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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. 2363 / February 25, 2005

ADMINISTRATIVE PROCEEDING
File No. 3-11838


In the Matter of

Colley Asset Management, Inc.,
and John E. Colley,

Respondents.


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ORDER INSTITUTING ADMINISTRATIVE AND CEASE-AND-DESIST PROCEEDINGS, MAKING FINDINGS, AND IMPOSING REMEDIAL SANCTIONS AND A CEASE-AND-DESIST ORDER PURSUANT TO SECTIONS 203(e), 203(f) AND 203(k) OF THE INVESTMENT ADVISERS ACT OF 1940

I.

The Securities and Exchange Commission ("Commission") deems it appropriate and in the public interest that public administrative and cease-and-desist proceedings be, and hereby are, instituted pursuant to Section 203(k) of the Investment Advisers Act of 1940 ("Advisers Act") against Colley Asset Management ("CAM") and John E. Colley ("Colley") (collectively "Respondents"), and pursuant to Section 203(e) of the Advisers Act against CAM and Section 203(f) of the Advisers Act against Colley.

II.

In anticipation of the institution of these proceedings, Respondents have submitted an Offer of Settlement (the "Offer"), 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, prior to a hearing pursuant to the Commission’s Rules of Practice, 17 C.F.R. 201 et seq., and without admitting or denying the findings herein, except as to the Commission’s jurisdiction over CAM and Colley and over the subject matter of these proceedings, which are admitted, CAM and Colley consent to the entry of this Order Instituting Administrative and Cease-and-Desist Proceedings, Making Findings, and Imposing Remedial Sanctions and a Cease-and-Desist Order Pursuant to Sections 203(e), 203(f) and 203(k) of the Investment Advisers Act of 1940 ("Order"), as set forth below.

III.

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

NATURE OF PROCEEDINGS

1. This matter involves CAM’s failure to disclose Colley’s disciplinary history to clients and potential clients. In 1998, the Board of Governors of the Federal Reserve System ("Federal Reserve") entered a Combined Order of Prohibition and Assessment of a Civil Money Penalty (the "Federal Reserve Order") against Colley in connection with alleged breaches of his fiduciary duty to Trustco Bank New York ("Trustco") and its customers. Colley consented to the issuance of the Federal Reserve Order without admitting the allegations made or implied by the Federal Reserve in connection with the proceeding. The Federal Reserve barred Colley from participation, without prior written approval of the Federal Reserve, in the affairs of Trustco or any other bank, credit union, savings association, or insured depository institution, and ordered him to pay a penalty of $40,000. The Federal Reserve Order against Colley constituted a disciplinary event that is material to an evaluation of CAM’s and Colley’s integrity and should have been disclosed to CAM’s clients and potential clients.

RESPONDENTS

2. CAM has been registered with the Commission as an investment adviser since April 21, 1995, and is based in Saratoga Springs, New York. CAM manages approximately 380 discretionary client accounts, with assets of approximately $95 million. CAM’s clients include small businesses, charitable organizations and foundations, as well as high net-worth individuals.

3. Colley is, and at all relevant times was, CAM’s president and sole owner and controlled all aspects of CAM’s operations. From 1981 through May 1992, Colley worked at Trustco in Schenectady, New York. From February 1987 to May 1992, he was a senior vice-president at Trustco, in charge of its trust and investment divisions.

RESPONDENTS’ CONDUCT

4. In 1998, Colley was the subject of disciplinary action by the Federal Reserve. On February 3, 1998, the Federal Reserve issued the Federal Reserve Order, sanctioning Colley for "alleged breaches of his fiduciary duty to Trustco and Trustco’s customers in connection with the sale of numismatic coins to certain Trustco trust customers, and the custodial arrangements for a coin collection belonging to a Trustco trust customer." The allegations underlying the Federal Reserve Order were, among other things, that Colley had purported to act as a broker in sales of numismatic coins to certain customers when, to the contrary, he had sold the customers coins out of his own inventory, at a mark-up. Colley consented to the issuance of the Federal Reserve Order without admitting the allegations made or implied by the Federal Reserve in connection with the proceeding. The Federal Reserve barred Colley from participating, without its prior written approval, in the affairs of Trustco or any other bank, credit union, savings association, or insured depository institution, as those terms are defined by the Federal Deposit Insurance Act (12 U.S.C. 1818(e)(7)(A)), and ordered him to pay a penalty of $40,000.

5. From at least February 1998 through June 2003, CAM, at Colley’s direction, failed to disclose to clients and prospective clients the existence of, and all material facts with respect to, the Federal Reserve Order.

6. Item II D of Part I of the Commission’s Application for Investment Adviser Registration ("Form ADV") requires an investment adviser to state whether in the past 10 years any federal agency has entered an order against the adviser or an advisory affiliate in connection with an investment-related activity. As the president, control person and employee, Colley was an advisory affiliate of CAM. From at least February 1998 until June 2003, CAM’s Form ADV, filed with the Commission at Colley’s direction, incorrectly stated that no federal regulatory agency had entered an order against Colley in connection with an investment-related activity.

7. At all relevant times, CAM and Colley made use of the mails or means or instrumentalities of interstate commerce in connection with the conduct described above.

VIOLATIONS

8. Section 206(4) of the Advisers Act makes it unlawful for any investment adviser to engage in any fraudulent, deceptive or manipulative act, practice, or course of action, as the Commission defines by rule or regulation. Rule 206(4)-4(a)(2) provides that it shall constitute a fraudulent, deceptive, or manipulative act, practice, or course of business within the meaning of Section 206(4) for any registered investment adviser to fail to disclose to any client or prospective client all material facts with respect to a legal or disciplinary event that is material to an evaluation of the adviser’s integrity or ability to meet contractual commitments to clients. The Federal Reserve proceeding against Colley constituted a legal or disciplinary event that is material to an evaluation of his and CAM’s integrity. As a result of the conduct described in paragraphs 4, 5, and 7 above, CAM willfully1 violated, and Colley willfully aided and abetted and caused CAM’s violations of, Section 206(4) of the Advisers Act and Rule 206(4)-4 thereunder.

9. Section 207 of the Advisers Act makes it unlawful to make any untrue statement of material fact in reports filed with the Commission under Sections 203 or 204 of the Advisers Act. As a result of the conduct described in paragraphs 4 and 6 above, CAM and Colley willfully violated Section 207 of the Advisers Act.

UNDERTAKINGS

10. CAM has undertaken to:

(A) Mail a copy of this Order to each existing investment advisory client within 30 days following the entry of this Order, by certified or registered mail, return receipt requested, along with a cover letter in a form not unacceptable to the Commission’s staff;

(B) From the effective date of this Order until the expiration of 12 months thereafter, provide a copy of the Order to all prospective investment advisory clients not less than 48 hours prior to entering into any written or oral investment advisory contract (or no later than the time of entering into such contract, if the client has the right to terminate the contract without penalty within five business days after entering into the contract); and

(C) Within one month after expiration of the 12-month period, execute and deliver to Leslie Kazon of the Northeast Regional Office an affidavit attesting to the fact that it has provided this Order to all existing and prospective advisory clients in accordance with paragraphs (A) and (B) above.

IV.

In view of the foregoing, the Commission finds that it is appropriate and in the public interest to impose the sanctions agreed to in Respondents’ Offer of Settlement.

Accordingly, it is hereby ORDERED:

A. Pursuant to Section 203(k) of the Advisers Act, that CAM and Colley cease and desist from committing or causing any violations and any future violations of Sections 206(4) and 207 of the Advisers Act and Rule 206(4)-4 promulgated thereunder;

B. CAM and Colley shall together pay a civil money penalty in the amount of $100,000 to the United States Treasury. CAM and Colley, who are jointly and severally liable for the penalty amount, shall satisfy this obligation by making payments according to the following schedule: (1) $50,000 within 10 days of the entry of this Order, and (2) $50,000 within 90 days of the entry of this Order. All payments shall be: (A) made by United States postal money order, certified check, bank cashier's check or bank money order; (B) made payable to the Securities and Exchange Commission; (C) hand-delivered or mailed to the Office of Financial Management, Securities and Exchange Commission, Operations Center, 6432 General Green Way, Stop 0-3, Alexandria, VA 22312; and (D) submitted under cover letter that identifies CAM and Colley as the Respondents in these proceedings, the file number of these proceedings, a copy of which cover letter and money order or check shall be sent to Leslie Kazon, Esq., Assistant Regional Director, Securities and Exchange Commission, Northeast Regional Office, 233 Broadway, New York, NY 10279. Respondents agree that if the full amount of any payment described above is not made within ten (10) days following the date the payment is required by this Order, the entire amount of penalties, $100,000, minus payments made, if any, is due and payable immediately without further application; and

C. Respondent CAM shall comply with the undertakings enumerated in paragraph 10 above.

By the Commission.

Jonathan G. Katz
Secretary

1 "Willfully" as used in this Order means intentionally committing the act which constitutes the violation, see Wonsover v. SEC, 205 F.3d 408, 414 (D.C. Cir. 2000); Tager v. SEC, 344 F.2d 5, 8 (2d Cir. 1965). There is no requirement that the actor also be aware that he is violating any statute or rule.

 

http://www.sec.gov/litigation/admin/ia-2363.htm


Modified: 02/25/2005