Hedge Fund Focus

Recent SEC Actions Affecting Investment Advisors and the Hedge Fund Industry

In the Matter of Peter J. Dawson

On January 12, the Commission issued an Order Instituting Administrative Proceedings Pursuant to Section 15(b) of the Securities Exchange Act of 1934, Making Findings and Imposing Remedial Sanctions (Order) against Peter J. Dawson. The Order finds that a final judgment was entered by consent against Dawson, permanently enjoining him from future violations of Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder and Sections 206(1) and 206(2) of the Investment Advisers Act of 1940 in the civil action entitled Securities and Exchange Commission v. Peter J. Dawson, et al., No. 06 Civ. 6360 (JFB)(WDW), in the United States District Court for the Eastern District of New York. The Order further finds that, previously, on December 13, 2007, Dawson pled guilty to two counts of Grand Larceny in violation of Section 155.40(1) of the New York Penal Law and one count of Scheme to Defraud in violation of Section 190.65(1) of the New York Penal Law in People v. Peter Dawson, Docket No. 31496/06. The counts to which Dawson pled guilty alleged, inter alia, that Dawson defrauded investors and obtained money and property by means of materially false and misleading statements. Based on Dawson’s guilty plea and the Judgment entered in the Commission’s civil injunctive action against him, the Order bars Dawson from association with any broker-dealer. Dawson consented to the issuance of the Order without admitting or denying any of the findings in the Order except as to the Commission’s jurisdiction over him and the subject matter of these proceedings, his consent to a final judgment against him in the Commission’s civil injunctive action against him, and his guilty plea in the criminal matter. (Rel. 34-59232; File No. 3-13333) http://www.sec.gov/news/digest/2009/dig011409.htm

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In the Matter of Diane M. Keefe

On January 13, the Commission issued an Order Instituting Administrative Proceedings Pursuant to Sections 9(b) and 9(f) of the Investment Company Act of 1940, Section 203(f) of the Investment Advisers Act of 1940 and Section 15(b) of the Securities Exchange Act of 1934 against Diane M. Keefe.

The Division of Enforcement (Division) alleges in the Order that in 2003, when Keefe was the portfolio manager of the Pax World High Yield Fund, she created and labeled a set of notes “investment committee meeting” and represented them to be notes of nine Pax World High Yield Fund investment committee meetings that purportedly occurred from February 1999 to August 2003. The Division further alleges that these notes, which reflected investment advice, were false in that they consisted of notes of three-way conversations that never occurred. In fact, according to the Order, the date of the first purported meeting reflected in the notes Keefe created pre-dates Keefe’s employment at Pax World by at least two months; those notes nevertheless represent that an investment committee meeting occurred and that Keefe was in attendance. The Division further alleges that Keefe created the notes after Pax World’s compliance liaison asked Keefe in August 2003 for notes of the Fund’s investment committee meetings in connection with a routine examination being conducted by the Commission staff at that time. The Division also alleges that these false investment committee notes remained in the Fund’s files maintained by Pax World for approximately one year. As a result of this conduct, the Division alleges that Keefe violated Section 34(b) of the Investment Company Act, which prohibits the making of any untrue statement of material fact in any document the keeping of which is required pursuant to Section 31(a). Rule 31a-1(b)(11) requires that every registered investment company maintain files of all advisory material received from the investment adviser, any advisory board or advisory committee, or any other persons from whom the investment company accepts investment advice. The Division alleges that Keefe was a person from whom the Fund accepted investment advice and that the investment committee notes constitute advisory material for purposes of Rule 31a-1(b)(11). (Rel. IA-2828; IC-28582; 34-59237; File No. 3-13337)

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Paul G. Risoli Barred from Association with any Broker, Dealer, or Investment Adviser

On January 13, the Commission issued an Order Instituting Administrative Proceedings Pursuant to Section 15(b) of the Securities and Exchange Act of 1934 and Section 203(f) of the Investment Advisers Act of 1940, Making Findings, and Imposing Remedial Sanctions against Paul G. Risoli. The Order finds that from June 2003 through February 2007, Risoli was a registered representative associated with Banc of America Securities LLC, a broker-dealer and investment adviser registered with the Commission. The Order further finds that on Aug. 2, 2007, Risoli pled guilty to criminal charges of wire fraud and conspiracy to commit wire fraud and commercial bribery (U.S. v. Paul Risoli, No. 1:07-CR-145, S.D.N.Y.). The Order further finds that the criminal charges to which Risoli pled guilty, alleged that Risoli caused Banc of America to allocate stock from certain initial public offerings and secondary offerings to Q Capital Investment Partners, LP (Q Capital) in exchange for Q Capital paying Risoli cash kickbacks.

Based on the above, the Order bars Risoli from association with any broker, dealer, or investment adviser, with the right to reapply for association after three years to the appropriate self-regulatory organization, or if there is none, to the Commission. Risoli consented to the issuance of the Order without admitting or denying the findings in the Order, except as to his guilty plea. (Rels. 34-59242; IA-2829; File No. 3-13341)
http://www.sec.gov/news/digest/2009/dig011309.htm

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Final Judgments Entered Against Defendants Jarrod W. McMillin, Innovative Projects, Inc., and Laurence G. Young

The Commission announced that on Jan. 8, 2009, the United States District Court for the District of Colorado entered a Final Judgment against Defendants Jarrod W. McMillin and Innovative Projects, Inc. The Final Judgment finds McMillin and Innovative Projects, Inc. jointly and severally liable for disgorgement in the amount of $673,983 representing profits gained as a result of the conduct alleged in the Commission’s complaint plus pre-judgment interest of $19,349, for a total of $693,332. The Judgment also finds McMillin liable for a civil penalty in the amount of $130,000. On December 22, 2008, the United States District Court entered a Default Judgment against Defendant Laurence G. Young in the same case. The Default Judgment finds Young liable for disgorgement in the amount of $282,103 representing profits gained as a result of the conduct alleged in the complaint, prejudgment interest of $16,698, and a civil penalty of $282,102, for a total of $580,903.

The Commission’s complaint alleged that McMillin and Young were part of a Ponzi scheme known as American Investors Network or AIN. AIN solicited funds to finance an advertising program and promised to return monthly profits of $10,000 to $20,000 on each $2,000 investment. The advertising interests were investment contracts which are securities under federal law. Among other claims, the complaint alleged there was no advertising program and that investors who received “profit” distributions were paid with funds solicited from other investors. The complaint also alleged that McMillin and Young acted as an unregistered broker-dealer in connection with the offer and sale of securities. For further information, see Release No. 20415 (Dec. 21, 2007). [SEC v. Jarrod McMillin et al., Civil Action No. 07-cv-2636-REB-MEH, USDC, D. Colo.] (LR-20850)