
ICP repeatedly made CDO investments without the required approvals from investors, the agency said.
"ICP and Priore repeatedly put themselves ahead of their clients," SEC Enforcement Director Robert Khuzami said in a statement. "Instead of acting as fiduciaries, they took advantage of a distressed market to line their own pockets."
Also named in the suit were the affiliated brokerage firm ICP Securities and its parent Institutional Credit Partners.