SECURITIES AND EXCHANGE COMMISSION
Securities Act of 1933 Rel. No. 8280 / September 4, 2003
Securities Exchange Act of 1934 Rel. No. 48446 / September 4, 2003
Investment Advisers Act of 1940 Rel. No. 2168 / September 4, 2003
Administrative Proceedings File No. 3-11246
PROCEEDINGS INSTITUTED AGAINST FREEDOM FINANCIAL, INC., FREEDOM TRACK, INC., FREEDOM FINANCIAL GROUP, INC., ASSOCIATED INVESTMENT MANAGEMENT, INC., JON PATRICK PIERCE, AND GARY L. WINN
The Commission announced that it has instituted public administrative and cease-and-desist proceedings against Freedom Financial, Inc., Freedom Track, Inc., Freedom Financial Group, Inc. ("FFG"), Associated Investment Management, Inc. ("AIM"), Jon Patrick Pierce, and Gary L. Winn, seeking remedial sanctions, cease-and-desist orders, civil penalties, and disgorgement of ill-gotten gains. The companies and individuals are all based in Omaha, Nebraska. Freedom Financial is a broker-dealer registered with the Commission, and Freedom Track and Freedom Financial Group are holding companies that issued stock. AIM is a state-registered investment adviser that was formerly registered with the Commission. Winn is the president of AIM and Pierce is the former president of AIM and the top officer of the other companies.
The Division of Enforcement ("Division") alleges two separate schemes to violate the federal securities laws. In the first scheme, Freedom Track and FFG sold stock in two offerings in 2000 and 2001 to fund business plans involving the exploitation of financial record keeping software. The stock was offered through Freedom Financial. The two offerings materially overstated the usefulness and completeness of the software. The offerings also touted glowing projections for future growth and profitability of Freedom Financial and other businesses in Pierce's group, but misrepresented or failed to disclose material facts about the historical and current financial condition of those businesses. The first offering also failed to disclose that Freedom Financial faced significant business risk because it was operating in violation of the Commission's net capital and customer protection rules. Pierce also caused Freedom Financial to file false Forms BD and FOCUS reports with the Commission. These false filings helped conceal the net capital and customer protection violations because they created the false appearance that Freedom Financial was doing business as an introducing broker-dealer, when in fact it was a self-clearing broker-dealer.
In the second scheme, which began in 1997 and continued until 2001, AIM offered an account management plan to clients called the "Insured Risk Management Program." According to advertising and disclosure documents, the program insured principal balances of AIM clients who agreed to keep their money in mutual funds under AIM management for at least five years. AIM told clients that the program was supported by an insurance policy, but failed to disclose that AIM was not complying with the terms of the policy and that it could be canceled through AIM's acts and omissions without any fault of the client. That risk became realized in April 2001 when AIM's insurer canceled AIM's policy, alleging that AIM failed to comply with its terms. At that time, none of the AIM accounts had matured pursuant to the five-year holding period, but almost all clients in the program had suffered losses. After the insurance was canceled, AIM stopped signing up new clients for the program, but made misleading statements to encourage existing clients in the program to keep their accounts with AIM.
The proceedings were instituted under Sections 15(b)(4), 15(b)(6), and 21C of the Securities Exchange Act of 1934 ("Exchange Act"), Section 8A of the Securities Act of 1933 ("Securities Act"), and Sections 203(e), 203(f), and 203(k) of the Investment Advisers Act of 1940 ("Advisers Act"). As a result of the acts described above, the Division alleges that the respondents violated the federal securities laws as follows:
A hearing will be scheduled before an administrative law judge to determine whether the allegations contained in the Order are true, to provide Freedom Financial, Freedom Track, FFG, AIM, Pierce, and Winn an opportunity to dispute these allegations, and to determine what sanctions, if any, are appropriate and in the public interest.