For Release: February 6, 2007
U.S. Commodity Futures Trading Commission Files Anti-Fraud Action Against New York Hedge Fund Cornerstone Capital Management, LLC and its Operator, Atlanta Resident Joseph T. Profit II
District Judge Issues Restraining Order and Asset Freeze against Defendants
Washington, D.C.— The U.S. Commodity Futures Trading Commission (CFTC) announced today the filing of a complaint in the U.S. District Court for the Northern District of Georgia against Cornerstone Capital Management, LLC (Cornerstone), a New York-based hedge fund and its chief executive officer, Joseph Profit II, of Atlanta. The complaint alleges violations of the Commodity Exchange Act’s anti-fraud provisions and a Commission regulation. On January 31, 2007, the Honorable Richard Story, U.S. District Judge, issued a restraining order freezing the assets of Cornerstone and Profit and prohibiting the defendants from destroying documents or denying CFTC staff access to books and records.
According to the CFTC complaint, from at least May 2005 through January 24, 2007, defendant Cornerstone, which was registered with the CFTC and acting as a commodity pool operator (CPO) and commodity trading adviser (CTA), and defendant Joseph T. Profit II, employed schemes to defraud actual and prospective commodity pool participants and clients by misrepresenting the rates of return Cornerstone generated for its pool participants and the value of assets it managed in its Icon Fund. For example, the defendants claimed that Cornerstone had assets under management ranging from $20 million to $60 million, though Profit admitted that as of January 23, 2007, the Cornerstone Capital Management Icon Fund had at most received a little more than $2.25 million in assets from participants.
In addition to the U.S. mail and other means, defendants allegedly solicited participants and clients through the Internet website www.cornerstonecapitalmanagement.com.
The CFTC complaint also sets forth that Profit willfully concealed material information from the National Futures Association (NFA), a self regulatory futures organization, and further failed to submit an NFA- required Annual Report for 2005.
“Since 2002, we have filed more than 50 cases against commodity pool operators and hedge funds that have committed violations under the Commodity Exchange Act. This is one more example of our aggressive enforcement against those who use deceptive techniques and claim to manage hedge fund money,” said Gregory Mocek, Director of Enforcement at the CFTC.
In the ongoing action, the CFTC seeks orders of preliminary and permanent injunction against the defendants, a return of alleged ill-gotten gains, repayments to defrauded investors, monetary penalties, and other relief.
The Commission coordinated its investigation with, and was assisted by, the National Futures Association. The office of the United States Attorney for the Northern District of Georgia has provided assistance in this matter. The following CFTC Division of Enforcement staff members are responsible for this matter: Lael Campbell, Luke Marsh, John Dunfee, Patricia Gomersall, Paul Hayeck, and Joan Manley.
Last Updated: April 6, 2007