The Barr Financial Group, Inc. and Alfred E. Barr

Investment Advisers Act of 1940
Rel. No. 2179 / October 2, 2003

Admin. Proc. File No. 3-9918

In the Matter of THE BARR FINANCIAL GROUP, INC.: Tampa, Florida and ALFRED E. BARR

ORDER IMPOSING REMEDIAL SANCTIONS

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

ORDERED that Alfred E. Barr be, and hereby is, barred from association with any investment adviser, and it is further

ORDERED that the investment adviser registration of the Barr Financial Group, Inc. be, and it hereby is, revoked, and it is further

ORDERED that Alfred E. Barr and the Barr Financial Group, Inc. cease and desist from committing or causing any violation and committing or causing any future violation of Sections 204 and 207 of the Investment Advisers Act of 1940.

By the Commission.

Endnotes

¹ Barr testified that BFG was "reorganized" in March 1998. Thereafter, according to Barr, it continued to "operate," although "its fees for incorporation were not renewed." In Commission filings through August 1998, BFG was referred to as the "Barr Financial Group, Inc." In documents respondents filed with the Commission in September 1998, BFG was referred to as both the "Barr Financial Group, Inc." and "Barr Financial Group, LLC."

² Barr also was president of BFG Securities, Inc., a broker-dealer. In April 2000, BFG Securities' application for membership with the National Association of Securities Dealers, Inc. (the "NASD") was denied, and the Commission thereafter dismissed BFG's appeal of the NASD's decision. See BFG Securities, Inc., Securities Exchange Act Rel. No. 44627 (July 31, 2001), 75 SEC Docket 1506.

³ 15 U.S.C. § 80b-7. Section 207 prohibits investment advisers from willfully making "any untrue statement of a material fact" in certain applications or reports filed with the Commission.

⁴ 15 U.S.C. § 80b-4 and 17 C.F.R. § 275.204-2. Section 204 requires investment advisers to file reports with the Commission, maintain books and records, and make those books and records available to Commission personnel for examination. Rule 204-2, which establishes recordkeeping requirements for investment advisers, provides that an adviser who renders investment supervisory or management services must maintain records that, among other things, identify the adviser's clients.

⁵ This form was signed by Barr as president of BFG.

⁶ 15 U.S.C. § 80b-3a.

⁷ Form ADV-T refers to "Form for Declaring Eligibility for SEC Registration After Effective Date of Amendments to Investment Advisers Act of 1940."

⁸ The instructions to Form ADV-T provide that, in determining the amount of assets under management, a registrant should "include the total value of 'securities portfolios' (or portions thereof) for which registrant provides 'continuous and regular supervisory or management services,' as of the date of filing this Form." A registrant provides continuous and regular supervisory or management services with respect to a securities portfolio if it (i) has discretionary authority over the portfolio and provides ongoing supervisory or management services to it or (ii) does not have discretionary authority but has an ongoing responsibility to select or make recommendations withrespect to the portfolio and, if such recommendations are accepted by the client, to arrange or effect the recommended purchase or sale. Rules Implementing Amendments to the Investment Advisers Act of 1940, Inv. Adv. Act Rel. No. 1633 (May 22, 1997), 64 SEC Docket 1525, 1556-57.

⁹ When Barr was asked "what kind of relationship" he had with the accounts of his clients, he answered: "I have none . . . N-O-N-E, none." Barr also expressly admitted that BFG "never had control of any bank accounts, any securities, or any monies of any clients."

¹⁰ According to the ADV instructions, "You do not provide continuous and regular supervisory or management services for an account if you: provide advice on an intermittent or periodic basis (such as upon client request, in response to a market event, or on a specific date (e.g., the account is reviewed and adjusted quarterly))." Advisers Act Forms,Federal Securities Laws (CCH) Para. 55,701 (2002). See also 64 SEC Docket at 1557-8 ("Accounts for which the registrant provides advice only on an intermittent or periodic basis, upon the request of the client, or in response to some market event, e.g., an account that is reviewed and adjusted on a quarterly basis . . . do not receive continuous and regular supervisory or management services").

¹¹ When pressed further by counsel for the Division of Enforcement to explain the apparent conflict between his testimony and the earlier disclosure, Barr stated that he did not "at this particular time recall what [the Firm's] numbers were" and that those numbers were "no longer valid" because he subsequently filed another amendment to the Form ADV. Barr added that he was concerned that his answers could "put [him] into perjury."

In August and September 1998, after the Commission had begun an investigation of BFG, respondents filed ADV amendments in which BFG stated that it managed on a discretionary basis just one customer portfolio, with an aggregate market value of $7,500, and 21 customer portfolios on a non-discretionary basis, with an aggregate value of $41,345,770.

¹² Although acknowledging the matching identifying information, Barr denied that this was his transcript. Respondents also suggest that the transcript was, in some way, unpersuasive evidence because it was labeled "abbreviated." We find no basis to reject the transcript as not accurately reflectingBarr's academic record at Indiana.

¹³ Barr claimed, at the hearing, to have documentation supporting respondents' statements regarding his purported B.S. degree from Indiana but declined to introduce it. Barr admittedly had no documentation to support respondents' statements regarding Barr's purported Ph.D.

Barr vaguely claimed, during the hearing, that he previously believed that he held, or was working towards receiving, undergraduate and graduate degrees (including masters and doctoral degrees) from Indiana based on correspondence courses and other classes he took through training programs offered by an employer. Barr indicated that he was misled by that employer regarding Indiana University's willingness to accept his course work towards these degrees but that, at the time, "there was nothing that raised an alarm to me that maybe this was a joke being played on me, or somebody was telling me something that wasn't true."

¹⁴ On September 16, 1998, respondents filed an amendment to BFG's Form ADV in which they stated merely that Barr attended Indiana University for an unknown number of years.

¹⁵ Respondents question the staff's motives in examining BFG only two years after the Firm filed its initial adviser's application. Although investment advisers are subject to regular examination at least once every five years, more frequent examinations may be warranted. Respondents have provided no evidence that BFG was singled out for any impermissible reason. To the extent respondents seek to demonstrate selective prosecution, they must establish that they were singled out for enforcement action while others who were similarly situated were not and that their prosecution was motivated by "arbitrary or unjust considerations, such as race, religion, or the desire to prevent the exercise of a constitutionally-protected right." Barry C. Wilson, 52 S.E.C. 1070, 1074 (1996). Respondents have not done so. According to a staff attorney involved with the examination, the staff "had received information that there was an ADV that now reflected $70 million in management by an affiliate of a broker/dealer that had been revoked[;]. . . as a result, we decided to schedule Barr Financial for an exam."

Respondents also charge that an NASD official provided the staff with false information when he assertedly stated that BFG Securities' registration had been revoked. Although the staff acknowledged discussing BFG with NASD officials prior to the examination, there is nothing to suggest that these discussions were anything other than appropriate information gathering in support of the staff's preparation for its examination. Even if the NASD official erroneously reported that BFG Securities' registration was revoked (rather than that its membership application was denied), there was no harm, given that the staff did not need to identify an irregularity before determining to conduct an examination.

Respondents further charge that the NASD official with whom OCIE staff communicated acted with "vindictive motives" in "request[ing] that an exam of the Respondents was necessary." As indicated, we believe that there was nothing improper about the determination to examine BFG.

¹⁶ In 1990, the Kentucky Department of Insurance found thatBarr had converted over $16,000 in an insurance customer's funds. Barr's insurance license was revoked, and Barr was required to pay restitution of $16,000 and a $4,000 fine. In 1995, on Barr's appeal of the Department's decision, a Kentucky circuit court determined that the revocation decision was issued consistent with due process. The circuit court order was affirmed by the Kentucky Court of Appeals, and Barr's appeal of the Court of Appeals decision was denied by the Kentucky Supreme Court. See BFG Securities, Inc., 75 SEC Docket at 1508.

¹⁷ The staff sought to accommodate Barr in light of his move and because Barr told the staff that there recently had been a death in his family. The staff members, "sympathetic to his personal situation," also gave Barr roughly a week to locate the requested documents and prepare for the rescheduled examination.

¹⁸ Barr accuses the staff of perjury regarding their testimony that Barr identified a particular firm as BFG's custodial broker. Barr supports this charge with an affidavit from an official with another custodial broker who spoke with the examiners during the examination. The affidavit does not address what Barr told the examiners regarding the identity of BFG's then-custodial broker -- the official presumably lacked any knowledge of such matters -- but merely that the official and Barr at some point had discussed the "possibility" of establishing a custodial relationship with his firm in the future.

¹⁹ Although respondents now contend that it was the staff's decision to end the examination, Barr testified that, when the staff insisted on obtaining customer account verification information, he told the staff, "I guess this [exam] is over with." He also admittedly stopped the staff from removing the copies of the documents they had earlier reviewed.

²⁰ The District Court concluded that imposing a fine against BFG "would appear to be a vain and useless act . . . [g]iven the 'void' status of BFG and its lack of tangible substance."

²¹ On cross-examination, the staff member conceded that it was possible, although unlikely, that these trades could have been effected on days when the markets were closed and at prices that deviated from market prices.

²² When the staff entered the given social security numbers into the LEXIS/NEXIS data base, they generated names and addresses different from those identified by Barr ascustomers, or generated no relevant information.

²³ SEC v. The Barr Financial Group, No. 98-01806-CIV-T-17E (11th Cir. June 6, 2000) (unpublished). Respondents' subsequent petitions for rehearing and for rehearing en banc were denied. SEC v. The Barr Financial Group, Inc., 234 F.3d 35 (11th Cir. 2000). The Eleventh Circuit's opinion rejecting respondents' appeal addressed only the preliminary injunction and not any of the District Court's subsequently issued orders.

²⁴ See, e.g., Wonsover v. SEC, 205 F.3d 408, 414 (D.C. Cir. 2000) (willful violation means merely the intentional commission of an act which constitutes the violation).

Respondents claim that we earlier held that BFG Securities, Inc., BFG's affiliate, had no rights to appeal its NASD membership application denial and that this holding and the fact that BFG was reorganized in 1998 as the "Barr Financial Group, LLC" somehow deprives the Commission of "subject matter jurisdiction" here. Respondents' description of our prior holding involving BFG Securities is erroneous. In BFG, we accepted BFG Securities' application for review and, on review, upheld the NASD's denial of BFG Securities' application for NASD membership on the ground, among others, that BFG Securities lacked corporate powers. See n.2, supra. That disposition against an affiliate of BFG is irrelevant here. This proceeding is authorized by Section 203 of the Advisers Act given BFG's status as an investment adviser. BFG's purported reorganization does not affect our jurisdiction. We note that amendments to BFG's Form ADV filed after BFG's reorganization used the Firm names "Barr Financial Group, LLC" and "Barr Financial Group, Inc." interchangeably.

²⁵ See discussion at n. 10, supra, and accompanying text.

²⁶ Respondents nonetheless now claim on appeal that certain documentation establishes that there were "assets over $100 Million being advised, monitored and supervised by Respondent." Among this identified evidence are documents from a purported 1997 offer by BFG to purchase commercial real estate in St. Petersburg, Florida. There is no indication that this transaction, which is irrelevant to the issue of BFG's assets under management or any other issue in this case, was ever completed. Also included is a facsimile transmission from an entity known as One Stop Business Solutions, Inc. regarding a purported 1997 offering of $75,000,000,000 in "Bank Credit Obligations." The relevance of this document, as well as its legitimacy, is also not apparent.

²⁷ The transcript indicated that Barr attended Indiana University for one semester in 1976.

²⁸ Respondents claim, without basis, that this injunction was voided by the Eleventh Circuit. They argue that, because the Eleventh Circuit affirmed the preliminary injunction --not the permanent injunction -- the permanent injunction in fact was rejected by that court by implication. To the contrary, in the absence of an order reversing or modifying the District Court's orders, these orders, including the order for permanent injunction, remain in force.

²⁹ See, e.g., Demitrios Julius Shiva, 52 S.E.C. 1247, 1249 (1997) (rejecting attempts to challenge basis for injunction and noting that "we have long refused to permit a respondent to re-litigate issues that were addressed in a previous civil proceeding against the respondent"). See also Blinder, Robinson & Co. v. SEC, 837 F.2d 1099, 1108 (D.C. Cir.) (holding that issues that could have been adjudicated in prior injunctive proceeding could not be relitigated in appeal of subsequent administrative proceeding), cert. denied, 488 U.S. 869 (1988).

Respondents further claim that the Commission was collaterally estopped from bringing this administrative proceeding because the matters had already been litigated in the injunctive proceeding. While collateral estoppel precludes respondents or the Division from relitigating factual matters already decided by the District Court, it in no way limits the Commission's authority to institute administrative proceedings based on an injunction. Such proceedings are expressly authorized by Advisers Act Section 203. Respondents' related claim that this proceeding violates the Double Jeopardy Clause of the Constitution is similarly meritless. The "Double Jeopardy Clause prohibits multiple sanctions for the same offense only if those sanctions are 'criminal punishments.'" SEC v. Palmisano, 135 F.3d 860, 864 (2d Cir. 1998) (quoting Hudson v. U.S.,118 S.Ct. 488, 493 (1997)). The sanctions at issue here are civil rather than criminal in nature, and therefore they do not trigger the clause. See Palmisano, 135 F.3d at 865-66 (finding disgorgement and civil penalty imposed in Commission civil enforcement action not criminal for purposes of Double Jeopardy Clause); compare U.S. v. Naftalin, 606 F.2d 809 (8th Cir. 1979) (Double Jeopardy Clause did not apply to criminal prosecution for securities fraud that followed administrative proceeding based on same misconduct which resulted in industry bar).

³⁰ Anthony Tricarico, 51 S.E.C. 457, 460 (1993) (credibility findings of fact finder entitled to considerable weight).

³¹ Respondents make various other charges against the staff, including that the staff discussed the proceedings against respondents with the media and told respondents' counsel that respondents would be unable to pay their legal bills. These charges are unsupported and, in any event, do not undermine the allegations contained in the OIP.

³² Respondents complain that they were prohibited by a security guard from bringing video equipment to the hearing for use in presenting video tapes they had made of the staff's examination at BFG's offices. Respondents do not support this allegation and, in any event, fail to explain why they did not introduce the tapes themselves as evidence or make a proffer regarding what the tapes purportedly establish.

Respondents also complain that their request for documents under the Freedom of Information Act, 5 U.S.C. § 552, was denied. This appeal is not the proper forum for challenging such a denial.

³³ 17 C.F.R. § 201.232(b).

³⁴ As indicated above, Commission employees with direct knowledge of the facts of this case did testify.

Respondents also complain that the law judge denied their subpoena requests for "documents held with Universities, colleges and other accredited and non-accredited institutions for verification of academic credentials." As indicated, proof that Barr held academic credentials beyond those claimed in the Firm's ADV was irrelevant in this proceeding. Respondents provided no documentation, such as diplomas or transcripts, to support their statements that Barr held degrees from Indiana University. They provided no explanation for their inability to provide suchdocumentation, which presumably would be obtainable directly from the university without a subpoena, on a graduate's request.

³⁵ See nn. 12 and 17, supra.

³⁶ Respondents charge that, because of her delay in issuing a decision, the law judge "violated" Commission Rule of Practice 900(a)(i). 17 C.F.R. § 201.900(a)(i). The hearings in this case were concluded in September 1999 and the initial decision was issued in June 2002. While Rule 900(a)(i) states that, "to the extent possible," an initial decision "should be filed . . . within 10 months of issuance of the order instituting proceedings," the specified period is only a "guideline" that expressly does "not create a requirement." It is not a rule that can be violated.

Respondents make various other claims of law judge error, including that she erred with respect to the date on which Barr began working as an insurance agent and as to when the NASD began its investigation of BFG Securities. They also complain that the law judge required respondents to pay for copies of hearing transcripts. We see no prejudice to respondents from these or other asserted errors or omissions. Further, we have engaged in a de novo review of the record and, based on that review, have reached our own conclusions regarding the demands of the public interest.

³⁷Steadman v. SEC, 603 F.2d 1126, 1140 (5th Cir. 1979), aff'd on other grounds, 450 U.S. 91 (1981).

³⁸ For example, during his opening statement at the hearing, Barr stated that "I am totally in the dark as to what the problem is, or how I have harmed any person." Barr also characterized the allegations in this case as "frivolous."

³⁹ See, e.g., Butz v. Glover Livestock Comm'n Co., 411 U.S. 182, 187 ("The employment of a sanction within the authority of an administrative agency is . . . not rendered invalid in a particular case because it is more severe than sanctions imposed in other cases.").

⁴⁰ KPMG Peat Marwick LLP, Exchange Act Release No. 43862 (Jan. 19, 2001), 74 SEC Docket 384, 430, motion for reconsideration denied, Exchange Act Release No. 44050 (Mar. 9, 2001), 74 SEC Docket 1351, petition denied, 289 F.3d 109 (D.C. Cir. 2002).

⁴¹ Respondents' motion to strike the Division's opposition brief is denied.

We have considered all of the arguments advanced by the parties. We reject or sustain them to the extent that they are inconsistent or in accord with the views expressed in this opinion.