SEC SEC ALLEGES FRAUD IN CONNECTION WITH IPO ALLOCATION PRACTICES AND DISCLOSURES
7.31.2003 The SEC brought and settled an administrative action against Anthony W. Blissett that
bars him from association with any investment adviser. The SEC's complaint alleged that Blissett fraudulently raised
more than $31 million from several thousand investors by selling them
securities that falsely guaranteed tax-free, 30% annual returns on
investments of $10,000 or more.
The SEC allege that between December 1998 and December 1999, Nevis Capital,
Wilmerding and Baker inequitably allocated IPO shares to only two of
their approximately 105 clients, the Snowdon Limited Partnership
and the Nevis Fund. Nevis Capital and Wilmerding further
falsely stated in their Jan. 28, 1999, Form ADV amendment that all
clients would be treated equally, on a pro rata basis, when, in fact,
they had an undisclosed policy to allocate IPOs only to Snowdon and the
Nevis Fund.
Please click http://www.sec.gov/litigation/admin/ia-2139.htm for a copy of the administrative order.
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SEC UPDATES EDGAR
7.24.2003 The SEC is revising its EDGAR Filer Manual to
reflect updates to the EDGAR system made primarily to improve the
functionality of the Online Forms website. The website is
currently used for preparing and submitting ownership reports, Forms 3,
4, 5 and their amendments, Forms 3/A, 4/A and 5/A, required under
Section 16(a) of the Securities Exchange Act of 1934, generally as
required by Section 403 of the Sarbanes-Oxley Act of 2002. Some of the
improved functionality includes the ability to list holdings of
securities separately from securities transactions; facilitating the
reporting of gift, phantom stock plan and similar transactions;
automatic entry of the filer's address by the system based on the
filer's CIK number and the ability to change the address for the filing;
and XML schema and stylesheet updates to support these changes.
Please click http://www.sec.gov/litigation/admin/33-8261.htm for a copy of the administrative order.
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SEC OBTAINS EMERGENCY INJUNCTIVE RELIEF AGAINST AN ADVISER ALLEGEDLY DESTROYING DOCUMENTS DURING AN INSPECTION
7.23.2003 On July 23, the SEC filed an action in the United States District
Court for the District of Colorado against Schield Management Company
and its president, Marshall L. Schield. Simultaneously with the filing of the action and without admitting or
denying the allegations in the SEC's complaint, Schield
Management and Marshall Schield consented to the entry of an order
prohibiting future violations of Section 204 of the Investment Advisers
Act and Rule 204-2 and an order to provide an accounting.
The SEC's complaint alleges that, at the direction of Marshall
Schield, Schield Management destroyed and altered documents it was
required to produce during the course of an OCIE compliance
examination. The examination at issue began in May 2003. According to
the complaint, as part of the examination Commission examiners asked
Schield Management to produce certain e-mails for their inspection.
After the request was made, Marshall Schield directed two of the firm's
employees to destroy e-mails responsive to the request. The complaint
also alleges that OCIE examiners asked Schield Management to
produce the firm's log of trading errors. Schield Management responded
by producing several different, inconsistent versions of the log, none
of which is complete or accurate. The complaint further alleges that
Commission examiners requested records maintained by Schield Management
to document each instance in which the firm used a client's personal
identification number, or PIN, to make a securities trade. These PINs
had been issued to the clients by mutual fund complexes holding the
clients' assets. After OCIE examiners made the request
encompassing the PINs, securities traders at Schield Management were
directed to remove PINs from their records.
The complaint alleges that, based on the conduct described above,
Schield Management violated Section 204 of the Investment Advisers
Act and Rule 204-2 thereunder. These provisions require investment
advisers to make and keep certain books and records. Section 204
also requires investment advisers to make their books and records
available for inspection by OCIE compliance examiners. The
complaint further alleges that Marshall Schield aided and abetted
Schield Management's violations of these provisions.
Please click http://www.sec.gov/litigation/complaints/comp18248.htm for a description of the administrative action.
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HEDGE FUND ADVISER SETTLES ADMINISTRATIVE PROCEEDINGS RELATED TO SECURITIES TRADING UNDER REGULATION M
7.17.2003 The SEC instituted and simultaneously settled an
administrative proceeding against Ascend Capital, LLC, Malcolm P.
Fairbairn, the firm's founder and sole manager, and Emily Wang
Fairbairn, a trader at the firm, related to securities trading under
Regulation M, Rule 105, "Short Selling in Connection With a Public
Offering." Rule 105 prohibits covering a short sale with securities
obtained in a public offering if the short sale occurred within five
business days before the pricing of the offering.
The SEC's order finds that on three occasions in 2001, Ascend and
the Fairbairns violated Rule 105 of Regulation M by selling securities
short during the five business days before the pricing of public
offerings, and then covering the short positions with securities
purchased in the offerings.
Please click http://www.sec.gov/litigation/admin/34-48188.htm to access a copy of the administrative order.
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HEDGE FUND SETTLES FRAUD CHARGES BROUGHT BY SEC
7.17.2003 the U.S. District Court for the Southern District of New
York entered a Final Judgment on Consent against Ryan J.
Fontaine and Simpleton Holdings Corporation a/k/a Signature Investments
Hedge Fund (Signature), permanently enjoining them from violating the
antifraud and registration provisions of the federal securities laws,
and ordering them to pay disgorgement and prejudgment interest totaling
$29,837.31, plus a civil penalty of $29,300.
The SEC had alleged that, beginning as early as July 2002
and continuing through Oct. 22, 2002, Fontaine and Signature deceived
investors into investing in Signature by fraudulently claiming, among
other things, that: (a) Signature managed approximately $250 million;
(b) Salomon Smith Barney was Signature's sub-adviser; (c) KPMG, LLP
performed auditing services for Signature; and (d) Signature had earned
above-average returns throughout their 13-year investment history.
According to the complaint, all of these representations were false.
The complaint alleged that Fontaine and Signature had raised at least
$29,300 from at least two investors by means of their fraudulent
statements.
Please click http://www.sec.gov/litigation/litreleases/lr18254.htm for a copy of the administrative order.
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SEC BRINGS CHARGES AGAINST ADVISERS SELLING CLASS B SHARES
7.15.2003 The SEC instituted public administrative and cease-
and-desist proceedings alleging that William I. Kissinger, Kissinger
Advisory, Inc., Bert E. Miller, and Glenn F. Wilkinson defrauded twenty-
nine of their customers and clients by omitting material facts in
connection with the sale of Class B shares of mutual funds. The
Division of Enforcement alleges that between 1998 and 2001, Kissinger,
Kissinger Advisory, Miller, and Wilkinson repeatedly recommended that
their customers invest $250,000 or more in Class B shares of a single
family of mutual funds, which paid higher commissions than Class A
shares of the same mutual funds, without disclosing, among other things,
that Class A shares of those mutual funds would outperform Class B
shares for investments of $250,000 or more. The Division also alleges
that IFG Network Securities, Inc., the broker-dealer with whom
Kissinger, Miller, and Wilkinson were formerly associated, and its
former president, David Ledbetter, failed to supervise Kissinger,
Miller, and Wilkinson reasonably.
Please click http://www.sec.gov/litigation/admin/33-8252.htm for a copy of the administrative action.
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SEC PUBLISHES STAFF REPORT ON PROXY PROCESS REVIEW
7.15.2003 The SEC published a report prepared
by its Division of Corporation Finance concerning the Division's review
of the Commission's rules and regulations regarding the nomination and
election of directors. The staff report notes the need to improve the
existing proxy process and recommends action in two areas: improved
disclosure and improved shareholder access to the director nomination
process. The report recommends the following actions:
- Require more robust disclosure of the nominating committee processes of
public companies, including the consideration of candidates recommended by
shareholders.
- Require specific disclosure of the processes by which shareholders may
communicate with the directors of the companies in which they invest.
- Require that major, long-term shareholders (or groups of long-term
shareholders) be provided access to company proxy materials to nominate
directors, where there are objective criteria that indicate that shareholders
may not have had adequate access to an effective proxy process. Examples of
events that would trigger this access could include situations where the
results of the proxy process are not acted on by companies or where there is
substantial shareholder dissatisfaction with the operation of the proxy
process.
Please click http://www.sec.gov/news/studies/proxyrpt.htm to access a copy of the report.
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CALIFORNIA ADVISER SETTLES ACTION BASED ON MISLEADING PERFORMANCE ADVERTISING
7.14.2003 The SEC settled public
administrative and cease-and-desist proceedings against Justin S. Mazzon, finding that Mazzon had disseminated false and misleading advertising
between at least January 2000 and September 2001 including:
- the use of a Securities and Exchange Commission's official seal and the
legend: "Prepared by: Division of Investment Management," when the materials
had not been prepared by the Division of Investment Management and neither
Mazzon had the SEC's endorsement or approval to
use its seal or the legend; and
- the use of a "Historical Performance Review Table" that was false and
misleading because the transactions, dates, and prices were not reflective of
actual purchases and sales. The Table instead included a mixture of
information copied from a third-party's investment newsletter and some from
Mazzon's clients' portfolios. Mazzon did not disclose to clients the
composite or blended nature of his historical performance figures. Mazzon
also did not disclose that the performance results did not reflect fees and
did not include all recommendations he made during the relevant time period
with the Table.
Please click http://www.nasdr.com/pdf-text/0329ntm.pdf for a copy of the Notice to Members containing the proposal.
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JUDGE ALLEGES MASSIVE OVERVALUATION AND MANIPULATION BY HEDGE FUND GROUP
7.11.2003 A federal judge in South Florida has
entered a temporary restraining order against the Connecticut-based
advisers of a purported billion-dollar hedge fund to restrain them from
violating the antifraud provisions of the federal securities laws. The SEC's court papers allege that from at least March 2000 to the
present, Lauer, Lancer and Lancer II, engaged in a scheme to over-
inflate the performances and net asset values of Offshore, Partners and
OmniFund, three hedge funds controlled by Lauer (collectively the Funds)
which recently claimed to have assets worth over $1 billion dollars.
Specifically, the complaint alleges that the defendants systematically
manipulated the month end closing prices of certain securities held by
the Funds to overstate the value of the Funds' holdings in virtually
worthless companies. The SEC's complaint states that the defendants
then provided unfounded and unrealistic valuation opinions to auditors
to obtain audited financial statements for Offshore.
Please click http://www.sec.gov/rules/final/ic-26077.htm to access a copy of the release adopting Rule 3a-8.
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