UNITED STATES OF AMERICA
|In the Matter of
FRED F. LIEBAU, JR.
|ORDER INSTITUTING PUBLIC
MAKING FINDINGS, AND IMPOSING
The Securities and Exchange Commission ("Commission") deems it appropriate and in the public interest that public administrative proceedings pursuant to Sections 15(b) and 19(h) of the Securities Exchange Act of 1934 ("Exchange Act") be instituted against Fred F. Liebau, Jr. ("Liebau").
In anticipation of the institution of these proceedings, Liebau has submitted an Offer of Settlement ("Offer") which the Commission has determined to accept. Liebau admits the jurisdiction of the Commission over him and over the subject matter of the administrative proceedings proposed to be instituted against him by the Commission. 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 the findings in paragraph III.A., which Liebau admits, Liebau consents to the entry of this Order Instituting Public Administrative Proceedings, Making Findings, and Imposing Remedial Sanctions ("Order") making the findings and imposing the remedial sanctions set forth below.
Accordingly, IT IS ORDERED that proceedings pursuant to Sections 15(b) and 19(h) of the Exchange Act be, and they hereby are, instituted.
On the basis of this Order and the Offer, the Commission makes the following findings: 1
A. Primeline Securities Corp. ("Primeline") is a broker-dealer registered with the Commission pursuant to Section 15(b) of the Exchange Act since December 20, 1984 (File No. 8-32899). It operated on an introducing and fully-disclosed basis, with its principal place of business in Wichita, Kansas. It ceased operations on December 16, 1997 and is currently being liquidated through the Securities Investor Protection Corporation. Liebau, age 50, resides in the Wichita area and is a co-founder and 50 percent owner of Primeline through its parent company. 2 At all times relevant to this matter, Liebau was Primeline's president and chief compliance officer.
B. From approximately 1992 through mid-1997, Asif Ameen ("Ameen"), a Bangladesh native and Wichita resident, was a registered representative at Primeline. During that period, Ameen operated a Ponzi scheme that victimized at least 97 people, primarily immigrants from Bangladesh and other Asian nations, including 18 persons who had trading accounts at Primeline. Ameen's victims lost over $2 million in the scheme, including almost $267,000 lost by Primeline customers. Ameen effected his scheme through the offer and sale of securities in the form of debentures purportedly issued by various corporations he had formed. Ameen promised his victims that these debentures would pay a high monthly return, but then paid the purported returns with funds Ameen solicited from subsequent investors rather than legitimate business operations.
C. Liebau was Ameens chief supervisor from 1994 until Ameen left Primeline in 1997. Liebau ignored obvious signs that Ameen was selling securities to non-Primeline customers and that he was stealing funds from his Primeline clients and other investors. Liebau failed to adequately investigate complaints and inquiries from Primeline customers that should have alerted him, at least by early 1997, that Ameen was engaged in fraudulent activities. Liebau, for example, learned that one customer had been receiving monthly payments drawn on Ameen's personal bank account, but accepted at face value Ameen's explanation that he was merely colluding with the customer's husband to conceal trading losses in her Primeline account.
D. On or about April 16, 1998, Ameen was convicted of four counts of felony theft and one count of securities fraud for his theft of investor funds (State v. Ameen, Sedgwick County, Kansas case no. 97 CR 1196). On or about December 14, 1998, Ameen pleaded no contest to, and was judged guilty on, three additional felony theft counts and two additional securities fraud charges relating to his scheme (State v. Ameen, Sedgwick County, Kansas case no 98-811).
E. The antifraud provisions of the federal securities laws, Section 17(a) of the Securities Act of 1933 ("Securities Act"), Section 10(b) of the Exchange Act, and Rule 10b-5 thereunder prohibit the employment of a fraudulent scheme or the making of material misrepresentations and omissions in connection with the purchase or sale of any security. Ameen violated those provisions through the operation of his Ponzi scheme, which included the use of funds that he stole directly from the accounts of his Primeline customers.
F. As a result of Liebaus inattention and failure to investigate in the face of red flags, Ameen was able to continue his scheme undetected until approximately June 1997.
G. Based on the foregoing, Liebau failed reasonably to supervise Ameen with a view to preventing his violations of Section 17(a) of the Securities Act, Section 10(b) of the Exchange Act, and Rule 10b-5 thereunder, within the meaning of Sections 15(b)(4)(E) and 15(b)(6)(A) of the Exchange Act.
In view of the foregoing, the Commission deems it appropriate and in the public interest to impose the sanctions specified by Respondent in his Offer.
Accordingly, IT IS ORDERED that:
A. Liebau be suspended from association with any broker or dealer for a period of three months, effective on the second Monday following entry of the Order. Liebau shall provide to the Commission, within 30 days after the end of the three-month suspension period described above, an affidavit that he has complied fully with the suspension in this paragraph A;
B. Liebau be and hereby is, barred from association in a supervisory or proprietary capacity with any broker or dealer, with a right to reapply for such association after two years to the appropriate self-regulatory organization, or if there is none, to the Commission; and
C. Liebau shall, within ten days of the entry of the Order, pay a civil money penalty pursuant to Section 21B of the Exchange Act, in the amount of $10,000 to the United States Treasury. Such payment shall be (1) made by United States postal money order, certified check, bank cashiers 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, Stop 0-3, Alexandria, VA 22312; and (4) submitted under cover letter that identifies Liebau as a Respondent in these proceedings and the file number of these proceedings, a copy of which cover letter and money order or check shall be sent to Daniel F. Shea, Securities and Exchange Commission, 1801 California Street, Suite 4800, Denver, CO 80202.
By the Commission.
Jonathan G. Katz
|1||The findings herein are made pursuant to Respondentís Offer and are not binding on any other person or entity in this proceeding or any other proceeding.|
|2||Primeline is a subsidiary of Primeline Financial Group, Inc., a Kansas corporation that is not registered with the Commission in any capacity.|
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