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U.S. SECURITIES AND EXCHANGE COMMISSION

Litigation Release No. 16661 / August 24, 2000

SEC v. JEREMIAH J. HEGARTY AND MICHAEL J. HEGARTY, Civil Action No. 96-12367-RCL (D. MA)

COURT ORDERS INJUNCTIONS, FINE AND DISGORGEMENT AGAINST MICHAEL AND JEREMIAH HEGARTY FOR DEFRAUDING CLIENTS

The Commission announced on August 22, 2000, that the Honorable Reginald W. Lindsay, United States District Court Judge for the District of Massachusetts, entered a final judgment against Jeremiah J. Hegarty and Michael P. Hegarty of Osterville and North Easton, Massachusetts, respectively, for violations of the antifraud and other provisions of the federal securities laws. The Court ordered M. Hegarty to disgorge $92,998 and J. Hegarty to pay a penalty of $125,000. It also entered injunctions against future violations of the antifraud provisions.

J. Hegarty was the principal of Hyannis Trading Advisors, Inc., a registered investment adviser. He specialized in trading stock index options. He worked closely with his brother, M. Hegarty, who was a registered representative at a brokerage firm. M. Hegarty attracted clients with advertisements and brochures, entered trades, and served as the primary client contact. J. Hegarty made all investment decisions.

At the height of Hyannis Trading's popularity in 1992, it had over one hundred clients and about $6.5 million under management. In the fall of 1992, it lost almost all of this money, leaving many clients in deficit positions.

The Commission filed the action against J. Hegarty, M. Hegarty and Hyannis Trading on November 25, 1996, alleging that the defendants defrauded Hyannis Trading's clients by failing to disclose important facts concerning their investments, including the type of account information available to the Hegartys and the trading techniques they would employ. The Commission also alleged that the Hegartys collected illegal performance fees. The case went to trial before Judge Lindsay in November and December, 1999, and Judge Lindsay issued his decision on August 22, 2000.

The Court found that the Hegartys defrauded Hyannis Trading's clients. It found that the Hegartys lost the ability to calculate account balances in the fall of 1992, which handicapped their ability to employ risk limiting trading techniques. They violated the antifraud provisions by continuing to trade in the accounts without disclosing to their clients that they did not have this information. The Court also found that J. Hegarty changed his trading strategy in the fall of 1992 by abandoning some of the risk limiting techniques he had described to customers, and that J. Hegarty and M. Hegarty defrauded Hyannis Trading's clients by failing to inform them of this change. The Court also found that J. Hegarty made trades that were unsuitable for one customer. The Court further found that Hyannis Trading's marketing brochure contained a materially misleading discussion of J. Hegarty's past trading performance. Finally, the Court found that Hyannis Trading, aided and abetted by J. Hegarty, violated the securities laws by collecting illegal performance fees.

The final judgment against J. Hegarty permanently enjoins him from violating Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, Section 17(a) of the Securities Act of 1933, and Sections 205, 206(1), 206(2) and 206(4) of the Investment Advisers Act of 1940, and Rule 206(4)-1(a)(5) thereunder. The Court also issued a civil penalty against J. Hegarty in the amount of $125,000.

The final judgment against M. Hegarty permanently enjoins him from violating Section 10(b) of the Securities Exchange Act and Rule 10b-5 thereunder, Section 17(a) of the Securities Act, and Sections 206(1) and 206(2) of the Investment Advisers Act. The Court also ordered him to disgorge commissions he obtained during the period of the fraud, in the amount of $92,998.

The Court dismissed the claims against Hyannis Trading because the company was dissolved at the time of the trial.

For further information, see Litigation Release No. 15166 (Nov. 25, 1996)

http://www.sec.gov/litigation/litreleases/lr16661.htm


Modified:08/28/2000