By Patrick Fitzgerald from The Wall Street Journal

The liquidators of a pair of failed Cayman Islands-based hedge funds run by a former Harvard quarterback are suing Barclays PLC to claw back some $80 million they say was illegally funneled to the bank to cover margin calls.

The offshore funds–ICP Strategic Credit Income Fund Ltd. and ICP Strategic Credit Income Master Fund Ltd. — were so-called feeder funds managed by ICP Asset Management LLC, a money-management firm founded by Thomas C. Priore.

Lawyers for the liquidators said in a suit filed in U.S. Bankruptcy Court in New York that Mr. Priore, ICP’s 46-year-old founder and former Harvard University quarterback, fraudulently transferred more than $40 million to Barclays to cover margin calls at a troubled collateralized debt obligation known as Triaxx.

“Barclays knowingly participated in ICP Asset Management’s and Priore’s fraudulent purposes,” lawyers for the liquidators said. “Barclays knew that during the first half of 2008, ICP Asset Management and Priore caused other investment vehicles they managed to make over $40 million in fraudulent transfers to Barclays to cover Triaxx Funding’s margin obligations.”

In U.S. bankruptcy proceedings, a judge can find certain transfers or payments to be fraudulent if a company was insolvent when taking on new liabilities. The $80 million liquidators are seeking comes from the addition of interest and damages.

Barclays declined to comment. Mr. Priore, a Westchester County native, who played for the Crimson from 1988 to 1990, couldn’t be reached for comment.
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The Triaxx CDOs were loaded with $11 billion in mortgage-backed securities issued at the tail end of the housing boom. When the value of its mortgage holdings tanked in 2008, Triaxx was on the hook for margin payments to its repo lender, Barclays.

The Cayman liquidators said Mr. Priore tried to keep Triaxx afloat by funneling money from the hedge funds to cover the margin calls to Barclays.

“In effect, Barclays assisted ICP Asset Management and Priore in laundering the looted funds from the Master Fund by concealing the fact that the Master Fund was paying Triaxx Funding’s interest obligations and expenses,” the lawsuit said.

The liquidators, two London-based Grant Thornton accountants, put the funds into bankruptcy in the U.S. a little more than two years ago under chapter 15, the section of the bankruptcy code dealing with international insolvencies. At the time, the liquidators said they placed the funds in chapter 15 to help them locate and claw back assets in the U.S. for the benefit of the funds’ creditors.

The ICP hedge funds were created for foreign and tax-exempt investors to avoid U.S. tax laws. Investors pumped $245 million into the funds, which were invested in CDOs known as Triaxx.

In 2010, the Securities and Exchange Commission accused Mr. Priore and ICP of defrauding investors in similar Triaxx deals. Mr. Priore settled, without admitting guilt, with the SEC for $23.6 million. He also agreed to a five-year ban from working as a broker, dealer, investment adviser, municipal securities dealer or transfer agent.

IMAGE: Liquidators of two failed hedge funds run by Thomas C. Priore are seeking $80 million they say he fraudulently transferred to Barclays PLC to cover margin calls at a collateralized debt obligation known as Triaxx. Photo: Patrick McMullan

For more on this story go to: http://www.wsj.com/articles/liquidators-of-ex-harvard-qbs-funds-sue-barclays-for-80-million-1432753135