Justin S. Mazzon d/b/a/ American Blue Chip Investment Management
Investment Advisers Act of 1940
Release No. 2145 / July 14, 2003
Administrative Proceeding
File No. 3-11178
In the Matter of JUSTIN S. MAZZON d/b/a Respondent. |
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ORDER INSTITUTING ADMINISTRATIVE AND CEASE-AND-DESIST PROCEEDINGS, MAKING FINDINGS, AND IMPOSING REMEDIAL SANCTIONS AND A CEASE-AND-DESIST ORDER PURSUANT TO SECTIONS 203(f) AND 203(k) OF THE INVESTMENT ADVISERS ACT OF 1940 |
I.
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 pursuant to Sections 203(f) and 203(k) of the Investment Advisers Act of 1940 ("Advisers Act") against Justin S. Mazzon d/b/a/ American Blue Chip Investment Management ("Respondent").
II.
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, which are admitted, Respondent consents to the entry of this Order Instituting Administrative and Cease-and-Desist Proceedings, Making Findings, and Imposing Remedial Sanctions and a Cease-and-Desist Order Pursuant to Sections 203(f) and 203(k) of the Investment Advisers Act of 1940 ("Order"), as set forth below.
III.
On the basis of this Order and Respondent's Offer, the Commission finds that:
A. Introduction
This matter involves an investment adviser registered with the Commission, who has been cited by deficiency letter for false and misleading advertising on several occasions by the Commission' investment adviser examination staff. As a result of its October 2001 examination, the Commission's staff found that Mazzon continued to disseminate misleading advertising.
B. Respondent
Mazzon has been registered with the Commission as an investment adviser since 1992. He is a sole proprietor doing business as American Blue Chip Investment Management ("American Blue Chip"), serving as its Chief Investment Officer and Senior Portfolio Manager, and is solely responsible for investment decisions for American Blue Chip's clients. Mazzon resides in Greenbrae, California.
C. Facts
1. Mazzon, doing business as American Blue Chip, provides investment advisory services to clients. As of December 31, 2002, American Blue Chip had approximately 160 clients and $71,500,000 under management. The clients' accounts are held in custody at various broker-dealers including Charles Schwab and T.D. Waterhouse Securities.
2. Between at least January 2000 and September 2001 (the "relevant period"), Mazzon solicited clients in a variety of ways, including occasional appearances at seminars. Mazzon also conducted in-person meetings with potential new clients and gave some of them American Blue Chip's marketing materials.
3. During the relevant period, Mazzon used misleading marketing materials in which he included the Commission's official seal and the legend: "Prepared by: Division of Investment Management." The brochure had not been prepared by the Division of Investment Management and neither Mazzon nor American Blue Chip had the Commission's endorsement or approval to use its seal or the legend.
4. During the relevant period, Mazzon also misrepresented his historical performance by including in advertising materials an "Historical Performance Review Table." The Table included several columns, such as names of stocks, purchase date, number of shares purchased, gain, and total return. The Table is both false and misleading because the transactions, dates, and prices were not reflective of actual purchases and sales. Rather, the Table includes a mixture of information, such as number of shares owned, purchase date, and purchase or sale price copied from a third-party's investment newsletter and some from Mazzon's clients' portfolios. The table falsely appears to represent actual client returns; for example, the Table includes "purchase" and sale dates, amounts and prices for stocks that, in some instances, Mazzon's clients did not sell, or did not purchase or sell at the price or date indicated. Mazzon did not disclose to clients the composite or blended nature of his historical performance figures. Mazzon also did not disclose that the performance results did not reflect fees and did not include all recommendations he made during the relevant time period with the Table.
5. During the relevant period, Mazzon also used misleading marketing and advertising materials that included the following:
(a) In advertising, Mazzon stated that he was the "1st Place Winner in the Wall Street Journal Investing Championship...." In reality, Mazzon had participated in the 1992 Wall Street Journal Dartboard Contest in which four participants are each asked to select a stock they believe will perform well over the next six months, and the return on that stock is compared to a portfolio randomly selected by the Wall Street Journal (by throwing a dart). The contest took place every six months. Mazzon won the contest once in 1992. Mazzon's characterization of his being "the 1st Place Winner in the Wall Street Journal Investing Championship," misleads potential clients to believe that the contest was a reflection of Mazzon's overall abilities in selecting stocks. Mazzon was previously cited in a December 29, 1998 deficiency letter about misleading disclosures in his advertising using this same Dartboard contest. In response, Mazzon merely changed the wording from "Rated Number 1" to "1st Place Winner." He never clarified the true nature of the contest to clients or potential clients;
(b) Mazzon created a one-page document to represent a full-page write-up of Mazzon's accomplishments as an investment adviser. Mazzon drafted a description of himself to appear as though it were a full-page Business Week excerpt, when in fact all but one sentence (actually included in Business Week but blown up to 200% of its original font size), was drafted by Mazzon. Mazzon did not disclose to investors that he had authored most of the document;
(c) Mazzon submitted false performance advertising to be included in Nelson's Directory of the World's Best Money Managers.1 Mazzon included a reprint of this page from this directory in his marketing brochure. The page reflected American Blue Chip as top-ranked in a list of 20 money managers based on returns that the money managers purportedly achieved for their clients. Mazzon claimed to Nelson's that the portfolio returns that he submitted represented "100% of investments under management." This claim was false because the portfolio that Mazzon submitted was actually a combination of his first two accounts and a hypothetical portfolio. Moreover, Mazzon added a gold seal to the excerpt that says "Seal of Achievement," but failed to disclose to clients or potential clients that he added the seal;
(d) At an investing seminar, Mazzon made available to potential clients the book Wall Street Picks which states Mazzon holds an M.B.A., which is false;
(e) Mazzon disseminated selected American Blue Chip "portfolio performance" charts that, while accurate in their returns, did not disclose items such as market conditions, that a particular portfolio was highly leveraged, or didn't represent a typical client.
6. Section 204 of the Adviser's Act requires that an adviser, if asked, to provide support for its performance calculations. When asked by the Commission's examination staff to substantiate the returns which made up the Historical Performance Review Table (discussed above), Mazzon could not gather documents to substantiate the purported results in the Table. When asked to perform calculations which would demonstrate the returns, Mazzon could not, given the state of his records.
D. Legal Discussion
As a result of the conduct described above, Mazzon willfully violated:
1. Sections 206(1), 206(2) and 206(4) of the Advisers Act, which prohibit fraudulent conduct by an investment adviser, and Rule 206(4)-1(a)(2) which prohibits the circulation of an advertisement containing past specific recommendations unless the advertisement lists all recommendations made by the adviser within the immediately preceeding time period, and Rule 206(4)-1(a)(5), which provides that it is a fraudulent, deceptive, or manipulative act, practice, or course of business within the meaning of Section 206(4) for an adviser to distribute any advertisement which contains any untrue statement of material fact or which is otherwise false or misleading. Mazzon disseminated materially false and misleading advertising and marketing materials to clients, thereby violating Sections 206(1), 206(2) and 206(4) of the Advisers Act and Rules 206(4)-1(a)(2) and 206(4)-1(a)(5) thereunder.
2. Section 204 of the Advisers Act, and Rule 204-2(a)(16) which require that investment advisers registered with the Commission maintain and preserve certain books and records. Rule 204-2(a)(16) requires every investment adviser to maintain all internal working documents or other records that are necessary to form the basis for, or demonstrate the calculation of, the performance of any managed accounts in any advertisement or other material disseminated to, directly or indirectly, 10 or more persons. Mazzon did not maintain worksheets or other supporting documentation sufficient to demonstrate the calculation of performance figures in advertising materials and those materials submitted to prospective clients and Nelson's. Thus, Mazzon violated Section 204 and Rule 204-2(a)(16) thereunder.
3. Section 208(a) of the Advisers Act which prohibits any person registered as an investment adviser from implying "in any manner whatsoever" that such person has been sponsored, recommended or approved by the United States or any agency thereof. By including the Commission's seal and the legend "Prepared by: Division of Investment Management" in his marketing materials, Mazzon implies that he and American Blue Chip have been sponsored and approved by the Securities and Exchange Commission.
IV.
In view of the foregoing, the Commission deems it appropriate and in the public interest to impose the sanctions specified in Respondent Mazzon's Offer.
ACCORDINGLY, IT IS HEREBY ORDERED THAT:
A. Pursuant to Section 203(k) of the Advisers Act, Respondent Mazzon shall cease and desist from committing or causing any violations and any future violations of Sections 204, 206(1), 206(2), 206(4) and 208 of the Advisers Act and Rules 204-2(a)(16) , 206(4)-1(a)(2) and 206(4)-1(a)(5) promulgated thereunder;
B. Pursuant to Section 203(i) of the Adviser's Act Respondent shall, within 10 days of the entry of this Order, pay a civil money penalty in the amount of $40,000 to the United States Treasury. Such payment 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 Office of Financial Management, Securities and Exchange Commission, Operations Center, 6432 General Green Way, Stop 0-3, Alexandria, VA 22312; and (D) submitted under cover letter that identifies Justin S. Mazzon as the 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 Helane L. Morrison, District Administrator, Securities and Exchange Commission, 44 Montgomery Street, 11th Floor, San Francisco, California 94104.
C. Respondent shall comply with his undertakings to:
1. Waive the advisory fee for Respondent's existing advisory clients for a period of 6 months (2 quarters) beginning the first calendar quarter following the entry of the Order;
2. Abstain from, directly or indirectly, publication, circulation or distribution of any advertisement (as defined in Rule 206(4)-1(b) of the Adviser's Act) or any other marketing materials for a period of one year following the entry of the Order, and abstain from, directly or indirectly, obtaining any new advisory clients for a period of one year following the entry of the Order. Within four months, seven months, ten months and 13 months, respectively, from the entry of this Order, Mazzon shall deliver to the District Administrator of the Securities and Exchange Commission's San Francisco District Office, 44 Montgomery Street, Suite 1100, San Francisco, California 94104 ("SFDO") an affidavit that he has complied with the prohibitions set forth in this paragraph.
3. Retain, at Respondent's own expense, an Independent Consultant who is not unacceptable to the staff of the Commission to pre-review and approve all advertising and marketing materials given to potential or existing clients, and to verify that Respondent is complying with the books and records requirements of the federal securities laws, for a period of 5 years, to begin upon the entry of the Order. Mazzon shall not terminate the Independent Consultant without the prior written approval of the staff. Mazzon shall arrange for the Independent Consultant to make written representations, for the period of five years from the date of the entry of the Order, on a quarterly basis confirming that he or she continues to pre-review and approve all advertising and marketing materials given to Mazzon's clients or potential clients, and on an annual basis confirming that Respondent is in compliance with the books and records requirements, which writings shall be sent to the SFDO (as above).
5. Require the Independent Consultant to enter into an agreement that provides that for the period of the engagement and for a period of two (2) years from the completion of the engagement, the Independent Consultant shall not enter into any employment, consultant, attorney-client, auditing or other professional relationship with Mazzon, or any of his present or former affiliates, employees, or agents acting in their capacity as such. The agreement shall provide that 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 the performance of his or her duties under the Order shall not, without prior written consent of the Commission's staff, enter into any employment, consultant, attorney-client, auditing or other professional relationship with Mazzon, or any of their present or former affiliates, directors, officers, employees, or agents in their capacity as such for the period of the engagement and for a period of two (2) years after the engagement; and
6. Mail a copy of this Order to each existing investment advisory client within 30 days following the entry of this Order. The Order shall be sent by certificate of mailing, along with a cover letter in a form not unacceptable to the staff of the Commission. Mazzon shall notify the staff of the Commission by mail directed to the SFDO (as above) when this undertaking is completed.
By the Commission:
Jonathan G. Katz
Secretary