UNITED STATES OF AMERICA
In the Matter of
DANA C. GIACCHETTO
The Securities and Exchange Commission ("Commission") deems it appropriate and in the public interest to institute public administrative proceedings pursuant to Sections 203(e) and 203(f) of the Investment Advisers Act of 1940 ("Advisers Act") against Dana C. Giacchetto ("Giacchetto") and The Cassandra Group, Inc. ("Cassandra").
In anticipation of the institution of these proceedings, Giacchetto and Cassandra have submitted Offers of Settlement (the "Offers") 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 in which the Commission is a party, and without admitting or denying the findings contained herein, except as to the Commission's jurisdiction, the entry of the injunctions against Giacchetto and Cassandra, and Giacchetto's criminal conviction set forth below in Paragraphs II.C., II.D., and II.G., which are admitted, Giacchetto and Cassandra have consented to the entry of this Order Instituting Public Proceedings, Making Findings, and Imposing Remedial Sanction.
Accordingly, IT IS ORDERED that administrative proceedings pursuant to Sections 203 (e) and 203(f) of the Advisers Act be, and hereby are, instituted against Giacchetto and Cassandra.
On the basis of this Order and the Offers, the Commission makes the following findings:
A. From January 11, 1991 to April 3, 2000, Giacchetto, age 38, was the sole owner, president, chief investment officer, and treasurer of Cassandra, an investment adviser registered with the Commission pursuant to Section 203(a) of the Advisers Act. On April 3, 2000, the Commission filed a complaint ("Complaint") against Giacchetto and Cassandra in the United States District Court for the Southern District of New York ("District Court"), in an action captioned SEC v. Dana C. Giacchetto and The Cassandra Group, Inc., 00 Civ. 2502 (LTS) (AJP) ("Injunctive Action"). That same day the Commission obtained expedited relief from the District Court including a temporary restraining order restraining Giacchetto and Cassandra from violating various provisions of the federal securities laws, the appointment of a temporary receiver for Cassandra ("receiver"), freezing the assets of Giacchetto and Cassandra, and requiring Giacchetto and Cassandra to provide an accounting.
B. Cassandra, located in New York, New York, has been registered with the Commission as an investment adviser since April 19, 1991. Until on or about April 3, 2000, Cassandra provided investment advisory services to individual investors and entities and received fees calculated as a percentage of assets under management. Cassandra directed broker-dealers to pay advisory fees directly to Cassandra from client custodial accounts. On July 21, 2000, Cassandra, while subject to the District Court's Receivership, filed a voluntary Petition for Relief pursuant to Chapter 7 of the United States Bankruptcy Code in the United States Bankruptcy Court for the Southern District of New York ("Bankruptcy Court") entitled In re The Cassandra Group, No. 00-41807 (Bankr. S.D.N.Y. July 21, 2000). Cassandra is currently subject to liquidation proceedings that are overseen by the Bankruptcy Trustee appointed pursuant to the United States Trustee's Notice of Appointment of Interim Trustee and Trustee.
C. On June 27, 2001, the District Court in the Injunctive Action permanently enjoined Giacchetto from violating Section 17(a) of the Securities Act of 1933 ("Securities Act"), Section 10(b) of the Securities Exchange Act of 1934 ("Exchange Act") and Rule 10b-5 thereunder, and Sections 204, 206(1), 206(2), 206(4), and 207 of the Advisers Act and Rules 204-2, 206(4)-2 and 206(4)-4 thereunder. The District Court entered the injunction pursuant to Giacchetto's offer of settlement to the Commission, in which Giacchetto neither admitted or denied the allegations contained in the Complaint. In addition, pursuant to that settlement offer, the Court further ordered Giacchetto to pay disgorgement of gains and prejudgment interest totaling $14,376,332.
D. On June 27, 2001, the District Court in the Injunctive Action also permanently enjoined Cassandra from violating Section 17(a) of the Securities Act, Section 10(b) of the Exchange Act and Rule 10b-5 thereunder, and Sections 204, 206(1), 206(2), 206(4), and 207 of the Advisers Act and Rules 204-2, 206(4)-2 and 206(4)-4 thereunder. The District Court entered the injunction pursuant to Cassandra's offer of settlement to the Commission, in which Cassandra neither admitted or denied the allegations contained in the Complaint. In addition, pursuant to that settlement offer, the Court further ordered that disgorgement and civil penaltiesnot be imposed against Cassandra on condition that funds available to pay investors are distributed in accordance with the applicable provisions of the United States Bankruptcy Code.
E. The Complaint in the Injunctive Action alleged that Giacchetto and Cassandra, since at least September 1997 through April 3, 2000, improperly transferred and took custody of at least $20 million of client assets, of which a substantial portion was misappropriated. The Complaint alleged that the assets were misappropriated chiefly by Giacchetto causing checks to be issued from clients' custodial accounts at Brown & Company Securities Corporation, a registered broker-dealer, and then endorsing the checks himself and depositing those funds into Cassandra's main operating bank account. The Complaint further alleged that Giacchetto and Cassandra used client funds to, among other things, make payments to other clients, some of which Giacchetto and Cassandra previously defrauded, as well as payments for Giacchetto's and Cassandra's expenses.
F. The Complaint further alleged that Giacchetto and Cassandra concealed their mishandling and misappropriation of client funds by knowingly or recklessly making misrepresentations and misleading omissions to various clients, including 1) misrepresenting to clients that Cassandra invested their funds in securities transactions that never took place, including non-existent bond purchases; 2) representing to clients that their funds were invested in various private transactions when in fact such funds had been commingled in Cassandra's operating account and characterized as "loans" to Cassandra or as "deposits" on Cassandra's books; 3) misrepresenting to clients that Cassandra undertakes a "conservative" investment strategy and that Cassandra does not take custody of client assets; 4) providing false order tickets and portfolio statements to clients; and 5) falsely stating that clients' assets are held in "trust" or "escrow" accounts that did not, in fact, exist.
G. On August 2, 2000, Giacchetto plead guilty to one criminal count of fraud under the Advisers Act in violation of Section 206(1) and 206(2) in a related criminal action captioned USA v. Dana C. Giacchetto, 00 Cr. 430 (RPP) ("Criminal Action"). The Grand Jury indictment in the Criminal Action alleged that Giacchetto misappropriated funds and assets belonging to clients of Cassandra, and that client funds were used to pay, among other things, Giacchetto's personal rent, cash advances, personal credit card bills, which in turn included bills for travel, hotels, dining, and entertainment, and Cassandra's rent, payroll, payroll taxes, attorney's fees, public relations agent fees, utility bills, bills for computer services, and credit card bills. On February 7, 2001, the District Court sentenced Giacchetto to serve 57 months in a Federal prison and be subject to post-incarceration supervised release for a term of 3 years. The District Court in the Criminal Action further ordered Giacchetto to pay restitution to victims in the amount of $9,870,612.
Based on the foregoing, the Commission deems it appropriate and in the public interest to accept the Offers of Respondents Cassandra and Giacchetto and to impose the remedial sanctions specified in the Offers.
Accordingly, IT IS ORDERED that Giacchetto be, and hereby is, barred from associating with any investment adviser.
Accordingly, IT IS FURTHER ORDERED Cassandra's registration as an investment adviser be, and hereby is, revoked.
By the Commission.
Jonathan G. Katz
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