Regulators smack money managers

Regulators filed complaints against several Twin Cities money managers Wednesday accusing them of breaking futures industry rules in their dealings with Minneapolis businessman Trevor Cook, who the government says ran a massive Ponzi scheme.

The National Futures Association (NFA), an industry group authorized by Congress to regulate and discipline futures traders, filed complaints against Robert W. Brooke of Eden Prairie; Steven C. Schwab of Richfield; Paul G. Deming of Eagan; and Thomas J. Newberry of Tavernier, Fla., and Gallatin Gateway, Mont.

It also cited their businesses, Technical Niche Trading, Managed Alternative Investments, Windsor Managed Futures and Core Alternative Investments, all of St. Louis Park, and TNT Investments of Gallatin Gateway, Mont.

The NFA faulted the money managers for doing business with and failing to supervise Cook, who was not registered to trade options. If the NFA finds against them, penalties could include expulsion or suspension from the industry group, censure or reprimand or fines up to $250,000 for each violation.

According to the website of one trading business, Brooke is a former hockey player for the U.S. Olympic team, New York Rangers, Minnesota North Stars and New Jersey Devils. Newberry formerly played football with the Los Angeles Rams and the Pittsburgh Steelers, the site says.

The U.S. Securities and Exchange Commission and the Commodities Futures Trading Commission filed civil complaints against Cook in Minneapolis in November accusing him of orchestrating a $191 million investment fraud scheme involving the sale of currencies. Cook has been jailed since January for not cooperating with the investigation.

The NFA alleged that as early as 2005, TNT Investments improperly accepted an order for commodities contracts from Cook and one of his companies, Marketshot. The agency says TNT Investments also paid commissions to Marketshot after Cook referred three investors to TNT Investments.

The most serious of the NFA's allegations were levied against Technical Niche Trading. The NFA says the firm "cheated, defrauded or deceived" others or tried to do so by producing "deceptive and misleading" promotional brochures for products trading in commodities and foreign currencies.

In earlier interviews with the Star Tribune, Brooke and Deming minimized their association with Cook and his currency investments. They said they had been exploring a business relationship with Cook and were conducting due diligence activities when his currency investment business imploded in July in the wake of investors lawsuits and investigations by regulators.

"No amount of due diligence is adequate when, after the fact, suspicious activity turns up," Brooke said Wednesday night. He said he was "dumbfounded" by the NFA complaints.

Brooke said he and his partners approached the NFA in July to clear up their association with Cook. The NFA conducted extensive audits of their business entities, which were completed in December, he said.

The money managers' preparation of a brochure last year to pitch Cook's currency investments caught the attention of the regulators. The NFA said the brochure distorted the potential for profits and downplayed the risk of loss without having a "reasonable basis in fact." The brochure claimed returns of 188.23 percent between January 2003 and May 2009, the NFA said.

"Were we preparing a brochure? Absolutely," Brooke said. "We were going to market this all over the place."

But Brooke said it never got to that point. He said Cook invested money in Technical Niche Trading as part of a joint effort to test a proposed investment product called the Oxford Global Managed Futures Fund. "This fund was a proprietary fund," he said, meaning that it was never opened to investors outside the firms.

That fund had two participants, the NFA says: Core Alternative Investments and Oxford Global FX, which is owned by Cook. It had $1 million, of which $700,000 was purportedly invested in Crown Forex SA, a Swiss currency-investment firm that was forced into bankruptcy by Swiss authorities in May. The NFA says that Brooke and Schwab neglected to supervise Cook's management of the money.

Dan Browning • 612-673-4493