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SECURITIES AND EXCHANGE COMMISSION
|
In the Matter of MARSHALL E. MELTON and ASSET MANAGEMENT & RESEARCH, INC. Greensboro, North Carolina |
OPINION OF THE COMMISSION
INVESTMENT ADVISER PROCEEDINGS
BROKER-DEALER PROCEEDINGS
Grounds for Remedial Action
Consent Injunction
Misuse of Investor Funds
Registered investment adviser and its president, who was also associated with a registered broker-dealer, were permanently enjoined, with their consent, from violating antifraud provisions of the securities laws. In addition, president repeatedly misused investor funds. Held, it is in the public interest to revoke investment adviser's registration and to bar president from association with any investment adviser, broker, dealer, member of a national securities exchange, and member of a registered securities association.
APPEARANCES:
J. Anthony Penry, of Ellis & Winters LLP, for Marshall E. Melton and Asset Management & Research, Inc.
Edward G. Sullivan and Michael E. Mashburn, for the Division of Enforcement.
Appeal filed: August 3, 2000
Briefing completed: November 29, 2000
Marshall E. Melton and Asset Management & Research, Inc. ("AMR"), a registered investment adviser, appeal from the decision of an administrative law judge. Melton is AMR's president and sole shareholder, and also was associated with a registered broker-dealer. The law judge found that, on May 4, 1998, Melton and AMR, with their consent and without admitting or denying the allegations in the injunctive complaint, were permanently enjoined from violating antifraud provisions of the securities laws. 1 He further determined, on the basis of the evidence adduced below, that Melton had repeatedly misused funds invested in Melton's companies. The law judge concluded that Melton should be barred from association with any investment adviser, broker, dealer, member of a national securities exchange, and member of a registered securities association, and that AMR's registration should be revoked. We base our findings on an independent review of the record, except for those findings of the law judge that are not challenged on review.
The Investment Advisers Act of 1940 and the Securities Exchange Act of 1934 empower us to discipline investment advisers, broker-dealers, and their associated persons who have been enjoined from any conduct or practice in connection with activity in such capacities, or in connection with the purchase or sale of any security. Such an injunction has been entered against Respondents, and we must therefore determine what remedial action is appropriate in the public interest. 2
In this case, we must assess the disciplinary consequences of a consent antifraud injunction. Because this issue arises in our administrative disciplinary proceedings, it involves both our responsibility to protect the investing public and ourresponsibility to secure the just, speedy, and inexpensive determination of actions before the agency. The issue has arisen and been resolved in a number of our cases over the years.
We set forth immediately below, and apply to this case, our traditional policy in this area. However, because this case has presented us with the opportunity to review and reconsider that traditional approach, we also announce, in Section V below, a refined and expanded policy. The new approach shall apply to disciplinary proceedings involving consent injunctions -- and, in particular, antifraud injunctions -- that are both agreed to and entered by a court after issuance of this opinion. In discussing the refined and expanded policy, we provide guidance to our Enforcement Division and to all other parties as to the type of showing that will warrant remedial action in such cases.
The Commission's determination that a remedial, disciplinary sanction is in the public interest is based on the particular circumstances and entire record of the case. The Commission considers a range of factors relevant to that determination, including: the seriousness of the violation; the isolated or recurrent nature of the violation; the respondent's state of mind; the sincerity of the respondent's assurances against future violations; the respondent's recognition of the wrongful nature of the misconduct; the respondent's opportunity to commit future violations; the age of the violation; and the degree of harm to investors and the marketplace resulting from the violation. 3
Traditionally, in disciplinary proceedings based on an injunction, the Commission has considered the circumstances surrounding the injunctive action in making the public interest determination. In cases in which the injunctive complaint was settled by consent, as here, we have considered the allegations in that complaint.
The complaint is clearly relevant. 4 The Advisers Act and the Exchange Act make no exception for consent injunctions. Such injunctions typically do not include any findings of fact. Thus, as we have stated in a number of decisions, we have adopted the policy in administrative proceedings based on consent injunctionsthat the injunctive allegations may be given considerable weight in assessing the public interest. 5
For example, we addressed this issue many years ago in Kaye, Real & Company, 36 S.E.C. 373 (1955). There, id. at 375, the Commission stated that:
We think that the hearing examiner properly rejected registrant's proffers seeking to disprove the facts upon which the injunctions were based. Under Section 15(b) of the Act, the mere issuance of the injunctions, the validity of which has not been attacked, furnishes a statutory basis for revocation if we find such action to be in the public interest. We are of the view that, whether or not the decrees are res judicata, we need not litigate the factual assertions made in the injunctive proceedings in here resolving the issue of public interest, but may give consideration to the fact that registrant has been twice enjoined from engaging in fraudulent and improper conduct in connection with the purchase and sale of securities. We also take into account the circumstances under which these injunctions were obtained. We have also considered the other circumstances urged in mitigation, but they are not in our opinion sufficient to overcome the fraudulent activities presented in the injunction proceedings.
More recently, in Samuel O. Forson, 53 S.E.C. 31, 32 (1997), the Commission stated that:
We have previously pointed out that the allegations in an injunctive complaint settled by consent may be given considerable weight in assessing the public interest in a subsequent proceeding. Forson complains that certain of the allegations against him have never been adjudicated. However, having consented to entry of an injunction based on those allegations, Forson may not question them now in an action based on that injunction.
Thus, the Commission has concluded that a consent injunction, "no less than one issued after trial upon a determination of the allegations, may furnish the sole basis forremedial action ... if such action is in the public interest." 6 Indeed, the mere existence of an injunction may support revocation of registration or a bar from participation in the securities industry where the nature of the acts enjoined and the circumstances indicate that such is in the public interest. 7 The Commission has also had occasion in past cases based on injunctions to evaluate evidence independently adduced at the disciplinary hearing. 8
The foregoing discussion demonstrates that the Respondents in this case had ample notice of the Commission's traditional policy described above prior to the time they consented to the injunction at issue. As the Supreme Court has stated, "Adjudicated cases may and do ... serve as vehicles for the formulation of agency policies, which are applied and announced therein .... They generally provide a guide to action that the agency may be expected to take in future cases." 9
In accordance with our traditional policy, we properly may take into account the allegations underlying the injunction to which Respondents consented when considering their arguments that a revocation and bar are not necessary in the public interest.
Our assessment of those allegations and Respondents' arguments leads us to consider that revocation and a bar are appropriate here. Moreover, in this proceeding, additional evidence was adduced. This evidence substantiates some of the allegations in the complaint, 10 reveals additional instances ofmisconduct by Melton, and reinforces our conclusion as to the appropriateness of those sanctions.
Respondents object to the admission of part of that evidence, the preliminary report of the court-appointed receiver for Melton's companies. They further contend that, in any event, the report should not be given any weight. These objections are without merit. We have previously held that a "receiver's reports are competent evidence, to be accorded their natural and probable weight, taking into account their reliability." 11
We turn now to an examination of the allegations in the injunctive complaint and the other evidence adduced in this proceeding.
The complaint in the injunctive action at issue included the following allegations. From about mid-1994 through late 1996, AMR and Melton violated the securities laws' antifraud provisions by making material misrepresentations to investors in connection with the private placement of securities in three limited liability companies controlled by Melton - Westview Capital, L.C., Trading Partners, L.C. ("TP"), and Trading Partners II, L.C. ("TP II").�12
AMR, through Melton, made material misstatements to induce its clients to invest their funds in Melton's companies. Contrary to his representations to investors, Melton commingled monies among the companies, and used investors' funds to operate other entities that he controlled. He told investors to disregard warning language in the offering memoranda, giving them false assurances that their investments were safe and conservative.
Among other things, Melton falsely told prospective Westview investors that AMR had $75 million under management, and that Westview would get a percentage of AMR's commissions and fees so that investors would receive a return of 75% to 80% of their initial $50,000 investment in the first year. Melton showed prospective TP investors documents indicating that, based on its performance during the preceding eleven months, TP would return 1.5%-2% monthly. The documents did not disclose the unrealizedlosses that TP was carrying on its books. Melton persuaded one couple to margin stock and invest $500,000 of the borrowed proceeds in TP and TP II. He falsely assured the couple that their stock would be safe since the profits from their investments would be sufficient to cover their margin interest, eventually to pay the debt, and also to provide them with income.
The following evidence of Melton's misuse of funds invested in his companies was adduced at the hearing.
1. Westview
Interests in Westview, which Melton admittedly controlled, were offered to the public through a private placement memorandum ("PPM") dated June 10, 1994. The company's stated objectives were (1) to invest in securities or other investments; (2) to obtain commissions from the sale of insurance and/or securities; and (3) to act as a promoter of other investment entities. The offering, totaling $5,000,000, consisted of 50 investment units at $100,000 per unit. However, Westview was able to raise only about $2,250,000.
a. In September 1995, Rug Crafters, L.C., a start-up company in which Melton had a 10% interest, asked Westview for a loan to pay for new machinery it had ordered. Westview did not have the money to make the loan, and Melton asked his wife, Sydney Melton, to advance the money. Sydney Melton loaned Rug Crafters $100,000. The Meltons were in the process of building a luxury home, and needed the money back quickly. However, Rug Crafters did not have the funds to repay the loan.
On January 17, 1996, an investor purchased a $300,000 interest in Westview. Melton promptly transferred $105,000 of that amount to Rug Crafters. Immedately thereafter, on January 23, Rug Crafters wired Sydney Melton $104,373, repaying her loan in full with interest. Rug Crafters then executed an unsecured note in favor of Westview for $105,000, a note that was not paid. Melton admitted that "it could be inferred" that money from a Westview investor was used to repay a loan made by his wife.
Respondents argue that Westview's loan to Rug Crafters was an appropriate investment of the type described in the PPM. We make no findings with respect to the propriety of Westview lending money to Rug Crafters. However, there was no justification for the undisclosed use of investor funds for the personal benefit of Melton and his wife.
b. Westview was organized in 1994. Prior to that time, in 1993, two individuals, Phillip Fagg and Melton Jewell, had each loaned $100,000 to another company controlled by Melton, Westview Capital, Inc. ("WCI"). The loans made to WCI by Fagg and Jewell were repaid from funds invested in Westview.
Respondents point out that the Westview PPM stated that $200,000 of the offering proceeds would be used for "Debt Payoff," and that a "Financial Forecast" attached to the PPM described two promissory notes for $100,000 each that Westview was scheduled to repay by August 1994. However, the PPM did not disclose that the debts it described were not the obligations of Westview but those of WCI, another company controlled by Melton.
Respondents concede that Fagg's and Jewell's loans were made to WCI, not Westview, but contend that WCI was a predecessor of Westview, that the loans were used to pay Westview's operating expenses during its start-up period, and that, when Westview was organized, "all business was converted from [WCI] to Westview." The record is devoid of any evidence to support these claims. In fact, the receiver testified that WCI was not the predecessor of Westview, and that WCI and Westview were maintained as separate companies.
2. TP and TP II
TP was organized to engage in the day trading of securities. Its PPM, dated February 14, 1995, offered investors 200 units at $25,000 per unit for a total offering of $5,000,000. TP managed to raise only a little more than $2 million. TP II was formed to engage in covered call writing and intermediate term investing. The PPM for TP II, dated May 31, 1995, offered 400 units at $25,000 per unit for a total offering of $10,000,000. TP II was even less successful than TP, raising less than $1 million.
Melton argues that he did not control TP or TP II. He asserts, among other things, that neither he nor AMR had check writing or check signing authority for those companies, and that neither he nor AMR had any ownership interest in TP. 13
As noted, the injunctive complaint charged that Melton controlled TP and TP II. Having consented to an injunction based on that allegation, Melton may not challenge it here. 14Moreover, other evidence in the record establishes that Melton controlled both companies. Melton was admittedly the promoter of both TP and TP II, and they were both located at his business address. Melton's brother, Kenneth Melton ("K. Melton"), who was employed at the same address by Falcon Financial Management,Inc., another company controlled by Melton, was the purported manager of both TP and TP II. However, according to the receiver for Melton's companies, K. Melton gave deposition testimony to the effect that he really did not run TP or TP II, and that both of those companies were in fact run by Melton. 15 We further note that AMR, controlled by Melton, served as investment adviser to both TP and TP II and made all of their investment and trading decisions. Moreover, the companies' money managers were all AMR employees.
a. The PPM for TP stated that "[a]ssuming cash from Profits is available, the Managing Member intends to make distributions in an amount to be determined at his sole discretion." TP's Operating Agreement defined "profits" as net profits to be determined for each fiscal year by TP's accountants in accordance with generally accepted accounting principles. During 1995 and 1996, TP was losing money and had significant unrealized losses. Nevertheless, it distributed about $190,000 to investors.
In an effort to justify these payments, Respondents point to another section of the TP PPM that authorized distributions to investors from cash flow if three prior allocations were satisfied. These were (1) the payment of all currently due debts and obligations (other than debts to investors); (2) the establishment of and addition to necessary reserves; and (3) the payment of any debts or obligations owed to investors. The record does not show that these priorities were satisfied prior to the investor distributions in question.
Melton admitted that he told TP investors that TP intended to make periodic distributions of trading profits.�16 He further admitted that investors believed that TP's distributions would be based on actual trading profits. Melton testified, however, that, in any given month, if there was a positive amount remaining after monthly expenses were deducted from sales proceeds, it was distributed to investors.
b. The TP PPM stated that Renaissance Investors, Inc., another Melton-controlled company, was to receive 19% of TP's net income, payable monthly, as an "incentive fee." As noted above, TP was losing money in 1995 and 1996. Its 1995 federal tax return reported a loss of about $90,000, and its profit and loss statement for the year ending December 31, 1996 reflected a loss of $726,000. Yet TP paid Renaissance $20,362 in 1995 and $13,273 in 1996. When questioned about these payments, Melton stated, "I don't know exactly the accounting behind it."
c. TP's PPM also provided that Stormpeak, Inc., yet another Melton-owned company, would receive a "set up fee" of "3% of the offering to a maximum of $150,000." TP raised only $2,041,510 of the $5 million offering, entitling Stormpeak to a fee of $61,245. However, Stormpeak was paid $139,960, or $78,715 more than the amount to which it was entitled.
Respondents argue that it was intended that Stormpeak receive $150,000 regardless of the amount raised. However, that claim runs counter to the language of the PPM, which contemplates that $150,000 (3% of $5,000,000) would be paid to Stormpeak only if the entire offering was sold.
d. The PPM for TP II provided that a "set up and consulting fee of up to $300,000," representing "up to three percent of the funds raised by the Offering," would be paid to Stormpeak II, Inc., another Melton company. The PPM stated that the fee would be paid at a rate of $50,000 for every $1 million of the offering sold.
On August 24, 1995, TP II wired $200,000 to Sydney Melton's brokerage account. Melton claimed that this money was an advance payment on the fee owed by TP II to Stormpeak II, and that it was wired to his wife to expedite payment since he probably needed the money for the house he was building. However, since TP II raised less than $1 million, Stormpeak II was not entitled to any fee.
Respondents argue that the bar imposed on Melton is excessive. 17 They assert, among other things, that Melton has no prior record of misconduct. They also emphasize that, while a jury in an investor lawsuit found Melton liable to investors inWestview, it declined to assess punitive damages and found Melton not liable to investors in TP and TP II. 18
As we have noted, Respondents are subject to an injunction enjoining them from violating the antifraud provisions of the securities laws. Moreover, Melton engaged in additional egregious misconduct over an extended period of time.
AMR and Melton made material misrepresentations to investors. In addition, Melton caused Westview to pay debts it did not owe and to repay a risky loan made by his wife to another company. Melton also caused TP and TP II to pay his companies substantial fees when no fee or a lesser fee was due. We agree with the law judge that Respondents' conduct evidences "more than mere recklessness and indifference." There is ample evidence of deliberate deception coupled with the deliberate misuse of investor funds.
Melton and AMR exhibited a disturbing disregard for the standards that govern the securities industry. We consider that it is fully warranted to bar Melton from association with any investment adviser, broker, dealer, member of a national securities exchange, and member of a registered securities association, and to revoke AMR's registration as an investment adviser. We consider that our action is appropriate to protect the public from further harm at their hands.
We hereby take this opportunity to refine and expand, for future cases, our policy for administrative disciplinary proceedings based on consent injunctions -- and, in particular, antifraud injunctions -- that are both agreed to and entered by a court in Commission enforcement actions after issuance of this opinion. The policy reflects our view of the meaning that a settlement in a Commission injunctive action will have for a disciplinary proceeding against the same party. It also reflects our view of the seriousness of violations of the antifraud provisions of the federal securities laws. Because the new approach applies by its own terms prospectively, we make no attempt to compare and contrast it with our traditional policy. Nothing we say in this section of the opinion has any bearing on the terms or application of the traditional approach.
An injunction, by its very nature, is predicated on conduct that would or does violate laws, rules, or regulations. The Commission may seek an injunction "[w]henever it shall appear to the Commission that any person is engaged or is about to engage in acts or practices constituting a violation" of securitieslaws, rules, or regulations. 19 The fact that a securities professional has engaged, or was about to engage, in such a violation clearly can create a need to discipline the person in the public interest. Congress made a basic public interest determination about the seriousness of an injunction when it specified an injunction as one of the grounds upon which the Commission can take disciplinary action against securities professionals under Advisers Act Sections 203(e)(4) and 203(f) and Exchange Act Sections 15(b)(4)(C) and 15(b)(6)(A)(iii). 20
We believe that an antifraud injunction can, in the first instance, indicate the appropriateness in the public interest of revocation of registration or a suspension or bar from participation in the securities industry. Of course, respondents have the opportunity to demonstrate that, notwithstanding the antifraud injunction, the public interest does not support revocation, suspension, or a bar.
As noted, the Advisers Act and Exchange Act draw no distinction between injunctions entered after litigation or by consent. 21 We do not believe that the statutes require theEnforcement Division to prove the allegations of an injunctive complaint in a follow-on administrative proceeding before any disciplinary action can be taken. If the contrary were true, then in the many cases involving willful misconduct, a disciplinary action under Section 15(b)(4)(C) based on an injunction would become indistinguishable from one under Section 15(b)(4)(D) based on a willful violation. The injunction would make no difference and have no force in the disciplinary proceeding. We do not believe that Congress, having made an injunction a ground for commencing the proceeding, intended for the parties to conduct the proceeding as if the injunction had never been entered, disregarding the allegations underlying the injunction.
We will rely on the factual allegations of the injunctive complaint in determining the appropriate remedial action in the public interest, taking into account what those allegations reflect about the seriousness of the underlying misconduct and the relative culpability of the respondent. In this connection, we will not permit a respondent to contest the factual allegations of the injunctive complaint. Consent injunctions are entered in actions, and pursuant to settlements, authorized by the Commission. By Commission Rule 202.5(e), 17 C.F.R. §�202.5(e), we will not accept, in any enforcement action, any settlement in which the defendant denies committing the violations:
The Commission has adopted the policy that in any civil lawsuit brought by it or in any administrative proceeding of an accusatory nature pending before it, it is important to avoid creating, or permitting to be created, an impression that a decree is being entered or a sanction imposed, when the conduct alleged did not, in fact, occur. Accordingly, it hereby announces its policy not to permit a defendant or respondent to consent to a judgment or order that imposes a sanction while denying the allegations in the complaint or order for proceedings. In this regard, the Commission believes that a refusal to admit the allegations is equivalent to a denial, unless the defendantor respondent states that he neither admits nor denies the allegations.
Having refused to be party to a settlement in which the defendant denies the Commission's allegations of wrongdoing, we should not countenance those same denials, after a person settles with the Commission, in a later proceeding before this agency. Furthermore, it would be illogical and a waste of resources for us not to rely on the factual allegations of the injunctive complaint in a civil action settled on consent in determining the appropriate remedial action in the public interest.
For purposes of consent injunctions that are agreed to and entered by a court after issuance of this opinion, we will construe the "neither admit nor deny" language as precluding a person who has consented to an injunction in a Commission enforcement action from denying the factual allegations of the injunctive complaint in a follow-on proceeding before this agency. Defendants in Commission injunctive actions must understand that, if the Commission institutes an administrative proceeding against them based on an injunction to which they consented after issuance of this opinion, they may not dispute the factual allegations of the injunctive complaint in the administrative proceeding. Moreover, those allegations potentially can be dispositive of what remedial action is appropriate in the public interest. 22
Under the refined and expanded policy, the Commission's determination whether a remedial disciplinary sanction is in the public interest is based on consideration of the particular circumstances and entire record of the case and on the range of traditional factors referred to in Section II above. The record would include any evidence adduced with respect to those factors. In considering the factors, we recognize that conduct that violates the antifraud provisions of the federal securities laws is especially serious and subject to the severest of sanctions under the securities laws.
The fact that a person has been "permanently or temporarily enjoined by order, judgment, or decree of any court of competent jurisdiction" from violating the antifraud provisions has especially serious implications for the public interest. Based on our experience enforcing the federal securities laws, webelieve that ordinarily, and in the absence of evidence to the contrary, it will be in the public interest to revoke the registration of, or suspend or bar from participation in the securities industry, or prohibit from participation in an offering of penny stock, a respondent who is enjoined from violating the antifraud provisions.
* * * * * * * *
An appropriate order will issue. 23
By the Commission (Chairman DONALDSON and Commissioners GLASSMAN, GOLDSCHMID, and ATKINS); Commissioner CAMPOS not participating.
Jonathan G. Katz
Secretary
In the Matter of MARSHALL E. MELTON and ASSET MANAGEMENT & RESEARCH, INC. Greensboro, North Carolina |
ORDER IMPOSING REMEDIAL SANCTIONS
On the basis of the Commission's opinion issued this day, it is
ORDERED that Marshall E. Melton be, and he hereby is, barred from association with any investment adviser, broker, dealer, member of a national securities exchange and member of a registered securities association; and it is further
ORDERED that the registration of Asset Management & Research, Inc. as an investment adviser be, and it hereby is, revoked.
By the Commission.
Jonathan G. Katz
Secretary
| 1 | SEC v. Marshall E. Melton, et al., Civil Action File No. 2:97-CV-00151 (M.D.N.C.), 1998 WL 234162. Respondents were enjoined from violating Section 17(a) of the Securities Act (15 U.S.C. § 77q(a)), Section 10(b) of the Securities Exchange Act and Exchange Act Rule 10b-5 (15 U.S.C. § 78j(b) and 17 C.F.R. §�240.10b-5), and Section 206 of the Investment Advisers Act (15 U.S.C. § 80b-6). AMR was ordered to disgorge $188,243, and Melton ordered to disgorge $352,021, plus prejudgment interest. However, payment was waived due to their inability to pay. |
| 2 | See Sections 203(e)(4) and 203(f) of the Advisers Act (15 U.S.C.�§§ 80b-3(e)(4) and (f)) and Sections 15(b)(4)(C) and 15(b)(6)(A)(iii) of the Exchange Act (15 U.S.C. §§ 780(b)(4)(C) and (b)(6)(A)(iii)). |
| 3 | See, e.g., KMPG Peat Marwick LLP, Exchange Act Release No. 43862 (Jan. 19, 2001), 74 SEC Docket 384, 436, motion for reconsideration denied, Exchange Act Release No. 44050 (Mar. 8, 2001), 74 SEC Docket 1351, petition denied, 289 F.3d 109 (D.C. Cir. 2002); Joseph J. Barbato, 53 S.E.C. 1259, 1281 n.31 (1999); Donald T. Sheldon, 51 S.E.C. 59, 86 (1992), aff'd, 45 F.3d 1515 (11th Cir. 1995). |
| 4 | Rule 320 of our Rules of Practice provides that "the hearing officer may receive relevant evidence." |
| 5 | See, e.g., Seaboard Investment Advisers, Inc., Investment Advisers Act Release No. 1918 (Jan. 10, 2001), 74 SEC Docket 201, 206; Samuel O. Forson, 53 S.E.C. 31, 32 (1997); Richard J. Puccio, 52 S.E.C. 1041, 1042 (1996); Charles Phillip Elliott, 50 S.E.C. 1273, 1277 (1992), aff'd, 36 F.3d 86 (11th Cir. 1994) (per curiam). |
| 6 | Cortlandt Investing Corp., 44 S.E.C. 45, 53 (1969); accord Balbrook Securities Corp., 42 S.E.C. 496, 498 (1965). |
| 7 | See, e.g., Balbrook, 42 S.E.C. at 498; Dunhill Securities Corp, 44 S.E.C. 1, 3 (1969). |
| 8 | See Michael J. Markowski, Securities Exchange Act Release No. 44086 (Mar. 20, 2001), 74 SEC Docket 1537, 1543, aff'd, No. 01-1181 (D.C. Cir. 2002); Seaboard, 74 SEC Docket at 206; Charles Phillip Elliott, 50 S.E.C. at 1277; Dunhill, 44 S.E.C. at 2. |
| 9 | NLRB v. Wyman-Gordon Co., 394 U.S. 759, 765-766 (1969). |
| 10 | That evidence deals with the complaint's allegations with respect to the repayment to Melton's wife from funds invested in one of Melton's companies of a loan she made to another concern; the distributions made to investors by one of Melton's companies despite the company's losses; and thetransfer by another Melton company of $200,000 of investors' funds to Melton's wife. |
| 11 | Charles Phillip Elliott, 50 S.E.C. at 1278. |
| 12 | The three offerings raised a total of about $5,334,000 from 29 investors. |
| 13 | Melton also points to the fact that a state court jury in an investor lawsuit found that he was not liable for damages to investors in TP and TP II. Respondents concede that we are not bound by the jury's verdict (which did find Melton liable for damages to investors in Westview). Moreover, there is no evidence in the record as to the basis for the jury's determination. |
| 14 | See Samuel O. Forson, supra. |
| 15 | Although the receiver's testimony regarding K. Melton was hearsay, it is well established that hearsay may be admitted as evidence and, in appropriate cases, may form the sole basis for findings of fact. Vladislav Steven Zubkis, 53 S.E.C. 794, 800 n.6�(1998); Henry E. Vail, 52 S.E.C. 339, 341, aff'd, 101 F.3d 37 (5th Cir. 1996). The law judge found the receiver to be "a fully credible witness," and relied on his testimony in this regard. We find no reason to disagree with that assessment. |
| 16 | This admission is contained in Melton's answer to the injunctive complaint which Melton attached to his answer to the order for proceedings herein, thereby incorporating it as part of his answer. |
| 17 | AMR is no longer conducting business. On September 24, 1996, the Securities Division of the Office of the Secretary of State of North Carolina suspended its license as a registered investment adviser until AMR complies with North Carolina's net capital requirements. The suspension is apparently still in effect. |
| 18 | See n.13, supra. |
| 19 | See Section 21(d)(1) of the Exchange Act (15 U.S.C. 78u(d)(1)); see also Section 209(d) of the Advisers Act (15 U.S.C. 80b-9(d)). |
| 20 | Indeed, Congress made even a further public interest determination of its own as to certain securities professionals. Under Section 9(a) of the Investment Company Act (15 U.S.C. § 80a-9(a)), persons who, based on any misconduct, are enjoined from, among other things, engaging in any practice in connection with the purchase or sale of a security, are automatically disqualified from serving as an employee, officer, director, member of an advisory board, investment adviser, or depositor of a registered investment company or as a principal underwriter for any registered open-end company, registered unit investment trust, or registered face-amount certificate company. |
| 21 | As explained in SEC v. Clifton, 700 F.2d 744, 748 (D.C. Cir. 1983) (citations omitted): |
| Because of its limited resources, the SEC has traditionally entered into consent decrees to settle most of its injunctive actions. Indeed, as the government pointed out at oral argument, over 90% of the SEC's cases are resolved by such decrees. While it gives up a number of advantages when it proceeds byinjunction rather than by litigation, including the filing of findings of fact and court opinions clearly setting forth the reasons for the result in a particular case, the SEC is thus able to conserve its own and judicial resources.... | |
| 22 | Of course, a defendant that settles a Commission injunctive action remains free to "seek and receive concessions concerning the violations to be alleged in the complaint, the language and factual allegations in the complaint," and, by settling disciplinary matters at the same time as the injunctive action, "the collateral, administrative consequences of the consent decree." See Clifton, 700 F.2d at 748. |
| 23 | We have considered all of the parties' contentions. We reject or sustain them to the extent that they are inconsistent or in accord with the views expressed herein. |
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