SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 17037 / June 18, 2001
Securities and Exchange Commission v. Linville Group, LLC, et al., Civil Action No. 301-CV332-MU (W.D.N.C.)
SEC FILES SUIT AGAINST BROTHERS SELLING UNREGISTERED MUTUAL FUNDS OVER INTERNET
SEC Obtains Temporary Restraining Order Against Charlotte-based Linville Group, Two Linville Funds, and the Burton Brothers
The Securities and Exchange Commission announced today that on June 14, 2001 it filed a civil action and obtained a temporary restraining order against two brothers, James Reuben Burton, Jr. of Matthews, North Carolina and Clifford Burton of Durham, North Carolina; Linville Group, LLC, the Charlotte-based mutual fund company the Burtons control and promote on the Internet; and two of Linville Group's mutual funds. All defendants are charged with violating the antifraud and securities registration provisions of the federal securities laws. The two funds are also charged with violating the investment company registration provisions, and the Burtons and Linville Group are also charged with violating the broker-dealer registration provisions.
The order, issued by Chief United States District Judge Graham C. Mullen of the U.S. District Court for the Western District of North Carolina, temporarily restrains and enjoins the defendants and their associates from violating the above provisions, and prohibits them from obtaining or disposing of any funds or other assets owned by, or under the control of, Linville Group. The order also requires the defendants to prepare an accounting of funds received from investors and not to alter or destroy Linville Group's books and records. The court scheduled a hearing for June 25, 2001, to determine whether a preliminary injunction should be issued against the defendants, the asset freeze should be extended, and a trustee should be appointed to take control of the two funds.
The Commission's complaint alleges that the Burtons portrayed Linville Group on its Internet web site as a "fully licensed financial institution" when in fact it is not licensed or registered in any way. The complaint also alleges that the Burtons and Linville Group offered and sold shares of its funds over the Internet without registering themselves, the funds, or the funds' securities with the Commission, as required by the federal securities laws.
The Commission's complaint charges the defendants with violating the antifraud provisions of the Securities Act of 1933 (Section 17(a)) and the Securities Exchange Act of 1934 (Section 10(b) and Rule 10b-5). James Reuben Burton, Jr. also is charged with violating the antifraud provisions of the Investment Advisers Act of 1940 (Section 206(1) and (2)). In addition, Linville Group, James Reuben Burton, Jr. and Clifford Burton are charged with violating the registration provisions of the Securities Act (Section 5) (securities offerings) and the Exchange Act (Section 15(a)) (broker-dealers). Finally, the Linville Long-Term Growth Fund and the Linville Short-Term Fund are charged with violating the registration provisions of the Securities Act (Section 5) and the Investment Company Act of 1940 (Section 7(a)) (investment companies).
The Commission acknowledges the assistance of the Federal Bureau of Investigation and the United States Attorney's Office for the Western District of North Carolina in this matter.http://www.sec.gov/litigation/litreleases/lr17037.htm