UNITED STATES OF AMERICA
In the Matter of
STEVEN L. HUNT, ESQ.
|ORDER INSTITUTING PUBLIC ADMINISTRATIVE AND CEASE-AND-DESIST PROCEEDINGS PURSUANT TO SECTIONS 15(b) AND 21C OF THE SECURITIES EXCHANGE ACT OF 1934, SECTIONS 203(f) AND 203(k) OF THE INVESTMENT ADVISERS ACT OF 1940, AND RULE 102(e) OF THE COMMISSION'S RULES OF PRACTICE, MAKING FINDINGS, AND IMPOSING REMEDIAL SANCTIONS AND A CEASE-AND-DESIST ORDER|
The Securities and Exchange Commission ("Commission") deems it appropriate and in the public interest that public administrative and cease-and-desist proceedings be, and hereby are, instituted against Steven L. Hunt ("Respondent" or "Hunt") pursuant to Sections 15(b) and 21C of the Securities Exchange Act of 1934 ("Exchange Act"), Sections 203(f) and 203(k) of the Investment Advisers Act of 1940 ("Advisers Act"), and Rule 102(e)(1)(iii) of the Commission's Rules of Practice.1
In anticipation of the institution of these proceedings, Respondent has submitted an Offer of Settlement (the "Offer") 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 him and the subject matter of these proceedings, Respondent consents to the entry of this Order Instituting Public Administrative and Cease-And-Desist Proceedings Pursuant to Sections 15(b) and 21C of the Securities Exchange Act of 1934, Sections 203(f) and 203(k) of the Investment Advisers Act of 1940, and Rule 102(e) of the Commission's Rules of Practice, Making Findings, and Imposing Remedial Sanctions and a Cease-And-Desist Order ("Order"), as set forth below.
On the basis of this Order and Respondent's Offer, the Commission finds2 that:
1. Hunt, age 52, resides in Tulsa, Oklahoma. From October 23, 2001 to November 18, 2002, Hunt was president and general counsel of Southmark Advisory, Inc. (f/k/a Southmark of Tulsa, Inc.) ("Southmark Adviser"), an investment adviser registered with the Commission since March 2002, and Southmark, Inc. ("Southmark Broker"), a broker-dealer registered with the Commission since August 1993. Hunt is licensed to practice law in Oklahoma.
2. Throughout the relevant time period, Southmark Adviser provided investment management services, primarily to retired individuals, through the firm's "Managed Account Program." The Managed Account Program included investments of client moneys in mutual funds and the use of a market timing service to transfer client funds between money market and stock funds within the same family of mutual funds. Southmark Adviser purchased mutual funds on behalf of its clients through its affiliate, Southmark Broker. Throughout the relevant time period, Wendell D. Belden was the chairman and control person of Southmark Broker and Southmark Adviser.
3. During his tenure as president and general counsel of Southmark Adviser and Southmark Broker, Hunt was responsible for preparing and filing with the Commission forms and amendments on behalf of both firms. Hunt executed and filed with the Commission, on behalf of Southmark Adviser, a Form ADV dated December 21, 2001, and amendments thereto dated February 13, 2002, April 19, 2002, May 3, 2002, June 4, 2002 and June 12, 2002. Hunt also executed and filed with the Commission amendments to Southmark Broker's Form BD dated February 28, 2002, March 20, 2002, April 12, 2002, May 15, 2002, May 21, 2002, June 4, 2002, and July 12, 2002.
4. In 1993, the National Association of Securities Dealers ("NASD") disciplined Belden for distributing sales literature that had not been approved by his employer member firms and had not been filed with the NASD's advertising department. The NASD censured Belden and imposed a $25,000 fine against him. Hunt was aware of that disciplinary action, but he willfully failed to disclose it in any of the forms or amendments that he filed with the Commission on behalf of Southmark Adviser or Southmark Broker.
5. On August 13, 2002, the National Adjudicatory Council ("NAC") of the NASD suspended Belden from associating with any NASD member for one year, imposed a fine of $40,000 against Belden, and ordered Belden to pay restitution of $55,567, after determining that Belden had made unsuitable recommendations to a Southmark Adviser client. Hunt was aware of that material disciplinary event, but he willfully failed to amend promptly Southmark Broker's Form BD and Southmark Adviser's Form ADV to reflect the event.
6. On August 29, 2002, the Administrator for the Oklahoma Department of Securities ("ODS") censured Southmark Adviser, imposed a fine of $50,000 against Southmark Adviser, barred Belden from associating with an investment adviser subject to the Oklahoma Securities Act, and fined Belden $50,000, after determining that Belden engaged in fraudulent, dishonest and unethical business practices. Hunt was aware of that material disciplinary event, but he willfully failed to amend promptly Southmark Broker's Form BD and Southmark Adviser's Form ADV to reflect the event.
Section 207 of the Advisers Act prohibits any person from willfully making "any untrue statements of material fact in any registration application or report filed with the Commission under Section 203 or 204 [of the Advisers Act], or willfully [omitting] to state in any such application or report any material fact which is required to be stated therein." Item 11.E of Form ADV requires an applicant to disclose whether a self-regulatory organization has ever found the applicant or an affiliate to have violated one of its rules. A fact is material if there is a substantial likelihood that a reasonable investor would consider it important in making an investment decision. Basic, Inc. v. Levinson, 485 U.S. 224, 231-32, 240 (1988); SEC v. Moran, 922 F. Supp. 867, 899 (S.D.N.Y. 1996). Willful means "intentionally committing the act which constitutes the violation." Moran, 922 F. Supp. at 900.
Hunt prepared, signed and filed Southmark Adviser's application for registration on Form ADV on December 21, 2001, and subsequently filed five Form ADV amendments, none of which disclosed the NASD's 1993 disciplinary action against Belden, who was one of Southmark Adviser's affiliates. The 1993 NASD action was a material fact, and Hunt was aware of it when he filed Southmark Adviser's initial Form ADV in December 2001, and thereafter. Hunt intended to execute and file the misleading reports, and therefore willfully violated Section 207 of the Advisers Act.
Section 204 of the Advisers Act and Rule 204-1(a)(2) thereunder require investment advisers to amend Form ADV in accordance with the form's instructions, and the General Instructions require investment advisers to amend their response to Item 11 promptly if the response becomes inaccurate. Item 11.E requires an investment adviser to disclose whether (i) a self-regulatory organization has found the applicant or an affiliate to be in violation of one of its rules; or (ii) a self-regulatory organization has disciplined or suspended the applicant or an affiliate. Item 11.D requires investment advisers to disclose whether a state regulatory agency has found the applicant or an affiliate to have committed certain acts: making a false statement or omission; being dishonest, unfair, or unethical; violating an investment-related regulation or statute; or causing an investment adviser's authorization to do business to be denied, suspended, revoked or restricted.
Southmark Adviser did not amend its Form ADV to disclose the August 13, 2002 NAC decision or the August 29, 2002 ODS consolidated order until after the Commission brought its civil action against the Southmark entities and Belden in October 2002. During the relevant period, Hunt was responsible for preparing, signing and filing reports with the Commission on the firm's behalf, and by failing to ensure that Southmark Adviser promptly amended its June 12, 2002 Form ADV to disclose subsequent disciplinary events, Hunt caused Southmark Adviser to violate Section 204 of the Advisers Act and Rule 204-1(a)(2) thereunder. Hunt also willfully aided and abetted Southmark Adviser's violations of those provisions, because he knew his role was part of an overall activity that was improper, and he knowingly and substantially assisted the conduct that constituted the violations. See Graham v. SEC, 222 F.3d 994, 1000 (D.C. Cir. 2000); Woodward v. Metro Bank, 522 F.2d 84, 94-95 (5th Cir. 1975).
Section 206(4) of the Advisers Act prohibits investment advisers from engaging in acts, practices, or courses of business that are fraudulent, deceptive, or manipulative, as the Commission, by rules and regulations, may define and prescribe, and Rule 206(4)-4(a)(2) thereunder makes it a fraudulent, deceptive, or manipulative act, practice, or course of business for an adviser to fail to disclose to any client or prospective client all material facts with respect to a legal or disciplinary event that is material to an evaluation of the adviser's integrity or ability to meet contractual commitments to clients. Materiality depends on the significance a reasonable investor would place on the withheld or misrepresented information in making an investment decision. Basic, Inc., 485 U.S. at 231-32, 240. Pursuant to Rule 206(4)-4(c) under the Advisers Act, the information required to be disclosed under Rule 206(4)-4(a) must be disclosed "to clients promptly, and to prospective clients not less than 48 hours prior to entering into any written or oral investment advisory contract...."
Southmark Adviser's failure to inform its clients of its and Belden's disciplinary history promptly, and to inform its prospective clients of those facts within the specified 48-hour time frame, violated Section 206(4) of the Advisers Act and Rules 206(4)-4(a)(2) and 206(4)-4(c) thereunder, because the NASD and ODS proceedings were "disciplinary event[s] that [were] material to an evaluation of the adviser's integrity." Hunt caused and willfully aided and abetted Southmark Adviser's violations of Section 206(4) of the Advisers Act, and Rules 206(4)-4(a)(2) and 206(4)-4(c) thereunder, in that he was responsible for preparing, signing and filing all of Southmark Adviser's required Commission filings, and was aware that none of the firm's filings adequately disclosed Southmark Adviser and Belden's disciplinary history.
Section 15(b) of the Exchange Act and Rule 15b3-1 thereunder require every broker-dealer to ensure that an up-to-date Form BD is on file with the NASD. Rule 15b3-1(a) provides: "If the information contained in any application for registration as a broker or dealer, or in any amendment thereto, is or becomes inaccurate for any reason, the broker or dealer shall promptly file with the Central Registration Depository (operated by the NASD) an amendment on Form BD correcting such information."
Southmark Broker did not disclose the 1993 NASD action against Belden in its Form BD, or any amendments thereto that it filed with the Commission. Southmark Broker has not filed an amended Form BD since July 12, 2002, and since that time, the NAC issued an order on August 13, 2002, fining and suspending Belden, and the ODS issued an order on August 29, 2002, fining and barring Belden. Thus, Southmark Broker violated Section 15(b) and Rule 15b3-1, because it did not promptly file an amended Form BD disclosing those disciplinary events. Hunt caused and willfully aided and abetted Southmark Broker's violations of Section 15(b) of the Exchange Act and Rule 15b3-1 thereunder, because he was responsible for preparing, signing and filing all of Southmark Broker's required Commission filings, and was aware that none of the firm's filings adequately disclosed Southmark Adviser and Belden's disciplinary history.
Based on the foregoing, the Commission finds that Hunt:
Willfully violated Section 207 of the Advisers Act;
Caused and willfully aided and abetted Southmark Adviser's violations of Sections 204 and 206(4) of the Advisers Act and Rules 204-1(a)(2), 206(4)-4(a)(2) and 206(4)-4(c) thereunder; and
Caused and willfully aided and abetted Southmark Broker's violations of Section 15(b) of the Exchange Act and Rule 15b3-1 thereunder.
In view of the foregoing, the Commission deems it appropriate and in the public interest to impose the sanctions agreed to in Respondent's Offer.
Accordingly, IT IS HEREBY ORDERED, effective immediately, that:
Hunt shall cease and desist from committing or causing any violations and any future violations of Sections 204, 206(4), and 207 of the Advisers Act and Rules 204-1(a)(2), 206(4)-4(a)(2) and 206(4)-4(c) thereunder, and Section 15(b) of the Exchange Act and Rule 15b3-1 thereunder.
Pursuant to Section 15(b)(6) of the Exchange Act and Section 203(f) of the Advisers Act, Hunt be, and hereby is barred from association with any broker, dealer, or investment adviser, with the right to reapply for association after three (3) years to the appropriate self-regulatory organization, or if there is none, to the Commission.
Hunt is denied the privilege of appearing or practicing before the Commission as an attorney for three years.
Before appearing and resuming practice before the Commission, Hunt will submit an affidavit to the Commission's Office of the General Counsel truthfully stating, under penalty of perjury, that he has complied with the Commission's orders, that he is not subject to any suspension or disbarment as an attorney by a court of the United States or of any state, territory, district, commonwealth, or possession, and that he has not been convicted of a felony or misdemeanor involving moral turpitude as set forth in Rule 102(e)(2) of the Commission's Rules of Practice.
Based upon Respondent's sworn representations in his Statement of Financial Condition dated January 31, 2003, and other documents submitted to the Commission, the Commission is not imposing a penalty against Respondent. 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 Respondent provided accurate and complete financial information at the time such representations were made; and (2) seek an order directing payment of the maximum civil penalty allowable under the law. No other issue shall be considered in connection with this petition other than whether the financial information provided by Respondent was fraudulent, misleading, inaccurate, or incomplete in any material respect. Respondent may not, by way of defense to any such petition: (1) contest the findings in the Order; (2) assert that payment of 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.
By the Commission.
|Jonathan G. Katz
| Rule 102(e)(1)(iii) provides, in relevant part, that:
The Commission may deny, temporarily or permanently, the privilege of appearing or practicing before it to any person who is found...to have willfully violated, or willfully aided and abetted the violation of any provision of the Federal securities laws or the rules or regulations thereunder.
|The findings herein are made pursuant to Respondent's Offer of Settlement and are not binding on any other person or entity in this or any other proceeding.|
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