U.S. Securities and Exchange Commission
Litigation Release No. 18304 / August 22, 2003
Securities and Exchange Commission v. David Isaac Lapin and Jeffrey Carl Wigginton, Defendants, Civil Action No. H-03-3342 (U.S.D.C. S.D. Tex.) (Houston Division)
SEC Brings Fraud Charges Against Principals Of Houston Investment Adviser Lapin & Wigginton Asset Management LLC
On August 20, 2003, the Securities and Exchange Commission filed a settled securities fraud case in the United States District Court for the Southern District of Texas (Houston Division) against David Isaac Lapin and Jeffrey Carl Wigginton, formerly the president and vice president, respectively, of Lapin & Wigginton Asset Management, LLC ("LWAM"), a now-defunct investment adviser in Houston. The SEC charged Lapin and Wigginton with fraud and securities registration violations, based on their sales of interests in limited partnerships that were set up to fund commercial mortgages; and also with violations of investment adviser reporting requirements. Lapin and Wigginton have both agreed to settle the case by consenting to the entry of orders that: enjoin them from further violations of the securities laws; hold them liable for disgorgement plus prejudgment interest, and civil money penalties; and bar them from association with a broker-dealer or investment adviser. LWAM ceased operations late in 2001, around the time that its corporate parent, Premiere Holdings of Texas, LP, filed for bankruptcy protection. Lapin, age 44, and Wigginton, age 49, reside in Houston.
According to the complaint, from October 1998 through September 2001, while Lapin and Wigginton were associated with LWAM, and with a Commission-registered broker-dealer, they raised over $140 million by offering and selling to investors, including advisory clients of LWAM, interests in limited partnerships that used the investors' money to fund commercial mortgage loans. The SEC alleges that Lapin & Wigginton knowingly or recklessly misled investors about risk-related facts such as: the inferior lien positions that some limited partnerships held as security for their invested principal; delinquencies, defaults and foreclosures on mortgage loans in which some of the limited partnerships had invested; and the rate of the origination fees (usually 25%) that the commercial borrowers were paying in connection with the loans. The SEC alleges that Lapin and Wigginton thereby violated Section 17(a) of the Securities Act of 1933 ("Securities Act"), and Section 10(b) of the Securities Exchange Act of 1934 ("Exchange Act") and Rule 10b-5 thereunder, and aided and abetted LWAM's violations of Sections 206(1) and 206(2) of the Investment Advisers Act of 1940 ("Advisers Act").
The SEC also alleges that Lapin and Wigginton violated Sections 5(a) and 5(c) of the Securities Act, by offering and selling securities when no registration statement for the offering either was effective or had been filed.
Finally, the SEC alleges that Lapin and Wigginton violated Sections 206(4) and 207 of the Advisers Act and Rule 206(4)-4(a) thereunder, by failing to disclose fully and accurately, in reports that LWAM filed with the SEC, a disciplinary action that the New York Stock Exchange instituted against Lapin in 1999 for conduct unrelated to the limited partnership investments.
Simultaneously with the filing of its action, the Commission accepted offers of settlement from Lapin and Wigginton, in which each of them agreed, without admitting or denying the allegations in the Commission's Complaint, to the entry of a judgment that permanently enjoins them from further violating the securities laws cited above, and sets the amounts of disgorgement, prejudgment interest, and civil money penalties for which they are liable as follows: for Lapin, disgorgement of $3,235,990 in illicit profits, $282,075 in prejudgment interest, and a civil money penalty of $120,000; and for Wigginton, disgorgement of $647,198 in illicit profits, $56,415 in prejudgment interest, and a civil money penalty of $120,000. Both Lapin and Wigginton have filed for bankruptcy protection, and have agreed that the Commission will have allowed claims for the above amounts in their respective bankruptcy cases. The Commission's staff will, to the extent possible, return to defrauded investors any funds to which the Commission may be entitled in the bankruptcy cases. Finally, Lapin and Wigginton have agreed to the entry of an order by the Commission, barring them from association with a broker-dealer or investment adviser.