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U.S. Securities and Exchange Commission

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

LITIGATION RELEASE NO. 17018 / May 24, 2001

United States v. Thomas J. Kearns # 3:01-CR-00105

SECURITIES AND EXCHANGE COMMISSION v. THOMAS J. KEARNS, et al. # 3:00-CV-1358-M, USDC NDTX (Dallas Division)

On April 11, 2001, Thomas J. Kearns entered a plea of guilty pursuant to a plea agreement with the United States Attorney for the Northern District of Texas. Kearns entered a plea of guilty to one count of investment adviser fraud in violation of Section 206(1) and (2) of the Investment Advisers Act and one count of mail fraud in violation of 18 U.S.C. §1341. Kearns and a colleague Milton Spears, who earlier enter a plea of guilty to misprision of a felony, are to be sentenced later. Kearns faces a sentence of up to ten (10) years in prison and a substantial fine.

  • Thomas J. Kearns, age 56 and a resident of Dallas, had conducted business as Financial Associated Service since 1990. Financial Associated Service was not incorporated in any state and was merely an assumed name filed in Dallas County, Texas. Kearns was registered as an insurance salesman with the Texas Department of Insurance, holding a Texas Group I insurance license (life, health and HMO products).

  • Kearns Financial Services, Inc., which was incorporated in Texas on September 18, 1998, and had its principal place of business in Dallas, Texas. Kearns Financial Services, Inc., was wholly owned by Kearns. Kearns also used this corporation to enter into investment advisory agreements with elderly investors.

The information against Kearns alleges that he operated a fraudulent scheme where he acted as an investment advisor and entered into contracts with his clients permitting him to manage and invest the clients' funds. Kearns induced his clients to liquidate existing investments, including annuities with insurance companies, and to place their funds with him to invest in securities. Kearns falsely represented to clients that their funds would in safe investments that would provide a return of at least 9% to 10% annually. In fact, Kearns was not registered as an investment adviser either with the Securities and Exchange Commission or with the State of Texas.

On June 23, 2000, the Securities and Exchange Commission filed a Complaint against Kearns and Kearns Financial Services, Inc. That Complaint alleges that Kearns preyed upon senior citizens and bilked them out of more than $1.5 million and that Kearns obtained information concerning the assets and financial condition of his insurance customers and solicited these elderly individuals to entrust him with their funds to invest in promissory notes and other securities. That Complaint alleges that, after Kearns obtained monies from customers, 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.

Kearns required most of his clients to sign powers-of-attorney and/or advisory agreements giving him complete authority over their money. The Complaint alleges that 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, Kearns was in fact stealing client funds. No evidence has been uncovered indicating that Kearns has made any legitimate investments on behalf of his clients.

On June 23, 2000, Judge Barbara M.G. Lynn enjoined Kearns and Kearns Financial Services, Inc.'s from future violations of the Investment Advisers Act of 1940, imposed an asset freeze, appointed a receiver and ordered other emergency relief. Subsequent efforts by the Commission, by the receiver, by other federal law enforcement agencies, including the United States Postal Service's postal inspectors, and by the Office of the United States Attorney led to the criminal charges against Kearns and to his plea of guilty.


http://www.sec.gov/litigation/litreleases/lr17018.htm

Modified: 05/25/2001