Blotter: October 2012

Holes in the Bucket

The SEC accused Ray Lucia Sr., a nationally syndicated radio personality, of misleading potential clients about his “Buckets of Money” investment strategy which he promoted on the air, at investment seminars and in books he authored.  Lucia, an advisor in the San Diego, Calif. area whom REP. named one of its Outstanding Advisor Award winners in 2004, claimed he had successfully tested his strategy using historical data, but the SEC said he performed “scant, if any” backtesting, and the strategy’s value wasn’t proven. The agency said the only testing that occurred involved some calculations made in the 1990s, copies of which no longer existed, and two “cursory” spreadsheets. The calculations included an artificially low inflation rate, failed to include the effect that Lucia’s fees would have had on the results, and didn’t allocate funds in the manner that Lucia’s strategy actually called for, the SEC added. During his seminars, Lucia claimed “Buckets of Money” would provide inflation-adjusted income to retirees while protecting and even increasing their retirement savings. Lucia’s radio program, “The Ray Lucia Show,” was nationally syndicated in 2000.

Bonding Bad

The New York-based investment advisory firm ICP Asset Management and founder/president Thomas C. Priore agreed to pay more than $23 million to settle an SEC court case accusing them of fraud in connection with several collateralized debt obligations they managed. The SEC in 2010 accused ICP and Priore of mismanaging Triaxx CDOs, whose assets primarily consisted of mortgage-backed bonds. As mortgage markets deteriorated starting in 2007, ICP caused Triaxx clients to overpay for bonds in order to protect other ICP clients from realizing losses, or to create profits for ICP, the SEC said. In one case, ICP arranged for a CDO to buy about $22 million of mortgage bonds from another client account at $75 a bond even though ICP had bought the same bonds for that account earlier in the day at $63.50 a bond. The trade cost the CDO $2.5 million. ICP also arranged for several Triaxx CDOs to buy bonds from another CDO at artificially-inflated prices to help the latter meet the margin calls of one of its creditors. Priore and ICP consented to the settlement without admitting or denying the SEC’s allegations. Priore has been barred from the industry for at least five years.