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U.S. Securities and Exchange Commission

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Litigation Release No. 16610 / June 26, 2000

SECURITIES AND EXCHANGE COMMISSION v. THOMAS J. KEARNS, individually and doing business as Financial Associated Service, and KEARNS FINANCIAL SERVICES, INC. Civil Action No. 4:00-CV-1358-M, USDC, NDTX (Dallas Division)

On June 23, 2000, Judge Sidney Fitzwater, United States District Judge for the Northern District of Texas, granted the Commission's Application for Temporary Restraining Order against THOMAS J. KEARNS, individually and doing business as Financial Associated Service (FAS), and KEARNS FINANCIAL SERVICES, INC. (KFS). He also entered an Order appointing a receiver for Kearns, FAS and KFS and an Order freezing assets, requiring an accounting, preserving documents and permitting expedited discovery.

  • Thomas J. Kearns, age 55 and a resident of Dallas, has conducted business as FAS since 1990. FAS is not incorporated in any state and is merely an assumed name filed in Dallas County, Texas. Kearns is currently registered as an insurance agent with the Texas Department of Insurance, holding a Texas Group I insurance license (life, health and HMO products). He has also identified himself as an investment adviser.

  • Kearns Financial Services, Inc., which was incorporated in Texas on September 18, 1998, has its principal place of business in Dallas, Texas. KFS is wholly owned by Kearns and is currently being used by him to enter into investment advisory agreements with elderly investors.

In its complaint, the Commission alleges that Kearns would sell insurance and insurance-related products to seniors, establishing a relationship of trust with them and gaining access to information regarding their assets and financial condition. He then solicited them to entrust him with their funds to invest in promissory notes, annuities, viatical settlements and other investments. Kearns required most of his clients to sign powers-of-attorney and/or advisory agreements giving him complete authority over their money, while repeatedly representing to clients that he was investing their money in safe investments, and guaranteeing them fixed returns from his management of their funds. However, after obtaining at least $1.5 million, he did not invest the funds as he had represented and instead loaned $325,000 to a friend to start a ginseng vitamin company and expended other monies to acquire a vacation home, to improve that home, to improve his residence and to acquire fifteen (15) automobiles. No evidence has been uncovered indicating that Kearns has made any legitimate investments on behalf of his clients.

The Commission acknowledges the cooperation and strong assistance of the Texas State Securities Board, the Dallas Police Department and the FBI's North Texas Regional Computer Forensic Lab. This action was brought in conjunction with the issuance and execution of search warrants on Kearns' residence and the office of FAS and KFS.

In its Complaint, the Commission alleges the defendants violated the antifraud provisions of the Investment Advisers Act, Section 206, and it seeks a preliminary and permanent injunction, disgorgement and civil penalties. As regards the preliminary injunction sought by the Commission, it will be addressed by separate Order to be issued by Judge Barbara M. G. Lynn.

http://www.sec.gov/litigation/litreleases/lr16610.htm


Modified:06/28/2000