UNITED STATES OF AMERICA
|In the Matter of
BOSTON INVESTMENT COUNSEL, INC.
and ROBERT E. CAMPANELLA,
ORDER INSTITUTING PROCEEDINGS PURSUANT TO SECTIONS 203(e), 203(f) ADVISERS ACT OF 1940, MAKING FINDINGS, IMPOSING REMEDIAL
The Securities and Exchange Commission deems it appropriate and in the public interest that a public administrative and cease-and-desist proceeding be, and hereby is, instituted pursuant to Sections 203(e), 203(f) and 203(k) of the Investment Advisers Act of 1940 ("Advisers Act") against Respondents Boston Investment Counsel, Inc. ("BIC") and Robert E. Campanella ("Campanella").
In anticipation of the institution of these administrative proceedings, BIC and Campanella have submitted Offers of Settlement ("Offers") that 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, except those findings pertaining to the jurisdiction of the Commission over them and the subject matter of these proceedings, which they admit, BIC and Campanella by their Offers consent to the entry of this Order Instituting Proceedings, Making Findings, Imposing Remedial Sanctions and Issuing Cease-and-Desist-Order (the "Order"), as set forth herein.
On the basis of this Order and the Offers submitted by BIC and Campanella, the Commission makes the following findings:
1. BIC (File No. 801-45894) is a Massachusetts corporation located in Hingham, Massachusetts. BIC and its predecessor, a sole proprietorship, were registered with the Commission as investment advisers from 1994 until April 13, 1999, when BICs Form ADV-W to withdraw its registration because it had less than $25 million in assets under management became effective. Since 1994, BIC has offered investment advisory services on a discretionary basis, primarily to pension funds, charitable organizations and individuals. As of February 28, 1999, BIC had eight clients and $14.2 million in assets under management.
2. Campanella, age 56 and a resident of Pawtucket, Rhode Island, is the president, treasurer, owner and sole employee of BIC. Campanella has been employed by investment advisory firms since 1973 as a portfolio manager and in other positions.
1. False Information Provided to Money Manager Ranking Publication
a. BIC, through Campanella, provided false and misleading information about the firm to Nelson Investment Manager Database ("Nelson"), an investment adviser ranking publication. Nelson obtains information for its publications by sending a standard questionnaire to money managers on which they provide, among other things, background information regarding the firm, the amount of assets they manage, and a composite of their past performance. Nelson uses the information it obtains from money managers to publish various reports, including quarterly reports titled "Nelsons Worlds Best Money Managers," and an annual report titled "Nelsons Directory of Investment Managers."
b. From approximately January 1995 through November 1998, BIC, through Campanella, provided Nelson with reports which contained false and misleading statements regarding the firms assets under management, number of employees and length of operations. In addition, BIC, through Campanella, reported to Nelson performance results without disclosing that they were based on a model portfolio and not on actual trading in client accounts. As a result, false and misleading information regarding BIC appeared many times in Nelsons "Worlds Best Money Managers." For example, BIC was ranked number one by Nelson in the category of U.S. Tactical Asset Allocation Managers for the 20 quarters ending June 30, 1997. BIC also was ranked number 10 by Nelson in the category of U.S. Balanced/Multi-Asset managers for the four quarters ending March 31, 1996. BIC also appeared in Nelsons "Worlds Best Money Managers," as the eighth-ranked manager in the category of U.S. Growth and Value Equity for the quarter ending March 31, 1998.
c. During the same period, BIC, through Campanella, inflated the amount of the firms assets under management which it reported to Nelson. In April 1998, BIC managed assets of $14.6 million, and it has never had a greater amount of assets under management. Nonetheless, in 1995, BIC reported to Nelson that it had $20 million in assets under management. In 1996, BIC reported to Nelson that it had $27 million. In 1997, BIC reported assets of $29 million, and in 1998, BIC reported that it had $36 million in assets under management. Finally, BIC falsely reported to Nelson that, for the period ending March 31, 1998, it had $57 million in assets under management. Nelson published reports containing each of these false statements of BICs assets under management.
d. Also during this period, BIC, through Campanella, provided to Nelson performance returns based on a model portfolio. Nelson does not accept or publish model performance returns. Nonetheless, BIC did not disclose that its returns were based solely on a model portfolio. Campanella knew that BIC was required to provide actual results because Nelsons reporting instructions state that Nelson "cannot accept any simulated or back-tested performance data." For some of the years for which BIC provided model results, BIC was not even in existence. In addition, in its performance reports to Nelson, BIC described the model portfolio as "Value/Growth" and falsely stated that the reported returns reflected all accounts under BICs management. These statements were false and misleading because the performance returns were based solely on a model portfolio, and none of BICs actual client accounts were managed according to the model. In addition, BIC falsely stated on each of its reports to Nelson that its performance returns were net of advisory fees and transaction costs, when they were gross of fees and costs. Based on BICs false and misleading performance returns, Nelson published reports ranking BIC as a top performing money manager.
e. The quarterly update reports provided to Nelson by BIC, through Campanella, contained other materially false information which gave the impression that BIC was a larger, longer-established firm than it was. Between 1995 and 1998, BIC informed Nelson that it had five investment professionals on its staff. However, Campanella has always been BICs sole employee. During the same period, BIC also falsely informed Nelson that it was founded in 1991, and provided performance figures for 1991, 1992 and 1993. In BICs fourth quarter updates for 1996 and 1997, the firm reported that its assets under management on December 31, 1992 were $2 million. These statements were false and misleading because they gave the impression that BIC had been in existence since 1991, when the firm was not formed until October 1993. Furthermore, BIC exaggerated the size of its client accounts. In its report to Nelson for the period September 30, 1997, BIC reported that its largest account had assets of $37.1 million. This was false because its total assets under management were only approximately $11 million, and BIC never had a client account worth $37.1 million. BIC also falsely reported to Nelson that its largest client account on March 31, 1998 had assets of $42 million. However, BIC only managed total assets of $14.6 million at that time. Nelson published the above false information provided by BIC in certain of its Worlds Best Money Managers reports and in each of its annual Directory of Investment Managers for the years 1995 through 1998.
2. False Statements in Filings with the Commission
In its Form ADV-T, filed with the Commission on November 17, 1997, BIC falsely stated that it had $41 million in assets under management, and that it was eligible to remain registered with the Commission. In fact, at the time, BIC had approximately $11 million in assets under management. In addition, on April 20, 1998, BIC filed with the Commission a Schedule I to Form ADV, which stated that it remained eligible for registration with the Commission on the basis of its assets under management, and that, as of March 31, 1998, it had $57.3 million in assets under management. BIC actually had approximately $14.6 million in assets under its management at that time. As BICs president, Campanella signed these filings with the Commission.
3. Failure to Maintain Required Books and Record
Since January 1, 1996, BIC has failed to maintain, as required, general and auxiliary ledgers, trial balances, and financial statements. In 1998, BIC failed to maintain for the required period copies of quarterly updates and other information it furnished to Nelson. As BICs president, Campanella was responsible for maintaining the firms books and records.
By virtue of the conduct described above:
1. BIC willfully violated and Campanella willfully aided and abetted and caused BICs violations of:
a. Section 206(4) of the Advisers Act and Rule 206(4)-1(a)(5) thereunder by, through the mails or means or instrumentalities of interstate commerce, directly or indirectly, engaging in acts, practices and courses of business which were fraudulent, deceptive or manipulative, and publishing, circulating and distributing advertisements which contained untrue statements of material fact or were otherwise false or misleading; and
b. Section 204 of the Advisers Act by using the mails or means or instrumentalities of interstate commerce in connection with its business as an investment adviser, and failing to make and keep for prescribed periods such records and make and disseminate such reports as the Commission has prescribed; and
(i) Rule 204-2(a)(2) by failing to keep true, accurate and current general and auxiliary ledgers; and
(ii) Rule 204-2(a)(6) by failing to keep true, accurate and current trial balances and financial statements; and
(iii) Rule 204-2(a)(11) by failing to keep copies of all advertisements or communications that BIC distributed to Nelson; and
2. BIC and Campanella willfully violated Section 207 of the Advisers Act by making untrue statements of material fact in registration applications and reports filed with the Commission pursuant to Section 204.
In view of the foregoing, the Commission deems it appropriate and in the public interest to accept the Offers submitted by BIC and Campanella and to impose the sanctions specified therein.
Accordingly, IT IS ORDERED that:
A. BIC and Campanella cease and desist from committing or causing any violation and any future violation of Sections 204, 206(4) and 207 of the Advisers Act and Rules 204-2(a)(2), (6) and (11), and 206(4)-1(a)(5) thereunder;
B. BIC and Campanella be, and hereby are, censured;
C. BIC and Campanella shall, within 30 days of the entry of this Order, together pay a civil money penalty in the amount of $25,000 to the United States Treasury. 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) 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 a cover letter which identifies BIC and Campanella as the Respondents in these proceedings, the file number of these proceedings, a copy of which cover letter and money order or check shall be sent to James B. Adelman, Associate District Administrator, Securities and Exchange Commission, Boston District Office, 73 Tremont Street, Suite 600, Boston, Massachusetts, 02108;
D. BIC shall comply with its undertaking to mail a copy of this Order, together with a cover letter, in a form acceptable to the staff of the Commissions Boston District Office, to each of its existing clients by certified mail, return receipt requested, within 30 days from the date of this Order. From the date of this Order until the expiration of 12 months, BIC shall provide a copy of this Order to all prospective investment advisory clients not less than 48 hours prior to entering into any written or oral investment advisory contract (or no later than the time of entering into such contract, if the client has the right to terminate the contract without penalty within five business days after entering into the contract). Also, within 30 days from the date of this Order, BIC shall execute and deliver to the staff of the Commissions Boston District Office an affidavit that it has provided this Order to its existing clients in accordance with the terms of this Order. Within 13 months from the date of this Order, BIC shall execute and deliver to the staff of the Commissions Boston District Office an affidavit that it has provided this Order to its prospective clients in accordance with the terms of this Order; and
E. BIC shall, within 30 days of the date of this Order, comply with its undertaking to provide written notification to Nelson disclosing that all of its reports of performance returns were based on a model portfolio, were gross of fees and transaction costs, and included years prior to BICs formation, and reporting the true and accurate amount of its assets under management. Also, within 30 days from the date of this Order, BIC shall execute and deliver to the staff of the Commissions Boston District Office an affidavit stating that it has complied with this provision.By the Commission.
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