For Release: April 30, 2008
Lake Shore Group of Companies Inc., Ltd., Prohibited from Trading Commodity Futures, as Illinois Federal Court Puts the Brakes on Multi-Million Dollar International Fraud
Court Finds that Defendants Defrauded Pool Participants by Misappropriating More Than $11 Million of Investor Funds
Washington, DC – The U.S. Commodity Futures Trading Commission (CFTC) announced that it obtained a default judgment order against the Lake Shore Group of Companies Inc., Ltd., 12 commodity pools operating under variations of the name Lake Shore Alternative Financial Asset Account (or Fund), and Hanford Investments Ltd. (collectively the default defendants), which permanently prohibits them from further fraudulent conduct and from trading commodity futures.
The default order, entered by the U.S. District Court in Chicago, Illinois, on April 24, 2008, stems from a second amended complaint filed by the CFTC alleging that Philip J. Baker, Lake Shore Asset Management Limited (LSAM), and the default defendants operated the commodity pools as a common enterprise and defrauded hundreds of pool participants, who collectively invested at least $300 million to trade commodity futures contracts on U.S. futures markets. The court has yet to determine liability against Baker and LSAM. (See CFTC Press Releases 5459-08, February 20, 2008; 5383-07, September 13, 2007; 5353-07, July 17, 2007; 5351-07, July 5, 2007; and 5349-07, June 28, 2007.) The court entered the default order against the default defendants because they never responded to the CFTC’s second amended complaint.
In its order, the court found that the default defendants, operating as a common enterprise, defrauded and deceived pool participants by misappropriating more than $11 million of their funds, misrepresenting the profits and losses of the pools, failing to disclose trading losses and other material facts relating to the pools, and causing false statements to be issued to pool participants.
The court’s order also enters an asset freeze against the default defendants and all persons in active concert with them, which permanently enjoins them from destroying, altering, or concealing their books and records and orders them to grant CFTC representatives and the Receiver immediate access to their books and records.
The order also requires that funds on deposit at Sentinel Management Group Inc., which has filed for bankruptcy protection, MF Global UK Limited, Newedge Group SA, and Lehman Brothers International Europe be transferred to a court-appointed Receiver for the benefit of Lake Shore clients to be distributed to the clients through the Receivership estate, pursuant to further orders of the court.
Because the court found that the default defendants operated as a common enterprise, each default defendant is liable for the violations of other members of the common enterprise. The court has reserved for further proceedings the issues of appropriate restitution for defrauded pool participants and a civil monetary penalty for the default defendants.
In its continuing litigation against Baker and LSAM, the CFTC is seeking permanent injunctive relief, the return of funds to defrauded pool participants, the repayment of ill-gotten gains, and civil monetary penalties for each violation of the Commodity Exchange Act.
In connection with this matter, the CFTC’s Enforcement Division appreciates the generous assistance of the Barbados Securities Commission, the Belize Financial Intelligence Unit, the Bermuda Ministry of Finance, the British Virgin Islands Financial Services Commission, the Ontario Securities Commission, the Superintendencia de Valores y Seguros of Chile, the Superintendencia Financiera de Colombia, the Isle of Man Financial Services, the Peruvian Comisión Nacional Supervisora de Empresas y Valores, the Swiss Federal Banking Commission, the Turks and Caicos Financial Services Commission and the United Kingdom Financial Services Authority.
The CFTC’s Enforcement Division also appreciates the assistance of the Office of Chief Counsel staff Phyllis Cela, Elizabeth Padgett, and Susan Berkowitz.
The following CFTC Division of Enforcement staff are responsible for this case: Diane M. Romaniuk, Ava M. Gould, Mary E. Spear, Scott R. Williamson, Rosemary Hollinger, and Richard B. Wagner.
Last Updated: April 30, 2008