Wednesday, April 29, 2009
Court Enjoins Georgia Broker Charged with Defrauding Elderly Customer
The SEC announced today that the federal district court for the Northern District of Georgia entered default judgment as to defendants Frederick J. Barton ("Barton"), Barton Asset Management, LLC ("Barton Asset Management"), and TwinSpan Capital Management, LLC ("TwinSpan") on April 27, 2009. The judgment restrained and enjoined all of the defendants from future violations of the antifraud provisions. The judgment also granted injunctive relief against all of the defendants from future violations of Sections 206(1) and 206(2) of the Investment Advisers Act of 1940.
The court ordered disgorgement against Barton in the amount of $3,170,000, of which $1,021,900 is owed jointly and severally with TwinSpan, and $685,000 is owed jointly and severally with Barton Asset Management. The court further ordered prejudgment interest against Barton in the amount of $945,110.92, of which $265,936.86 is owed jointly and severally with TwinSpan, and $106,589.43 is owed jointly and severally with Barton Asset Management. Further, the court ordered Barton, Barton Asset Management and TwinSpan to pay civil penalties in the amounts of $120,000, $60,000 and $60,000, respectively. The defendants were ordered to pay the above amounts within 10 business days after the entry of the default judgment.
The court's judgment specifically found that between approximately May 1999 and December 2003, Barton, acting individually or through Barton Asset Management, misappropriated approximately $970,000 from a single, elderly brokerage customer of his who suffered from diminished mental capacity arising from Alzheimer's disease, and that Barton tricked her into selling the securities in her brokerage account and providing him and Barton Asset Management with the proceeds of those sales. The court also found that between October 2004 and October 2005, Barton and TwinSpan engaged in a $1.515 million offering fraud involving ten investors. Barton and TwinSpan told investors that the funds raised would only be used upon reaching a minimum offering amount and then, would only be used for TwinSpan's general corporate purposes. The court concluded that despite these representations, Barton and TwinSpan diverted at least $493,100 of the offering proceeds for Barton's personal use and used a substantial portion of the offering proceeds in advance of reaching the minimum offering amount. Finally, the court specifically found that, between October 2006 and January 2007, Barton misappropriated $685,000 from an advisory client of TwinSpan. Specifically, Barton, acting through TwinSpan, forged the customer's signature on four wire-transfer authorizations that transferred $185,000 of the client's assets at TwinSpan to a bank account in the name of Barton Asset Management. Shortly thereafter, Barton borrowed an additional $500,000 from this client, without disclosing his earlier theft of her funds.