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U.S. Securities and Exchange Commission

Initial Decision of an SEC Administrative Law Judge

In the Matter of
Milton Puryear


FILE NO. 3-8766

Before the

In the Matter of





August 12, 1996


Sheilah M. Reycraft, Petra T. Tasheff, and Bruce H. Newman for the Division of Enforcement, Securities and Exchange Commission

Joseph Fleming for the Respondent


Brenda P. Murray, Chief Administrative Law Judge

The Securities and Exchange Commission ("Commission") instituted this proceeding on August 1, 1995, pursuant to Sections 203(e) and 203(f) of the Investment Advisers Act of 1940 ("Advisers Act"). As directed by the Commission's Order Instituting Public Proceedings ("Order"), I held a hearing in Washington, D.C., on September 13, 1995. The Division of Enforcement ("Division") did not call any witnesses, but offered 29 exhibits which I received in evidence. Respondent Puryear testified and offered one exhibit which I admitted.1

I received the Division's Post-Hearing Brief and Proposed Findings of Fact and Conclusions of Law on October 30, 1995. Respondent Puryear did not make any post-hearing filings.


The allegations which are the basis for this proceeding are true. (Respondent's Answer; Tr. 9-10.) The Order alleges that: From approximately November 1989 through approximately October 1992, Mr. Puryear willfully violated Sections 5(a) of the Securities Act of 1933 ("Securities Act") by raising approximately $1.5 million through the sale and delivery of some 700,000 unregistered Puryear Realty securities to over 400 investors in a general solicitation involving radio and newspaper advertising.2

In the same time frame, Mr. Puryear willfully violated Section 17(a) of the Securities Act, Section 10(b) of the Securities Exchange Act of 1934 ("Exchange Act"), and Rule 10b-5 thereunder by falsely representing to investors that (1) an investment in Puryear Realty securities would double or triple in value in five years without any reasonable basis for his statement, (2) investor funds would be used to develop real estate when he knew he was using the funds for purposesunrelated to real estate, including his personal benefit, and (3) funds would be placed in escrow and returned to investors if the offering was not fully subscribed in 120 days, when no escrow was used, the offering continued for more than 120 days, and no funds were returned to investors.

In response to the Commission's Motion for Summary Judgment, Judge John S. Martin found on March 30, 1994, after Mr. Puryear testified, that Mr. Puryear willfully sold unregistered securities and willfully committed fraud in connection with those sales. Judge Martin made oral findings on March 30, 1994, that Mr. Puryear willfully engaged in the sale of unregistered securities, and willfully violated Section 10(b) of the Exchange Act3. (SEC v. Milton Puryear, Puryear Realty Resources, Inc. and Milton Puryear & Co., 93 Civ. 2559 (S.D.N.Y.); Div. Ex. 300 at 57 - 61; P. Tr. 12-16.)

On June 7, 1994, Judge Martin issued a Final Judgment of Permanent Injunctions, and Other Equitable Relief Against Defendants Milton Puryear, Puryear Realty Resources, Inc. and Milton Puryear & Co., from future violations of Sections 5(a), 5(b), and 17(a) of the Securities Act and Section 10(b) of the Exchange Act, and Rules 10b-5 and 10b-9 thereunder.4 (Div. Ex. 150.)


The existence of the injunctions and the findings of violations of the securities statutes are the basis for remedial action. The only issue is whether it is in the public interest for the Commission to sanction Mr. Puryear pursuant to Sections 203(e) and 203(f) of the Advisers Act.5

Findings of Fact and Conclusions of Law


Mr. Puryear graduated from Yale University in 1971 with a major in political science and a minor in economics and history. (Div. Ex. 170, Application for Registration as an Investment Adviser or to Amend Such an Application Under the Investment Advisers Act of 1940; Tr. 45.) From 1972 to 1973, Mr. Puryear was employed by the U.S. Department of Commerce's Office of Minority Business Enterprise in Washington, D.C.; from 1973 to 1974 he worked for Capital Formation in New York City; and from 1974 to 1975 his employer was the Interracial Council for Business Opportunity in New York. (Div. Ex. 170; Div. Ex. 180, Amendment to Application on Form ADV.) He attended the Harvard Business School from 1975 to 1977 where he majored in corporate finance.6 (Tr. 45-46.) In 1978 he went to work for the Bedford Stuyvesant Restoration Corp., this country's oldest and largest community development corporation whose focus is improving the economic, physical, and cultural life of a community of over 300,000 people. (Tr. 50.) Mr. Puryear was a vice president and director of the economic development division.7 (Tr. 50-51.) In 1980, Mr. Puryear went to work forthe Harlem Urban Development Corp. as a part-time economic development consultant and began developing his own businesses. (Tr. 54.)

On March 31, 1983, Mr. Puryear filed with the Commission an application to register The Puryear Money Report, other name Milton Puryear, as an investment adviser.8 (Div. Ex. 170.) The investment adviser published a newsletter, "The Puryear Money Report," which had a circulation of up to one thousand people.9 (Tr. 55-56.) On April 4, 1988, Mr. Puryear filed to change the name of the registered investment adviser to Milton E. Puryear d/b/a Milton Puryear & Co. formerly The Puryear Money Report. (Div. Ex. 210.)

At some point, Mr. Puryear decided to concentrate on advising institutional accounts rather than individuals. He provided investment advice to Carver Federal Savings Bank on its government securities portfolio of about $87 million, and he managed the money in the Oliver Sutton Estate.10 (Tr. 57.) The Sutton family owned Inner City Broadcasting which has radio and cable operations in New York City. For about eight years, Mr. Puryear conducted a weekly talk show on investments on WLIB, a New York City radio station. (Tr. 58.)

Investment advisers must file annual supplements to their original application for registration. 17 C.F.R. 275.204-1(c). Mr. Puryear filed his last supplement on September 28, 1988, in the name of Milton Puryear & Co. because he had stopped publishing the PuryearMoney Report in 1987. (Tr. 62; Div. Ex. 250, Form ADV-S, Annual Report for Investment Advisers Registered Under the Investment Advisers Act of 1940.) Mr. Puryear did not file a Form ADV-W, Notice of Withdrawal from Registration as an Investment Adviser, for either The Puryear Money Report or Milton E. Puryear. (Tr. 9, 64-65; Div. Ex. 270.) The Commission cancelled the registration in March 1990 for failure to make the required filings. (Tr. 8-9.)

In mid-1988, Mr. Puryear began Puryear Realty Resources ("Puryear Realty"), a Delaware corporation, to raise capital to invest in real estate projects of African-American developers.11 (Tr. 63-64; Div. Ex. 10 at 2-3, Complaint in SEC v. Milton Puryear, Puryear Realty Resources, Inc. and Milton Puryear & Co., 93 Civ. 2559 (S.D.N.Y.) dated April 20, 1993 which I will refer to as the civil action.) Puryear Realty filed a Form S-18 registration statement and prospectus with the Commission. The registration never became effective, and the proposed offering was not exempt from registration. (Div. Ex. 10 at 3-5.) Mr. Puryear, president, board chair, and overall manager of Puryear Realty, signed the registration statement. Id. Mr. Puryear controlled Milton Puryear & Co., a sole proprietorship, and used it to offer and sell Puryear Realty securities. Id.

I reject the affirmative defenses set out in Respondent's Answer.12

Public Interest

Judge Martin found in the civil action that: The issue is fraud . . .

It's telling people this is a great investment, no risk, you are going to get 15, 20 percent [on] your money. I put people in jail for this all the time, the same type of statements . . .

And you don't sell hope as reality. You don't go out and put all the types of ads that he was putting out . . .

So at the very time he is telling people they are investing in a real estate venture he is taking the money and putting it into a film company in which he has an interest, and other companies . . .

You can't say to somebody, "look, I want you to know I want your money because I have a very secure real estate venture that I want to put it in and it's going to make a lot of money," and then take that money and put it into a risky film company even though you hope to get money back.

It is undisputed that the defendant engaged in the sale of unregistered securities. The court finds that that sale of unregistered securities was wilful. From the very front of the prospectus itself the defendant was aware that the securities may not be sold, nor may offers to buy be accepted, prior to the time the registration statement became effective. That never happened. So the defendant engaged in a long and continuous pattern of selling unregistered securities knowing that they could not be sold.

The evidence that he sold with knowledge passes the standard of even beyond a reasonable doubt when we look to the events that followed October of 1990 when defendant indicated that he was told he could no longer sell unregistered securities.

The court does not accept as credible the testimony of the defendant that moneysimply came in in January 1991 that was not based on any solicitation prior to between October '90 and January 1991.

The record is also overwhelming that the sales in which the defendant engaged were fraudulent in that the defendant solicited and obtained funds by repeated assurances to the investing public that this was an investment on which they would reap substantial returns, 15 percent a year, for example, when there was no basis in fact to predict that type of return ...

Clearly this defendant wilfully [violated Section 10(b)] by making rosy predictions without ever making known to the investing public the risks that they were subjecting themselves to in investing their money in his projects.

The record also sustains the contention of the Commission that the defendant accepted funds on the representation to people that they were investing in a real estate venture while at the very same time he was placing the funds that he received in other high risk investments in which he had some interest ...

The [Commission] is also entitled to an order ordering the defendant to disgorge all the funds received by his ventures from investors and that money should be placed in a fund first to make whole those people who invested with the defendant.

The court also believes the nature of the fraud here is such as to justify an order barring the defendant from participating as an officer or director of any publicly held corporation.

(Div. Ex. 300 at 48-51, 57-60.)

After entry of the permanent injunction, Mr. Puryear researched and wrote two reports for a registered investment advisor, Taylor Hard Money Advisors, Inc.13 (Tr. 68.) Mr. Puryear only relied on the materials provided to him from the person who hired him to researchthe company which was the subject of the reports. (Tr. 74.) Each report was six pages, and the person who hired Mr. Puryear edited the final version. (Tr. 69, 78.) Mr. Puryear's report on The Arizona Copper Company appeared in the December 20, 1994, issue of Taylor Hard Money Advisors, Inc. (Div. Ex. 2.) The adviser sold the reprint rights to the second report to Nevsun Resources, the subject of the report. (Tr. 69; R's Ex. A.) Mr. Puryear claims that he did this work as an independent contractor,14 and that his name did not appear on the Arizona Copper Company report that went out to the adviser's clients. (Tr. 70, 75-76.) However, his name appears on the copy of the report that is in evidence. (Div. Ex. 2.)

In addition to the egregious illegal conduct which Judge Martin described, there are additional considerations which persuade me that Mr. Puryear should receive a strong sanction. Mr. Puryear believes that, despite his education and almost twenty-five years of business experience, his claim that he meant no harm is a valid excuse for his illegal acts. (Div. Ex. 300 at 55; Tr. 71-72.) He knowingly made at least six different misrepresentations to investors that: (1) their money would be invested exclusively in real estate when he knew he was using it for other purposes; (2) Puryear Realty stock was registered with the Commission when he knew it was not registered; (3) an investor would be able to sell the stock at any time by calling a broker; (4) the offering was on an all-or-none basis so that their funds would be returned if the offering was not fully subscribed within 120 days; (5) a prior project he had been associated with had generated a certain level of income when he knew investors had received no return; and (6) investors would receive 15 to 20 percent on their investment. (Div. Ex. 300 at 54-55.)

In a filmed advertisement soliciting investments in Puryear Realty, Mr. Puryear urged viewers, "Please join us and become part of the solution to one of the most important problems facing black Americans today, how to use our own resources to create economic stability and prosperity in our communities." (Div. Exs. 110 and 140 at 9-10.) In the same advertisement, he mentioned three times that investors could expect annual returns of between 15 to 20 percent, that the securities were registered with the SEC so that they could be sold at any time, that he did everything he could to minimize the risk to investors, and that because investments were made exclusively in real estate the probability of losing money was substantially lower than it would be in other types of investments.15 Id. Mr. Puryear knew these representations were lies when he made them. (Div. Ex. 300 at 50, 54-56, 58.) Mr. Puryear continued to sell unregistered securities after he had been advised not to do so. (Div. Ex. 300 at 19-30, 58.) Finally, an investment adviser is a fiduciary in whom clients must be able to put their trust. As one court has stated, it is an "occupation which can cause havoc unless engaged in by those with appropriate background and standards." (Joseph P. D'Angelo, 11 SEC Docket 1263, 1264, aff'd without opinion, C.A. 2 (May 5, 1977), quoting from Marketlines, Inc. v. SEC, 384 F.2d 264, 267 (C.A. 2, 1967), cert. denied, 390 U.S. 947 (1968); See SEC v. Capital Gains Research Bureau, Inc., 375 U.S. 180, 194 (1963).)

Mr. Puryear's position is surreal. He denies misleading investors but at the same time he acknowledges that he represented to them that their funds would be invested exclusively in real estate development projects. Instead, he used the money to pay his taxes, and to make loansto companies such as Olmec Corp., a toy company that he had helped start and partially owned and which his ex-wife managed;16 Kaos Films, a film company; and Design Masters Collections, a limited partnership which invested in art. (Div. Ex. 300 at 4, 9, 30-31, 33, 44-45.) His testimony has no rational basis. One of the things I did best, have done best, has been to give investment advice, do investment research.17 And while I don't think I'm interested in the individual retail consumer market I would be interested in providing investment advice to institutional investors, pension funds and money managers. And I think that that would be a way for me to make a living, make a contribution.

I have never intentionally led anyone into anything where I thought they were going to be hurt. I dealt in an area that involved risk. I was very open and very clear about risk in my discussions with people. Many of my African American investors wanted to invest in African American businesses and that's why they came to me. And I was very up front about the fact that smaller businesses, starting businesses, early stage businesses involved a higher degree of risk and that people should only invest a small percentage of their money.

Most of the people who followed my advice made money. That's how my reputation grew and I was able to raise money. But not every investment that I recommended did make money and there were some that were lost. But I would think that even today overwhelming the legacy of my investment advice has been an overwhelming positive one. (Tr. 71-72.)

The overwhelming evidence is that Mr. Puryear presents a serious threat to the investing public. His bizarre perception of his status ignores Judge Martin's findings in the civil action that he committed willful violations of the securities laws and regulations over an extendedperiod, and the Final Judgment of Permanent Injunctions and Other Equitable Relief issued to prevent future violations which ordered Mr. Puryear and his companies to disgorge, jointly and severally, the sum, including interest, of $2,331,360. There are no mitigating circumstances. For all these reasons, I find it necessary to bar Mr. Puryear from being associated with an investment adviser.

Record Certification

Pursuant to Rule 351(b) of the Commission's Rules of Practice, 17 C.F.R. 201.351(b)(1996), I certify that the record includes the items set forth in the record index issued by the Secretary of the Commission on October 31, 1995. That index lists the testimony of one witness, Mr. Puryear, 29 exhibits sponsored by the Division, one exhibit sponsored by the Respondent, and the Division's Proposed Findings of Fact and Conclusions of Law and Post-Hearing Brief.


Based on these findings and conclusions, and pursuant to Section 203(f) of the Advisers Act, I ORDER that Milton Puryear is barred from association with any investment adviser.

This order shall become effective in accordance with and subject to the provisions of Rule 360 of the Commission's Rules of Practice, 17 C.F.R. 201.360 (1996). Pursuant to that rule, a petition for review of this initial decision may be filed within 21 days after service of the decision. It shall become the final decision of the Commission as to each party who has not filed a petition for review pursuant to Rule 360(d)(1) within 21 days after service of the initial decision upon him, unless the Commission, pursuant to Rule 360(b)(1), determines on its own initiative to review this initial decision as to any party. If a party timely files a petition forreview, or the Commission acts to review as to a party, the initial decision shall not become final as to that party.

Brenda P. Murray
Chief Administrative Law Judge

Washington, D.C.
August 12, 1996


1 I will refer to the Division's exhibits as Div. Ex. __, and to Respondent's exhibit as R's Ex. A. The transcript of the hearing will be Tr. __ , and the transcript of the prehearing will be P. Tr. __.
2 According to the complaint in the civil action, from November 1988 through in or about October 1991, approximately 439 investors paid approximately $1,592,370 for the securities of Puryear Realty (Div. Ex. 10 at 3.) I do not know why the dates differ in the Order.
3 Mr. Puryear's counsel did not dispute the Division's claim that Judge Martin also found that Mr. Puryear willfully violated Sections 5(a) and 17(a) of the Securities Act and Rule 10b-5. According to the Division, there has been no finding that Mr. Puryear willfully violated either Section 5(b) of the Securities Act or Rule 10b-9 pursuant to the Exchange Act. (P. Tr. 13.)
4 Judge Martin also ordered the defendants to disgorge, jointly and severally, the sum of $1,602,169, and $729,191.17 in prejudgment interest, and barred Mr. Puryear from acting as an officer or director of any issuer that has a class of securities registered pursuant to Section 12 of the Exchange Act or that is required to file reports pursuant to Section 15(d) of the Exchange Act.
5 Respondent's counsel sees the issues as: (1) whether Mr. Puryear's activities following the injunction are the activities of an investment adviser, and (2) whether this activity by Mr. Puryear presents a threat to investors. (P. Tr. 21.)
6 Mr. Puryear testified that he left Harvard without getting a degree to pursue a business opportunity which arose when the government of Antigua, West Indies, expressed a desire for a charter airline. Mr. Puryear and a friend formed Puryear & Hodge but the company's development activities were unsuccessful. (Tr. 46; Div. Ex. 180.) Commission counsel argued to the district court that Mr. Puryear was knowledgeable about business risks because, "He had been involved in one business failure with the charter airline deal in the West Indies company." (Div. Ex. 300 at 55.)
7 Mr. Puryear testified that the Bedford Stuyvesant Restoration Corp. promoted him to a position heading six subsidiaries that were collectively losing half a million dollars a year. He disposed of some businesses and put the others on either a profitable or break even basis. (Tr. 52.) The investment adviser registration form filed for The Puryear Money Report, other name Milton Puryear, shows only that Mr. Puryear was a vice president with Bedford Stuyvesant Rest.Corp. from March 1978 until August 1980. (Compare Tr. 51-54 with Div. Ex. 170, Schedule D of Form ADV.)
8 Mr. Puryear began offering his service in directing money market funds to the public and publishing his first newsletter, "How To Pick a Money Market Fund," in 1981/82. (Tr. 55.)
9 According to Mr. Puryear, in 1984 one group rated his newsletter number two nationally for stock recommendations, and in 1986 another group rated it number six. (Tr. 57.)
10 He ended his relationship with these two entities in 1988. (Tr. 63.)
11 According to Mr. Puryear, he stopped giving investment advice at the end of 1988. (Tr. 63-64.)
12 There is no persuasive evidence that Mr. Puryear relied on counsel and that defense is inapplicable on the facts. I reject Mr. Puryear's position that the Commission has no jurisdiction because he ceased being a registered investment adviser in 1988 when he stopped filing the required annual reports. He was a registered investment adviser or associated with one from March 1983 to March 1990, which is when many of the illegal activities occurred. "[The Commission's] authority to proceed under Section 203(f), however, does not rest on whether or not an entity or individual has registered with this Commission. It does rest on whether or not an entity or individual in fact acted as an investment adviser." (Alexander V. Stein, 59 SECDocket 1493, 1497 (June 8, 1995).) An investment adviser is any person who, for compensation, engages in the business of advising others, either directly or through publications or writings, as to the value of securities or as to the advisability of investing in, purchasing, or selling securities, or who, for compensation and as part of a regular business, issues or promulgates analyses or reports concerning securities. (Advisers Act, Section 202(11).) I have dealt with the other affirmative defenses in the decision.
13 The Division does not claim that Mr. Puryear violated the injunction by writing research reports, but believes this activity shows that it is in the public interest to bar him from association with a broker or dealer. (P. Tr. 8-9.)

Counsel for Mr. Puryear believes his client could continue writing such reports even if Mr. Puryear were barred from being an investment adviser and, I presume, also if he were barred from association with an investment adviser. The Division did not opine on the subject. (P. Tr. 11.)

14 His counsel twice referred to Mr. Puryear as an employee of the investment adviser. (P. Tr. 21, Tr. 70.)
15 Div. Exs. 30, 40 and 50 are advertisements and a pamphlet containing the same fraudulent misrepresentations. See also Div. Exs. 70 and 80.
16 The investors to whom Mr. Puryear sold the promissory note for the approximately $194,000 loan that Puryear Realty lent to Olmec Corp. have sued Olmec and Mr. Puryear for fraud. (Div. Ex. 300 at 42-43.)
17 Mr. Puryear described himself as "I'm basically a, you know, a financial scribe." (Tr. 74.) It is implausible that a person with a college degree, a year and a half of graduate business school, and many years experience in the securities industry, could describe writing reports on securities using only the information provided to him as doing research. (Tr. 72-74.)


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