UNITED STATES OF AMERICA
In the Matter of
Market Timing Systems, Inc.,
|ORDER MAKING FINDINGS,|
IMPOSING REMEDIAL SANCTIONS
AND CEASE-AND-DESIST ORDERS
AS TO GREGORY L. MEADORS
On December 14, 2001, the Securities and Exchange Commission issued an Order Instituting Public Administrative Proceedings Pursuant to Sections 203(e) and (k) of the Investment Advisers Act of 1940 ("Advisers Act") against Market Timing Systems, Inc. ("MTSI"), and pursuant to Sections 203(f) and (k) of the Advisers Act against Mark F. Shinnick ("Shinnick") and Gregory L. Meadors ("Meadors").
Meadors has submitted an Offer of Settlement, 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 in which the Commission is a party, and without admitting or denying the findings herein, except the jurisdiction of the Commission over him and over the matters set forth in paragraph IIA, which he admits, Meadors has consented to the entry of this Order Making Findings, Imposing Sanctions and ordering him to cease and desist as set forth herein.
On the basis of this Order and the Offer submitted by Meadors, the Commission finds1 that:
A. MTSI was registered with the Commission as an investment adviser pursuant to Section 203(c) of the Advisers Act from September 1998 until August 2000. MTSI, a Colorado corporation formed in August 1998, is presently registered as an investment adviser in the State of California. From MTSI's inception through at least October 1999, Meadors was a 50% shareholder and the chief executive officer of MTSI. From November 1998 through at least October 1999, Shinnick owned the other 50% of MTSI and was its president.
B. At all relevant times, MTSI's primary investment advisory service was a daily market timing program tied to the performance of the S&P 500 Index. Under this program, MTSI predicted the movement of the Index and, based on these predictions, switched clients' funds between certain mutual funds whose returns were pegged to the performance of the Index.
C. To predict the movement of the Index, MTSI evaluated a variety of fundamental and technical factors such as the interest rate environment and activity in the stock market. In addition to these factors, MTSI considered signals generated by a computerized model that it called "MASTERTIMER." MASTERTIMER consisted of two commercially available market-timing software programs.
D. From September 1998 through October 1999, MTSI disseminated advertisements that featured the historic performance of the MASTERTIMER model. This advertising appeared on MTSI's Web site, in the Investor's Business Daily, and in direct mailings to actual and potential clients. MTSI's advertised performance for its MASTERTIMER model invariably reflected average annual returns of over 70% for at least a 13 year time period. Because MTSI did not begin business until September 1998, these results were hypothetical and generated by the retroactive application of its MASTERTIMER model.
E. MTSI's advertising was false or misleading in that it:
1. Overstated the role the MASTERTIMER model played in MTSI's market timing program and failed to disclose the prominent role played by other fundamental and technical factors. In other words, the advertising was based solely on the performance of the MASTERTIMER model, which was represented to have produced an average annual return in excess of 70% over a 13-year period, and suggested that the model was the primary, if not exclusive, factor in MTSI's program. In fact, MTSI relied on, and attached greater weight to, numerous undisclosed factors in making its market timing decisions, including stock market chart patterns, the current policies of the Federal Reserve, interest rates, the prospect of international conflict or war, and astrology.
2. In some cases failed to disclose altogether that the MASTERTIMER results were hypothetical and generated by the retroactive application of a model, and in other cases failed to disclose the relevant limitations inherent in hypothetical results and the reasons why actual results would differ.
3. Failed to disclose that MTSI's actual performance with client accounts during its first quarter of operations was materially less than MASTERTIMER's advertised hypothetical results for the same period.
F. Based on this false and misleading performance advertising, MTSI willfully violated Sections 206(1), 206(2) and 206(4) of the Advisers Act and Rule 206(4)-1(a)(5) thereunder, and Meadors and Shinnick willfully aided and abetted and caused these violations.
G. In 1990 the California Securities Regulation Division issued an order against Meadors requiring him to desist and refrain from the further offer or sale of unregistered securities in that state. MTSI and Meadors failed to disclose this action in MTSI's original Form ADV, filed on August 28, 1998, and two amended Forms ADV filed with the Commission on November 16, 1998 and August 30, 1999, respectively, in willful violation of Section 207 of the Advisers Act.
H. MTSI failed to make and keep all documentation substantiating its performance advertising referenced in paragraphs D and E above. Accordingly, MTSI willfully violated Section 204 of the Advisers Act and Rule 204-2(a)(16) thereunder, and Meadors and Shinnick willfully aided and abetted and caused these violations.
I. From September 1998 through October 1999, MTSI did not maintain a cash receipts or disbursements journal, or a general ledger reflecting asset, liability, reserve, capital, income and expense accounts. Furthermore, as of October 1999 MTSI had not prepared financial statements. Accordingly, MTSI willfully violated Section 204 of the Advisers Act and Rules 204-2(a)(1), (2) and (6) thereunder, and Meadors and Shinnick willfully aided and abetted and caused these violations.
J. Meadors has submitted a sworn Statement of Financial Condition dated February 19, 2002 and other evidence and has asserted his inability to pay a civil penalty.
In view of the foregoing, the Commission finds that it is appropriate and in the public interest to impose the sanctions against Respondent as specified in his Offer.
Accordingly, IT IS ORDERED:
A. Pursuant to Section 203(f) of the Advisers Act, that Gregory L. Meadors be barred from being associated with an investment adviser;
B. Pursuant to Section 203(k) of the Advisers Act, that Gregory L. Meadors cease and desist from committing or causing any violation and any future violations of Sections 206(1), (2) and (4) of the Advisers Act and Rule 206(4)-1(a)(5) thereunder, Section 204 of the Advisers Act and Rules 204-2(a)(1), (2), (6) and (16) thereunder, and Section 207 of the Advisers Act;
C. That, based upon Meadors' sworn representations in his Statement of Financial Condition dated February 19, 2002 and other documents submitted to the Commission, the Commission is not imposing a penalty against Meadors; and
D. That 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 Meadors 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
By the Commission.
Jonathan G. Katz
1 The findings herein are made pursuant to Meadors' Offer of Settlement and are not binding on any other person or entity in this or any other proceeding.
|Home | Previous Page||