UNITED STATES SECURITIES AND EXCHANGE COMMISSION
LITIGATION RELEASE NO. 17345 / January 29, 2002
SEC v. RUPAY-BARRINGTON CAPITAL MANAGEMENT, INC., RUPAY-BARRINGTON FUNDS, INC., RUPAY-BARRINGTON FINANCIAL GROUP, INC., Civil Action No.: 3:00-CV-1482-D (USDC/Northern District of Texas)
The Commission announced a settlement today in a case involving fraud charges against a registered investment adviser, Rupay-Barrington Capital Management, Inc. ("RBManagement"). The Commission had charged RBManagement with knowingly causing its affiliate, Rupay-Barrington Funds, Inc. ("Fund"), a registered investment company, to carry, as an asset, a worthless receivable at face value from Rupay-Barrington Financial Group, Inc. ("Group"), the parent of both companies. The fact that Group was deeply insolvent and unable to pay the receivable was never disclosed to investors.
On July 10, 2000, the Commission filed a complaint against RBManagement, Group and the Fund in the United States District Court for the Northern District of Texas, Dallas Division ("District Court"), SEC v. Rupay-Barrington Capital Management, Inc., et al, Civ. No. 3:00-CV-1482-D (N.D. Tex.). The Commission's complaint alleged that, from at least January 1999, RBManagement caused the Fund, its advisory client, to carry an uncollectable receivable from Group, which was insolvent. This receivable arose from Group's agreement to pay Fund expenses that exceeded a certain percentage of the Fund's net assets. According to the complaint, this receivable was uncollectable from at least January 1999 through June 2000, but Rupay Management caused the Fund's books to reflect the receivable at full face value. The complaint further alleged that the receivable grew steadily over this period to a peak of approximately $250,000, which inflated the net asset value of the Fund's three portfolios, meaning that the Fund sold and redeemed shares at improperly high prices. Ultimately, the complaint alleged, the Fund improperly suspended redemptions of the portfolio that held the largest portion of the receivable. At the Commission's request, and with the consent of the defendants, a court- appointed Special Master took control of Rupay-Barrington Funds, Inc., and the court entered a preliminary injunction against RBManagement and Group.
RBManagement consented to the entry of a final judgment enjoining it from future violations of Sections 206(1) and 206(2) of the Investment Advisers Act of 1940, Sections 34(b) and 36(a) of the Investment Company Act of 1940, Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, and Sections 5(b) and 17(a) of the Securities Act of 1933. RBManagement also consented to a censure and an administrative order requiring it to withdraw its registration with the Commission as an investment adviser, cease soliciting new clients and prepare a plan to close or transfer all of its existing client accounts within 180 days of the entry of the administrative order. Group consented to the entry of a final judgment enjoining it from future violations Section 17(a)(3) of the Investment Company Act of 1940. The Commission elected not to seek the imposition of a civil penalty against the parent company because of its financially poor condition. On January 14, 2002, the District Court entered the agreed final judgments.