SECURITIES AND EXCHANGE COMMISSION
LITIGATION RELEASE NO. 16895 / February 8, 2001
SEC CHARGES INVESTMENT ADVISER WITH DEFRAUDING CLIENT OF APPROXIMATELY $1 MILLION
SECURITIES AND EXCHANGE COMMISSION v. GORDON J. ROLLERT (United States District Court for the District of Massachusetts, Civil Action No. 01-CV 10237 (D. MA)
Today, the Commission announced that it had filed suit against investment adviser Gordon J. Rollert of Wellesley, Massachusetts alleging that he defrauded one of his clients, the Pakachoag Church of Auburn, Massachusetts, of approximately $900,000 between 1993 and 1997. In its Complaint, the Commission alleges that Rollert used his investment advisory firm, Sage Advisory Services, LLC, and its predecessor, Standard Asset Group LP, to misappropriate hundreds of thousands of dollars in soft dollar credits generated by securities transactions made on the Church's behalf in an account that Rollert set up at a Boston-area broker-dealer. It also alleges that Rollert fraudulently induced the Church to invest $250,000 in Rollert's advisory firm.
The Complaint alleges that as part of the scheme to misappropriate soft dollar credits, Rollert submitted over a hundred invoices to the broker-dealer for payments with soft dollars that had been generated by trading in the Church's account. Many of the invoices that Rollert submitted were in the name of FA Partners, a shell entity that Rollert controlled, and falsely indicated that FA Partners had provided services to Sage Advisory Services that were payable with soft dollars. The broker-dealer paid hundreds of thousands of dollars to FA Partners based on these false invoices. Rollert personally picked up these payments from the broker-dealer and deposited them into bank accounts that he controlled. He then withdrew the majority of the funds for his personal use. The Commission alleges that the Church was not informed that its soft dollars were being used for Rollert's personal benefit.
Soft dollar credits are created when an investment adviser and a broker-dealer enter into an arrangement in which a percentage of commissions are used to pay for products and services, such as research, that help the adviser in making investment decisions. Because soft dollar credits are generated by commissions paid by the advisory client, they are assets of the client. Soft dollar arrangements are permissible under the securities laws if there is appropriate disclosure to the client about the products and services for which the soft dollars will be used, as well as disclosure that the client may pay higher commission rates as a result of the soft dollar arrangement.
The Commission also alleges that Rollert violated his fiduciary duty of best execution for his client's securities trades by fraudulently setting the commissions paid by the Church at a rate that was approximately five times higher than the average rate charged for soft dollar transactions at the time. The Complaint also charges that Rollert churned the Church's endowment account, frequently causing the Church to accumulate large positions of stock in a company, only to sell the entire position weeks later at a similar price. At times, Rollert would then repurchase shares of the same company at asimilar price within weeks. The Complaint alleges that Rollert took these actions to generate additional soft dollar credits, which he then misappropriated.
The Complaint also alleges that between 1990 and 1996, Rollert fraudulently offered and sold to the Church at least $250,000 in securities in the form of equity interests in and promissory notes offered by Sage Advisory Services and its predecessor. These securities transactions were fraudulent because Rollert failed to provide the Church with adequate financial information about the entities in which it was investing. In addition, in relation to 1995-1996 investments, Rollert failed to disclose to the Church that he was misappropriating its soft dollar credits. Finally, according to the Complaint, Rollert filed investment adviser registration forms (Forms ADV) with the Commission that failed to disclose that Sage Advisory Services LLC, as successor to Standard Asset Group LP, and Standard Group Holdings LLC, as successor to Standard Asset Group, Inc., received economic benefits, including soft dollars, from non-clients.
As a result of the conduct described in the Complaint, the Commission has charged Rollert with violations of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, Section 17(a) of the Securities Act of 1933, Section 207 of the Investment Advisers Act of 1940 and aiding and abetting Sage's violations of Sections 206(1) and 206(2) of the Advisers Act. The Commission's Complaint seeks injunctive relief, disgorgement of improperly-obtained benefits, plus prejudgment interest, and civil penalties.http://www.sec.gov/litigation/litreleases/lr16895.htm