Asset Management Firm in Hot Water

Date: Tuesday, July 3, 2007
Author: Lenny Broytman, Risk Center

Lake Shore Asset Management Ltd. (LAM) is reportedly in hot water after having its assets frozen by a federal district court judge.

After a complaint was filed by the Commodity Futures Trading Commission (CFTC), Federal Judge Blanche M. Manning prohibited LAM from destroying or altering any of their records. The orders also state that the firm is not allowed to refuse any inspection that may be initiated by the CFTC.

Judge Manning’s June 27 order states that there is cause to believe that LAM “has engaged, is engaging in, or is about to engage in violations” of the rules of conduct regarding the ways in which the firm manages their books and makes them available to the proper authorities.

CFTC’s head of enforcement, Gregory Mocek, stated that “the commission’s ability to inspect books and records is a critical regulatory tool that allows us access to a registrant’s daily operations.” LAM’s chairman, Laurence Rosenberg, had no immediate comment to combat Mocek’s remarks.

According to hedgeworld.com, the CFTC maintains that LAM has been registered as both a commodity trading advisor and as a commodity pool operator since January.

According to the complaint, LAM’s Rosenberg was required to provide certain documents to the CFTC no later than June 19. Rosenberg responded to the request by stating that his firm operates several commodity pools but had no US-based participants. One of these pools, “LS Fund IV U.S.,” represents some $70 million in assets. Rosenberg also spoke about the 250 accounts his firm manages. In addition, he stated that LAM’s current assets total that the firm now has under its management is around $1 billion. Later on that same day, Rosenberg readjusted his statements, saying that the LS Fund IV US pool does in fact have one US-based investor, with an investment of $1 million.

One of the other discrepancies that arose when LAM was probed by the CFTC was the location of one of the firm’s offices. According to records the company filed with the National Futures Association (NFA), LAM has an office in Bermuda. Rosenberg however, denies the claim, saying that the office is nonexistent.

After the NFA was granted access to some of LAM’s protected web pages, they discovered the firm’s total assets under management figure is actually only about half of what was first filed (a bit less than $500 million). They also uncovered that the firm has at least 10 US investors, also contrary to what LAM initially reported.