Status Updates for June 2007 – October 2007
October 16, 2007: The U.S. Court of Appeals denied Motion for Stay Pending Appeal. As a result of that order, Robb Evans & Associates, LLC, the Temporary Receiver appointed by Judge Manning is now responsible collecting the assets subject to the Court’s order for the sole purpose of making a distribution of funds to the Lake Shore clients. The Court of Appeals directed the District Court Judge to give the Receiver the power to withdraw the lawsuit that Lake Shore filed in England to force the three British FCMs to pay the customer funds to them. The U.S. appellate court also held Lake Shore in contempt of court for not producing its books and records.
In order to facilitate the distribution of funds to the Lake Shore investors, please send the Commission or the Receiver the following information regarding your investment: bank wire advices reflecting deposits and withdrawals, account statements from Lake Shore, promotional materials, subscription agreements and any other documents that you received regarding your investment with Lake Shore. Please note that all information that has been sent to the Commodity Futures Trading Commission will be turned over to the receiver. It is not necessary for you to resubmit this information at this time. Visit the Receiver’s website at http://www.robbevans.com/html/lakeshore.html.
October 4, 2007: Judge Manning entered an order appointing Robb Evans & Associates of California as Receiver. She immediately entered an order staying the effectiveness of the Receivership order to give Lake Shore the opportunity to appeal the appointment of a receiver. Lake Shore immediately appealed the Judge’s order and sought a stay from the appellate court of the District Court’s order appointing a Receiver. Of particular note is that the defendants assert that the Lake Shore entities will be harmed by the Receivership because they “will lose their property, and it will be re-distributed by a Receiver.” (Brief, p. 26) The re-distribution referred to above references the CFTC’s objective of seeking an interim distribution of the frozen assets to the Lake Shore investors.
On October 4, 2007, Judge Manning also issued rules to show cause against Lake Shore Asset Management and its lead counsel for the manner in which they have handled this litigation.
Finally, on October 9, 2007, the CFTC filed a Motion for Sanctions against LSAM for its failure to cooperate in discovery as required by the Federal Rules of Civil Procedure. Specifically, Mr. Baker refused to appear for his deposition in response to a Notice of Deposition served on his counsel and he refuses to respond to written interrogatories.
The Commission is seeking any information that can assist us in locating Mr. Baker. If you have any information concerning his whereabouts, please contact the Commission staff.
September 20, 2007: The Commission has filed a motion seeking appointment of a Receiver for the purpose of distributing investor funds back to their rightful owners. Lake Shore has opposed this motion. The Commission's motion and Lake Shore's opposition are available in Related Documents.
September 12, 2007: The Commission filed a motion asking the Court to appoint a Receiver for the purpose of collecting all of the assets of the Lake Shore Funds and making a distribution of those monies to the Lake Shore pool participants. On September 19, 2007, Lake Shore filed its response objecting to the appointment of a Receiver. The Commission replied to Lake Shore’s Response on September 24, 2007. At the same time, Lake Shore filed a Claim in the High Court in London seeking an order from the British Courts that the funds held by the three FCMs located in London be paid to various Lake Shore entities and to Hanford Investments, a Turks and Caicos entity controlled by Philip Baker. Because the defendants were enjoined from transferring the assets of the Lake Shore Funds, the Commission has filed in the U.S. court, a Motion for Rule to Show Cause why the Lake Shore Common Enterprise and Philip Baker should not be held in contempt for violating the terms of the U.S. District Court’s preliminary injunction. The Judge immediately entered a briefing schedule and indicated that she will rule on the Commission’s motion “expeditiously.”
On the appellate level, Lake Shore’s appeal of the preliminary injunction and the National Futures Association (NFA) Member Responsibility Action (MRA) is still pending. Lake Shore filed its brief on September 20, 2007. The Commission’s brief is due on October 4, 2007. Lake Shore’s reply is due on October 11, 2007. Oral argument is set for October 23, 2007.
Finally, it is not the practice of the U.S. Commodity Futures Trading Commission to seek payment of fines or civil monetary penalties from investor funds frozen by Court Order.
September 7, 2007: The Appellate Court denied LSAM’s motion to stay the asset freeze entered by Judge Manning. For more detailed information about this case, please read the various orders posted on this web page.
August 3, 2007: The Commission filed an Amended Complaint that added Lake Shore Group of Companies (Lake Shore) and Philip Baker as defendants and charged the defendants with fraud. Specifically, the Amended Complaint alleges that the performance results Lake Shore posted on its website were false and that the account statements it issued to its clients were also false.
Judge Manning conducted a three day hearing on the Commission’s Motion for a Preliminary Injunction between August 9-13, 2007. No witnesses affiliated with LSAM or Lake Shore testified. On August 28, 2007, Judge Manning issued a Memorandum and Order which largely granted the Commission’s Motion for a Preliminary Injunction.
Judge Manning found that LSAM “is required to maintain certain documents as a CPO and CTA in connection with its CTA and CPO activities, and must allow inspection of those documents. In the event that Lake Shore Limited believes that certain documents are outside the scope of this order, retention of documents at Lake Shore Limited’s discretion and with no means of verifying the veracity of Lake Shore Limited’s position is unacceptable.” In analyzing the CFTC’s allegations of fraud, the Judge noted that there was an “unexplained discrepancy of close to $60 million between June 11, 2007 (the date the National Futures Association was able to print out customer account balances) and July 2, 2007 (the date at which the accounts at the four futures commission merchants valued the Lake Shore accounts), and that “Lake Shore Limited did not introduce any concrete evidence that would explain it.” Finally, Judge Manning found that by failing to disclose that all of the interest earned by Lake Shore’s accounts at Sentinel Management Group Inc. (about $936,505.74) would be paid to an entity controlled by Baker, LSAM failed to disclose its conflict of interest.
Judge Manning entered a preliminary injunction that enjoined LSAM from:
- fraudulent acts and failing to provide its books and records for inspection by the Commission,
- engaging in commodity futures or options trading,
- soliciting customers to trade commodity futures or options trading,
- trading on U.S. commodity exchanges,
- destroying its books and records, and
- withdrawing, removing, or dissipating any of the assets related to Lake Shore Alternative Financial Asset Funds I, II, III and IV.
June 26, 2007: The Commission filed a Complaint in the United States District Court for the Northern District of Illinois charging that Lake Shore Asset Management Ltd. (LSAM), a registered commodity pool operator and commodity trading advisor, refused to make its books and records available for inspection upon request of the Commission. On that same day, Judge Blanche Manning issued an ex parte statutory restraining order freezing the assets under the control of defendant LSAM, prohibiting LSAM from destroying, altering or disposing of its books, records and documents, and prohibiting LSAM from refusing to permit authorized representatives of the Commission from inspecting its books and records. LSAM, to this day, has not allowed Commission staff to inspect its books and records to determine the safety of customer funds.
Last Updated: May 5, 2011