INVESTMENT ADVISERS ACT OF 1940
Rel. No. 2119 / March 27, 2003

Admin. Proc. File No. 3-10336

In the Matter of

CHARLES K. SEAVEY
5229 Harbord Drive
Oakland, California 94618

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ORDER IMPOSING REMEDIAL SANCTIONS

On the basis of the Commission's Opinion issued this day, it is

ORDERED that Charles K. Seavey ("Seavey") be censured and, effective at the opening of business on April 14, 2003, be suspended from association with any investment adviser in any capacity for a period of 30 days; and it is further

ORDERED that Seavey cease and desist from committing or causing any violation and committing or causing any future violation of Sections 206(1) and 206(2) of the Investment Advisers Act of 1940; and it is further

ORDERED that Seavey pay a civil money penalty of $10,000.

Seavey's payment of the civil money penalty shall be: (i) made by United States postal money order, certified check, bank cashier's check, or bank money order; (ii) made payable to the Securities and Exchange Commission; (iii) delivered by hand or courier to the Comptroller, Securities and Exchange Commission, 450 5th Street, N.W., Washington, D.C. 20549 within thirty days of the date of this order; and (iv) submitted under cover letter which identifies Seavey as the respondent in this proceeding, and Administrative Proceeding No. 3-10336. A copy of this cover letter and check shall be sent to John S. Yun, Esq., Securities and Exchange Commission, 44 Montgomery Street, Suite 1100, San Francisco, California 94104.

By the Commission.

Jonathan G. Katz
Secretary

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1 15 U.S.C. §§ 80b-6(1), (2).
2 Fuller entered a settlement with the Commission arising out of the facts at issue in this proceeding. James William Fuller, Advisers Act Rel. No. 1842 (Oct. 4, 1999), 70 SEC Docket 2461.
3 Taubenheim entered a settlement with the Commission arising out of the facts at issue in this proceeding. Gordon Richard Taubenheim, Advisers Act Rel. No. 1843 (Oct. 4, 1999), 70 SEC Docket 2467.
4 At the time of the initial decision, Lushtak was serving a 71-month federal prison sentence arising out of an affinity fraud scheme targeting Russian immigrants. Lushtak defaulted in these proceedings. Charles K. Seavey, Advisers Act Rel. No. 1968 (Aug. 15, 2001), 75 SEC Docket 1879.
5 The finders acted on the Fund's behalf and were not agents of the investors.
6 The record is not clear regarding the nature of the relationship between Lushtak and Khabay.
7 The statement was written in Lithuanian and the date "7/9/96" could be read as either July or September depending on whether the Lithuanians use the European "day/month/year" convention for dates or the American "month/day/year" convention.
8 When Khabay signed the letter agreement she in fact ownedonly 10,320 ABBH shares. On March 4, 1997, she sold those 10,320 shares to "Rocney Corp.," an enterprise controlled by Lushtak. Neither Fuller nor Seavey knew of this transaction.
9 Neither Seavey nor Fuller knew that Lushtak was the owner of the account to which the transfers were sent.
10 The Fund lacked sufficient cleared funds to make a single transfer of $250,000.
11 Fuller and Taubenheim became aware around June 30 that Lushtak had serious financial problems. Fuller suspected that the problems with the stock transaction were related to Lushtak's problems.
12 See supra note 8.
13 Fuller testified that for the entire period following the June 30 fax from ABBH, Seavey had been frantic and obsessed with the transaction, while Fuller thought the deal could be salvaged.
14 Since the finders were acting for the Fund rather than for the investors we are uncertain as to why Seavey would think it effective to attempt to communicate with investors through a finder.
15 In April 1997, Seavey had written and signed a similar letter to Fund investors in which he reported results without disclosing that the Fund had used the ABBH shares, valued at the current market value, to calculate the Fund's performance. The April letter also did not disclose that the Fund did not possess the ABBH shares. The law judge dismissed the allegations of the Order Instituting Proceedings against Seavey with respect to the April letter. The Division of Enforcement did not appeal that finding.
16 15 U.S.C. §§ 80b-6(1), (2). Section 206(1) prohibits investment advisers from employing directly or indirectly "any device, scheme, or artifice to defraud any client or prospective client." Scienter, an intent to defraud, must be established in order to find a violation of Section 206(1). Similarly, Section 206(2) prohibits investment advisers directly or indirectly "to engage in any transaction, practice, or course of business which operates as a fraud or deceit upon any client or prospective client." Scienter need not be established for a violation of Section 206(2).
17 See Graham v. SEC, 222 F.3d 994, 1000 (D.C. Cir. 2000).
18 See Sharon M. Graham, 53 S.E.C. 1072, 1085 (1998), aff'd, 222 F.3d at 994.
19 See Basic, Inc., v. Levinson, 485 U.S. 224, 231-32 (1988) (material information is that a reasonable investor would have considered important in making a decision to invest or not); see also TSC Industries, Inc. v. Northway, Inc., 426 U.S. 438, 449 (1976) (fact is material if there is a substantial likelihood that it would significantly alter the mix of information available to a reasonable investor making an investment decision).
20 Seavey also argues that there has been no fraud for him to aid and abet because no investor relied on the July letter. Seavey misperceives the law. The Commission need not showreliance by investors to find a violation of Sections 206(1) and (2). Martin Herer Engelman, 52 S.E.C. 271, 283 n.43 (1995)(citing SEC v. Rana Research, Inc., 8 F.3d 1358, 1363-64 (9th Cir. 1993); SEC v. Blavin, 760 F.2d 706, 711 (6th Cir. 1985); SEC v. North Am. Research & Dev. Corp., 424 F.2d 63, 84 (2d Cir. 1970)); Richard C. Spangler, Inc., 46 S.E.C. 238, 244 (1976). Nor is proof of injury by the fraudulent practice a necessary element of the violation. SEC v. Capital Gains Research Bur., Inc., 375 U.S. 180, 195 (1963).
21 Seavey protests that the Division had the burden of proving that he failed to keep the investors informed regarding the Fund. He argues that the law judge should not have based her finding of violation on Seavey's failure to call any investors to testify.

As Seavey argues, the Division carried the burden of persuasion. When, however, the Division established a prima facie element of its case, Seavey had the obligation to adduce evidence rebutting the showing made by the Division. Donald T. Sheldon, 51 S.E.C. 59, 77 (1992), aff'd, 45 F.3d 1515 (11th Cir. 1995); cf. St. Mary's Honor Center v. Hicks, 509 U.S. 502, 506-07 (1993). Here, the Division presented sufficient evidence at the hearing to establish that Seavey engaged in a fraudulent communication. At that point, Seavey had the burden to produce evidence regarding the information that he claims he gave -- either directly or indirectly -- to the investors. Sheldon, 51 S.E.C. at 77.

Moreover, Seavey cannot claim that he did not know that the Division would not call investor witnesses. The Division's witness list did not identify any investors, while Seavey's did. Seavey, who was represented by counsel below, knew, therefore, that the Division was not going to call any investors. However, Seavey did not call any investors.

22 A person asserting reliance upon the advice of counsel as a defense must establish that he made a complete disclosure of the intended action, requested counsel's advice regarding the legality of the intended action, received counsel's advice that the intended conduct was legal, and relied in good faith on that advice. See Gallagher & Co., 50 S.E.C. 557, 563 n.15 (1991), aff'd, 963 F.3d 385 (11th Cir. 1992).
23 Butz v. Glover Livestock Comm'n Co., 411 U.S. 182, 185 (1973).
24Steadman v. SEC, 603 F.2d 1126, 1140 (5th Cir. 1979).
25 15 U.S.C. § 80b-3(i).
26 15 U.S.C. § 80b-3(i)(3); New Allied Dev. Corp., 52 S.E.C. 1119, 1130, n.33 (1996).
27 15 U.S.C. § 80b-3(i)(2)(B). The maximum second-tier penalty is $55,000.
28 15 U.S.C. § 80b-3(k).
29 See KPMG Peat Marwick LLP, Advisers Act Rel. No. 43862 (Jan. 19, 2001), 74 SEC Docket 384, 429, pet'n denied, 289 F.3d 109 (D.C. Cir. 2002).
30 Id. at 430.
31 We have considered all of the parties' contentions. We have rejected or sustained these contentions to the extent that they are inconsistent or in accord with the views expressed herein.