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Investment Advisers Barred Based On Vermont Sanctions

Mitchell M. Maynard, and Dorice A. Maynard, IA Act Rel. 2875, May 15, 2009

Time since appeal filed – 7 months 17 days
Time since last brief filed – 4 months 30 days
Pages – 17
Footnotes – 40

The Maynards (husband and wife) were barred for five years from associating with registered broker-dealers or investment advisers and other sanctions by state of Vermont. A Commission ALJ barred them from association with any investment adviser and the Commission upheld that decision on appeal.

Mitchell Maynard organized a mutual fund in 1998 and in 1999 formed an IA, Leveraged Index Management Co. (Limco) to manage another fund and registered with the Commission as an IA. Mitchell was president and treasurer of Limco and his wife Dorice was vice president of operations and marketing. She was primarily responsible for maintaining Limco's books and records but also assisted with marketing and solicited at least one advisory client.

Following a Commission exam of Limco that found numerous deficiencies Limco deregistered in early 2001. In 2002 Vermont brought charges and after a trial issued an order that found both Maynards had a substantive role in managing Limco. Vermont found that the Maynards had, among other things, misappropriated investor funds for their personal use, misrepresented Limco's performance, and failed to disclose a prior bankruptcy.

The ALJ barred the Maynards based on the Division of Enforcement's motion for summary disposition.

Because Limco was registered with the Commission at the time the events charged by Vermont occurred the Commission had jurisdiction over them regardless of whether or not Limco actually functioned as an investment adviser.

The Maynards complain that the SEC staff referred this matter to Vermont to evade the requirement in Commission proceedings that the staff exam report on which the proceedings are based be made available to them. In this case the staff did not provide the previous exam report to the Maynards as that exam was not the basis for the proceeding. The exam report did not include Brady material (material exculpatory evidence) because the Maynards were estopped from challenging the findings in the Vermont order. And because the decision by the Commission staff not to directly prosecute a case based on the earlier exam is a matter of prosecutorial discretion nothing prohibits the Commission from pursuing a separate remedy after it has foregone another.

Finally, because the Maynards were collaterally estopped from challenging the Vermont proceedings their due process rights were not violated because the ALJ did not hold an evidentiary hearing.


Nothing unusual here. One has to wonder why the Commission continues to write opinions in matters such as this that raise no issues of significance. If it was appropriate for the ALJ to act on a motion for summary disposition without a hearing, surely the Commission could manage to summarily affirm that decision unless unusual issues are raised.