WEST PALM BEACH, FL (www.hedgeco.net) – On July 8, 2005, the Securities and Exchange Commission (the “SEC”) issued an administrative order and brought cease-and-desist proceedings (the “Order”) underthe Securities Act. the Investment Advisers Act, and the Investment Company Act against Gerald Klein & Associates, Inc. (“GKA”) and Klein Pavlis & Peasley Financial, Inc. (“KPP”), twoSouthern California based, registered investment advisers. The SEC found that in connection with the offer and sale of interests in two hedge funds to retail investors , Invest Talk Partners I, L.P.(“Fund I”) and Invest Talk Partners II, L.P. (“Fund II”), GKA and KPP willfully violated and willfully aided and abetted and caused violations of the registration provisions of the Securities Act andthe Investment Company Act.
In November 2000, GKA and KPP formed Fund I as a limited partnership and Invest Talk, Inc. (“Invest Talk “) to be its general partner. In December 2000, Invest Talk began offering interests in Fund I to investors. In 2002, GKA and KPP formed a second hedge fund, Fund II, and began offering interests in Fund II to investors in June 2002. GKA and KPP marketed their investment advisory services through radio programs, investment seminars, and the Internet. While the interests in Fund I and Fund II were being offered to investors, GKA and KPP principals talked about these hedge funds, including the reason for starting the Funds, the investment strategies, and minimum investment amounts, during at least one radio program.
During the same offering period, the hedge funds were also discussed by GKA and KPP principals during one or more investment seminars. In addition, performance figures for the hedge funds, fund strategy, and contact information were posted for a brief period in the fall of 2002 on the advisers’ shared website, which was accessible to the general public. As a result of these marketing activities, the offerings of the hedge funds included a general solicitation. Furthermore, as of November 2002, the combined funds had 112 investors, more than 35 of whom were non-accredited investors. At no time was there a registration statement in effect in connection with the offer and sale of interests in the two hedge funds, and because the offerings included a general solicitation and were made to over 35 non-accredited investors, there was no valid exemption from registration.
Accordingly, GKA and KPP were found to have willfully violated Sections 5(a) and 5(c) of the Securities Act, and willfully aided and abetted and caused the hedge funds’ violation of Section 7(a) of the Investment Company Act. Based on these findings, the SEC ordered GKA and KPP to cease and desist from committing or causing any violations and any future violations of Sections 5(a) and 5(c) of the Securities Act, and Section 7(a) of the Investment Company Act. Additionally, GKA and KPP were each censured and ordered to pay a $20,000 civil money penalty. Finally, GKA and KPP were ordered to comply with certain undertakings which included engaging an Independent Consultant to conduct quarterly compliance reviews of GKA’s and KPP’s investment advisory operations for a period of three years with a report to the SEC on the results of each compliance review within 30 days of the completion of the review.
White & Case LLP represents hedge fund and private equity fund sponsors and advisers, prime brokers, and administrators through its 38 offices in 25 countries around the world. For further information on the White & Case investment funds practice, contact:
Jay B. Gould, Esq.
White & Case LLP
Three Embarcadero Center, Suite 2210
San Francisco, California 94111
415-544-1112 (O)
310-800-6500 (C)
jgould@whitecase.com
