Robert M. Fuller Rel. No. 34-48406

SECURITIES ACT OF 1933
Rel. No. 8273 / August 25, 2003

SECURITIES EXCHANGE ACT OF 1934
Rel. No. 48406 / August 25, 2003

Admin. Proc. File No. 3-10576

In the Matter of

ROBERT M. FULLER
c/o Anthony L. Cochran, Esq.
Chilivis, Cochran, Larkins & Bever, LLP
3127 Maple Drive, NE
Atlanta, Georgia 30305

ORDER IMPOSING REMEDIAL SANCTIONS

On the basis of the Commission's opinion issued this day, it is

ORDERED that Robert M. Fuller cease and desist from committing or causing any violation of or future violation of Section 10(b) and Rule 10b-5 of the Securities Exchange Act of 1934; and from causing any violation of or future violation of Exchange Act Section 13(a) and Rules 12b-20 and 13a-1.

By the Commission.

Jonathan G. Katz
Secretary

 

1 15 U.S.C. § 78u-3.
2 15 U.S.C. § 77q(a).
3 15 U.S.C. §§ 78j(b) and 78m(a).
4 17 C.F.R. §§ 240.10b-5, 240.13a-1 and 240.12b-20.
5 The predecessor, TriggerGuard, Inc., after one other name change, became Vista in 1993, changed its state of incorporation from Georgia to Delaware, and placed its operating assets in Family Safety Products, Inc. ("FSPI"), a wholly-owned subsidiary incorporated in Georgia.
6 Fuller has organized and raised capital for a number of start-up companies, both before and after the period relevant to this matter. He has served as the chairman of the board, a director, and president of at least one company that offered its shares to the public since the relevant period.
7 We brought an action against Smyth for his conduct related to Vista in SEC v. Smyth, et al., Civil Action No. 1:01-CV-1344-CC, (N.D. Ga. May 25, 2001). Although no final judgment has been entered, the court issued an Order of Permanent Injunction against Smyth on Sept. 24, 2001. Both Smyth and his wife refused to testify before the law judge in the instant matter, asserting their Fifth Amendment privilege.
8 Wicks is a certified public accountant and had prior work experience in the Commission, as an auditor with Arthur Andersen, and as chief financial officer of other private companies before coming to Vista.
9 Vista was engaged in a continuous offering pursuant to Rule 415, 17 C.F.R. § 230.415.
10 Wicks also stated that, when he asked both Fuller and Smyth about how the money was being invested, they claimed not to know. Wicks made several unsuccessful attempts to obtain this information from Greenway.
11 Adler Coleman mailed confirmations of transactions, corrections and cancellations in the Greenway Account, which were processed on November 10, 1994 or earlier, to the Estroff mailing address.
12 Note 13 states that Vista first discovered the problem on January 27, 1995. Fuller's signature page is dated January 23, 1995. Nevertheless, Fuller admitted that the Form 10-KSB that he signed contained the disclosure in Note 13 regarding unauthorized trading by Greenway.
13 Fuller also signed Vista's management representation letter to its outside auditors on January 23, 1995. This letter stated, in part, that "there have been no irregularities involving management or employees who have significant roles in the internal control structure."
14 On or before January 23, 1995, Wicks told Fuller about a letter that Wicks had found from Global Equities Group, Inc. ("Global Equities"), a securities broker-dealer, addressed to Smyth and demanding payment for Vista IPO shares that Smyth had purchased in an account there. The letter also accused Smyth of illegal market manipulation. Wicks informed Fuller that he was going to resign; he did so on January 23, 1995. In response to this information, Fuller suggested that his own resignation might be appropriate.
15 Davis was one of the defendants in the civil action brought by the Commission against Smyth.
16 15 U.S.C. § 78u-3.
17 See Erik W. Chan, Securities Exchange Act Rel. No. 45693 (Apr. 4, 2002), 77 SEC Docket 851, 859-60.
18 The misrepresentations must be made by the use of the mails or any means or instrumentality of interstate commerce. The use of the interstate mail to make filings with the Commission satisfies this requirement. SEC v. Rana Research, Inc., 8 F.3d 1358, 1362 (9th Cir. 1993).
19 See Basic v. Levinson, 485 U.S. 224, 231-32 (1988).
20 Aaron v. SEC, 446 U.S. 680, 697 (1980). Scienter may be established by a showing of recklessness. Bryant v. Avado Brands, Inc., 187 F.3d 1271, 1284 (11th Cir. 1999). Recklessness is an "extreme departure from the standards of ordinary care . . . present[ing] a danger of misleading buyers and sellers that is either known to the [actor] or is so obvious that the actor must have been aware of it." Sundstrand Corp. v. Sun Chemical Corp., 553 F.2d 1033, 1045 (7th Cir), cert. denied, 434 U.S. 875 (1977).
21 It is also undisputed that these statements were made in connection with the offer, purchase, and sale of Vista stock. Vista's shares traded in the secondary market and it was engaged in a continuous offering of the shares underlying its warrants.
22 17 C.F.R. § 228.512. Item 512 requires this undertaking if the small business issuer is offering securities in a continuous offering pursuant to Rule 415, 17 C.F.R. § 230.415.
23 See Erik W. Chan, 77 SEC Docket at 859 ("[m]any of the misrepresentations in and omissions from these documents concerned issues fundamental to [the issuer's] business, including . . . its intended use of the proceeds from the securities offerings. As such, the misrepresentations and omissions were material.").
24 See SEC v. Manor Nursing Centers, Inc., 458 F.2d 1082, 1095 (2d Cir. 1972) ("[p]ost-effective developments which materially alter the picture presented in the registration statement must be brought to the attention of public investors.") (footnote omitted).
25 See Cornucopia Gold Mines, 1 S.E.C. 364 (1936). See also, KPMG Peat Marwick LLP, Exchange Act Rel. No. 43862 (Jan. 19, 2001), 74 SEC Docket 384, 405-06, petition denied, 289 F.3d 109 (D.C. Cir. 2002) ("In enacting the federal securities laws, Congress underscored the crucial function of independent auditors by requiring, or permitting the Commission to require, that 'independent' public accountants certify financial statements filed with the Commission by public companies and others.").
26 The scienter of a corporation's officers and directors establishes the scienter of the corporation for purposes of the antifraud provisions. SEC v. Manor Nursing Centers, Inc., 458 F.2d 1096, n.16. Our findings here with respect to Smyth and Vista are solely for the purpose of this proceeding.
27 Fuller also knew from Wicks' mention of the Global Equities letter that Smyth was trading in Vista stock in a Global Equities account, a fact that tended to corroborate Luthy's statements.
28 See Erik W. Chan, 77 SEC Docket at 860.
29 We have stated that the "knew or should have known" language of Exchange Act Section 21C is "classic negligence language". KPMG Peat Marwick LLP, 74 SEC Docket at 421. Our finding that Fuller's conduct was at least reckless exceeds the statutory language of Section 21C.
30 Fuller claims that the law judge erred by finding him liable simply because he authorized opening the Greenway Account and Vista's transfer of IPO proceeds into that account. He contends that this finding violates his due process rights because the Order Instituting Proceedings never charged him with liability on this basis. Our de novo review of this matter cures any error a law judge may make in finding violations that have not been charged.

    In our view, the finding that Fuller authorized the opening of the Greenway Account and transfer of funds to that account is relevant for the purpose of establishing that Fuller knew the Account existed and was funded by proceeds from Vista's IPO. This finding is the basis for the further finding that, once Fuller learned Smyth was trading in Vista shares in the Greenway Account, he knew that IPO proceeds were being used improperly for that purpose and therefore had a duty to cause Vista to amend the registration statement. Our findings are consistent with those of the law judge.

31 In his brief, Fuller states that he relied on Vista's counsel to confirm the information in Note 13. His assertion does not raise a cognizable defense. A claim of reliance on advice of counsel requires a showing that the party claiming it made a complete disclosure to independent counsel, sought advice as to the legality of his conduct, and relied on that advice in good faith. See, e.g., Markowski v. SEC, 34 F.3d 99, 104-05 (2d Cir. 1994); Arthur Lipper Corp. v. SEC, 547 F.2d 171, 181-82 (2d Cir. 1976),cert. denied, 434 U.S. 1009 (1978). There is no evidence in the record that Fuller, although he admittedly read Note 13, sought counsel's advice concerning it when he signed the Form 10-KSB or that he disclosed to counsel the information Fuller had learned about Smyth's trading in the account.
32 The authorization is not in the record. The law judge concluded Fuller must have signed the document because the signatures of two of the three Vista Directors were required, Wicks credibly denied signing, and the only other people who had authority to sign were Smyth and Fuller. Fuller also tries to shift blame to Wicks by stating that Wicks received Vista's bank statements, and should have noticed that the transfer of funds from FNB happened on November 9, 1994. The timing of the opening of the account and transfer of funds is irrelevant, because Fuller approved and authorized them, even if he did so after the fact.
33 See Meckel v. Continental Resources Co., 758 F.2d 811, 817 (2d. Cir. 1985) (holding that "the presence of . . . proof [of regular mailing practices] establishes prima facie evidence of the mailing and creates a rebuttable presumption as to receipt.") See also Wells Fargo Business Credit v. Ben Kozloff, Inc., 695 F.2d 940, 944 (5th Cir.), cert. denied, 464 U.S. 818 (1983) (noting that "[p]lacing letters in the mail may be proved by circumstantial evidence, including customary mailing practices used in the sender's business").
34 Although most of the purchases were made before the name change on the account, well into December confirmations were sent of the trades selling out positions for which no payment had been made by the settlement date.
35 Fuller claims that there were two separate accounts with the same account number. It is unclear what the significance of this might be, even if there were evidence supporting such a theory. The issue here is whether Fuller knew, or was reckless in not knowing, about the use of the IPO proceeds for trading in Vista shares. This is established by his approval of the transfer of IPO funds to the Greenway account and the mailing of account documents evidencing how the funds were being used.
36 These alleged irregularities include: (1) the account opening forms have a forged signature, (2) the listed account representative did not receive commissions from account activity, (3) the second New Account Application listed a post office box address, (4) the account had a large number of cancelled trades, (5) Smyth opened the account in his wife's maiden name, and (6) no one from Greenway signed the second New Account Application.
37 See Brian A. Schmidt, Exchange Act Rel. No. 45330 (Jan 24, 2002), 76 SEC Docket 2255, 2258 n.5 (citations omitted).
38 Fuller claims that alleged discrepancies between the testimony by Luthy and by Wicks concerning whether Wicks called Luthy to ask about the nature of the investments in the Greenway Account demonstrate that Luthy's testimony about his conversation with Fuller is not believable. The alleged discrepancies are on an unrelated point, and the law judge's credibility determination with respect to Luthy was specific as to Luthy's testimony about the conversation with Fuller.
39 The law judge fully considered Luthy's disciplinary history before making her determination.
40 An auditor is not independent if he owns stock in the audit client. Rule 2-01(c)(1)(i) of regulation S-X ("Investments in Audit Clients. An accountant is not independent when: (A) The accounting firm, any covered person in the firm . . . has any direct investment in the audit client . . . ."). 17 C.F.R. § 210.2.01(c)(1)(i).
41 Seymour settled proceedings against him. J. Allen Seymour, CPA, Exchange Act Rel. No. 44461 (June 21, 2001), 75 SEC Docket 800.
42 Fuller contends that we should disregard Seymour's testimony that Davis solicited information from Fuller and had several telephone conversations with Fuller during the audit, because Seymour also testified that he lacked confidence in Davis. Fuller's contention is unpersuasive. Seymour testified that his lack of confidence stemmed from the fact that Davis told Seymour he was going to dispose of his Vista stock, and Davis never did so. This testimony has no bearing on whether Seymour overheard telephone conversations during which Davis was speaking to Fuller about the audit.
43 See Erik W. Chan, 77 SEC Docket at 867.
44 See Howard v. Everex, 228 F.3d 1057, 1062 (9th Cir. 2000) (citations omitted). There is no scienter element involved in these provisions; the filing of a materially false statement constitutes a violation. SEC v. Wills, 472 F. Supp. 1250, 1268 (D.D.C. 1978).
45 Fuller claims that it is an "important issue" for the Commission to consider whether "a former staff accountant in the Enforcement Division will be given preferential treatment by the Commission." This statement reflects Fuller's repeated allegations that Wicks, a former staff accountant with the Division, rather than Fuller, is to blame for Vista's violations. This contention is wholly lacking in merit. As we found above, Fuller was responsible for ensuring the accuracy of Vista's documents. Whether others also had an obligation to do so does not insulate Fuller from liability for his own misconduct. See Erik W. Chan, 77 SEC Docket at 867.

    Fuller also complains that the law judge erred because she considered Vista to be a "total hoax." Fuller's reading of the Initial Decision is incorrect. The law judge said in dicta that "it was not clear from the record whether Vista was a total hoax." Her statement was not the basis for any finding against Fuller.

46 KPMG Peat Marwick LLP, 74 SEC Docket at 436. See also Joseph J. Barbato, 53 S.E.C. 1259, 1281 n.31 (1999); Donald T. Sheldon, 51 S.E.C. 59, 86 (1992), aff'd, 45 F.3d 1515 (11th Cir. 1995).
47 Id. at 429-436.
48 Id.
49 Id.
50 We have considered all of the contentions advanced by the parties. We have rejected or sustained them to the extent that they are inconsistent or in accord with the views expressed in this opinion.