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U.S. Securities and Exchange Commission

UNITED STATES OF AMERICA
Before the
SECURITIES AND EXCHANGE COMMISSION

SECURITIES ACT OF 1933
Release No. 8426 / May 20, 2004

SECURITIES EXCHANGE ACT OF 1934
Release No. 49744 / May 20, 2004

INVESTMENT ADVISERS ACT OF 1940
Release No. 2240 / May 20, 2004

ADMINISTRATIVE PROCEEDING
File No. 3-11246


In the Matter of

Freedom Financial, Inc.,
Freedom Track, Inc.,
Freedom Financial Group, Inc.,
Associated Investment
Management, Inc., Jon Patrick
Pierce, Gary L. Winn,

Respondent.


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ORDER MAKING FINDINGS AND
IMPOSING REMEDIAL SANCTIONS
AND CEASE-AND-DESIST ORDERS
PURSUANT TO SECTION 8A OF
THE SECURITIES ACT OF 1933,
SECTIONS 15(b) AND 21C OF
THE SECURITIES EXCHANGE ACT
OF 1934, AND SECTIONS 203(f)
AND 203(k) OF THE INVESTMENT
ADVISERS ACT OF 1940

I.

In these proceedings instituted on September 4, 2003 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 Sections 203(f) and 203(k) of the Investment Advisers Act of the 1940 ("Advisers Act"), Respondents Freedom Financial, Inc. ("Freedom Financial"), Jon Patrick Pierce ("Pierce"), Freedom Track, Inc. ("Freedom Track"), Freedom Financial Group, Inc. ("FFG"), Gary L. Winn ("Winn") and Associated Investment Management, Inc. ("AIM") (collectively "Respondents") have submitted Offers of Settlement ("Offers") which the Securities and Exchange 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 Commission's findings herein, except as to the jurisdiction of the Commission over them and over the subject matter of these proceedings, and the findings contained in Section II. Paragraphs 1 and 2 below, which are admitted, Respondents consent to the entry of this Order Making Findings and Imposing Remedial Sanctions and Cease-and-Desist Orders Pursuant To Section 8A of the Securities Act of 1933, Sections 15(b) and 21C of the Securities Exchange Act of 1934, and Sections 203(f) and 203(k) of the Investment Advisers Act of 1940 ("Order"), as set forth below.

II.

On the basis of this Order and Respondents' Offers, the Commission finds that:

A. Respondents

1. Freedom Financial is a broker-dealer registered with the Commission (File No. 8-51211) pursuant to Section 15 of the Exchange Act since February 1999 and is based in Omaha, Nebraska.

2. AIM is an investment adviser that was registered with the Commission (File No. 801-39836) pursuant to Section 203(c) of the Advisers Act in September 1991 and that withdrew its registration with the Commission on September 26, 2002, becoming a state-registered adviser. AIM withdrew from all state registrations on February 3, 2004. AIM is based in Omaha, Nebraska.

3. Pierce is a resident of Omaha, Nebraska, and was the president and chief executive officer of both Freedom Financial and Freedom Track, and was president of AIM from at least 1997 through 1999. In 1994 he was censured and fined $5,000 by the NASD for failure to establish and enforce satisfactory supervisory procedures at a broker-dealer.

4. Winn is a resident of Elkhorn, Nebraska. He joined AIM in 1993 and replaced Pierce as its president in 1999. He was also chief financial officer of Freedom Track and Freedom Financial.

5. Freedom Track is a Nebraska corporation that created and owned accounting software, and also owns Freedom Financial and a Commission-registered investment adviser called Freedom Asset Management. Freedom Track's common stock is owned by Bethel Enterprises L.L.C., a Nebraska limited liability company that is owned by Pierce and other members of the Pierce family. Freedom Track issued convertible preferred stock to investors in a private placement that is discussed in this Order.

6. FFG is a Nebraska corporation that issued stock in a private placement, as discussed below. FFG is owned by Bethel Enterprises, Freedom Track, Inc. and investors in a private placement.

B. Fraudulent Sales of Freedom Track Stock

1. From approximately May 2000 through approximately April 2001, Freedom Track offered and sold its convertible preferred stock to public investors. Freedom Track sold approximately 112,000 convertible preferred shares to 20 investors for total proceeds of $785,000.

2. Freedom Financial and Pierce offered and sold Freedom Track convertible preferred stock, and Pierce participated in the preparation of a Private Placement Memorandum ("Freedom Track PPM"), which was used to solicit investors. According to the Freedom Track PPM, Freedom Track purported to be in the business of offering computer-based on-line accounting and record keeping services to financial services companies including broker-dealers, investment advisers, banks, and credit unions.

3. In connection with the offer and sale of Freedom Track convertible preferred stock through the dissemination of the Freedom Track PPM, Freedom Track, Freedom Financial and Pierce knowingly or recklessly made material misrepresentations and omitted to disclose material information to prospective investors, including the following:

  1. Freedom Track was not operating successfully as claimed in the Freedom Track PPM;

  2. The Freedom Track PPM failed to disclose that Freedom Track had lost several key contracts with its custodian and customers shortly before the Freedom Track PPM was first distributed and lost additional contracts as it was being distributed;

  3. The Freedom Track PPM asserted that Freedom Track software was running in broker-dealer offices and that broker-dealers were a significant part of the market for Freedom Track services, but did not disclose that Freedom Track did not have contracts with broker-dealers other than its affiliate Freedom Financial;

  4. Freedom Track and its subsidiaries did not have the value that was claimed in the Freedom Track PPM;

  5. Freedom Track included financial projections in the Freedom Track PPM, but did not disclose adverse facts, including current and historical financial statements, that affected the validity or plausibility of those projections;

  6. The Freedom Track PPM asserted that Freedom Track's technology used Internet connectivity, but omitted to disclose that Freedom Track's software was not fully compatible with the Internet and was not operating satisfactorily; and

  7. The Freedom Track PPM stated that Freedom Track would depend in part on successful operation of its subsidiary Freedom Financial, but did not disclose that Freedom Financial faced risks because it was not operating in compliance with the Commission's net capital and customer protection rules.

4. In March and April 2001, Freedom Track, Freedom Financial and Pierce participated in creating and distributing to investors and others updates about the Freedom Track offering and the business of Freedom Track and Freedom Financial. These updates offered additional Freedom Track stock and/or discussed imminent new offerings by Freedom Track or related entities. The updates disseminated by Freedom Track, Freedom Financial and Pierce were false and misleading because:

  1. They failed to disclose information about the actual financial condition of Freedom Track and its subsidiaries;

  2. The updates falsely asserted that Freedom Track had entered into an agreement and was completing agreements with a new custodian when in fact the purported new custodian had not agreed to become a permanent custodian;

  3. The March update stated that Freedom Track found it necessary to change custodians because its custodian could not handle the increased technology and number of new accounts, but did not disclose that its custodian resigned a year before the update was distributed for reasons concerning the reliability of Freedom Track's software;

  4. The updates failed to disclose that Freedom Track's software was not yet fully functional or compatible with the Internet; and

  5. The updates failed to disclose that Freedom Track continued to lose contracts and was not entering into new contracts.

5. In connection with the Freedom Track offering described above, Freedom Track, Freedom Financial and Pierce willfully violated Section 17(a) of the Securities Act, Section 10(b) of the Exchange Act, and Rule 10b-5 thereunder

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C. Fraudulent Sales of Freedom Financial Group Stock

1. Beginning in May 2001 FFG offered and sold its stock to public investors. FFG sold stock to approximately 11 investors for total proceeds of more than $2 million.

2. Freedom Financial and Pierce participated in the offer and sale of FFG stock using a "Private Placement Memorandum" ("FFG PPM") he participated in preparing. According to the FFG PPM, FFG intended to purchase or organize a bank or trust company to act as custodian for Freedom Track customers and to perform other services for financial services companies and the general public. To pursue these activities, FFG purportedly received assignments of Freedom Track assets, including Freedom Track software and customer service agreements. The FFG PPM prepared by Pierce and others was fraudulent because:

  1. The FFG PPM discussed the assets that Freedom Track was transferring to FFG, but failed to disclose that Freedom Track had not operated successfully with those assets;

  2. Relevant historical financial information that cast doubt upon predictions and projections made in the FFG PPM was not disclosed;

  3. The FFG PPM failed to disclose that Freedom Track had canceled most of its service contracts and had failed to maintain business relationships with custodians because the software did not perform adequately;

  4. The FFG PPM asserted that Freedom Track's software was compatible with the Internet and would be linked to broker-dealer clearing systems, when in fact the software was not compatible with the Internet and efforts to link it to clearing systems had not been successful and had little prospect of being successful;

  5. The FFG PPM failed to disclose that Freedom Track's software had been pledged to secure a debt; and

  6. The FFG PPM asserted that Freedom Track's software was used by broker-dealers, but failed to disclose that Freedom Track's only contract with a broker-dealer was the contract with its affiliate Freedom Financial.

3. At relevant times, Freedom Financial was not in compliance with applicable net capital and customer reserve rules, and did not have an operative clearing arrangement in place with another broker-dealer firm as stated in its filings with the Commission. Pierce was responsible for Freedom Financial's compliance with the net capital and customer protection rules and for its filings with the Commission.

4. In connection with the offering of FFG stock described above, FFG, Freedom Financial and Pierce willfully violated Section 17(a) of the Securities Act and Section 10(b) of the Exchange Act and Rule 10b-5 thereunder. In connection with the net capital deficiency and false filings with the Commission described above, Freedom Financial willfully violated, and Pierce willfully aided and abetted and caused Freedom Financial's violations of Sections 15(b), 15(c)(3) and 17(a) of the Exchange Act, and Rules 15b1-1, 15b3-1, 15c3-1, 15c3-3 and 17a-5(a) thereunder.

D. Fraud In Connection with AIM's "Insured Risk Management Program"

1. From approximately February 1997 through approximately March 2001, AIM sold investment advisory services to the public by promising that client accounts would be insured against loss of principal. Accounts were placed mostly in mutual funds that invested in stocks. AIM signed contracts with approximately 90 investors who had accounts in the program, called the "insured risk management program," and the guaranteed value of these accounts was approximately $7.9 million.

2. AIM, Pierce and Winn marketed the program to risk-averse investors. Many investors in the program had no experience in stock investments and placed funds in the program that they would not have invested in stock funds without insurance against loss of principal.

3. AIM guaranteed that it would pay all losses of principal to its clients in the program at the end of a five-year period if clients left their investments with AIM continuously throughout that time. AIM obtained an insurance policy from an insurance company ("the Insurer"); the policy insured AIM for any amounts that AIM was legally obligated to pay as a result of its purported guarantee, provided that AIM complied with the terms of the policy.

4. AIM, Pierce and Winn made materially false and misleading statements and omissions to investors in connection with the offer and sale of the insured risk management program in that they distributed to clients and prospective clients advertisements that:

  1. Failed to disclose the terms of the insurance policy to clients;

  2. Falsely asserted to clients that its insured program eliminated risk;

  3. Failed to disclose that AIM's financial condition was not sufficient to meet its obligations to clients in the insured program.

5. While the insured program was in effect, AIM filed Forms ADV with the Commission. These Forms falsely stated that clients would be provided a full disclosure which clearly stated the terms and conditions of the program. Winn signed these Forms. Contrary to the representations in AIM's filings, AIM and Winn failed to provide full or clear disclosure to clients.

6. On April 23, 2001 the Insurer canceled AIM's insurance policy because AIM had failed to follow the risk management plan that the policy required AIM to follow. In a series of letters, AIM, through its officers, told persons who sold the program to investors and AIM's clients that the insurance had been canceled, but did not disclose the reasons for the cancellation. Following the cancellation of the insurance policy, AIM, through its officers, solicited its clients to contribute premium payments returned by the Insurer toward the cost of proposed litigation against the Insurer, but did not disclose in such solicitations the fact that AIM had breached its contract with its clients by allowing the insurance to lapse. AIM asserted that its contracts with clients in the program were still in force, but still did not disclose any information about its own financial condition that would allow clients to determine whether AIM could meet its guarantee obligations under the program.

7. As a result of the fraudulent acts and statements described above, AIM, Pierce and Winn willfully violated Section 10(b) of the Exchange Act and Rule 10b-5 thereunder; AIM and Winn willfully violated Section 207 of the Advisers Act, and AIM willfully violated and Pierce and Winn willfully aided and abetted and caused AIM's violation of Sections 206(1), (2) and (4) of the Advisers Act and Rule 206(4)-1(a)(5) thereunder.

8. Respondent AIM has submitted a sworn Statement of Financial Condition dated March 8, 2004 and other evidence and has asserted its inability to pay a disgorgement or civil penalty. Respondent Winn has submitted a sworn Statement of Financial Condition dated December 31, 2003 and other evidence and has asserted his inability to pay a civil penalty.

III.

In view of the foregoing, the Commission deems it appropriate and in the public interest to impose the sanctions specified in the Offers submitted by the Respondents.

Accordingly, it is hereby ORDERED:

A. Pursuant to Section 8A of the Securities Act and Section 21C of the Exchange Act, Respondent Freedom Financial shall cease and desist from committing or causing any violations and any future violations of Section 17(a) of the Securities Act and Sections 10(b), 15(b), 15(c)(3), and 17(a) of the Exchange Act, and Rules 10b-5, 15b1-1, 15b3-1, 15c3-1, 15c3-3 and 17a-5(a) thereunder.

B. Effective the second Monday after the date of this Order, the registration of Respondent Freedom Financial will be revoked.

C. Respondent Freedom Financial shall, upon entry of the Order, pay a civil money penalty in the amount of $25,000 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 Office of Financial Management, Securities and Exchange Commission, Operations Center, 6432 General Green Way, Stop 0-3, Alexandria, VA 22312; and (D) submitted under cover letter that identifies Freedom Financial as a Respondent in these proceedings, the file number of these proceedings, a copy of which cover letter and money order or check shall be sent to Robert M. Fusfeld, Central Regional Office, Securities and Exchange Commission, 1801 California Street, Suite 1500, Denver, Colorado 80202.

D. Pursuant to Section 8A of the Securities Act, Section 21C of the Exchange Act, and Section 203(k) of the Advisers Act, Respondent Pierce shall cease and desist from committing or causing any violations and any future violations of Section 17(a) of the Securities Act, Sections 10(b), 15(b), 15(c)(3) and 17(a) of the Exchange Act, Rules 10b-5, 15b1-1, 15b3-1, 15c3-1, 15c3-3 and 17a-5(a) thereunder, Sections 206(1), (2) and (4) of the Advisers Act, and Rule 206(4)-1(a)(5) thereunder.

E. Pursuant to Section 15(b)(6) of the Exchange Act and Section 203(f) of the Advisers Act, Respondent Pierce shall be barred from association with any broker, dealer, or investment adviser.

F. Pierce shall, upon entry of the Order, pay a civil money penalty in the amount of $50,000 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 Office of Financial Management, Securities and Exchange Commission, Operations Center, 6432 General Green Way, Stop 0-3, Alexandria, VA 22312; and (D) submitted under cover letter that identifies Pierce as a Respondent in these proceedings, the file number of these proceedings, a copy of which cover letter and money order or check shall be sent to Robert M. Fusfeld, Central Regional Office, Securities and Exchange Commission, 1801 California Street, Suite 1500, Denver, Colorado 80202.

G. Pursuant to Section 21C of the Exchange Act, and Section 203(k) of the Advisers Act, Respondent Winn shall cease and desist from committing or causing any violations and any future violations of Section 10(b) of the Exchange Act, Rule 10b-5 thereunder, Sections 206(1), (2) and (4) and 207 of the Advisers Act, and Rule 206(4)-1(a)(5) thereunder.

H. Pursuant to Section 203(f) of the Advisers Act, Respondent Winn shall be, and hereby is barred from association with any investment adviser with the right to reapply for association after two years to the appropriate self-regulatory organization, or if there is none, to the Commission.

I. Any reapplication for association by Respondents Pierce or Winn will be subject to the applicable laws and regulations governing the reentry process, and reentry may be conditioned upon a number of factors, including, but not limited to, the satisfaction of any or all of the following: (a) any disgorgement ordered against Respondents, whether or not the Commission has fully or partially waived payment of such disgorgement; (b) any arbitration award related to the conduct that served as the basis for the Commission order; (c) any self-regulatory organization arbitration award to a customer, whether or not related to the conduct that served as the basis for the Commission order; and (d) any restitution order by a self-regulatory organization, whether or not related to the conduct that served as the basis for the Commission order.

J. Based upon Respondent Winn's sworn representations in his Statement of Financial Condition dated December 31, 2003 and other documents submitted to the Commission, the Commission is not imposing a penalty against Respondent.

K. Pursuant to Section 21C of the Exchange Act and Section 203(k) of the Advisers Act, Respondent AIM shall cease and desist from committing or causing any violations and any future violations of Section 10(b) of the Exchange Act and Rule 10b-5 thereunder, and Sections 206(1), (2) and (4) and 207 of the Advisers Act and Rule 206(4)-1(a)(5) thereunder.

L. Respondent AIM shall pay disgorgement of $150,000 plus prejudgment interest, but payment of all but $26,223 of such amount is waived based upon Respondent's sworn representations in its Statement of Financial Condition dated March 8, 2004 and other documents submitted to the Commission.

M. Such disgorgement will be distributed pursuant to Section 308(a) of the Sarbanes-Oxley Act of 2002 ("Fair Fund distribution").

N. The Division of Enforcement shall submit a plan of distribution in accordance with Rule 610 of the Commission's Rules of Practice, 17 C.F.R. 201.610, within 60 days of the payment of any penalty pursuant to paragraphs III.C. and III.F. above or disgorgement pursuant to paragraph III.L. above.

O. Based upon Respondent AIM's sworn representations in its Statement of Financial Condition dated March 8, 2003, and other documents submitted to the Commission, the Commission is not imposing a penalty against Respondent.

P. 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 Respondents AIM and Winn provided accurate and complete financial information at the time such representations were made; and (2) seek an order directing payment of disgorgement and pre-judgment interest as to AIM, or the maximum civil penalty allowable under the law as to AIM and Winn. No other issue shall be considered in connection with this petition other than whether the financial information provided by Respondents was fraudulent, misleading, inaccurate, or incomplete in any material respect. Respondents may not, by way of defense to any such petition: (1) contest the findings in this Order; (2) assert that payment of disgorgement and pre-judgment interest as to AIM, or a penalty should not be ordered; (3) contest the imposition of the maximum penalty allowable under the law; or (4) assert any defense to liability or remedy, including, but not limited to, any statute of limitations defense.

Q. Pursuant to Section 8A of the Securities Act and Section 21C of the Exchange Act, Respondent Freedom Track shall cease and desist from committing or causing any violations and any future violations of Section 17(a) of the Securities Act, Section 10(b) of the Exchange Act and Rule 10b-5 thereunder.

R. Pursuant to Section 8A of the Securities Act and Section 21C of the Exchange Act, Respondent FFG shall cease and desist from committing or causing any violations and any future violations of Section 17(a) of the Securities Act, Section 10(b) of the Exchange Act and Rule 10b 5 thereunder.

By the Commission.

Jonathan G. Katz
Secretary

 

http://www.sec.gov/litigation/admin/33-8426.htm


Modified: 05/20/2004