The SEC recently brought an action against the principal of a broker dealer for not being registered as a principal. There are many instances where members of the investment management are operating without having the proper registrations or licenses and many times these people think that they can remain under the radar as long as they aren’t acting fraudulently. In this instance the principal was not able to remain under the radar.
“This is an important case that demonstrates that the SEC will vigorously pursue those who flout registration and other regulatory requirements, even in the absence of fraud,” said Andrew M. Calamari, Associate Director of Enforcement in the SEC’s New York Regional Office.
This case should also serve as an important reminder to check with your attorney to make sure you are complying with all appropriate registration and/or license requirements. Please contact us if you have questions about your registration status. The original release can be found here.
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SEC Prevails in Trial Against Michael W. Crow for Unlawfully Controlling Registered Broker-Dealer
Court Orders Defendants to Pay Total of $8.8 Million
FOR IMMEDIATE RELEASE
2008-272
Washington, D.C., Nov. 14, 2008 — The Securities and Exchange Commission today announced that the U.S. District Court for the Southern District of New York ruled in the SEC’s favor in a trial against unregistered principal Michael W. Crow, who made millions of dollars in unlawful commissions while violating the broker-dealer registration and reporting provisions of the securities laws.
Following a seven-day bench trial before U.S. District Judge Colleen McMahon, the court entered a final judgment against Crow for unlawfully acting as an unregistered principal of Duncan Capital LLC, a registered broker-dealer. The court also entered final judgment against the other defendants in the case: Duncan Capital, Duncan Capital Group LLC and Robert David Fuchs.
“This is an important case that demonstrates that the SEC will vigorously pursue those who flout registration and other regulatory requirements, even in the absence of fraud,” said Andrew M. Calamari, Associate Director of Enforcement in the SEC’s New York Regional Office. “The court’s decision sends a strong message that these are serious matters and that such violations, which go to the heart of our regulatory framework, will not be tolerated.”
The SEC’s complaint alleges that from late 2003 through at least December 2004, Crow controlled virtually every significant aspect of Duncan Capital’s operations and received the vast majority of the firm’s profits. Duncan Capital’s regulatory filings, however, failed to identify Crow as an officer, director or “control affiliate” of the firm, and falsely stated that (1) no court had ever enjoined any of Duncan Capital’s control affiliates in connection with an investment-related activity; and (2) the Commission had never entered an order against any of the firm’s control affiliates in connection with an investment-related activity.
The SEC’s complaint also alleged that Fuchs, the owner and nominal president of Duncan Capital, made false regulatory filings on behalf of Duncan Capital and otherwise facilitated Crow’s undisclosed control of the firm by, among other things, transferring Duncan Capital’s profits to other entities Crow controlled.
On Nov. 5, 2008, the court issued its findings of fact and conclusions of law that form the basis for the final judgment. The court found that Crow, Fuchs, Duncan Capital and Duncan Capital Group violated all of the reporting and registration provisions at issue in the SEC’s complaint. The judgment permanently bars Crow from aiding and abetting violations of Sections 15(a), 15(b)(1) and 15(b)(7) of the Exchange Act and Rules 15b3-1 and 15b7-1; permanently bars Fuchs from aiding and abetting violations of Sections 15(a), 15(b)(1), 15(b)(7) and 17(a) of the Exchange Act and Rules 15b3-1, 15b7-1 and 17a-3(a)(12). The court also permanently enjoined Duncan Capital LLC from violating Sections 15(b)(1), 15(b)(7) and 17(a) of the Exchange Act and Rules 15b3-1, 15b7-1 and 17a-3(a)(12) and Duncan Capital Group LLC from violating Section 15(a) of the Exchange Act.
The court ordered that:
• Crow and Duncan Capital Group LLC disgorge ill-gotten gains of $1,562,337, plus prejudgment interest in the amount of $437,415.87, for a total of $1,999,752.87;
• Fuchs disgorge ill-gotten gains of $221,000, plus prejudgment interest of $61,874.95, for a total of $282,874.95;
• Crow, Fuchs, Duncan Capital and Duncan Capital Group disgorge ill-gotten gains of $3,903,474, plus prejudgment interest of $1,092,877, for a total of $4,996,351;
• Relief defendant M.W. Crow Family LP disgorge ill-gotten gains of $831,624, plus prejudgment interest of $232,834.46, for a total of $1,064,458.46;
• Relief defendant Santal Holdings LLC disgorge ill-gotten gains of $42,162, plus prejudgment interest of $11,804.17, for a total of $53,966.17.
The court further ordered Crow and Fuchs to pay penalties of $250,000 and $125,000 respectively, and ordered Duncan Capital LLC and Duncan Capital Group LLC to each pay a penalty of $50,000.
Previously, the Commission reached a settlement with another defendant, Robert MacGregor.
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For more information, contact:
Andrew M. Calamari
Associate Director, Enforcement, SEC’s New York Regional Office
(212) 336-0042
David Stoelting
Senior Trial Counsel, SEC’s New York Regional Office
(212) 336-0174
Valerie Szczepanik
Senior Trial Counsel, SEC’s New York Regional Office
(212) 336-0175