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US Regulator Demands Access To Hedge Fund's Books

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

10 July 2007


The US Commodities And Futures Trading Commission (CFTC) has filed a contempt of court motion against the Bermuda-registered Lake Shore Asset Management Limited (LAM) in response to its refusal to allow CFTC staff investigate the fund's accounts, on the grounds of bank secrecy rules.

The CFTC’s motion was issued in response to LAM's violation of an ex parte statutory restraining order (SRO) freezing the fund's assets and prohibiting LAM from destroying or altering records, or refusing CFTC inspector's access to its books.

“The Commission’s ability to inspect books and records is a critical regulatory tool that allows us access to a registrant’s daily operations. When a CPO or CTA denies us that right of access, we must act swiftly to protect investors and important documents,” argued Gregory Mocek, the CFTC’s Director of Enforcement.

LAM, incorporated in Bermuda but with a Chicago office, is registered as a Commodity Pool Operator (CPO) and Commodity Trading Advisor (CTA). The CFTC's initial complaint alleges that LAM's Director, Laurence Rosenberg, a former chairman of the Chicago Mercantile Exchange, told the National Futures Association (NFA) that none of LAM’s business is conducted in Bermuda, and that all telephone calls to the Bermuda office are forwarded to an office in Toronto, Canada, where all trading is done and all books and records are maintained. However, according to the CFTC, the Toronto address is only a mail drop, not a business address.

The complaint further alleges that that LAM managed substantially less than claimed by Rosenberg. According to Rosenberg, LAM managed approximately 250 accounts and operated several commodity pools, with total assets of approximately $1 billion. Rosenberg initially provided the NFA with access to LAM’s protected web pages, but then blocked access after receiving advice from its lawyers that revealing the information could breach secrecy laws in Switzerland, where many clients are based. The NFA managed to find $466,710,761 in assets for all commodity pools and managed accounts, but the CFTC says that LAM has neither allowed CFTC staff to inspect and copy its books and records, nor has it produced the requested documents to the CFTC, as mandated by the court’s order. Because LAM is a registered commodity trading advisor (CTA) and commodity pool operator (CPO), the CFTC argues that it is entitled to inspect all of LAM’s books and records, not simply selected documents.

"LAM continues to hide behind unspecified Swiss “bank secrecy” laws and has only produced minimal and selective documents to CFTC staff," the Commission stated.

According to the Financial Times, LAM said last week that it has only one US client who has invested US$1 million into the fund, and that it would not reveal any details about its other clients.

The complaint also alleges that LAM’s principals, including Rosenberg, have made several inconsistent statements concerning assets in the pools and managed accounts, LAM’s ownership, US investors in the pools, and the location of its books and records. The FT reported that LAM admitted giving inaccurate statements, but that this was a mistake.

The matter is set for a status hearing on July 11, 2007.

A comprehensive report in our Intelligence Report series examining offshore confidentiality is available in the Lowtax Library at http://www.lowtaxlibrary.com/asp/subs_reports.asp and a description of the report can be seen at http://www.lowtaxlibrary.com/asp/description_report1.asp

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