U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 17071 \ July 18, 2001
SECURITIES AND EXCHANGE COMMISSION v. DAVID CLARK STEWART, Civil Action No. 01-06136 R (Ex) (C.D. Cal.)
The Securities and Exchange Commission announced that on July 17, 2001, it filed a complaint alleging securities fraud and misappropriation of client funds against David Clark Stewart, a Santa Monica, California-based unregistered investment adviser, doing business as Stonehedge Capital LLC. Stewart, 38, managed over $3 million for approximately 25 clients. Among other things, the Commission alleges that Stewart misappropriated approximately $356,000 of his client's funds, using some of the funds to purchase two homes and other real estate in Southern California, and to buy and lease expenses cars including a Porsche and a BMW.
Specifically, the Commission's complaint alleges that from approximately October 1996 through June 1999, Stewart fraudulently misrepresented that he would invest his clients' funds in the stock market and that they could expect substantial returns on their investment. Instead, Stewart invested only a portion of his clients' funds in the market and misappropriated approximately $356,000 for his own personal benefit. In order to conceal his scheme, according to the Commission's complaint, Stewart sent phony account statements and trade confirmations to at least two clients. Specifically, the complaint alleges that Stewart sent two clients fictitious statements reflecting accounts that did not exist and sent another client confirmations for trades that had never taken place.
Stewart has since repaid approximately $154,000 of the $356,000 allegedly misappropriated. Stewart's settlement with the Commission also requires him to disgorge the balance, approximately $202,000, but with payment being waived based upon Stewart's demonstrated inability to pay. Similarly, civil penalties were not assessed against Stewart based on his inability to pay. In addition, Stewart, without admitting or denying the allegations in the Commission's complaint, consented to an entry of an order of permanent injunction enjoining him from future violations of 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.
In a related administrative matter, Stewart, without admitting or denying the Commission's allegations, consented to the entry of an order barring him from association with any investment adviser.