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U.S. Securities and Exchange Commission

United States of America
before the
Securities and Exchange Commission

Investment Advisers Act of 1940
Release No. 2138 / June 24, 2003

Administrative Proceeding
File No. 3-10895


In the Matter of

OXFORD CAPITAL MANAGEMENT, INC.
and JOHN G. DANZ, JR.

Respondents.


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ORDER MAKING FINDINGS AND IMPOSING REMEDIAL SANCTIONS AND CEASE-AND-DESIST ORDER

I.

In these proceedings instituted pursuant to Sections 203(e), 203(f) and 203(k) of the Investment Advisers Act of 1940 ("Advisers Act"), Respondents Oxford Capital Management, Inc. ("Oxford") and John G. Danz, Jr., ("Danz") have submitted Offers of Settlement which the Securities and Exchange Commission ("Commission") has determined to accept.1

II.

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 them and the subject matter of these proceedings, which are admitted, Oxford and Danz consent to the entry of this Order Making Findings and Imposing Remedial Sanctions and Cease-and-Desist Order ("Order") pursuant to Sections 203(e), 203(f) and 203(k) of the Advisers Act as set forth below.

III.

On the basis of this Order, Oxford's Offer of Settlement and Danz's Offer of Settlement, the Commission finds that:

A. The Respondents

1. Respondent Oxford is an investment adviser registered with the Commission pursuant to Section 203 of the Advisers Act. Oxford is a Maryland corporation located in Towson, Maryland, and has been a registered investment adviser since 1983. Oxford has no branch offices, and employs approximately 3 employees.

2. Respondent John G. Danz, Jr., age 61, is a resident of Baltimore, Maryland. During at least from June 1998 through May 2001 ("relevant time period"), Respondent was president, portfolio manager, and majority shareholder of Oxford. Prior to founding Oxford, Respondent was the Director of Research and a portfolio manager for the Capital Management Group at Baker Watts & Co., Inc. from 1981 to 1983.

B. Introduction

1. Oxford provides discretionary investment services for individuals, foundations, endowments, and employee benefit plans. Oxford has approximately 63 clients and $100 million in assets under management. Danz's responsibilities at Oxford during the relevant time period included, among other things, directing Oxford's advertising, managing client portfolios, developing investment policy and strategy, and managing Oxford's books and records.

2. From approximately June 1998 through at least May 2001, Oxford, through Danz, repeatedly submitted misstated and inflated performance results and the amount of assets in Oxford's Enhanced Equity ("Equity") composite to various third parties, including clients and prospective clients, and also failed to correct false and inflated figures submitted to Danz for review by various reporting services. In particular, during this time frame Danz inflated the Equity composite performance figures for the years 1991 through 1997, thereby misstating and raising the Equity composite's long-term returns. For example, Oxford advertised that as of June 30, 2000, its 40-quarter annualized return for the Equity composite was 23.39% when in fact, Oxford's audited performance figures reflected a 15.68% return. Moreover, Oxford has been unable to demonstrate how its advertised performance claims were calculated, and has failed to maintain a variety of required books and records, including internal working papers or other records that would substantiate its advertised performance claims.

C. Background

1. Oxford hired an independent certified public accounting firm to conduct performance examinations of Oxford's performance figures for the years 1991 through 1994. These performance examinations were conducted in accordance with generally accepted auditing standards and in conformity with the guidelines established by the Association of Investment Management and Research. Danz understood at the time that these audited performance figures were accurate.

2. In February 2001, an independent certified public accounting firm hired by Oxford completed a 5-year performance examination for the years 1996 through 2000 of Oxford's performance figures and amount of assets managed. This February 2001 performance examination was also conducted in accordance with generally accepted auditing standards and in conformity with the guidelines established by the Association of Investment Management and Research. Danz understood at the time that these audited figures were accurate.

3. Oxford, through Danz, failed to use these previously audited performance figures and amount of assets managed when submitting long-term quarterly performance results of, and amount of assets managed in, Oxford's Equity composite to clients, prospective clients, reporting services, brokers and consultants. Oxford through Danz submitted misstated and inflated long-term quarterly performance results of, and amount of assets managed in, Oxford's Equity composite to clients, prospective clients, reporting services, brokers and consultants for the purpose of retaining existing Oxford clients and inducing potential clients to purchase its services.

D. False Performance Figures Submitted to Reporting Services, Newspapers, Consultants and Brokers

1. In August 2000, Oxford, through Danz, supplied a reporting service, Nelson Investment Manager Database ("Nelson"), based in Port Chester, New York, with quarterly performance results for Oxford's Equity composite for the years 1983 through the second quarter of 2000. Danz manually edited the performance figures for 1998 through the second quarter of 2000 but failed to correct the inaccurate numbers for the years 1991 to 1997. Danz submitted the misstated and misleading performance figures to Nelson. For example, the August 2000 submission claimed that Oxford's Equity composite generated a 40.67% return in 1991. However, Oxford's audited performance figures showed a return of only 27.27% for that year.

2. Based on the misstated and misleading information provided by Oxford and Danz to Nelson, including the August 2000 submission, Nelson inaccurately portrayed Oxford's Equity composite 40-quarter annualized return as of June 30, 2000 to be 23.39%. This 40-quarter annualized return resulted in Nelson mistakenly ranking Oxford's Equity composite as number 5 out of 111 of its peers, which placed the Equity composite in Nelson's "Top 20" Money Managers group. According to Oxford's audited performance figures, the Equity composite's actual annualized return as of June 30, 2000 was only 15.68%, which would not have qualified the Equity composite for a "Top 20" ranking. Similarly, based on misstated and misleading information provided by Oxford and Danz to Nelson, Nelson inaccurately placed Oxford's Equity composite in its "Top 20" Money Managers group for the periods ending December 31, 1998, December 31, 1999, and September 30, 2001. In addition, based on the misstated and misleading information provided by Oxford and Danz to Nelson, Nelson inaccurately reported that Oxford had $65 million of assets in the Equity composite as of December 31, 1999, when in fact only $22 million of assets were in the Equity composite at the time.

3. Nelson distributed the materially inaccurate Nelson "Top 20" Money Manager rankings for Oxford's Equity composite to a variety of potential investors. In addition, Oxford distributed these materially inaccurate rankings to brokers and consultants for the purpose of inducing potential clients to purchase its services. The September 30, 2001 ranking was posted on the Nelson website.

4. Oxford placed numerous advertisements in the Baltimore Business Journal newspaper that repeated the materially inaccurate Nelson ranking for the years ended December 31,1999 and December 31, 1998. At a minimum, the advertisements were placed during the months of November and December of 1999, and January, and February 2000.

5. Oxford also utilized the materially inaccurate December 31, 1999 Nelson ranking in advertisements in the Baltimore Sun newspaper. At a minimum, these advertisements were placed in January, February and October of 2000.

6. In addition, Oxford placed the same materially inaccurate advertisements touting it was the only manager in Maryland to receive the Nelson ranking of "World's Best Money Managers" for the Equity composite in the B'nai B'rith Today Chesapeake Bay Region newspaper for the period ended December 31, 1999. At a minimum, the advertisements were placed during the months of March, April, and September through December of 2000.

7. From June 1998 through August 1999, Oxford also supplied what it purported to be the quarterly results of Oxford's Equity composite for the years 1983 through the second quarter of 1999 to another reporting service, The Mobius Group ("Mobius"), based in Research Triangle Park, North Carolina. These performance figures were materially overstated and similar to those submitted to Nelson. Danz submitted the materially inaccurate performance figures to Mobius.

8. In May 2001, Oxford, through Danz, supplied to Mobius what it purported to be quarterly results for Oxford's Equity composite for a 20-year quarterly composite return. Danz manually edited the performance figures for the years 1996 to 2000 but failed to correct the inaccurate numbers for the years 1991 to 1995. For example, the May 2001 submission claimed that Oxford's Equity composite generated a 41.06% return in 1991. However, Oxford's audited performance figures showed a return of only 27.27% in 1991.

9. In 2001, Mobius distributed a Manager Fact Sheet about Oxford to, among others, brokers and consultants. As a result of Oxford's and Danz's materially inaccurate submissions to Mobius, this Manager Fact Sheet contained misstated and misleading performance figures for the Equity composite for the period ended December 31, 2000. Furthermore, the Manager Fact Sheet contained overstated figures for the amount of assets in the Equity composite for the years 1996 through 1999. For example, the Manager Fact Sheet stated that in 1996, Oxford's Equity composite had a 34.5% return with $51 million in assets, while the audited figures show only a 23.03% return and $10 million in assets.

10. In early 2000, Oxford, through Danz, affirmatively provided in Danz's own handwriting misstated and misleading performance figures for the Equity composite for the years 1982 to 1999 to Effron Enterprises, Inc. ("Effron"), a reporting service based in White Plains, New York. The performance figures were similar to those submitted to Nelson and Mobius and were materially inflated in comparison to the audited numbers. Danz created and submitted the materially inaccurate performance figures to Effron. For example, Oxford's and Danz's 2000 submission to Effron claimed that Oxford's Equity composite generated a 41.71% return in 1991. However, Oxford's audited performance figures showed a return of only 27.27% in 1991.

11. In January 1999, Oxford through Danz, supplied the Wellesley Group, Inc., a consulting firm, based in Waltham, Massachusetts, with quarterly performance figures for the years 1987 through 1998 for Oxford's Equity composite. Danz manually edited the Manager Questionnaire but failed to correct the inaccurate numbers for the years 1991 to 1995. For example, the submission claimed that in 1997, Oxford's Equity composite generated a 30.43% return and had approximately $55 million of assets in the composite. However, Oxford's audited performance figures showed a return of only 23.43% and $14 million in assets in 1997.

12. In April 1999, Oxford through Danz sent IPEX, Inc., a consulting service based in Chicago, Illinois, where Oxford manages several accounts, a letter with several enclosures including an Equity composite performance data spreadsheet for the years 1983 through 1999 with materially misstated and misleading performance results. In addition, Danz provided IPEX with two Nelson reprints that inaccurately ranked Oxford's Equity composite as one of the World's Best Money Managers in 1998.

13. In October 1999, Danz personally made a presentation in New York City and distributed a marketing brochure to a representative of Gruntal Inc., a broker who has custody of several of Oxford's client accounts. The brochure provided an overview of the firm, touted Oxford's above-average results, and contained several materially inaccurate Nelson publication reprints. The Investment Results section of the brochure provided materially inaccurate performance figures for the period ended June 30, 1999 indicating that Oxford's Equity portfolio outperformed or matched the market.

14. In May 2000, Oxford through Danz sent to Morgan Stanley Dean Witter, in Atlanta, Georgia, a spreadsheet providing Oxford's Equity composite performance results for the time period of 1990 through March 30, 2000. These performance numbers were materially inflated in a fashion similar to the performance figures provided to Nelson, Mobius, and Effron.

15. Oxford and Danz knew, or were reckless in not knowing, that the advertised Equity composite performance figures and amount of assets in the Equity composite were materially misstated and misleading, especially given that Oxford had hired independent certified public accounting firms to provide audited numbers for the Equity composite's performance and assets managed, which Danz understood at the time to be accurate.

E. Books and Records

1. From approximately June 1998 through May 2001, Oxford, through Danz, violated Section 204 of the Advisers Act and Rules 204-2 (a)(7), (11), and (16) thereunder by failing to maintain required books and records relating to Oxford's investment adviser business.

2. Oxford, through Danz, failed to maintain copies of correspondence sent to third party reporting services and originals of correspondence received. Oxford did not retain any quarterly and annual correspondence with the reporting services except for limited correspondence in 1999 and 2000 with Nelson and Effron.

3. Oxford, through Danz, failed to maintain copies of advertisements, including the marketing brochures and spreadsheets sent to brokers and consultants, and the performance figures sent to third party reporting services.

4. In addition, Oxford, through Danz, failed to maintain records or documents necessary to form the basis for or demonstrate the calculation of the performance or rate of return for the Equity composite for the period of January 1998 through September 2000, the period for which Oxford advertised Nelson "Top 20" rankings, market beating performance, and superior long-term investment results for Oxford's Equity composite. Oxford failed to retain audited performance figures for the years 1991 through 1995, as well as any worksheets or back-up documentation substantiating the basis of the performance figures.

F. Violations

1. As a result of the conduct described above, Oxford willfully violated and Danz willfully aided and abetted and caused Oxford's violations of Sections 206(1), 206(2) and 206(4) of the Advisers Act and Rule 206(4)-1(a)(5) thereunder, by making use of the means or instrumentalities of interstate commerce, in connection with Oxford's business as an investment adviser to, directly or indirectly: (1) employ devices, schemes, or artifices to defraud clients or prospective clients; (2) engage in transactions, practices or courses of business which operated as a fraud or deceit upon clients and prospective clients; or (3) engage in acts, practices or courses of business which were fraudulent, deceptive or manipulative by publishing, circulating or distributing advertisements that contained untrue statements of material fact or were otherwise false and misleading.

2. As a result of the conduct described above, Oxford willfully violated and Danz willfully aided and abetted and caused Oxford's violations of Section 204 of the Advisers Act and Rules 204-2 (a)(7), (11), and (16) thereunder by making use of the mails or the means or instrumentalities of interstate commerce in connection with Oxford's business as an investment adviser while failing to make or keep true, accurate or current books or records relating to Oxford's investment adviser business. Specifically, Rules 204-2(a)(7), (11), and (16) require Oxford to maintain: (i) originals of all written communications received and copies of all written communications sent relating to any recommendation made or proposed to be made and any advice given or proposed to be given; (ii) copies of each notice, circular, advertisement, newspaper article, investment letter, bulletin or other communication that is circulated or distributed, directly or indirectly to ten or more persons; and (iii) accounts, books, internal working papers or other records or documents that were necessary to form the basis for or demonstrate the calculation of the performance or rates of return of any or all managed accounts in notices, circulars, advertisements, newspaper articles, investment letters, bulletins, or other communications that Oxford circulated or distributed to ten or more persons, respectively.

IV.

In view of the foregoing, the Commission deems it appropriate and in the public interest to impose the sanctions specified in Oxford's Offer of Settlement and Danz's Offer of Settlement.

ACCORDINGLY, IT IS ORDERED :

A. Pursuant to Section 203(f) of the Advisers Act, Danz shall be suspended from association with any investment adviser for a period of three months, effective the second Monday following the entry of this Order.

B. Danz shall provide to the Commission, within 10 days after the three month prohibition described above, an affidavit that he has complied fully with the sanctions, including but not limited to exercising any ownership control or authority over Oxford or its operation, described in Section IV.A above.

C. Pursuant to Section 203(f) of the Advisers Act, Danz shall be prohibited from engaging in the following conduct for a period of twelve months beginning immediately upon the completion of the three month suspension described above in Section IV.A. above: (1) participating in any activity related to the calculation of investment performance on behalf of, as an employee or agent of, or in any other capacity for, any investment adviser; and (2) participating in marketing of investment performance results of Oxford's Enhanced Equity composite by providing these investment performance results to any reporting services, consultants, newspapers and brokers.

D. Danz shall provide to the Commission, within 10 days after the twelve month prohibitions described in Section IV.C above, an affidavit that he has complied fully with the sanctions described in Section IV.C above.

E. Pursuant to Section 203(k) of the Advisers Act, Danz, shall cease and desist from committing or causing any violations and any future violations of Sections 204, 206(1), 206(2), 206(4) of the Advisers Act and Rules 204-2(a)(7), (11) and (16) and 206(4)-1(a)(5) promulgated thereunder.

F. Danz and Oxford shall be joint and severally liable to pay a civil money penalty in the amount of $35,000. Payment shall be made as follows: 1) upon the entry of this Order, Danz and Oxford shall transfer $3,500 currently held in an escrow account established pursuant to Commission rules and regulations, to the United States Treasury; 2) Danz and Oxford shall pay $8,750 no later than 180 days after the entry of this Order; and 3) Danz and Oxford shall pay $22,750 no later than 360 days after the entry of this Order. If any of these payments are not received within 10 days of the required date of payment set forth above, the remaining obligation shall become immediately due and payable. Such payments other than the $3,500 held in an escrow account shall be: (A) made by United States postal money order, certified check, bank cashier's check or bank money order; (B) made payable to the Securities and Exchange Commission; (C) hand-delivered or mailed to the Comptroller, Securities and Exchange Commission, Operations Center, 6432 General Green Way, Stop 0-3, Alexandria, VA 22312; and (D) submitted under cover letter that identifies John G. Danz, Jr., as a Respondent in these proceedings, the file number of these proceedings, a copy of which cover letter and money order or check shall be sent to Arthur Gabinet, District Administrator, Philadelphia District Office, Securities and Exchange Commission, The Curtis Center, Suite 1120E, 601 Walnut Street, Philadelphia, Pennsylvania, 19106.

G. Oxford is hereby censured.

H. Pursuant to Section 203(k) of the Advisers Act, Oxford shall cease and desist from committing or causing any violations and any future violations of Sections 204, 206(1), 206(2), 206(4) of the Advisers Act and Rules 204-2(a)(7), (11) and (16) and 206(4)-1(a)(5) promulgated thereunder.

I. Oxford shall comply with its undertakings to remediate Oxford's investment performance and assets under management record keeping, calculation and verification policies and procedures, as follows:

1. Oxford shall retain, within 30 days of the date of entry of the Order, the services of an independent consultant not unacceptable to the staff of the Philadelphia District Office of the Commission (the "Commission Staff"). Oxford or its affiliate exclusively shall bear the cost of the Independent Consultant's compensation and expenses.

2. Oxford shall direct the independent consultant to conduct a comprehensive review of Oxford's policies and procedures relating to: a) investment performance record keeping; b) investment performance calculation; c) investment performance verification; d) amount of assets under management record keeping; e) amount of assets under management calculation; and f) amount of assets under management verification designed to prevent and detect federal securities law violations of the nature involved in this matter, and recommend, at a minimum, policies and procedures that address each of the deficiencies identified in Section III of the Order and an effective system for both implementing such policies and procedures and maintaining records that evidence compliance with such policies and procedures. Oxford shall cooperate fully with the independent consultant and shall provide the independent consultant with access to its files, books, records, and personnel as reasonably requested for the review.

3. At the conclusion of the review, which in no event shall be more than 120 days after the date of entry of the Order, Oxford shall direct the independent consultant to submit to Oxford and to the Commission Staff an Initial Report. The Initial Report shall address, at a minimum, the adequacy of Oxford's policies and procedures identified in Section IV.I.2 to detect and prevent federal securities law violations of the nature involved in this matter, as well as the adequacy of Oxford's supervisory system, and shall include a description of the review performed, the conclusions reached, and the independent consultant's recommendations for policies and procedures to address each of the deficiencies identified in Section III of the Order (as well as any other deficiencies found during the course of the review), an effective system for implementing the recommended policies and procedures and an effective system for establishing and maintaining written records that evidence compliance with the recommended policies and procedures.

4. Within 150 days after the date of entry of the Order, Oxford shall in writing advise the independent consultant and the Commission Staff of the recommendations from the Initial Report that it has determined to accept and the recommendations that it considers to be unnecessary or inappropriate. With respect to any recommendation that Oxford considers unnecessary or inappropriate, Oxford shall propose in writing an alternative policy, procedure or system designed to achieve the same objective or purpose.

5. With respect to any recommendation with which Oxford and the independent consultant do not agree, Oxford shall attempt in good faith to reach an agreement with the independent consultant within 180 days of the date of entry of the Order. In the event the independent consultant and Oxford are unable to agree on an alternative proposal not unacceptable to the Commission staff, Oxford shall abide by the recommendation of the independent consultant.

6. Within 195 days of the date of entry of the Order, Oxford shall in writing advise the independent consultant and the Commission Staff of the recommendations and proposals that it is adopting.

7. Oxford shall direct the independent consultant to complete the aforementioned review and submit a written Final Report thereon to Oxford and to the Commission Staff within 225 days after the date of entry of the Order. Oxford shall direct the independent consultant to include in the Final Report: (i) a recitation of the efforts the independent consultant undertook to review Oxford's policies and procedures as set forth in Section IV I.2. above, compliance mechanisms, and other policies and procedures, and shall, at a minimum, detail (ii) the independent consultant's recommendations addressing separately each of the deficiencies identified in Section III of the Order (as well as any other deficiencies found during the course of the review), (iii) the independent consultant's recommendations addressing Oxford's system for implementing each of the recommended policies and procedures, (iv) the independent consultant's recommendations addressing Oxford's system for establishing and maintaining written records that evidence compliance with each of the recommended policies and procedures, and (v) a reasonable time period or time periods, not to exceed one year from the date of entry of the Order, for Oxford to implement each of those recommendations. Oxford shall also direct the independent consultant to include in the Final Report a description of how Oxford proposes to implement those recommendations and proposals within the time periods set forth in the Final Report.

8. Oxford shall take all necessary and appropriate steps to adopt and implement all recommendations and proposals contained in the independent consultant's Final Report.

9. No later than fifteen months after the date of entry of the Order, Oxford shall direct the independent consultant to conduct a follow-up review of Oxford's efforts to implement each of the recommendations contained in the independent consultant's Final Report, and Oxford shall direct the independent consultant to submit a follow-up report to the Commission staff no later than seventeen months after the date of entry of the Order. Oxford shall direct the independent consultant to include in the follow-up report the details of Oxford's efforts to implement each of the recommendations contained in the Final Report, and shall separately state whether Oxford has fully complied with each of the recommendations in the Final Report.

10. For good cause shown, and upon receipt of a timely application from the independent consultant or Oxford, the Commission's staff may extend any of the procedural dates set forth above.

11. To ensure the independence of the independent consultant, Oxford: (i) shall not have the authority to terminate the independent consultant, without the prior written approval of the staff of the Division of Enforcement; (ii) shall compensate the independent consultant, and persons engaged to assist the independent consultant, for services rendered pursuant to the Order at their reasonable and customary rates; (iii) shall not be in and shall not have an attorney-client relationship with the independent consultant and shall not seek to invoke the attorney-client or any other doctrine or privilege to prevent the independent consultant from transmitting any information, reports, or documents to the Commission or its staff.

12. To further ensure the independence of the independent consultant, for the period of the engagement and for a period of two years from completion of the engagement, Oxford shall direct the independent consultant not to enter into any employment, consultant, attorney-client, auditing or other professional relationship with Oxford, or any of its present or former affiliates, directors, officers, employees, or agents acting in their capacity. Any firm with which the independent consultant is affiliated or of which he or she is a member, and any person engaged to assist the independent consultant in performance of his or her duties under the Order shall not, without prior written consent of the Commission staff, enter into any employment, consultant, attorney-client, auditing or other professional relationship with Oxford, or any of its present or former affiliates, directors, officers, employees, or agents acting in their capacity as such for the period of the engagement and for a period of two years after the engagement.

J. Oxford shall further comply with its undertakings requiring Oxford to retain for a period of five years from the date of this Order the independent consultant (referred to above in Section IV. I) to perform an annual compliance examination relating to the operations of Oxford, including but not limited to verification of investment performance and amount of assets under management, and to make annual reports concerning those examinations available to the staff. The initial annual compliance examination shall be concluded within 90 days of the entry of this Order. Within 30 days after completion of the compliance examination by the independent consultant, the report shall be sent directly from the independent consultant to the Commission staff. Thereafter, each annual compliance examination shall be concluded during the first quarter of each calendar year and the annual report sent directly from the independent consultant to the Commission staff within 30 days after completion of the compliance examination.

K. Oxford shall further comply with its undertakings requiring Oxford to retain for a period of five years from the date of this Order a certified public accountant (subject to the requirements of Sections IV.I 1, 11 & 12) to perform an annual review of Oxford's Enhanced Equity composite and to make annual reports concerning those reviews available to the staff. The initial annual review shall be concluded within 90 days of the entry of this Order and, within 30 days after completion of the review by the certified public accountant, the report shall be sent directly from the certified public accountant to the Commission staff. Thereafter, each annual review shall be concluded during the first quarter of each calendar year and the report sent directly from the certified public accountant to the Commission staff within 30 days after completion of the compliance examination.

By the Commission.

Jonathan G. Katz
Secretary

Endnotes

1 An Order Instituting Public Administrative and Cease-and-Desist Proceedings against Oxford Capital Management, Inc. and John G. Danz, Jr., was issued by the Commission on September 23, 2002.

 

http://www.sec.gov/litigation/admin/ia-2138.htm


Modified: 06/25/2003