UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Litigation Release No.. 17818 / October 30, 2002
Securities and Exchange Commission v. Southmark Advisory, Inc., Southmark, Inc., and Wendell D. Belden, Civil Action No. 02-CV-830-E (N.D.Okla.)
SEC CHARGES SOUTHMARK ADVISORY, INC., SOUTHMARK, INC., AND WENDELL D. BELDEN WITH SECURITIES FRAUD, BASED ON DECEPTIVE SALES PRACTICES THAT ENRICHED BELDEN AT HIS CLIENTS' EXPENSE
The Securities and Exchange Commission announced today that it filed a securities fraud action in the United States District Court for the Northern District of Oklahoma, against Southmark Advisory, Inc., an SEC-registered investment adviser, Southmark, Inc., an SEC-registered broker-dealer, and Wendell D. Belden, the owner of both firms, all located in Tulsa, Oklahoma. According to the SEC's complaint, from 1996 and through the present, Belden has used Southmark Advisory and Southmark, Inc. to defraud his predominantly elderly clients, by misleading them about their investment options and the security of their invested principal, and by investing their money in a manner calculated to enrich himself at their expense.
The SEC alleges that Belden attracts seniors who want safe investments by advertising certificates of deposit ("CDs") in local periodicals and the yellow pages, and then, in a classic "bait and switch" maneuver, aggressively pitches to the prospective investors, in lieu of CDs, a purportedly personalized, managed mutual fund investment program. The SEC alleges that Belden defrauded his clients by lying about the safety of the managed mutual fund program; by failing to tell the clients about other investment options that were more advantageous; by failing to tell the clients that his brokerage firm, Southmark, Inc., would earn a 4% sales commission if the clients invested in the managed mutual fund program; and by failing to tell the clients about disciplinary sanctions that the State of Oklahoma and the NASD had imposed against Belden. According to the SEC, since 1996 Belden and his Southmark entities have, by way of this fraudulent scheme, sold mutual fund shares worth at least $82,801,550, victimized at least 400 predominantly elderly or retired investors, and fraudulently earned at least $5,000,000, including $3,312,062 in brokerage commissions. Contrary to Belden's fraudulent assurances that the managed mutual fund investments were "as safe as" or "safer than" CDs, many investors have seen the value of their investment in the mutual fund program diminish significantly during the recent bear market.
The SEC alleges in its complaint that Southmark Advisory, Southmark, Inc., and Belden violated, and aided and abetted violations of, Section 17(a) of the Securities Act of 1933; Section 10(b) of the Securities Exchange Act of 1934 and Rules 10b-5 and 15b3-1 thereunder; and Sections 204, 206(1), 206(2), 206(4) and 207 of the Investment Advisers Act of 1940 and Rules 204-1(a)(2), 206(4)-4(a)(2), and 206(4)-4(c) thereunder. In its action, the SEC asks the court to restrain the defendants temporarily from further violations of the foregoing securities laws, to appoint a receiver to take control of Southmark Advisory and Southmark, Inc. and assist the clients with retaining a legitimate adviser for their accounts, and to freeze the defendants' assets, so that the proceeds of the fraud can be preserved and ultimately returned to the investors. The SEC also requests in its action that the court permanently enjoin Southmark Advisory, Inc., Southmark, Inc., and Belden from violating the federal securities laws, and order them to disgorge all illicit profits from their fraudulent conduct, with prejudgment interest, and pay civil money penalties.
The SEC staff acknowledges the assistance of the Oklahoma Department of Securities, and District No. 5 of the National Association of Securities Dealers - Regulation, Inc. in the investigation of the facts leading to this action.