Securities Lawyers Blog
The Securities and Exchange Commission (SEC) announced that ICON Capital LLC, an entity that manages equipment leasing funds, agreed to settle charges that it caused four of its funds to report materially inaccurate financial results in their SEC filings and pay a $750,000 penalty.
Our firm has represented many clients in equipment leasing products like LEAF and ICON. All of these investments come with high costs that do not compensate investors for the extreme risk being taken. Equipment leasing funds historically underperform even safe benchmarks, like U.S. treasury bonds. Investors are destined to lose money in equipment leasing programs like LEAF Equipment Leasing Income Funds I-IV and ICON Leasing Funds Eleven and Twelve. The high costs and fees associated with these investments make significant returns virtual impossibility. Further, investor often fail to understand that they have lost money under many years after agreeing to the investment. In sum, for all of their costs and risks, investors in these programs are in no way additionally compensated for the loss of liquidity, risks, or cost.
On top of these high risks, the SEC has now found that the funds’ opaque nature has allowed the funds to hide more investor losses. According to the SEC’s order instituting a settled administrative proceeding, the four funds’ financial results were misstated due to accounting errors relating to the impairment of assets and that ICON failed to comply with Generally Accepted Accounting Principles (GAAP) on multiple occasions.
The SEC found that beginning in 2009, the financial crisis resulted in a sharp drop in shipping lease rates and vessel sale prices. In order to deceive investors and bolster the funds valuations, the SEC alleged that ICON began using for impairment and valuation purposes a methodology developed by members of the shipping industry known as the Hamburg Ship Evaluation Standard (Hamburg Method), which uses ten-year historical average prices to estimate future lease rates. According to the SEC’s order, ICON’s error in using this method resulted in material overstatements of net income by four funds ranging as high as 600%. In some instances, reported multi-million dollar profits were actually multi-million dollar losses hidden from investors. According to the SEC, ICON’s errors caused the funds to report overstated asset values and an overstatement of members’ equity by as much as 78%.
The order finds that, as a result of the errors, the funds at issue failed to take required asset value impairments, overstated post-impairment asset values when impairments were taken or understated depreciation expenses in multiple reporting periods from 2009 through 2012.
The investment fraud attorneys at Gana Weinstein LLP represent investors who have suffered securities losses due to the mishandling of their accounts. The majority of these claims may be brought in securities arbitration before FINRA. Our consultations are free of charge and the firm is only compensated if you recover.