A federal judge in Rhode Island has granted the Securities and Exchange Commission’s motion for summary judgment and entered final judgments against Locke Capital Management, Inc, an investment adviser based in Newport, Rhode Island and New York City, and Leila C Jenkins, its founder and sole owner.
The Commission’s Complaint against Locke and Jenkins, filed in March 2009, alleged that they invented a billion-dollar client in order to gain credibility and attract legitimate investors. The Complaint further alleged that Jenkins tried to perpetuate her scheme by lying to the Commission staff about the existence of the invented client and furnishing the staff with bogus documents in 2008, including fake custodial statements that she created on her laptop. The Court ordered that Locke and Jenkins will be jointly and severally liable for disgorgement of USD1,781,520, representing advisory fees paid to them from 2007-2009, plus prejudgment interest of USD110,956. In addition, each defendant was ordered to pay a penalty of USD1,781,520.
According to the Complaint, filed on 9 March, 2009, Jenkins repeatedly claimed that the so-called "confidential" client accounts that she invented and claimed to manage contained more than USD1 billion in assets. Even as Locke began to take on genuine clients in late 2006, the assets under management of its real clients never amounted to more than a very small portion of the billion-plus dollars that Jenkins claimed to manage. From at least 2003 to 2009, falsehoods concerning the confidential accounts were made in brochures, meetings, submissions to online databases that prospective clients used to select money managers, and in SEC filings.
The Honourable William E Smith, United States District Judge in the United States District Court for the District of Rhode Island, issued an Opinion and Order on June 30, 2011, granting the Commission’s motion for summary judgment against Jenkins and denying Jenkins’s motion for summary judgment. The Court had previously granted the Commission’s motion for default judgment against Locke in March 2010. The court entered final judgments against Jenkins and Locke on June 30, 2011. The final judgments permanently enjoin Jenkins and Locke from violating Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, and Sections 206(1), 206(2), and 207 of the Investment Advisers Act of 1940 (Advisers Act"). The final judgment as to Locke also permanently enjoins it from violating Sections 204 and 206(4) of the Advisers Act and Rules 204-2(a)(6), (8), (10), (15), and (16), as wells as 206(4)-1(a)(5) thereunder, and the final judgment as to Jenkins further permanently enjoins her from aiding and abetting violations of the same law sections. The final judgment as to Locke further permanently enjoins it from violating Section 204A of the Advisers Act and Rule 204A-1 thereunder. The final judgments hold Locke and Jenkins jointly and severally liable for disgorgement of USD1,781,520 plus prejudgment interest of USD110,956, and order each defendant was ordered to pay a penalty of USD1,781,520.
