SECURITIES AND EXCHANGE COMMISSION
INVESTMENT ADVISERS ACT OF 1940
Release No. 2002 / December 14, 2001
File No. 3-10652
PROCEEDINGS INSTITUTED AGAINST MARKET TIMING SYSTEMS, INC., GREGORY MEADORS AND MARK SHINNICK
The Securities and Exchange Commission announced today that it instituted public administrative and cease-and-desist proceedings charging Market Timing Systems, Inc. ("MTSI"), a California-based investment adviser, MTSI's former chief executive officer, and MTSI's president with falsely advertising MTSI's performance, failing to maintain documentation to substantiate MTSI's advertised performance, failing to maintain required financial books and records, and failing to disclose the disciplinary history of MTSI's chief executive officer. The proceedings were instituted under Sections 203(e), (f) and (k) of the Investment Advisers Act of 1940 ("Advisers Act").
In the Order Instituting Proceedings ("Order"), the Division of Enforcement (the "Division") alleges that MTSI disseminated false and misleading advertisements containing hypothetical performance results. The Division alleges that MTSI's advertisements: (1) failed to disclose that the advertised results were achieved through the retroactive application of a model rather than the product of actual performance, and failed to adequately disclose the limitations of its hypothetical performance results; (2) falsely stated that the methodology used to arrive at the performance results was the primary, if not exclusive, methodology used in managing client accounts, and failed to disclose the prominent role played by numerous other factors; and (3) failed to disclose that the company's actual results for certain periods of time were materially inferior to its advertised hypothetical results. The Division alleges that MTSI's conduct violated the antifraud provisions of the Advisers Act, Sections 206(1), (2), and (4) and Rule 206(4)-1(a)(5).
In addition, the Division alleges that MTSI failed to make and maintain records to substantiate its hypothetical performance results, and failed to make and maintain financial books and records, including ledgers, journals and financial statements, thereby violating Section 204 of the Advisers Act and Rules 204-2(a)(16) and 204-2(a)(1), (2) and (6), respectively. The Division further alleges that MTSI violated Section 207 of the Advisers Act by failing to disclose in its Forms ADV a cease and desist order issued by the State of California against MTSI's chief executive officer for offering and selling unregistered securities in the State of California.
The Division alleges that Gregory Meadors, MTSI's chief executive officer during the relevant time frame, and Mark Shinnick, MTSI's president, willfully aided and abetted and caused MTSI's performance advertising and record keeping violations. The Division also alleges that Meadors violated Section 207 of the Advisers Act by failing to disclose his disciplinary history.
A hearing will be scheduled before an administrative law judge to determine whether the allegations contained in the Order are true, to provide MTSI, Gregory Meadors and Mark Shinnick an opportunity to dispute the allegations, and to determine what sanctions, if any, are appropriate and in the public interest.