For Release: September 13, 2007
Illinois Federal Court Freezes Assets of Lake Shore Asset Management Limited
Court Finds that the Lake Shore Common Enterprise Committed Fraud
Washington, DC – The U.S. Commodity Futures Trading Commission (CFTC) announced today that a federal district court in Chicago, Illinois entered a preliminary injunction order against Bermuda corporation Lake Shore Asset Management Limited (LSAM).
The order, among other things, freezes LSAM’s assets and prohibits LSAM from destroying documents and from engaging in any activity related to commodity futures and options trading. The court issued the order on August 28, 2007, shortly after completing a three-day hearing during which LSAM asserted that the government had no right to inspect its customer and trading records. (See CFTC News Releases 5349-07, dated June 28, 2007 and 5353-07, dated July 17, 2007.)
The district court concluded that LSAM, together with the Lake Shore Group of Companies Inc., Ltd. and a predecessor firm called Lake Shore Inc., operated as a common enterprise that transacted business through a maze of interrelated companies. Specifically, the court found that while marketing documents touted a record of highly profitable trading and $1 billion under management, the records of known trading accounts for the funds Lake Shore managed showed losses totaling approximately $29 million. Based upon this, and evidence of other discrepancies, the court concluded that an asset freeze was necessary to protect customer funds.
Court of Appeals Refused to Stay the Order Pending Appeal
Lake Shore immediately appealed the order and requested that the Court of Appeals stay the order freezing assets pending the appeal. On September 7, 2007, the Court of Appeals for the Seventh Circuit denied Lake Shore’s request. Thus, the asset freeze remains in effect at this time.
Some Frozen Assets Held by a Futures Commission Merchant that Recently Filed for Chapter 11 Bankruptcy
A portion of the funds frozen by the court are held at Sentinel Management Group, Inc. (Sentinel), a registered futures commission merchant located in Northbrook, Illinois. On August 17, 2007, Sentinel filed a voluntary petition for relief under Chapter 11 of the Bankruptcy Code (see In re Sentinel Management Group, Inc., Case No. 07-14987, United States Bankruptcy Court for the Northern District of Illinois).
In its continuing litigation against LSAM, the Lake Shore Group, and Philip J. Baker, Lake Shore’s London-based principal, managing director and president (see First Amended Complaint, August 8, 2007), the CFTC is seeking permanent injunctive relief, production of records, the return of funds to defrauded customers, the repayment of ill-gotten gains, and civil monetary penalties for each violation of the Commodity Exchange Act.
The following CFTC Division of Enforcement staff are responsible for this case: Diane M. Romaniuk, Ava M. Gould, Mary E. Spear, Don Nash, Scott R. Williamson, Rosemary Hollinger, and Richard B. Wagner.
Last Updated: September 13, 2007