UNITED STATES OF AMERICA
In the Matter of
|ORDER INSTITUTING PUBLIC PROCEEDINGS, MAKING FINDINGS, AND IMPOSING REMEDIAL SANCTIONS AS TO RUPAY-BARRINGTON CAPITAL MANAGEMENT, INC.|
The Securities and Exchange Commission deems it appropriate and in the public interest that public administrative proceedings against Respondent Rupay-Barrington Capital Management, Inc. ("Rupay Management" or "Respondent") be initiated pursuant to Section 203(e) of the Investment Advisers Act of 1940 ("Advisers Act").
In anticipation of the institution of these proceedings, Respondent has submitted an Offer of Settlement 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 against Rupay Management or in which the Commission and Rupay Management are parties, and without admitting or denying the findings contained herein, except that Respondent admits the Commission's jurisdiction over it and over the subject matter of these proceedings, and admits the Commission's finding that a Final Judgment of Permanent Injunction and Other Equitable Relief has been entered against it as set forth in Paragraph II.F below, Respondent has consented to the entry of this Order Instituting Public Proceedings, Making Findings and Imposing Remedial Sanctions as set forth below.
On the basis of this Order and the Offer submitted by Respondent, the Commission finds:
A. Rupay Management, a Nevada corporation located in Arlington, Texas, has been registered with the Commission as an investment adviser since December 6, 1993. Rupay Management provides investment advisory services primarily to individuals and pension accounts. As of March 31, 2000, Rupay Management had approximately 85 private clients with $81.5 million under management.
B. Until July 10, 2000, Rupay Management also advised Rupay-Barrington Funds, Inc. (the "Fund"), an open-end, diversified investment company registered with the Commission since March 28, 1995. The Fund is organized as a series company with three portfolios.
C. On July 10, 2000, the Commission filed a complaint against Rupay Management and others in the United States District Court for the Northern District of Texas, Dallas Division ("District Court"), SEC v. Rupay-Barrington Capital Management, Inc., et al, Civ. No. 3:00-CV-1482-D (N.D. Tex.). The Commission's complaint alleged that, from at least January 1999, Rupay Management caused the Fund, its advisory client, to carry an uncollectable receivable from an affiliate, Rupay-Barrington Financial Group, Inc. ("Group"), which was insolvent. This receivable arose from Group's agreement to pay Fund expenses that exceeded a certain percentage of the Fund's net assets. According to the complaint, this receivable was uncollectable from at least January 1999 through June 2000, but Rupay Management caused the Fund's books to reflect the receivable at full face value. The complaint further alleged that the receivable grew steadily over this period to a peak of approximately $250,000, which inflated the net asset value of the Fund's three portfolios, meaning that the Fund sold and redeemed shares at improperly high prices. Ultimately, the complaint alleged, the Fund improperly suspended redemptions for one of its portfolios, which held the largest portion of the receivable and hence was illiquid.
D. The complaint also alleged that Rupay Management did not fully advise shareholders that the receivable was uncollectable, but, instead, advised its private advisory clients to invest in the Fund. Furthermore, the complaint alleged that the Fund sold shares during most of this period using an outdated prospectus and that these events transpired without remedial action by Rupay Management.
E. The complaint acknowledged that, in June 2000, the receivable was satisfied and Fund investors were made whole.
F. Solely for the purpose of settling these proceedings, Rupay Management consented to the entry of a Final Judgment of Permanent Injunction and Other Equitable Relief ("Final Judgment") against it, without admitting or denying the allegations of the complaint, except as to subject matter jurisdiction, which it admitted. On January 14, 2002, the District Court entered the Final Judgment, which permanently enjoins Rupay Management from violating or aiding and abetting violations of Sections 206(1) and 206(2) of the Advisers Act, Sections 34(b) and 36(a) of the Investment Company Act of 1940, Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, and Sections 5(b) and 17(a) of the Securities Act of 1933.
Rupay Management has submitted an Offer of Settlement in which, without admitting or denying the findings herein, it consents to the Commission's entry of this Order, which makes findings as set forth above; imposes a censure; and directs Rupay Management to comply with the undertakings described in Section IV below.
In view of the foregoing the Commission deems it appropriate and in the public interest to impose the sanctions agreed to in the Offer. Accordingly, IT IS HEREBY ORDERED that:
A. Rupay Management shall be, and hereby is, censured; and
B. Rupay Management has agreed to and shall comply with the following undertakings:
1. within 30 days of the entry of the Commission's Order, Respondent will submit to the staff of the Commission's Fort Worth District Office a plan for closing or transferring client accounts within 180 days. At or before the expiration of those 180 days, Respondent will file a Form ADV-W to withdraw its registration with the Commission as an investment adviser;
2. during the period it is winding down its business, Respondent will not solicit prospective advisory clients; and
3. Respondent will provide a copy of the Commission's Order in this proceeding to each existing advisory client.
By the Commission.
Jonathan G. Katz
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