By Patrick Fitzgerald
The liquidators of a pair of failed Cayman Islands-based hedge
funds run by a former Harvard quarterback are suing Barclays PLC to
claw back some $80 million they say was illegally funneled to the
bank to cover margin calls.
The offshore funds--ICP Strategic Credit Income Fund Ltd. and
ICP Strategic Credit Income Master Fund Ltd. -- were so-called
feeder funds managed by ICP Asset Management LLC, a
money-management firm founded by Thomas C. Priore.
Lawyers for the liquidators said in a suit filed in U.S.
Bankruptcy Court in New York that Mr. Priore, ICP's 46-year-old
founder and former Harvard University quarterback, fraudulently
transferred more than $40 million to Barclays to cover margin calls
at a troubled collateralized debt obligation known as Triaxx.
"Barclays knowingly participated in ICP Asset Management's and
Priore's fraudulent purposes," lawyers for the liquidators said.
"Barclays knew that during the first half of 2008, ICP Asset
Management and Priore caused other investment vehicles they managed
to make over $40 million in fraudulent transfers to Barclays to
cover Triaxx Funding's margin obligations."
In U.S. bankruptcy proceedings, a judge can find certain
transfers or payments to be fraudulent if a company was insolvent
when taking on new liabilities. The $80 million liquidators are
seeking comes from the addition of interest and damages.
Barclays declined to comment. Mr. Priore, a Westchester County
native, who played for the Crimson from 1988 to 1990, couldn't be
reached for comment.
The Triaxx CDOs were loaded with $11 billion in mortgage-backed
securities issued at the tail end of the housing boom. When the
value of its mortgage holdings tanked in 2008, Triaxx was on the
hook for margin payments to its repo lender, Barclays.
The Cayman liquidators said Mr. Priore tried to keep Triaxx
afloat by funneling money from the hedge funds to cover the margin
calls to Barclays.
"In effect, Barclays assisted ICP Asset Management and Priore in
laundering the looted funds from the Master Fund by concealing the
fact that the Master Fund was paying Triaxx Funding's interest
obligations and expenses," the lawsuit said.
The liquidators, two London-based Grant Thorton accountants, put
the funds into bankruptcy in the U.S. a little more than two years
ago under chapter 15, the section of the bankruptcy code dealing
with international insolvencies. At the time, the liquidators said
they placed the funds in chapter 15 to help them locate and claw
back assets in the U.S. for the benefit of the funds'
creditors.
The ICP hedge funds were created for foreign and tax-exempt
investors to avoid U.S. tax laws. Investors pumped $245 million
into the funds, which were invested in CDOs known as Triaxx.
In 2010, the Securities and Exchange Commission accused Mr.
Priore and ICP of defrauding investors in similar Triaxx deals. Mr.
Priore settled, without admitting guilt, with the SEC for $23.6
million. He also agreed to a five-year ban from working as a
broker, dealer, investment adviser, municipal securities dealer or
transfer agent.
Write to Patrick Fitzgerald at patrick.fitzgerald@wsj.com
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