Securities and Exchange Commission
Litigation Release No. 18475 / November 20, 2003
SEC Sues Bryan J. Hawes For Defrauding Investors
Hawes Consents to Preliminary Injunction Freezing Assets
Securities And Exchange Commission v. Bryan James Hawes, Financial Management Advisory Services, Inc., and Financial Management Services, Inc., (Defendants) and Alpha & Omega Transportation, Inc. (Relief Defendant), Civil Action No. 03-1786 (W.D. PA.) (filed November 20, 2003).
On November 20, 2003, the Securities and Exchange Commission filed an enforcement action in the United States District Court for the Western District of Pennsylvania against Bryan James Hawes, a financial planner and investment adviser, and two of his companies, Financial Management Advisory Services, Inc. ("FMAS") and Financial Management Services, Inc. ("FMS"). The Commission's complaint alleges that Hawes, by an egregious abuse of trust and fraudulent dealings, misappropriated at least $1.2 million from investors whose assets he purported to manage. The Commission also named Hawes' business, Alpha & Omega Transportation, Inc. ("Alpha & Omega"), as a relief defendant. The Commission has also filed a proposed Order that Hawes and the other defendants have consented to, which will, among other things, preliminarily enjoin them from future violations of the antifraud provisions of the federal securities laws, freeze the defendants' assets, and prohibit any destruction of documents.
The Commission's complaint alleges that Hawes stole from people he had known for many years, including his own elderly parents. As alleged in the complaint, Hawes conducted his fraudulent schemes through two businesses he created: FMS, an insurance business, and FMAS, an investment adviser business. In one scheme, the complaint alleges, Hawes, through FMS, falsely told certain investors that he had purchased, as they had directed, annuity policies as investment vehicles. The complaint further alleges that, in fact, for some investors, Hawes never bought the policies but rather took the policy "premium" for himself. For other investors, the complaint alleges that Hawes initially purchased the annuities but later liquidated them without the clients' knowledge or authorization, keeping the proceeds for himself. Additionally, in a separate alleged scheme, Hawes, through FMAS, charged exorbitant and unauthorized management fees to investors who believed he was managing their assets. Hawes then hid his fraud from these investors by sending false account statements to the investors showing inflated balances and omitting the unauthorized fee deductions.
The Commission's complaint seeks the following permanent relief: (i) permanent injunctions against 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 (2) of the Investment Advisers Act of 1940; (ii) disgorgement and prejudgment interest (including as to relief defendant Alpha & Omega); and (iii) the imposition of civil money penalties.
The Commission thanks the U.S. Attorney's Office for the Western District of Pennsylvania, the Federal Bureau of Investigation, and the Pennsylvania Securities Commission, Division of Enforcement, Litigation & Compliance for their cooperation and assistance in this matter.