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U.S. Securities and Exchange Commission


Litigation Release No. 19601 / March 8, 2006

Securities and Exchange Commission v. Michael A. Liberty, et al., Civil Action No. 06-cv-1030 (E.D. Pa.)

SEC Charges Michael A. Liberty and Investment Advisers with Fraud Involving Public Pension Funds

The Securities and Exchange Commission ("Commission") announced that, on March 8, 2006, it filed a civil action in the United States District Court for the Eastern District of Pennsylvania against Michael A. Liberty, Kieran J. Dale, and Keystone V Partners, L.P. ("Keystone Partners"), Keystone Venture Management Holdings, Inc. ("Keystone Holdings"), Keystone V Management Co., Inc. ("KVMC") (collectively, the "Corporate Defendants"), and John R. Regan and Peter E. Ligeti. The Commission's Complaint alleges that from 1997 through February 2002, Liberty, Dale and the Corporate Defendants engaged in a fraudulent scheme to misappropriate more than $9 million from Keystone Venture V, L.P. ("Keystone V" or the "Fund"), a Philadelphia-based private venture capital fund whose largest investors were public pension funds, including the City of Philadelphia Board of Pensions and Retirement, the Pennsylvania State Employees Retirement System, and the State of Connecticut Retirement Plans and Trust Funds. The funds were diverted to Liberty and others associated with him. Without admitting or denying the allegations of the Complaint, each of the defendants except Liberty agreed to the settlements described below.

The Complaint alleges that Dale, a resident of Downingtown, Pennsylvania, and the Corporate Defendants, all of whom were investment advisers to Keystone V, and Liberty, of Gray, Maine, who was a representative of two limited partners, concealed the misappropriation of funds by creating false and misleading financial statements that reflected the funds as legitimate investments and that were then disseminated to existing and prospective limited partners of the Fund.

The Complaint further alleges that Regan, of Clarendon Hills, Illinois and Ligeti, of Princeton Junction, New Jersey, also investment advisers to Keystone V, discovered evidence of Dale's misconduct in 2000, but failed to disclose it to the limited partners of the Fund until late 2001. Furthermore, along with Dale and the Corporate Defendants, Regan and Ligeti entered into a settlement agreement with Liberty in or around March 2001 releasing Liberty from any liability to the Fund. Regan and Ligeti did not disclose the existence of this settlement agreement until February 2002. While failing to disclose this material information, Dale, Regan, Ligeti and the Corporate Defendants issued capital calls and continued to solicit and sell limited partnership interests.

The Complaint alleges that Dale and the Corporate Defendants violated 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 206(2) of the Investment Advisers Act of 1940; that Liberty violated Section 17(a) of the Securities Act, and violated, or aided and abetted violations of, Section 10(b) of the Exchange Act and Rule 10b-5 thereunder, and aided and abetted violations of Sections 206(1) and 206(2) of the Advisers Act; and that Regan and Ligeti violated Section 17(a)(2) of the Securities Act and Section 206(2) of the Advisers Act. The Complaint seeks permanent injunctions, disgorgement together with prejudgment interest, and civil penalties.

Without admitting or denying the allegations of the Complaint, all of the defendants except Liberty have consented to the entry of a final judgment permanently enjoining them from engaging in the violations set forth above. Dale will be ordered to pay disgorgement of $1,365,711, together with prejudgment interest, but payment will be waived, and a civil penalty will not be imposed, based on Dale's sworn financial statements submitted to the Commission. Regan and Ligeti will be ordered to pay disgorgement in the amount of $1.00 each, and a civil penalty of $50,000 each. The Commission's action against Liberty is continuing.

Dale has also consented to a Commission Order, based on the entry of the permanent injunction, which bars him from association with any investment adviser.

SEC Complaint in this matter



Modified: 03/09/2006