Brown Investment Advisors Charged with Operating Three Offering Frauds

A settled civil injunctive action was filed by the Securities and Exchange Commission (SEC) against two Pennsylvania investment advisers, Kevin Brown and his father, George Brown, (collectively, the “Browns”), and several entities they managed, for conducting three offering frauds over the last decade. The unregistered offerings were in correlation with securities that were issued by a Nevada-chartered trust company, Summit Trust Company (“STC”), the Rampart Fund LP (“Rampart Fund”), a private fund managed by the Browns, and Trust Counselors Network, Inc. (“TCN”), a non-profit charitable organization.

The SEC alleges that between 2008 and 2014, the Browns accumulated over $33 million from over 150 investors in multiple states through the offering of STC’s preferred stock while insinuating that the proceeds would be used for business expansion and acquisitions. Instead, STC and the Browns allegedly used most of the proceeds to make Ponzi-like payments to existing preferred stock shareholders, to pay for obligations and expenses of the Browns’ other affiliated entities, and for undisclosed speculative investments.

The complaint also alleges that between 2008 and 2013, the Browns raised approximately $7.9 million from over 100 investors in multiple states through the sale of notes issued by the Rampart Fund for the purported purpose of investing in mezzanine debt financing programs by acting through their related investment advisers, Rampart Capital Management, LLC (“RCM”) and Brown Investment Advisors, Inc. (“BIA”). However, the Browns allegedly hid from investors the default by the Rampart Fund’s primary underlying investment, and that the Rampart Fund’s used investor proceeds to pay interest and redemptions that were due to other Rampart Fund investors and to make investments in the Browns’ other entities.

The SEC alleges that from approximately 2004 through 2015, the Browns used TCN to acquire over $12 million from 70 investors in multiple states in various estate planning products, including charitable gift annuities. But due to losses on various speculative investments, by 2008 Kevin Brown allegedly began managing TCN as a Ponzi-like scheme by using funds from new investors to pay for TCN’s older annuity and other obligations. The Browns also supposedly misused TCN investor funds by paying undisclosed commissions to third parties, transferring cash to BIA, and making personal loan to themselves.

Without admitting or denying the allegations in the complaint, the Browns and their associated entities have agreed to the entry of appropriate final judgments as follows:

• Kevin Brown: Permanently enjoining him from violating Sections 5(a), 5(c), and 17(a) of the Securities Act of 1933 (“Securities Act”), Sections 10(b) and 15(a)(1) of the Securities Exchange Act of 1934 (“Exchange Act”) and Rule 10b-5 thereunder, and Sections 206(1), (2), (3), and (4) of the Investment Advisers Act of 1940 (“Advisers Act”) and Rule 206(4)-8 thereunder, and from aiding and abetting violations of Section 7(a) of the Investment Company Act of 1940 (“Investment Company Act”); ordering him to pay approximately $1.3 million in disgorgement and prejudgment interest of $120,000; ordering him to pay, jointly and severally with BIA, additional disgorgement of approximately $1.3 million and prejudgment interest of $180,000; and ordering him to pay a civil penalty of approximately $2.9 million.

• George Brown: Permanently enjoining him from violating Sections 5(a), 5(c), and 17(a) of the Securities Act, Section 10(b) of the Exchange Act and Rule 10b-5 thereunder, and Sections 206(1), (2), (3), and (4) of the Advisers Act and Rule 206(4)-8 thereunder, and from aiding and abetting violations of Section 7(a) of the Investment Company Act; ordering him to pay $278,000 in disgorgement and prejudgment interest of $14,000; ordering him to pay, jointly and severally with BIA, additional disgorgement of approximately $1.3 million and prejudgment interest of $180,000; and ordering him to pay a civil penalty of approximately $1.8 million.
• Summit Trust Company: Permanently enjoining it from violating Sections 5(a), 5(c), and 17(a) of the Securities Act and Sections 10(b) and 15(a)(1) of the Exchange Act and Rule 10b-5 thereunder, and from aiding and abetting violations of Section 7(a) of the Investment Company Act; ordering it to pay approximately $16.5 million in disgorgement and prejudgment interest of $2.4 million; but not ordering it to pay a civil penalty based on its financial condition.
• Trust Counselors Network, Inc.: Permanently enjoining it from violating Sections 5(a), 5(c), and 17(a) of the Securities Act and Section 10(b) of the Exchange Act and Rule 10b-5 thereunder; ordering it to pay approximately $9.2 million in disgorgement and prejudgment interest of $1.3 million; but not ordering it to pay a civil penalty based on its financial condition.

• Brown Investment Advisors, Inc. and Rampart Capital Management, LLC: Permanently enjoining them from violating Sections 5(a), 5(c), and 17(a) of the Securities Act, Section 10(b) of the Exchange Act and Rule 10b-5 thereunder, and Sections 206(1), (2), (3), and (4) of the Advisers Act and Rule 206(4)-8 thereunder, and from aiding and abetting violations of Section 7(a) of the Investment Company Act; ordering BIA to pay approximately $1.3 million in disgorgement and prejudgment interest of $181,000, jointly and severally with the Browns; ordering BIA to pay a civil penalty of approximately $1.8 million; but not ordering RCM to pay a civil penalty based on its financial condition.
• Rampart Fund LP: As a relief defendant, ordering it to pay approximately $5 million in disgorgement and prejudgment interest of $918,000.
• Wealth Management Organization, LLC: As a relief defendant, ordering it to pay approximately $500,000 in disgorgement and prejudgment interest of $87,000.
• Hoddinott Farm Development, LLC: As a relief defendant, ordering it to pay approximately $174,000 in disgorgement and prejudgment interest of $64,000.

STC, TCN, and the Rampart Fund also agreed to be appointed with a receiver over their assets. The Browns also agreed to be barred from the securities industry. All proposed settlements in the civil action are subject to the approval of the District Court.

For further information about this securities law blog post, please contact Brenda Hamilton, Securities Attorney at 101 Plaza Real S, Suite 202 N, Boca Raton, Florida, (561) 416-8956, by email at [email protected] or visit www.securitieslawyer101.com.    Please note that the prior results discussed herein do not guarantee similar outcomes.

Hamilton & Associates | Securities Lawyers
Brenda Hamilton, Securities Attorney
101 Plaza Real South, Suite 202 North
Boca Raton, Florida 33432
Telephone: (561) 416-8956
Facsimile: (561) 416-2855
www.SecuritiesLawyer101.com