Securities and Exchange Commission
In the Matter of
THE BARR FINANCIAL GROUP, INC.:
ALFRED E. BARR
OPINION OF THE COMMISSION
INVESTMENT ADVISER PROCEEDING
Grounds for Remedial Action
False Statements in Commission Reports
Investment adviser and its president made material false statements in Commission filings and were permanently enjoined from violating Section 204 of the Investment Advisers Act of 1940 and Advisers Act Rule 204-2. Held, it is in the public interest to order respondents to cease and desist from future violations of the provisions they were found to have violated, to revoke registration of investment adviser, and to bar its president from associating with any investment adviser.
Alfred E. Barr, pro se, and for the Barr Financial Group, Inc.
Robert K. Levenson, for the Division of Enforcement.
Appeal filed: July 10, 2002
Last brief received: October 28, 2002
Oral Argument: July 31, 2003
The Barr Financial Group, Inc. ("BFG" or the "Firm"), an investment adviser registered with the Commission, 1 and Alfred E. Barr, BFG's president, appeal from the decision of an administrative law judge. 2 The law judge found that respondents willfully violated Section 207 of the Investment Advisers Act of 1940 3 by making untrue statements of material fact in documents filed by BFG with the Commission during 1997 and 1998. The law judge further found that, in 1999, respondents were permanently enjoined from violating Advisers Act Section 204 and "regulations thereunder governing the conduct of investment advisers under Rule 204-2 of the Advisers Act." 4 The law judge ordered both respondents to cease and desist from committing or causing any violations or future violations of Advisers Act Sections 204 and 207, barred Barr from associating with any investment adviser, and revoked BFG's registration as an investment adviser. We baseour findings on an independent review of the record, except with respect to those findings not challenged on appeal.
Respondents' 1999 injunction against violations of the Advisers Act followed an attempted Commission examination of BFG during 1998. The attempted examination followed respondents' filing with the Commission of documents that raised concerns with the Commission's staff. Certain of these documents contained materially false statements. Respondents' false filings and the circumstances surrounding the attempted examination, along with the Commission's injunctive proceedings, are discussed below in turn.
A. Untrue Statements. On April 29, 1996, BFG filed its initial investment adviser registration application on Commission Form ADV. 5 Barr acknowledged executing the Firm's Form ADV and each of the amendments to that form that are discussed herein, as BFG's president or "CEO." At the time of this initial filing, respondents asserted that BFG did not have custody of any advisory client's funds or securities. BFG's lack of customer assets did not then disqualify it for Commission registration. Shortly after this initial filing, however, the Advisers Act was amended to limit eligibility for Commission registration to advisers "with assets under management of not less than $25,000,000." 6
On July 10, 1997, following this change in the Advisers Act eligibility requirements, respondents filed a Form ADV-T, 7 in which they declared that BFG had "assets under management" of $74,682,490. 8 On March 30, 1998, further, respondents filed anamendment to BFG's Form ADV in which they stated that the Firm had discretionary authority with respect to 25 separate portfolios, with an aggregate market value of $56,258,989, and managed, on a non-discretionary basis, an additional 13 portfolios with an aggregate market value of $16,258,452. Thus, respondents represented in the Form ADV amendment that BFG had total customer assets under management exceeding $72 million.
During subsequent injunctive and administrative proceedings, however, Barr testified that BFG had "[a]pproximately 21" advisory customers, for whom it provided research and related services but that, with the exception of one IRA rollover account holding $7,500, BFG had "absolutely no" relationship with or control over their securities holdings or other assets. 9 Barr testified, rather, that he provided his customers with:
research, due diligence, historical background on the different investments that they inquire about or that we talk about or that I might come into knowledge of. And what I do is sometimes provide them information through maybe E-mail . . . . We may also talk about insurance products, real estate, coins, things of that particular nature. But I don't effect any trades whatsoever.
The relevant instructions to the Forms ADV and ADV-T indicate that merely providing investors with research and general market advice does not permit the provider of such services to claim that he is managing the assets of the recipient of the services. 10 In addition, when Barr was asked about respondents'statement in BFG's Form ADV that the Firm managed 25 accounts on a discretionary basis, he responded that "[t]his is not a true document, and [he would not] answer that question off this document because it's not a true factual document that [he] turned into the SEC." 11
Respondents also made representations on Commission filings regarding Barr's education that conflicted with evidence introduced into the record. On schedules attached to a Form ADV and amendments filed with the Commission in 1996, 1997, and 1998 respondents claimed that Barr received a "BS Finance" and "PhD Economics," in 1980 and 1994, respectively, from Indiana University. The record established, however, that Barr held no degree, undergraduate or graduate, from Indiana University. The Division introduced a certified copy of an Indiana University transcript for "Alfred T. Barr" with a social security number and date of birth matching Barr's. 12 According to this transcript,Barr attended Indiana University for just one semester, in 1976, and received no degree.
Although Barr insists that he received an undergraduate degree from Indiana, he introduced no documentation to support his claim and testified that he "was at the University of Indiana enrolled from September or August of 1976 through May of 1977." 13 Barr also admittedly never re-enrolled in Indiana University "in a direct manner." 14
B. Injunctive Proceedings. On May 5, 1999, the United States District Court for the Middle District of Florida (the "District Court") permanently enjoined respondents against violating Advisers Act Section 204 and Advisers Act Rule 204-2. Issuance of this injunction followed a protracted, and unsuccessful, effort by the Commission's staff to obtain respondents' cooperation in an examination of BFG's books and records pursuant to Commission regulations.
(i) During the period at issue, the Commission's Office of Compliance Inspections and Examinations ("OCIE") examined each investment adviser registered with the Commission at least once every five years. OCIE scheduled BFG for an examination during 1998 because it had not previously been examined. In addition, the staff was concerned about BFG because its claimed assetsunder management had gone from $0 to over $70 million in one year. 15 A routine background check of the Firm and consultations with the NASD prior to the examination increased the staff's concern when it learned that Barr had been disciplined by Kentucky insurance regulators. 16 The staff alsoreviewed a press account about a recent altercation Barr reportedly had with a local law enforcement officer. Based on these factors, the staff determined to change the classification of the prospective examination from routine, its original classification, to one for "cause."
On July 28, 1998, two staff examiners arrived at the address listed on BFG's Form ADV to conduct the examination. Consistent with Commission practice, respondents were not given notice of the examination. Barr was not present when the staff arrived. When, on the following day, the staff returned, Barr told them that BFG's records were unavailable because he was in the process of moving BFG's offices to Barr's residence. Seeking to accommodate respondents, the staff agreed to postpone the examination until August 10, 1998. The staff also provided Barr with a list of the categories of documents that the staff would need to examine. 17
As agreed, the staff arrived at Barr's residence on August 10, 1998. Barr initially cooperated with the staff and provided them with a portion of BFG's books and records, but became uncooperative when the staff sought access to BFG's customer brokerage and confirmation statements. Staff testimony indicates that this request for records was routine and necessary to verify respondents' claims regarding the Firm's assets under management. Barr told the staff that Barr could not obtain these documents and instead offered the staff information from the Firm's own internal portfolio tracking system. Such information was inadequate, however, because it could not provide external verification.
Faced with Barr's inability or unwillingness to provide the requisite third-party documentation, the staff informed Barr that they intended to contact the customers' custodial broker directly to verify customer asset information. 18 Barr, in response, was unwilling to allow the staff to make copies of BFG records. In an effort to address what Barr claimed were concerns about client confidentiality, the staff offered to allow Barr to remove customer names and social security numbers from account documents before copying, provided that the staff could identify the documents by customer in the staff's own work papers. Barr would not agree to this compromise and, on August 13, terminated the examination and demanded that the staff leave behind all the documents they had collected and prepared, including the staff's own work papers. 19 As a result, the staff was unable to verify respondents' claims regarding BFG's customers or the extent of those customers' assets under management.
On several subsequent occasions in August 1998, the staff notified respondents that their conduct was in violation of the Advisers Act and requested respondents' cooperation with the examination. While Barr offered possible access at an unspecified time to certain of BFG's records, respondents remained unwilling to allow the staff to learn the identities of BFG clients. As a result of respondents' refusal to cooperate, OCIE referred the matter to the Commission's Division of Enforcement which initiated injunctive proceedings.
(ii) On September 3, 1998, the District Court entered a temporary restraining order against respondents' future violations of Advisers Act Section 204 and required them to produce the requested client account information. Respondentsfailed to produce the account information or to appear for a deposition as ordered by the District Court. On September 11, 1998, the District Court entered a preliminary injunction against respondents' violating or aiding and abetting violations of Advisers Act Section 204. The District Court further ordered respondents to produce the previously-requested BFG records and to be immediately available for deposition.
On May 5, 1999, the District Court permanently enjoined respondents from violating the Advisers Act. It also ordered Barr to pay a civil money penalty of $5,000. 20 In granting the injunction, the District Court found that BFG violated, and Barr aided and abetted BFG's violations of, Advisers Act Section 204, by "willfully refusing to allow the [Commission's staff] to examine BFG's books and records and to produce to the Commission copies of certain legally-required documents." The District Court further found that respondents had failed to comply with several orders the court had issued regarding respondents' obligation to provide the documents requested by the Commission.
In addition, the District Court noted that it had entered a show cause order on September 17, 1998 that required respondents to explain why they should not be held in contempt of court for "their open defiance of the [District] Court's prior Orders." In response to this order, respondents produced some of the required documents at the show cause hearing held on September 24, 1998. There is evidence, however, that at least some of the documents produced by respondent were inaccurate. For example, a Commission staff member testified that the trade blotter BFG provided indicated that trades occurred on dates when the markets were closed, i.e., weekends and holidays, and that, accordingly, "the trading that was indicated probably did not occur." In addition, many of the prices at which trades occurred were inconsistent with market trading data for the date in question. 21 Although respondents provided what purported to be BFG customers' names and social security numbers, that data also did not appear to be accurate. 22 On June 6, 2000, the UnitedStates Court of Appeals for the Eleventh Circuit issued an order rejecting respondents' "appeal [of] the district court's summary judgement order granting a preliminary injunction to Appellee SEC," concluding that "the district court did not err in granting the preliminary injunction." 23
The record establishes that, as charged in the Order Instituting Proceedings ("OIP"), respondents willfully made untrue statements about BFG's assets under management and Barr's educational background in documents filed with the Commission. 24 These statements were material -- they conveyed a false impression of BFG's size and investor asset base and of the professional qualifications of the Firm's management. The record further establishes that, as charged in the OIP, respondents were enjoined against violating Advisers Act Section 204 and Advisers Act Rule 204-2, based on their repeated refusal to cooperate with a Commission examination.
Respondents challenge the law judge's findings on various grounds, both substantive and procedural. Respondents also allege misconduct on the part of the Commission staff. We reject each of respondents' contentions as unsupported or irrelevant to the issues before us.
Respondents assert that they had clients with substantial assets. Among other support, respondents introduced close to 400 account statements and related documents from purported Barr customers through which they attempt to blunt Barr's sworn testimony that, with the exception of one IRA account holding $7,500, BFG had "absolutely no" relationship with or controlover its customers' securities holdings or other assets. 25 These documents, which in some cases identify Barr as the customer's registered representative, are from the early 1990s, well before the 1996-1998 period at issue. In any event, the issue in this proceeding is not the amount of assets Barr's customers held but the extent to which BFG provided continuous and regular management of those or other assets, during the period at issue. As indicated, Barr testified that the Firm managed just one IRA account with assets of less than $10,000, and nothing in the record is inconsistent with that admission. 26
Respondents claim that BFG's statements regarding Barr's education were not false but merely incomplete because they did not include a "full listing of the academic credentials of [the Firm's] president." The OIP alleged that respondents' disclosures were "false" in that they "described [Barr as] holding a bachelor of science degree and Ph.D. from Indiana University." Whether or not Barr had some other academic credentials not identified in BFG's ADV filings is not at issue in this case. Barr admitted before the law judge that he spent just two semesters at Indiana University. That account is roughly consistent with the academic transcript from Indiana University that the Division introduced, 27 which establishes that Barr received no degree from that institution. Barr has introduced no evidence that contradicts the academic transcript or Barr's own testimony.
Respondents' assertions regarding the injunctive aspect of this case are similarly meritless. Among other things, respondents claim that the staff's original determination to examine BFG was unwarranted and motivated in part by racialanimus. Respondents further claim that they cooperated with Commission examiners who, according to respondents, were responsible for terminating the examination.
The OIP alleged that respondents were enjoined from violating Advisers Act Section 204 based on their failure to make available to the Commission records that BFG was required to maintain under the Advisers Act. The record in this proceeding establishes that respondents were so enjoined. 28 Respondents are collaterally estopped from challenging the facts underlying the injunction. 29 Thus, they are bound by the finding that theyfailed to cooperate with the Commission's examination. Even in the absence of the injunction, the finding that respondents violated Advisers Act Section 204 is, as is made clear by our factual findings, supported independently by the consistent accounts of the several Commission employees who testified at the hearing and who were credited by the law judge. 30
Respondents make a number of claims that represent charges of serious misconduct by our staff during the examination process and during the subsequent enforcement proceedings. Based on our review of the record, we find nothing to substantiate these charges and much to refute them. Contrary to respondents' claims, the evidence indicates that the staff made every effort to accommodate respondents in conducting the examination. Among other things, the staff sought to schedule the examination on a date that was agreeable to Barr, gave Barr advance notice of the documents the examiners would need to review, and attempted to accommodate Barr's purported concerns about client confidentiality. Even after Barr terminated the examination and demanded the staff's notes, additional efforts were made to obtain respondents' cooperation without resorting to injunctive proceedings. 31 Barr, by contrast, although initially cooperative, became uncooperative after the staff informed himthat they planned to verify with BFG's purported custodial broker respondents' assertions regarding customer assets. 32
Respondents also charge that the law judge prejudged the case by denying certain of respondents' subpoena requests. Commission Rule of Practice 232(b) provides that, in determining whether to issue a subpoena, a law judge should consider if the "subpoena or any of its terms is unreasonable, oppressive, excessive in scope, or unduly burdensome." 33 During a prehearing conference, the law judge told Barr that she would sign a subpoena "if it appears to be reasonable, if the testimony appears to be relevant, if the rights of the Respondent or the Division are protected, if it contributes to the hearing process . . . the discovery of truth." Her refusal of respondents' request to order the testimony of certain Commission employees, on the ground that the testimony of these employees, who had limited or no involvement with the case, was irrelevant, was consistent with Rule 232 and her own reasoned interpretation of that standard. 34
Additionally, respondents charge that the law judge excluded evidence that the staff lied in testimony regarding certain matters, including Barr's comments to them regarding BFG's custodial broker and the NASD membership status of BFG Securities. 35 These allegations are unsupported. 36
In determining the need to impose sanctions, we are guided by the following factors:
[T]he egregiousness of the defendant's actions, the isolated or recurrent nature of the infraction, the degree of scienter involved, the sincerity of the defendant's assurances against future violations, the defendant's recognition of the wrongful nature of his conduct, and the likelihood that the defendant'soccupation will present opportunities for future violations. 37
Respondents engaged in serious misconduct, failing to provide truthful disclosure in Commission filings and to cooperate with Commission examinations. These violations were repeated over several years and, with respect to their failure to cooperate, occurred despite clear warnings from the Commission's staff about the obligation to cooperate and led to respondents' being enjoined from future violations of the Advisers Act.
In our view, respondents' misconduct and their continued refusal to acknowledge wrongdoing 38 demonstrates either that they fundamentally misunderstand the regulatory obligations to which they are subject or that they hold those obligations in contempt. The remedial sanctions imposed by the law judge are amply warranted in either case.
Respondents assert that they have been "punished beyond measure." In support, they state that they have no prior disciplinary record and that no customers were harmed as a result of their actions. Although there is no evidence that any customer lost money as a result of respondents' violations, their actions clearly posed a threat to the investing public. The untrue assertions made by respondents in BFG's Commission filings misled investors regarding Barr's qualifications and the willingness of others to trust respondents with their assets.
Respondents also claim that a comparison of sanctions in cases involving what they assert is more serious misconduct demonstrates that a bar order and registration revocation are excessive here. We have consistently held that determining appropriate sanctions depends on particular facts and circumstances and not on comparison with the action taken in other cases. 39 We note that the misconduct found here is most serious. It is clear that respondents pose a continuing threat to the investing public. Under the circumstances, the public interest warrants that Barr be barred from associating with anyinvestment adviser and that BFG have its investment adviser registration revoked, and we have determined to impose those sanctions. With respect to the remedy of a cease-and-desist order, "evidence showing that a respondent violated the law once probably also shows a risk of repetition that merits our order him to cease and desist." 40 Respondents engaged in not one but several instances of violative behavior. Moreover, their lack of remorse forcefully demonstrates the need for a cease-and-desist order against future violations. Accordingly, we have determined to impose a cease-and-desist order against both respondents.
An appropriate order will issue. 41
By the Commission (Chairman DONALDSON and Commissioners GLASSMAN, GOLDSCHMID, and ATKINS); Commissioner CAMPOS not participating.
Jonathan G. Katz
In the Matter of
THE BARR FINANCIAL GROUP, INC.:
ALFRED E. BARR
ORDER IMPOSING REMEDIAL SANCTIONS
On the basis of the Commission's opinion issued this day, it is
ORDERED that Alfred E. Barr be, and hereby is, barred from association with any investment adviser, and it is further
ORDERED that the investment adviser registration of the Barr Financial Group, Inc. be, and it hereby is, revoked, and it is further
ORDERED that Alfred E. Barr and the Barr Financial Group, Inc. cease and desist from committing or causing any violation and committing or causing any future violation of Sections 204 and 207 of the Investment Advisers Act of 1940.
By the Commission.
Jonathan G. Katz
1 Barr testified that BFG was "reorganized" in March 1998. Thereafter, according to Barr, it continued to "operate," although "its fees for incorporation were not renewed." In Commission filings through August 1998, BFG was referred to as the "Barr Financial Group, Inc." In documents respondents filed with the Commission in September 1998, BFG was referred to as both the "Barr Financial Group, Inc." and "Barr Financial Group, LLC."
2 Barr also was president of BFG Securities, Inc., a broker-dealer. In April 2000, BFG Securities' application for membership with the National Association of Securities Dealers, Inc. (the "NASD") was denied, and the Commission thereafter dismissed BFG's appeal of the NASD's decision. See BFG Securities, Inc., Securities Exchange Act Rel. No. 44627 (July 31, 2001), 75 SEC Docket 1506.
3 15 U.S.C. § 80b-7. Section 207 prohibits investment advisers from willfully making "any untrue statement of a material fact" in certain applications or reports filed with the Commission.
4 15 U.S.C. § 80b-4 and 17 C.F.R. § 275.204-2. Section 204 requires investment advisers to file reports with the Commission, maintain books and records, and make those books and records available to Commission personnel for examination. Rule 204-2, which establishes recordkeeping requirements for investment advisers, provides that an adviser who renders investment supervisory or management services must maintain records that, among other things, identify the adviser's clients.
5 This form was signed by Barr as president of BFG.
6 15 U.S.C. § 80b-3a.
7 Form ADV-T refers to "Form for Declaring Eligibility for SEC Registration After Effective Date of Amendments to Investment Advisers Act of 1940."
8 The instructions to Form ADV-T provide that, in determining the amount of assets under management, a registrant should "include the total value of 'securities portfolios' (or portions thereof) for which registrant provides 'continuous and regular supervisory or management services,' as of the date of filing this Form." A registrant provides continuous and regular supervisory or management services with respect to a securities portfolio if it (i) has discretionary authority over the portfolio and provides ongoing supervisory or management services to it or (ii) does not have discretionary authority but has an ongoing responsibility to select or make recommendations withrespect to the portfolio and, if such recommendations are accepted by the client, to arrange or effect the recommended purchase or sale. Rules Implementing Amendments to the Investment Advisers Act of 1940, Inv. Adv. Act Rel. No. 1633 (May 22, 1997), 64 SEC Docket 1525, 1556-57.
9 When Barr was asked "what kind of relationship" he had with the accounts of his clients, he answered: "I have none . . . N-O-N-E, none." Barr also expressly admitted that BFG "never had control of any bank accounts, any securities, or any monies of any clients."
10 According to the ADV instructions, "You do not provide continuous and regular supervisory or management services for an account if you: provide advice on an intermittent or periodic basis (such as upon client request, in response to a market event, or on a specific date (e.g., the account is reviewed and adjusted quarterly))." Advisers Act Forms,Federal Securities Laws (CCH) Para. 55,701 (2002). See also 64 SEC Docket at 1557-8 ("Accounts for which the registrant provides advice only on an intermittent or periodic basis, upon the request of the client, or in response to some market event, e.g., an account that is reviewed and adjusted on a quarterly basis . . . do not receive continuous and regular supervisory or management services").
11 When pressed further by counsel for the Division of Enforcement to explain the apparent conflict between his testimony and the earlier disclosure, Barr stated that he did not "at this particular time recall what [the Firm's] numbers were" and that those numbers were "no longer valid" because he subsequently filed another amendment to the Form ADV. Barr added that he was concerned that his answers could "put [him] into perjury."
In August and September 1998, after the Commission had begun an investigation of BFG, respondents filed ADV amendments in which BFG stated that it managed on a discretionary basis just one customer portfolio, with an aggregate market value of $7,500, and 21 customer portfolios on a non-discretionary basis, with an aggregate value of $41,345,770.
12 Although acknowledging the matching identifying information, Barr denied that this was his transcript. Respondents also suggest that the transcript was, in some way, unpersuasive evidence because it was labeled "abbreviated." We find no basis to reject the transcript as not accurately reflectingBarr's academic record at Indiana.
13 Barr claimed, at the hearing, to have documentation supporting respondents' statements regarding his purported B.S. degree from Indiana but declined to introduce it. Barr admittedly had no documentation to support respondents' statements regarding Barr's purported Ph.D.
Barr vaguely claimed, during the hearing, that he previously believed that he held, or was working towards receiving, undergraduate and graduate degrees (including masters and doctoral degrees) from Indiana based on correspondence courses and other classes he took through training programs offered by an employer. Barr indicated that he was misled by that employer regarding Indiana University's willingness to accept his course work towards these degrees but that, at the time, "there was nothing that raised an alarm to me that maybe this was a joke being played on me, or somebody was telling me something that wasn't true."
14 On September 16, 1998, respondents filed an amendment to BFG's Form ADV in which they stated merely that Barr attended Indiana University for an unknown number of years.
15 Respondents question the staff's motives in examining BFG only two years after the Firm filed its initial adviser's application. Although investment advisers are subject to regular examination at least once every five years, more frequent examinations may be warranted. Respondents have provided no evidence that BFG was singled out for any impermissible reason. To the extent respondents seek to demonstrate selective prosecution, they must establish that they were singled out for enforcement action while others who were similarly situated were not and that their prosecution was motivated by "arbitrary or unjust considerations, such as race, religion, or the desire to prevent the exercise of a constitutionally-protected right." Barry C. Wilson, 52 S.E.C. 1070, 1074 (1996). Respondents have not done so. According to a staff attorney involved with the examination, the staff "had received information that there was an ADV that now reflected $70 million in management by an affiliate of a broker/dealer that had been revoked[;]. . . as a result, we decided to schedule Barr Financial for an exam."
Respondents also charge that an NASD official provided the staff with false information when he assertedly stated that BFG Securities' registration had been revoked. Although the staff acknowledged discussing BFG with NASD officials prior to the examination, there is nothing to suggest that these discussions were anything other than appropriate information gathering in support of the staff's preparation for its examination. Even if the NASD official erroneously reported that BFG Securities' registration was revoked (rather than that its membership application was denied), there was no harm, given that the staff did not need to identify an irregularity before determining to conduct an examination.
Respondents further charge that the NASD official with whom OCIE staff communicated acted with "vindictive motives" in "request[ing] that an exam of the Respondents was necessary." As indicated, we believe that there was nothing improper about the determination to examine BFG.
16 In 1990, the Kentucky Department of Insurance found thatBarr had converted over $16,000 in an insurance customer's funds. Barr's insurance license was revoked, and Barr was required to pay restitution of $16,000 and a $4,000 fine. In 1995, on Barr's appeal of the Department's decision, a Kentucky circuit court determined that the revocation decision was issued consistent with due process. The circuit court order was affirmed by the Kentucky Court of Appeals, and Barr's appeal of the Court of Appeals decision was denied by the Kentucky Supreme Court. See BFG Securities, Inc., 75 SEC Docket at 1508.
17 The staff sought to accommodate Barr in light of his move and because Barr told the staff that there recently had been a death in his family. The staff members, "sympathetic to his personal situation," also gave Barr roughly a week to locate the requested documents and prepare for the rescheduled examination.
18 Barr accuses the staff of perjury regarding their testimony that Barr identified a particular firm as BFG's custodial broker. Barr supports this charge with an affidavit from an official with another custodial broker who spoke with the examiners during the examination. The affidavit does not address what Barr told the examiners regarding the identity of BFG's then-custodial broker -- the official presumably lacked any knowledge of such matters -- but merely that the official and Barr at some point had discussed the "possibility" of establishing a custodial relationship with his firm in the future.
19 Although respondents now contend that it was the staff's decision to end the examination, Barr testified that, when the staff insisted on obtaining customer account verification information, he told the staff, "I guess this [exam] is over with." He also admittedly stopped the staff from removing the copies of the documents they had earlier reviewed.
20 The District Court concluded that imposing a fine against BFG "would appear to be a vain and useless act . . . [g]iven the 'void' status of BFG and its lack of tangible substance."
21 On cross-examination, the staff member conceded that it was possible, although unlikely, that these trades could have been effected on days when the markets were closed and at prices that deviated from market prices.
22 When the staff entered the given social security numbers into the LEXIS/NEXIS data base, they generated names and addresses different from those identified by Barr ascustomers, or generated no relevant information.
23 SEC v. The Barr Financial Group, No. 98-01806-CIV-T-17E (11th Cir. June 6, 2000) (unpublished). Respondents' subsequent petitions for rehearing and for rehearing en banc were denied. SEC v. The Barr Financial Group, Inc., 234 F.3d 35 (11th Cir. 2000). The Eleventh Circuit's opinion rejecting respondents' appeal addressed only the preliminary injunction and not any of the District Court's subsequently issued orders.
24 See, e.g., Wonsover v. SEC, 205 F.3d 408, 414 (D.C. Cir. 2000) (willful violation means merely the intentional commission of an act which constitutes the violation).
Respondents claim that we earlier held that BFG Securities, Inc., BFG's affiliate, had no rights to appeal its NASD membership application denial and that this holding and the fact that BFG was reorganized in 1998 as the "Barr Financial Group, LLC" somehow deprives the Commission of "subject matter jurisdiction" here. Respondents' description of our prior holding involving BFG Securities is erroneous. In BFG, we accepted BFG Securities' application for review and, on review, upheld the NASD's denial of BFG Securities' application for NASD membership on the ground, among others, that BFG Securities lacked corporate powers. See n.2, supra. That disposition against an affiliate of BFG is irrelevant here. This proceeding is authorized by Section 203 of the Advisers Act given BFG's status as an investment adviser. BFG's purported reorganization does not affect our jurisdiction. We note that amendments to BFG's Form ADV filed after BFG's reorganization used the Firm names "Barr Financial Group, LLC" and "Barr Financial Group, Inc." interchangeably.
25 See discussion at n. 10, supra, and accompanying text.
26 Respondents nonetheless now claim on appeal that certain documentation establishes that there were "assets over $100 Million being advised, monitored and supervised by Respondent." Among this identified evidence are documents from a purported 1997 offer by BFG to purchase commercial real estate in St. Petersburg, Florida. There is no indication that this transaction, which is irrelevant to the issue of BFG's assets under management or any other issue in this case, was ever completed. Also included is a facsimile transmission from an entity known as One Stop Business Solutions, Inc. regarding a purported 1997 offering of $75,000,000,000 in "Bank Credit Obligations." The relevance of this document, as well as its legitimacy, is also not apparent.
27 The transcript indicated that Barr attended Indiana University for one semester in 1976.
28 Respondents claim, without basis, that this injunction was voided by the Eleventh Circuit. They argue that, because the Eleventh Circuit affirmed the preliminary injunction --not the permanent injunction -- the permanent injunction in fact was rejected by that court by implication. To the contrary, in the absence of an order reversing or modifying the District Court's orders, these orders, including the order for permanent injunction, remain in force.
29 See, e.g., Demitrios Julius Shiva, 52 S.E.C. 1247, 1249 (1997) (rejecting attempts to challenge basis for injunction and noting that "we have long refused to permit a respondent to re-litigate issues that were addressed in a previous civil proceeding against the respondent"). See also Blinder, Robinson & Co. v. SEC, 837 F.2d 1099, 1108 (D.C. Cir.) (holding that issues that could have been adjudicated in prior injunctive proceeding could not be relitigated in appeal of subsequent administrative proceeding), cert. denied, 488 U.S. 869 (1988).
Respondents further claim that the Commission was collaterally estopped from bringing this administrative proceeding because the matters had already been litigated in the injunctive proceeding. While collateral estoppel precludes respondents or the Division from relitigating factual matters already decided by the District Court, it in no way limits the Commission's authority to institute administrative proceedings based on an injunction. Such proceedings are expressly authorized by Advisers Act Section 203. Respondents' related claim that this proceeding violates the Double Jeopardy Clause of the Constitution is similarly meritless. The "Double Jeopardy Clause prohibits multiple sanctions for the same offense only if those sanctions are 'criminal punishments.'" SEC v. Palmisano, 135 F.3d 860, 864 (2d Cir. 1998) (quoting Hudson v. U.S.,118 S.Ct. 488, 493 (1997)). The sanctions at issue here are civil rather than criminal in nature, and therefore they do not trigger the clause. See Palmisano, 135 F.3d at 865-66 (finding disgorgement and civil penalty imposed in Commission civil enforcement action not criminal for purposes of Double Jeopardy Clause); compare U.S. v. Naftalin, 606 F.2d 809 (8th Cir. 1979) (Double Jeopardy Clause did not apply to criminal prosecution for securities fraud that followed administrative proceeding based on same misconduct which resulted in industry bar).
30 Anthony Tricarico, 51 S.E.C. 457, 460 (1993) (credibility findings of fact finder entitled to considerable weight).
31 Respondents make various other charges against the staff, including that the staff discussed the proceedings against respondents with the media and told respondents' counsel that respondents would be unable to pay their legal bills. These charges are unsupported and, in any event, do not undermine the allegations contained in the OIP.
32 Respondents complain that they were prohibited by a security guard from bringing video equipment to the hearing for use in presenting video tapes they had made of the staff's examination at BFG's offices. Respondents do not support this allegation and, in any event, fail to explain why they did not introduce the tapes themselves as evidence or make a proffer regarding what the tapes purportedly establish.
Respondents also complain that their request for documents under the Freedom of Information Act, 5 U.S.C. § 552, was denied. This appeal is not the proper forum for challenging such a denial.
33 17 C.F.R. § 201.232(b).
34 As indicated above, Commission employees with direct knowledge of the facts of this case did testify.
Respondents also complain that the law judge denied their subpoena requests for "documents held with Universities, colleges and other accredited and non-accredited institutions for verification of academic credentials." As indicated, proof that Barr held academic credentials beyond those claimed in the Firm's ADV was irrelevant in this proceeding. Respondents provided no documentation, such as diplomas or transcripts, to support their statements that Barr held degrees from Indiana University. They provided no explanation for their inability to provide suchdocumentation, which presumably would be obtainable directly from the university without a subpoena, on a graduate's request.
35 See nn. 12 and 17, supra.
36 Respondents charge that, because of her delay in issuing a decision, the law judge "violated" Commission Rule of Practice 900(a)(i). 17 C.F.R. § 201.900(a)(i). The hearings in this case were concluded in September 1999 and the initial decision was issued in June 2002. While Rule 900(a)(i) states that, "to the extent possible," an initial decision "should be filed . . . within 10 months of issuance of the order instituting proceedings," the specified period is only a "guideline" that expressly does "not create a requirement." It is not a rule that can be violated.
Respondents make various other claims of law judge error, including that she erred with respect to the date on which Barr began working as an insurance agent and as to when the NASD began its investigation of BFG Securities. They also complain that the law judge required respondents to pay for copies of hearing transcripts. We see no prejudice to respondents from these or other asserted errors or omissions. Further, we have engaged in a de novo review of the record and, based on that review, have reached our own conclusions regarding the demands of the public interest.
37Steadman v. SEC, 603 F.2d 1126, 1140 (5th Cir. 1979), aff'd on other grounds, 450 U.S. 91 (1981).
38 For example, during his opening statement at the hearing, Barr stated that "I am totally in the dark as to what the problem is, or how I have harmed any person." Barr also characterized the allegations in this case as "frivolous."
39 See, e.g., Butz v. Glover Livestock Comm'n Co., 411 U.S. 182, 187 ("The employment of a sanction within the authority of an administrative agency is . . . not rendered invalid in a particular case because it is more severe than sanctions imposed in other cases.").
40 KPMG Peat Marwick LLP, Exchange Act Release No. 43862 (Jan. 19, 2001), 74 SEC Docket 384, 430, motion for reconsideration denied, Exchange Act Release No. 44050 (Mar. 9, 2001), 74 SEC Docket 1351, petition denied, 289 F.3d 109 (D.C. Cir. 2002).
41 Respondents' motion to strike the Division's opposition brief is denied.
We have considered all of the arguments advanced by the parties. We reject or sustain them to the extent that they are inconsistent or in accord with the views expressed in this opinion.
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