UNITED STATES SECURITIES AND EXCHANGE COMMISSION

SEC Admin Releases 33-9925; 34-75967; IA release 40-4206; Investment Company Act release 40-31847 / September 23, 2015: The Securities and Exchange Commission ("Commission") deems it appropriate and in the public interest that public administrative and cease-and-desist proceedings be, and hereby are, instituted the respondent. On the basis of this Order and Respondent's Offer, the Commission finds that these proceedings arise out of an offering fraud and investment advisory fraud orchestrated by the respondent through sales of partnership interests in a Fund and the operation of its adviser, which the respondent controlled. Since 1999, the respondent raised approximately $7.3 million through the sale of the Fund's partnership interests to 58 limited partners. To induce investments in the Fund, the respondent represented to investors, in offering documents and orally, that the Fund would primarily invest in direct marketing companies, that it would only pay the adviser performance fees if certain conditions were met, and that the respondent would act as fiduciaries in the best interests of the fund. After some initial investment consistent with these representations, the respondent, through his investment adviser, ultimately used the majority of the Fund's investor funds for the respondent own purposes and benefit, contrary to his representations and in breach of their fiduciary duties. Through various means, the respondent funneled in excess of $1.1 million into a failing broker-dealer he operated and controlled. The respondent knew or was reckless in not knowing that the Fund would not recoup those funds and in fact, the broker-dealer ultimately collapsed. Despite failing to meet the performance benchmarks set forth in the Fund's offering documents, the respondent awarded himself and another nearly $600,000 in improper performance fees. Finally, when unable to repay personal obligations to a third-party private equity fund, the respondent eventually transferred the Fund's assets valued at nearly $4 million to the private equity fund. While engaging in this misconduct, the respondent continued to solicit new investors based on the same representations, knowing they were false. As a result of the conduct the respondent willfully violated Section 17(a) of the Securities Act and Section 10(b) of the Exchange Act and Rule 10b-5 thereunder; and willfully violated Sections 206(1), 206(2) and 206(4) of the Advisers Act and Rule 206(4)-8 promulgated thereunder.

Order

Bar (Permanent)

see comment

9/23/2015

Cease and Desist

Civil and Administrative Penalty(ies)/Fine(s)

$500,000.00

Disgorgement

$5,476,928.00

Monetary Penalty other than Fines

$353,582.00

Prohibition

FINRA

FINRA RULES 2010, 2150(A) AND 8210, NASD RULES 2110, 2330(A): FREEMAN AND AN INDIVIDUAL, THE FOUNDERS AND PRINCIPALS OF THE MEMBER FIRM, MADE TRANSFERS FROM A CUSTOMER'S BROKERAGE AND BANKING ACCOUNTS TO THEMSELVES AND TO ENTITIES IN WHICH THEY HAD AN INTEREST, INCLUDING THE FIRM AND THE FIRM'S HOLDING COMPANY. THE CUSTOMER IS A PRIVATE INVESTMENT PARTNERSHIP THAT FREEMAN AND THE INDIVIDUAL CONTROLLED. OTHER INDIVIDUALS ALSO INVESTED IN PARTNERSHIP. THE CUSTOMER RECEIVED IN EXCESS OF $10 MILLION FROM VARIOUS SOURCE, INCLUDING INVESTORS, FROM THE SALE OF AN INVESTMENT IN A PRIVATELY-HELD COMPANY AND BY BORROWING MONEY FROM THIRD PARTIES. FREEMAN AND THE INDIVIDUAL USED THIS MONEY TO MAKE TRANSFERS OF APPROXIMATELY $5.5 MILLION TO THEMSELVES AND TO THEIR BUSINESS INTERESTS, EXCEEDING THE VALUE OF THE EQUITY THAT FREEMAN AND THE INDIVIDUAL HAD IN THE PARTNERSHIP. THE TRANSFERS WERE IN THE FORM OF CHECKS AND WIRE TRANSFERS FROM THE CUSTOMERS' BANK AND BROKERAGE ACCOUNTS. THE ACCOUNTING TREATMENT FOR THESE TRANSFERS CHANGED OVER TIME, AS IT SUITED THE INTERESTS OF FREEMAN AND THE INDIVIDUAL, WITH MANY OF THE DISBURSEMENTS AT ONE TIME OR ANOTHER BEING ACCOUNTED FOR AS LOANS. FREEMAN AND THE INDIVIDUAL HAVE NEVER PAID ANY INTEREST TO THE CUSTOMER FOR USE OF THIS MONEY. FREEMAN AND THE INDIVIDUAL BREACHED THEIR OBLIGATION TO DISCLOSE MATERIAL FACTS BY MAKING MATERIAL MISREPRESENTATIONS AND OMISSIONS TO THE PARTNERSHIP'S INVESTORS. IN ADDITION TO THE OMISSIONS, FREEMAN AND THE INDIVIDUAL MADE MISSTATEMENTS VIA THE LIMITED PARTNERSHIP AGREEMENT AND OFFERING CIRCULAR THAT THEY DISTRIBUTED TO INVESTORS THAT WERE RENDERED MISLEADING AND FALSE AS A RESULT OF FREEMAN AND THE INDIVIDUAL'S CONDUCT. THESE DOCUMENTS MADE CERTAIN REPRESENTATIONS, OR SET FORTH CERTAIN ACTIONS THAT WERE TO BE TAKEN, THAT IN PRACTICE WERE IGNORED BY FREEMAN AND THE INDIVIDUAL. EACH OF THE OMISSIONS AND MISREPRESENTATIONS WAS MATERIAL AND INTENTIONALLY, RECKLESSLY, OR, AT A MINIMUM, NEGLIGENTLY MADE. ON THREE SEPARATE OCCASIONS, FREEMAN, THE INDIVIDUAL AND/OR THE FIRM BREACHED THEIR OBLIGATIONS BY REPRESENTING TO FINRA THAT PAYMENTS TO THE FIRM'S HOLDING COMPANY FROM THE PARTNERSHIP WERE FROM THE INDIVIDUAL'S CAPITAL ACCOUNT TO THE PARTNERSHIP. FREEMAN AND THE INDIVIDUAL KNEW OR SHOULD HAVE KNOWN, THESE PAYMENTS WERE LOANS, NOT CAPITAL DISTRIBUTIONS, AND WERE RECORDED AS LOANS ON THE PARTNERSHIP'S BOOKS AND RECORDS. ON A FOURTH OCCASION, FREEMAN PROVIDED INACCURATE AND FALSE INFORMATION TO FINRA REGARDING THE VALUE OF THE INDIVIDUAL'S ACCOUNT AT THE PARTNERSHIP BY OVERSTATING ITS VALUE.

Decision

Bar (Permanent)

All Capacities

12/17/2015

Monetary Penalty other than Fines

$1,502.20

EXTENDED HEARING PANEL DECISION RENDERED MAY 30, 2013 WHEREIN FREEMAN IS BARRED FROM ASSOCIATION WITH ANY FINRA MEMBER IN ANY CAPACITY FOR MISUSING CUSTOMER FUNDS IN VIOLATION OF FINRA RULES 2010 AND 2150(A) AND NASD RULES 2110 AND 2330(A), MAKING MISREPRESENTATIONS AND OMISSIONS OF MATERIAL FACTS TO INVESTORS IN VIOLATION OF FINRA RULE 2010 AND NASD RULE 2110, AND PROVIDING MISLEADING INFORMATION TO FINRA IN VIOLATION OF FINRA RULES 2010 AND 8210. ON JUNE 20, 2013, FREEMAN APPEALED TO THE NATIONAL ADJUDICATORY COUNCIL (NAC). THE SANCTION IS NOT IN EFFECT PENDING THE APPEAL. NAC decision rendered December 17, 2015. The sanctions were imposed by the National Adjudicatory Council following appeal for review of an Office of Hearing Officers decision. The sanctions were based on findings that Freeman and another principal of his firm misused customer funds, made material misrepresentations, and failed to disclose material facts to investors. The findings stated that Freeman and the principal controlled a private investment limited partnership, which they founded and described as a private equity firm or hedge fund, and improperly took millions of dollars from the hedge fund, and disbursed millions of dollars through the hedge fund's firm brokerage account. Freeman and the principal had fiduciary duties to the investors in the private investment fund for which they acted as managers. Freeman and the principal violated their fiduciary duties by using the fund's assets to make self-interested loans instead of buying equities, overvalued their contributions to the fund, and loaned money to their struggling broker-dealer, i.e. the firm, to keep it in business. Freeman and the principal were entrusted with the money of investors in the private fund and that each breached his fiduciary duty to those investors in misusing that fund's assets. Individuals entrusted to handle investor funds that knowingly mishandle those funds act in a manner wholly inconsistent with FINRA's rules relating to just and equitable principles of trade. Freeman and the principal acted in precisely this manner and that these acts constitute violations of FINRA's just and equitable principles of trade rule. In the hedge fund's Limited Partnership Agreement and Offering Circular, Freeman and the principal represented that the hedge fund would use investor money to purchase securities and other appropriate investments. Instead, Freeman and the principal used investor money for their interests, to infuse cash into the firm, to lend to themselves or to support the principal's business concerns. The findings also stated that the firm, Freeman and the principal made misleading statements, and provided false and misleading information, including attaching falsely dated documents, in response to FINRA information requests during its investigation. The firm, Freeman and the principal's responses were misleading, and they did not respond to FINRA in good faith. Decision became final January 19, 2016.

MR. FREEMAN HAS APPEALED AND WILL DEFEND HIMSELF VIGOROUSLY.