UNITED STATES OF AMERICA Before the SECURITIES AND EXCHANGE COMMISSION INVESTMENT ADVISERS ACT OF 1940 RELEASE NO. 1763 / September 29, 1998 ADMINISTRATIVE PROCEEDING FILE NO. 3-9742 In the Matter of : ORDER INSTITUTING PROCEEDINGS : PURSUANT TO SECTIONS 203(e), 203(f) : AND 203(k) OF THE INVESTMENT FINARC, LLC and : ADVISERS ACT OF 1940, MAKING CATHERINE F. WHITE, : FINDINGS AND IMPOSING REMEDIAL : SANCTIONS, AND CEASE-AND-DESIST Respondents. : ORDER : I. The Securities and Exchange Commission deems it appropriate and in the public interest that public administrative and cease- and-desist proceedings be instituted pursuant to Sections 203(e), 203(f) and 203(k) of the Investment Advisers Act of 1940 ("Advisers Act") against Respondents FinArc, LLC ("FinArc") and Catherine F. White ("White"). II. In anticipation of the institution of these administrative proceedings, FinArc and White have submitted Offers of Settlement ("Offers") that the Commission has determined to accept. Solely for the purpose of these proceedings and any other proceedings brought by or on behalf of the Commission or in which the Commission is a party, and without admitting or denying the findings, except those findings pertaining to the jurisdiction of the Commission over them and the subject matter of these proceedings, which are admitted, FinArc and White by their Offers consent to the entry of this Order Instituting Proceedings pursuant to Sections 203(e), 203(f) and 203(k) of the Investment Advisers Act of 1940, Making Findings and Imposing Remedial Sanctions, and Cease-and-Desist-Order (the "Order"), as set forth herein. Accordingly, IT IS ORDERED that proceedings pursuant to Sections 203(e), 203(f) and 203(k) of the Advisers Act be, and hereby are, instituted. III. On the basis of this Order and the Offers submitted by FinArc and White, the Commission makes the following findings: A. Respondents 1. FinArc, of Lexington, Massachusetts, has been registered with the Commission as an investment adviser since December 6, 1990 (File No. 801-37761). It was initially registered under the name of Catherine Friend White d/b/a Financial Architects, and on October 24, 1996, became FinArc, LLC, a Massachusetts limited liability company. As of July 25, 1997, FinArc had approximately 50 clients and $25.5 million in assets under management. At all relevant times, FinArc had approximately three employees. 2. White, 41, of West Medford, Massachusetts, was at all relevant times president and 95% owner of FinArc. White is responsible for securities law compliance, management of client portfolios, securities research and marketing activities. B. Facts The 1996 Investment Advisers Supervision Coordination Act ("Coordination Act") reallocated federal and state responsibilities for the regulation of investment advisers registered with the Commission. On July 8, 1997, the new criteria for registration with the Commission pursuant to the Coordination Act went into effect. After that date, with few exceptions, only advisers with $25 million or more in assets under management qualified for Commission registration. Advisers who no longer met the requirements for Commission registration were to be regulated by their respective states.[1] By July 8, 1997, every investment adviser was required to file with the Commission a Form ADV-T stating whether it was eligible to maintain its registration based on criteria set forth in the Coordination Act. FinArc filed its Form ADV-T on July 7, 1997, stating that it was eligible to remain registered with the Commission on the basis that it had assets under management of $25 million or more. On July 25, 1997, FinArc distributed to approximately 36 publications and several radio stations a press release titled "FinArc LLC Investment Management Meets SEC Criteria to Become Nationally Registered." The subtitle stated, "Lexington firm, founded by Catherine Friend White, is among the top ten percent of all registered investments [sic] advisors nationally in terms of assets under management." The press release stated that FinArc had "met the criteria of a new SEC registration requirement that only firms with $25 million or more in assets under management will be nationally registered with the SEC." White was quoted as saying, "Not only did FinArc meet the requirements, we have placed in the top ten percent of registered investment advisors nationwide," and "We feel that this is a significant accomplishment given the emphasis in and around Boston on mutual fund investing and the fact that the firm is only seven years old -- relatively young in the investment business!" At least three publications printed articles based on FinArc's press release. FinArc's press release was materially false and misleading. At the time it issued the press release, FinArc had approximately $25.5 million in assets under management, which only just met the minimum criteria for registration with the Commission.[2] Instead of being "among the top ten percent of all registered investments advisors nationally in terms of assets under management," FinArc was actually among the bottom four percent of federally registered advisers who reported assets under management on Form ADV-T.[3] Therefore, FinArc and White created the false and misleading impression that FinArc had substantially more than $25.5 million in assets under management. C. Violations By virtue of the conduct described above, FinArc willfully violated and White willfully aided and abetted and caused FinArc's violations of Section 206(4) of the Advisers Act and Rule 206(4)- 1(a)(5) thereunder by, through the mails or means or instrumentalities of interstate commerce, directly or indirectly, engaging in acts, practices and courses of business which were fraudulent, deceptive or manipulative, and publishing, circulating and distributing advertisements which contained untrue statements of material fact or were otherwise false or misleading. IV. In view of the foregoing, the Commission deems it appropriate and in the public interest to accept the Offers submitted by FinArc and White and to impose the sanctions specified therein. Accordingly, IT IS ORDERED that: A. FinArc and White cease and desist from committing or causing any violation and any future violation of Section 206(4) of the Advisers Act and Rule 206(4)-1(a)(5) thereunder; B. FinArc and White shall, within thirty days of the entry of this Order, together pay a civil money penalty in the amount of $15,000 to the United States Treasury. Such payment shall be: (A) made by United States postal money order, certified check, bank cashier's check or bank money order; (B) made payable to the Securities and Exchange Commission; (C) hand-delivered or mailed to the Comptroller, Securities and Exchange Commission, Operations Center, 6432 General Green Way, Stop 0-3, Alexandria, VA 22312; and (D) submitted under cover letter which identifies FinArc and White as the Respondents in these proceedings, the file number of these proceedings, a copy of which cover letter and money order or check shall be sent to James B. Adelman, Associate District Administrator, Securities and Exchange Commission, Boston District Office, 73 Tremont Street, Suite 600, Boston, Massachusetts, 02108; and C. FinArc shall mail a copy of this Order, together with a cover letter, in a form acceptable to the staff of the Commission's Boston District Office, to each of its existing clients by certified mail, return receipt requested, within thirty days from the date of this Order. From the effective date of this Order until the expiration of twelve months, FinArc shall provide a copy of this Order to all prospective investment advisory clients not less than forty-eight hours prior to entering into any written or oral investment advisory contract (or no later than the time of entering into such contract, if the client has the right to terminate the contract without penalty within five business days after entering into the contract). Also, within thirty days from the date of this Order, FinArc shall execute and deliver to the staff of the Commission's Boston District Office an affidavit that it has provided this Order to its existing clients in accordance with the terms of this Order. Within thirteen months from the date of this Order, FinArc shall execute and deliver to the staff of the Commission's Boston District Office an affidavit that it has provided this Order to its prospective clients in accordance with the terms of this Order. By the Commission. Jonathan G. Katz Secretary **FOOTNOTES** [1]: At that time, investment advisers in the states of Colorado, Iowa, Ohio and Wyoming remained registered with the Commission because those states did not regulate investment advisers. [2]: The press release did not state the amount of FinArc's assets under management. [3]: Of the 7,075 advisers who remained registered with the Commission after July 8, 1997, 4,031 provided a statement of their assets under management on Form ADV-T. Advisers were not required to state assets under management on Form ADV-T if they had another basis for registration with the Commission. Among those who did not state the amount of assets under management on Form ADV-T were many of the largest investment advisers, who were eligible for registration with the Commission on the basis that they were investment advisers to registered investment companies.