U.S. SECURITIES AND EXCHANGE COMMISSION
LITIGATION RELEASE NO. 22422 / July 25, 2012
SEC v. Renee Marie Brown, et al., Civil Action No. 10-CV-1207 (District of Minnesota, filed April 8, 2010)
INVESTMENT ADVISOR CHARGED BY SEC WITH FRAUD SENTENCED TO 51 MONTHS IN PRISON
The Securities and Exchange Commission announced that on July 5, 2012, the Honorable Susan Richard Nelson of the U.S. District Court for the District of Minnesota sentenced Renee Marie Brown (Brown), a Minnesota-based investment adviser, to 51 months in federal prison followed by three years probation, and restitution in the amount of $618,408. This sentence follows an 11-count indictment filed May 11, 2011 by the U.S. Attorney's Office in Minnesota alleging securities fraud, wire fraud and transactional money laundering in connection with Brown’s misappropriation of $1.1 million from her advisory clients through material misrepresentations or omissions. Brown pled guilty on February 15, 2012.
On April 8, 2010, the SEC obtained a temporary restraining order and asset freeze against Brown. The SEC’s action against Brown, which was filed in the United States District Court for the District of Minnesota, arose out of the same facts that are the subject of the criminal case. In its complaint, the SEC alleged that Brown defrauded her advisory clients into transferring more than $1.1 million from July 2009 through March 2010 to Investors Income Fund X, LLC (Fund X), a sham fund formed and controlled by Brown, and falsely representing that Fund X is a bond fund with fixed annual returns of 8% or 9%. The SEC alleged that Brown distributed false "returns" to investors, furthering the fiction that Fund X was a legitimate and successful investment opportunity. Instead, however, the SEC alleged that Brown misappropriated most of the $1.1 million she raised from investors to, among other things, purchase a condominium for herself and build-out office space for her new business.
The SEC's complaint charged Brown and Fund X with violating Sections 17(a) of the Securities Act of 1933 (Securities Act) and Section 10(b) of the Securities Exchange Act of 1934 (Exchange Act) and Rule 10b-5 thereunder. The complaint also charged Brown with violating Sections 206(1), 206(2) and 206(4) of the Investment Advisers Act of 1940 (Advisers Act) and Rule 206(4)-8 thereunder. On August 17, 2011, the Court entered a final judgment against Brown permanently enjoining her from future violations of Section 17(a)(1)(2) and (3) of the Securities Act, Section 10(b) of the Exchange Act and Rule 10b-5 thereunder, and Sections 206(1), 206(2) and 206(4) of the Advisers Act and Rule 206(4)-8 thereunder; and ordering disgorgement of $310,587.33 plus prejudgment interest of $34,347.17, but waiving payment of all but $14,000 in disgorgement, and not imposing a civil penalty, based upon her sworn statement of financial condition and other documents submitted to the Commission. Brown consented to the entry of the final judgment without admitting or denying the allegations of the complaint. Based on the final judgment, on August 26, 2011, the Commission issued an Order Instituting 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) against Brown barring her from association with any broker, dealer, investment adviser, municipal securities dealer, municipal advisor, transfer agent, or nationally recognized statistical rating organization. The Order also barred Brown from participating in any offering of a penny stock. Brown consented to the issuance of the Order without admitting or denying the findings in the Commission’s Order, except that she admitted the entry of the injunction.
For additional information, see Litigation Release No. 21483 (April 9, 2010).