While the SEC Chair is battling Congress to secure a
budget which approaches $2 billion the number of cases being brought by the
enforcement program is dwindling. Regardless of what budget Congress actually
gives the agency, a critical question will be how the resources are used and by
what standard success will be measured. The number of cases filed during any
given period, or even the amount of money obtained in resolved cases, is not
the critical test of effective enforcement although those metrics may stimulate
Rather, the focus should be on the kind of cases being
brought, the statement they make in the market place and the effectiveness of
the remedies obtained. Stated differently, does the case halt wrong doers,
inform the market place about Commission priorities and protect
investors in the future by preventing a reoccurrence of the wrongful conduct?
This will ultimately be the test by which the new administration being put in
place at the SEC will be measured.
While the new administration will need time to install
its program, a glimpse of what the Commission and its enforcement program is
doing now was available on Friday when two new actions were filed. One is a
civil injunctive case filed as an emergency action that involved three
investors while the other is an administrative proceeding focused on an
investment adviser to small to be eligible for Commission registration.
The first is SEC v. Fowler, Civil Action No.
1:13-cv-1656 (N.D. Ga. Filed May 16, 2013. This action was filed against Robert
Fowler and his controlled entity, US Capital Funding II Series Trust 1, Inc. It
centers on a prime bank fraud.
Beginning last August Mr. Fowler used US Capital Funding
to raise $350,000 from three investors. He did this by targeting aspiring
entrepreneurs and small business owners with a pitch of easy profits.
Specifically, investors were told that through US Capital's relation with a
prime bank, millions of dollars in loans would be obtained. Mr. Fowler could
then invest at least a portion of the money and later the profits would be
split. To get started all that was necessary was an up front fee from the
To reassure investors, Mr. Fowler claimed the program had
a triple A credit rating from S&P and the blessing of the SEC. Of course
the loans and investment program were fictitious. The ratings were
misrepresentation. The only profit was the fees Mr. Fowler collected from
investors and took for his own purposes. The complaint alleges violations each
subsection of Securities Act Section 17(a) and Exchange Act Sections 10(b) and
26. The case is in litigation. See also Lit. Rel. No. 22702 (May 17,
The Second is In the Matter of Noonan Capital
Management, LLC, Adm. Proc. File No. 3-14955 (May 17, 2013). Registered
investment adviser Noonan Capital and its sole owner Timothy Noonan are the
Respondents. The Order which alleges violations of Exchange Act Section 10(b)
and Advisers Act Sections 206(1), (2), 203A(a)(1)(A), 204(a) and 207. The
alleged violations center on two primary claims. First, the firm overcharged
investors for its fees. From April 2009 through January 2011 the firm charged
investors fees totaling $183,908 when in fact the fees should have been $92,212
using the formula in its Form ADV. Thus the firm overcharged - or
"misappropriated" in the words of the Order - by about $91,696.
Second, the firm misrepresented the amount of assets
under management. In its Form ADV filed in February 2009 the firm claimed to
have $25 million under management. That representation was carried forward in
an amended version of the filing. Subsequently, in a March 2009 filing the firm
claimed it remained eligible for registration with the Commission because it
had $39.4 million under management. In fact the Order stated that Noonan
Capital never had more than $9 million under management.
To resolve the case the Respondents consented to the
entry of a cease and desist order based on the Sections cited in the Order. The
firm's registration was revoked and Mr. Nonan is prohibited from serving in any
capacity with an investment adviser or investment company. The firm filed an
affidavit demonstrating its inability to pay disgorgement or a civil penalty.
* * *
To be sure Fowler and Noonan Capital are
only two cases, making it difficult to ascribe to them any statement about the
enforcement program. The new administration at the Commission is just beginning
and the budget has yet to be set. The critical point going forward, however,
will be how the agency allocates its always scarce resources to establish a
credible and effective over-all program and message. A key element of that will
be the work of the enforcement division, the kind of cases it selects and
prosecutes, its presence in the market place and the remedies obtained.
ABA Seminar: Fifth
Annual FCPA Update: Protecting Your Business in the Future: Lessons from the
New DOJ-SEC FCPA Guide, June 19, 2013 from 1:00 -2:30 p.m. EST. The discussion
will focus on building effective compliance systems and conducting M&A due
diligence. Co-moderators: Thomas Gorman and Frank Razzano. Panel: John Buretta,
Principal Deputy to the Assistant AG, DOJ; Charles Cain, Assistant Director,
FCPA Unit, SEC Division of Enforcement; Catherine Razzano, Assistant General
Counsel, General Dynamics Corporation; Steve Siegal, Senior Counsel, Northrop
Grumman Corporation; Ryan Ong, President, U.S. China Business Counsel. Live in
Washington, D.C at 600 14th St. N.W., Penthouse (no charge for ASECA
members attending live in Washington who pre-register by sending an e-mail to
firstname.lastname@example.org). Webcast Nationally by the ABA. For further
information please click here.
For more commentary on developing securities
issues, visit SEC Actions, a blog by Thomas
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