U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 19144 / March 17, 2005
SECURITIES AND EXCHANGE COMMISSION v. T. GENE GILMAN, STEVEN A. GILMAN, ARBOR SECURITIES, LTD., AND FINANCIAL LINKS, INC., DEFENDANTS, AND TRADETEK, LTD. AND COMMONWEALTH FINANCIAL HOLDINGS, RELIEF DEFENDANTS, Civil Action File No. 05-CV10512-REK (D. Mass.).
SEC CHARGES T. GENE GILMAN, STEVEN A. GILMAN, AND AFFILIATED COMPANIES WITH FRAUD IN OPERATION OF BROKER DEALERS AND AN INVESTMENT ADVISER
The Securities and Exchange Commission (the "Commission") announced that on March 17, 2005, it filed a complaint in the United States District Court for the District of Massachusetts against T. Gene Gilman ("G. Gilman"), Steven A. Gilman ("S. Gilman"), and companies they operated alleging that they conducted an offering fraud and misappropriated approximately $14 million of investor proceeds. The complaint alleges that between December 1998 and October 2003, G. Gilman and his son S. Gilman solicited approximately $20 million from 40 people who invested funds with Arbor Securities, Ltd. ("Arbor Securities") an unregistered broker dealer and investment adviser located in Needham, Massachusetts. According to the complaint, the Gilmans funneled investor proceeds to their personal use through Financial Links, Inc. ("Financial Links"), a registered broker-dealer controlled by G. Gilman but headquartered in Raleigh, North Carolina.
The complaint alleges that G. Gilman represented he would establish individual brokerage accounts for customers at Arbor Securities, an alleged offshore brokerage firm operated from his office in Needham, Massachusetts, and would use clients' funds to trade in the stocks of publicly traded U.S. companies. Instead of establishing the individual accounts and investing customer funds as represented, G. Gilman and S. Gilman commingled and transferred the funds into several foreign and domestic bank and brokerage accounts in the names of Arbor Securities, including accounts at Financial Links. From those accounts, S. Gilman transferred customer funds to himself, to G. Gilman, and to private companies controlled by G. Gilman, including TradeTek, Ltd. and Commonwealth Financial Holdings, Inc. ("Commonwealth"). The complaint alleges that to conceal these transfers S. Gilman, at the request of G. Gilman, generated and sent to customers fictitious brokerage account statements which, among other things, misrepresented cash balances and falsely stated that transactions in the accounts took place when, in reality, they did not. The Commission's complaint names TradeTek and Commonwealth as relief defendants and alleges that they were unjustly enriched when they obtained customer funds to which those companies had no legitimate claim.
The complaint alleges that G. Gilman, S. Gilman, Arbor Securities and Financial Links 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. The Commission's complaint alleges that Arbor Securities, aided and abetted by the Gilmans, also violated Section 15(a) of the Exchange Act and Sections 206(1) and 206(2) of the Investment Advisers Act of 1940. Finally, the complaint alleges that Financial Links, aided and abetted by the Gilmans, also violated Section 15(c) of the Exchange Act. The Commission seeks permanent injunctions, accountings, disgorgement, prejudgment interest and civil penalties against G. Gilman, S. Gilman, Arbor Securities and Financial Links, and further seeks disgorgement and prejudgment interest from the relief defendants, TradeTek and Commonwealth. The Commission acknowledges the assistance and cooperation of the U.S. Attorney's Office for the District of Massachusetts.