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U.S. Securities and Exchange Commission

United States of America
before the
Securities and Exchange Commission

Securities Exchange Act OF 1934
Release No. 47700 / April 18, 2003

Investment Advisers Act of 1940
Release No. 2124 / April 18, 2003

Administrative Proceeding
File No. 3-11089


In the Matter of

MARTIN W. SMITH and
WORLD SECURITIES, INC.

Respondents.


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ORDER INSTITUTING PUBLIC ADMINISTRATIVE PROCEEDINGS PURSUANT TO SECTION 15(b) OF THE SECURITIES EXCHANGE ACT OF 1934 AND SECTION 203(f) OF THE INVESTMENT ADVISERS ACT OF 1940, MAKING FINDINGS AND IMPOSING REMEDIAL SANCTIONS

I.

The Securities and Exchange Commission ("Commission") deems it appropriate and in the public interest that public administrative proceedings be, and hereby are, instituted against Martin W. Smith ("Smith") and World Securities, Inc. ("World Securities") (collectively, "Respondents") pursuant to Section 15(b) of the Securities Exchange Act of 1934 ("Exchange Act") and, as to Smith only, pursuant to Section 203(f) of the Investment Advisers Act of 1940 ("Advisers Act").

II.

In anticipation of the institution of these proceedings, Smith and World Securities have submitted Offers of Settlement ("Offers"), which the 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 to which the Commission is a party, and without admitting or denying the findings herein, except as to the Commission's jurisdiction over Respondents and the subject matter of these proceedings, which are admitted, and except with respect to the findings contained in paragraphs III.A. through III.C. and III.E. below, which Smith admits, and except with respect to the findings contained in paragraphs III.A. through III.H. below, which World Securities admits, Respondents consent to the entry of this Order Instituting Public Administrative Proceedings Pursuant to Section 15(b) of the Securities Exchange Act of 1934 and Section 203(f) of the Investment Advisers Act of 1940, Making Findings and Imposing Remedial Sanctions ("Order"), as set forth below.

III.

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

A. World Securities Inc. is a broker-dealer registered with the Commission from February 1996 to the present. During this time, Smith and Gregory L. Fears ("Fears") were World Securities' sole owners and control persons.

B. Investors Financial, Inc. ("Investors Financial") was an investment adviser registered with the Commission from July 1996 to May 1998 and from October 1998 through June 2001. During this time, Smith and Fears were Investors Financial's sole owners and control persons.

C. Smith is an officer, a director, a control person and a 50% shareholder of World Securities. From September 1985 to March 1996, Smith was a registered representative with certain other broker-dealers registered with the Commission. Smith was also an officer, a director, a control person and a 50% shareholder of Investors Financial. In addition, Smith was registered with the Commission as an investment adviser from November 1992 to August 1996.

D. Fears is a control person, a 50% shareholder and, at various times, an officer and director of World Securities. Fears was also an officer, a director, a control person and a 50% shareholder of Investors Financial. In addition, from 1992 to 2001, Fears acted as an investment adviser, in that, among other things, he held himself out as an investment adviser and, together with his partner, Smith, was paid to manage his clients' assets and provided his clients with account statements that purported to advise them as to the value of their investments.

E. On September 19, 2002, a final judgment was entered against Smith in the criminal case of United States of America v. Martin W. Smith, Case Number 2:01CR20047 in the United States District Court for the Western District of Arkansas. This judgment was entered pursuant to Smith's guilty plea to a three count criminal information that charged Smith with two counts of violating 18 U.S.C. § 1014 (loan fraud) and one count of violating 26 U.S.C. § 7206(1) (fraud and false statements). The judgment against Smith sentenced him to 46 months of imprisonment, and, among other things, ordered him to pay a fine of $201,000 and restitution of $541,906.

F. The information against Smith alleged, among other things, that he submitted false personal financial statements to two banks as part of loan applications, which Smith knew failed to disclose his substantial debts to Ozark Financial, Inc., d/b/a/ Infinity Investments Inc. ("Ozark Financial"), and that such financial statements caused the banks to be misled as to Smith's credit worthiness. One of these loan applications was made for a loan to Investors Financial, Smith and Fears' investment advisory firm. In addition, the information alleged that Smith willfully made a false declaration under penalty of perjury when filing his tax return for 1997. The information alleged that Smith did not report taxable income he received through his repeated personal use of a credit card owned by Ozark Financial and that Smith caused these personal charges to be paid from the funds and assets of Ozark Financial.

G. On March 21, 2002, a final judgment was entered against Fears in the criminal case of United States of America v. Gregory L. Fears, Case Number 2:01CR20033 in the United States District Court for the Western District of Arkansas. This judgment was entered pursuant to Fears' guilty plea to a twenty-two count criminal information that charged Fears with three counts of violating 15 U.S.C. §§ 80b-6 and 80b-17 (investment advisory fraud), one count of violating 18 U.S.C. § 1343 (wire fraud), five counts of violating 18 U.S.C. § 1957 (loan fraud), six counts of violating 18 U.S.C. § 1014 (loan fraud) and seven counts of violating 18 U.S.C. § 982(b)(1) (criminal forfeiture). The judgment sentenced Fears to 144 months of imprisonment and, among other things, ordered him to pay restitution of $64,045,771.77.

H. The information against Fears alleged, among other things, that beginning in 1992, Fears and Smith formed a partnership in which Fears promoted himself to potential clients as a financial trustee available to handle all investment decisions for the clients, with Smith providing investment advice to Fears as the clients' trustee, as well as directly to the clients. Fears and Smith formed World Securities and Investors Financial for the purpose of managing their clients' assets and to allow Fears and Smith to profit from buying and selling securities for their clients. Fears recommended that a number of their unsophisticated and generally elderly advisory clients invest in World Capital Management, L.P. ("World Capital"), an unregistered hedge fund created by Fears and Smith and managed by Smith, who conducted high-risk securities trading in its account through World Securities. In order to induce their clients to invest in World Capital, Fears made misrepresentations and omissions of material facts to clients regarding the nature of World Capital and the risks of investing in it. As a result of Fears and Smith's fraudulent scheme, their advisory clients lost essentially all of their investments.

IV.

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

ACCORDINGLY, IT IS HEREBY ORDERED:

  1. Pursuant to Section 15(b)(6) of the Exchange Act and Section 203(f) of the Advisers Act, that Respondent Smith be, and hereby is, barred from association with any broker, dealer, or investment adviser.
     
  2. Pursuant to Section 15(b)(4) of the Exchange Act, that the registration of Respondent World Securities, Inc. as a broker-dealer with the Commission be, and hereby is, revoked.

By the Commission.

__________________________
Jonathan G. Katz
Secretary

 

http://www.sec.gov/litigation/admin/34-47700.htm


Modified: 04/18/2003