Securities and Exchange Commission
Litigation Release No. 17864 / November 26, 2002
SEC Charges Ryan J. Fontaine and Signature Investments Hedge Fund With Fraud
Securities and Exchange Commission v. Ryan J. Fontaine and Simpleton Holdings Corporation, a/k/a Signature Investments Hedge Fund, 02 Civ. 9420 (S.D.N.Y.)(MBM)
The Securities and Exchange Commission announced today that it filed an enforcement action charging Ryan J. Fontaine and his related company, Simpleton Holdings Corporation a/k/a Signature Investments Hedge Fund, with fraud.
The Complaint, filed in the United States District Court for the Southern District of New York, alleges that from at least July 2002 through at least October 22, 2002, Signature, an unregistered investment company created and controlled by Fontaine, conducted an unregistered offering of Signature's shares over the Internet and made numerous false claims to investors and prospective investors. Specifically, the SEC's Complaint charges that Fontaine and Signature deceived investors into investing in Signature by making false and misleading claims about Signature's track record, the amount of assets under management, and Signature's purported affiliation with several well-known financial institutions and professionals.
The Complaint names as defendants:
According to the Complaint, beginning at least as early as July 2002 and continuing through at least October 22, 2002, Fontaine and Signature deceived investors into investing in Signature by fraudulently claiming, among other things, that: (a) Signature "averaged over a 39.5% annual return" over its 13-year history, including returns "during the bear market of the past 2 years [of ] over 21% per year;" (b) Signature had approximately $250 million under management; (c) Salomon Smith Barney was the sub-adviser to Signature; and (d) KPMG, LLP performed certain auditing services for Signature. The defendants also made false and misleading statements about various investment advisory services purportedly offered by Signature, such as a Roth IRA program and a 401(k) program.
All of these representations were false. Signature and Fontaine had no track record, much less the long and extraordinary one they claimed. Fontaine simply made up the performance returns in Signature's marketing materials. Signature never had anywhere near $250 million under management. Salomon Smith Barney was not advising Signature, and KPMG did not provide auditing or any other services to Signature. A purported KPMG audit report Fontaine sent to prospective investors was a forgery. The 401(k), IRA and other managed accounts described in Signature's marketing materials did not exist.
The Complaint charges Fontaine and Signature with violating Sections 5(a), 5(c), and 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934, and Rule 10b-5 thereunder, and Sections 206(1) and 206(2) of the Investment Advisers Act of 1940; and charges Signature with violating Section 7 of the Investment Company Act of 1940. The Complaint seeks permanent injunctive relief, disgorgement of ill-gotten gains with prejudgment interest, and civil penalties. The Commission has applied for a preliminary injunction, expedited discovery and other interim relief. Fontaine and Signature have consented to the requested interim relief, and to transfer to the Court registry funds in two Signature accounts, for return to investors. The litigation is pending.
For more information about internet fraud, visit http://www.sec.gov/divisions/enforce/internetenforce.htm. To report suspicious activity involving possible Internet fraud, visit http://www.sec.gov/complaint.shtml. For tips how to avoid internet "pump-and-dump" stock manipulation schemes, visit http://www.sec.gov/investor/online/pump.htm.