UNITED STATES OF AMERICA
SECURITIES AND EXCHANGE COMMISSION
SECURITIES EXCHANGE ACT OF 1934
Release No. 44132 / March 29, 2001
INVESTMENT ADVISERS ACT OF 1940
Release No. 1934 / March 29, 2001
File No. 3-10447
In the Matter of
MICHAEL P. KEATING and
KEATING ADVISORY GROUP,
|ORDER INSTITUTING PUBLIC|
FINDINGS AND IMPOSING
The Securities and Exchange Commission ("Commission") deems it appropriate in the public interest and for the protection of investors that administrative proceedings be instituted pursuant to Sections 15(b) and 19(h) of the Securities Exchange Act of 1934 ("Exchange Act") and Section 203(f) of the Investment Advisers Act of 1940 ("Advisers Act") against Michael P. Keating ("Keating") and be instituted pursuant to Section 203(e) of the Advisers Act against Keating Advisory Group.
In anticipation of the institution of these proceedings, Keating and Keating Advisory Group have submitted an Offer of Settlement ("Offer") which the Commission has determined to accept. Solely for the purposes of these proceedings and any other proceedings brought by or on behalf of the Commission or in which the Commission is a party, Respondents, by their Offer, consent, without admitting or denying the findings contained herein, except that they admit that the Commission has jurisdiction over them and over the subject matter of these proceedings and that an injunction has been entred against them, as described in paragraphs II.1 and II.2 below, to the entry of this Order Instituting Public Proceedings, Making Findings and Imposing Remedial Sanctions ("Order").
Accordingly, IT IS ORDERED that proceedings against Respondents be, and hereby are, instituted.
On the basis of this Order and the Offer, the Commission finds1 that:
- At all times relevant to this action, Keating, who is age 38 and a resident of Columbia, Maryland, was a registered representative and a principal of Delta Equity Services Corporation ("Delta"), a broker-dealer registered with the Commission since 1985. Keating is also the owner of Keating Advisory Group, which operated as a branch office of Delta in Ellicott City, Maryland. Keating Advisory Group has also been registered with the Commission since August 1988 as an investment adviser, but the firm has had few, if any, advisory clients.
- On March 20, 2000, Keating and Keating Advisory Group consented, without admitting or denying the allegations in the Commission's complaint, to the entry of an order by the District Court for the Northern District of Ohio enjoining them from engaging in acts, transactions, practices and courses of business which violate Sections 5(a), 5(c) and 17(a) of the Securities Act of 1933 ("Securities Act"), Sections 10(b) and 15(a) of the Exchange Act and Rule 10b-5 thereunder and providing other relief.
- At all times relevant to this action, Andrew P. Bodnar ("Bodnar"), age 46, was registered as a representative and principal of Delta. He was also the president, owner and manager of Bodnar & Associates, which operated as a branch office of Delta in Akron, Ohio.
- CBT Holding Corporation ("CBT") was incorporated in Nevis, British West Indies in November 1996. CBT-Ohio, Ltd. ("CBT-Ohio") is an Ohio limited liability company formed in February 1997. Its principal office is located in Akron, Ohio. These entities were formed and/or controlled by Bodnar.
- From at least November 1996 through July 1997, Bodnar and another individual directed a fraudulent scheme through which they, together with other sales representatives, raised $6.4 million from the sale of unregistered securities to at least 148 public investors. The scheme was conducted through Bodnar & Associates and Keating Advisory Group.
- All of the investors were told that their funds would be used to purchase low-risk instruments. The investors were either told or led to believe that these instruments were certificates of deposit which were issued by an off-shore or a "world" bank. They were told that the instruments would earn 12 percent annually, payable on a quarterly basis. After they were solicited, the investors received documents in the form of unsecured promissory notes issued by CBT and CBT-Ohio. However, Bodnar, Keating and other sales representatives continued to assure investors that their funds would be used to purchase certificates of deposit.
- In fact, rather than using the funds as represented to investors, Bodnar misappropriated the funds. He used most of the funds to pay for his business and personal expenses. He also diverted a substantial sum of money to entities and individuals who were operating a Prime Bank scheme. Finally, he used the remaining funds to make payments to prior CBT and CBT-Ohio investors.
- From November 1996 through July 1997, Keating, through Keating Advisory Group, sold at least $3 million of CBT and CBT-Ohio securities to 69 investors. As part of his sales efforts, Keating made material misrepresentations about the nature of, and the degree of risk inherent in, investments in CBT and CBT-Ohio. Specifically, he told many investors that their funds would be invested in certificates of deposit secured by a "world bank." He also either expressly told or led investors to believe that the 12 percent rate of return was "guaranteed" and/or "backed by the full faith and credit of the United States." However, Keating either knew or was reckless in not knowing that these statements were false. In this regard, he relied solely upon the verbal representations of Bodnar and conducted no due diligence of CBT or CBT-Ohio. Keating's scienter is evidenced by his failure to review even the most basic documentation regarding the financial conditions or operations of these companies even though he knew that Bodnar intended to use some of the proceeds from investments in CBT and CBT-Ohio to repay investors in another failed venture which Bodnar had sponsored.
- Based on the above-described conduct, Keating and Keating Advisory Group willfully violated:
- Section 17(a) of the Securities Act, Section 10(b) of the Exchange Act and Rule 10b-5 thereunder, in that they, in the offer or sale of securities, or in connection with the purchase or sale of securities, by the use of the means or instruments or instrumentalities of transportation or communication in interstate commerce or by use of the mails, directly or indirectly, employed devices, schemes or artifices to defraud; obtained money or property by means of, or otherwise made, untrue statements of material fact or omitted to state material facts necessary in order to make the statements made, in light of the circumstance under which they were made, not misleading; or engaged in acts, transactions, practices or courses of business which operated or would operate as a fraud or deceit upon any person;
- Sections 5(a) and 5(c) of the Securities Act in that they, directly or indirectly, made use of the means or instruments of transportation or communication in interstate commerce or of the mails to sell or offer to sell, through the use or medium of a prospectus or otherwise, the securities described above, or carried or caused them to be carried through the mails or in interstate commerce by the means or instruments of transportation for the purpose of sale or delivery after sale, while no registration statement was in effect or filed with the Commission; and
- Section 15(a) of the Exchange Act in they made use of the mails or any means or instrumentality of interstate commerce to effect transactions in, or to induce or attempt to induce the purchase or sale of the securities described above, without being registered as, or associated with, a broker or dealer registered with the Commission pursuant to Section 15(b) of the Exchange Act.
On the basis of the foregoing, the Commission deems it appropriate in the public interest and for the protection of investors to accept the Offer submitted by Keating and Keating Advisory Group and impose the sanctions specified therein.
Accordingly, IT IS HEREBY ORDERED THAT Keating be, and hereby is barred from association with any broker, dealer or investment adviser.
IT IS FURTHER ORDERED THAT the registration of Keating Advisory Group is hereby Revoked.
By the Commission.
Jonathan G. Katz
|1 ||The findings herein are made pursuant to the Respondents' Offer and are not binding on any other person or entity in this or any other proceeding.|