CFTC Lodges Anti-Fraud Action Against New York Hedge Fund

by Glen Shapiro, LawAndTax-News.com, New York

08 February 2007

The US Commodity Futures Trading Commission (CFTC) on Tuesday announced the filing of a complaint in the US District Court for the Northern District of Georgia against Cornerstone Capital Management LLC, a New York-based hedge fund, and its chief executive officer, Joseph Profit II, of Atlanta.

The complaint alleges violations of the Commodity Exchange Act’s anti-fraud provisions and a Commission regulation.

On January 31, 2007, US District Judge Richard Story issued a restraining order freezing the assets of Cornerstone and Profit, and prohibiting the defendants from destroying documents or denying CFTC staff access to books and records.

According to the CFTC complaint, from at least May 2005 through January 24, 2007, Cornerstone, which was registered with the CFTC and acting as a commodity pool operator (CPO) and commodity trading adviser (CTA), and defendant Joseph Profit, employed schemes to defraud actual and prospective commodity pool participants and clients by misrepresenting the rates of return Cornerstone generated for its pool participants and the value of assets it managed in its Icon Fund.

For example, the defendants claimed that Cornerstone had assets under management ranging from $20 million to $60 million, though Profit admitted that as of January 23, 2007, the Cornerstone Capital Management Icon Fund had at most received a little more than $2.25 million in assets from participants.

In addition to via the mail and other means, defendants allegedly solicited participants and clients through the Internet website www.cornerstonecapitalmanagement.com.

The CFTC complaint also argues that Profit willfully concealed material information from the National Futures Association (NFA), a self regulatory futures organization, and further failed to submit an NFA- required Annual Report for 2005.

“Since 2002, we have filed more than 50 cases against commodity pool operators and hedge funds that have committed violations under the Commodity Exchange Act. This is one more example of our aggressive enforcement against those who use deceptive techniques and claim to manage hedge fund money,” announced Gregory Mocek, Director of Enforcement at the CFTC.

In the ongoing action, the CFTC seeks orders of preliminary and permanent injunction against the defendants, a return of alleged ill-gotten gains, repayments to defrauded investors, monetary penalties, and other relief.

Recommended