From the earliest days of the Commission, the remedies available to the agency were a question. Initially, those remedies were only an injunction. There was no disgorgement; no penalties; no officer and director bars; no penny stock bars. Over the decades since the securities laws were written the available remedies dramatically changed with a little help from the creative talents of the Commission and Congress. Now the agency has an array of remedies available, starting with the injunction and including monetary penalties and bar orders.

Through all the years and changes, however, the injunction – and now in an administrative proceeding a cease and desist order – continues to be primary. A recent action brought by the Commission illustrates the impact of the basic remedy. SEC v. Copeland, Civil Action No. 1:20-cv-00589 (N.D. Ohio Filed March 18, 2020).

Defendants in the action are Brandon Copeland and his advisory firm, E.G. & Copeland Capital, Inc. Mr. Copeland is the founder, sole owner, CIO and a director of the management firm. It advises E.B. & Copeland Capital L.P or the Fund.

This action was brought to enforce an administrative order previously entered by the Commission as to Mr. Copeland and is also based on additional violations of the securities laws. Specifically, in July 2019 Mr. Copeland resolved an administrative proceeding with the Commission. The Order in that proceeding alleged that Mr. Copeland and another individual made false and misleading statements in Form ADV filings for a prior investment adviser formed by Mr. Copeland. The false statements concerned the amount of assets under management, the number of clients, asset allocation, eligibility for registration with the SEC and the expertise of the managers. In resolving the proceedings Mr. Copeland consented to the entry of a cease and desist order based on Advisers Act Sections 206(1), 206(2), 206(4) and 207. The order also barred Mr. Copeland from the securities business and imposed a $25,000 penalty.

Mr. Copeland was planning a new advisory that would violate the consent order virtually as the ink dried on the July 2019 cease and desist order. Specifically, Mr. Copeland established a new advisory firm – defendant Copeland Capital – and began soliciting investors. In soliciting new investors Defendants detailed the successful history of the firm and Mr. Copeland’s industry expertise. The representations were false. Perhaps more importantly, there was no disclosure of the settlement of the action last year or the order barring Mr. Copeland from the securities business entered by the Commission.

The complaint seeks to enforce the 2019 order, an injunction, civil penalties and disgorgement along with prejudgment interest. It alleges violations of Advisers Act Sections 209(d), 203(f) and 204(4). The action is pending. See Lit. Rel. No. 24773 (March 19, 2020).

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Last week a jury in the Central District of California found in favor of the Commission in a case centered on sham transactions used by corporate insiders to essentially misappropriate unregistered shares of the company. The shares were then sold into the market through others who funneled the cash back to the insiders.

This week a jury in the District of Connecticut found in favor of the Commission in a case were an investment adviser disregarded its fiduciary obligations and lined its pockets, and those of its controlling shareholder, at the expense of clients. SEC v. Westport Capital Markets, LLC, Civil Action No. 3:17-cv-02064 (C.D. Cal. Verdict March 16, 2020).

Named as defendants in the action are: Westport, a dually registered investment adviser and broker-dealer. During the period the advisory was paid fees for investment advice and the management of client accounts. Defendant Christopher McClure is the President CEO, CFO and COO of the advisory. He also personally advised certain clients and had authority to make investment decisions for select clients.

Defendants, according to the complaint, charged clients for undisclosed mark-ups on certain securities and 12(b)-1 fees on certain mutual fund shares without disclosing these facts to the advisory clients involved. First, beginning in 2011, and continuing for about four years, Westport acquired certain shares at a discount from a group of underwriters. Specifically, the advisory entered into an arrangement with the underwriters pursuant to which it was able to purchase shares in underwritten offerings at a discount. Those shares were then sold to certain advisory clients at full price. The mark-ups were not disclosed to the clients.

Over the period the advisory clients paid the firm $1.7 million in advisory fees. In addition, the advisory received about $650,000 in undisclosed mark-ups from Mr. McClure’s advisory clients who purchased shares held in the firm’s account that had been acquired from the syndicate at a discount. Mr. McClure was paid by the firm from the net profits.

Second, during approximately the same period certain advisory clients purchased mutual fund shares that carried 12b-1 fees. The fees were not disclosed to the clients despite the conflict of interest. The advisory received about $130,000 from those fees. The complaint alleged violations of Advisers Act Sections 206(1), 206(3), 206(3) and 206(7).

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