The Securities and Exchange Commission filed suit Wednesday against former Twin Cities hedge fund manager John W. Lawton; his fund, Paramount Partners; and his advisory firm, Crossroad Capital Management, alleging that he lied about the value of his fund.
In court documents filed in U.S. District Court in Minnesota, the SEC says that Lawton deceived potential investors, misstated total assets, and falsified financial statements for Paramount Partners, the hedge fund he managed.
The suit claims:
• Lawton told potential investors and customers that the Paramount fund produced returns between 19 percent and 65 percent annually over the past eight years, fundamentally misrepresenting the fund’s performance.
• Lawton claimed the fund’s assets to be roughly $17 million at the end of 2008, about $12 million more than its actual value.
• When confronted by the SEC, Lawton attempted to pass off a forged bank statement covering the $12 million difference.
• Lawton invested $228,000 of his own money in the Paramount fund and withdrew $233,500 in 2008 after the fund had sustained substantial losses.
On Thursday, U.S. District Judge Ann Montgomery issued a restraining order ruling that all assets of Paramount be frozen and that the fund preserve and turn over financial and internal documents to the court. In addition, Montgomery ordered that Paramount halt trading, mailings, and financial advising.
Lawton, 34, originally managed his funds in Wayzata, but has since moved to San Francisco. The SEC says that the Paramount fund has had between 50 and 60 investors, many from Minnesota.
On its Web site, Paramount describes itself as a “boutique for wealthy investors.”
The restraining order will be revisited at a hearing scheduled for March 3.
