Harvard's Former Quarterback Priore Now Faces SEC Fraud Suit

Thomas Priore was about to play the biggest football game of his life. The Harvard University quarterback, who’d lost his starting job earlier in the season, was given a second chance and would take the field against rival Yale University.

“I knew when I got my opportunity again, I wasn’t going to waste it,” he told the Boston Globe the day before kickoff in November 1990. “I was going to make everything I could out of it. I always knew my time would come.”

Harvard lost, 34-19, as Priore fumbled twice.

Priore, 41, went on to earn an MBA from Columbia Business School, and four years ago, he got another big chance. He and colleagues acquired a controlling stake in ICP Capital, the investment company they had started as an affiliate of Bank of New York. They turned it into a leader in the market for collateralized debt obligations, or CDOs, which package pools of assets such as mortgage bonds into new securities.

Now, federal regulators allege that Priore and his firm have defrauded investors since 2007. The U.S. Securities and Exchange Commission said in a lawsuit filed Monday that Priore and New York-based ICP “improperly obtained tens of millions of dollars in fees and undisclosed profits at the expense of clients and investors” by inflating bond prices, making unauthorized trades and self-dealing.

In an e-mailed statement, Priore denied the charges and said he would fight.

Clients’ Best Interests

“We at all times acted in the best interest of our clients and intend to vigorously defend ourselves against these allegations,” said Priore, who lives in the New York suburb of Chappaqua. He owns 76 percent of ICP’s holding company, according to the SEC.

The SEC said in its complaint that CDOs managed by ICP with the name Triaxx issued more than $11 billion of notes and other obligations to investors. When it created CDOs, ICP handled all the work, said Thomas Adams, a partner with the law firm Paykin Krieg & Adams LLP in New York.

“They didn’t do that many CDOs, but the ones they did tended to be top to bottom,” said Adams, a former executive with bond insurer FGIC Corp., which also sold protection against the default of a Triaxx CDO.

Priore’s investment business grew to $5 billion under management by September 2006. The firm focused on asset-backed securities and mortgage debt. By October 2008, assets under management rose to $25 billion, according to the ICP website.

The SEC’s complaint centers on mortgage-backed securities, and the agency alleges that some fraudulent trades were made to meet a margin call. In a March 2007 interview with Bloomberg Television, Priore was already anticipating a reversal in the real estate market.

‘Day of Reckoning’

“There will eventually be a day of reckoning” for CDOs from mortgage defaults, he said, predicting ratings companies would look more closely at assets as investors try to sell holdings.

Priore has encountered legal conflicts before. He ran an investment fund called ICP Strategic Credit Income Fund, started in 2007. The fund, which had about $170 million in total assets, was wiped out by the end of 2009, said an investor who spoke on condition he not be identified because it is privately held.

Investors included Wilton, Connecticut-based Commonfund, a money manager for colleges and nonprofit organizations, and the University of North Carolina’s endowment.

Jonathon C. King, president and CEO of UNC Management Co., said in a statement Monday that the endowment filed a suit in the Cayman Islands in March, seeking to involuntarily wind-up the fund and freeze its assets.

Commonfund

Keith Luke, a Commonfund managing director, said his firm filed an affidavit in support of that suit. Both Luke and King said that their investments were small relative to assets under management.

According to the SEC complaint, ICP withdrew $36.5 million from the fund to repay a counterparty for unrelated transactions, and the fund lost about $119 million from notes it held in another entity, Triaxx Funding.

ICP has also been embroiled in a dispute with Toronto-based insurer Fairfax Financial Holdings Ltd. Fairfax filed a lawsuit in 2006 against a group of hedge funds including ICP.

Fairfax is seeking damages under New Jersey racketeering laws against the funds for what it said was a conspiracy to drive down Fairfax’s shares with false statements after taking short positions on the company.

Shouting Match

Industry newsletter Asset-Backed Alert described a “shouting match” earlier this year between Priore and the head of his capital-markets operations, Carlos Mendez. Mendez left ICP and Priore agreed to sell the unit to PrinceRidge Holdings LP, in March. Messages left on Mendez’s cell phone yesterday weren’t returned.

PrinceRidge abandoned the deal within a week as it learned about the CDO investigation, a person familiar with the matter said.

Back in 1990, Priore told the Boston Globe before the big Yale game that he liked to look forward.

“I’m not the type of person who looks back and regrets things,” he said. “I’m here and I’m going to play life as it comes.”

To contact the reporters on this story: James Sterngold in New York at jsterngold2@bloomberg.net; Pierre Paulden in New York at ppaulden@bloomberg.net; Christine Richard in New York at crichard5@bloomberg.net.

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