Securities Law Prof Blog

Editor: Eric C. Chaffee
Univ. of Toledo College of Law

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Tuesday, June 3, 2008

SEC Charges Broker with Defrauding Elderly Customer

The SEC announced the filing of a civil action against Frederick J. Barton (Barton), a formerly registered representative of a national, registered broker-dealer and two entities he controlled: TwinSpan Capital Management, LLC (TwinSpan), an investment adviser formerly registered with the Commission, and Barton Asset Management, LLC (Barton Asset Management). The Commission alleges that, between 1999 and 2007, Barton, acting individually or through TwinSpan or Barton Asset Management, engaged in three separate securities frauds-including one involving a senior citizen suffering from Alzheimer's disease-and through his misconduct obtained over $3 million in ill-gotten gains. The Commission further alleges that he then spent his ill-gotten gains, among other things, to send his children to an exclusive private school, fund his own investment portfolio, and service his credit card debts.

The complaint, filed in federal District Court in Atlanta alleges that between approximately May 1999 and December 2003, Barton misappropriated approximately $970,000 from a single, elderly brokerage customer who suffered from diminished mental capacity and Alzheimer's disease. The complaint alleges that Barton induced her to sell securities in her brokerage account, held by the firm that employed Barton, and give him the proceeds of those sales based on representations that he would somehow either transfer those proceeds into instruments offered by a local bank or, in a few instances, place the proceeds in an advisory account at Barton Asset Management. As a result of this conduct, the value of this customer's brokerage account declined from over $1.3 million (practically her entire life's savings) to only a few dollars by December 2003.

The SEC seeks permanent injunctive relief, an accounting, disgorgement of ill-gotten gains plus prejudgment interest and civil penalties. The litigation remains pending as to all parties.

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