Friday, February 20, 2009
On February 18, 2009, the SEC filed an emergency civil action in the U.S. District Court of Minnesota charging Paramount Partners, LP ("Paramount"), a hedge fund, Crossroad Capital Management, LLC ("Crossroad"), Paramount's investment adviser, and John W. Lawton ("Lawton"), who runs Crossroad, with ongoing fraudulent conduct. According to the complaint: Paramount is a hedge fund in which approximately 50 to 60 investors, many of whom live in Minnesota, have invested as much as $9 million. Lawton and Crossroad have engaged in a fraud in which they misrepresented Paramount's assets and returns to investors. The complaint alleges that the defendants misrepresented to investors that Paramount has produced annual returns of 65% to 19% since 2001 and that it had investments totaling about $17 million as of December 31, 2008, while in fact, Paramount only had $5.3 million of assets in its accounts at that time. The complaint alleges that as of February 13, Paramount's assets amounted to less than $2 million, and that defendants withdrew $900,000 in January. The complaint further alleges that when the Commission requested documents from the defendants to verify defendants' claims about Paramount's assets, the defendants provided account statements showing a false $12 million account balance in a brokerage account that had long been closed.
In an order dated February 19, 2009, the Honorable Judge Ann Montgomery entered a temporary restraining order enjoining Paramount, Crossroad, and Lawton from violating the antifraud provisions of the Securities Act of 1933 [Section 17(a)] and the Securities Exchange Act of 1934 [Section 10(b) and Rule 10b-5 thereunder], and against Crossroad and Lawton with respect to violations of the Investment Advisers Act of 1940 [Sections 206(1), 206(2), and 206(4) and Rule 206(4)-8 thereunder] and aiding and abetting of Crossroad's violations of those provisions by Lawton. The Order, among other things, also freezes assets of Paramount, Crossroad, and Lawton until further order of the court.