Securities and Exchange Commission
Litigation Release No. 17900 / December 17, 2002
Federal Judge Sentences Investment Adviser in Connection With 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 December 10, 2002, a federal judge sentenced Gordon J. Rollert to six months of home confinement and two years of probation, and ordered him to pay a $15,000 fine and $100,000 in restitution to a former investment advisory client, in connection with charges brought by the Massachusetts U.S. Attorney's office. In January 2001, 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 two counts of wire fraud and one count of mail fraud by a grand jury sitting in the District of Massachusetts. On September 26, 2002, Rollert, of Wellesley, Massachusetts, pled guilty to each of the three counts.
The indictment alleged that Rollert made false statements to a registered broker-dealer in connection with a fraudulent soft dollar scheme. According to the indictment, Rollert effected trades for a church's account at an agent broker, then directed the broker to use a portion of those commissions to make soft dollar payments to, among other entities, FA Partners. The indictment alleged that Rollert falsely assured the broker that the payments were authorized by the church and were made to legitimate service providers. In fact, the indictment alleged, Rollert took approximately $264,000 of these payments for his personal benefit without the permission of the church.
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 discussed in the indictment. The Commission's complaint alleged, among other things, that between 1990 and April 1997, Rollert defrauded the church and other clients of more than $1.1 million. In its complaint, the Commission alleged that Rollert misappropriated soft dollar credits generated by trades effected for the church's endowment fund. The Commission's complaint also alleged that Rollert fraudulently offered investments in his own advisory businesses to the church.
Soft dollar credits are created when an investment adviser and a broker-dealer enter into an arrangement in which a percentage of commissions are used to pay for products and services, such as research, that help the adviser in making investment decisions. 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.