United States Securities and Exchange Commission
Securities Act of 1933
Securities Exchange Act of 1934
PUBLIC PROCEEDINGS INSTITUTED AGAINST JOHN S. REGER II AND BUSINESS & FINANCIAL ADVISORS, INC.
The United States Securities and Exchange Commission today filed public administrative proceedings against John S. Reger II, a West Virginia consultant, and his company Business & Financial Advisors, Inc. ("BFA"). The Commission alleges that Reger and BFA engaged in a fraudulent undisclosed payment arrangement in which they were paid $104,000 of the profits from the sale of U.S. Treasury securities to a West Virginia public entity (the "Board") in connection with a March 1995 tax-exempt advance refunding transaction.
In the order instituting administrative proceedings, the Division of Enforcement alleges that, in connection with the advance refunding transaction, Reger acted as a fiduciary to the Board and as a representative of a broker-dealer firm (the "Underwriter") hired by the Board to underwrite the tax-exempt refunding bonds. Further, the Division of Enforcement alleges that the Board authorized Reger and the Underwriter to arrange for the investment of the bond proceeds and the delivery of certain defeasance securities to the Board as part of the transaction. In this regard, Reger selected a certain firm (the "Escrow Provider") to sell U.S. Treasury securities to the Board, in return for an undisclosed payment of $104,000. The Division of Enforcement claims that Reger accepted this payment pursuant to an undisclosed payment arrangement under which Reger was to receive 40% of any profits resulting from advance refunding transactions directed to the Escrow Provider by Reger. Under this undisclosed payment arrangement, it is further alleged that Reger, in connection with three prior advance refunding transactions, received a total of $182,500 from the Escrow Provider. The Division of Enforcement states that the undisclosed payment arrangement generated various potential conflicts of interest and potentially jeopardized the tax-exempt status of the refunding bonds.
According to the order instituting administrative proceedings, Reger violated the antifraud provisions of the federal securities laws by failing to disclose to the Board, the Underwriter or prospective bond purchasers the existence of the payment arrangement and the various implications of that payment arrangement. In particular, the Division of Enforcement claims Reger and BFA willfully violated Section 17(a) of the Securities Act of 1933, Sections 10(b) and 15B(c) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, and Municipal Securities Rulemaking Board Rule G-17. The Division is seeking a cease-and-desist order to prevent future violations of the securities laws, disgorgement, civil penalties, and other appropriate remedial action.
As a result of a previous settlement agreement, the tax-exempt status of the bond issues mentioned in the order instituting proceedings is no longer threatened by the alleged payments to Reger. For more information on the settlement agreement, see Press Release No. 98-42 (April 23, 1998).
A hearing will be held before an administrative law judge to determine if these allegations are true and, if so, what, if any, sanctions are appropriate in the public interest.http://www.sec.gov/litigation/admin/33-7861.htm