UNITED STATES OF AMERICA
SECURITIES AND EXCHANGE COMMISSION
SECURITIES ACT OF 1933
SECURITIES EXCHANGE ACT OF 1934
INVESTMENT COMPANY ACT OF 1940
The Securities and Exchange Commission ("Commission") deems it appropriate in the public interest that a public cease-and-desist and administrative proceeding pursuant to Section 8A of the Securities Act of 1933 ("Securities Act"), Sections 15(b) and 21C of the Securities Exchange Act of 1934 ("Exchange Act") and Section 9(b) of the Investment Company Act of 1940 ("Investment Company Act") be instituted against Respondent Eric V. Schultz ("Schultz").
In anticipation of the institution of this administrative and cease-and-desist proceeding, Schultz has submitted an Offer of Settlement ("Offer"), which the Commission has determined to accept. Solely for the purpose of this proceeding and any other proceeding brought by or on behalf of the Commission, or in which the Commission is a party, and without admitting or denying the findings contained herein (except that Schultz admits the findings in III.A. below, and the jurisdiction of the Commission over him and over the subject matter of this proceeding), Schultz consents to the entry of this Order Instituting Public Administrative and Cease-and-Desist Proceeding, Making Findings and Imposing a Cease-and-Desist Order and Sanctions ("Order") set forth below.
Accordingly, IT IS ORDERED that a proceeding pursuant to Section 8A of the Securities Act, Sections 15(b) and 21C of the Exchange Act, and Section 9(b) of the Investment Company Act be, and hereby is, instituted.
On the basis of this Order and the Offer of Settlement submitted by Schultz, the Commission finds that:
Eric V. Schultz, age 34, resides in Simi Valley, California. He holds Series 7, 24, 63 and 65 securities licenses. From September 1997 to February 2000, Schultz was associated with a registered broker-dealer. He is not currently associated with a broker-dealer.
1. Between August 1997 and September 1998, Schultz offered and sold securities in the form of investment interests in Iris Limited Partnership ("Iris"), a Nevada limited partnership organized in February 1997. Schultz sold the investment interests to investors located in California, Arizona, Nevada, Georgia and Texas.
2. Schultz offered and sold the limited partnership interests for Jerry A. Womack ("Womack"), Iris' former general partner.1 Schultz' offer and sale of the securities was not registered with the Commission.
3. Schultz raised approximately $3 million from about 100 investors through his sales of the limited partnership interests.
4. Between September 1997 and September 1998, Schultz received compensation of approximately $350,000 in commissions from Womack and Iris for the sale of the limited partnership interests. Between January and May 1999, he also received approximately $590,000 from Iris, representing the return of principal and "earnings."
5. Schultz offered and sold the limited partnership interests by soliciting family members, relatives, friends and clients. Schultz generally met with the prospective investors in person and described the investment opportunity to them. He provided investors with the various investment documents in connection with their investments, including a prospectus, an application and a receipt.
6. Schultz was not a registered broker-dealer. While he was associated with a registered broker-dealer during the period that he offered and sold the securities for Womack, he did not sell the limited partnership interests through the broker-dealer.
7. In offering and selling the limited partnership interests, Schultz made misrepresentations of material facts. He represented to investors that Womack would invest their funds in the stock market pursuant to an investment strategy that Womack had developed and used successfully and that investors could expect substantial returns. In making these representations, Schultz relied on Womack's statements regarding the use of funds and the rates of return that could be expected. Although the rates of return Womack claimed to be able to earn were quite extraordinary and clearly should have triggered some skepticism, Schultz failed to investigate Womack's claims. Contrary to Schultz' representations, Womack did not invest the majority of the funds in the stock market. Rather, Womack's trading resulted in a net loss to investors and he misused and misappropriated a large portion of investor funds to pay other investors their principal and purported profits. Womack also misused and misappropriated investor funds for various undisclosed personal and unrelated business expenses.
8. Schultz has submitted a sworn Statement of Financial Condition dated October 22, 2001 and other evidence and has asserted his financial inability to pay disgorgement plus prejudgment interest.
9. Schultz has submitted a sworn Statement of Financial Condition dated October 22, 2001 and other evidence and has asserted his financial inability to pay a civil penalty.
1. By virtue of the conduct described in III.B., Schultz willfully violated the securities registration provisions of Sections 5(a) and 5(c) of the Securities Act.
2. By virtue of the conduct described in III.B., Schultz willfully violated the broker-dealer registration provisions of Section 15(a) of the Exchange Act.
3. By virtue of the conduct described in III.B., Schultz willfully violated the antifraud provisions of Section 17(a) of the Securities Act and Section 10(b) of the Exchange Act and Rule 10b-5 thereunder.
Based on the foregoing, the Commission deems it appropriate in the public interest to accept the Offer of Settlement submitted by Schultz.
Accordingly, IT IS HEREBY ORDERED that:
1. Pursuant to Section 8A of the Securities Act and Section 21C of the Exchange Act, Respondent Schultz cease and desist from committing or causing any violation and any future violation of Sections 5(a), 5(c) and 17(a) of the Securities Act and Sections 10(b) and 15(a) of the Exchange Act and Rule 10b-5 thereunder;
2. Schultz be and hereby is barred from association with any broker or dealer and is prohibited from serving or acting as an employee, officer, 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, with the right to reapply after three years to the appropriate self-regulatory organization, or if there is none, to the Commission;
3. Schultz shall pay disgorgement of $775,000 plus prejudgment interest, but that payment of such amount is waived based upon Schultz' sworn representations in his Statement of Financial Condition dated October 22, 2001 and other documents submitted to the Commission;
4. Based upon Schultz' sworn representations in his Statement of Financial Condition dated October 22, 2001 and other documents submitted to the Commission, the Commission is not imposing a civil penalty against Schultz;
5. The Division of Enforcement ("Division") may, at any time following the entry of this Order, petition the Commission to: (1) reopen this matter to consider whether Schultz provided accurate and complete financial information at the time such representations were made; (2) seek an order directing payment of disgorgement and prejudgment interest; and (3) seek an order directing payment of the maximum civil penalty allowable under the law. No other issues shall be considered in connection with this petition other than whether the financial information provided by Schultz was fraudulent, misleading, inaccurate or incomplete in any material respect. Schultz may not, by way of defense to any such petition, (1) contest the findings in this Order; (2) assert that payment of disgorgement and interest should not be ordered; (3) contest the amount of disgorgement and interest to be ordered; (4) assert that payment of a penalty should not be ordered; (5) contest the imposition of the maximum penalty allowable under the law; or (6) assert any defense to liability or remedy, including, but not limited to, any statute of limitations defense.
By the Commission.