Javed Anver Latef and Larry Alan Stockett

SECURITIES EXCHANGE ACT OF 1934
Rel. No. 34-47542 / March 20, 2003

INVESTMENT ADVISERS ACT OF 1940
Rel. No. 2116/ March 20, 2003

INVESTMENT COMPANY ACT OF 1940
Rel. No. 25965 / March 20, 2003

Admin. Proc. File No. 3-9374

ORDER IMPOSING REMEDIAL SANCTIONS

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

ORDERED that Javed Anver Latef be, and hereby is, suspended from association with any investment adviser or investment company for a period of three months, to be served beginning the second Monday after the date of this order; and it is further

ORDERED that Latef cease and desist from committing or causing any violations or any future violations of Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934, Exchange Act Rule 10b-5, Section 34(b) of the Investment Company Act of 1940, and Section 207 of the Investment Advisers Act of 1940; and it is further

ORDERED that the proceeding with respect to Larry Alan Stockett be, and it hereby is, dismissed.

By the Commission.

Jonathan G. Katz
Secretary

Footnotes

¹ 15 U.S.C. §77q.

² 15 U.S.C. §78j.

³ 17 C.F.R. §240.10b-5.

⁴ 15 U.S.C. §80a-33.

⁵ 15 U.S.C. §80b-4.

⁶ 17 C.F.R. §275.204-1.

⁷ 15 U.S.C. §80b-7.

⁸ The law judge determined that he could not conclude that Latef aided and abetted Hudson Advisers' violations of Section 204 of the Advisers Act and Advisers Act Rule 204-1(b) because the Order Instituting Proceedings charged Latef with having caused "violations of Section 204 of the Investment Company Act and Rule 204-1(b) thereunder." The Division has not appealed this finding.

⁹ An entity called Hudson Investment Group ("Hudson Group") initially paid the costs and expenses associated with operating the Hudson Fund. Latef is president of the Hudson Group. In August 1996, Stockett began paying these costs and expenses. See infra note 12 and accompanying text.

¹⁰ Although Latef and Stockett executed four separate documents, their testimony and the terms of the documents make clear that the four documents were meant to be part of one agreement.

¹¹ Neuropro Nevada was not connected with the Neuropro System licensed by The New Industrialist.

¹² Stockett did not make these payments directly, but rather through companies that he owned or that owed him money. On September 12, 1996, Stockett, through the OTC Fund, wired $10,000 into Hudson Management's account. On October 10, 1996, Stockett withdrew $10,006.73 invested by the OTC Fund in the Hudson Fund and transferred the proceeds to Hudson Management "to pay the ongoing expenses of the management company." On November 8, and again on December 4, The New Industrialist wired $5,000 into Hudson Management's account. Latef testified that he believed Stockett arranged for The New Industrialist to make this payment because it owed Stockett money. On February 25, 1997 and again on March 21,1997, Hightec, Inc. (a company acquired by Stockett in November 1996) deposited $10,000 into the Hudson Management account. Stockett stopped making payments in or about April 1997, and Latef and Choudhry resumed paying expenses whenever there was a shortfall.

¹³ Form ADV, Question 10B provides:

Is the applicant financed by a person not named in Items 1A or Schedule A, B, or C other than by: (1) a public offering under the Securities Act of 1933; (2) credit given in the ordinary course of business by banks, suppliers or others; or (3) a satisfactory subordination agreement under Securities Exchange Act of 1934 Rule 15c3-1 (17 C.F.R. 240.15c3-1)?

If the answer to Question 10B is affirmative, the applicant is instructed to "state on Schedule E the exact name of each person and describe the arrangement thought which the financing is made available, including the amount." With respect to Question 10, Form ADV also requires the applicant to amend the form promptly for material changes and within 90 days of the end of the fiscal year for any other changes.

¹⁴ Stockett testified that he acquired Sinclare because The New Industrialist recently had been shut down, and he could obtain access to the Neuropro System through Sinclare.

¹⁵ Latef testified that, had he known of Stockett's affiliation with Hightec, he would have considered Stockett's opinionbiased and probably would not have bought Hightec stock.

¹⁶ Hightec bought Sinclare, and Stockett became Sinclare's president, on February 24, 1997. While this was almost two weeks after Latef made his last purchase of Sinclare stock for the Hudson Fund, Latef testified that he might not have purchased Sinclare stock had he known that Stockett was going to become its president in the near future.

¹⁷ Stockett testified that, while he did not specifically recommend that Latef purchase Sinclare stock for the Hudson Fund, Stockett's web site contained a recommendation to purchase Sinclare stock that was available to anyone who accessed the site.

¹⁸ The Winners Edition was distributed by Hightec, pursuant to an agreement between The New Industrialist and an entity called the Wealth International Network, LLC ("WIN"). WIN's stated purpose was "to inform its members to become more aware investors."

¹⁹ Stockett also solicited investments in Hightec through a Private Placement Memorandum which included a "relationship chart" indicating that the Hudson Fund had been managed by the IPO Network, a Hightec subsidiary, since August 7, 1996, the date of the agreements between the Hudson entities and Neuropro Nevada.

²⁰ Stockett testified that he wanted Select Capital to purchase his Hudson options and to assume the payment of the Fund's expenses. Latef testified that he did not authorize Stockett to take any steps to alter the control or the management of any of the Hudson entities. Latef believed that Stockett made contact with Select Capital because Select Capital wanted to invest large amounts with the Fund. Stockett claims that he informed Latef of his intent to assign the options and that Latef consented to the assignment.

Choudhry stated that Stockett told Choudhry that Select Capital was interested in investing with the Hudson Fund and that, as part of this transaction, Select Capital might want the Fund to change its name. Choudhry could not recall whether Stockett informed him that the transaction also would involve a change in the ownership of the Fund.

²¹ Section 17(a) of the Securities Act, 15 U.S.C. §77q; Section 10(b) of the Exchange Act, 15 U.S.C. §78j; and Exchange Act Rule 10b-5, 17 C.F.R. §240.10b-5.

²² See supra note 13 (detailing the requirement in Form ADV that an applicant furnish the name of any person providing financing to the applicant and describe the arrangement through which the financing is being made available, including the amount of the financing).

²³ In the alternative, Latef alleges that, by informing Choudhry of the facts concerning Stockett's options and expense payments, he informed the majority of the Fund's investors. Latef concedes, however, that he failed to disclose these facts to all of the Fund's shareholders and potential shareholders, as he was required to do in Form ADV, Form ADV-S, and the Fund's prospectus.

²⁴ It is undisputed that Latef never disclosed Stockett's ownership of Sinclare; however, the record does not indicatewhether Latef ever knew of that ownership. Whether Latef was reckless in failing to discover this fact is addressed infra at notes 31-33 and accompanying text.

²⁵ SEC v. Capital Gains Research Bureau, Inc., 375 U.S. 180, 186 (1963).

²⁶ Basic Inc. v. Levinson, 485 U.S. 224, 231-32 (1988) (quoting TSC Industries, Inc. v. Northway, Inc., 426 U.S. 438, 449 (1976)).

²⁷ Latef, as an investment adviser, is a fiduciary who owes the Fund's investors a duty of utmost good faith to avoid misleading clients, including disclosing all material facts and conflicts of interest. Cf. SEC v. Capital Gains Research Bureau, Inc., 375 U.S. at 194, 201; L.W. Laird v. Integrated Resources, Inc., 897 F.2d 826, 833 (5th Cir. 1990). Indeed, an investment adviser is required to "expose all conflicts of interest which might incline an investment adviser, consciously or unconsciously, to render advice which is not disinterested." SEC v. Capital Gains Research Bureau, Inc., 375 U.S. at 191-92 (discussing congressional intent in enacting the Advisers Act).

²⁸ For example, had this information been disclosed, a reasonable investor would have been more likely to question Latef's December 31, 1996 decision to purchase securities in ten companies listed in a chart prepared by Stockett entitled "Biggest Gainers From Offering to December 16, 1999." This chart appeared in an investment publication entitled New Issues Outlook.

²⁹ See Aaron v. S.E.C., 446 U.S. 680, 695, 697 (1980); Ernst & Ernst v. Hochfelder, 425 U.S. 185, 193 (1976); Steadman v. S.E.C., 603 F.2d 1126, 1134 (5th Cir. 1979), aff'd, 450 U.S. 91 (1981). Scienter need not be found to support a violation of Sections 17(a)(2) and (a)(3) of the Securities Act or Section 34(b) of the Company Act. See, e.g., Aaron v. S.E.C., 446 U.S. at 696; S.E.C. v. Capital Gains Research Bureau, Inc., 375 U.S. at 196; Steadman, 603 F.2d at 1133.

³⁰ Ernst & Ernst v. Hochfelder, 425 U.S. at 193.

³¹ See, e.g., Hackbart v. Holmes, 675 F.2d 1114, 1117 (10th Cir. 1982). The Tenth Circuit defined recklessness as:

"an extreme departure from the standards of ordinary care, [] which presents a danger of misleading buyers or sellers that is either known or is so obvious that the actor must have been aware of it."

Id. at 1118 (quoting Sundstrand Corp. v. Sun Chemical Corp., 553 F.2d 1033, 1045 (7th Cir.), cert. denied, 434 U.S. 875 (1977)). See also Newton v. Merrill, Lynch, Pierce, Fenner & Smith, Inc., 135 F.3d 266, 272-73 (3d Cir. 1998) ("recovery on a federal securities fraud claim requires a showing of scienter: a deliberate or reckless misrepresentation of a material fact").

³² Even if Latef was unaware of Stockett's relationship with Hightec and Sinclare at the time he purchased stock in those companies for the Hudson Fund, Latef was under an obligation to disclose to investors the material information concerning Stockett's affiliation with the companies once he learned of it. Latef testified that he learned of Stockett's affiliation with Hightec about one week after he bought Hightec stock for the Fund, but never disclosed this fact to the Fund's investors. Although it is unclear from the record when Latef learned of Stockett's involvement with Sinclare, Latef also failed to disclose this fact to the Fund investors.

³³ In addition, one Hudson Fund investor inquired as to whether Stockett was making investment decisions for the Fund. While the Hudson Respondents informed the inquiring investor that Stockett had no role in the Fund's investment decisions, the fact that Latef received such an inquiry is further evidence that he was aware that Stockett's relationship to the Fund was a material piece of informationthat the Hudson Respondents were obligated to disclose.

³⁴ 15 U.S.C. §80a-33.

³⁵ The law judge determined that he was unable to conclude that Latef aided and abetted Hudson Advisers' violation of Section 204 of the Advisers Act and Rule 204-1(b) thereunder. See supra note 8. The Division has not appealed this finding.

³⁶ Section 207 prohibits the making of an untrue statement of material fact in any registration application or report filed with the Commission under Section 203 or 204, or willfully omitting to state in any such application or report any material fact required to be stated therein.

³⁷ See Donald T. Sheldon, 51 S.E.C. 59, 66 (1992), aff'd, 45 F.3d 1515 (11th Cir. 1995).

³⁸ In light of this conclusion, we do not discuss whether Stockett provided substantial assistance to the fraud.

³⁹ These facts also lead us to conclude that the record before us does not establish that Stockett knew or should have known that he was contributing to the Hudson Respondents' violations and, therefore, we find that he was not a cause of the Hudson Respondents' violations. See 15 U.S.C. §78u-3(a) (authorizing the Commission to enter a cease-and-desist order against any person that "is, was, or would be a cause of the violation due to an act or omission the person knew or should have known would contribute to such a violation.")

⁴⁰ We are troubled, however, by a number of Stockett's actions that indicate he may have exercised control over Hudson Advisers. It seems likely that Latef would have been strongly influenced by the opinions of the person who was providing the financing that was keeping the Hudson Fund afloat. In addition, circumstantial evidence indicates that Stockett provided the Winner's Edition magazine with the erroneous information that the Hudson Fund employed the Neuropro System on a test basis for a portion of its portfolio and provided WIN members with erroneous information as to his role managing the fund. Moreover, Stockett represented to numerous potential investors that he had an ownership interest in the Hudson Fund and had responsibility for directing the Fund's investment decisions. The law judge determined, however, that Stockett did not control the Hudson Fund. The Division has not appealed this finding and, therefore, we are unable to make a determination as to whether Stockett controlled the HudsonFund and whether this may have led to Stockett's primary liability for the disclosure violations committed in this case.

⁴¹ Butz v. Glover Livestock Comm'n Co., Inc., 411 U.S. 182, 185 (1973) (quoting American Power Co. v. SEC, 329 U.S. 90, 112 (1946)).

⁴²Donald T. Sheldon, 51 S.E.C. at 86.

⁴³ By imposing a collateral bar on Stockett, the law judge barred him from associating with any broker, dealer,municipal securities dealer, investment adviser, and investment company. The law judge imposed a collateral bar because he found it contrary to the public interest to allow Stockett to serve in any capacity in the securities industry. The decision by the U.S. Court of Appeals for the District of Columbia Circuit in Teicher v. SEC, 177 F.3d 1016 (D.C. Cir. 1999), held that the Commission lacks the authority to impose a collateral bar. Accordingly, the Division has withdrawn its request for a collateral bar and requests instead a bar from association with an investment adviser or investment company.

⁴⁴ The Division maintains that Latef has not challenged the law judge's imposition of a cease-and-desist order. While Latef's brief does not address the cease-and-desist order directly, we consider his request that "the sanctions imposed on [him] be vacated" to include a challenge to the cease-and-desist order.

⁴⁵ See KPMG Peat Marwick, LLP, Exchange Act Rel. No. 43862 (Jan. 19, 2001), 74 SEC Docket 384, 421, motion for reconsideration denied, Exchange Act Rel. No. 44050 (Mar. 8, 2001), 74 SEC Docket 1351, petition denied, 289 F.3d 109 (D.C. Cir. 2002).

⁴⁶ We have considered all of the parties' contentions. We have rejected or sustained these contentions to the extent that they are inconsistent or in accord with the views expressed herein.