U.S. Securities and Exchange Commission
LITIGATION RELEASE NO. 18687 / April 29, 2004
INVESTMENT ADVISER ORDERED TO PAY $50,000 DISGORGEMENT IN SOFT DOLLAR SCHEME
SECURITIES AND EXCHANGE COMMISSION v. GORDON J. ROLLERT (United States District Court for the District of Massachusetts, No. 01-Civ.-10237-JLT(D.Mass)
The Commission announced that, on March 30, 2004, Gordon J. Rollert, the former principal of registered investment advisers Sage Advisory Services LLC and Standard Asset Group, L.P., was enjoined, by consent, from violations of the antifraud and false filing provisions of the federal securities laws and ordered to pay $50,000 disgorgement.
In February 2001, the Commission charged Rollert, of Wellesley, Massachusetts, with defrauding one of his clients, the Pakachoag Church of Auburn, Massachusetts, of approximately $900,000 between 1993 and 1997. In its Complaint, the Commission alleged that Rollert used his investment advisory firm, Sage Advisory Services, LLC, and its predecessor, Standard Asset Group LP (collectively "Sage"), to misappropriate hundreds of thousands of dollars in soft dollar credits generated by securities transactions made on the Church's behalf in an account that Rollert set up at a Boston-area broker-dealer. It also alleged that Rollert fraudulently induced the Church to invest $250,000 in Rollert's advisory firm.
The Complaint alleged that as part of the scheme to misappropriate soft dollar credits, Rollert submitted invoices to the broker-dealer for payments with soft dollars that had been generated by trading in the Church's account. Many of the invoices that Rollert submitted were in the name of FA Partners, a shell entity that Rollert controlled, and falsely indicated that FA Partners had provided services to Sage that were payable with soft dollars. The broker-dealer paid FA Partners based on these false invoices. Rollert personally picked up these payments from the broker-dealer and deposited them into bank accounts that he controlled. He then withdrew the majority of the funds for his personal use. The Commission alleged that the Church was not informed that its soft dollars were being used for Rollert's personal benefit.
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.
The Complaint also charged that Rollert churned the Church's endowment account to generate additional soft dollar credits, which he then misappropriated, and that Rollert fraudulently offered and sold to the Church at least $250,000 in securities in the form of equity interests in and promissory notes offered by Sage and its predecessor. Finally, according to the Complaint, Rollert failed to disclose his soft dollar practices in Form ADV amendments filed with the Commission by Sage.
Rollert was enjoined from 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 Sections 206(1), 206(2) and 207 of the Advisers Act. In addition, he was ordered to pay $50,000 disgorgement, with additional amounts waived and penalties not assessed based on his financial condition.
In July 2001, Sage was ordered to pay an additional $304,852 in disgorgement and interest in a related Commission administrative proceeding. In October 2002, Rollert pled guilty to mail and wire fraud charges in a related criminal action. In December 2002, Rollert was criminally sentenced to pay an additional $100,000 in disgorgement, was fined $15,000, and ordered to serve six months of home confinement. In January 2003, Rollert was barred by the Commission from association with any investment adviser on the basis of his criminal conviction.
For further information, see Litigation Release Nos. 16895 (Feb. 8, 2001), 17764 (Oct. 2, 2002), and 17900 (Dec. 17, 2002) and Advisers Act Rel. Nos. 1954 (July 27, 2001), 2095 (Dec. 23, 2002) and 2098 (Jan. 10, 2003).