Crainsnewyork.com – Aaron Elstein - There's a famous (or perhaps more accurately, notorious) Monty Python sketch in which the publisher of a Hungarian phrasebook translates such innocent questions as "Can you direct me to the station?" into English as "Please fondle my bum." Asked in later court why he did so, the author calmly replies: "I wish to plead incompetence." Jump forward 30 years or so, and a somewhat similar defense is being employed by a prominent New York money manager in a fraud case. The case involves Thomas Priore, who the Securities and Exchange Commission sued in June, alleging that he and his fund, ICP Asset Management, cheated clients by selling them complex securities at inflated prices. In a response to the suit filed Wednesday, Mr. Priore acknowledged that while mistakes may have been made, he insisted neither he nor ICP defrauded anyone.

"The SEC's case attempts to manufacture allegations of fraud out of what was, at most, purported mismanagement," wrote Mr. Priore's lawyers in a motion to dismiss the suit.

Mr. Priore managed four collateralized debt obligations, which were instruments created by Wall Street to hold pools of mortgages and other loans; they were often among the junkiest securities ever created. Mr. Priore was one of the most important investors in this market. In 2007, his firm managed $13 billion in assets.

The SEC alleges that Mr. Priore's fund cheated customers by overvaluing his CDOs' holdings as the mortgage market fell part. In one example, the SEC says his firm defrauded clients by selling them mortgage-backed bonds for 75 cents on the dollar that earlier in the day it had bought for its CDOs at 63.5 cents on the dollar. Mr. Priore and ICP insist the example "at most" is a case of mismanagement.

"And," the lawyers point out, "mismanagement is not fraud."

Mr. Priore responded to another allegation, in which the SEC said he entered into a fraudulent trade and told a client about doing so because he was "out to make some dough."

Mr. Priore said the SEC took his statement out of context and included more of the e-mail in question. It read: "I imagined you would be OK with swaps where I can make some dough, improve credit quality and uphold the [forward] sale agreement at better economics but just wanted to make sure I had communicated."

The longer e-mail shows Mr. Priore was looking out for clients, his lawyers say, not cheating them.

(Note: Mr. Priore's legal response was written in English, not Hungarian.)

Link to Story: http://mycrains.crainsnewyork.com/in_the_markets/2010/08/and-now-for-something-completely-different.php 

Related Link:  http://www.youtube.com/watch?v=G6D1YI-41ao