U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 17976 / February 10, 2003
SEC v. Rocky Mountain Securities & Investments, Inc. and Judith L. Clarke
No. 03-MK-0228 (District of Colorado)
On February 5, 2003, The Securities and Exchange Commission filed an action in the United States District Court for the District of Colorado against Rocky Mountain Securities & Investments, Inc. ("Rocky Mountain"), a brokerage firm headquartered in Denver, and Judith L. Clarke, a Denver resident and former employee of Rocky Mountain. Rocky Mountain ceased business on February 3, 2003, due to a multi-million dollar net capital deficiency. The Commission alleged that Rocky Mountain violated the net capital and customer protection provisions of the federal securities laws contained in Section 15(c)(3)(a) of the Securities Exchange Act of 1934 ("Exchange Act") and Rules 15c3-1 and 15c3-3. The Commission also alleged that Rocky Mountain violated the broker-dealer books and record provisions of the Exchange Act contained in Section 17(a) of the Exchange Act and Rule 17a-3. In this action, the Commission sought a temporary restraining order and asset freeze against the firm, as well as preliminary and permanent injunctions. In addition, the Commission filed a joint motion with the Securities Investor Protection Corporation ("SIPC"), which filed a separate action, to have a trustee appointed to liquidate the firm.
In the action the Commission also charged Clarke with aiding and abetting Rocky Mountain's violations of the net capital, customer protection and books and records provisions. The Commission also charged Clarke with violating the antifraud provisions of the Exchange Act contained in Section 10(b) of the Exchange Act and Rule 10b-5. The Commission alleged that Clarke had traded equities for Rocky Mountain in an account at the firm and allegedly incurred significant trading losses, which she attempted to conceal from the firm by creating false trading records. To pay the debts owed by Rocky Mountain as the result of the losses, Clarke allegedly used almost the entire $4.5 million balance of a money market account in Rocky Mountain's name. This money market account had contained cash belonging to Rocky Mountain's retail customers. The Commission sought against Clarke a temporary restraining order, asset freeze and an order to provide an accounting, as well as preliminary and permanent injunctions, disgorgement plus prejudgment interest and civil penalties.
On February 7, 2003, a temporary restraining order was entered against Rocky Mountain prohibiting the firm from violating the net capital, customer protection and broker-dealer books and records provisions the firm was alleged to have violated in the complaint. In addition, John D. Shively of the law firm Fagre & Benson in Denver was appointed to act as trustee on behalf of SIPC to liquidate Rocky Mountain. Finally, also on February 7, a temporary restraining order was entered against Clarke prohibiting her from violating the antifraud, net capital, customer protection, and broker-dealer books and records provisions under the Exchange Act. Clarke was also prohibited, inter alia, from disposing of any funds that she had obtained in violation of the federal securities laws. A hearing on the Commission's motion for a preliminary injunction against Rocky Mountain and Clarke is scheduled for February 14, 2003.
SEC Complaint in this matter