On March 3, 2011, the Securities and Exchange Commission ("SEC") instituted public administrative and cease-and-desist proceedings against Respondents Kevin Halter, Jr. and Securities Transfer Corporation. In anticipation of the institution of those proceedings and without admitting or denying the findings, the Respondents submitted an Offer of Settlement which the SEC accepted, and the Respondents consented to the entry of the cease-and-desist.
In the Matter of Securities Transfer Corporation and Kevin Halter, Jr. Respondents. (ORDER INSTITUTING ADMINISTRATIVE AND CEASE-AND-DESIST PROCEEDINGS, PURSUANT TO SECTIONS 17A AND 21C OF THE SECURITIES EXCHANGE ACT OF 1934, MAKING FINDINGS, AND IMPOSING REMEDIAL SANCTIONS AND A CEASE-AND-DESIST ORDER / Securities Exchange Act Of 1934 Release No. 64030 / Administrative Proceeding File No. 3-14285 March 3, 2011) (the "Order").
The SEC's Order alleged that during the relevant period of time, both of the Halters were signatories on STC's bank accounts, but Halter, Jr. had ceded full responsibility for STC's accounting records and bank accounts to his father. Through the end of 2008, Halter:
Halter Jr. only occasionally looked at bank statements, and neither he nor anyone else at STC reviewed his father's funds transfers, bank reconciliations or other work during the period when Halter misappropriated funds.
From August 2007 through November 2008, Halter transferred a total of approximately $2.7 million from ten STC client accounts to his brokerage account or other accounts he controlled. Of that amount, the bulk was derived from an STC escrow account (opened in July 2007) for a client's securities offering, the terms of which called for STC to hold $2 million in offering proceeds until the client met certain financial requirements.
In August 2007, Halter diverted $600,000 from the client's escrow account, which he partially repaid later that year. From March through July 2008, Halter misappropriated an additional $1.575 million from the account.
In late November 2008, the client notified STC that the requirements for breaking escrow had been met. Apparently attempting to re-fund the depleted escrow account, Halter misappropriated $1.291 million from seven additional issuer accounts. This was a classic stealing from Peter to pay for Paul. Also, Halter misappropriated $150,000 from STC's dividend payment account for an issuer in August 2007, and he misappropriated $400,000 from an account STC maintained for another issuer in September 2008.
Immediately after discovering that his father had misappropriated client funds, Halter Jr. terminated him on January 6, 2009, and reported the matter to the SEC. Halter repaid all of the funds in January, and the clients were all made whole.
The Order asserted that as president and control person of STC, Halter Jr. was responsible for ensuring that STC had adequate supervisory procedures and a system for applying such procedures. Supervisory inadequacies at STC were found to have failed to properly prevent and detect employee abuse, such as the misappropriation at issue. As such, the SEC found that both STC and Halter, Jr. failed to properly supervise Halter.
Specifically, the Order asserted that STC procedures failed to
The Order includes undertakings by STC to retain the services of an Independent Consultant (whose service is subject to the SEC's independence requirements), who will conduct a comprehensive review and recommend corrective measures concerning STC's policies and procedures relating to handling of client funds and securities. Within 120 days of the Order's entry, the consultant will submit to the SEC a written report detailing the review, its conclusions, the consultant's recommendations, and procedures for implementing changes. Within 150 days of the Order, STC will adopt all such recommendations or set forth in writings any objections.
Respondent STC was ordered to cease and desist from future violations of federal securities laws; Censured; and ordered to pay a civil money penalty in the amount of $10,000.
Respondent Halter Jr. was ordered to abide by a cease-and-desist; and suspended from association in a supervisory capacity with any transfer agent, broker, dealer, investment adviser, municipal securities dealer, municipal advisor, or nationally recognized statistical ratings organization for a period of three months.
In December 2000, Centaurus Financial hired Bart B. Bertholic as an independent registered representative and investment advisor. Centaurus knew about his 1991 personal bankruptcy and two unsatisfied IRS judgment liens. Some would say, No big deal … that's history. On the other hand, there's still that question mark about a rep who can't handle his own finances. Although I'm not taking sides here, Centaurus would have been well-advised to keep Bertholic on a short leash.
READ BILL SINGER'S ANALYSIS OF A FINRA ARBITRATION FILED BY BERTHOLIC'S FORMER CLIENTS AGAINST CENTAURUS:
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