Securities Law Prof Blog

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

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Friday, November 21, 2008

SEC Bars Adviser's Former Managing Director for Conversion, Fraud

The SEC imposed sanctions on Brendan E. Murray, formerly a managing director of registered investment advisor Cornerstone Equity Advisers, Inc. (Cornerstone) and secretary to Cornerstone's advisory clients the Cornerstone Funds, Inc. (Funds), for willfully aiding and abetting, and being a cause of, Cornerstone's violations of antifraud provisions of the Investment Advisers Act of 1940. Cornerstone, a fiduciary to the Funds, misappropriated client funds by knowingly inflating and falsifying vendor invoices, directing the payments of the inflated amounts to an intermediary, and instructing the intermediary to pay the vendors lesser amounts (or nothing) while keeping the overage. The Commission found that Murray participated in the scheme by creating, submitting, and authorizing payment of the inflated invoices. The Commission also found that Murray, who as secretary owed a fiduciary duty to the Funds, converted corporate funds by knowingly submitting inflated invoices for reimbursement. The Commission concluded that it is in the public interest to bar Murray from associating with any investment adviser or investment company, to impose a cease-and-desist order, to impose a civil money penalty in the amount of $60,000, and to order disgorgement in the amount of $21,157 plus prejudgment interest.

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