UNITED STATES SECURITIES AND EXCHANGE COMMISSION
INVESTMENT ADVISERS ACT OF 1940
MICHAEL J. ROTHMEIER, CLARKE T. BLIZZARD, RUDOLPH ABEL, DONALD C. BERRY, CHRISTOPHER P. ROACH, CRAIG JANUTOL, EAST WEST INSTITUTIONAL SERVICES, INC.
The Commission announced the entry of an Order Instituting Proceedings against Michael J. Rothmeier ("Rothmeier"), Clarke T. Blizzard ("Blizzard"), Rudolph Abel ("Abel"), Donald C. Berry ("Berry"), Christopher P. Roach ("Roach"), Craig Janutol ("Janutol") and East West Institutional Services, Inc. ("East West").
The Order alleges that between mid-1993 and March 1996 Rothmeier, former president and CEO of Shawmut, Blizzard, Shawmut's former vice president for sales, and two former chief investment officers, Abel and Berry, caused the direction of over $1.8 million in clients' brokerage commissions to thirteen brokerage firms as compensation for referring new client accounts. The referral arrangements were fraudulent because Shawmut's Form ADV, which stated that Shawmut selected brokers on the basis of investment research they provided, failed to disclose that Shawmut selected certain brokers on the basis of client referrals.
The Order also alleges that the former Shawmut officers directed approximately $1 million of the $1.8 million in commissions to East West, a Michigan broker-dealer, as compensation for referring a $600 million International Brotherhood of Teamsters Local Union 710 pension fund account to Shawmut. The action alleges that Blizzard and Roach, East West's registered representative, agreed that Shawmut would direct $1,000 in brokerage commissions to East West for every $1 million of client assets Roach steered to Shawmut. Blizzard and Roach also agreed to conceal the arrangement from the union. The Order contends that, despite red flags regarding Roach's activities, Janutol, former president of East West, failed to inquire into the basis for Roach's large volume of business with Shawmut.
The Order alleges that Rothmeier, Blizzard, Abel and Berry caused and aided and abetted Shawmut's violation of Section 206(1) and 206(2) of the Investment Advisers Act of 1940 ("Advisers Act") through their undisclosed use of Shawmut's clients' brokerage commissions to obtain a benefit to Shawmut. The Order alleges that Rothmeier violated Section 207 of the Advisers Act by failing to disclose the referral arrangements in Shawmut's Form ADV, which he reviewed and signed as true and complete. In addition, the Order alleges that Rothmeier caused and aided and abetted Shawmut's violation of Section 204 and Rule 204-1(b)(1) of the Advisers Act by failing to promptly amend Shawmut's Form ADV to reflect the referral arrangements.
The Order also alleges that Roach and East West caused and aided and abetted violations of Sections 206(1) and 206(2) of the Advisers Act, and Janutol, East West's former president, failed to supervise Roach with a view to preventing his securities laws violations, in violation of Section 15(b)(4)(E) of the Securities Exchange Act of 1934.
A hearing will be held before an administrative law judge to determine whether the staff's allegations against Rothmeier, Blizzard, Abel, Berry, Roach, Janutol, and East West are true, and if so, whether remedial sanctions are appropriate and in the public interest, whether they should be ordered to cease and desist, pay civil penalties, and whether Roach and Blizzard should also pay disgorgement.