SECURITIES AND EXCHANGE COMMISSION
LITIGATION RELEASE No. 17764 / October 2, 2002
INVESTMENT ADVISER PLEADS GUILTY TO THREE COUNTS OF WIRE AND MAIL FRAUD IN CONNECTION WITH $1 MILLION FRAUDULENT SOFT DOLLAR SCHEME
United States v. Gordon J. Rollert, United States District Court for the District of Massachusetts, Cr. No. 01-10031-RWZ (D. Mass.)
The Commission announced that, on September 26, 2002, Gordon J. Rollert, of Wellesley, Massachusetts, pled guilty to two counts of wire fraud and one count of mail fraud. Rollert, formerly the principal of registered investment advisers Sage Advisory Services LLC ("Sage") and Standard Group Holdings LLC ("Standard") of Wellesley, Massachusetts, was indicted on these counts by the U.S. Attorney for the District of Massachusetts in January 2001. The indictment alleged that Rollert made false statements to a registered broker-dealer in connection with a fraudulent soft dollar scheme.
On February 8, 2001, the Commission filed a Complaint in the U.S. District Court for the District of Massachusetts in connection with the same fraudulent scheme. The Commission's Complaint alleged that, between 1990 and April 1997, Rollert defrauded an advisory client, the Pakachoag Church, of more than $1.1 million. In its complaint, the Commission alleged that Rollert misappropriated the assets of the small Auburn, Massachusetts church through fraudulent soft dollar practices and by fraudulently offering investments in his own advisory business to the church.
According to the Complaint, Rollert misappropriated soft dollar credits generated by trades effected for the Church's endowment fund, for which he served as investment adviser. The Complaint alleged that between August 1994 and April 1997, Rollert fraudulently submitted invoices to a Boston area broker-dealer for soft dollar services that FA Partners purportedly provided. In fact, FA Partners was a shell that Rollert controlled. After receiving soft dollar checks payable to FA Partners, Rollert deposited the checks into an account that he controlled. Rollert then withdrew the majority of the funds for his personal use.
In addition, the Complaint alleged that Rollert, without disclosure to its clients, improperly used soft dollar credits to pay for over $180,000 in business and in undocumented expenses. The Commission also alleged that Rollert set the commissions paid by the Church at a rate five times the average commission rate paid by other investment advisers for soft dollar trades and that Rollert churned the Church's endowment account. Further, the Complaint alleged that between 1990 and 1996 Rollert fraudulently induced the Church to invest $250,000 in Rollert's advisory entities. Finally, according to the Complaint, the Forms ADV filed with the Commission by Sage and Standard were false because they failed to disclose that Rollert's entities received economic benefits from non-clients, including soft dollars.
Soft dollar arrangements are arrangements under which products or services other than execution of securities transactions are obtained by an adviser from or through a broker-dealer in exchange for the direction by the adviser of client brokerage transactions to the broker-dealer. Because soft dollar credits are generated by commissions paid by the advisory client, they are assets of the client. Soft dollar arrangements are permissible under the securities laws if there is appropriate disclosure to the client about the products and services for which the soft dollars will be used, as well as disclosure that the client may pay higher commission rates as a result of the soft dollar arrangement.
As a result of the conduct described in the Complaint, the Commission charged Rollert with violations of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, Section 17(a) of the Securities Act of 1933 and Section 207 of the Investment Advisers Act of 1940, and aiding and abetting Sage's violations of Sections 206(1), and 206(2) of the Advisers Act. The Commission's Complaint sought injunctive relief, disgorgement of $1.1 million in improperly-obtained benefits, plus prejudgment interest, and civil penalties
In addition, on July 27, 2001, the Commission announced the institution, and simultaneous settlement, of administrative proceedings against Sage and Standard for their role in the fraudulent soft dollar scheme. The Order required Sage and Standard, jointly and severally, to pay disgorgement of $1.2 million, provided, however, that all but $304,852 shall be waived based on the Respondents' demonstrated financial inability to pay, and imposed other relief. Current management of Sage and Standard is not implicated in the conduct described in the Order.
For further information see Litigation Release No. 16895 and Investment Advisers Act Rel. No. 1954.