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To: Bear Down who wrote (114449)3/15/2012 11:36:34 AM
From: Bear Down
   of 118535
 
And their lovely corporate offices shown here

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To: scion who wrote (114444)3/15/2012 12:02:05 PM
From: scion
   of 118535
 
Insider Trading Case Involves Secrets Shared Among AA Members

By ALAN FARNHAM
March 15, 2012
abcnews.go.com

In what a government attorney calls the first case of its kind, the Philadelphia office of the SEC has charged five people with making more than $1.8 million illegally through insider trading of stocks. The SEC is claiming that the violation of trust and confidentiality required to prove insider trading occurred between members of Alcoholics Anonymous.

The SEC says Timothy McGee and Michael Zirinsky, both registered representatives of Ameriprise Financial Services, bought and sold stock in Philadelphia Consolidated Holding Corp. (PHLY), based on non-public information about an impending merger between PHLY and Tokio Marine Holdings.

McGee, the SEC claims, got that insider information from a PHLY executive who confided in him, based on the fact they both were members of A.A.

"What we're saying, here, is that the two shared a relationship of confidence and trust, beginning at the time they both started to attend A.A. in 2009," says Elaine Greenberg, associate director of the SEC's Philadelphia Regional office. The two men's relationship extended beyond A.A. For example, they occasionally trained together for triathlons, according to the SEC, and routinely shared confidences about their personal and professional lives. But, says Greenberg, their relationship of trust was heightened by A.A .

That contention matters, because the government, to establish insider trading, must show that a relationship of trust and confidentiality existed above and beyond that of ordinary friendship. The government has to prove, says Greenberg, that the person communicating the information and the one receiving it "have a history of sharing confidences, such that the recipient knows the giver expects him to maintain confidentiality."

Never before has the SEC tried to use as proof a shared membership in A.A..

Jennifer Arlen, professor of law at NYU and specialist in securities fraud, says the Supreme Court long ago established there's nothing illegal about someone trading on material, non-public information. "What's illegal," she clarifies, "is to trade on it in breach of a fiduciary duty to someone, or in breach of some similar relationship of trust and confidence." Might that include the especially trusting relationship encouraged between members of A.A?

One of the group's founding documents, "Twelve Steps and Twelve Traditions," warns members against breaking trust or violating confidentiality. It makes no distinction between confidences shared in meetings, and others shared outside.

In this case, says the SEC, the insider information was illegally obtained just after the two men attended an A.A. meeting together in July 2008. The PHLY executive confided in McGee that he felt he was under terrible pressure to bring his company's confidential merger negotiations to a successful end—so much pressure that he feared he might resume drinking. McGee questioned him about the deal, then bought stock in PHLY. Later, when the merger was publicly announced, he made a $292,128 profit when shares shot up 64 percent.

McGee had also allegedly tipped his co-worker Zirinsky to the merger. Zirinsky likewise bought stock, using his own account plus those of his wife, sister, mother and 89-year old grandmother. He allegedly tipped his father and a friend in Hong Kong, who, in turn, passed the tip along to others. The SEC now is seeking disgorgement from this group of $1.8 million in "ill-gotten gains," plus penalties. No action is being brought against the unnamed PHYL executive.

Paulo Lam and Marianna sze wan Ho, two parties named in the SEC's suit, have already paid and settled, without admitting any wrongdoing.

Zirinsky's attorney, Richard Levan, asked by ABC News for comment, declined. McGee's attorney, John Grugan, did not respond.

Paul Johnson, a spokesman at Ameriprise Financial, said in a statement: "We fully cooperated with the SEC on this matter and conducted an internal review. We have strict rules related to the use of material, nonpublic information and have suspended Mr. McGee ad Mr. Zirinsky."

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From: scion3/15/2012 12:36:40 PM
   of 118535
 
SEC Charges Chicago-Based Management Consultant With Insider Trading

FOR IMMEDIATE RELEASE
2012-44

Washington, D.C., March 15, 2012 – The Securities and Exchange Commission today charged a Chicago-based management consultant with insider trading based on confidential information about his client’s impending takeover of a Long Island-based vitamin company.

The SEC alleges that Sherif Mityas and others at his global management consulting firm were retained by Washington, D.C.-based private equity firm The Carlyle Group to provide strategic advice related to the acquisition of NBTY Inc. That same month, Mityas purchased NBTY stock and subsequently tipped a relative who also bought NBTY shares. After Carlyle publicly announced its acquisition of NBTY, Mityas and his relative sold their NBTY stock for a combined profit of nearly $38,000.

Additional Materials
SEC Complaint
sec.gov

Mityas, who is a partner and vice president at the firm, has agreed to pay more than $78,000 to settle the SEC’s charges. In a parallel action, the U.S. Attorney’s Office for the Eastern District of New York today announced the unsealing of criminal charges against Mityas.

“Mityas was entrusted with highly confidential information but, driven by greed, he violated that trust and jeopardized a successful consulting career for the chance to make a quick buck,” said Sanjay Wadhwa, Deputy Chief of the SEC’s Market Abuse Unit and Associate Director of the New York Regional Office. “Corporate transactions such as mergers and acquisitions demand confidentiality until they become public, and not just from company employees but also from the lawyers, accountants, consultants, and others who work on the deals.”

According to the SEC’s complaint filed in U.S. District Court for the Eastern District of New York, Mityas’s firm was retained by Carlyle in May 2010. Only five days after being told during a May 17 conference call that NBTY was Carlyle’s acquisition target, Mityas moved $50,000 from a bank account he shared with a relative into a brokerage account they shared. On May 27, he transferred $49,000 from that brokerage account to a different relative’s brokerage account that he controlled as custodian, and then used those funds to purchase 1,300 shares of NBTY at a cost of more than $44,000. On July 7, based on a tip from Mityas, yet another relative bought 440 shares of NBTY stock. That same relative bought an additional 210 shares on July 14. Carlyle’s acquisition of NBTY was publicly announced the following day. Mityas sold all of his shares only three hours after the announcement was made, for an illegal profit of $25,896. The relative held the shares purchased on July 7 and 14 through the completion of the merger, and sold all of the shares on October 1 for an illicit profit of $12,035.

The SEC’s complaint charges Mityas with violating Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5. The settlement, which is subject to court approval, would require Mityas to pay disgorgement of his and his relative’s ill-gotten gains totaling $37,931, plus prejudgment interest of $2,375.39, and a penalty of $37,931. The settlement also would bar Mityas from serving as an officer or director of a public company and permanently enjoin him from future violations of these provisions of the federal securities laws.

The SEC’s investigation was conducted by Daniel R. Marcus and Amelia A. Cottrell – members of the SEC’s Market Abuse Unit in New York – and Layla Mayer of the SEC’s New York Regional Office. The SEC acknowledges the assistance of the U.S. Attorney’s Office for the Eastern District of New York, the Federal Bureau of Investigation, and the Financial Industry Regulatory Authority (FINRA).

The SEC’s investigation is continuing.

# # #

For more information about this enforcement action, contact:

Daniel M. Hawke
Chief, SEC’s Market Abuse Unit and Director, Philadelphia Regional Office
(215) 597-3191

Sanjay Wadhwa
Deputy Chief, SEC’s Market Abuse Unit and Associate Director, New York Regional Office
(212) 336-0181

Amelia A. Cottrell
Assistant Director, SEC’s Market Abuse Unit and New York Regional Office
(212) 336-1056



sec.gov

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To: Bear Down who wrote (114451)3/15/2012 12:51:08 PM
From: StockDung
   of 118535
 
Roy Thomas Kidd is chief executive officer ("CEO") of
Benefits Administration, Inc. ("BAI"), located in Chesapeake,
Virginia, and is president and CEO of Harbor Capital Corp., which
is BAI's parent. (Tr. 483.) BAI procured and packaged services,
discounts, and other promotional materials for organizations with
large memberships, and sold those packages to individuals who
were members of the specific organization. (Tr. 500.) Mr. Kidd
met Mr. Stockett in February 1997 in Chesapeake, Virginia. (Tr.
489.) Mr. Kidd had received some promotional materials related to
Hightec, the IPO Network, Sinclare, and the Hudson Fund from an
acquaintance. (Tr. 485-87, 489; see Div. Ex. 65.)

BAI was a private company in need of capital. Mr. Kidd
sought to take the company public and believed a deal with Mr.
Stockett would help BAI reach its financing goals. (Tr. 491.)
The substance of the deal was that there would be a share
exchange between Hightec and BAI such that BAI would become a
wholly owned subsidiary of Hightec. (Tr. 496, 501-02, 519.)
Hightec would also put up $250,000 as part of the process. (Tr.
496, 502.) In addition, there was an agreement between BAI and
Sinclare. (Tr. 496-97, 502.) BAI was an attractive acquisition
for Mr. Stockett because BAI maintained databases with names of
people who were members of professional organizations and
associations. (Tr. 501.) He could use this vast resource of
names to promote and expand the IPO Network, his stock selection
program (including the Neuropro System), and a purported dividend
reinvestment program. (Tr. 499-502.)

Mr. Kidd received copies of the Hightec POM from an
acquaintance prior to his meeting with Mr. Stockett, and also
from Mr. Stockett at the meeting. (Tr. 491-92, 513; see Div. Ex.
56.) Mr. Stockett also presented Mr. Kidd with promotional
materials related to his other endeavors. (Tr. 492-93; Div. Exs.
60, 70.) Mr. Kidd got the impression that Mr. Stockett and the
IPO Network were one and the same. (Tr. 494.) Mr. Stockett told
Mr. Kidd that the IPO Network purchased the karate schools for
the purposes of conducting investment seminars in the evening at
those facilities. (Tr. 494.) Mr. Stockett also told Mr. Kidd
that he managed the Hudson Fund and that he received a fee for
his services, and showed Mr. Kidd an article about the Fund which
ranked it as a top ten performer to demonstrate his success as a
manager. (Tr. 495, 513.) Mr. Stockett disclosed his regulatory
problems to Mr. Kidd. (Tr. 497-98.) The deal was consummated in
February 1997, but was rescinded by the parties soon thereafter.
(Tr. 506, 509-12, 526-27.)

INITIAL DECISION RELEASE NO. 139
ADMINISTRATIVE PROCEEDING
FILE NO. 3-9374



UNITED STATES OF AMERICA
Before the
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.

___________________________________
:
In the Matter of :
: INITIAL DECISION
HUDSON INVESTORS FUND, INC., : March 30, 1999
HUDSON ADVISERS, INC., :
JAVED ANVAR<1> LATEF, and :
LARRY ALAN STOCKETT :
___________________________________

APPEARANCES: Thomas M. Melton and Brent R. Baker for the
Division of Enforcement, Securities and Exchange
Commission

Steven Altman for Respondents Hudson Investors Fund, Inc.,
Hudson Advisers, Inc., and Javed Anver Latef

Larry Alan Stockett, pro se

BEFORE: G. Marvin Bober, Administrative Law Judge

I. INTRODUCTION

A. Procedural History

The Securities and Exchange Commission ("Commission") issued
its Order Instituting Proceedings ("OIP") in this matter on
August 26, 1997, pursuant to Section 8A of the Securities Act of
1933 ("Securities Act"), Section 21C of the Securities Exchange
Act of 1934 ("Exchange Act"), Sections 9(b), 9(d), and 9(f) of
the Investment Company Act of 1940 ("Company Act"), and Sections
203(e), 203(f), 203(i), and 203(k) of the Investment Advisers Act
of 1940 ("Advisers Act"). The Division of Enforcement
("Division") alleges as the bases for Respondents' violations of
the federal securities laws that, inter alia, Respondent Larry
Alan Stockett entered into certain agreements with Respondents
Hudson Investors Fund, Inc., Hudson Advisers, Inc., and Javed
Anver Latef (collectively "the Hudson Respondents"); that the
Hudson Respondents failed to disclose to investors the existence
of these agreements and the nature of their relationship with Mr.
Stockett; and that Mr. Stockett improperly influenced the Hudson
Respondents' investment decisions.

An administrative trial was held on February 23, 24, 25 and
26, 1998, in New York, New York in order to: (i) determine
whether the allegations contained in the OIP are true; (ii)
provide Respondents with an opportunity to defend these
allegations; and (iii) determine what, if any, sanctions are
appropriate in the public interest pursuant to Section 8A of the
Securities Act, Section 21C of the Exchange Act, Sections 9(b),
9(d), and 9(f) of the Company Act, and Sections 203(e), 203(f),
203(i), and 203(k) of the Advisers Act, including civil money
penalties. At the trial, the Division called nine witnesses,
including Mr. Latef and Mr. Stockett. The Division offered
fifty-five exhibits at the trial and one exhibit after trial, all
of which I admitted into evidence. The Hudson Respondents called
three witnesses and offered four exhibits, all of which I
admitted into evidence. Respondent Stockett testified on his own
behalf. He offered nine exhibits at the trial and three exhibits
after trial, all of which I admitted into evidence. I also
admitted into evidence an organizational flow chart related to
Hightec, Inc., as ALJ Exhibit 1.<2>

My findings and conclusions are based on the record and my
observations of the witnesses' demeanor. I applied preponderance
of the evidence as the standard of proof. I have considered all
proposed findings and conclusions and all contentions, and I
accept those that are consistent with this decision.

II. FINDINGS OF FACT

A. The Hudson Entities

1. Hudson Investors Group, Inc.

Respondent Javed Anver Latef and businessman Akram Choudhry
were interested in investing and creating investment
opportunities for others. (Tr. 797-98, 1010.) Together, they
shared common investment principles. (Tr. 797-98, 1010-11.)
They wanted to invest only in socially and ethically responsible
companies which, for example, were not involved in tobacco,
alcohol, gambling, or discriminatory interests or practices.
(Tr. 797-98, 800-01, 1010-11.) Mr. Choudhry and Mr. Latef, along
with some other individuals, created an investment vehicle, the
Hudson Investors Group, Inc. ("Hudson Group"), which made
investments with these principles in mind. (Tr. 797-98, 1010-
11.) The Hudson Group was established in about 1990 or 1991 as a
private New Jersey corporation and has not been registered with
the Commission. (Tr. 798-99.) Mr. Choudhry, individually and
through family members, was always the largest investor in the
Hudson Group and controlled the entity.

2. The Hudson Investors Fund, Inc.

In 1994, after some early success with the Hudson Group, Mr.
Choudhry and Mr. Latef formed a mutual fund, the Hudson Investors
Fund, Inc. ("Hudson Fund" or the "Fund"), so that other
individuals, some with little investment capital, who believed in
the investment principles and ideals of the Hudson Group, could
participate and benefit. (Tr. 1010-13, 1018-21.) According to
its prospectus, the Hudson Fund "is a diversified open-end
investment management company seeking as its primary objective
growth of capital with production of income as a secondary
objective. The Fund will seek to achieve these objectives
through investment in the securities of companies which meet
strict ethical standards." (Tr. 938-39; Div. Exs. 10, 11; see
Tr. 1044.) The Hudson Fund has been registered with the
Commission since August 1994. (See Div. Post. Brief at 2.)

Mr. Latef has always been the Fund's president, and the
person in charge of its operation. (Tr. 801.) Mr. Choudhry was
responsible for the initial financial investment in the Fund, in
the amount of $100,000, and at all relevant times held a majority
of the shares of the Fund. (Tr. 801-02, 971-72, 1012-13, 1015-
16; see also Div. Ex. 87 at L.) He was not, however, involved in
any of the investment decisions for the Fund, either through the
Fund itself, its investment adviser, or its management company.
(Tr. 1015.) The Fund's maximum net asset value has been $250,000
to $300,000 throughout its existence. (Tr. 801, 804.)

a. Hudson Advisers, Inc.

Hudson Advisers, Inc. ("Hudson Advisers") has been
registered with the Commission as an investment adviser since
March 1993. (See Div. Post. Brief at 3.) Mr. Latef owns Hudson
Advisers and has always been its president. (Tr. 803; see also
Tr. 156; Div. Exs. 1, 2.) Pursuant to an investment advisory
agreement dated May 1, 1994, the Hudson Fund appointed Hudson
Advisers<3> "to act as investment adviser to the Fund in
connection with the Fund's investments." (Tr. 162; Div. Ex. 16.)
Hudson Adviser's compensation was set at a percentage of the
Fund's average daily net asset value, paid monthly. (Div. Ex.
16.) Mr. Latef signed the agreement on behalf of both parties.
The investment advisory agreement had been renewed on a yearly
basis, had not been terminated, and was in full force at the time
of the trial. (Tr. 162; see Div. Ex. 16.)

b. Hudson Investment Management, Inc.

Hudson Investment Management, Inc. ("Hudson Management")
provides management services to the Hudson Fund pursuant to a
management agreement dated May 1, 1994, which Mr. Latef signed on
behalf of both parties. (Tr. 160-61, 175-77, 182; Div. Ex. 17.)
Mr. Latef owns Hudson Management and has always been its
president. (Tr. 803.) The management agreement required the
Hudson Fund to pay Hudson Management a set monthly fee for
management services calculated as a percentage of the "average
capital" of the Fund, and stated that the Fund "shall not be
required to reimburse [Hudson Management] for any expenses
incurred by [Hudson Management] in the performance of its
services." (Tr. 160-61, 807; Div. Ex. 17.) No other entities
provided management services to the Fund. (Tr. 160.) The
management agreement was still in effect at the time of the trial
and Hudson Management still provided services to the Fund
pursuant to that agreement. (Tr. 161, 169.)

The Hudson Fund never produced enough revenue to cover its
expenses, including the fees charged by Hudson Management and
Hudson Advisers for their services. (Tr. 807-08, 1021.) As
such, Mr. Choudhry, initially through the Hudson Group and later
individually, covered the Fund's expenses; Mr. Latef received
little or no compensation as president of the Hudson Fund, Hudson
Advisers, or Hudson Management;<4> and Hudson Management and
Hudson Advisers waived their management fees. (Tr. 806-08, 964,
1020-21, 1028.)

B. The Business Arrangement

1. Larry Alan Stockett

Larry Alan Stockett is a publisher of information on initial
public offerings ("IPO") and a self-described expert in the IPO
field. (Tr. 17, 24, 28, 259-60, 373, 375, 378, 1074-79; see,
e.g., Div. Ex. 71 at 83; Div. Ex. 75 at 83; Stockett Exs. 1A-F,
2D-E, 3B-C, 4B-C, 5C-D, 7D-F, 9A-H.) He provides investment
information services, training services, data processing
services, computer research, and statistical analysis to
investors through various media, and promotes a stock selection
program which uses a computer system to track stocks. (Tr. 20,
24-25, 29-30, 1074-79; see Div. Ex. 86.) He also created for
investors an Internet database with stock and IPO information.
(Tr. 1093-95; see also Div. Ex. 86.) Thousands of people
apparently attended his seminars and workshops, listened to his
radio program, and watched his television show. (Tr. 1075.)

From at least 1994, Mr. Stockett operated this business
through OTC Emerging Growth Fund, Inc. ("OTC"). As owner,
president, and manager of OTC, Mr. Stockett conducted seminars
around the United States for the purpose of soliciting investors
who were interested in learning how to invest in IPOs. (See Div.
Ex. 6 at 2; Tr. 295, 342, 396-97, 678-79.) Mr. Stockett provided
the same information on a nationwide television "infomercial"
that was paid for by the IPO Network, Inc. ("IPO Network"),
another company owned by Mr. Stockett, and a subsidiary of OTC.
(See Div. Ex. 6 at 3; Tr. 283, 342, 396-97, 724.) Essentially,
OTC and the IPO Network were the same operation, and Mr. Stockett
conducted the investment information activities described above
through both entities. (Tr. 396-98; Div. Ex. 56 at 12-13.) Much
of the funding for the two companies came from private investors.
(Tr. 1072, 1089-90.) Mr. Stockett had convinced these investors
that he could predict which IPOs would perform well. (Tr. 1080-
81.)

a. Mr. Stockett and the Hudson Fund

Michael Reis, an acquaintance of Mr. Choudhry's, knew that
Mr. Choudhry and Mr. Latef were having difficulty attracting new
investors to the Hudson Fund. (Tr. 1016-17.) Mr. Reis
apparently discussed the Hudson Fund's troubles with an attorney
named Dan Luciano. (Tr. 1016-17.) Mr. Luciano then contacted
Mr. Choudhry by telephone and told him that "there was an
individual who can really help the mutual fund greatly, and it
was a good idea to see him and talk to him." (Tr. 1017.) That
individual was Mr. Stockett. Subsequently, Mr. Stockett and Mr.
Luciano met with Mr. Choudhry and Mr. Latef at Mr. Choudhry's
home to discuss the Hudson Fund. (Tr. 810-11, 1017.)

Mr. Latef and Mr. Choudhry wanted the Fund to grow, and were
hopeful after they met Mr. Stockett that he could help do that by
attracting new investors to the Fund and by providing services to
Hudson Management. (Tr. 241-42, 812, 1024-25, 1046.) Mr.
Stockett represented to Mr. Latef and Mr. Choudhry that he had
connections with large investors who might be interested in
investing in the Fund. (Tr. 812-14.) He also represented that
he was going to secure a license for a stock selection software
program and that he was going to market this program to financial
institutions. (Tr. 816.) Mr. Stockett told Mr. Latef that he
was looking for a company to utilize the program and serve as an
example to others. (Tr. 816.) According to Mr. Latef, Mr.
Stockett "thought that it would do well for Hudson Fund to try
the system." (Tr. 816.)

Mr. Latef and Mr. Choudhry decided to enter into a business
arrangement with Mr. Stockett, the purpose of which was to
attract new investors to the Fund, increase assets under
management, improve investment selection and, overall, make the
Fund successful. (Tr. 241-42, 812, 817-21, 1018, 1022-26, 1046,
1128.) The business arrangement was formalized in four written
agreements signed on August 7, 1996. (Div. Exs. 18, 19, 20, 21.)
The agreements would, among other things, confer ownership of
Hudson Management and Hudson Advisers to Mr. Stockett upon the
exercise of certain options. Mr. Stockett signed all four
agreements as the president of Neuropro, Inc. ("Neuropro
Nevada"), a purported Nevada corporation located at 99 Marinero
Circle #201, Tiburon, California 94920, which was Mr. Stockett's
home address at the time. (Tr. 292, 673-74; Div. Exs. 18, 19,
20, 21.)

b. Mr. Stockett's Business Plan

Mr. Stockett's business plan during this period was to
expand his client base and provide to these clients a broad range
of financial services and opportunities. (Tr. 811-12.) It
involved purchasing companies with large member-based resources
and entering into joint ventures with other companies for client
services. Mr. Stockett saw the arrangement with the Hudson
entities as an attractive opportunity to foster his business
concerns: "I felt that, in the future I would want to offer a
mutual fund to . . . clients when I got the thousands of clients
as my customer base." (Tr. 20-21.)

One major step in Mr. Stockett's business plan was to secure
licensing rights to a trading system owned by Chris Lazarus and
his company, The New Industrialist, Inc. ("The New
Industrialist"). (Tr. 738-40.) The New Industrialist, located
in New Jersey, published The New Industrialist magazine, which
provided information to investors about securities, mutual funds,
and investing, generally. (See Tr. 33, 35, 183; see, e.g., Div.
Exs. 71, 75; Stockett Exs. 2A-7G.) It utilized a trading system
which relied primarily on the data produced from a mainframe
computer system running a software program hereinafter referred
to as the "Neuropro System." (See generally, Tr. 256-57.) The
New Industrialist magazine included a printout of the data
produced from the Neuropro System. (See Tr. 205, 821-22.) Mr.
Stockett also published his research in the magazine. (Tr. 33;
Div. Ex. 71 at 83; Div. Ex. 75 at 83; Stockett Exs. 2D-E, 3B-C,
4B-C, 5C-D, 7D-F.)

Approximately one week before the Neuropro Nevada contracts
were executed, Mr. Stockett negotiated a contract with The New
Industrialist, on behalf of the IPO Network, for licensing rights
to the Neuropro System.<5> (Tr. 738-41.) Mr. Stockett intended
to promote Neuropro Nevada as an investment information service
which would utilize the Neuropro System.<6> (Tr. 739-40, 816.)
With the Hudson Fund as a Neuropro Nevada client, Mr. Stockett
could then promote Neuropro Nevada and his own investment
strategy to other investors and companies using the Fund as an
example. (Tr. 245-46, 816; see infra section II.B.7.)

Another major step in Mr. Stockett's plan was his purchase
of Hightec, Inc. ("Hightec") in November 1996. (Tr. 681.) Mr.
Stockett used Hightec, a public corporation, as a holding
company. Through Hightec he acquired privately held entities and
booked their assets. (Tr. 352-53, 687-88.) Under Mr. Stockett's
direction, Hightec purchased the IPO Network. (See Div. Ex. 56
at 12.) Hightec later targeted and purchased member-based
companies, including Karate International Corporation, which
became a subsidiary of Hightec, as did the IPO Network.<7> (Tr.
687, 692-93; see also ALJ Exhibit 1; Div. Ex. 9 at 12-13; Div.
Ex. 56 at 12-13.)

Mr. Stockett further expanded his client base and services
on February 19, 1997, when he executed a Share Purchase and
Settlement Agreement for Hightec's purchase of stock in
S.I.N.C.L.A.R.E. Group, Inc. ("Sinclare").<8> (Stockett Ex. 16.)
Sinclare became another subsidiary of Hightec. (Tr. 692-93; ALJ
Exhibit 1.) Sinclare, a Canadian company, held a license from
The New Industrialist to use its Neuropro System and to publish a
Canadian version of The New Industrialist magazine.<9> (Tr. 30-
32, 35-40, 43-44, 204.) Flex Quote, a Sinclare software product,
also used the Neuropro System. (Tr. 30-31; see also Div. Ex. 71
at 78-79; Stockett Exs. 2B-C, 5E-F, 6B-C.) Mr. Stockett became
president of Sinclare upon its purchase by Hightec. (Stockett
Answer at 1, dated Oct. 29, 1997; Stockett Pre. Brief at 6;
Stockett Post. Brief at 8.)

c. Mr. Stockett's Disciplinary History

Mr. Stockett claims that he has never attempted to hide his
disciplinary history. (Tr. 1082-88.) He did not, however, offer
any information about his disciplinary record to Mr. Latef or Mr.
Choudhry at any time during negotiation or execution of the
contracts.<10> (Tr. 237, 839-40.) In fact, he has an extensive
disciplinary record in the securities industry that includes: (i)
a 1985 permanent injunction from the United States District Court
for the Eastern District of Virginia which enjoined him from
engaging in acts and practices which constitute or would
constitute violations of the antifraud provisions of the federal
securities laws; (ii) a 1988 permanent injunction from the State
of California which enjoined him from offering to sell or selling
certain securities in California and assessed civil penalties;
and (iii) a 1996 cease and desist order from the State of Oregon
which ordered Mr. Stockett and OTC to cease and desist from
offering securities in Oregon and to pay a civil penalty. (Div.
Exs. 4, 5, 6; see also Div. Ex. 9 at 15-16; Div. Ex. 56 at 15-16;
Tr. 696-98.)

2. The August 7, 1996, Agreements

a. The Stock Option Agreements

Mr. Latef and Mr. Stockett negotiated two stock option
agreements which were virtually identical. The first agreement
was between Hudson Management and Neuropro Nevada, and was signed
by Mr. Stockett as president of Neuropro Nevada and Mr. Latef as
president of Hudson Management. (Tr. 155, 292, 824; Div. Ex.
18.) This agreement granted Neuropro Nevada an irrevocable
option to acquire all of the common stock of Hudson Management
for $100 for a term expiring on July 31, 2001. (Tr. 169-70; Div.
Ex. 18.) The second agreement was between Hudson Advisers<11>
and Neuropro Nevada, and was signed by Mr. Stockett as president
of Neuropro Nevada and Mr. Latef as president of Hudson Advisers.
(Tr. 156, 292, 824; Div. Ex. 19.) This agreement granted
Neuropro Nevada an irrevocable option to acquire all of the
common stock of Hudson Advisers for $100 for a term expiring on
July 31, 2001. (Tr. 170; Div. Ex. 19.) Mr. Latef was president
and sole shareholder of both Hudson Management and Hudson
Advisers at the time of the agreements. (Tr. 155-56.)

Both agreements included certain covenants which required
Hudson Management and Hudson Advisers, respectively, to: (i)
cause the Hudson Fund to remain current with all of its filings
under the Company Act; (ii) receive consent from Neuropro Nevada
before declaring a dividend, recapitalizing or reclassifying its
capital stock, or issuing new shares; and (iii) receive consent
from Neuropro Nevada before entering into any material agreement
or incurring any expenditure which in the aggregate exceeded
$2,000 per month. (Div. Exs. 18, 19; Tr. 271-72.) In addition,
both agreements contained provisions which stated: "The option
shall not entitle [Neuropro Nevada] to any of the rights
(including voting rights) of a shareholder of [Hudson Management
or Hudson Advisers, respectively] unless and until the option
granted herein is exercised by [Neuropro Nevada]." (Div. Exs.
18, 19.)




1




b. The Service Agreement

Mr. Latef and Mr. Stockett negotiated a service agreement
between Neuropro Nevada, Hudson Management, and "Hudson Advisors
Group, Inc.,"<12> which was signed by Mr. Stockett as president
of Neuropro Nevada and by Mr. Latef as president of Hudson
Management and "Hudson Advisors Group, Inc." (Div. Ex. 21; Tr.
158, 292, 824.) Pursuant to the service agreement, Neuropro
Nevada contracted to provide to Hudson Management certain
services, including: (i) a sample portfolio, updated monthly;
(ii) a ranking, updated at least weekly, of the top five stocks
in an industry; (iii) a daily list of stocks with high profit
potential; and (iv) a notice, from time to time, of stocks
identified as an immediate buy or sell. (Div. Ex. 21; see Tr.
686, 817-18, 821, 825.) The agreement contemplated that Neuropro
Nevada would obtain the information provided to Hudson Management
from a "Licensor" that was a "data processing service bureau" and
which:

(i) has a proprietary software, based on developed
models and screens, to buy and sell initial public
offering securities and (ii) is the licensee of one or
more computerized stock trading systems which can be
utilized as investment tools in making investment
decisions of securities listed on various stock
exchanges . . . .

(Div. Ex. 21.)

Hudson Management was required to pay Neuropro Nevada nine-
tenths of the management fee which Hudson Management was
authorized to charge the Hudson Fund as consideration for receipt
of the services. (Div. Ex. 21.) Failure to provide these
services, among other things, would be a default of the agreement
and a cause for its termination. (Div. Ex. 21; see Tr. 955-56.)
The agreement also stated the following:

It is specifically provided that [Neuropro Nevada] will
not participate in or in any way influence the
management of the Fund. The use of the Services
delivered by [Neuropro Nevada] will be at the sole and
absolute discretion of [Hudson] Management and/or
[Hudson Advisers]. [Hudson] Management and/or [Hudson
Advisers] represent and acknowledge that the Services
are one of the many investment tools which should be
used in making an investment decision and reliance
should not be placed on any one tool or research
provider in making such decision.

(Div. Ex. 21; see also Tr. 247-50, 824.)




2




c. The "Expense Agreement"

Mr. Latef and Mr. Stockett negotiated an expense agreement
between Neuropro Nevada, Hudson Management, Hudson Advisers,<13>
and the Hudson Group, which was signed by Mr. Stockett as
president of Neuropro Nevada and by Mr. Latef as president of
Hudson Management, Hudson Advisers, and the Hudson Group. (Div.
Ex. 20; Tr. 157, 292, 824.) The expense agreement was executed
"In connection with the Option Agreements." (Div. Ex. 20.)
Pursuant to the agreement, Neuropro Nevada contracted to "pay for
the budgeted and approved costs and expenses of operating [the
Hudson Fund] to the extent that [the] fees available to [Hudson
Advisers] and [Hudson] Management from the Fund are not
sufficient to cover such costs and expenses." (Div. Ex. 20; Tr.
822, 829-30.) Mr. Latef understood that Mr. Stockett, either
individually or through one of his companies, would be
responsible for paying if a deficiency existed. (Tr. 822, 828-
29.) The authorized monthly operating budget was dependent upon
the Fund's net assets. If the Fund's net assets were less than
$1 million, the approved monthly operating budget would be
$10,000. (Div. Ex. 20; Tr. 822.) In addition, the expense
agreement stated, "It is understood that [the Hudson Group] has
paid for certain expenses of the Fund for years 1995 and 1996.
As additional consideration, Neuropro [Nevada] will pay [the
Hudson] Group the sum of Fifty Thousand Dollars ($50,000.00)
concurrent with the execution hereof." (Div. Ex. 20; see Tr.
171, 293-94, 676-77.)

3. Neuropro Nevada is Dead on Arrival

Mr. Latef believed that Neuropro Nevada was a valid and
existing company owned and/or operated by Mr. Stockett when the
contracts were signed. (Tr. 830-31.) He soon realized, however,
that Neuropro Nevada was never formed as a corporation and that
it did not exist at the time the contracts were signed, or at
anytime thereafter.<14> (Tr. 738, 742-48, 761-66, 961-62.)
Apparently, the Neuropro System was expensive to operate. Around
the time Mr. Stockett was negotiating with Mr. Latef, therefore,
he also was negotiating with alleged "investors" who would
provide additional financing, including one investor who was
going to invest $10 million into the Hudson Fund/Neuropro Nevada
endeavor. (Tr. 21, 251-52, 738-40, 1129-31.) Those investors,
however, never materialized. (Tr. 21, 738-40, 1129-31.) This
was evident almost immediately after the agreements were signed.
(Tr. 739-40.) Mr. Stockett testified that it was too costly for
Neuropro Nevada to provide services to Hudson Management without
the investors and the infusion of money into the Fund. (Tr. 21-
22, 255-57, 841.)

According to Mr. Stockett, he then assigned his interests in
the Neuropro Nevada contracts to OTC, the IPO Network, and/or
Hightec.<15> (Tr. 733-34, 742-44, 753-54, 757-60.) As late as
April 1997, the Internet site for the IPO Network's corporate
history noted that there existed a "Neuropro contract with Hudson
Investment Fund."<16> (Tr. 291-92; Div. Ex. 66.) Hightec's
Private Offering Memorandum ("POM"), which was drafted by Mr.
Stockett, stated that the IPO Network had contracts with the
Hudson Fund and demonstrated the association through an
organizational flow chart.<17> (Tr. 694; ALJ Exhibit 1; Div. Ex.
56 at second page 6, 12; see also Div. Ex. 9 at 12.) The
organizational chart included in the POM indicated a control
relationship between Mr. Stockett (through the IPO Network) and
Hudson Management, Hudson Advisers, and the Hudson Fund, although
Mr. Stockett argued otherwise.<18> (ALJ Exhibit Ex. 1; Div. Ex.
56 at second page 6; see Tr. 730-36.)

Mr. Stockett never showed Mr. Latef any of the assignments.
(Tr. 742-48, 764-69, 777-78.) He stated that, thereafter, he
concentrated his "entire efforts on raising money for the Fund."
(Tr. 22.) Meanwhile, he made payments to the Hudson Group and
Hudson Management in furtherance of the business arrangement
contemplated in the written agreements. (See, e.g., Tr. 252,
941-45.)

4. Conclusions About the Contracts

The Respondents contend that the Neuropro Nevada agreements
are unenforceable and void as a matter of law because: (i)
Neuropro Nevada did not exist as a corporation or entity when the
agreements were signed or at any time thereafter and (ii) Hudson
Management was never provided with any services as required by
the service agreement. (Tr. 250-51, 840-41, 954-56, 1127-28.) I
agree that the written contracts are invalid. Nevertheless, the
evidence adduced at the trial suggests that there was an implicit
understanding between Mr. Stockett and the Hudson Respondents
that Mr. Stockett would retain the options. For example: (i) Mr.
Stockett, through OTC, made a $50,000 payment to the Hudson
Group; (ii) Mr. Stockett, individually and through companies he
controlled, made payments totaling $75,000 to Hudson Management;
(iii) Mr. Stockett made numerous representations to third parties
that he owned the Hudson Fund and/or controlled its investments;
and (iv) Mr. Stockett and Mr. Latef maintained, even during the
trial, that Mr. Stockett could exercise the options.<19> Mr.
Stockett continued to hold the options to purchase the stock of
Hudson Advisers and Hudson Management, therefore, even though he
failed to: (i) incorporate Neuropro Nevada; (ii) attract the
large investors to the Fund; and (iii) provide the services
required under the service agreement. (See, e.g., Tr. 252, 686.)
In addition, the parties had a significant interest in
maintaining a business relationship. Mr. Latef and Mr. Choudhry
believed that Mr. Stockett's involvement would benefit the Fund
by increasing the number of its investors and, thus, increasing
its assets under management. Mr. Stockett felt that he could use
his relationship with the Fund to promote and foster his personal
business ventures.

5. The Payments

In the months following execution of the agreements, Hudson
Management received various payments from Mr. Stockett. (Tr.
174-76, 180-81, 253-54, 293, 674; Div. Ex. 14 at 8-13.) Mr.
Stockett, through his entities and individually, was responsible
for over ninety percent of the money provided to Hudson
Management from August 1996 through March 1997, which totaled
approximately $75,000. (Tr. 177, 253-55, 292-93, 674.) Mr.
Stockett also made a $50,000 payment to the Hudson Group on
August 16, 1996.<20> (Tr. 81, 171, 174, 292-93, 674, 676-77,
726; Div. Ex. 14 at 7.) No payments were ever made by Neuropro
Nevada. (Tr. 299, 941-45; see, e.g., Tr. 678-79.) Mr. Latef
never refused a payment, and never told Mr. Stockett that he
would refuse a payment, just because it did not come from
Neuropro Nevada.<21> (Tr. 678-79, 682, 941-45.)

On September 12, 1996, Mr. Stockett, through OTC, wired
$10,000 into Hudson Management's account at the Bank of New York
("BONY"). (Tr. 81-82, 180-81, 295, 678, 722, 726; Div. Ex. 14
at 8.) On October 10, 1996, there was a deposit of $10,006.73,
from OTC into Hudson Management's BONY account.<22> (Tr. 82,
181-82; Div. Ex. 14 at 9; see also Div. Exs. 25, 26.) On
November 8, 1996, The New Industrialist wired $5,000 into Hudson
Management's BONY account.<23> (Tr. 82-83, 183-84, 299, 679,
722-23, 727; Div. Ex. 14 at 10.) On December 4, The New
Industrialist wired an additional $5,000 into the account. (Tr.
83-84, 185-85, 300, 723, 727; Div. Ex. 14 at 11.)

On December 16, there was another deposit of $1,000 in the
account, source unknown. (Tr. 83; Div. Ex. 14 at 11.) On
December 20, there was a deposit of $20,000 directly from Mr.
Stockett. (Tr. 83, 186, 300, 680, 728-29; Div. Ex. 14 at 11.)
On February 25, 1997, there was a $10,000 deposit from Hightec
into the Hudson Management account.<24> (Tr. 84, 187-88, 300,
302, 681, 723, 729; Div. Ex. 14 at 12.) On March 21, there was
another $10,000 deposit from Hightec into the account.<25> (Tr.
85, 188, 307-08, 683, 723-24, 729; Div. Ex. 14 at 13.) On March
18, there was a deposit of $2,000, source unknown. (Tr. 85-86;
Div. Ex. 14 at 13.)

Mr. Latef claims that Mr. Stockett's payments to Hudson
Management were used to pay for its expenses and were not used to
pay the expenses of the Fund or Hudson Advisers. (Tr. 174-77,
181.) According to Mr. Latef, "The Fund is supposed to pay its
own expenses, and it does." (Tr. 175.) He also alleges that
such payments were not made pursuant to the expense agreement
since that agreement was invalid. (Tr. 173-74.)

Mr. Stockett testified that the actual purpose of the
$50,000 payment to the Hudson Group (an additional $10,000 was
allegedly paid to an attorney for fees) and the other payments to
Hudson Management were for the purchase price of the options on
Hudson Management and Hudson Advisers. (Tr. 293-94, 297-300,
675, 680; see Div. Exs. 18, 19, 20.) He wanted to "keep the
doors of the Fund open" in order to maintain his options, and he
and Mr. Latef agreed to keep the Fund going until they found a
buyer. (Tr. 680-81, 963-64.) According to Mr. Latef, "We needed
the help. We wanted to close it and he wanted us to continue
it." (Tr. 945.) Mr. Latef stated that Mr. Stockett "wanted us
to be in business until such time where he can form a group that
he can be part of. He came in as sort of head of the group or be
[sic] a major part of the group." (Tr. 870-71; but see Tr. 201-
02.)

Admittedly, there is no clear evidence in the record (i.e.
cashed checks or other documents) that shows direct payments to
the Fund or Hudson Advisers or that any of the money was diverted
to the Fund or Hudson Advisers for any use. Nevertheless
considering the nature of Mr. Latef's relationship to these
entities and the fact that all three operated from the same
location, it is likely that the money paid to Hudson Management
was used to pay the Fund's expenses. (See Tr. 120, 175.) The
payments were also used by Mr. Stockett to maintain his options
and to "keep the doors of the Fund open."<26> As mentioned
earlier, the Fund never produced enough revenue to cover its
expenses and, absent contribution from Mr. Latef or Mr. Choudhry,
its main source of revenue was Mr. Stockett.

Mr. Stockett stopped making payments soon after March 1997.
(Tr. 189-90.) Mr. Latef and Mr. Choudhry, thereafter, began
paying expenses personally whenever there was a shortfall. (Tr.
192, 1030-31, 1060.)

6. The Hudson Fund Investments

Although Mr. Stockett never provided the services required
pursuant to the service agreement, he did provide some
information about stocks to Mr. Latef, particularly IPOs.<27>
(Tr. 686, 714, 861, 953.) During the relevant period, Mr.
Stockett published his IPO research, generally lists of the best
and worst performing new issues, in both The New Industrialist
and New Issues Outlook. (Tr. 258-63, 686; see, e.g., Div. Ex. 71
at 83; Div. Ex. 75 at 83; Stockett Exs. 2D-E, 3B-C, 4B-C, 5C-D,
7D-F, 9A-H.) Mr. Latef discussed with Mr. Stockett some of the
securities listed in his "publication" which were
"recommendations of Neuropro, Inc.," and purchased some of those
securities for the Fund.<28> (Tr. 193-95, 235-37, 861; Div. Ex.
14 at 6; Div. Ex. 22; see, e.g., Stockett Exs. 9C-D.) He also
used "the resource produced by Neuropro and printed in the New
Industrialist" in selecting securities for the Fund. (Tr. 205,
259-60; see, e.g., Div. Ex. 71 at 83.)

On December 31, 1996, Mr. Latef purchased ten securities on
behalf of the Fund. (Div. Ex. 14 at 6.) All ten of these
securities were listed in New Issues Outlook among the twenty
"Biggest Gainers From Offering to December 16, 1996," a chart
which Mr. Stockett was responsible for producing and publishing.
(Tr. 260-61, 861-62, 888-90, 898; compare Stockett Ex. 9C with
Div. Ex 14 at 6.)

The Hudson Fund purchased 20,000 shares of Hightec stock on
December 6, 1996, and 500 more shares on December 11. (Div. Ex.
14 at 6; Tr. 89, 189.) The purchase price for the 20,500 Hightec
shares ranged from $.88 to $1.62 for a total purchase price of
$21,022. (Div. Ex. 14 at 6.) After these shares were purchased,
the Fund's holdings in Hightec comprised twelve percent of its
net asset value. (Div. Post. Brief at 9.) Mr. Latef testified
that he later sold one quarter of the Fund's Hightec position at
$5.50 per share, which resulted in a profit for the Fund in its
Hightec position. (Tr. 196, 863-64.)

The Fund purchased 5,000 shares of Sinclare stock on January
13, 1997, 35,000 shares on January 14, and 10,000 shares on
February 11, at prices ranging from $.23 to $.35 per share.
(Div. Ex. 14 at 6; Tr. 89, 951-52.) After these shares were
purchased, holdings in Sinclare stock comprised 5.3% of the
Hudson Fund's net asset value. (Div. Post. Brief at 9.)
According to the Division, "By February 28, 1997, the price of
Hightec stock was $1.625 a share and the price of Sinclare stock
had risen to $.54 a share. As of that date, combined holdings in
those two stocks comprised 23% of Hudson Fund's total assets. By
June 24, 1997, the prices of Hightec and Sinclare stock had
dropped to $.625 and $.11 respectively, and as of that date,
11.94% of Hudson Fund's assets were invested in those stocks."
(Div. Post. Brief at 9-10.)

Mr. Latef asserts that he made all decisions as to which
stocks to purchase for the Hudson Fund and that no other person
had ever been involved in that decision-making process. (Tr.
804.) He claims to have used several independent sources of
information in deciding which stocks to purchase, including
publications, newsletters, and software products. (Tr. 804-06.)
Mr. Latef and Mr. Stockett generally deny that Mr. Stockett told
Mr. Latef which securities to buy for the Fund or that Mr. Latef
asked Mr. Stockett which securities he should buy for the Fund.
(See, e.g., Tr. 260-63, 272-74, 714, 1122-23.) Mr. Latef asserts
that Mr. Stockett never forced him to buy a particular security.
(Tr. 857.) Mr. Latef specifically denies that money paid to the
Hudson Group or Hudson Management by Mr. Stockett was, or was
supposed to be, used to purchase stock in any company. (Tr.
857.) According to both men, Mr. Latef did not tell Mr. Stockett
which securities he was going to buy. (Tr. 261-63, 892-93.) As
further support of his lack of control over the Fund's
investments, Mr. Stockett argues that he would have recommended
sales of certain securities, pursuant to his investment system,
at times when Mr. Latef did not sell those securities. (Tr. 715-
17.)

According to Mr. Latef, the first time he became aware of
Hightec was when he saw a notice in a special edition of The New
Industrialist magazine, which he received in the first few days
of December. (Tr. 206, 213; Div. Ex. 71 at 48; see also infra,
section III.A.1. at n.42 and accompanying text.) Mr. Latef
discussed Hightec with Mr. Stockett and "a couple of brokers"
before he purchased Hightec shares for the Fund, but he did not
speak to anyone at the company and did not review the Hightec
prospectus. (Tr. 196-98.) Mr. Latef claims that he did not know
of any relationship between Mr. Stockett and Hightec at the time
of the Fund's purchases of Hightec securities in December 1996,
but found out Mr. Stockett was affiliated with Hightec
approximately one week later.<29> (Tr. 188, 199, 263, 265, 268,
863, 900.) Mr. Stockett allegedly did not tell Mr. Latef
anything about his involvement with Hightec at anytime prior to
Mr. Latef's purchases. (Tr. 1125.)

The filing of Hightec's Form 8-K on December 16, 1996, was
triggered by Mr. Stockett's purchase of stock in Hightec on
November 20, 1996, which made him the majority shareholder and
beneficial owner of the company.<30> (Div. Ex. 45A.) On
November 21, 1996, the new board of directors, which included Mr.
Stockett, voted Mr. Stockett president and chief financial
officer of Hightec and changed the address of its primary
executive offices to Mr. Stockett's home address in Tiburon.
(Tr. 98-99, 263-65; Div. Ex. 45A.) Mr. Latef did not see any
Hightec filings prior to his purchase and could not have seen
this Form 8-K since it was filed after the Fund's purchases of
Hightec securities. (Tr. 923.) According to Mr. Stockett, he
did not know that Mr. Latef purchased any Hightec securities
until January 1997. (Tr. 1123-24.)

Before he purchased shares of Sinclare, Mr. Latef once again
asked Mr. Stockett's opinion and also "discussed [the company]
with many people." (Tr. 202.) Mr. Latef claims that he did not
know whether or not Mr. Stockett had an affiliation with Sinclare
at the time of the purchase. (Tr. 203, 273-74, 900.) In fact,
Mr. Stockett was not a shareholder or owner of the company on any
of the dates of purchase. (Tr. 1125.) He did not hold office in
Sinclare until February 24, 1997. (Tr. 1125-26.) Mr. Latef
asserts that he probably would not have purchased Sinclare stock
had he known that Mr. Stockett was going to be the president of
Sinclare in the future. (Tr. 900.)

According to Mr. Latef, he contacted Mr. Stockett to get his
opinion on Hightec and Sinclare, and not for approval of or
advice on such a purchase for the Fund. (Tr. 196, 202.)
Further, Mr. Stockett alleges that he did not make specific
recommendations to purchase either Hightec or Sinclare to Mr.
Latef, although later as president of Sinclare, he was
recommending Sinclare securities on an Internet Web page. (Tr.
686-87, 714, 717-18.)

7. Mr. Stockett Markets the Fund

a. Mr. Stockett Searches for Partners

Part of Mr. Stockett's plan was to use the Hudson Fund as a
marketing tool by promoting it as an example of the successful
implementation and utilization of his investment plan and
strategy. He explained:

And while I was not recommending that people even buy
the Hudson Fund, I was introducing it to them in the
same way I teach them that small stocks grow at a
faster growth rate than large stocks. I told people
that small mutual funds can grow at faster growth rates
than larger mutual funds, and I use . . . the Hudson
Fund as an example of a small mutual [f]und which had
subscribed to our newsletters, had invested in some
IPOs in the aftermarket, and had achieved actual
performance that was documented that had made it the
top performing fund.

And I only did that in the context that this was
evidence that my research services work, not that I
told them which IPOs to buy, not that I controlled him
or ordered him or managed him. Simply that my system
which I teach with play money and everything else is an
effective system.

(Tr. 714-15.) The weight of the evidence, however, contradicts
Mr. Stockett's assertion that he promoted the Hudson Fund for
this limited purpose. In fact, Mr. Stockett represented to
potential partners and investors in various business negotiations
that he held an ownership interest in the Hudson Fund and the
related entities, that he was responsible for selecting the
Fund's investments, and that he was responsible for the Fund's
success. These prospective business deals also demonstrate the
importance of the Hudson Fund to Mr. Stockett's overall business
plan.

i. Karate International Corporation

In December 1996, Mr. Stockett entered into negotiations
with Scott Woods to purchase a chain of karate schools doing
business under the name Karate International Corporation ("Karate
International"), which Mr. Woods owned and operated. (Tr. 415-
16; Div. Ex. 56 at 12.) According to their agreement, Karate
International would receive financing from Hightec, Karate
International would become a wholly owned subsidiary of Hightec,
and Mr. Woods would receive stock in Hightec. (Tr. 416-17, 430-
31.) Jerry Greunbaum met Mr. Stockett in January 1997 by virtue
of his relationship as counsel for Mr. Woods and an entity
related to Karate International, United Studio of Self Defense of
Northern California, LLC. (Tr. 415-16.) Mr. Greunbaum
understood that Mr. Stockett controlled Hightec, and that Mr.
Stockett had the potential to become a major shareholder in the
company. (Tr. 431-32, 437.)

At the time, Mr. Stockett represented to Mr. Greunbaum that
he owned or operated a brokerage firm in Oregon, a television
show, a mutual fund, and, at one time, a paperless company based
in the Watergate complex in Washington, DC; and he showed Mr.
Greunbaum documents in support of his representations. (Tr. 418-
21; see, e.g., Div. Exs. 60, 70.) The mutual fund to which Mr.
Stockett referred was the Hudson Fund. (Tr. 421.) Mr. Stockett
gave Mr. Greunbaum the Hudson Fund's prospectus, and told him
that he had recently entered into an agreement for control of the
Fund, that he did control the Fund, and that he controlled the
investments in the Fund. (Tr. 421-23, 426-29; see Div. Ex. 11;
see also Tr. 443, 471, 474; but see Tr. 477.) He also promoted
its performance to Mr. Greunbaum. (Tr. 422-23.) The deal closed
in January 1997. (Div. Ex. 56 at 12.) Mr. Greunbaum did not
consider the Hudson Fund information relevant to the
Hightec/Karate International transaction. (Tr. 430-31, 433.)

ii. Benefits Administration, Inc.

Roy Thomas Kidd is chief executive officer ("CEO") of
Benefits Administration, Inc. ("BAI"), located in Chesapeake,
Virginia, and is president and CEO of Harbor Capital Corp., which
is BAI's parent. (Tr. 483.) BAI procured and packaged services,
discounts, and other promotional materials for organizations with
large memberships, and sold those packages to individuals who
were members of the specific organization. (Tr. 500.) Mr. Kidd
met Mr. Stockett in February 1997 in Chesapeake, Virginia. (Tr.
489.) Mr. Kidd had received some promotional materials related to
Hightec, the IPO Network, Sinclare, and the Hudson Fund from an
acquaintance. (Tr. 485-87, 489; see Div. Ex. 65.)

BAI was a private company in need of capital. Mr. Kidd
sought to take the company public and believed a deal with Mr.
Stockett would help BAI reach its financing goals. (Tr. 491.)
The substance of the deal was that there would be a share
exchange between Hightec and BAI such that BAI would become a
wholly owned subsidiary of Hightec. (Tr. 496, 501-02, 519.)
Hightec would also put up $250,000 as part of the process. (Tr.
496, 502.) In addition, there was an agreement between BAI and
Sinclare. (Tr. 496-97, 502.) BAI was an attractive acquisition
for Mr. Stockett because BAI maintained databases with names of
people who were members of professional organizations and
associations. (Tr. 501.) He could use this vast resource of
names to promote and expand the IPO Network, his stock selection
program (including the Neuropro System), and a purported dividend
reinvestment program. (Tr. 499-502.)

Mr. Kidd received copies of the Hightec POM from an
acquaintance prior to his meeting with Mr. Stockett, and also
from Mr. Stockett at the meeting. (Tr. 491-92, 513; see Div. Ex.
56.) Mr. Stockett also presented Mr. Kidd with promotional
materials related to his other endeavors. (Tr. 492-93; Div. Exs.
60, 70.) Mr. Kidd got the impression that Mr. Stockett and the
IPO Network were one and the same. (Tr. 494.) Mr. Stockett told
Mr. Kidd that the IPO Network purchased the karate schools for
the purposes of conducting investment seminars in the evening at
those facilities. (Tr. 494.) Mr. Stockett also told Mr. Kidd
that he managed the Hudson Fund and that he received a fee for
his services, and showed Mr. Kidd an article about the Fund which
ranked it as a top ten performer to demonstrate his success as a
manager. (Tr. 495, 513.) Mr. Stockett disclosed his regulatory
problems to Mr. Kidd. (Tr. 497-98.) The deal was consummated in
February 1997, but was rescinded by the parties soon thereafter.
(Tr. 506, 509-12, 526-27.)

iii. Julie Teague Garth

Julie Teague Garth first spoke to Mr. Stockett in April 1997
when she called the Hightec corporate office to acquire a copy of
the Hightec prospectus. (Tr. 536.) She told Mr. Stockett that
she was an investor and discussed her investment background.
(Tr. 536-37.) She made the call because, as an investor in BAI,
she was concerned about its deal with Hightec, and wanted to
learn more about the company.<31> (Tr. 552-54, 572-73.) She did
not relate this information to Mr. Stockett during the initial
call. (Tr. 555.)

Ms. Garth had the Hightec POM delivered to her attorney's
office in Houston. (Tr. 531-32, 536-37, 565; see Div. Ex. 56.)
She reviewed the POM, including the organizational flow chart.
(Tr. 538, 557; see Div. Ex. 56 at second page 6.) The day after
receipt of the POM, Mr. Stockett and Ms. Garth spoke again by
telephone. (Tr. 538-46, 555; see Div. Ex. 57.) In their
conversation, Mr. Stockett represented to Ms. Garth that he owned
eighty-five percent of Hightec; that he was working on a joint
venture with AT&T related to Internet access, including free use
of FlexQuote, with which he had some relationship; and that there
was an article about Sinclare in Barron's, with a focus on Mr.
Stockett and his activities and leadership within Sinclare and
its success. (Tr. 544, 550, 556; Div. Ex. 57.) Mr. Stockett
then made an offer to Ms. Garth related to Hightec. (Tr. 545-46;
Div. Ex. 57.) He told her that she could put up $250,000, in
exchange for Hightec stock, in order to purchase "this Flex Quote
system that he wanted." (Tr. 546; Div. Ex. 57.) Then he told
her she could purchase a fifty percent interest in the Hudson
Fund for $150,000. (Tr. 546, 556, 577; Div. Ex. 57.)

Ms. Garth requested that Mr. Stockett provide her with a
written summary of the discussion. (Tr. 546-48, 565, 577.) Mr.
Stockett sent a letter dated April 10, 1997, which memorialized
certain details of the proposed deal and which included a
promissory note and stock escrow agreement. (Tr. 546-48, 565,
577; Div. Ex. 62.) Mr. Stockett and Ms. Garth had two or three
more telephone conversations after delivery of the letter. (Tr.
548.) In those conversations, Mr. Stockett told Ms. Garth that
he had a "controlling interest in the Hudson Investors Fund. He
told me that he helped run and manage the Fund." (Tr. 549.) She
also understood from the conversations and the organizational
flow chart that the IPO Network held a controlling interest in
Hudson Advisers, Hudson Management, and the Hudson Fund. (Tr.
550, 580-81; Div. Ex. 56 at second page 6; ALJ Exhibit 1.) Mr.
Stockett then sent another letter, dated April 15, 1997, imposing
time limitations on the deal. (Tr. 548; Div. Ex. 64.) By this
time, Ms. Garth suspected that what Mr. Stockett was representing
to her about his control of the Hudson Fund was not true. (Tr.
562, 581-83.) Ms. Garth did not invest with Mr. Stockett. (Tr.
551.)

iv. Clark Fork Compost and Reclamation

Gregory Andres Kennett is the president and a member of the
board of directors of Clark Fork Compost and Reclamation ("Clark
Fork") of Missoula, Montana. (Tr. 588-89.) Mr. Stockett made a
series of proposals on behalf of Hightec to purchase Clark Fork.
(Tr. 589.) He held two face-to-face meetings with Mr. Kennett in
Missoula, on May 13 and 22, 1997, and made presentations to Clark
Fork's board of directors at both meetings. (Tr. 590, 592.) Mr.
Stockett discussed the Hudson Fund during the second meeting,
calling it a top performing fund and claiming responsibility for
its success. (Tr. 591-93.) He mentioned it as just one example
of his many successful business ventures. (Tr. 610.)

Mr. Stockett made an offer to purchase Clark Fork, which is
memorialized in a letter he prepared, dated May 13, 1997, and
which was distributed to those present at the May 13 meeting.
(Tr. 594; Div. Ex. 80.) There were a series of other proposals
that were offered after the May 22 meeting. (Tr. 598; Div. Exs.
77, 78, 79.) The transaction never took place. (Tr. 604-06.)

v. Select Capital Advisors

Arthur David Candland was president of Select Capital
Markets West ("Select West") from January through June 1997.
(Tr. 621.) It and its parent company, Select Capital Advisors
("Select Capital"), a Florida corporation, deal in mergers and
acquisitions, and procure capital for small to medium size
corporations. (Tr. 621.) In late April or early May 1997, Mr.
Candland received a referral from Select Capital for a project
seeking financing for a compost business in Missoula, Montana.
(Tr. 622.) Based on that lead, Mr. Candland called and spoke to
Mr. Stockett. (Tr. 622.) Mr. Stockett told Mr. Candland that he
sought financing for several projects, including the compost
deal. (Tr. 622.) Mr. Candland sent him Select West information
and Mr. Stockett delivered information about Hightec. (Tr. 622.)
Mr. Stockett represented that Hightec was a holding company that
acquired other entities and assets; had acquired the compost
operation in Montana; was buying the purchasing network in
Wyoming; and had a controlling interest in a Canadian stock quote
software program. (Tr. 623.) The financial information Mr.
Stockett provided to Mr. Candland indicated that Hightec owned a
controlling interest in the Hudson Fund, and Mr. Stockett told
Mr. Candland that he controlled the Fund. (Tr. 624, 633.) Mr.
Stockett also provided Mr. Candland with promotional materials
for the IPO Network and a prospectus for the Hudson Fund. (Tr.
623, 629, 642; see Div. Ex. 11.) It was always Mr. Candland's
understanding that Hightec had acquired a controlling interest in
the Hudson Fund in exchange for Hightec stock in the Fund. (Tr.
650, 661-62, 669.)

Mr. Stockett met with Mr. Candland and Select Capital's
president, Ronald Williams, and pitched a deal whereby Select
West would become a fifty percent partner in ownership in the
Hudson Fund and the Hudson Group. (Tr. 624, 700.) Mr. Stockett
prepared a due diligence package for the Hudson Fund from
documents provided to him by Mr. Latef. (Tr. 712; Div. Ex. 87.)
He showed this package to Mr. Williams. (Tr. 755-56.) The deal
required payment of cash and Select Capital stock to Hightec in
exchange for Hightec stock as well as placement of Select Capital
securities in the Hudson Fund. (Tr. 624-25.)

A letter/agreement dated June 11, 1997, from Mr. Stockett to
Mr. Williams and Mr. Candland, signed by all three men, outlined
the structure of the agreement. (Div. Ex. 73; Tr. 625, 700-02.)
The agreement reveals much about Mr. Stockett's plans for the
Hudson Fund. Mr. Candland understood from that letter and what
Mr. Stockett represented to him orally that Mr. Stockett
controlled the Hudson Fund or certainly had some interest in it.
(Tr. 632.) By the terms of the agreement, the parties
contemplated the following arrangement: (i) Mr. Williams would
become a "50-50 partner" in each of Mr. Stockett's ventures,
including the Hudson Fund and the Hudson Group; (ii) the Hudson
Fund and the Hudson Group would change their names to Select
Capital Fund and Select Capital Partners, respectively; and (iii)
Mr. Stockett would instruct Mr. Latef, the "registered investment
advisor," to "purchase positions in each of Select Capital
Advisor's client's stocks which are publicly traded." (Div. Ex.
73; Tr. 699-700.) The letter further states that, "Aftermarket
support for the stocks funded by Select Capital Advisors, Inc.
will be provided by the Select Capital Fund and the Select
Capital Partners private hedge fund" and that "n the interim,
it would be highly desirable to get Hightec and Sinclare stocks
performing and to add additional holdings to the Hudson Investors
Fund to assure its 2d quarter performance." (Div. Ex. 73; Tr.
700-02.)

An earlier letter, dated May 29, 1997, from Mr. Stockett to
Albie Landwehr, a partner in Select Capital, also reveals much
about Mr. Stockett's intentions for the Hudson Fund. (Div. Ex.
74; Tr. 626, 703-05.) According to that letter and an attached
spreadsheet, the Hudson Fund and the Hudson Group would be
renamed and Select Capital would invest over $4 million to
purchase Select Capital stocks for the Fund. (Div. Ex. 74; Tr.
702-05.) The whole basis for the proposal was that Mr. Stockett
would sell his interest in the Hudson entities to Select Capital
through the option agreements. (Tr. 705.)

The parties discussed and the letters indicated that the
Hudson Fund would change names. (Tr. 635, 652; Div. Exs. 73,
74.) Mr. Stockett claims he told Mr. Latef about the name
change. (Tr. 699-70.) Mr. Candland never contacted anyone at
the Hudson Fund about the name change. (Tr. 635-36.) He never
asked for a due diligence package from Mr. Stockett with respect
to the Hudson Fund or any other entity. (Tr. 646.) Mr. Stockett
did show Mr. Candland the relationship chart. (Tr. 649.) Mr.
Candland believed that there was an agreement in principle
between Mr. Stockett and Select Capital but that no money changed
hands. (Tr. 628.)

Mr. Latef did not authorize Mr. Stockett to do anything in
relation to the Select Capital transaction. (Tr. 857.) Mr.
Stockett did tell him, however, that people at Select Capital
were interested in investing in the Fund. (Tr. 910-11.) Mr.
Stockett apparently disclosed his intentions to Mr. Choudhry.
(See Tr. 1034-37, 1052-53, 1059-60, 1062.)

Mr. Stockett alleges that he contracted with Select Capital
to continue the payments for the options. (Tr. 308-10; see also
Stockett Post. Brief at ¶ 17.) He testified that he wanted
Select Capital to purchase the options and take over
responsibility of the payments. (Tr. 684.) He alleges that he
notified Mr. Latef of his intent to assign the options. (Tr.
685.)

b. The Solicitation of Investors; The New Industrialist
Magazine

Mr. Latef visited The New Industrialist home page on the
Internet in the middle of 1996, requested a free copy of The New
Industrialist magazine, and received several free copies
thereafter. (Tr. 221.) Mr. Latef used the Neuropro System
report, which was printed in The New Industrialist magazine, as a
resource in selecting securities for the Fund. (Tr. 205, 219,
223.) Mr. Stockett began publishing his IPO research, "presented
by IPO Network," in The New Industrialist around August 1996.
(Tr. 258-260; see, e.g., Div. Ex. 71 at 83; Div. Ex. 75 at 83;
Stockett Exs. 2D-E, 3B-C, 4B-C, 5C-D, 7D-F.)

1. The Winners Edition

A special edition of The New Industrialist magazine, called
the Winners United States Edition ("Winners Edition"), Volume 01,
No. 2, was published in December 1996. (Tr. 206; Div. Ex. 71.)
According to a notice in that magazine, Hightec would distribute
this special Winners Edition of The New Industrialist pursuant to
an agreement/understanding between The New Industrialist and
Wealth International Network, LLC ("WIN"), and subject to a
"strategic alliance entered into with IPO Network which has
assigned the understandings to [Hightec]." (See Div. Ex. 71 at
48.) Apparently, WIN's objective was to provide investors with
information about potential investments, to organize seminars,
conferences, and investment clubs, and to promote investment
opportunities. (See generally Div. Ex. 71.) The Winners Edition
included an application for membership in WIN, as well as
articles and advertisements for WIN and the Winners Edition.
(Tr. 214; Div. Ex. 71 at 34-46, 88; see generally Div. Ex 71.)
Also included in this Winners Edition of The New Industrialist
was: (i) an article about the Hudson Fund titled "Investors
Choice: The best stock for WIN members," which Mr. Latef claims
he had no part in producing or writing; (ii) an advertisement for
the Hudson Fund which, according to Mr. Latef, the Hudson
entities did not authorize or pay for; (iii) a copy of the Fund
prospectus which, according to Mr. Latef, The New Industrialist
was not authorized to print; and (iv) an application for
investment in the Fund (which is attached to the prospectus); as
well as (v) notices, reports, commentary, advertisements, and
information about Hightec and Neuropro.<32> (Tr. 204-10, 215,
274, 858; Div. Ex. 71 at 1, 15, 47-74, 86; see generally Div. Ex.
71.)

Mr. Latef saw the Winners Edition in late November or early
December 1996.<33> (Tr. 206, 951.) Mr. Latef maintains that he
was not aware that WIN was going to tout the Hudson Fund to its
customers/members. (Tr. 276.) Mr. Stockett alleges that he
provided a copy of the Hudson Fund prospectus to Mr. Lazarus;
that Mr. Lazarus was responsible for writing the article; and
that he did not provide any of the performance information
discussed in the article. (Tr. 711-12.)

i. The Prospectus and Hudson Fund Investors

Mr. Latef notified Mr. Lazarus, by letter, the he did not
want the magazine to print the Fund prospectus.<34> (Hudson Ex.
1; Tr. 206-09, 860.) Mr. Latef, however, accepted investment
applications filed by prospective customers which were copied or
removed from the Winners Edition of The New Industrialist and
accompanied by checks and money orders.<35> (Tr. 91-92, 208-09;
see Div. Exs. 29-37, 41-43.) Some investors identified
themselves as WIN members or affiliates, and one investor check
is made out to WIN. (Tr. 93, 223, 228; Div. Exs. 29-37, 41-43.)
That WIN check was endorsed by the Hudson Fund and deposited into
its account. (Tr. 94; Div. Ex. 41.) Mr. Latef claims that he
verified that the check was for investment in the Fund. (Tr.
228.) Some investors inquired about Mr. Stockett's status with
the Fund, and one investor sent a letter to the Hudson Fund
asking for confirmation that Mr. Stockett "is manager of
investments for the fund." (Div. Ex. 44; Tr. 93, 231-32.)
Neither Mr. Latef, nor anyone at the Fund, ever provided WIN
management with written notification that Mr. Stockett was not
manager of, or investment adviser for, the Fund. (Tr. 231-34.)
WIN itself invested $10,000 in the Hudson Fund. (Tr. 225-26;
Div. Ex. 36.)




3




ii. The Advertisements and the Article

The article on page one of the Winners Edition contained
several inaccurate statements about the Hudson Fund.<36> (Tr.
210-11; Div. Ex. 71 at 1; see also Hudson Ex. 1.) One
advertisement for Neuropro in the Winners Edition stated that the
Fund "has become the first mutual fund to formally accept the
challenge and has licensed the use of Neuropro's proprietary
software and data bases so that it can use NeuroPro's artificial
intelligence software to improve on its own predictive track
record." (Div. Ex. 71 at 86.) It also contained a quote
attributed to Mr. Latef which was not provided by Mr. Latef and
which, according to Mr. Latef, was also inaccurate. (Tr. 211-12;
Div. Ex. 71 at 86.) An identical Neuropro advertisement, which
was printed in the December 1996 issue of The New Industrialist,
United States Edition, Volume 3, Number 21, also contained the
quote attributed to Mr. Latef. (Tr. 217; Div. Ex. 75 at 86.)
Mr. Latef asserts that the information in that advertisement,
related to him and the Hudson Fund, is also inaccurate. (Tr.
217.) Another notice in the Winners Edition, captioned "BIG
NEWS," also promoted the Fund's use of Neuropro. (Div. Ex. 71 at
15.) It stated, for example, that "The New Industrialist is
pleased to announce that the Hudson Investors Fund uses Neuropro
software and databases to assist its investment advisors in
selection, allocation, and timing of its fund investment and
trading decisions." (Div. Ex. 71 at 15.)

Mr. Latef raised the issue of inaccuracies in the article
and the Neuropro advertisements with Mr. Lazarus by letter, but
claims that he was never able to speak with him, either by
telephone or in person. (Hudson Ex. 1; Tr. 212-13, 215-16, 858,
860-61.) He took no other steps to correct the statements
attributed to him in the advertisements. (Tr. 217-18.) Mr.
Latef claims also that The New Industrialist was not authorized
to publish the advertisement for the Fund that appeared in the
Winners Edition, and that he told Mr. Lazarus, by letter, that he
did not authorize publication of that, or any, advertisement for
the Fund.<37> (Tr. 215-16; Div. Ex. 71 at 47; Hudson Ex. 1.)




4




III. CONCLUSIONS OF LAW

A. Section 17(a) of the Securities Act, Section 10(b) of the
Exchange Act
and Rule 10b-5 thereunder, and Section 34(b) of the Company Act

The Division argues that the Hudson Respondents violated
Section 17(a) of the Securities Act, Section 10(b) of the
Exchange Act and Rule 10b-5 thereunder, and Section 34(b) of the
Company Act because they did not disclose to investors certain
material information about their relationship with Mr. Stockett,
including: (i) the existence of the agreements; (ii) that Mr.
Stockett was responsible for payments made to Hudson Management,
the Hudson Group, and the Hudson Respondents during the relevant
time period; and (iii) that Mr. Stockett recommended certain
securities to the Hudson Respondents for investment in the
Fund.<38> The Division argues that Mr. Stockett obtained control
over the Hudson Respondents and the Fund's investment decisions
because he held options to purchase Hudson Advisers and Hudson
Management and made payments benefiting the Hudson
Respondents.<39> (See Div. Post. Brief at 15-17, 23-24.) It
argues, further, that Mr. Stockett directed the Fund to invest in
certain securities, including Sinclare and Hightec, in which, at
the time of the purchases, Mr. Stockett allegedly either owned an
interest or was otherwise connected. It contends, also, that
payments made by Mr. Stockett to the Hudson Respondents were made
in order to influence the investment decisions of the Fund.

I conclude that Mr. Stockett did not possess determinative
control over the Hudson Respondents in any aspect of their
operation, including investment decisions. The Hudson
Respondents, however, should have otherwise disclosed their
relationship with Mr. Stockett. Even absent enforceable written
contracts, the Hudson Respondents should have revealed to
investors that: (i) they had negotiated to sell Hudson Advisers
and Hudson Management to Mr. Stockett; (ii) during the relevant
time period, Mr. Stockett was almost exclusively responsible for
the financial support of Hudson Management, to the direct benefit
of the Hudson Fund and Hudson Advisers; and (iii) the Fund had
invested in securities in companies from which it had received
payments and in which Mr. Stockett held an interest. The Hudson
Respondents, therefore, violated Section 17(a) of the Securities
Act, Section 10(b) of the Exchange Act and Rule 10b-5 thereunder,
and Section 34(b) of the Company Act because they did not
disclose this material information.

1. Control

Control is defined in both the Company Act and the Advisers
Act as "the power to exercise a controlling influence over the
management or policies of a company." Company Act Section
2(a)(9); Advisers Act Section 202(a)(12). The evidence
throughout is that Mr. Latef retained exclusive control over all
decisions relating to the Hudson entities, notwithstanding that
Mr. Stockett held options to purchase Hudson Advisers and Hudson
Management and that he funded the continuing operation of Hudson
Management, Hudson Advisers, and the Fund. Mr. Latef held
complete operational control over the Hudson entities and was
solely responsible for all of the reporting required by the
securities laws. There is no evidence that Mr. Stockett had any
influence, direct or indirect, over such reporting. Further, I
conclude that Mr. Stockett did not make any investment decisions
on behalf of Hudson Advisers or the Hudson Fund and did not exert
significant or determinative influence over the Fund's investment
decisions.

There is an obvious correlation between the securities
listed on page three of the December 19, 1996, publication of New
Issues Outlook, Issue 171, for which Mr. Stockett was
responsible, and the securities purchased by the Fund on December
31, 1996. (Tr. 260-61, 861-62, 888-90; compare Stockett Ex. 9C
with Div. Ex. 14 at 6.) Although these ten securities were
selected from a source produced by Mr. Stockett, Mr. Latef had
independent access to the same source. (See Tr. 861-62, 892.) I
conclude that Mr. Latef made an independent decision to purchase
those ten stocks, after conducting his own research and analysis.
(Tr. 861-63, 867-69, 892-93, 925-26.) While Mr. Stockett may
have provided information to Mr. Latef about these securities,
there is no direct evidence that he coerced Mr. Latef to make
these purchases or that Mr. Latef otherwise felt obligated or
pressured to make these purchases.

The circumstances surrounding the Fund's investment in
Hightec and Sinclare securities, however, bring into question Mr.
Latef's independence over those investment decisions. First,
there is the obvious issue of Mr. Stockett's payments to the
Hudson Respondents, including those payments made by The New
Industrialist, Hightec, and OTC, and the influence they carried.
Next, neither company is listed in the IPO information produced
by Mr. Stockett which was published in The New Industrialist and
New Issues Outlook. (Tr. 925; see, e.g., Div. Ex. 71 at 83; Div.
Ex. 75 at 83; Stockett Exs. 2D-E, 3B-C, 4B-C, 5C-D, 7D-F, 9C.)
Further, it does not appear that Mr. Latef conducted the
intensive analysis normally performed prior to purchasing Hightec
or Sinclare: neither company was listed in the independent
resources he normally used.<40> (Tr. 926-28.)

Mr. Stockett alleges that he faxed Mr. Latef a press release
announcing that Hightec had negotiated with the IPO Network, The
New Industrialist, and WIN to market and distribute the Winners
Edition. (Tr. 22, 24, 26; see also Tr. 265-67, 901.) He claims
that this press release is what prompted Mr. Latef's purchase of
Hightec shares on December 6 and December 11, 1996. (Tr. 16, 22,
24, 26; see also Tr. 265-67, 901.) Mr. Latef did not recall
seeing the press release and no evidence was provided at the
trial to conclude that the document was, in fact, sent to or
received by Mr. Latef.<41> (Tr. 265-67, 901.) Mr. Latef stated,
only, that "Sincl[are] and Hightec were picked from New
Industrialist." (Tr. 927; see generally Tr. 926-28.) Hightec
and Sinclare were, in fact, advertised and promoted in The New
Industrialist before Mr. Latef bought their shares for the Fund
and Mr. Latef testified that he at least saw a Hightec "notice"
in the Winners Edition before he invested in the company.<42>
(Tr. 883-84, 949; see, e.g., Div. Ex. 71 at 48; Stockett Exs. 2B-
C, 6B-C.) He admits, however, that he discussed both companies
with Mr. Stockett prior to purchase of their shares.

Mr. Stockett's representations to potential business
partners, that he owned and/or controlled the Hudson entities, is
another factor to consider in determining whether Mr. Stockett
did, in fact, own or control the Hudson entities or determine the
Fund's investments. His statements in letters to Select Capital
executives suggest, for example, that he held significant and
determinative control over the Hudson entities. They
demonstrate, also, that Mr. Stockett intended to purchase
securities for the Fund in companies in which he owned,
controlled, or otherwise held an interest.

Again, however, while Mr. Stockett may have provided
information to Mr. Latef about Hightec and Sinclare, and while he
may have represented to others that he owned and/or controlled
the Hudson entities, there is no direct evidence that he forced
Mr. Latef to make the Hightec and Sinclare purchases or that he
exerted significant or determinative influence over those
investment decisions. There is no direct evidence that these
purchases were a quid pro quo for Mr. Stockett's continued
financial support of Hudson Management, or that Mr. Stockett
otherwise coerced Mr. Latef. The fact that Mr. Stockett was in a
control and/or ownership position with Hightec when Mr. Latef
made the purchases also is not determinative on the issue of
whether Mr. Stockett controlled Mr. Latef's investment decisions.
In fact, his lack of an ownership or control position in Sinclare
at the time of that purchase supports the opposite view. It is
also inconclusive in this evidentiary calculus that Hightec later
purchased Sinclare.<43> Further, Mr. Stockett's statements to
potential business partners may not have reflected the truth. At
least one prospective business partner believed that Mr. Stockett
was lying to her about his relationship with the Hudson entities.

While circumstantial evidence exists to support of the
Division's position that Mr. Stockett controlled the Hudson
Respondents' investment decisions, the total mix of evidence is
not persuasive on this issue. I conclude, therefore, that Mr.
Stockett did not control the Hudson Respondents' investment
decisions; that it was Mr. Latef's decision to purchase Hightec
and Sinclare securities on behalf of the Fund; that Mr. Latef
retained exclusive and determinative control over the investment
decisions of the Fund; and that Mr. Stockett did not control
Hudson Advisers or the Hudson Fund and was not a "control person"
of any of the Hudson entities.

2. Conclusion

The Hudson Fund, Hudson Advisers, and Mr. Latef willfully
violated Section 17(a) of the Securities Act, Section 10(b) of
the Exchange Act and Rule 10b-5 thereunder, and Section 34(b) of
the Company Act because they failed to disclose to shareholders:
(i) the nature of Mr. Stockett's business relationship with the
Hudson Respondents; (ii) Mr. Stockett's payment of "expenses";
and (iii) that the Fund had invested in securities in companies
from which it had received payments and in which Mr. Stockett
held an interest. This omitted information was material because
a reasonable shareholder would have considered it significant in
making an investment decision. See Basic Inc. v. Levinson, 485
U.S. 224, 240 (1988); see also TSC Industries, Inc. v. Northway,
Inc., 426 U.S. 438, 449 (1976). If a reasonable Hudson Fund
investor or potential investor was aware of the omitted
information, for example, he or she may have questioned the
independence of Mr. Latef's investment decisions and may have
decided not to invest in the Fund.

The Hudson Respondents were aware that investors had access
to inaccurate information and that they may have been investing
in the Fund based on that information. They knowingly accepted
investment applications from investors who received materially
misleading information from the Winners Edition of The New
Industrialist and from Mr. Stockett. There is only one instance,
in a dozen or so applications, where the Hudson Respondents
specifically disabused an investor of incorrect information he
received related to investment in the Fund. That investor asked
specific questions regarding Mr. Stockett's role in making
investment decisions for the Hudson Fund.

Mr. Stockett's affiliation with Hightec was also material
information which needed to be disclosed to investors based on
his relationship with the Hudson Respondents and their ultimate
decision to invest in Hightec. The Hudson Respondents failed to
disclose to investors that the Fund was investing in a company
controlled by an interested third party and Mr. Stockett
substantially assisted in this concealment. The evidence is that
Mr. Stockett concealed his relationship with Hightec from Mr.
Latef when they discussed the company prior to its purchase by
the Fund. Mr. Stockett knew, from this discussion, that Mr.
Latef was interested in investing in Hightec. At that time, Mr.
Stockett had either acquired the company or was in the process of
doing so. He did not, however, tell this to Mr. Latef.

In any event, I believe that Mr. Latef was recklessly
indifferent to Mr. Stockett's financial interest in Hightec or
his relationship with the company.<44> Mr. Latef failed to
conduct a thorough analysis of the company prior to purchasing
its shares. There were independent sources of evidence,
including the Winners Edition and the December issue of The New
Industrialist, which, if combined with his usual investigation,
may have revealed Mr. Stockett's links to the company. In
addition, Mr. Latef made no disclosure about this potential
conflict of interest after he found out about the affiliation.
He also continued, thereafter, to hold Hightec shares in the
Fund's account.

In order to establish violations of Section 17(a)(1) of the
Securities Act and Section 10(b) of the Exchange Act and Rule
10b-5 thereunder, the Division must also show that Respondents
acted with scienter. Aaron v. SEC, 446 U.S. 680, 697, 701-02
(1980). Scienter is found where the participants acted with "a
mental state embracing intent to deceive, manipulate, or
defraud." Ernst & Ernst v. Hochfelder, 425 U.S. 185, 194 n.12
(1976). Recklessness may also satisfy this intent requirement.
SEC v. Steadman, 967 F.2d 636, 641 (D.C. Cir. 1992); Dirks v.
SEC, 681 F.2d 824, 844-45 (D.C. Cir. 1982), rev'd on other
grounds, 436 U.S. 646 (1983). The recklessness required is an
"extreme departure from the standards of ordinary care . . .
which presents a danger of misleading buyers or sellers that is
either known to the defendant or is so obvious that the actor
must have been aware of it." Meyer Blinder, 50 S.E.C. 1215,
1229-30 (1992) (quoting Hollinger v. Titan Capital Corp., 914
F.2d 1564, 1569 (9th Cir. 1990)); see also Steadman, 967 F.2d at
641-42. Sections 17(a)(2) and 17(a)(3) of the Securities Act do
not require scienter for their violation. Steadman, 967 F.2d at
643 n.5.

The preceding discussion demonstrates that the Hudson
Respondents knew, at least when the above cited investor made
contact with them, that their relationship with Mr. Stockett was
an important, material piece of information for investors in
making their decision to invest in the Hudson Fund. They did
not, however, disseminate this material information to the public
and were, at a minimum, reckless in their conduct. It was even
more important for the Hudson Respondents to disclose the
information in this case, where investors were receiving
inconsistent and inaccurate information about Mr. Stockett and
his relationship with the Hudson Respondents.

Mr. Stockett was, most likely, responsible for much of the
inaccurate information the above cited investor, and others,
received about the Hudson Fund. Articles, commentaries, and
advertisements in the Winners Edition of The New Industrialist
and the December issue of The New Industrialist, which contained
inaccurate information about the Hudson Respondents, indicate
substantial ties between Mr. Stockett and these publications.
Mr. Stockett never disclosed these ties to Mr. Latef. Around
this time, Mr. Stockett also conducted WIN seminars where he
discussed the Hudson Fund to WIN members and potential, and
eventual, Hudson Fund investors. The Hudson Respondents knew,
also, that Mr. Stockett was seeking "business partners" for the
Fund and that it was likely that Mr. Stockett was representing to
these people that he held options to purchase Hudson Advisers and
Hudson Management, or that he actually owned or controlled these
entities as well as the Fund. The Hudson Respondents should have
acted more responsibly in disclosing their relationship with Mr.
Stockett knowing that there was material misinformation available
to the investing public.

I conclude, therefore, that the Hudson Respondents
recklessly disregarded their duty to disclose material
information to investors in violation of Section 17(a) of the
Securities Act and Section 10(b) of the Exchange Act and Rule
10b-5 thereunder. As the investment adviser and, therefore, as a
fiduciary, Hudson Advisers, by and through Mr. Latef, owed its
clients "an affirmative duty of utmost good faith, and full and
fair disclosure of all material facts." SEC v. Capital Gains
Research Bureau, 375 U.S. 180, 194 (1963) (citations omitted).
The Hudson Fund, Hudson Advisers, and Mr. Latef also violated
Section 34(b) of the Company Act because they did not disclose
this material information in the Hudson Fund prospectus or any
other reports required to be filed with the Commission.

I conclude, also, that Mr. Stockett aided and abetted these
violations because: (i) he knew that the Hudson Respondents were
violating the securities laws by not disclosing certain material
information; and (ii) he knowingly and substantially assisted in
the commission of the violations by concealing information from
Mr. Latef and/or by contributing to misinformation disclosed to
investors. Woods v. Barnett Bank of Fort Lauderdale, 765 F.2d
1004, 1009 (11th Cir. 1985); Investors Research Corp. v. SEC, 628
F.2d 168, 178 (D.C. Cir. 1980); IIT v. Cornfeld, 619 F.2d 909,
922 (2d Cir. 1980).

B. Section 204 of the Advisers Act and Rule 204-1(b) thereunder
and Section 207 of the Advisers Act

The Hudson Respondents violated certain reporting
requirements by failing to include the material information
described above in public documents. Hudson Advisers violated
Section 204 of the Advisers Act and Rule 204-1(b) thereunder
because it failed to disclose material information in its public
filings, including its Forms ADV or any amendment thereto.<45>
Hudson Advisers, through Mr. Latef, failed to disclose to the
Hudson Fund and its shareholders that a third party, Mr.
Stockett, held options to purchase Hudson Advisers and Hudson
Management and that he funded the continuing operation of Hudson
Management, to the direct benefit of Hudson Advisers and the
Fund. Hudson Advisers also failed to disclose, when it purchased
shares of Hightec for the Fund or at any time thereafter, that
Mr. Stockett owned or controlled Hightec. Hudson Advisers and
Mr. Latef also violated Section 207 of the Advisers Act<46>
because they filed a Form ADV-S on April 2, 1997, signed by Mr.
Latef, which affirmatively misrepresented that there was no need
to amend the company's Form ADV. (See Div. Ex. 2.)

Mr. Stockett aided and abetted Hudson Advisers' violation of
Section 204 and Rule 204-1(b) and Hudson Advisers' and Mr.
Latef's violation of Section 207 because he knew that Hudson
Advisers and Mr. Latef were violating these reporting provisions.
Mr. Stockett substantially assisted in the commission of the
violations by concealing information from Mr. Latef and/or by
contributing to misinformation disclosed to investors. I cannot
conclude, however, that Mr. Latef aided and abetted Hudson
Advisers' violation of Section 204 of the Advisers Act and Rule
204-1(b) thereunder, as argued by the Division, because that
allegation is defectively pleaded in the OIP.<47>

C. Section 203(a) of the Advisers Act;
Sections 15(a), 15(c), and 48(a) of the Company Act

The Division alleges that Mr. Stockett engaged in activities
on behalf of the Hudson Fund which bring him within the
definition of "investment adviser" contained in Section
202(a)(11) of the Advisers Act. Specifically, the Division
argues that Mr. Stockett provided investment advice to and made
investment decisions for the Hudson Fund portfolio, without
exemption or registration, in violation of Section 203(a).<48>
Mr. Stockett, on the other hand, argues that he is exempt from
the registration requirements of the Advisers Act because he is a
publisher. (Tr. 17.)

Section 202(a)(11) defines investment adviser as:

any person who, for compensation, engages in the
business of advising others, either directly or through
publications or writings, as to the value of securities
or as to the advisability of investing in, purchasing,
or selling securities, or who, for compensation and as
part of a regular business, issues or promulgates
analyses or reports concerning securities; but does not
include . . . the publisher of any bona fide newspaper,
news magazine or business or financial publication of
general and regular circulation.

A determination as to whether a person is an investment adviser,
therefore, will depend on whether the person: (i) provides
investment advice, or issues reports or analyses, regarding
securities; (ii) is in the business of providing such services;
and (iii) provides such services for compensation. I conclude
that Mr. Stockett did not act as an investment adviser because
the third prong of this analysis was not satisfied in connection
with his activities with the Hudson Respondents.

The Division focuses on Mr. Stockett's conduct vis-à-vis the
Hudson Respondents, not his behavior generally, in alleging that
Mr. Stockett violated Section 203(a) of the Advisers Act. I will
not, therefore, make a determination about whether Mr. Stockett's
conduct outside of his relationship with the Hudson Respondents
meets this definition or, if it does, whether Mr. Stockett is
otherwise exempt from registration. I do, however, believe that
Mr. Stockett is, generally, in the business of providing
investment advice and issuing reports and analyses regarding
securities. As part of that business, he discussed specific
securities with Mr. Latef and provided information or advice
about Hightec, Sinclare, and at least ten other securities.
Thus, the first two prongs of the definition have been satisfied
in relation to the Hudson Respondents.

The Division suggests in its brief, that the third prong,
the compensation requirement, is satisfied because "Neuropro and
Stockett's agreement with Hudson Advisers provides that 90% of
any advisory fees received by Hudson Advisers from Hudson Fund
are to be passed through to Neuropro, a company controlled by
Stockett." (Div. Post. Brief at 28.) There is no evidence,
however, that Mr. Stockett received this, or any, fee in relation
to the investment advice he provided to the Hudson Respondents.
Arguably, the Hudson Fund's investment in Hightec conferred an
economic benefit upon Mr. Stockett (the price of Hightec shares
increased in value some time after the Fund's investment), which
might satisfy the compensation requirement. The Division does
not, however, make this argument. Further, the evidence is not
sufficient to show a nexus between Mr. Stockett's advice and any
economic benefit he derived therefrom, or between the Fund's
investment in Hightec and the increase in value of the Hightec
shares.

Nor do I find that Mr. Stockett served as an investment
adviser to the Fund pursuant to Section 2(a)(20) of the Company
Act. Section 2(a)(20) defines "'investment adviser' of an
investment company" as: (i) any person who, pursuant to contract
with such company, regularly furnishes advice to such company
with respect to the desirability of investing in, purchasing or
selling securities or other property, or is empowered to
determine what securities or other property shall be purchased or
sold by such company and (ii) any other person who, pursuant to
contract with a person described above, regularly performs
substantially all of the duties undertaken by such person
described above. For the reasons stated above in Section
III.A.1., I conclude that Mr. Stockett did not regularly furnish
advice to either the Hudson Fund or Hudson Advisers, through Mr.
Latef, with respect to the desirability of investing in,
purchasing or selling securities or other property, and that Mr.
Stockett was not empowered to determine what securities or other
property were to be purchased or sold by the Fund, Hudson
Advisers, or Mr. Latef. Further, the fact that Hudson Advisers,
Hudson Management, and Neuropro Nevada executed the service
agreement is irrelevant since the contract as written was
invalid: the services described in the written contract were
never provided and Neuropro Nevada never existed. Mr. Stockett's
activities related to the Hudson entities, in fact, meet the
criteria in one of the exemptions to the definition in Section
2(a)(20) since he acted as "a person who furnishe[d] only
statistical and other factual information, advice regarding
economic factors and trends, or advice as to occasional
transactions in specific securities, but without generally
furnishing advice or making recommendations regarding the
purchase or sale of securities."

I cannot, therefore, conclude that Mr. Stockett acted as an
investment adviser, in relation to the Hudson Respondents, in
violation of Section 203(a) of the Advisers Act. Based on this,
the Division's allegation that Mr. Stockett violated Sections
15(a) and 15(c) by virtue of Section 48(a) of the Company Act
must also fail. Section 15(a) makes it unlawful for a person to
act as an investment adviser to an investment company unless that
person enters into a contract with the investment company or its
investment adviser which has been approved by a majority of the
outstanding voting securities of the investment company. Section
15(c) requires the investment advisers to transmit to the
investment company any information which is reasonably necessary
to evaluate the terms of such contract. Section 48(a) prohibits
any person, directly or indirectly, to cause to be done any act
or thing through or by means of any other person which it would
be unlawful for such person to do under the provisions of this
title or any rule, regulation, or order thereunder. The Division
argues that no "vote was held with respect to the agreement
between Neuropro and Stockett and Hudson Advisers, and Stockett
did not transmit to the [Hudson Fund] the information which was
needed to evaluate the contract." (Div. Post. Brief at 29.) I
conclude, however, that Mr. Stockett did not act as an investment
adviser to the Hudson Fund and, therefore, he could not, and did
not, violate Sections 15(a) and 15(c) of the Company Act by
virtue of Section 48(a). The contract to which the Division
refers is, therefore, irrelevant to this analysis: no one except
for Hudson Advisers, by and through Mr. Latef, acted as
investment adviser to the Fund, and Hudson Advisers and the Fund
had an existing and valid contract under these provisions.

IV. SANCTIONS

Imposition of any administrative sanction requires
consideration of certain public interest factors, including:

the egregiousness of the defendant's actions, the
isolated or recurrent nature of the infraction, the
degree of scienter involved, the sincerity of the
defendant's assurances against future violations, the
defendant's recognition of the wrongful nature of his
conduct, and the likelihood that the defendant's
occupation will present opportunities for future
violations.

Steadman v. SEC, 603 F.2d 1126, 1140 (5th Cir. 1979), aff'd on
other grounds, 450 U.S. 91 (1981) (quoting SEC v. Blatt, 583 F.2d
1325, 1334 n.29 (5th Cir. 1978)). The severity of a sanction
depends on the facts of each case and the value of the sanction
in preventing a recurrence. Berko v. SEC, 316 F.2d 137, 141 (2d
Cir. 1963); Richard C. Spangler, Inc., 46 S.E.C. 238, 254 n.67
(1976); Leo Glassman, 46 S.E.C. 209, 211-12 (1975).

The Division recommends that: (i) all Respondents be ordered
to cease and desist from future violations of the securities
laws; (ii) Mr. Latef be suspended from association with an
investment adviser and an investment company for a period of
twelve months; and (iii) Mr. Stockett be barred from association
with any broker, dealer, municipal securities dealer, investment
adviser, and investment company. It also recommends that civil
penalties be assessed, without discussing the appropriateness of
this sanction or providing recommended amounts.

A. Bar and Suspension

Section 203(f) of the Advisers Act and Section 9(b) of the
Company Act authorize the Commission to impose sanctions on any
person who has, as in this case, willfully made or caused to be
made in any application for registration or any report required
to be filed with the Commission any false or misleading
statements of material fact or has omitted to state a material
fact, or has willfully violated or willfully aided and abetted a
violation of the federal securities laws.<49> Under Section
203(f) the Commission may censure or place limitations on the
activities of any person who has committed such violations and
who is associated, seeking to become associated, or, at the time
of the alleged misconduct, was associated or seeking to become
associated with an investment adviser, or suspend for a period
not exceeding twelve months or bar any such person from being
associated with an investment adviser. Under Section 9(b) the
Commission may prohibit any person who has committed such
violations from affiliating or associating with an investment
company.

1. The Suspension of Mr. Latef

Mr. Latef willfully violated Section 17(a) of the Securities
Act and Section 10(b) of the Exchange Act and Rule 10b-5
thereunder because he recklessly disregarded his duty to disclose
material information to Hudson Fund investors. He violated
Section 34(b) of the Company Act because he did not disclose this
material information in the Hudson Fund prospectus or any other
reports required to be filed with the Commission. He also
violated Section 207 of the Advisers Act because he signed and
filed a Form ADV-S which affirmatively misrepresented that there
was no need to amend Hudson Advisers' Form ADV.

Mr. Latef's reckless behavior posed a significant threat to
the Hudson Fund shareholders and other investors. Disclosure is
the essence of securities regulation. It prevents fraud and
reduces risk. It is important for the investing public to have
all material information available to it, therefore, before
making investment decisions. In this case, investors did not
possess material information about the Hudson Respondents'
relationship with Mr. Stockett. The risks involved in investing
in the Fund rose significantly with Mr. Stockett's participation.
The potential for fraud was great. Investors should have had
this information at their disposal. Mr. Latef was responsible
for providing the "full and fair" disclosure necessary here, and
was reckless in not doing so.

I do not believe, though, that Mr. Latef intended to defraud
investors in the Hudson Fund. Mr. Choudhry and the Hudson Group
were majority shareholders and knew as much as Mr. Latef about
the activity surrounding the Fund. I also believe that, in
forming the Fund, Mr. Latef and Mr. Choudhry acted with good
intentions, and that their decision to work with Mr. Stockett was
made in good faith. Further, this is the only instance of
disciplinary action involving Mr. Latef or any of the Hudson
Respondents. This was an isolated incident related to their
involvement with Mr. Stockett. There is also no evidence that
Mr. Latef benefited financially from his association with the
Hudson entities. To the contrary, there is much evidence that
Mr. Latef suffered significantly. He was well-educated and had
held several important high-paying jobs, his last as a hotel
executive.<50> While working for the Hudson entities he received
little or no income and apparently received no other economic
benefit.

Although his conduct was egregious, it was not so egregious
as to merit the year-long suspension recommended by the Division.
Nevertheless, Mr. Latef does not seem to recognize the
wrongfulness of his conduct and, therefore, there is a greater
likelihood that his association with the Hudson Respondents will
present opportunities for future violations. He is willing,
however, to "publish any curative disclosure the Commission may
require." (Hudson Post. Brief at 21.) Considering all of the
above, including mitigating factors, I believe it is appropriate
in the public interest to suspend Mr. Latef from association with
an investment adviser and an investment company for three months.

2. Mr. Stockett is Collaterally Barred

Mr. Stockett aided and abetted the Hudson Respondents'
violations of Section 17(a) of the Securities Act, Section 10(b)
of the Exchange Act and Rule 10b-5 thereunder, Section 34(b) of
the Company Act, and Sections 204 and 207 of the Advisers Act and
Rule 204-1(b) because: (i) he knew that the Hudson Respondents
were violating the securities laws by not disclosing certain
material information; and (ii) he knowingly and substantially
assisted in the commission of the violations by concealing
information from Mr. Latef and/or by contributing to
misinformation disclosed to investors.

Honesty is a basic quality required of securities
professionals. There are elements of scheming and deception in
Mr. Stockett's conduct in this case that cast serious doubt on
his ability ever to operate in the securities industry in an
honest and forthright manner. His intent, demonstrated in the
various business dealings described in the record, was to
eventually gain control of the Hudson Fund and use it to
manipulate stock prices in companies in which he and his partners
held an interest. He had already swept the Hudson Respondents
into his web of deceit, but he never consummated the big-money
deal that would have triggered his takeover of the Hudson
Respondents' business and fostered his potentially massive fraud.
It was his relationship with the Hudson Respondents that caused
their violations of the securities laws; Mr. Stockett's
misconduct was, therefore, the root of the evil in this case.

There are no mitigating factors. Mr. Stockett denies any
and all wrongdoing and fails to admit or recognize the
significance of his activity. There is a substantial likelihood
that Mr. Stockett will commit future violations of the securities
laws. Over the last decade, Mr. Stockett's sole occupation has
involved investors, investing, and seeking out capital. It is
also relevant, if not determinative, on the issue of the
appropriateness of a sanction in the public interest that Mr.
Stockett has a significant disciplinary history in the securities
industry. The public interest, therefore, requires the
imposition of a harsh sanction against Mr. Stockett.

The Division requests that Mr. Stockett be barred from
association with any broker, dealer, municipal securities dealer,
investment adviser, and investment company. This is commonly
referred to as an industry-wide bar or "collateral bar." The
Commission recently decided that it had the authority to issue
such collateral bars against respondents "in cases where it is
contrary to the public interest to allow someone to serve in any
capacity in the securities industry." Meyer Blinder, 65 SEC
Docket 1970, 1981 (Oct. 1, 1997). Two factors to consider in
determining whether a collateral bar is appropriate in the public
interest are whether the respondent's "misconduct is of the type
that, by its nature, 'flows across' various securities
professions and poses a risk of harm to the investing public in
any such profession" and "whether the egregiousness of the
respondent's misconduct demonstrates the need for a comprehensive
response in order to protect the public." Id.

In light of the public interest factors cited above, I
conclude that it is appropriate to issue a collateral bar against
Mr. Stockett. The allegations, findings, and conclusions against
Mr. Stockett were made pursuant to the Securities Act, Exchange
Act, Advisers Act, and Company Act. Mr. Stockett's activities
necessarily "flowed across" the various securities professions
and posed a significant risk of harm to the investing public.
His conduct was egregious and requires an immediate and
comprehensive response in order to protect the public interest.

B. Cease and Desist

Section 8A of the Securities Act, Section 21C of the
Exchange Act, Section 9(f) of the Company Act, and Section 203(k)
of the Advisers Act provide that the Commission, after notice and
opportunity for a hearing, may enter an order requiring any
person who "is violating, has violated, or is about to violate,"
or who causes a violation of any provision, rule, or regulation
of the securities laws to cease and desist from committing or
causing such violation and any future violation of the same
provision, rule, or regulation.

These statutes, by their terms, permit the entry of a cease
and desist order upon concluding that a violation of the
securities laws has occurred. Mr. Stockett and the Hudson
Respondents have violated various provisions of the securities
laws. Considering this and the public interest factors cited
above, I find that it is appropriate to issue a cease and desist
order against all of the Respondents.




5




C. Civil Money Penalty

Section 21B of the Exchange Act, Section 9(d) of the Company
Act, and Section 203(i) of the Advisers Act authorize the
Commission to assess civil money penalties against any person if
it finds that such person has willfully violated or willfully
aided and abetted a violation of a provision of the federal
securities laws or has willfully made or caused to be made in any
application for registration or report required to be filed with
the Commission any false or misleading statements of material
fact or has omitted to state a material fact. Since Respondents
willfully violated or willfully aided and abetted violations of
provisions of the federal securities laws and willfully made or
caused to be made in documents required to be filed with the
Commission misleading statements of material fact and omitted to
state material facts, I may assess a civil money penalty against
them if I find it is in the public interest.

The above-referenced provisions specify a three-tier system
for assessing the maximum amount of a penalty. In the first
tier, the maximum penalty for each act or omission is $5,000 for
a natural person or $50,000 for any other person. In the second
tier, the maximum amount for each act or omission is $50,000 for
a natural person or $250,000 for any other person if the act or
omission involved fraud, deceit, manipulation or deliberate or
reckless disregard of a regulatory requirement. In the third
tier, the maximum amount for each act or omission is $100,000 for
a natural person or $500,000 for any other person if the act or
omission (i) involved fraud, deceit, manipulation, or deliberate
or reckless disregard of a regulatory requirement, and (ii)
directly or indirectly resulted in substantial losses or created
a significant risk of substantial losses to other persons or
resulted in substantial pecuniary gain to the person who
committed the act or omission.

The assessment of a penalty depends on a finding that such
an assessment is in the public interest. The public interest
finding must support the amount of a particular assessment, not
merely the overall decision to assess a penalty. See First
Securities Transfer System, Inc., 60 SEC Docket 441, 447 n.15
(Sept. 1, 1995). The factors to consider in determining whether
a civil money penalty and the penalty amount are in the public
interest are: (i) whether the act or omission for which the
penalty is assessed involved fraud, deceit, manipulation, or
deliberate or reckless disregard of a regulatory requirement;
(ii) the harm to other person(s) resulting either directly or
indirectly from such act or omission; (iii) the extent to which
any person was unjustly enriched, taking into account any
restitution made to persons injured by such behavior; (iv)
whether the respondent previously has been found by the
Commission, another regulatory agency or a self-regulatory
organization to have violated federal or state securities laws or
the rules of a self-regulatory organization or has been enjoined
or convicted by a court of competent jurisdiction of violations
of such laws or rules; (v) the need to deter respondent and
others from committing such acts or omissions; and (vi) such
other matters as justice may require.

Applying these criteria, I find that a third tier civil
money penalty of $50,000 is appropriate against Mr. Stockett and
that no money penalty should be issued against the Hudson
Respondents. The Respondents' acts and omissions involved
fraudulent and deceitful conduct and posed a significant risk of
substantial losses to investors. Mr. Stockett's conduct,
however, exhibited a higher level of scienter and egregiousness.
The evidence is that Mr. Stockett intended to continue and expand
his course of fraudulent and manipulative conduct. He has been
disciplined by three government bodies for prior violative
conduct and has, generally, demonstrated a reckless disregard of
regulatory requirements. It is overwhelmingly likely that Mr.
Stockett will violate the securities laws in the future, which
emphasizes the need to deter him from doing so.

I do not believe, however, that the Hudson Respondents
should receive a civil money penalty. The public interest
discussion above, with respect to Mr. Latef, is relevant in this
analysis. Particularly important is that none of the Hudson
Respondents were unjustly enriched, and that investors lost
little or no money. I also consider the Hudson Respondents'
level of scienter and their willingness to work with the
Commission as mitigating factors. Further, I believe that a
money penalty against the Hudson Respondents, in addition to the
sanctions already ordered against them, would be excessive and
not in the public interest.

V. RECORD CERTIFICATION

Pursuant to Rule 351(b) of the Commission's Rules of
Practice, 17 C.F.R. § 201.351(b) (1998), I certify that the
record includes the items set forth in the corrected record index
issued by the Secretary of the Commission on March 23, 1999.

VI. ORDER

Based on the findings and conclusions set forth above,

I ORDER, pursuant to Section 8A of the Securities Act,
Section 21C of the Exchange Act, and Section 9(f) of the Company
Act, that Hudson Investors Fund, Inc. shall cease and desist from
committing or causing a violation or any future violation of
Section 17(a) of the Securities Act, Section 10(b) of the
Exchange Act and Rule 10b-5 thereunder, and Section 34(b) of the
Company Act;

I FURTHER ORDER, pursuant to Section 8A of the Securities
Act, Section 21C of the Exchange Act, Section 9(f) of the Company
Act, and Section 203(k) of the Advisers Act, that Hudson
Advisers, Inc. shall cease and desist from committing or causing
a violation or any future violation of Section 17(a) of the
Securities Act, Section 10(b) of the Exchange Act and Rule 10b-5
thereunder, Section 34(b) of the Company Act, and Sections 204
and 207 of the Advisers Act and Rule 204-1(b) thereunder;

I FURTHER ORDER, pursuant to Section 8A of the Securities
Act, Section 21C of the Exchange Act, Section 9(f) of the Company
Act, and Section 203(k) of the Advisers Act, that Javed Anver
Latef shall cease and desist from committing or causing a
violation or any future violation of Section 17(a) of the
Securities Act, Section 10(b) of the Exchange Act and Rule 10b-5
thereunder, Section 34(b) of the Company Act, and Section 207 of
the Advisers Act;

I FURTHER ORDER, pursuant to Section 9(b) of the Company Act
and Section 203(f) of the Advisers Act, that Javed Anver Latef
be, and hereby is, suspended from being associated with an
investment adviser or an investment company for a period of three
months;

I FURTHER ORDER, pursuant to Section 8A of the Securities
Act, Section 21C of the Exchange Act, Section 9(f) of the Company
Act, and Section 203(k) of the Advisers Act, that Larry Alan
Stockett shall cease and desist from committing or causing a
violation or any future violation of Section 17(a) of the
Securities Act, Section 10(b) of the Exchange Act and Rule 10b-5
thereunder, Section 34(b) of the Company Act, and Sections 204
and 207 of the Advisers Act and Rule 204-1(b) thereunder;

I FURTHER ORDER, pursuant to Section 9(b) of the Company Act
and Section 203(f) of the Advisers Act, that Larry Alan Stockett
be, and hereby is, barred from association with any broker,
dealer, municipal securities dealer, investment adviser, and
investment company; and

I FURTHER ORDER, pursuant to Section 21B of the Exchange
Act, Section 9(d) of the Company Act, and Section 203(i) of the
Advisers Act, that Larry Alan Stockett pay a third tier civil
penalty in the amount of $50,000.

Payment of penalties shall be made on the first day
following the day this initial decision becomes final by
certified check, United States Postal money order, bank cashier's
check, or bank money order payable to the Securities and Exchange
Commission. The check and a cover letter identifying the
Respondent and the proceeding designation, Administrative
Proceeding File No. 3-9374, should be delivered by hand or
courier to the Comptroller, Securities and Exchange Commission,
Operations Center, 6432 General Green Way, Stop 0-3, Alexandria,
Virginia 22312. A copy of the cover letter also should be sent
to the Commission's Division of Enforcement.

This order shall become effective in accordance with and
subject to the provisions of Rule 360 of the Commission's Rules
of Practice, 17 C.F.R. § 201.360 (1998). Pursuant to that rule,
a petition for review of this initial decision may be filed
within twenty-one days after service of the decision. It shall
become the final decision of the Commission as to each party who
has not filed a petition for review pursuant to Rule 360(d)(1)
within twenty-one days after service of the initial decision upon
such party, unless the Commission, pursuant to Rule 360(b)(1),
determines on its own initiative to review this initial decision
as to any party. If a party timely files a petition for review,
or the Commission acts to review as to a party, the initial
decision shall not become final as to that party.



_______________________
G. Marvin Bober
Administrative Law Judge

**ENDNOTES**

<1>: According to evidence in the record, Respondent
Latef's middle name should be spelled "Anver."

<2>: See my Order on Exhibits, November 30, 1998, for my
ruling related to the evidence in this proceeding. I
will refer to the Division's exhibits as "(Div. Ex.
__)," to the Hudson Respondents' exhibits as "(Hudson
Ex. __)," and to Mr. Stockett's exhibits as "(Stockett
Ex. __)." I will refer to the transcript as "(Tr.
__)."

<3>: The investment advisory agreement refers to "Hudson
Advisors, Inc." (Div. Ex. 16.) The Hudson Fund's
prospectus also refers to the Fund's investment
adviser as "Hudson Advisors, Inc." (Div. Exs. 10, 11.)
I conclude that the Hudson Fund's investment adviser
is, and has always been, the same entity. For purposes
of this decision, I will refer to the Fund's
investment adviser as "Hudson Advisers,"
notwithstanding the inconsistent references to this
entity throughout the record. (See, e.g., Tr. 177,
179; Div. Exs. 10, 11, 16.)

<4>: Mr. Latef stated that he was never compensated for his
work at Hudson Management or Hudson Advisers, and that
his main source of support came from the Hudson Group
and his wife, who was working. (Tr. 806.)

<5>: As Mr. Stockett explained, "Now, I had a license in
hand to offer Neuropro data processing services and
information services from the IPO Network." (Tr. 739.)
I ordered Mr. Stockett to submit the licensing
agreement as an exhibit after the trial. (Tr. 740-41,
772-73, 784-86, 1117- 18.) In response, he submitted a
Distributorship Agreement between The New
Industrialist and the IPO Network which was signed on
September 25, 1996, more than a month after the Hudson
contracts were executed. (See Stockett Ex. 17.) The
Distributorship Agreement did include a paragraph,
however, which allowed the IPO Network to "sub-
license, market and distribute" the Neuropro System.
(Stockett Ex. 17 at 1.)

<6>: According to Mr. Stockett, Neuropro Nevada would
provide different services than those provided by the
IPO Network up to that point. (Tr. 739- 40.)

<7>: According to the Hightec Private Offering Memorandum,
which was prepared by Mr. Stockett, On December 31,
1996, [Hightec] entered into negotiations to acquire
100% of the stock of Karate International Corporation
(KIC), and its predecessor organization the United
Studios of Self Defense of Northern California, LLC.
The closing of the acquisition occurred on January 15,
1997. The IPO Network plans to establish offices co-
located with some or all of the KIC training centers.
KIC currently operates 6 company owned karate training
centers and is the franchisor for an additional 26
franchisee owned Karate training centers. The IPO
Network plans to offer its training seminars and
financial services products to the 5,000 students of
KIC and to individual investors who attend free
seminars to be conducted at the current and future KIC
training centers. (Div. Ex. 56 at 12.)

<8>: As Mr. Stockett further explained: I basically have
been in a mode attempting to make acquisitions that
would achieve a membership base for the company that
would allow me to go back into teaching, but without
having to essentially solicit money. To attract the
students I attempted to buy membership-based
organizations and to buy companies including Sinclare
Group which . . . had a software product and had over
100,000 users of that software product. They were
already computer literate and on the internet and
getting realtime [sic] stock quotes on the internet
and, therefore, I could teach that audience of
investors how to be better investors by simply
updating my own Web site and electronically
communicating with 100,000 people, which is much
easier to do then [sic] get on an airplane and fly
around the country giving seminars. (Tr. 1091.)

<9>: According to Mr. Stockett, since The New Industrialist
was out of business by February 1997, he had to
purchase Sinclare in order to continue to provide the
Neuropro System. (Tr. 760-61.)

<10>: Mr. Latef claims that if he was aware of Mr.
Stockett's disciplinary history at the time of the
negotiations he would not have signed the contracts.
(Tr. 839.)

<11>: The second stock option agreement refers to "Hudson
Advisors, Inc." and is signed by Mr. Latef as
president of "Hudson Advisors, Inc." (Div. Ex. 19.)
Taken in the context of the negotiations underlying
this agreement, as supported by the testimony of
witnesses and the evidence admitted in this
proceeding, "Hudson Advisors, Inc." and "Hudson
Advisers, Inc." are the same entity. (See, e.g., Tr.
178.)

<12>: Although there is some dispute in the record, it
otherwise appears from the context of the service
agreement and the evidence regarding its creation that
the reference to "Hudson Advisors Group, Inc." is
meant to refer to the Fund's investment adviser,
Hudson Advisers. (See, e.g., Tr. 158-59, 164-68, 178.)
Mr. Latef intended to sign on behalf of Hudson
Advisers. (Tr. 168, 178.)

<13>: The expense agreement refers to "Hudson Advisors,
Inc." and is signed by Mr. Latef as president of
"Hudson Advisors, Inc." (Div. Ex. 20.) Taken in the
context of the negotiations underlying this agreement,
as supported by the testimony of witnesses and the
evidence admitted in this proceeding, "Hudson
Advisors, Inc." and "Hudson Advisers, Inc." are the
same entity. (See, e.g., Tr. 178.)

<14>: Mr. Stockett stated, "I never attempted to form
Neuropro of Nevada. . . . I never attempted to conduct
business as Neuropro, Inc. I never formed the
corporation. I never got a bank book. I never did
anything." (Tr. 738.) Mr. Latef visited The New
Industrialist one or two days after he signed the
agreements at issue, and began to question whether
Neuropro Nevada actually existed as a corporation.
(Tr. 831-38, 949.) From this visit, he realized that
Neuropro Nevada did not exist as a Nevada corporation
and called Nevada authorities to verify this fact,
which they did; he also told Mr. Choudhry what he had
learned about Neuropro Nevada. (Tr. 831-37, 920; see
also Tr. 1027-28, 1039-40, 1047, 1056.) Thus, he
considered the written agreements void. (Tr. 169, 837-
38, 941, 962-63, 973-74.)

<15>: I ordered Mr. Stockett to produce this assignment
document after the trial. (Tr. 733-34, 753-54, 773,
783-84, 1116.) He failed to do so.

<16>: Mr. Stockett alleges that this material first appeared
on the Internet sometime around February 24, 1997.
(Tr. 305.)

<17>: At the trial, Mr. Stockett reiterated his position
that the IPO Network had a contract/agreement with
Hudson Advisers and Hudson Management, and that
Hightec, since it owned the IPO Network, technically
was privy to the agreement. (Tr. 307.)

<18>: Mr. Stockett claimed, for example, that the chart
showed that the IPO Network only provided "Neuropro
Service" to the Hudson entities and did not control
them. (Tr. 730-36.) The chart, however, linked the IPO
Network with the Hudson entities and stated, in the
Hudson Fund box: "Mutual Fund Managed Since 8/7/96."
(Tr. 694; ALJ Ex. 1; Div. Ex. 56 at second page 6.)
Mr. Stockett testified that this showed that the Fund
was managed by Hudson Advisers and Hudson Management,
not the IPO Network, from August 7, 1996, the time of
the agreements. (Tr. 730-37.)

<19>: For example, Mr. Latef stated, "Basically, if these
options can be arranged in a way that they can be
exercised I would have no problems. But as they stand
today, they are not exercisable but similar options
and an entity that exists and all of that I have no
problem." (Tr. 941; see also Tr. 945- 46, 956-57, 976-
77, 1057.) He stated it was a moral obligation to
fulfill the terms of the contract if Mr. Stockett
wished. (Tr. 960-61, 969.) Further, he testified: We
still believe that we can give him the option whenever
he wants. He knows it. I know it. And I state to you
that we can give the option in his personal name. If
he wants the option in Neuropro's name, it's not worth
the price of the paper it's written on. If he wants a
personal option he is most welcome and I found him a
very decent man regardless of whatever anybody else
might say about him but aside of I have no problem
with that we took the money. We stand by whatever our
understandings are. We gladly signed [sic] it in his
personal name or any other companies [sic] name, today
tomorrow or whenever he likes. (Tr. 976-77.) Mr. Latef
also stated that if Mr. Stockett wanted to exercise
his options he could, so long as he provided the back
payments he owed. (Tr. 948.)

<20>: The check for $50,000 was drawn on Mr. Stockett's
personal checking account because the original check,
drawn on an OTC account, was returned for insufficient
funds. (Tr. 719-22; Div. Ex. 14 at 7.)

<21>: At no time during the relevant period did the Hudson
Fund's assets under management exceed $1,000,000. (Tr.
801, 804.) Pursuant to the expense agreement,
therefore, Neuropro Nevada was required to pay Hudson
Management $10,000 per month. The record demonstrates
that Mr. Stockett made these payments in monthly
increments of approximately $10,000. (Tr. 674; Div.
Ex. 14 at 8-13.) Mr. Latef expected these payments and
called Mr. Stockett when payments were past due. (Tr.
186-87, 674-76.)

<22>: This check, dated October 9, 1996, was drawn from the
Hudson Fund, made out to Hudson Management, and
redeemed by Mr. Stockett. (Tr. 65-66, 296-97; Div.
Exs. 25, 26.) A letter signed by Mr. Stockett, as
president of OTC, to Mr. Latef, authorized Mr. Latef
to withdraw $10,000 invested by OTC in the Hudson Fund
and to transfer the proceeds to Hudson Management "to
pay the ongoing operating expenses of the management
company." (Tr. 67, 296-98, 850; Div. Ex. 26.)

<23>: Mr. Latef believed that Mr. Stockett arranged for that
payment, although he held no ownership interest in the
company or magazine at the time, because the magazine
owed him money. (Tr. 183-85, 220, 254-55, 679-80.)

<24>: Mr. Stockett claims he loaned the money to Hightec and
Hightec wrote the check. (Tr. 723.)

<25>: Mr. Stockett later testified at the trial that he
loaned money to the IPO Network and, since the IPO
Network and Hightec shared a checking account, had the
IPO Network deposit $10,000 on a Hightec check. (Tr.
723-24.)

<26>: The payments were not loans or part of a loan - there
was never a promissory note, no interest was assigned,
and there never has been any repayment of the money.
(See Tr. 120, 181, 243-44, 270, 281, 685-86, 870-71;
but cf. Tr. 69-70, 123-24, 130.)

<27>: Mr. Stockett explained that he was teaching Mr. Latef
about investments and provided him newsletters,
research, and information to make Mr. Latef a better
investor/investment adviser. (Tr. 714.)

<28>: Mr. Latef described, in general terms, the nature of
his discussions with Mr. Stockett: Mr. Stockett, I
believe, knew a lot about IPOs. So therefore, the
stocks which I picked up from his four- page
publication I called him to get some background on
those stocks, and I discussed them in detail with him,
and then I picked up some stocks . . . around twelve
or ten or whatever. . . . I never discussed with him
suitability for the Fund. I discussed with him the
upside potential and things like that, as you would
discuss with anybody who is knowledgeable about the
background of the stock. . . . Other stocks I can sit
and analyze myself, but Initial Public Offerings you
have to go to an expert who can project into the
future fairly and accurately, and I believe Mr.
Stockett was one of those experts, because he was
printing a publication. He was maintaining a site on
the Web and he was even having a column in New
Industrialist. (Tr. 194-95.)

<29>: According to Mr. Latef, "I found out that he was
affiliated with Hightec after I bought it. It was
about a week later I found it out and I was not very
happy about it, because for one reason if he was
affiliated with that stock I would have not
consider[ed] his opinion on that stock because it
cannot be unbiased." (Tr. 863.) Mr. Latef stated that
had he known of Mr. Stockett's affiliation with
Hightec he "probably would have thought [the purchase]
over very carefully and probably [would] not" have
purchased stock in Hightec. (Tr. 900.) He stated, "I
would be extremely careful if a president called me or
any officer of a company called me because whatever
opinion they gave me is not kind of unbiased." (Tr.
899.)

<30>: Mr. Stockett secured his purchase with a promissory
note in the amount of $160,000, which was due and
payable ninety days from the close of the transaction.
(Div. Ex. 45A.) The stock was held in escrow and was
supposed to be released upon full payment by Mr.
Stockett. (Div. Ex. 45A.) Mr. Stockett, apparently,
never paid the money due on the promissory note. (See
Div. Ex. 81.)

<31>: She was already an "investor" in, or associated with,
BAI at the time by virtue of a $100,000 loan she made
to the company in January 1997, for which she received
"dividends." (Tr. 553-54, 569-70.) Ms. Garth later
became a stockholder of BAI and in June 1997 became a
member of its board of directors. (Tr. 528, 569.) Mr.
Kidd apparently had no idea that she contacted Mr.
Stockett, posing as an investor, until after the fact.
(Tr. 528, 531-33, 568.)

<32>: "Neuropro," "NeuroPro," and "Neuropro, Inc." are terms
used frequently throughout the Winners Edition and are
used interchangeably to refer to a Neuropro
corporation, its trademark, and its software system.
(See, e.g., Div. Ex. 71 at 86; see generally Div. Ex.
71.) I will refer to them, generally, as "Neuropro"
for purposes of this section.

<33>: This was not the first that Mr. Latef had heard of
WIN. Approximately two months before he saw the
Winners Edition, a certified public accountant visited
the Hudson offices, told Mr. Latef that he was an
officer of WIN, told Mr. Latef a little about WIN, and
invested $100 in the Fund. (Tr. 213-14, 223, 227.)

<34>: Mr. Latef had previously hired Mr. Lazarus and The New
Industrialist, however, to print 2,500 copies of the
Fund's prospectus on The New Industrialist's printer,
based on Mr. Stockett's referral. (Tr. 275-76.)

<35>: There is testimony that Mr. Latef discussed a mass
mailing of the prospectus with Mr. Stockett, prior to
the distribution of the Winners Edition. (Tr. 278.)
Circumstantial evidence indicates that Mr. Latef
approved the mailing in order to take advantage of the
fact that WIN was making substantial restitutional
payments to its members, such that WIN members would
invest their returned funds in the Hudson Fund. (Tr.
278.)

<36>: The article includes the following paragraph which,
according to Mr. Latef, is an untrue statement: The
Hudson Fund has employed on a "test basis" for a
portion of its portfolio, The New Industrialist
Neuropro System. The Fund has used the Neuropro System
since August 11, 1996, and performance gain to
December 9, 1996, was 19.6% on the net capital
committed. Naturally, this performance may not be
indicative of future events, and the Fund may elect
not to use Neuropro in the future. However, the
results underscore the reliability of data supplied by
The New Industrialist. (Div. Ex. 71 at 1; Tr. 210-11.)

<37>: The text in the advertisement appears to come from the
Fund's prospectus. The logo, however, is inaccurate.
(Tr. 215.)

<38>: Section 17(a) of the Securities Act and Section 10(b)
of the Exchange Act and Rule 10b-5 thereunder make it
unlawful for any person, directly or indirectly, by
the use of any means or instrumentality of interstate
commerce or of the mails, or of any facility of any
national securities exchange, and in connection with
the offer, purchase, or sale of any securities: (i) to
employ any device, scheme, or artifice to defraud;
(ii) to make any untrue statement of material fact or
to omit to state a material fact necessary in order to
make the statements made, in the light of the
circumstances under which they were made, not
misleading; or (iii) to engage in any act,
transaction, practice, or course of business which
operates or would operate as a fraud or deceit upon a
purchaser. Section 34(b) of the Company Act makes it
unlawful for: (i) any person to make any untrue
statement of material fact in any registration
statement, application, report, account, record, or
other document filed or transmitted pursuant to this
title or the keeping of which is required pursuant to
Section 31(a); and (ii) any person so filing,
transmitting, or keeping any such document to omit to
state therein any fact necessary in order to prevent
the statements made therein, in the light of the
circumstances under which they were made, from being
materially misleading.

<39>: The Division alleges that the option agreements gave
Mr. Stockett control over Hudson Advisers and Hudson
Management, and that potential investors were entitled
to know about this. (Div. Post. Brief at 15-16, 23-
24.) The Division argues, "Due to his role as the sole
source of financing for Hudson Fund and Hudson
Advisers and his option to acquire Hudson Advisers and
[Hudson Management] for $100 each, Stockett exerted
significant, if not determinative, influence over
Hudson Fund's investment decisions." (Div. Post. Brief
at 15-16.) It argues, further, that Mr. Stockett's
influence over the investment decisions of the Hudson
Fund "is evidenced by the large percentage (over 50%)
of Hudson Fund's portfolio which was recommended by
Stockett and by the significant percentage (nearly
12%) invested in Hightec and Sinclare, companies
controlled by Stockett and of which Stockett is
president." (Div. Post. Brief at 16.)

<40>: There may have been a short mention in one of the
resources. (Tr. 927-28.)

<41>: There is a press release in the record as part of
Division Exhibit 45A, Hightec's Form 8-K, dated
November 20, 1996, filed with the Commission on
December 16, 1996. As mentioned above, Mr. Latef
testified that he did not see this Form 8-K prior to
the Hightec purchase.

<42>: This "notice" was a self-serving promotion of Hightec.
It is likely that Mr. Stockett was responsible for its
appearance in the Winners Edition. The notice is
titled "HIGH TECH INC. (HTEH) $.75" and provides, in
pertinent part: High Tech Inc. (HTEH) is considered a
special situation and the report in this column is
presented as a notice and not as a commentary.
Therefore, Neuropro will not rate the stock because of
a direct business relationship by [sic] the publisher
The New Industrialist Company. Under a series of
agreements, The New Industrialist Company has assigned
a license to distribute The New Industrialist and
Wealth International Network, LLC, has agreed to
distribute a private label edition of The New
Industrialist to be called the Winners' Edition.
Manage [sic] has set a goal for the potential revenue
stream which allow [sic] the Company to sell at 10
times earnings or $18 a share over the long-term.
However, this projection is based on management's
assessment of the agreements and the likelihood of
implementing them on a commercial basis in the mid-
term. These agreements are under a strategic alliance
entered into with IPO Network which has assigned the
understandings to HTEH. (Div. Ex. 71 at 48.) Although
the spelling of the company name is different, it is
the Hightec at issue in this proceeding. This notice
should have been a red flag to Mr. Latef of Mr.
Stockett's involvement in Hightec, The New
Industrialist, and the Winners Edition. Mr. Latef
denies that this notice raised any red flags. (Tr. 949-
50.)

<43>: The apparent benefit to an interested Mr. Stockett at
the time of the Fund's purchase of Sinclare shares
(i.e. the increased price for Sinclare shares) later
would have been a detriment to him in Hightec's
purchase of the company (i.e. the increased purchase
price for Sinclare).

<44>: I also question Mr. Latef's judgment in making
investment decisions related to Hightec and Sinclare.
Mr. Latef accepted $10,000 from The New Industrialist,
on behalf of Mr. Stockett, before the Fund invested in
Sinclare. At the time, The New Industrialist and
Sinclare were related entities and, later, Mr.
Stockett purchased an interest in Sinclare and became
its president. Mr. Latef also accepted $20,000 from
Hightec while the Fund still held an investment in the
company.

<45>: Section 204 provides: Every investment adviser who
makes use of the mails or of any means or
instrumentality of interstate commerce in connection
with his or its business as an investment adviser . .
. shall make and keep for prescribed periods such
records . . . , furnish such copies thereof, and make
and disseminate such reports as the Commission, by
rule, may prescribe as necessary or appropriate in the
public interest or for the protection of investors.
Rule 204-1(b) requires an investment adviser to file
an amendment to its registration application,
including amendments, if information contained in the
registration statement or its amendments becomes
inaccurate.

<46>: Section 207 provides: It shall be unlawful for any
person willfully to make any untrue statement of a
material fact in any registration application or
report filed with the Commission under section 203 or
204, or willfully to omit to state in any such
application or report any material fact which is
required to be stated therein.

<47>: The OIP alleges that, by the conduct described above,
Mr. Latef "caused and willfully aided, abetted,
counseled, commanded, induced or procured violations
of Section 204 of the Investment Company Act and Rule
204-1(b) thereunder." (OIP at II.B.6., II.B.17.
(emphasis added).)

<48>: Section 203(a) provides that "it shall be unlawful for
any investment adviser, unless registered under this
section, to make use of the mails or any means or
instrumentality of interstate commerce in connection
with his or its business as an investment adviser."

<49>: Willfulness does not require an intent to violate the
law, nor does it require "deliberate or reckless
disregard of a regulatory requirement." See Jacob
Wonsover, Exchange Act Rel. No. 41123, 1999 WL 100935,
at *9 (Mar. 1, 1999). It is sufficient if the
respondent intends to commit the act which constitutes
the violation. Arthur Lipper Corp. v. SEC, 547 F.2d
171, 180 (2d Cir. 1976); Tager v. SEC, 344 F.2d 5, 8
(2d Cir. 1965); James E. Ryan, 47 S.E.C. 759, 761 n.9
(1982). Where, as here, the scienter requirement of
the antifraud provisions is satisfied, the willfulness
standard is also met. V.F. Minton Securities, Inc., 51
S.E.C. 346, 352 (1993).

<50>: Mr. Latef holds degrees in economics from a university
in Pakistan, has a degree in business from a
university in Scotland, and has studied law. (Tr. 794,
935-37.) Mr. Latef worked in England as an accountant.
(Tr. 795.) He came to United States and worked as the
comptroller of a company in Houston for about a year.
(Tr. 796.) In January 1996, he left to join a company
that managed the Roosevelt Hotel on Madison Avenue in
New York City. (Tr. 796.) He worked for the Roosevelt
Hotel for six years as director of finance and senior
vice-president, and was essentially in charge of the
whole operation. (Tr. 797-98.) He left the hotel in
1991 to pursue a business opportunity with Mr.
Choudhry. (Tr. 797.) Mr. Latef, apparently, was
granted reciprocal privileges as a certified public
accountant when he was in Texas. (Tr. 800, 937.) In
addition, he holds several securities licenses. (Tr.
800.) He has no disciplinary history related to his
activity in the securities industry. (Tr. 800.)

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To: StockDung who wrote (114454)3/15/2012 1:44:53 PM
From: Bear Down
   of 118535
 
Kidd's gone. had to surrender all his stock. Guy named Michael Franklin running it. Company has about a $325 million market cap and the "Solapad" has no trademarks, no patents and no existence for Ipad 1 and 2 as claimed, at least that I can find anywhere, but there is tons of PR this week for every attempt at finding something.

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From: scion3/15/2012 2:45:06 PM
   of 118535
 
BCI Aircrafts owner convicted in $50 million fraud

Article updated: 3/14/2012 11:01 PM
By Paul Biasco
dailyherald.com

The owner of an aircraft leasing company formerly based in Naperville has been convicted on fraud and obstruction of justice charges stemming from a $50 million scheme. A Winfield man and a Kildeer man also pleaded guilty in the case, which involved bribes to influence purchases of planes.

Brian Hollnagel, 38, of Chicago was indicted on 12 counts of wire fraud in March 2011, along with two counts of obstructing a U.S. Securities and Exchange Commission lawsuit, and was found guilty on six wire fraud counts and one count of obstruction of justice.

The SEC sued Chicago-based BCI Aircraft Leasing in 2007 claiming Hollnagel, the owner, president and CEO, ran a Ponzi scheme, paying early investors with funds from later while misappropriating funds for his own use.

Hollnagel and BCI raised more than $50 million from investors and concealed the scheme by providing false accounting records, according to the U.S. Department of Justice.

In 2004 Hollnagel and BCI sold two planes on lease to US Airways Inc. to AAR Corp. of Wood Dale, resulting in an almost $4 million profit. The transaction was pushed through by a high-ranking executive at AAR Corp. who accepted a $250,000 bribe from Hollnagel, according to prosecutors. Brian Olds, 69, formerly of Kildeer, was the vice president of AAR Corp. and pleaded guilty in the case.

Hollnagel and BCI had acquired one of the planes a few months before the sale and the second only two weeks before selling them to AAR for $15.4 million.

The $4 million profit was to be split with investors but was “misappropriated for other purposes,” according to U.S. Attorney Patrick Fitzgerald.

A jury deliberated for nine days following the seven-week federal trial but was deadlocked on three wire fraud counts against co-defendant Craig Papayanis, 51, of California who held various positions at BCI.

Jason R. Hyatt, 38, of Winfield pleaded guilty in the case for his role in selling investments totaling more than $20 million in BCI aircraft financing deals.

Robert Carlsson, 43, of Chicago raised more than $20 million for BCI from investors and pleaded guilty.

For each of the six counts of wire fraud, Hollnagel faces a maximum of 30 years in prison and a $1 million fine. He faces a maximum of 20 years in prison and a $250,000 fine for obstructing the SEC lawsuit.

dailyherald.com

U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 22164 / November 21, 2011

SEC v. Brian Hollnagel and BCI Aircraft leasing, Inc., Civil Action No. 1:07-cv-4538 (N.D. Ill.) (Bucklo, J.)

FORMER BROKER PLEADS GUILTY TO OBSTRUCTION OF JUSTICE IN CONNECTION WITH TWO SEC EXAMINATIONS

The Securities and Exchange Commission ("Commission") announces that on November 8, 2011, Robert Carlsson (“Carlsson”), a former broker, pled guilty to obstruction of justice in connection with his false representations to the SEC during two separate examinations of Carlsson's broker-dealer in 2006 and 2007 by examination staff of the Commission’s Chicago Regional Office.

The Commission previously announced that on September 8, 2010, the United States Attorney's Office for the Northern District of Illinois obtained a 21-count indictment of Brian Hollnagel, BCI Aircraft Leasing Inc., and five others involved in BCI's fraudulent scheme and obstruction of the Commission's attempts to discover and investigate that very scheme. U.S. v. Brian Hollnagel et al., Criminal Action No. 1:10-cr-0195 (N.D. Ill.) (St. Eve., J.). In that indictment, among various other violations, Hollnagel, BCI, and Carlsson, who raised money from investors for BCI's operations, were accused of obstruction of justice in connection with false representations to the SEC during the 2006 and 2007 examinations of Carlsson's broker-dealer, 21 Capital Group. In particular, Hollnagel, BCI, and Carlsson were accused of concealing Carlsson's fund raising activities for BCI from the Commission’s Chicago examination staff.

According to the plea agreement, Carlsson faces an advisory Sentencing Guidelines range of 10 to 16 months’ imprisonment. Carlsson has agreed to fully and truthfully cooperate with the United States Attorney's Office for the Northern District of Illinois in connection with the September 8, 2010 indictment of Hollnagel, BCI, and others.

Previously, on August 13, 2007, the Commission filed a civil injunctive complaint alleging that Defendants Hollnagel and BCI, from approximately 1998 through 2007, raised at least $82 million from approximately 120 investors as part of a fraudulent scheme in which the Defendants commingled investor funds, used investor funds to pay other investors, and failed to use investor funds as represented. The Complaint alleged that, as a result of their conduct, Defendants Hollnagel and BCI violated Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. The Commission’s action was stayed in 2010 pending the criminal proceedings referenced above.



sec.gov

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To: Bear Down who wrote (114455)3/15/2012 2:52:30 PM
From: StockDung
   of 118535
 
keetsa.com

looks like they just changed the name on existing solar charger

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To: Bear Down who wrote (114449)3/15/2012 2:59:31 PM
From: scion
   of 118535
 
domarkintl.com

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From: scion3/15/2012 3:20:58 PM
   of 118535
 
SEC Charges Bay Area Investment Adviser for Defrauding Investors With Bogus Audit Report

FOR IMMEDIATE RELEASE
2012-45

Washington, D.C., March 15, 2012 – The Securities and Exchange Commission today charged a San Francisco-area investment adviser with defrauding investors by giving them a bogus audit report that embellished the financial performance of the fund in which they were investing.

The SEC alleges that James Michael Murray raised more than $4.5 million from investors in his various funds including Market Neutral Trading LLC (MNT), a purported hedge fund that claimed to invest primarily in domestic equities. Murray provided MNT investors with a report purportedly prepared by independent auditor Jones, Moore & Associates (JMA). However, JMA is not a legitimate accounting firm but rather a shell company that Murray secretly created and controlled. The phony audit report misstated the financial condition and performance of MNT to investors.

Additional Materials
SEC Complaint
sec.gov

“An independent financial audit is one of the best protections available to investors,” said Marc Fagel, Director of the SEC’s San Francisco Regional Office. “Murray conjured up an accounting firm and deliberately faked the audit to induce investors into believing the fund was in better shape than it actually was.”

The U.S. Attorney’s Office for the Northern District of California also has filed criminal charges against Murray in a complaint unsealed yesterday.

According to the SEC’s complaint filed in federal court in San Francisco, Murray began raising the funds from investors in 2008. The following year, MNT distributed the phony audit report to investors claiming the audit was conducted by a legitimate third-party accounting firm. However, JMA is not registered or licensed as an accounting firm in Delaware, where it purports to do business. JMA’s website was paid for by a Murray-controlled entity and listed 12 professionals with specific degrees and licenses who supposedly work for JMA. However, at least five of these professionals do not exist, including the two named principals of the firm: “Richard Jones” and “Joseph Moore.” Murray has attempted to open brokerage accounts in the name of JMA, identified himself as JMA’s chief financial officer, and called brokerage firms falsely claiming to be the principal identified on most JMA documents.

The SEC alleges that the bogus audit report provided to investors understated the costs of MNT’s investments and thus overstated the fund’s investment gains by approximately 90 percent. The JMA audit report also overstated MNT’s income by approximately 35 percent, its member capital by approximately 18 percent, and its total assets by approximately 10 percent.

The SEC’s complaint charges Murray with violating an SEC rule prohibiting fraud by investment advisers on investors in a pooled investment vehicle. The complaint seeks injunctive relief and financial penalties from Murray.

The SEC’s investigation was conducted by Karen Kreuzkamp and Robert S. Leach of the San Francisco Regional Office following an examination of MNT conducted by Yvette Panetta and Doreen Piccirillo of the New York Regional Office’s broker-dealer examination program. The SEC’s litigation will be led by Robert L. Mitchell of the San Francisco Regional Office. The SEC thanks the U.S. Attorney’s Office for the Northern District of California and the U.S. Secret Service for their assistance in this matter.

# # #

For more information about this enforcement action, contact:

Marc J. Fagel
Director, SEC’s San Francisco Regional Office
(415) 705-2449

Michael S. Dicke
Associate Director (Enforcement), SEC’s San Francisco Regional Office
(415) 705-2458



sec.gov

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To: StockDung who wrote (114457)3/15/2012 3:22:21 PM
From: Bear Down
   of 118535
 
It looks like they have a picture and an idea to produce them but no working prototype, no contracts to build them and and certainly none on the market for Ipad 1 or 2. 325 million market cap, not bad for a no revenue, no product company that is just riding the apple train to dumpsville

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