UNITED STATES OF AMERICA
In the Matter of
|ORDER INSTITUTING PUBLIC ADMINISTRATIVE AND CEASE-AND-DESIST PROCEEDINGS, MAKING FINDINGS, IMPOSING REMEDIAL SANCTIONS AND IMPOSING CEASE-AND-DESIST ORDER|
The Securities and Exchange Commission ("Commission") deems it appropriate and in the public interest that public administrative and cease-and-desist proceedings be, and hereby are, instituted against Respondents Consortium Investments, Ltd. ("Consortium"), P. Chad Castle ("Castle"), and James David Groce ("Groce") (collectively "Respondents") pursuant to Section 8A of the Securities Act of 1933 ("Securities Act"), Section 15(b) of the Securities Exchange Act of 1934 ("Exchange Act"), and Sections 203(e), (f) and (k) of the Investment Advisers Act of 1940 ("Advisers Act").
In anticipation of the institution of these proceedings, Respondents have submitted an Offer of Settlement ("Offer"), 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 to which the Commission is a party, and without admitting or denying the Commission's findings contained herein, except that they admit the findings contained in paragraph II.A through II.C. and the jurisdiction of the Commission over them and the subject matter of these proceedings, Respondents consent to the issuance of this Order Instituting Public Administrative and Cease-and-Desist Proceedings, Making Findings, Imposing Remedial Sanctions and Imposing Cease-and-Desist Order ("Order"), and the entry of findings and the imposition of the sanctions set forth below.
On the basis of this Order and the Offer submitted by Respondents, the Commission finds that:
A. Respondent Consortium, a Texas limited partnership with its principal place of business in Waco, Texas, was at all relevant times owned 49.5% by Castle, 49.5% by Groce, and 1% by the firm's general partner, Consortium Investment Group, LLC, a Texas limited liability company owned and controlled by Castle and Groce. Consortium has been registered with the Commission as an investment adviser since September 22, 1998, and as a broker-dealer since January 11, 1999.
B. Respondent Castle, 30, of Waco, Texas, was at all relevant times a registered representative and the president of Consortium, and an associated person of a registered investment adviser, Consortium.
C. Respondent Groce, 30, of Waco, Texas, was at all relevant times a registered representative and the financial and operational principal of Consortium, and an associated person of a registered investment adviser, Consortium.
D. Between 1998 and 2001, Consortium sold to its brokerage customers and advisory clients over $13 million in private placements of debt and equity securities of a privately held company and its subsidiaries (collectively "the private issuers"). During 2001, the private issuers defaulted on their obligations under the debt securities, and the equity securities turned out to be worthless.
E. During 2001, Respondents offered to provide to the brokerage customers and advisory clients who lost money on the private issuers' securities, in return for their releasing Respondents from liability for those losses, common stock of a company that had agreed to acquire Consortium ("the acquiring company"). Respondents represented to the brokerage customers and advisory clients that Respondents would convey ownership of Consortium to the acquiring company, in exchange for shares of the acquiring company's stock, and then transfer those shares to the brokerage customers and advisory clients. Respondents further represented that by doing so they would "give up ownership" of Consortium.
F. In offering the stock of the acquiring company, Respondents failed to disclose a number of material facts, the omission of which caused their representations to be false and misleading. Respondents failed to disclose that they expected to receive 6,000,000 shares of the acquiring company's stock in exchange for Consortium, of which Groce and Castle would each retain 300,000 shares, while transferring 5,400,000 shares to their brokerage customers and advisory clients in return for releases of liability. Respondents also failed to disclose additional benefits that Groce and Castle expected to receive by conveying their interest in Consortium to the acquiring company. For example, Groce and Castle expected to receive annual salaries, health insurance, automobiles, expense accounts and options to purchase stock of the acquiring company, in return for continuing to manage Consortium as a subsidiary of the acquiring company.
G. After the staff of the Commission and a self-regulatory organization began inquiring about Respondents' offer of the acquiring company's stock in exchange for releases of liability, Respondents abandoned that transaction without actually transferring any of the acquiring company's stock to their brokerage customers or advisory clients.
H. On April 2, 2001, Consortium and Castle willfully made an untrue statement of a material fact in a report filed with the Commission under the Advisers Act. On that date, Consortium filed an annual amendment to Form ADV, signed by Castle, which stated that Consortium had $30,000,000 in assets under management. In fact the value of Consortium's assets under management at that time was less than $3,000,000.
I. During 2001, and possibly at other times, Consortium was unlawfully registered with the Commission as an investment adviser, because the value of Consortium's assets under management was less than $25,000,000, which was the minimum amount required for an investment adviser to be eligible for registration with the Commission.
J. Based on the above-described conduct, Respondents willfully violated Sections 17(a)(1) and 17(a)(3) of the Securities Act; Consortium willfully violated Sections 203A, 206(1), 206(2), and 207 of the Advisers Act; Groce and Castle willfully aided, abetted, and caused Consortium's violations of Sections 203A, 206(1) and 206(2) of the Advisers Act; and Castle willfully violated Section 207 of the Advisers Act.
Based on the foregoing, the Commission deems it appropriate and in the public interest to accept Respondents' Offer of Settlement and to impose the remedial sanctions which are set forth in the Offer.
Accordingly, IT IS HEREBY ORDERED, that:
A. Respondents be, and hereby are, censured.
B. Pursuant to Section 8A of the Securities Act and Section 203(k) of the Advisers Act, Respondents shall cease and desist from committing or causing any violation and any future violation of Sections 17(a)(1) and 17(a)(3) of the Securities Act, and Sections 203A, 206(1) and 206(2) of the Advisers Act; and Consortium and Castle shall cease and desist from committing or causing any violation and any future violation of Section 207 of the Advisers Act.
C. Groce and Castle each shall, within ninety (90) days of the entry of this Order, pay a civil money penalty in the amount of $25,000 to the United States Treasury. Such payments 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) hand-delivered or mailed to the Comptroller, Securities and Exchange Commission, Operations Center, 6432 General Green Way, Stop 0-3, Alexandria, VA 22312; and (D) submitted under cover letter that identifies the Respondent making the payment as a Respondent in these proceedings, the file number of these proceedings, a copy of which cover letter and money order or check shall be sent to Harold F. Degenhardt, District Administrator, Securities and Exchange Commission, Fort Worth District Office, 801 Cherry Street, 19th Floor, Fort Worth, Texas 76102.
D. Respondents have agreed to and shall comply with the following undertakings:
1. within 30 days of the entry of the Commission's Order, Respondents will submit to the staff of the Commission's Fort Worth District Office a plan for closing or transferring client accounts within 180 days. At or before the expiration of those 180 days, Respondents will file Form ADV-W and Form BD-W to withdraw Consortium's registrations with the Commission as an investment adviser and a broker-dealer;
2. during the period they are winding down Consortium's business, Respondents will not solicit prospective brokerage customers or advisory clients;
3. during the period they are winding down Consortium's business, Respondents will not participate in any manner in private placements of securities; and
4. Respondents will provide a copy of the Commission's Order in this proceeding to each existing brokerage customer and advisory client.
By the Commission.
Jonathan G. Katz
|Home | Previous Page||