Fri, 30/11/2012 - 16:10
A federal court jury in Boston, Massachusetts returned a verdict of securities fraud liability against registered investment adviser EagleEye Asset Management and its sole principal, Jeffrey A Liskov, both of Plymouth, MA, in connection their fraudulent conduct toward advisory clients.
The trial was presided over by US District Court Judge William G.Young.
In its complaint, the US Securities and Exchange Commission alleged that, between at least November 2008 and August 2010, Liskov made material misrepresentations to at least six advisory clients to induce them to liquidate investments in securities and instead invest the proceeds in foreign currency exchange trading. The forex investments, which were not suitable for older clients with conservative investment goals, resulted in steep losses for clients, totalling nearly USD4m, but EagleEye and Liskov came away with over USD300,000 in performance fees, in addition to other management fees they collected from clients.
Liskov’s strategy was to generate temporary profits on client forex investments to enable him to collect performance fees, after which client investments invariably would sharply decline in value. According to the Commission’s complaint, Liskov made material misrepresentations or failed to disclose material information to clients concerning the nature of forex investments, the risks involved, and his poor track record in forex trading for himself and other clients.
The Commission’s complaint further alleged that, in the case of two clients, without their knowledge or consent, Liskov liquidated securities in their brokerage accounts and transferred the proceeds to their forex trading accounts where he lost nearly all client funds, but not before first collecting performance fees for EagleEye (and ultimately himself) on short-lived profits in the clients’ forex accounts.
The complaint alleged that Liskov accomplished the unauthorized transfers by doctoring asset transfer forms. On several occasions, Liskov took old forms signed by the clients and used “white out” correction fluid to change dates, asset transfer amounts, and other data. Liskov also used similar tactics to open multiple forex trading accounts in the name of one client, thereby maximizing his ability to earn performance fees for EagleEye (and ultimately himself) on the client’s investments, all without disclosing this to the client or obtaining the client’s consent.
The Commission alleged that, as a result of this conduct, EagleEye and Liskov violated Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder and Sections 206(1) and 206(2) of the Investment Advisers Act of 1940. The Commission also alleged that EagleEye failed to maintain certain books and records required of investment advisers in violation of Section 204 of the Advisers Act and Rule 204-2 thereunder, and that Liskov aided and abetted EagleEye’s violations of these provisions.
After an eight day trial, the jury deliberated for approximately four hours before rendering its verdict of liability against Liskov and EagleEye under Section 10(b) of the Exchange Act and Rule 10b-5 thereunder as to four clients and under Section 206(1) of the Advisers Act as to five clients. The Court will decide the Commission’s claims under Section 204 of the Advisers Act and Rule 204-2 thereunder and will hold a hearing on the Commission’s request for injunctive relief, disgorgement of ill-gotten gains plus prejudgment interest thereon, and the imposition of a monetary penalty against both EagleEye and Liskov, based on the jury’s verdict.
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