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United States Court of Appeals for the Ninth Circuit
February 5, 2003, Argued and Submitted, Pasadena, California ; April 24, 2003, Filed
No. 01-71857, No. 02-70016
[*855] D.W. NELSON, Senior Circuit Judge:
Petitioners Jerome B. Vernazza, Vernon T. Hall, Stanley E. Hargrave, and IMS/CPAs & Associates ("IMS") seek review of an order of the Securities and Exchange Commission ("Commission") imposing sanctions for violations of several antifraud provisions of the securities laws. The Commission determined that the petitioners, who are investment advisers or persons associated with advisers, knowingly or recklessly made materially false statements and omissions to their clients and [**2] in their papers filed with the Commission. The Commission found that the petitioners falsely represented that they received no referral fees and had no financial interest in any of the recommendations they made to their clients. Because the Commission's findings are supported by substantial evidence, we deny the petition for review.
The facts are largely undisputed. Vernazza, Hall, and Hargrave are partners in IMS, a firm registered with the Commission as an investment adviser. Vernazza also was registered as an adviser, but withdrew his registration in 1997. Vernazza, Hall, and Hargrave also owned the accounting firm Hall & Vernazza, CPAs ("H&V"), which for all practical purposes was the same business as IMS.
World Money Managers ("World")--also a registered investment adviser--had operated as the adviser to the Tax Planning Federal Cash Fund ("Tax Fund"), to which H&V operated as the subadviser. In June 1992, World and H&V closed the Tax Fund due to unprofitability. Ordinarily, the closing costs for an investment fund are paid by the fund itself; in this case, H&V paid the $ 60,000 closing costs and obtained a loan from World to do so. 1 The promissory [**3] note for the loan provided that H&V would repay the loan at a rate of $ 2,000 per month, with the full amount due by July 1, 1995.
The day after the loan was made, World and H&V entered into a Shareholder Servicing Agreement ("SSA"), the terms of which are central to this case. The SSA provided that World would pay H&V for services related to World's Permanent Portfolio Family ("PPF") of Funds, such as marketing the funds and providing tax advice to investors. A schedule to the SSA stated that compensation would be based on "time, effort, and complexity of services at an annual rate not to exceed" a series of percentages of "Additional Assets." "Additional Assets" was defined as the value of the investments in PPF [**4] funds made by clients of H&V or IMS. The percentage "caps" ranged from 0.25% to 0.6% of the Additional Assets, depending on which of the three PPF funds the client invested in, whether the client had been previously invested in the Tax Fund, and when the investment was made. The highest percentages were applied to investments made by former Tax Fund clients before June 30, 1995--the day before the loan was due to be repaid. The [*856] SSA did not indicate any other basis, such as an hourly rate of pay, for determining H&V's compensation. The SSA also contained a minimum investment requirement whereby H&V would not be paid at all until its and IMS's clients had purchased at least $ 1,000,000 in PPF funds.
Full case includes Shepard's, Headnotes, Legal Analytics from Lex Machina, and more.
327 F.3d 851 *; 2003 U.S. App. LEXIS 7729 **; Fed. Sec. L. Rep. (CCH) P92,458; 2003 Cal. Daily Op. Service 3423; 2003 Daily Journal DAR 4369
JEROME B. VERNAZZA, Petitioner, v. SECURITIES AND EXCHANGE COMMISSION, Respondent. IMS/CPAS & ASSOCIATES; VERNON T. HALL; STANLEY E. HARGRAVE, Petitioners, v. SECURITIES AND EXCHANGE COMMISSION, Respondent.
Subsequent History: Amended by, Motion denied by Vernazza v. SEC, 335 F.3d 1096, 2003 U.S. App. LEXIS 14382 (9th Cir., July 17, 2003)
Reprinted as amended at Vernazza v. SEC, 2003 U.S. App. LEXIS 14351 (9th Cir., July 17, 2003)
Prior History: [**1] On Petition for Review of an Order of the Securities & Exchange Commission. SEC No. 3-9042.
Disposition: Petition for review denied.
adviser, financial interest, recommending, investment adviser, caps, violations, scienter, funds, potential conflict of interest, expert testimony, false statement, reckless, imposition of sanctions, petitioners', registered, suspension, deference, questions, disclose, invested, agency's interpretation, materially false, associating, correctly, omissions, sanctions, cases
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