U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 16567 / May 30, 2000
SEC v. JAMES L. FOSTER, LAURIE F. FOSTER, STEVEN M. BOLLA, and WILLIAM E. BUSACKER, JR., Civil Action No. 1:00CV01192 (D.C.D.C.)
SEC CHARGES FOUR WITH INVESTMENT ADVISER FRAUD
The Securities and Exchange Commission announced today the filing of securities fraud and other charges in the United States District Court for the District of Columbia against James L. Foster, his wife, Laurie F. Foster, Steven M. Bolla, and William E. Busacker, Jr. arising out of their management of two investment advisory firms. The firms were Matrix Investment Advisors, Inc. and Security Financial, Inc. (SFI) of Charlottesville, Virginia. SFI also operated in Pittsburgh, Pennsylvania. Without admitting or denying the Commission's allegations, the defendants consented to the entry of permanent injunctions against future violations, and also agreed to additional sanctions to be entered in a related Commission administrative proceeding.
The Commission's complaint alleges that, between early 1995 and October 1996, the defendants defrauded their investment advisory clients by failing to disclose their switch from a conservative investment approach to a high-risk strategy involving short-selling of high-technology stocks. The defendants also failed to disclose that, contrary to express representations, Laurie Foster and Busacker were paid commissions on trades. The complaint also alleges that the Fosters arbitrarily assigned values to client accounts, that the defendants mailed false account statements to clients that contained baseless account values, and that certain clients were unfairly favored over others in distributions. In addition, the Fosters and Bolla prepared and distributed a brochure entitled "Investing in the Nineties At a Glance" which misrepresented that they were engaged in a conservative investment strategy, and included false historical performance data. The complaint also alleges that the defendants sold unregistered securities to their clients in the form of the advisers' in-house managed investment funds.
James Foster, Laurie Foster, Bolla and Busacker have consented to an order of the court permanently enjoining them from violating Sections 5(a), 5(c) and 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, and Sections 204 and 206(1), (2) and (4) of the Investment Advisers Act of 1940 and Rules 204-2(a)(3), 204-2(c)(1) and (2), and 206(4)-2(a)(1) through (5) thereunder. James Foster, Laurie Foster and Bolla have also consented to being permanently enjoined from violating Rule 206(4)-1(a)(5) under Section 206(4) of the Investment Advisers of 1940.
In addition to injunctions entered by the federal court, the defendants agreed to sanctions to be entered in a Commission administrative proceeding. James Foster will be barred from association with any investment adviser; Bolla will be barred from association with any investment adviser, with the right to reapply after five years; Laurie Foster will be barred from association with any investment adviser or broker-dealer with a right to reapply after three years; and Busacker will be suspended for a period of twelve months from association with any investment adviser and any broker-dealer. Bolla has also consented to a court-ordered penalty of $10,000. Based on the Fosters' and Busacker's demonstrated financial inability to pay, the Commission did not seek the imposition of civil money penalties against them.
The Commission previously obtained the appointment of a special agent to take control of Matrix, SFI and two related entities, Trustcap Financial Group, Inc. and Matrix Capital Management, Inc., in order to preserve investor funds. The special agent subsequently distributed over $11 million in investor funds pursuant to a court-ordered distribution plan. In connection with today's filing, the defendants in the prior action also consented to permanent injunctions against violations of the books and records provisions of the Investment Advisers Act of 1940, Section 204 and Rules 204-2(a)(3) and 204-2(c)(1) and (2) thereunder.
For further information, see Litigation Release Numbers 15297 and 15436.