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U.S. Securities and Exchange Commission


LITIGATION RELEASE NO. 17316 / January 15, 2002

Securities and Exchange Commission v. Merrill Scott & Associates, Ltd.; Merrill Scott & Associates, Inc.; Phoenix Overseas Advisers, Ltd.; Gibraltar Permanente Assurance, Ltd.; Patrick M. Brody; David E. Ross II; and Michael Licopantis. Civil Action No. 2:02CV-0039C (USDC D.Ut.).

The Commission has obtained an order temporarily restraining Merrill Scott & Associates, Ltd. ("MSA"); Merrill Scott & Associates, Inc. ("MSAI"); Phoenix Overseas Advisers, Ltd. ("Phoenix"); Gibraltar Permanente Assurance, Ltd. ("Gibraltar"); Patrick M. Brody; and David E. Ross II from violations of the antifraud and broker registration provisions of the federal securities laws. The court also froze the assets of the four entities and Brody.

The complaint alleges MSA, a Bahamian entity, and many of its affiliates, including Phoenix, Gibraltar, and their domestic affiliate, MSAI (collectively "Merrill Scott"), are engaged in an ongoing scheme in which they have obtained investments of cash and marketable securities from U.S. citizens primarily seeking tax advantages through offshore investments. It is alleged that since at least 1999 Merrill Scott has been operating at a loss due to: (1) misappropriations of an estimated $9.5 million by Brody, the control person of the Merrill Scott organization, to finance his personal expenses; (2) Merrill Scott's operating expenses; and (3) Merrill Scott's attempts to realize huge returns on its investments by investing heavily in start-up companies. It is further alleged that in order to keep the Merrill Scott organization afloat and keep clients satisfied, Brody has operated the organization as a giant Ponzi scheme, using newly invested money to pay returns to earlier investors.

The complaint alleges Merrill Scott sells its clients a "Master Financial Plan" (MFP) which establishes for each client a complex program involving the creation of offshore entities and accounts into which the client's income and assets are placed to generate investment income, reduce taxes and protect assets. It is further alleged that various Merrill Scott entities control the assets and ostensibly implement the instructions of the client as set forth in the client's MFP; however, Brody has sole signatory authority for all accounts established for the benefit of clients and, with the assistance of Ross and Michael Licopantis, a former employee also named as a defendant in the complaint, has used this authority to transfer and invest client funds at will. It is further alleged that MSA, MSAI and Brody have operated as unregistered brokers.

The complaint charged the defendants with violating Section 17(a) of the Securities Act of 1933, Sections 10(b) and 15(a) 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. The Order was entered January 15, 2002, by the Honorable Tena Campbell, United States District Judge for the District of Utah.

*  SEC Complaint in this matter.


Modified: 01/16/2002