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U.S. Securities and Exchange Commission

UNITED STATES OF AMERICA
Before the
SECURITIES AND EXCHANGE COMMISSION

INVESTMENT ADVISERS ACT OF 1940
Release No. 2272 / August 5, 2004

Admin. Proc. File No. 3-11576


In the Matter of

Terese Herwick,

Respondent.



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ORDER INSTITUTING ADMINISTRATIVE PROCEEDING PURSUANT TO SECTION 203(f) OF THE INVESTMENT ADVISERS ACT OF 1940, MAKING FINDINGS, AND IMPOSING REMEDIAL SANCTIONS

I.

The Securities and Exchange Commission ("Commission") deems it appropriate and in the public interest that a public administrative proceeding be, and hereby is, instituted pursuant to Section 203(f) of the Investment Advisers Act of 1940 ("Advisers Act") against Terese Herwick ("Respondent").

II.

In anticipation of the institution of this proceeding, Respondent has submitted an Offer of Settlement (the "Offer") that the Commission has determined to accept. Solely for the purpose of this proceeding 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 herein, except as to the Commission's jurisdiction over her and the subject matter of this proceeding, and the findings contained in Section III.2, which are admitted, Respondent consents to the entry of this Order Instituting Administrative Proceeding Pursuant to Section 203(f) of the Investment Advisers Act of 1940, Making Findings, and Imposing Remedial Sanctions ("Order"), as set forth below.

III.

On the basis of this Order and Herwick's Offer, the Commission finds that:

1. Herwick was the president, the sole owner, and a director of National Financial Systems, Inc. ("NFSI"), a California corporation headquartered in Santa Monica, California. Since June 2002, Herwick was an investment advisor representative for Empire Investment Advisors, Inc., a registered investment adviser in Longwood, Florida. Herwick, 52 years old, resides in Santa Monica, California.

2. On July 22, 2004, an order was entered against Herwick, pursuant to her consent, permanently enjoining her from future violations of 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 206(1) and 206(2) of the Advisers Act, in the civil action entitled Securities and Exchange Commission v. National Financial Systems, Inc. and Terese Herwick, Civil Action Number CV 03-6908 SVW (JTLx), in the United States District Court for the Central District of California.

3. The Commission's complaint alleged that, from 1999 to the present, Herwick, acting through NFSI, offered and sold interests in the Fixed Fund, an unregistered pool of assets consisting of real estate and securities that in itself constituted a security. The complaint further alleged that in the offer and sale of, and in connection with the sale of, investments in the Fixed Fund, Herwick, acting through NFSI, made material misrepresentations and omitted material facts to investors in the Fixed Fund, and otherwise engaged in conduct that operated as a fraud and deceit upon her clients. Those misrepresentations and omissions included, among other things, a written representation that the investment objective of the Fixed Fund was "[t]o seek preservation and protection of capital while providing regular monthly cash distributions," and the dissemination of quarterly account statements to Fixed Fund investors that depicted, as "dividends," the pro rata share of the annualized interest rate that NFSI owed to that investor, while at the same time failing to disclose that a significant portion of the Fixed Fund's assets were non-performing or had been foreclosed upon, that a number of those same assets had been written off, that the value of the Fixed Fund's remaining assets totaled only about half the amount owed to Fixed Fund investors as principal and purported accrued dividends, and that NFSI took from the Fixed Fund a management fee that effectively amounted to 10% of Fixed Fund assets.

IV.

In view of the foregoing, the Commission deems it appropriate and in the public interest to impose the sanctions specified in Herwick's Offer.

Accordingly, it is hereby ORDERED:

Pursuant to Section 203(f) of the Advisers Act, that Herwick be, and hereby is, barred from association with any investment adviser;

Any reapplication for association by Herwick will be subject to the applicable laws and regulations governing the reentry process, and reentry may be conditioned upon a number of factors, including, but not limited to, the satisfaction of any or all of the following: (a) any disgorgement ordered against Herwick, whether or not the Commission has fully or partially waived payment of such disgorgement; (b) any arbitration award related to the conduct that served as the basis for the Commission order; (c) any self-regulatory organization arbitration award to a customer, whether or not related to the conduct that served as the basis for the Commission order; and (d) any restitution order by a self-regulatory organization, whether or not related to the conduct that served as the basis for the Commission order.

For the Commission, by its Secretary, pursuant to delegated authority.

Jonathan G. Katz
Secretary


http://www.sec.gov/litigation/admin/ia-2272.htm


Modified: 08/05/2004