Litigation Release No. 17892 / December 12, 2002
Securities and Exchange Commission v. Southmark Advisory, Inc., Southmark, Inc., and Wendell D. Belden, Civil Action No. 02-CV-830-E (M) (N.D.Okla.)
On November 21, 2002, the Securities and Exchange Commission (SEC) obtained, by consent, permanent injunctions and other relief in its enforcement action against Southmark Advisory, Inc. (Southmark Adviser), an SEC-registered investment adviser, Southmark, Inc. (Southmark Broker), an SEC-registered broker-dealer, and Wendell D. Belden, the owner of both firms.
According to the SEC's complaint, Belden used Southmark Adviser and Southmark Broker to defraud his predominantly elderly clients, by misleading them about the security of their invested principal, and by failing to inform them of alternative investment opportunities in order to enrich himself at their expense. The SEC alleged that Belden attracted seniors desiring safe investments by advertising certificates of deposit (CDs), and then aggressively pitched to the prospective investors, in lieu of CDs, a purportedly personalized, managed mutual fund investment program. The SEC alleged that Belden defrauded his clients in a number of ways: by lying about the safety of the managed mutual fund program; by failing to tell the clients about other investment options that were more advantageous; by failing to tell the clients that Southmark Broker would earn a 4% sales commission if the clients invested in the managed mutual fund program; and by failing to tell the clients about disciplinary sanctions that the State of Oklahoma and the NASD had imposed against Belden.
Without admitting or denying the allegations in the Commission's complaint, all defendants consented to the judgment, entered November 21, 2002, by U. S. District Judge James O. Ellison of the Northern District of Oklahoma, which enjoins Southmark Adviser, Southmark Broker, and Belden from violating, and aiding and abetting violations of Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934 and Rules 10b-5 and 15b3-1 thereunder, and Sections 204, 206(1), 206(2), 206(4) and 207 of the Investment Advisers Act of 1940 and Rules 204-1(a)(2), 206(4)-4(a)(2), and 206(4)-4(c) thereunder.
In the judgment, the court also appointed Bruce Day, former Administrator of the Oklahoma Department of Securities, to serve as an Independent Consultant to Southmark Adviser and Southmark Broker. Mr. Day will oversee the firms' practices, policies and procedures, ensure their compliance with the securities laws, and keep Commission staff apprised of their activities. Previously, at the Commission's request, the court had appointed a receiver for the Southmark entities and directed that Belden not interfere with the companies' activities. The court's November 21st order directs that Belden continue to have no further affiliation or association, direct or indirect, with the Southmark entities.
The court also held a hearing on the financial condition of Belden and the Southmark entities. After considering sworn financial statements provided by Belden, the investigative report presented by the court-appointed receiver in the case, and testimony from the receiver, the court determined that neither Belden nor the Southmark entities had the financial ability to pay disgorgement or a civil penalty, relief that had been sought by the Commission, and the court dismissed these Commission claims.
The SEC staff gratefully acknowledges the substantial assistance of the Oklahoma Department of Securities, and District No. 5 of the National Association of Securities Dealers - Regulation, Inc.