(The news featured below is a selection from the news covered in Federal Securities Law Reporter, which is distributed to subscribers of Federal Securities Law Reporter.)

Court Finds Adviser Used Ponzi Scheme

A district court (DC Utah) found that an investment adviser used his company's promotions and sales literature when making investment recommendations in connection with securities. The court reasoned that the investments that the adviser suggested were "securities" because investors invested their money, which was commingled into a common enterprise with the reasonable expectation of profit from another's efforts.

The court found in granting summary judgment for the SEC that the adviser misrepresented and omitted information about the way the money would be handled and invested. The court found that the information was material because a sample of the investors said that they would not have invested as they did if they had known more complete and accurate information. The court decided that the adviser had the scienter to defraud the investors since he knew how the investors' money would be invested because he devised the fraud scheme.

The court issued permanent injunctions against the adviser from committing future securities violations. Also, the adviser was ordered to disgorge any ill-gotten profits plus interest resulting from his fraudulent activities. The amount due was based on an expert witness' forensic accounting report and the IRS rates on tax underpayments for individuals.

SEC v. Merill Scott & Assoc., Ltd. (DC Utah) is reported at ¶94,336.