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Univ. of Toledo College of Law

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Friday, November 14, 2008

SEC Obtains Judgment Against Unregistered Principal of Broker-Dealer

On November 14, 2008, the U.S. District Court for the Southern District of New York entered a final judgment against defendants Michael W. Crow, Duncan Capital LLC, Duncan Capital Group LLC and Robert David Fuchs.  The court found that Crow and Duncan Capital Group LLC had unlawfully acted as an unregistered principal of Duncan Capital LLC, a registered broker-dealer, and were aided and abetted by the registered broker-dealer's principal, Robert David Fuchs.

The SEC's complaint alleges that from late 2003 through at least December 2004, Crow controlled virtually every significant aspect of Duncan Capital's operations and received the vast majority of the firm's profits. Duncan Capital's regulatory filings, however, failed to identify Crow as an officer, director or "control affiliate" of the firm, and falsely stated that (1) no court had ever enjoined any of Duncan Capital's control affiliates in connection with an investment-related activity; and (2) the Commission had never entered an order against any of the firm's control affiliates in connection with an investment-related activity.  The SEC's complaint also alleged that Fuchs, the owner and nominal president of Duncan Capital, made false regulatory filings on behalf of Duncan Capital and otherwise facilitated Crow's undisclosed control of the firm by, among other things, transferring Duncan Capital's profits to other entities Crow controlled.

The court ordered that:

Crow and Duncan Capital Group LLC disgorge ill-gotten gains of $1,562,337, plus prejudgment interest in the amount of $437,415.87, for a total of $1,999,752.87;
Fuchs disgorge ill-gotten gains of $221,000, plus prejudgment interest of $61,874.95, for a total of $282,874.95;
Crow, Fuchs, Duncan Capital and Duncan Capital Group disgorge ill-gotten gains of $3,903,474, plus prejudgment interest of $1,092,877, for a total of $4,996,351;
Relief defendant M.W. Crow Family LP disgorge ill-gotten gains of $831,624, plus prejudgment interest of $232,834.46, for a total of $1,064,458.46;
Relief defendant Santal Holdings LLC disgorge ill-gotten gains of $42,162, plus prejudgment interest of $11,804.17, for a total of $53,966.17.

The court further ordered Crow and Fuchs to pay penalties of $250,000 and $125,000 respectively, and ordered Duncan Capital LLC and Duncan Capital Group LLC to each pay a penalty of $50,000.

http://lawprofessors.typepad.com/securities/2008/11/sec-obtains-jud.html

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