The US Commodity Futures Trading Commission has obtained a default judgment order against the Lake Shore Group of Companies, 12 commodity pools operating under variations of the name Lake
The US Commodity Futures Trading Commission has obtained a default judgment order against the Lake Shore Group of Companies, 12 commodity pools operating under variations of the name Lake Shore Alternative Financial Asset Account (or Fund) and Hanford Investments, which permanently bars them from trading commodity futures.
The default order, entered by the US District Court in Chicago, stems from a complaint filed by the CFTC alleging that Philip J. Baker, Lake Shore Asset Management and the other defendants in the case defrauded hundreds of pool participants, who collectively invested at least USD300m to trade commodity futures contracts on US markets.
The court has yet to determine liability against Baker and Lake Shore Asset Management, but it entered the default order against the other defendants because they never responded to the CFTC’s amended complaint.
In its order, the court found that the defendants, operating as a common enterprise, defrauded and deceived pool participants by misappropriating more than USD11m of their funds, misrepresenting the pools’ profits and losses, failing to disclose trading losses and other material facts, and causing false statements to be issued to participants.
The order enters an asset freeze against the default defendants and others in active concert with them, permanently enjoining them from destroying, altering or concealing their books and records, and orders them to grant CFTC representatives and the Lake Shore receiver immediate access to the books and records.
The order also requires that funds on deposit at brokerages Sentinel Management Group, which itself has filed for bankruptcy protection amid fraud allegations, MF Global UK, Newedge and Lehman Brothers International Europe be transferred to a court-appointed receiver for distribution to Lake Shore clients through the receivership estate.
Because the court found that the default defendants operated as a common enterprise, each defendant is liable for the violations of other members. The court has reserved for further proceedings the issues of restitution for defrauded pool participants and a civil monetary penalty for the default defendants.
In its continuing litigation against Baker and Lake Shore, the CFTC is seeking permanent injunctive relief, the return of funds to defrauded pool participants, the repayment of ill-gotten gains, and civil monetary penalties for each violation of the Commodity Exchange Act.
In its investigation, the CFTC’s Enforcement Division has been assisted by the Barbados Securities Commission, the Belize Financial Intelligence Unit, the Bermuda Ministry of Finance, the BVI Financial Services Commission, the Ontario Securities Commission, the Superintendencia de Valores y Seguros of Chile, the Superintendencia Financiera de Colombia, the Isle of Man Financial Services Commission, the Peruvian Comisión Nacional Supervisora de Empresas y Valores, Switzerland’s Federal Banking Commission, the Turks and Caicos Financial Services Commission, and the Financial Services Authority in the UK.
