Release: 5412-07

For Release: November 14, 2007

CFTC Obtains Permanent Injunction in Fraud Action Against New York Hedge Fund Operator Cornerstone Capital Management, LLC and its Principal, Atlanta Resident Joseph T. Profit II

Washington, DC – The U.S. Commodity Futures Trading Commission (CFTC) announced today that the Honorable Richard Story of the U.S. District Court for the Northern District of Georgia entered a consent order of permanent injunction against Cornerstone Capital Management, LLC (Cornerstone), a New York-based hedge fund operator, and its chief executive officer, Joseph Profit II of Atlanta, Georgia, for defrauding hedge fund participants and reporting violations.

The order stems from a complaint filed by the CFTC on January 31, 2007 charging that Cornerstone, a registered commodity pool operator and commodity trading advisor, and Profit, a registered associated person of Cornerstone, defrauded participants in the Cornerstone Capital Management Icon Fund LP (Icon Fund), a purported hedge fund. (See CFTC Press Release 5288-07, February 6, 2007).

Order Finds that Profit and Cornerstone Defrauded Hedge Fund Participants And Failed To File Required Annual Reports

The order finds Cornerstone and Profit liable for defrauding actual and prospective clients and Icon Fund participants by misrepresenting the rates of return Cornerstone generated for its participants and the value of assets it managed in the Icon Fund.

Specifically, the order finds that Profit falsely represented that the Icon Fund had generated exceptional annual returns of 42.18 percent in 2005 and 20.74 percent in 2006. However, the order finds that the Icon Fund was never profitable, and that Profit lost in excess of $1 million due to trading losses and personal withdrawals, which Profit spent on personal items such as meals, greens fees, airline tickets, and lodging.

The order also finds that while the Icon Fund received no more than $3.2 million in assets from participants, Profit represented to a potential client that Cornerstone had $50 million in assets under management and Cornerstone and Profit reported to various databases and hedge fund information providers that Cornerstone had assets under management ranging from $20 million to $60 million. In addition, the order finds that Profit prepared and delivered to at least one investor a phony audited financial statement for the Icon Fund, which represented that the hedge fund had net assets of $14,810,880 as of December 31, 2005, and returns in excess of 20 percent between October 1, 2004 and December 31, 2005.

The order also finds that Profit willfully concealed material information from the National Futures Association (NFA), a registered futures association and self regulatory organization, and further failed to submit to the NFA a required 2005 Annual Report for the Icon Fund.

Sanctions Include Permanent Injunction And Penalties In An Amount To Be Determined Later

The order permanently enjoins Cornerstone and Profit from further violations, as charged. The order also requires Profit and Cornerstone to pay restitution and a civil monetary penalty, the amounts of which will be determined after the winding up of the court-appointed receivership in the case. Cornerstone investors should direct their inquiries to the court-appointed receiver S. Gregory Hays at:

Hays Financial Consulting, LLC

Atlanta Financial Center

3343 Peachtree Road, Suite 200

Atlanta, GA 30326

(404) 926-0051

The CFTC appreciates the assistance of NFA and the office of the United States Attorney for the Northern District of Georgia in this matter.

The following CFTC Division of Enforcement staff members are responsible for this matter: Lael Campbell, Luke Marsh, John Dunfee, Patricia Gomersall, Paul Hayeck, and Joan Manley.

Media Contacts
Ianthe Zabel
202-418-5080

Dennis Holden
202-418-5088

Last Updated: November 13, 2007