SEC Inspectors Uncover Another Case

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The Commission’s inspection program continues to be a source of new cases for the Enforcement Division. The Office of Compliance, Inspections and Examinations, OCIE, developed the recent action against Liquidnet regarding dark pools brought against as well as the case against broker-dealer Wedbush and its executives based on the market access rule. Now, the inspectors have uncovered a Chicago attorney who defrauded the clients of an investment adviser. In the Matter of Robert C. Acri, Adm. Proc. File No. 3-15926 (June 11, 2014).

Robert Acri is an attorney and the co-founder, co-owner and manager of Kenilworth Asset Management LLC, a registered investment adviser. He is also the founder of a private investment fund and was associated with a registered broker-dealer.

Beginning in April 2011, and continuing over the next several months, Mr. Acri and an associate at Kenilworth sold about $240,000 in notes issued by Prairie Common Holdings LLC. The notes had maturities of 6 to 8 months and an annual interest rate of 15%. They were to be secured by real estate. The notes were marketed to Kenilworth clients who were told that the funds would be used to develop a retail parcel of real estate.

In marketing the notes Mr. Acri failed to disclose a material facts to potential investors which included :

  • The development project had been created by Praedium Development Corporation which had previously sold investments to certain Kenilworth clients and then defaulted;

  • The Prairie project was designed in part to repay investors from the prior Praedium default;

  • Praedium did not have adequate finances and was delinquent on certain obligations at the time the Prairie project was created;

  • Praedium was the developer of the Prairie project;

  • The principal of Praedium was a personal friend of Mr. Acri who was experiencing financial difficulties; and

  • Kenilworth would be paid a 5% commission on the sale of the Prairie notes.

Mr. Acri also misappropriated about $41,250 of Kenilworth client funds that were supposed to be used to develop Prairie. Those funds were used to repay other former and current clients and fund investors, in partial payment of a law suit against Mr. Acri and for a loan finder for Praedium. In addition, Mr. Acri failed to take any steps to secure the Prairie notes despite the representations made to investors. The Order alleges violations of Securities Act Section 17(a), Exchange Act Section 10(b) and Advisers Act Sections 206(1) and 206(2).

To resolve the proceeding Mr. Acri consented to the entry a cease and desist order based on the Sections cited in the Order. He is also barred from the securities business and from participating in any penny stock offering. Finally, Mr. Acri will pay disgorgement of $55,0000, prejudgment interest and a civil penalty equal to the amount of the disgorgement.

 

Topics:  Enforcement, Enforcement Actions, OCIE, SEC

Published In: Business Torts Updates, Finance & Banking Updates, Securities Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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