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Lake Shore Asset Management - Commodities

2007-06-28

Count of distinct funds: 1

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stories: chicagobusiness.com, bloomberg.com, chicagotribune.com, msn.com

Update, 2009-06-16

It looks like Lake Shore has finally been rolled up. Managing director Philip J. Baker was finally charged with 27 counts of crimes, including wire fraud, commodities fraud and "other offenses." However, Baker is on the lam, so the saga will, in some sense, continue...

Original Post, 2007-06-28

Lake Shore Asset Management, a hedge fund chaired by Laurence Rosenberg, who was former chairman of the Chicago Mercantile Exchange, has had $228 million in assets frozen by federal court at the request of the Commodity Futures Trading Commission (or "CFTC") for failing to comply with requests by the CFTC for information. Further, the hedge fund has been accused of hiding behind Swiss bank secrecy laws.

The fund held under management around $1 billion in assets trading in commodities futures. Bloomberg reported on June 28th:

Chicago-based Lake Shore purported to manage $1 billion for investors and traded in U.S. commodities futures contracts, according to the Commodity Futures Trading Commission. A review later showed the fund had about $466 million. Lake Shore barred regulators from inspecting its accounts on June 14, a violation of the Commodity Exchange Act, according to the CFTC's complaint.

"The message here is we're not going to sit by and wait to connect all the dots before we go in and freeze" accounts, said Geoffrey Aronow, the former head of enforcement at the CFTC and now a partner at Heller Ehrman LLP in Washington. "Whether it's conscious or not, everyone is more attuned to concerns to what's going on with hedge funds." ...

The CFTC froze $228 million in investor money at Lake Shore, according to agency spokeswoman Ianthe Zabel. ...

"The commission's ability to inspect books and records is a critical regulatory tool that allows us access to a registrant's daily operations," Gregory Mocek, the CFTC's head of enforcement, said in a statement.

Lake Shore is a so-called commodity pool operator, a type of investment group which seeks to aggregate money to trade futures and options on commodities and other financial instruments. There were 1,898 CPOs in 2004 that held $594 billion in net assets, according to the CFTC.

Lake Shore's hearing was set to be held on July 11th. The latest news we have heard regarding Lake Shore is that the CFTC wants the fund held in contempt (July 6 - Chicago Tribune):

In a Tuesday filing, released Thursday, the commission said Lake Shore has not let its representatives inspect the fund's books and records, in violation of a court order. A Lake Shore spokesman did not return a call; CFTC spokeswoman Ianthe Zabel declined to comment.

Lake Shore claims they have only one U.S. client. In accordance with Swiss banking secrecy laws, the fund is not allowed to release the identities of its investors. The Financial Times reported (July 6):

Philip Baker, managing partner, said this week that all investments had been sold and the cash was being held on account. He said Lake Shore hoped to hold on to clients if it could resolve the regulatory problems, although he admitted it would lose many of them.

Stay tuned ...

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Important: This fund is on our list of hedge funds that have "imploded" (see also ailing lenders). However, please note that "imploded" is a somewhat subjective. The "imploded" list contains hedge funds (or other unregulated and autonomous speculative investment funds) which have gone through some sort of permanent adverse change. This is a somewhat subjective call, and does not necessarily mean total shutdown or bankruptcy. It can also mean steep and rapid mark-downs in net asset value; or abnormal "bail-out" by corporate parents or peers in order to avoid write-downs and provide liquidity. The funds are of any type and sector.