Atlanta, GA – Joseph Profit II, CEO of Cornerstone Capital Management, LLC, was hit with a permanent injunction and pending penalties after being found liable for defrauding investors in the Cornerstone Capital Management Icon Fund LP, according to a consent order entered November 14, 2007, by the U.S. District Court for the Northern District of Georgia.
The Commodity Futures Trading Commission (CFTC) filed a complaint against Cornerstone and Profit on January 31, 2007, alleging that the hedge fund operator and its CEO misrepresented rates of return and the value of assets managed within the Icon Fund. The court found that Profit and Cornerstone defrauded both current and potential investors by falsely claiming the Icon Fund generated returns of 42.18 percent in 2005 and 20.74 percent in 2006.
In reality, the Icon Fund never turned a profit. Profit reportedly lost over $1 million through trading losses and personal expenses, including meals, golf, airline tickets, and lodging. Despite the fund’s poor performance, Profit falsely told a potential client that Cornerstone managed $50 million in assets – a significant exaggeration of the actual $3.2 million received from investors. Reports submitted to databases and hedge fund information providers also inflated the company’s assets under management, ranging from $20 million to $60 million.
The order also revealed that Profit provided a fabricated audited financial statement to at least one investor, claiming the Icon Fund held net assets of $14,810,880 as of December 31, 2005, with returns exceeding 20 percent between October 1, 2004, and December 31, 2005. Additionally, Profit failed to submit a required 2005 Annual Report to the National Futures Association (NFA) and willfully concealed material information from the organization.
While the specific amount of restitution and civil monetary penalties will be determined following the conclusion of the court-appointed receivership, the order permanently enjoins Profit and Cornerstone from further violations. Investors are encouraged to contact the receiver, S. Gregory Hays of Hays Financial Consulting, LLC, at the Atlanta Financial Center for further information.
The CFTC acknowledged the assistance of the NFA and the U.S. Attorney’s Office for the Northern District of Georgia in the investigation.
Source: CFTC.gov
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