INVESTMENT ADVISERS ACT OF 1940
Release No. 1829 / September 22, 1999
File No. 3-10021
|In the Matter of
EDWARD ARNOLD PATTERSON
|ORDER INSTITUTING PUBLIC PROCEEDDINGS, MAKING FINDINGS, IMPOSING REMEDIAL SANCTIONS|
The Securities and Exchange Commission ("Commission") deems it appropriate and in the public interest that public administrative proceedings be, and hereby are, instituted pursuant to Section 203(f) of the Investment Advisers Act of 1940 ("Advisers Act") against Edward Arnold Patterson ("Patterson"), an associated person of a registered investment adviser.
In anticipation of the institution of these administrative proceedings, Patterson has submitted an Offer of Settlement ("Offer") to the Commission, 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 findings contained herein, except with respect to paragraphs III.A and F, below, which are admitted, Patterson consents to the issuance of this Order Instituting Public Proceedings, Making Findings and Imposing Remedial Sanctions, and to the entry of the findings and the imposition of the remedial sanctions set forth below.
The Commission finds the following:
A. Patterson, age 49, is a resident of Fort Worth, Texas. Between 1987 and October 1997, Patterson was an associated person and employee of Wren Harold Hart ("Hart"), a registered investment adviser doing business under the name Financial Management Services ("FMS"). Between January 1994 and October 1997, FMS managed the assets of approximately 50 clients totaling approximately $6.8 million.
UNDERLYING VIOLATIVE CONDUCT
B. As set forth in paragraphs C, D, and E, herein, from approximately October 1993 through October 1997, Patterson willfully violated Section 17(a) of the Securities Act of 1933 ("Securities Act") and Section 10(b) of the Securities Exchange Act of 1934 ("Exchange Act") and Rule 10b-5 thereunder, and willfully aided and abetted violations of Sections 206(l), 206(2) and 204 of the Advisers Act and Rules 204-2(a) (3), (7) and (9) thereunder.
C. In four separate transactions between October 1993 and November 1995, Patterson misappropriated a total of $155,000 from two FMS clients. In October 1993, Patterson fraudulently induced a client to give him a blank check in the amount of $65,000 based on his misrepresentation that he would invest the funds in a mutual fund. Instead, he deposited the check into a personal account. In January 1995, Patterson also withdrew $20,000 from the same FMS client's account without the client's authority. In June and August 1996, he fraudulently caused a brokerage firm to issue two checks to another FMS client in the amounts of $50,000 and $20,000, respectively. Patterson forged the client's signature on each check and deposited them into a personal checking account.
D. From in or about the first quarter of 1994 through October 1997, Patterson prepared inflated account and mutual fund statements which he caused Hart and FMS to provide to FMS clients, misleading them as to the value of their investments. These false account statements, usually issued quarterly, were provided to over 30 clients; the statements collectively overstated the values of the client accounts by approximately $807,000. With respect to at least five of these accounts, Patterson provided clients with altered or fictitious mutual fund statements that purportedly confirmed the figures contained in the inflated adviser account statements. The overstatements caused FMS to receive excess management fees and caused the performance figures in the clients' accounts to be materially overstated.1
E. Patterson caused FMS to fail to keep true, accurate and current books and records required to be maintained by investment advisers. Specifically, by his conduct, Patterson caused FMS to fail to maintain, among other things, client mutual fund statements; memoranda reflecting mutual fund orders; and powers of attorney and other evidence of discretionary trading authority given to FMS.
CIVIL INJUNCTIVE ACTION
F. On September 8, 1999, a Final Judgment was entered by consent against Patterson in United States District Court for the Northern District of Texas. Patterson was permanently enjoined from violations of Section 17(a) of the Securities Act and Section 10(b) of the Exchange Act and Rule 10b-5 thereunder, and aiding and abetting violations of Sections 206(l), 206(2) and 204 of the Advisers Act and Rules 204-2(a) (3), (7) and (9) thereunder.
G. The Commission's Complaint in the above-referenced case alleged the facts set forth in Paragraphs C, D and E of Section III, above.
In view of the foregoing, the Commission deems it appropriate and in the public interest to impose the sanctions specified by Patterson in his Offer.
Accordingly, IT IS ORDERED THAT:
Patterson be, and hereby is, barred from association with any investment adviser.By the Commission.
Jonathan G. Katz
|1||Since the Commission staff began its investigation into this matter, Hart has paid FMS clients approximately $540,000 as compensation for the overstatements. Hart has also paid approximately $135,000 to the clients whose funds were misappropriated by Patterson. Patterson has paid $20,000 to the investor from whose account he took funds without authority.|