Court Grants Partial Summary Judgment in Fraud Case Against Advisor and Two Advisory Firms
Litigation Release No. 24390 / February 4, 2019
Securities and Exchange Commission v. Thomas Conrad, Jr. et al., No. 1:16-cv-2572-LMM (N.D. Ga.) (filed July 15, 2016)
On January 17, 2019, the United States District Court for the Northern District of Georgia granted in part and denied in part the SEC's motion for partial summary judgment against Thomas Conrad, Jr. and two unregistered advisory firms he controlled, Financial Management Corporation ("FMC") and Financial Management Corporation, S.R.L. ("FMC Uruguay").
The SEC charged Conrad, FMC, and FMC Uruguay in July 2016. The SEC's complaint alleges that, from 2010 to 2014, Conrad directed preferential redemptions and other disbursements from funds advised by FMC and FMC Uruguay for himself, his extended family, and certain favored investors, while representing to other investors that redemptions were suspended. The complaint also alleges that Conrad failed to disclose conflicts of interest arising from loans made to Conrad's family members and Conrad's appointment of himself as a sub-manager for a fee. The complaint further alleges that, in offering materials given to prospective investors, defendants touted Conrad's significant experience in the securities industry, but failed to disclose his disciplinary history.
The court ruled that the SEC was entitled to summary judgment on its fraud claims based on the fraudulent redemption practices and failure to disclose Conrad's disciplinary history. The court found that Conrad, FMC, and FMC Uruguay repeatedly made material misrepresentations about the funds' redemption practices and that the failure to disclose Conrad's disciplinary history was material because Conrad, FMC, and FMC Uruguay touted Conrad's experience and expertise when soliciting investments in the funds. The court will determine the remedies at a later time. The court denied the SEC's motion for summary judgment on its claims that Conrad failed to disclose conflicts of interest, finding that there were disputed issues of facts.
The SEC's complaint also alleges that Conrad failed to disclose to investors that he titled certain fund assets in his name, rather than the fund's name, and that Conrad, FMC, and FMC Uruguay falsely represented the historical performance of the funds and that the funds were being audited. The SEC did not move for summary judgment as to these claims, and the court has yet to adjudicate them. Defendants moved for summary judgment on all of the SEC's claims, and the court denied their motion.
The SEC is represented by M. Graham Loomis, William P. Hicks, and Kristin W. Murnahan of the Atlanta Regional Office in this litigation.