==========================================START OF PAGE 1====== UNITED STATES OF AMERICA Before the SECURITIES AND EXCHANGE COMMISSION INVESTMENT ADVISERS ACT OF 1940 Rel. No. 1621 / March 17, 1997 ADMINISTRATIVE PROCEEDING File No. 3-9128 ------------------------------ : In the Matter of : ORDER MAKING FINDINGS AND : IMPOSING REMEDIAL SANCTIONS : PURSUANT TO SECTIONS Vigil Asset Management : 203(e), 203(f) AND 203(k) OF : THE INVESTMENT ADVISERS Group, Inc. : ACT OF 1940 : and : : Thomas Batterman, : : Respondents. : : ------------------------------- I. On September 30, 1996, the Commission deemed it appropriate and in the public interest to institute public administrative and cease-and-desist proceedings pursuant to Sections 203(e), 203(f) and 203(k) of the Investment Advisers Act of 1940 (Advisers Act) against Vigil Asset Management Group, Inc. (Vigil) and Thomas Batterman (Batterman). In response to the institution of these administrative and cease-and-desist proceedings, Vigil and Batterman have submitted an Offer of Settlement which the Commission has determined to accept. Solely for the purpose of these proceedings and any other proceedings brought by or on behalf of the Commission or in which the Commission is a party, and without admitting or denying the findings contained herein, except as to jurisdiction and those facts set forth in paragraphs II.A. and B. below, which are admitted, Vigil and Batterman, by their Offer of Settlement, consent to the entry of this Order Making Findings and Imposing Remedial Sanctions (Order). ==========================================START OF PAGE 2====== II. On the basis of this Order and Vigil's and Batterman's Offer of Settlement, the Commission makes the following findings-[1]-: A. Vigil is an investment adviser located in Wausau, Wisconsin, that has been registered with the Commission since November 1988. Vigil is a wholly owned subsidiary of WTC, Inc. (WTC). From May 1993 through November 1994 (the relevant period), Vigil provided investment advisory services to approximately 250 clients and managed approximately $30 million in assets. B. Batterman, 39 years old, is the President and Treasurer of Vigil and, through a family-owned corporation, is WTC's largest shareholder. Batterman resides in Wausau, Wisconsin. As President and Treasurer of Vigil from the time of its incorporation onward, Batterman was responsible for creating and implementing its policies and procedures. C. In May 1993, Vigil retained a broker-dealer, registered with the Commission, to serve as the custodian for its clients' funds and securities. Batterman negotiated the terms of the custodial agreement and required the broker-dealer to maintain Vigil's clients' assets on a collective basis in an omnibus account under the name of Vigil. As a result, the broker-dealer was not aware of each client's individual ownership interest in the assets in the omnibus account. Rather, Vigil alone maintained the sole record of each client's account. D. In administering the omnibus account, the broker- dealer followed the directives it received from Vigil employees. Furthermore, pursuant to internal policies enacted by Batterman, Vigil employees could direct the custodian to transfer funds, issue checks and deliver securities to third parties from the omnibus account without any limitations or restrictions imposed by the custodial broker-dealer. In this manner, Vigil retained control over the disposition of client funds and securities. E. On two occasions, Vigil also took physical possession of client funds and securities. A stock certificate for 75,000 restricted shares belonging to a Vigil client was maintained in a bank lock box belonging to Vigil. A Vigil employee also requested and received delivery from the custodial broker-dealer of more than sixty U.S. Savings Bonds which were owned by a Vigil client. In addition, Vigil took possession of ---------FOOTNOTES---------- -[1]- The findings herein are made pursuant to Respondents' Offer of Settlement and are not binding on any other person or entity in this or any other proceeding. ==========================================START OF PAGE 3====== checks drafted by third parties which were made out to Vigil and/or its employees for the benefit of Vigil's clients. Accordingly, Vigil had custody and possession of client funds and securities throughout the relevant period. F. In connection with collecting its advisory fees, Vigil sent the custodial broker-dealer a monthly bill which included a calculation of the fee owed. In contrast, Vigil provided its clients a quarterly statement which indicated the amount of its monthly advisory fee. However, no calculation of that fee was included in the clients' statements. In addition, Vigil did not request that the custodial broker-dealer send Vigil clients a quarterly statement identifying all of the disbursements from the account, including Vigil's advisory fees, nor did it provide information to the custodial broker-dealer which would have enabled it to do so. G. Vigil, through Batterman, also made misrepresentations and omissions of material facts to clients regarding the brokerage commission rates charged to clients. Specifically, Vigil's brochure stated that trades are "usually" executed at institutional brokerage commission rates. However, in excess of 90% of Vigil's clients' equity trades were executed by the custodial broker-dealer who charged commission rates which were, in fact, substantially higher than the institutional rates in effect during the relevant period. Thus, Vigil and Batterman knew, or were reckless in not knowing, that the commission rates charged Vigil clients were substantially higher than institutional rates. H. During the relevant period, Vigil willfully violated, and Batterman caused and willfully aided and abetted violations of, Section 206(4) of the Advisers Act and Rule 206(4)-2 promulgated thereunder by making use of the mails or of the means or instrumentalities of interstate commerce in connection with its business as an investment adviser to, directly or indirectly, engage in acts, practices or courses of business which were fraudulent, deceptive or manipulative. As part of the aforesaid conduct, Vigil, while maintaining custody and possession of client funds and securities as described in paragraphs II.C., D., E. and F. above, failed to enact appropriate safeguards required by Rule 206(4)-2 under the Advisers Act. Specifically, Vigil failed to arrange adequate annual surprise examinations by an independent public accountant. Vigil also failed to provide its clients with written notice which adequately described the place and manner in which such funds and securities would be maintained. Furthermore, Vigil commingled client and non-client funds and securities in the omnibus account, including funds and securities of Batterman and other affiliated persons. In addition, in its quarterly statements sent to clients, Vigil failed to identify the daily purchases and sales of money market investments in clients' ==========================================START OF PAGE 4====== accounts. Finally, Vigil maintained its clients' funds and securities in an account in its own name, rather than as the agent or trustee of its clients. I. During the relevant period, Vigil willfully violated, and Batterman caused and willfully aided and abetted violations of, Section 204 of the Advisers Act and Rule 204- 1(b)(2) promulgated thereunder by making use of the mails or of the means or instrumentalities of interstate commerce in connection with its business as an investment adviser while having custody and possession of client funds and securities, and failing to file with the Commission an audited balance sheet within 90 days of its 1993 and 1994 fiscal year end. J. During the relevant period, Vigil willfully violated, and Batterman caused and willfully aided and abetted violations of, Sections 206(1) and 206(2) of the Advisers Act by making use of the mails or of the means or instrumentalities of interstate commerce in connection with its business as an investment adviser to, directly or indirectly, employ devices, schemes, or artifices to defraud clients or prospective clients and engage in transactions, practices, or courses of business which operated as a fraud or deceit upon clients or prospective clients. As part of the aforesaid conduct, Vigil, through Batterman, made misrepresentations and omissions of material facts to clients regarding the brokerage commissions charged to its clients as more fully described in paragraph G above. K. During the relevant period, Vigil willfully violated, and Batterman caused and willfully aided and abetted violations of, Section 204 of the Advisers Act and Rules 204- 2(a)(3) and 204-2(a)(12) thereunder by making use of the mails or of the means or instrumentalities of interstate commerce in connection with its business as an investment adviser, while failing to keep true, accurate and current certain specified books and records relating to its investment adviser business. Specifically, Vigil's order memoranda for its clients' purchases and sales of securities did not identify the person who recommended the transaction to the client as required by Rule 204-2(a)(3). In addition, Vigil was required by Rule 204- 2(a)(12) to make and keep adequate records of every transaction in a security in which it or a representative had, or by such transaction gained, direct or indirect beneficial ownership. Vigil failed to adequately make and keep such records. L. During the relevant period, Vigil and Batterman willfully violated Section 207 of the Advisers Act by making untrue statements of material fact in reports filed with the Commission. Specifically, in March 1994, Vigil, through Batterman, filed a Form ADV amendment and a Form ADV-S with the Commission. In response to Part I, Items 13A and 13B of the Form ADV amendment, Vigil, through Batterman, affirmatively indicated ==========================================START OF PAGE 5====== that it did not have custody and possession of client funds and securities. Based on those responses, Vigil, through Batterman, failed to include a total value for its clients' assets in response to Item 13C. Finally, Item 4(a) of Form ADV-S asks whether the investment adviser is subject to certain filing requirements as a result of its maintaining custody or possession of client assets. Despite maintaining custody and possession at the time of filing, Vigil, through Batterman, falsely indicated on its Form ADV-S that it was not subject to such requirements. Batterman executed both the amendment to Form ADV and the Form ADV-S filed on behalf of Vigil with the Commission in March 1994. III. In view of the foregoing, it is in the public interest to impose the sanctions specified in the Offer of Settlement. ACCORDINGLY, IT IS HEREBY ORDERED THAT: A. Vigil and Batterman are censured; B. Pursuant to Section 203(k) of the Advisers Act, Vigil cease and desist from committing or causing any violation, and committing or causing any future violation, of Sections 204, 206(1), 206(2), 206(4) and 207 of the Advisers Act and Rules 204- 1(b)(2), 204-2(a)(3), 204-2(a)(12) and 206(4)-2 promulgated thereunder; C. Pursuant to Section 203(k) of the Advisers Act, Batterman cease and desist from committing or causing any violation, and committing or causing any future violation, of Sections 204, 206(1), 206(2), 206(4) and 207 of the Advisers Act and Rules 204-1(b)(2), 204-2(a)(3), 204-2(a)(12) and 206(4)-2 promulgated thereunder; D. Pursuant to Section 203(i) of the Advisers Act, Vigil pay a civil penalty of $15,000 to the United States Treasury within 30 days of this Order. Such payment shall be: (a) made by United States postal money order, certified check, bank cashier's check or bank money order; (b) made payable to the Securities and Exchange Commission; (c) mailed to the Office of the Secretary, Securities and Exchange Commission, 450 5th Street, N.W., Stop 6-9, Washington, D.C. 20549; and (d) submitted under cover letter which identifies Vigil Asset Management Group, Inc. as one of the Respondents in these proceedings, as well as the Commission's case number. A copy of said cover letter and money order or check shall be sent to Mary E. Keefe, Regional Director, Midwest Regional Office, Securities Exchange Commission, 500 W. Madison, Suite 1400, Chicago, Illinois 60661. E. Pursuant to Section 203(i) of the Advisers Act, Batterman pay a civil penalty of $10,000 to the United States ==========================================START OF PAGE 6====== Treasury within 30 days of this Order. Such payment shall be: (a) made by United States postal money order, certified check, bank cashier's check or bank money order; (b) made payable to the Securities and Exchange Commission; (c) mailed to the Office of the Secretary, Securities and Exchange Commission, 450 5th Street, N.W., Stop 6-9, Washington, D.C. 20549; and (d) submitted under cover letter which identifies Thomas Batterman as one of the Respondents in these proceedings, as well as the Commission's case number. A copy of said cover letter and money order or check shall be sent to Mary E. Keefe, Regional Director, Midwest Regional Office, Securities Exchange Commission, 500 W. Madison, Suite 1400, Chicago, Illinois 60661. F. Vigil and Batterman comply with the following undertakings: (1) To review Vigil's policies and procedures with respect to its compliance with the provisions of the Advisers Act and the rules promulgated thereunder, and to adopt, implement and maintain new written policies and procedures and/or revisions to existing policies and procedures, and to the system for applying same, designed reasonably to prevent and detect violations of the federal securities laws including, but not limited to, the recurrence of the violations alleged in Paragraphs II.H. through L., above; (2) To provide training to relevant Vigil employees designed reasonably to effect the understanding of, and compliance with, the implemented policies and procedures; and (3) To provide to the Commission's staff, within 90 days from the issuance of this Order, an affidavit detailing the policies and procedures adopted pursuant to II.F.(1), confirming that such policies and procedures have been implemented and that the relevant staff have been trained with respect thereto pursuant to II.F.(2). By the Commission. Jonathan G. Katz Secretary