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U.S. Securities and Exchange Commission


LITIGATION RELEASE NO. 16618 \ July 3, 2000


The Securities and Exchange Commission announced that in a decision dated June 9, 2000, the Honorable Sandra S. Beckwith of the United States District Court for the Southern District of Ohio has held that Henry Benjamin Schmidt violated the antifraud provisions, as well as other provisions, of the federal securities laws. Schmidt, age 66, resides in St. Petersburg, Florida. Schmidt co-founded, owned, and operated Ben Mar Investments, Inc. ("Ben Mar"), an unregistered investment adviser in the Greater Cincinnati area. Ben Mar effectively operated as a Ponzi scheme from 1992 through March 1995, resulting in investor losses in excess of $12 million. Mark Gatch, the co-founder and owner of Ben Mar, of Amelia, Ohio, previously settled the Commission´s civil action against him, and is serving a five-year prison term in connection with his operation of Ben Mar.

The Court, in ruling for the Commission on all counts of the complaint, found that Schmidt:

  • Recklessly made representations to investors regarding Ben Mar´s trading strategy and performance, in violation of Section 17(a) of the Securities Act of 1933 ("Securities Act"), Section 10(b) of the Securities and Exchange Act of 1934 ("Exchange Act") and Rule 10b-5 thereunder, and Sections 206(1) and 206(2) of the Investment Advisers Act of 1940 (AAdvisers Act@). The Court found that Schmidt acted with scienter, failing to make even the most elementary inquiries of Gatch or to seek basic information regarding Ben Mar´s holdings or performance, in an extreme departure from the standards of reasonable care he owed to investors.

  • Sold unregistered securities in violation of Section 5 of the Securities Act. Schmidt sold promissory notes that promised interest based on the performance of an investment pool managed by Ben Mar (the "Ben Mar Fund"). In soliciting investors, Schmidt told investors that they could expect to earn profits on their investment of 4% to 5% per month, based on past performance.

  • Aided and abetted Gatch´s violations of Section 203 of the Advisers Act by assisting in Ben Mar´s operation as an unregistered investment adviser.

  • Failed to provide for an independent annual audit of funds and securities held on behalf of clients, in violation of Section 206(4) of the Advisers Act and Rule 206(4)-2 thereunder.

Judge Beckwith permanently enjoined Schmidt from further violations of these provisions of the federal securities laws, finding that Schmidt had a past history of defying court orders, that he had demonstrated a nonchalant attitude towards matters of compliance, and that he had shown an inclination to engage in risky enterprises with little regard for the legal requirements attendant to the project. Judge Beckwith further ordered that Schmidt disgorge over $1.8 million dollars in ill-gotten gains, representing amounts Schmidt withdrew from the Ben Mar Fund before its March 1995 collapse. Judge Beckwith found that third-tier civil penalties against Schmidt were also appropriate, but declined to impose the penalty in light of the amount of disgorgement ordered. The parties are to submit proposals to the Court for the schedule and terms for payment of disgorgement.

For further information, see Litigation Release No. 15394 (June 25, 1997) and Litigation Release No. 15530 (October 7, 1997).