STOCKETT HIT WITH $50,000 PENALTY, "BARRED FROM ASSOCIATION WITH ANY BROKER, DEALER, MUNICIPAL SECURITIES DEALER, INVESTMENT ADVISOR, AND INVESTMENT COMPANY"
per Administrative Law Judge of the SEC in relation to the Hudson Investors Fund/Hudson Management/Hudson Advisors arrangement that was the subject of an SEC investigation.
Here are some of the conclusions arrived at by the ALJ as published on the SEC's Enforcement site; go to
sec.gov
and released to the public this month. My own conclusion, reading between the lines and in light of the fact that the Hudson Mgmt. guy got off much lighter, is that Stockett got some poor schmuck in his hands and played him for all he was worth. Note that some potential investors wised up to him and refused to invest.
excerpts from the SEC ALJ's Order:
The Division recommends that: (i) all Respondents be ordered
to cease and desist from future violations of the securities
laws; (ii) Mr. Latef be suspended from association with an
investment adviser and an investment company for a period of
twelve months; and
(iii) Mr. Stockett be barred from association
with any broker, dealer, municipal securities dealer, investment
adviser, and investment company. It also recommends that civil
penalties be assessed, without discussing the appropriateness of
this sanction or providing recommended amounts.
A. Bar and Suspension
Section 203(f) of the Advisers Act and Section 9(b) of the
Company Act authorize the Commission to impose sanctions on any
person who has, as in this case, willfully made or caused to be
made in any application for registration or any report required
to be filed with the Commission any false or misleading
statements of material fact or has omitted to state a material
fact, or has willfully violated or willfully aided and abetted a
violation of the federal securities laws.<49> Under Section
203(f) the Commission may censure or place limitations on the
activities of any person who has committed such violations and
who is associated, seeking to become associated, or, at the time
of the alleged misconduct, was associated or seeking to become
associated with an investment adviser, or suspend for a period
not exceeding twelve months or bar any such person from being
associated with an investment adviser. Under Section 9(b) the
Commission may prohibit any person who has committed such
violations from affiliating or associating with an investment
company.
1. The Suspension of Mr. Latef
Mr. Latef willfully violated Section 17(a) of the Securities
Act and Section 10(b) of the Exchange Act and Rule 10b-5
thereunder because he recklessly disregarded his duty to disclose
material information to Hudson Fund investors. He violated
Section 34(b) of the Company Act because he did not disclose this
material information in the Hudson Fund prospectus or any other
reports required to be filed with the Commission. He also
violated Section 207 of the Advisers Act because he signed and
filed a Form ADV-S which affirmatively misrepresented that there
was no need to amend Hudson Advisers' Form ADV.
Mr. Latef's reckless behavior posed a significant threat to
the Hudson Fund shareholders and other investors. Disclosure is
the essence of securities regulation. It prevents fraud and
reduces risk. It is important for the investing public to have
all material information available to it, therefore, before
making investment decisions. In this case, investors did not
possess material information about the Hudson Respondents'
relationship with Mr. Stockett. The risks involved in investing
in the Fund rose significantly with Mr. Stockett's participation.
The potential for fraud was great. Investors should have had
this information at their disposal. Mr. Latef was responsible
for providing the "full and fair" disclosure necessary here, and
was reckless in not doing so.
I do not believe, though, that Mr. Latef intended to defraud
investors in the Hudson Fund. Mr. Choudhry and the Hudson Group
were majority shareholders and knew as much as Mr. Latef about
the activity surrounding the Fund. I also believe that, in
forming the Fund, Mr. Latef and Mr. Choudhry acted with good
intentions, and that their decision to work with Mr. Stockett was
made in good faith. Further, this is the only instance of
disciplinary action involving Mr. Latef or any of the Hudson
Respondents. This was an isolated incident related to their
involvement with Mr. Stockett. There is also no evidence that
Mr. Latef benefited financially from his association with the
Hudson entities. To the contrary, there is much evidence that
Mr. Latef suffered significantly. He was well-educated and had
held several important high-paying jobs, his last as a hotel
executive.<50> While working for the Hudson entities he received
little or no income and apparently received no other economic
benefit.
Although his conduct was egregious, it was not so egregious
as to merit the year-long suspension recommended by the Division.
Nevertheless, Mr. Latef does not seem to recognize the
wrongfulness of his conduct and, therefore, there is a greater
likelihood that his association with the Hudson Respondents will
present opportunities for future violations. He is willing,
however, to "publish any curative disclosure the Commission may
require." (Hudson Post. Brief at 21.) Considering all of the
above, including mitigating factors, I believe it is appropriate
in the public interest to suspend Mr. Latef from association with
an investment adviser and an investment company for three months.
2. Mr. Stockett is Collaterally Barred
Mr. Stockett aided and abetted the Hudson Respondents'
violations of Section 17(a) of the Securities Act, Section 10(b)
of the Exchange Act and Rule 10b-5 thereunder, Section 34(b) of
the Company Act, and Sections 204 and 207 of the Advisers Act and
Rule 204-1(b) because: (i) he knew that the Hudson Respondents
were violating the securities laws by not disclosing certain
material information; and (ii) he knowingly and substantially
assisted in the commission of the violations by concealing
information from Mr. Latef and/or by contributing to
misinformation disclosed to investors.
Honesty is a basic quality required of securities
professionals. There are elements of scheming and deception in
Mr. Stockett's conduct in this case that cast serious doubt on
his ability ever to operate in the securities industry in an
honest and forthright manner. His intent, demonstrated in the
various business dealings described in the record, was to
eventually gain control of the Hudson Fund and use it to
manipulate stock prices in companies in which he and his partners
held an interest. He had already swept the Hudson Respondents
into his web of deceit, but he never consummated the big-money
deal that would have triggered his takeover of the Hudson
Respondents' business and fostered his potentially massive fraud.
It was his relationship with the Hudson Respondents that caused
their violations of the securities laws; Mr. Stockett's
misconduct was, therefore, the root of the evil in this case.
There are no mitigating factors. Mr. Stockett denies any
and all wrongdoing and fails to admit or recognize the
significance of his activity. There is a substantial likelihood
that Mr. Stockett will commit future violations of the securities
laws. Over the last decade, Mr. Stockett's sole occupation has
involved investors, investing, and seeking out capital. It is
also relevant, if not determinative, on the issue of the
appropriateness of a sanction in the public interest that Mr.
Stockett has a significant disciplinary history in the securities
industry. The public interest, therefore, requires the imposition of a harsh sanction against Mr. Stockett.
The Division requests that Mr. Stockett be barred from
association with any broker, dealer, municipal securities dealer,
investment adviser, and investment company. This is commonly
referred to as an industry-wide bar or "collateral bar." The
Commission recently decided that it had the authority to issue
such collateral bars against respondents "in cases where it is
contrary to the public interest to allow someone to serve in any
capacity in the securities industry." Meyer Blinder, 65 SEC
Docket 1970, 1981 (Oct. 1, 1997). Two factors to consider in
determining whether a collateral bar is appropriate in the public
interest are whether the respondent's "misconduct is of the type
that, by its nature, 'flows across' various securities
professions and poses a risk of harm to the investing public in
any such profession" and "whether the egregiousness of the
respondent's misconduct demonstrates the need for a comprehensive
response in order to protect the public." Id.
In light of the public interest factors cited above, I
conclude that it is appropriate to issue a collateral bar against
Mr. Stockett. The allegations, findings, and conclusions against
Mr. Stockett were made pursuant to the Securities Act, Exchange
Act, Advisers Act, and Company Act. Mr. Stockett's activities
necessarily "flowed across" the various securities professions
and posed a significant risk of harm to the investing public.
His conduct was egregious and requires an immediate and
comprehensive response in order to protect the public interest.
B. Cease and Desist
Section 8A of the Securities Act, Section 21C of the
Exchange Act, Section 9(f) of the Company Act, and Section 203(k)
of the Advisers Act provide that the Commission, after notice and
opportunity for a hearing, may enter an order requiring any
person who "is violating, has violated, or is about to violate,"
or who causes a violation of any provision, rule, or regulation
of the securities laws to cease and desist from committing or
causing such violation and any future violation of the same
provision, rule, or regulation.
These statutes, by their terms, permit the entry of a cease
and desist order upon concluding that a violation of the
securities laws has occurred. Mr. Stockett and the Hudson
Respondents have violated various provisions of the securities
laws. Considering this and the public interest factors cited
above, I find that it is appropriate to issue a cease and desist
order against all of the Respondents.
5
C. Civil Money Penalty
Section 21B of the Exchange Act, Section 9(d) of the Company
Act, and Section 203(i) of the Advisers Act authorize the
Commission to assess civil money penalties against any person if
it finds that such person has willfully violated or willfully
aided and abetted a violation of a provision of the federal
securities laws or has willfully made or caused to be made in any
application for registration or report required to be filed with
the Commission any false or misleading statements of material
fact or has omitted to state a material fact. Since Respondents
willfully violated or willfully aided and abetted violations of
provisions of the federal securities laws and willfully made or
caused to be made in documents required to be filed with the
Commission misleading statements of material fact and omitted to
state material facts, I may assess a civil money penalty against
them if I find it is in the public interest.
The above-referenced provisions specify a three-tier system
for assessing the maximum amount of a penalty. In the first
tier, the maximum penalty for each act or omission is $5,000 for
a natural person or $50,000 for any other person. In the second
tier, the maximum amount for each act or omission is $50,000 for
a natural person or $250,000 for any other person if the act or
omission involved fraud, deceit, manipulation or deliberate or
reckless disregard of a regulatory requirement. In the third
tier, the maximum amount for each act or omission is $100,000 for
a natural person or $500,000 for any other person if the act or
omission (i) involved fraud, deceit, manipulation, or deliberate
or reckless disregard of a regulatory requirement, and (ii)
directly or indirectly resulted in substantial losses or created
a significant risk of substantial losses to other persons or
resulted in substantial pecuniary gain to the person who
committed the act or omission.
The assessment of a penalty depends on a finding that such
an assessment is in the public interest. The public interest
finding must support the amount of a particular assessment, not
merely the overall decision to assess a penalty. See First
Securities Transfer System, Inc., 60 SEC Docket 441, 447 n.15
(Sept. 1, 1995). The factors to consider in determining whether
a civil money penalty and the penalty amount are in the public
interest are: (i) whether the act or omission for which the
penalty is assessed involved fraud, deceit, manipulation, or
deliberate or reckless disregard of a regulatory requirement;
(ii) the harm to other person(s) resulting either directly or
indirectly from such act or omission; (iii) the extent to which
any person was unjustly enriched, taking into account any
restitution made to persons injured by such behavior; (iv)
whether the respondent previously has been found by the
Commission, another regulatory agency or a self-regulatory
organization to have violated federal or state securities laws or
the rules of a self-regulatory organization or has been enjoined
or convicted by a court of competent jurisdiction of violations
of such laws or rules; (v) the need to deter respondent and
others from committing such acts or omissions; and (vi) such
other matters as justice may require.
Applying these criteria, I find that a third tier civil
money penalty of $50,000 is appropriate against Mr. Stockett and
that no money penalty should be issued against the Hudson
Respondents. The Respondents' acts and omissions involved
fraudulent and deceitful conduct and posed a significant risk of
substantial losses to investors. Mr. Stockett's conduct,
however, exhibited a higher level of scienter and egregiousness.
The evidence is that Mr. Stockett intended to continue and his course of fraudulent and manipulative conduct. He has been
disciplined by three government bodies for prior violative
conduct and has, generally, demonstrated a reckless disregard of
regulatory requirements. It is overwhelmingly likely that Mr.
Stockett will violate the securities laws in the future, which
emphasizes the need to deter him from doing so.
I do not believe, however, that the Hudson Respondents
should receive a civil money penalty. The public interest
discussion above, with respect to Mr. Latef, is relevant in this
analysis. Particularly important is that none of the Hudson
Respondents were unjustly enriched, and that investors lost
little or no money. I also consider the Hudson Respondents'
level of scienter and their willingness to work with the
Commission as mitigating factors. Further, I believe that a
money penalty against the Hudson Respondents, in addition to the
sanctions already ordered against them, would be excessive and
not in the public interest.
V. RECORD CERTIFICATION
Pursuant to Rule 351(b) of the Commission's Rules of
Practice, 17 C.F.R. § 201.351(b) (1998), I certify that the
record includes the items set forth in the corrected record index
issued by the Secretary of the Commission on March 23, 1999.
VI. ORDER
Based on the findings and conclusions set forth above,
I ORDER, pursuant to Section 8A of the Securities Act,
Section 21C of the Exchange Act, and Section 9(f) of the Company
Act, that Hudson Investors Fund, Inc. shall cease and desist from
committing or causing a violation or any future violation of
Section 17(a) of the Securities Act, Section 10(b) of the
Exchange Act and Rule 10b-5 thereunder, and Section 34(b) of the
Company Act;
I FURTHER ORDER, pursuant to Section 8A of the Securities
Act, Section 21C of the Exchange Act, Section 9(f) of the Company
Act, and Section 203(k) of the Advisers Act, that Hudson
Advisers, Inc. shall cease and desist from committing or causing
a violation or any future violation of Section 17(a) of the
Securities Act, Section 10(b) of the Exchange Act and Rule 10b-5
thereunder, Section 34(b) of the Company Act, and Sections 204
and 207 of the Advisers Act and Rule 204-1(b) thereunder;
I FURTHER ORDER, pursuant to Section 8A of the Securities
Act, Section 21C of the Exchange Act, Section 9(f) of the Company
Act, and Section 203(k) of the Advisers Act, that Javed Anver
Latef shall cease and desist from committing or causing a
violation or any future violation of Section 17(a) of the
Securities Act, Section 10(b) of the Exchange Act and Rule 10b-5
thereunder, Section 34(b) of the Company Act, and Section 207 of
the Advisers Act;
I FURTHER ORDER, pursuant to Section 9(b) of the Company Act
and Section 203(f) of the Advisers Act, that Javed Anver Latef
be, and hereby is, suspended from being associated with an
investment adviser or an investment company for a period of three
months;
I FURTHER ORDER, pursuant to Section 8A of the Securities
Act, Section 21C of the Exchange Act, Section 9(f) of the Company
Act, and Section 203(k) of the Advisers Act, that Larry Alan
Stockett shall cease and desist from committing or causing a
violation or any future violation of Section 17(a) of the
Securities Act, Section 10(b) of the Exchange Act and Rule 10b-5
thereunder, Section 34(b) of the Company Act, and Sections 204
and 207 of the Advisers Act and Rule 204-1(b) thereunder;
I FURTHER ORDER, pursuant to Section 9(b) of the Company Act
and Section 203(f) of the Advisers Act, that Larry Alan Stockett
be, and hereby is, barred from association with any broker,
dealer, municipal securities dealer, investment adviser, and
investment company; and
I FURTHER ORDER, pursuant to Section 21B of the Exchange
Act, Section 9(d) of the Company Act, and Section 203(i) of the
Advisers Act, that Larry Alan Stockett pay a third tier civil
penalty in the amount of $50,000.
Payment of penalties shall be made on the first day
following the day this initial decision becomes final by
certified check, United States Postal money order, bank cashier's
check, or bank money order payable to the Securities and Exchange
Commission. The check and a cover letter identifying the
Respondent and the proceeding designation, Administrative
Proceeding File No. 3-9374, should be delivered by hand or
courier to the Comptroller, Securities and Exchange Commission,
Operations Center, 6432 General Green Way, Stop 0-3, Alexandria,
Virginia 22312. A copy of the cover letter also should be sent
to the Commission's Division of Enforcement.
This order shall become effective in accordance with and
subject to the provisions of Rule 360 of the Commission's Rules
of Practice, 17 C.F.R. § 201.360 (1998). Pursuant to that rule,
a petition for review of this initial decision may be filed
within twenty-one days after service of the decision. It shall
become the final decision of the Commission as to each party who
has not filed a petition for review pursuant to Rule 360(d)(1)
within twenty-one days after service of the initial decision upon
such party, unless the Commission, pursuant to Rule 360(b)(1),
determines on its own initiative to review this initial decision
as to any party. If a party timely files a petition for review,
or the Commission acts to review as to a party, the initial
decision shall not become final as to that party.
_______________________
G. Marvin Bober
Administrative Law Judge |
