Securities and Exchange Commission v. EagleEye Asset Management, LLC and Jeffrey A. Liskov, United States District Court for the District of Massachusetts, Civil Action No. 11-CV-11576
Court Enters Final Judgment Against Massachusetts Investment Adviser and its Principal, Orders Payment of Over $1.7 Million in Illicit Gains and Penalties
The Securities and Exchange Commission recently announced, on December 12, 2012, a federal judge in Boston, Massachusetts entered a final judgment against registered investment adviser EagleEye Asset Management, LLC, and its sole principal, Jeffrey A. Liskov, both of Plymouth, Massachusetts, in an action the Commission previously filed against them. The Commission’s action alleged that that the defendants defrauded advisory clients concerning foreign currency exchange (“forex”) trading.
On November 26, 2012, after an eight-day trial, a federal jury found that EagleEye and Liskov violated Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder and Section 206(1) of the Investment Advisers Act of 1940. After a judicial hearing on remedies, Judge William G. Young also found violations by EagleEye and Liskov of Section 204 of the Advisers Act and Rule 204-2 thereunder, concerning their obligation to maintain true, accurate, and current certain books and records relating to EagleEye’s investment advisory business. The court ordered that EagleEye and Liskov are permanently enjoined from future violations of the foregoing provisions of the securities laws. The court further ordered EagleEye and Liskov to pay, jointly and severally, disgorgement of their ill-gotten gains in the amount of $301,502.26, plus pre-judgment interest on that amount of $29,603.59. The court also ordered EagleEye and Liskov each to pay a civil penalty of $725,000.
In its complaint, filed on September 8, 2011, the Commission alleged that, between at least November 2008 and August 2010, Liskov made material misrepresentations to several advisory clients to induce them to liquidate investments in securities and instead invest the proceeds in forex trading. The forex investments, which were not suitable for older clients with conservative investment goals, resulted in steep losses for clients, totaling nearly $4 million, but EagleEye and Liskov came away with over $300,000 in performance fees, in addition to other management fees they collected from clients. Liskov’s strategy was to generate temporary profits on client forex investments to enable him to collect performance fees, after which client forex investments invariably would sharply decline in value.
According to the Commission’s complaint, Liskov made material misrepresentations or failed to disclose material information to clients concerning the nature of forex investments, the risks involved, and his poor track record in forex trading for himself and other clients. The Commission’s complaint further alleged that, in the case of two clients, without their knowledge or consent, Liskov liquidated securities in their brokerage accounts and transferred the proceeds to their forex trading accounts where he lost nearly all client funds, but not before first collecting performance fees for EagleEye (and ultimately himself) on short-lived profits in the clients’ forex accounts. The complaint alleged that Liskov accomplished the unauthorized transfers by doctoring asset transfer forms. On several occasions, Liskov took old forms signed by the clients and used “white out” correction fluid to change dates, asset transfer amounts, and other data. Liskov also used similar tactics to open multiple forex trading accounts in the name of one client, thereby maximizing his ability to earn performance fees for EagleEye (and ultimately himself) on the client’s investments, all without disclosing this to the client or obtaining the client’s consent.
The Commission alleged that, as a result of this conduct, EagleEye and Liskov violated Section 10(b) of the Exchange Act and Rule 10b-5 thereunder and Sections 206(1) and 206(2) of the Advisers Act. The Commission also alleged that EagleEye failed to maintain certain books and records required of investment advisers in violation of Section 204 of the Advisers Act and Rule 204-2 thereunder, and that Liskov aided and abetted EagleEye’s violations of these provisions.
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