Waltzer and Associates, Lewis N. Waltzer, and Karney E. Waltzer
Securities Act of 1933
Release No. 7914 / November 14, 2000
Securities Exchange Act of 1934
Release No. 43561
Investment Advisers Act of 1940
Release No. 1908
Investment Company Act of 1940
Release No. 24738
ADMINISTRATIVE PROCEEDING
File No. 3-10142
| In the Matter of WALTZER AND ASSOCIATES,
|
ORDER MAKING FINDINGS,
IMPOSING REMEDIAL SANCTIONS AND ISSUING A CEASE-AND-DESIST ORDER AGAINST LEWIS N. WALTZER AND WALTZER AND ASSOCIATES RESPONDENTS. |
I.
In connection with a previously instituted public administrative proceeding and cease-and-desist proceeding pursuant to Section 8A of the Securities Act of 1933 ("Securities Act"), Sections 15(b)(6) and 21C of the Securities Exchange Act of 1934 ("Exchange Act"), Sections 203(e), 203(f), and 203(k) of the Investment Advisers Act of 1940 ("Advisers Act"), and Section 9(b) of the Investment Company Act of 1940 ("Investment Company Act"), Respondents Lewis N. Waltzer and Waltzer and Associates have submitted Offers of Settlement ("Offers") which the Commission has determined to accept.1 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 contained in this Order Making Findings, Imposing Remedial Sanctions and Issuing a Cease-and-Desist Order Against Lewis N. Waltzer and Waltzer and Associates ("Order"), except as to the Commission's jurisdiction over them and the subject matter of these proceedings, which they admit, Lewis Waltzer and Waltzer and Associates ("Waltzer") each consent to the findings and remedial sanctions set forth below and to the issuance of a cease-and-desist order.
II.
On the basis of the Order Instituting Proceedings and the Offer of Settlement submitted by Lewis Waltzer and Waltzer, the Commission finds that:
Respondents
A. Waltzer, a New York partnership formed in 1978, has been registered with the Commission as an investment adviser from 1984 through the present. Located in Monticello, New York from 1985 through 1993 and in Newburgh, New York from January 1994 through August 1996, Waltzer ceased operations in August 1996. As of December 31, 1995, Waltzer managed assets of approximately $38.8 million for over three hundred clients. Waltzer was, at all relevant times, a licensed insurance agent with several insurance companies. Waltzer generally recommended and caused its clients to invest in mutual funds and insurance contracts, including variable annuities. At all relevant times, Waltzer was wholly owned and managed by its two partners, Lewis Waltzer and Karney Waltzer.
B. Waltzer and Lewis Waltzer were the subjects of a prior Commission enforcement action. Waltzer and Associates and Lewis N. Waltzer, Investment Advisers Act Release No. 1182 (July 28, 1989). In that action, they consented, without admitting or denying the Commission's findings, to the imposition of sanctions by the Commission based upon, among other things, Lewis Waltzer's fraudulent performance claims. The Commission found that Lewis Waltzer had made false claims regarding the performance of clients' accounts in advertisements. The Commission further found that Lewis Waltzer had violated Section 206(4) of the Advisers Act and Rule 206(4)-1(a)(5) thereunder, and found that Waltzer and Lewis Waltzer, respectively, had violated and aided and abetted violations of certain books and records provisions of the Advisers Act.
C. Lewis Waltzer has been a partner of Waltzer since its founding. At all relevant times, Lewis Waltzer was also a registered representative of a broker-dealer registered with the Commission and a licensed insurance agent.
D. Karney Waltzer was, at all relevant times, a partner of Waltzer, a registered representative of a broker-dealer registered with the Commission, and a licensed insurance agent.
Respondents' Conduct
E. Throughout the relevant period, Waltzer entered into advisory agreements that provided for advisory fees based upon the performance of client accounts. Lewis Waltzer told clients that Waltzer would almost certainly earn at least a twelve percent annual return on their accounts. Lewis Waltzer further promised clients that if Waltzer did not earn at least twelve percent on their accounts in a year, Waltzer would reduce or forego its advisory fee in the following year.
F. At various times during the relevant period, Lewis Waltzer falsely represented to Waltzer's clients that: (1) they had earned at least one percent returns each month on their Waltzer-managed accounts and (2) they were on track to earn at least twelve percent per year. Lewis Waltzer disregarded the actual performance of the clients' accounts and used false performance numbers to cause clients to believe they had earned at least one percent per month. In fact, for much of the relevant period, Waltzer's clients generally earned less than one percent per month or twelve percent per year. By falsifying the rate of return on Waltzer-managed accounts, Lewis Waltzer and Waltzer were able to: (1) convince clients to renew their advisory agreements with Waltzer; and (2) avoid reducing the advisory fee for the following year.
G. As registered representatives of a broker-dealer and licensed insurance agents, Respondents received transaction-based compensation for selling certain securities, including variable annuities, and insurance contracts to their advisory clients. Lewis Waltzer failed to disclose, and falsely denied, Respondents' receipt of transaction-based compensation (including commissions and 12b-1 fees) on purchases and sales they recommended of securities and/or insurance contracts.2
H. Waltzer was required by Rule 206(4)-4 under the Advisers Act to promptly disclose to clients and prospective clients all material facts with respect to any material legal or disciplinary event. A Commission proceeding finding that an investment adviser (or a management person) was involved in a violation of an investment-related statute or rule and was subject to an order denying, suspending or revoking the investment-related business of those persons is presumed to be a material fact under subparagraph (b)(2) of that rule. Waltzer, at the direction of Lewis Waltzer, failed to disclose to clients and prospective clients the 1989 Commission enforcement action against Waltzer and Lewis Waltzer.
I. Section 204 of the Advisers Act and Rule 204-3 thereunder require an investment adviser to distribute to new clients a written disclosure statement containing at least the information required by Part II of Form ADV. Waltzer, at the direction of Lewis Waltzer, did not provide the information required by Part II of Form ADV to new clients. For example, Waltzer did not provide clients information, required by Part II of Form ADV, concerning the compensation received by Respondents on transactions in securities and/or insurance contracts.
J. At all relevant times, Waltzer made use of the mails or means or instrumentalities of interstate commerce in connection with its business as an investment adviser.
Violations
K. From at least January 1994 through August 1996, Waltzer and Lewis Waltzer willfully violated Section 17(a) of the Securities Act in that they, in the offer and sale of the securities, directly or indirectly, by use of the means or instruments of transportation or communication in interstate commerce, and the mails: (a) employed devices, schemes, and artifices to defraud; (b) obtained money or property by means of, or otherwise made, untrue statements of material facts or omitted to state material facts necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading; and (c) engaged in transactions, acts, practices and courses of business which operated or would operate as a fraud or deceit upon purchasers or sellers of securities. As part of such conduct, Waltzer and Lewis Waltzer failed to disclose, and falsely denied, Respondents' receipt of transaction-based compensation (including commissions and 12b-1 fees) on purchases and sales they recommended of securities and/or insurance contracts, as described in Paragraph G. above.
L. From at least January 1994 through August 1996, Waltzer and Lewis Waltzer willfully violated Section 10(b) of the Exchange Act and Rule 10b-5 thereunder in that they, in connection with the purchase and sale of securities, directly or indirectly, by use of the means or instrumentalities of interstate commerce and the mails: (a) employed devices, schemes, and artifices to defraud; (b) made untrue statements of material facts or omitted to state material facts necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading; and (c) engaged in acts, practices and courses of business which operated or would operate as a fraud or deceit upon any person. As part of such conduct, Waltzer and Lewis Waltzer failed to disclose, and falsely denied, Respondents' receipt of transaction-based compensation (including commissions and 12b-1 fees) on purchases and sales they recommended of securities and/or insurance contracts, as described in Paragraph G. above.
M. From at least January 1994 through August 1996, Waltzer willfully violated, and Lewis Waltzer willfully aided and abetted and caused violations of, Sections 206(1) and (2) of the Advisers Act, in that they, by use of the mails or means or instrumentalities of interstate commerce, directly and indirectly: (a) employed devices, schemes, or artifices to defraud clients or prospective clients, and (b) engaged in transactions, practices, or courses of business which operated as a fraud or deceit upon clients or prospective clients. As part of such conduct, Waltzer and Lewis Waltzer: (1) failed to disclose, and falsely denied, Respondents' receipt of transaction-based compensation (including commissions and 12b-1 fees) on purchases and sales they recommended of securities and/or insurance contracts, as described in Paragraph G. above; and (2) Lewis Waltzer, on behalf of Waltzer, falsely represented to Waltzer's clients that they had earned at least one percent returns each month on their Waltzer-managed accounts and were on track to earn at least twelve percent per year, as described in Paragraph F. above.
N. From at least January 1994 through August 1996, Waltzer willfully violated, and Lewis Waltzer willfully aided and abetted and caused violations of, Section 205(a)(1) of the Advisers Act in that they, by use of the mails or means or instrumentalities of interstate commerce, directly and indirectly, entered into, extended, renewed, and performed advisory contracts that provided for compensation to Waltzer on the basis of a share of the capital gains or capital appreciation of the funds or any portion of the funds of clients, as described in Paragraph E. above.
O. From at least January 1994 through August 1996, Waltzer willfully violated, and Lewis Waltzer willfully aided and abetted and caused violations of, Section 206(4) of the Advisers Act and Rule 206(4)-4(a)(2) thereunder, in that they, by use of the mails or means or instrumentalities of interstate commerce, directly and indirectly, failed to disclose to clients and prospective clients a legal or disciplinary event that was material to an evaluation of Waltzer's integrity, as described in Paragraphs B. and H. above.
P. From at least January 1994 through August 1996, Waltzer willfully violated, and Lewis Waltzer willfully aided and abetted and caused violations of, Section 204 of the Advisers Act and Rule 204-3 thereunder, in that they failed to furnish each advisory client and prospective advisory client with a written disclosure statement containing at least the information required by Part II of Form ADV, as described in Paragraph I. above.
III.
In view of the foregoing, the Commission finds that it is in the public interest to impose the sanctions specified in the Offers of Settlement.
Accordingly, IT IS ORDERED THAT:
A. Lewis Waltzer cease and desist from committing or causing any violation and any future violation of Section 17(a) of the Securities Act, Section 10(b) of the Exchange Act and Rule 10b-5 thereunder, and Sections 204, 205, 206(1), 206(2), and 206(4) of the Advisers Act and Rules 204-3 and 206(4)-4 thereunder;
B. Lewis Waltzer be, and hereby is, barred from association with any broker, dealer, or investment adviser, and prohibited from serving or acting as an employee, officer or director, member of an advisory board, investment adviser or depositor of, or principal underwriter for, a registered investment company or affiliated person of such investment adviser, depositor, or principal underwriter;
C. Lewis Waltzer pay disgorgement and prejudgment interest in the total amount of $50,000 to the United States Treasury within thirty (30) days of the entry of the Order. Payment shall be (1) made by United States postal money order, certified check, bank cashier's check or bank money order; (2) made payable to the "Securities and Exchange Commission;" (3) hand-delivered or mailed to the Comptroller, Securities and Exchange Commission, Operations Center, 6432 General Green Way, Mail Stop 0-3, Alexandria, VA 22312; and (4) submitted under cover of letter identifying the name and number of this administrative proceeding and the Respondent, and specifying that the payment is disgorgement. A copy of the cover letter and payment shall be simultaneously sent to Leslie Kazon, Assistant Regional Director, Securities and Exchange Commission, 7 World Trade Center, New York, New York 10048;
D. Lewis Waltzer pay a civil penalty in the amount of $50,000 to the United States Treasury within thirty (30) days of the entry of the Order. Such payment shall be (1) made by United States postal money order, certified check, bank cashier's check or bank money order; (2) made payable to the "Securities and Exchange Commission;" (3) hand-delivered or mailed to the Comptroller, Securities and Exchange Commission, Operations Center, 6432 General Green Way, Mail Stop 0-3, Alexandria, VA 22312; and (4) submitted under cover of letter identifying the name and number of this administrative proceeding and the Respondent, and specifying that the payment is a civil penalty. A copy of the cover letter and payment shall be simultaneously sent to Leslie Kazon, Assistant Regional Director, Securities and Exchange Commission, 7 World Trade Center, New York, New York 10048; and
E. Lewis Waltzer comply with his undertakings: (1) to not seek bankruptcy protection for at least ninety (90) days after making payment pursuant to this Order; and (2) not to litigate the issue of whether the disgorgement ordered in this Order is a debt for money obtained by fraud within the meaning of 11 U.S.C. § 523(a)(2)(A) in any bankruptcy court proceeding by or against Lewis Waltzer.
IT IS FURTHER ORDERED THAT:
A Waltzer cease and desist from committing or causing any violation and any future violation of Section 17(a) of the Securities Act, Section 10(b) of the Exchange Act and Rule 10b-5 thereunder, and Sections 204, 205, 206(1), 206(2), and 206(4) of the Advisers Act and Rules 204-3 and 206(4)-4 thereunder; and
B. Waltzer's registration as an investment adviser be, and hereby is, revoked.
By the Commission
Jonathan G. Katz
Secretary
Footnotes
| 1 | The Order Instituting Proceedings in this matter was entered on February 7, 2000. |
| 2 | Rule 12b-1 under the Investment Company Act of 1940 provides an asset-based alternative method for an investment company to cover sales and marketing expenses. Distribution fees are paid from the fund to the sales agent on an ongoing basis as long as the investor holds shares in the fund. |