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U.S. SECURITIES AND EXCHANGE COMMISSION

Litigation Release No. 23393 / October 27, 2015

Securities and Exchange Commission v. Summit Trust Company, et al., Civil Action No. 15-cv-05843 (E.D. Pa., October 27, 2015)

SEC Charges Father and Son Pennsylvania Investment Advisers with Orchestrating Three Multi-Million Dollar Offering Frauds

The Securities and Exchange Commission announced today that it has filed a settled civil injunctive action against two Pennsylvania investment advisers, Kevin C. Brown, and his father, George P. Brown, (collectively, the “Browns”), and various entities they controlled, for orchestrating three offering frauds over the past decade. The fraudulent, unregistered offerings related to securities issued by Summit Trust Company (“STC”), a Nevada-chartered trust company, the Rampart Fund LP (“Rampart Fund”), a private fund managed by the Browns, and Trust Counselors Network, Inc. (“TCN”), a non-profit charitable organization.

The SEC’s complaint, filed in the United States District Court for the Eastern District of Pennsylvania, alleges that between 2008 and 2014, the Browns raised over $33 million from over 150 investors in multiple states through the offering of STC’s preferred stock while representing that the proceeds would be used for business expansion and acquisitions. Instead, the complaint alleges that STC and the Browns used most of the proceeds to make Ponzi-like payments to existing preferred stock shareholders, to cover obligations and expenses of the Browns’ other affiliated entities, and for undisclosed speculative investments.

The complaint also alleges that between 2008 and 2013, the Browns, acting through their related investment advisers, Rampart Capital Management, LLC (“RCM”) and Brown Investment Advisors, Inc. (“BIA”), raised approximately $7.9 million from over 100 investors in multiple states through the sale of notes issued by the Rampart Fund for the purported purpose of investing in mezzanine debt financing programs. However, the Browns allegedly concealed from investors the default by the Rampart Fund’s primary underlying investment, and the Rampart Fund’s use of investor proceeds to pay interest and redemptions due to other Rampart Fund investors and to make investments in the Browns’ affiliated entities.

Furthermore, the complaint alleges that from approximately 2004 through 2015, the Browns used TCN to raise over $12 million from 70 investors in multiple states in various estate planning products, including charitable gift annuities. But due to losses on various speculative investments, by 2008 Kevin Brown allegedly began operating TCN as a Ponzi-like scheme by using funds from new investors to meet TCN’s older annuity and other obligations. The Browns also allegedly misappropriated TCN investor funds by paying undisclosed commissions to third parties, transferring cash to BIA, and making personal loan to themselves.

Without admitting or denying the allegations in the complaint, the Browns and their affiliated entities have consented to the entry of respective final judgments as follows:

  • Kevin C. Brown: Permanently enjoining him from violating Sections 5(a), 5(c), and 17(a) of the Securities Act of 1933 (“Securities Act”), Sections 10(b) and 15(a)(1) of the Securities Exchange Act of 1934 (“Exchange Act”) and Rule 10b-5 thereunder, and Sections 206(1), (2), (3), and (4) of the Investment Advisers Act of 1940 (“Advisers Act”) and Rule 206(4)-8 thereunder, and from aiding and abetting violations of Section 7(a) of the Investment Company Act of 1940 (“Investment Company Act”); ordering him to pay approximately $1.3 million in disgorgement and prejudgment interest of $120,000; ordering him to pay, jointly and severally with BIA, additional disgorgement of approximately $1.3 million and prejudgment interest of $180,000; and ordering him to pay a civil penalty of approximately $2.9 million.
  • George P. Brown: Permanently enjoining him from violating Sections 5(a), 5(c), and 17(a) of the Securities Act, Section 10(b) of the Exchange Act and Rule 10b-5 thereunder, and Sections 206(1), (2), (3), and (4) of the Advisers Act and Rule 206(4)-8 thereunder, and from aiding and abetting violations of Section 7(a) of the Investment Company Act; ordering him to pay $278,000 in disgorgement and prejudgment interest of $14,000; ordering him to pay, jointly and severally with BIA, additional disgorgement of approximately $1.3 million and prejudgment interest of $180,000; and ordering him to pay a civil penalty of approximately $1.8 million.
     
  • Summit Trust Company: Permanently enjoining it from violating Sections 5(a), 5(c), and 17(a) of the Securities Act and Sections 10(b) and 15(a)(1) of the Exchange Act and Rule 10b-5 thereunder, and from aiding and abetting violations of Section 7(a) of the Investment Company Act; ordering it to pay approximately $16.5 million in disgorgement and prejudgment interest of $2.4 million; but not ordering it to pay a civil penalty based on its financial condition.
     
  • Trust Counselors Network, Inc.: Permanently enjoining it from violating Sections 5(a), 5(c), and 17(a) of the Securities Act and Section 10(b) of the Exchange Act and Rule 10b-5 thereunder; ordering it to pay approximately $9.2 million in disgorgement and prejudgment interest of $1.3 million; but not ordering it to pay a civil penalty based on its financial condition.
  • Brown Investment Advisors, Inc. and Rampart Capital Management, LLC: Permanently enjoining them from violating Sections 5(a), 5(c), and 17(a) of the Securities Act, Section 10(b) of the Exchange Act and Rule 10b-5 thereunder, and Sections 206(1), (2), (3), and (4) of the Advisers Act and Rule 206(4)-8 thereunder, and from aiding and abetting violations of Section 7(a) of the Investment Company Act; ordering BIA to pay approximately $1.3 million in disgorgement and prejudgment interest of $181,000, jointly and severally with the Browns; ordering BIA to pay a civil penalty of approximately $1.8 million; but not ordering RCM to pay a civil penalty based on its financial condition.
     
  • Rampart Fund LP: As a relief defendant, ordering it to pay approximately $5 million in disgorgement and prejudgment interest of $918,000.
     
  • Wealth Management Organization, LLC: As a relief defendant, ordering it to pay approximately $500,000 in disgorgement and prejudgment interest of $87,000.
     
  • Hoddinott Farm Development, LLC: As a relief defendant, ordering it to pay approximately $174,000 in disgorgement and prejudgment interest of $64,000.

STC, TCN, and the Rampart Fund also consented to the appointment of a receiver over their assets. Finally, as part of their settlements with the SEC, the Browns agreed to be barred from the securities industry. All proposed settlements in the civil action are subject to the approval of the District Court.

The SEC’s investigation was conducted by Noel M. Franklin and Kurt L. Gottschall of the Denver Regional Office’s Asset Management Unit.

SEC Complaint

 

http://www.sec.gov/litigation/litreleases/2015/lr23393.htm


Modified: 10/27/2015