U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 18942 / October 26, 2004
SEC v. Slocum, Gordon & Co., et al., (United States District Court for the District of Rhode Island, Civil Action No. 02-367L, Filed August 20, 2002)
On September 28, 2004, following a bench trial held in July 2003, the federal district court for Rhode Island entered judgment in SEC v. Slocum, Gordon, & Co., et al., a civil action that the Commission filed in August 2002. The Commission's complaint had alleged various securities law violations against defendants Slocum, Gordon, & Co. (SGC), a Newport, Rhode Island-based registered investment adviser, and its two founding partners, John J. Slocum, Jr. and Jeffrey L. Gordon. The court found that SGC improperly commingled client funds and securities with firm funds and securities, in violation of Section 206(4) of the Investment Advisers Act of 1940 ("Advisers Act") and Rule 206(4)-2(a)(2) thereunder. The court also found that SGC, in failing to disclose its practice of commingling firm and client assets, a potential conflict of interest, engaged in a course of business which operated as a fraud upon its clients, in violation of Section 206(2) of the Advisers Act. As a result of these violations, the court ordered defendant SGC to pay a civil penalty of $3,000. With respect to the remaining claims of federal securities laws violations, however, the court entered judgment in favor of the defendants, finding insufficient evidence to establish that the defendants engaged in "cherry-picking scheme," whereby certain stocks were allegedly re-allocated from client accounts to the firm's own account after showing a profit.
For further information, please see Litigation Release No. 17688 (August 20, 2002).