U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 20609 / June 3, 2008
SEC v. Frederick J. Barton, Barton Asset Management, LLC, and TwinSpan Capital Management, LLC, Civil Action No. 1:08-CV-1917
SEC Charges Former Registered Representative and Former Registered Investment Adviser with Fraud
The Securities and Exchange Commission (Commission) today announced the filing of a civil action against Frederick J. Barton (Barton), a formerly registered representative of a national, registered broker-dealer and two entities he controlled: TwinSpan Capital Management, LLC (TwinSpan), an investment adviser formerly registered with the Commission, and Barton Asset Management, LLC (Barton Asset Management). The Commission alleges that, between 1999 and 2007, Barton, acting individually or through TwinSpan or Barton Asset Management, engaged in three separate securities frauds-including one involving a senior citizen suffering from Alzheimer's disease-and through his misconduct obtained over $3 million in ill-gotten gains. The Commission further alleges that he then spent his ill-gotten gains, among other things, to send his children to an exclusive private school, fund his own investment portfolio, and service his credit card debts.
Named in the complaint are:
The Commission's complaint, filed in the United States District Court for the Northern District of Georgia, Atlanta Division, alleges that between approximately May 1999 and December 2003, Barton, acting individually or through Barton Asset Management, misappropriated approximately $970,000 from a single, elderly brokerage customer of his who suffered from diminished mental capacity and Alzheimer's disease. The complaint alleges that Barton induced her to sell securities in her brokerage account, held by the firm that employed Barton, and give him the proceeds of those sales based on representations that he would somehow either transfer those proceeds into instruments offered by a local bank or, in a few instances, place the proceeds in an advisory account at Barton Asset Management. As a result of this conduct, the value of this customer's brokerage account declined from over $1.3 million (practically her entire life's savings) to only a few dollars by December 2003.
The Commission's complaint also alleges that between October 2004 and October 2005, Barton, acting individually or through TwinSpan, engaged in an unrelated $1.515 million offering fraud. Barton and TwinSpan told investors that proceeds from their investments would be used to grow TwinSpan and for other business expenses. In contravention of the offering material, Barton and TwinSpan diverted at least $493,100 of the offering proceeds for Barton's personal use and used a substantial portion of the offering proceeds in advance of reaching the minimum offering amount.
The Commission's complaint further alleges that, from October 2006 to February 2007, knowing of the Commission's staff's investigation of his earlier misconduct, Barton misappropriated $685,000 from an advisory client of TwinSpan. Specifically, Barton, acting through TwinSpan, forged the customer's signature on four wire-transfer authorizations that transferred $185,000 of the client's assets at TwinSpan to a bank account in the name of Barton Asset Management. A few weeks after his last unauthorized wire transfer, Barton borrowed an additional $500,000 from this client. In so doing, he did not disclose his earlier theft of her funds.
The Commission alleges that, by their misconduct, the defendants violated Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, and Sections 206(1) and 206(2) of the Investment Advisers Act of 1940. Additionally, the Commission alleges that Barton and TwinSpan violated Rule 10b-9 under the Securities Exchange Act. The Commission seeks against the defendants permanent injunctive relief, an accounting, disgorgement of ill-gotten gains plus prejudgment interest and civil penalties. The litigation remains pending as to all parties.