UNITED STATES OF AMERICA

Before the

SECURITIES AND EXCHANGE COMMISSION

ADMINISTRATIVE PROCEEDING 

File No. 3-19715

In the Matter of

Fortress Investment Management, LLC 

and William M. Malloy, III

Respondents.

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PLAN OF DISTRIBUTION

I. Overview 

1. Purpose. The Division of Enforcement (“Division”) has prepared this plan of 

distribution (the “Plan”) pursuant to Rule 1101 of the Commission’s Rules on Fair Fund and 

Disgorgement Plans (“Commission’s Rules”), 17 C.F.R. § 201.1101. As described more 

specifically below, the Plan provides for the distribution of the disgorgement, prejudgment 

interest, and civil money penalties paid by Fortress Investment Management, LLC (“Fortress”)

and William M. Malloy, III (“Malloy”) (collectively, the “Respondents”) in the captioned 

administrative proceeding. 

2. Background. On February 27, 2020, the Commission issued an Order Instituting 

Administrative and Cease-and-Desist Proceedings, Pursuant to Sections 203(e), 203(f) and 

203(k) of the Investment Advisers Act of 1940 and Section 9(b) of the Investment Company Act 

of 1940, Making Findings, and Imposing Remedial Sanctions and a Cease-and-Desist Order (the 

“Order”)1against the Respondents. In the Order, the Commission found that from 

approximately January 2014 through 2016, Malloy violated the federal securities laws by failing 

to fully disclose all material facts to advisory clients, including the receipt of fees from Aequitas 

Enterprise (“Aequitas”) for consulting and business development services that included

introducing prospective investors to Aequitas. Those payments created a conflict of interest that 

Malloy did not disclose to clients who invested in Income Opportunity Capital, LLC (“IOC”), a 

private fund managed and controlled by Malloy, which in turn, invested heavily in securities 

issued by Aequitas (the “Aequitas Securities”). Clients did receive information broadly 

identifying a potential conflict of interest, but it was not sufficient to allow them to provide 

informed consent to the actual conflict that existed. Malloy also violated the federal securities 

laws by allowing an investment advisory firm controlled by Malloy, to remain improperly 

registered with the Commission. 

 

1 Advisers Act Rel. No. 5452 (Feb. 27, 2020).
2

As a result of the conduct described in the Order, the Commission ordered the 

Respondents to pay a total of $154,097 (disgorgement of $45,040, prejudgment interest of 

$9,057 and a civil penalty of $50,000 by Fortress, and a civil penalty of $50,000 by Malloy). 

The disgorgement represents management fees IOC paid to Fortress that were assessed on capital 

clients had invested in IOC, which in turn, invested in Aequitas Securities. In the Order, the 

Commission created a fair fund, pursuant to Section 308(a) of the Sarbanes-Oxley Act of 2002, 

so the civil penalties, along with the disgorgement and prejudgment interest, paid can be 

distributed to harmed investors (the “Fair Fund”). 

The Respondents have paid in full the amounts ordered. The Fair Fund, consisting of the 

$154,097 paid by the Respondents pursuant to the Order, has been deposited in an interestbearing account at the United States Department of the Treasury’s Bureau of Fiscal Service 

(“BFS”). Other than potential interest income from the BFS investment, the Commission does 

not anticipate that the Fair Fund will receive additional funds. 

This Plan provides for the distribution of the Fair Fund, plus accrued interest and 

earnings thereon, less the Reserve (defined below) (“Net Available Fair Fund”) to those Eligible 

Investors, as defined in paragraph 10 below.

3. Jurisdiction and Control. The assets of the Fair Fund are subject to the 

continuing jurisdiction and control of the Commission. The Plan has been approved by the 

Commission, and the Commission retains jurisdiction over its implementation. 

II. Administration of the Plan

4. Costs. All costs of administering the Fair Fund, including taxes, fees and 

expenses of administration (“Costs”), shall be paid by the Fair Fund, first from the interest 

earned on the funds, and if the interest is not sufficient, from the corpus of the Fair Fund.

5. Fund Administrator. Noel Gittens is the fund administrator for the Fair Fund 

(“Fund Administrator”). As a Commission employee, the Fund Administrator shall receive no 

compensation, other than his regular salary as a Commission employee, for his services in 

administering the Fair Fund. In accordance with Rule 1105(c) of the Commission’s Rules,2 no 

bond is required since the Fund Administrator is a Commission employee.

The Fund Administrator will be responsible for, among other things: overseeing the 

administration of the Fair Fund, obtaining accurate mailing information for the Eligible Investors

(as defined below), preparing accountings, cooperating with the Tax Administrator in providing 

the information necessary to accomplish income tax compliance, and distributing money from 

the Fair Fund in accordance with the Plan. The Fund Administrator may be removed at any time 

by order of the Commission or hearing officer.

 

2 17 C.F.R. § 201.1105(c).
3

6. Tax Administrator. Pursuant to the Omnibus Order Directing the Appointment of 

Tax Administrator in Administrative Proceedings that Establish Distribution Funds governing 

calendar years 2019-2021,3the Commission appointed Miller Kaplan Arase LLP as the tax 

administrator (the “Tax Administrator”) for the Fair Fund.4 The Tax Administrator shall be 

compensated for all reasonable costs and expenses from the Fair Fund according to the terms of 

Tax Administrator’s 2019-2021 Letter Agreement with the Commission.

7. Qualified Settlement Fund. The Fair Fund constitutes a Qualified Settlement 

Fund (“QSF”) under Section 468B(g) of the Internal Revenue Code, 26 U.S.C. § 468B(g), and 

related regulations, 26 C.F.R. §§ 1.468B-1 through 1.468B-5. 

8. Reserve. A reserve of $9,000.00 will be held back for future Costs and to 

accommodate any unexpected expenditures or distribution payments (the “Reserve”). After all 

disbursements and Costs are paid, any remaining amounts in the Reserve will become part of the 

Residual described in paragraph 20.

III. Plan Procedures

9. No Claims Process. Based on information obtained by the Commission staff 

during its investigation and the review and analysis of applicable records, the Commission staff 

has reasonably concluded that it has all records necessary to calculate harm as described in 

paragraph 11 below. As a result, the Fair Fund is not being distributed according to a claimsmade process, so procedures for making and approving claims in accordance with Rule 

1101(b)(4) of the Commission’s Rules, 17 C.F.R. § 201.1101(b)(4), are not applicable. 

10. Specification of Eligible Investors. Investors able to receive a payment pursuant 

to this Plan are limited to those clients who, based on the management fees IOC paid to Fortress, 

were assessed and paid those fees based on their capital invested in IOC (“Eligible Investors”).

The Plan’s methodology seeks to compensate Eligible Investors for their full harm suffered due 

to the management fees paid, including reasonable interest, along with their pro-rata share of 

their investment losses. Based on information obtained during the Commission’s investigation 

and in accordance with the methodology for determining harm in paragraph 11, the Commission 

staff has identified thirteen (13) Eligible Investors. 

11. Methodology for Determining Distribution Payments. Using information 

collected by the Commission staff, the Fund Administrator will determine the amounts to be 

distributed to each Eligible Investor (“Distribution Payment”), as described below.

a. With regard to the distribution for the return of management fees paid: 

i. Determine the amount of management fees paid by each Eligible 

Investor (“Fees Paid”);

 

3

 Exchange Act Rel. No. 85174 (Feb. 22, 2019).

4

 Exchange Act Rel. No. 88597 (Apr. 8, 2020).
4

ii. Calculate the reasonable interest to be paid to each Eligible 

Investor using the short-term Applicable Federal Rate, 

compounded quarterly from May 1, 2015 through August 31, 2020

(“Interest Amount”); and 

iii. Combine each Eligible Investor’s Fees Paid and Interest Amount

to determine the “Fees Paid plus Interest” amount.

b. With regard to the distribution based on investments losses in Aequitas 

Securities:

i. Determine each Eligible Investors “Investment Loss” as the 

Eligible Investor’s Investment during the investment period;

ii. Calculate the “Total Investment Loss” as the sum of the 

Investment Losses of all Eligible Investors;

iii. Calculate each Eligible Investor’s “Pro-Rata Share” by dividing 

the Eligible Investor’s Investment Loss by the Total Investment

Loss;

iv. Calculate each Eligible Investor’s “Loss Recovery” amount by 

multiplying each Eligible Investor’s Pro-Rata Share by the Net 

Available Fair Fund minus (a)(iii) above;

c. Calculate the Distribution Payment for each Eligible Investor as the sum of the 

Fees Paid plus Interest and Loss Recovery amounts.

Accordingly, with this distribution, each Eligible Investor will receive a Distribution 

Payment from the Net Available Fair Fund that compensates each Eligible Investor for Fees Paid 

plus Interest plus a pro-rata distribution based on each Eligible Investor’s Investment Loss as 

shown in Exhibit A. For the Eligible Investors, who have lost the totality of their investment,

their Loss Recovery under the Plan is approximately 3.67%. These Eligible Investors will also 

be getting a recovery based on their investment losses in the receivership distribution in SEC v. 

Aequitas Management, LLC et. al, Civ. Action No. 3:16-cv-00438-JR (DC.D. Oregon) (the 

“Aequitas Recovery”). However, Eligible Investors’ Loss Recovery under the Plan when 

combined with their Aequitas Recovery does not fully compensate them for their investment 

losses, and will not result in a windfall to the Eligible Investors.

In the view of the Commission staff and the Fund Administrator, this methodology 

constitutes a fair and reasonable allocation of the Fair Fund. It is anticipated that there will be 

one distribution to Eligible Investors, which will take place as described herein. 
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12. Procedures for Locating and Notifying Certain Eligible Investors. From 

information obtained by the Commission staff based on the review and analysis of applicable 

records from its investigation, the Fund Administrator has identified the Eligible Investors as 

defined in paragraph 10. The Fund Administrator will coordinate with the Tax Administrator to 

obtain information that is needed to accomplish the distribution in accordance with applicable 

tax requirements relating to the Fair Fund. To the extent possible, within sixty (60) days of the 

publication of the Plan for notice and comment, requests will be sent to certain Eligible Investors 

whose tax information is uncertain to supply IRS Forms W-8 or W-9 tax information, and such 

other information needed to ensure an efficient and accurate delivery of the distribution payment 

(the “Request”). The Eligible Investors shall respond within thirty (30) days in order to receive a 

Distribution Payment.

13. Failure to Respond. If an Eligible Investor fails to respond within thirty (30) days 

from the mailing of the Request, the Fund Administrator will make no fewer than two (2) 

attempts to contact the Eligible Investor by telephone or email. The second attempt will in no 

event take place more than thirty (30) days from the mailing of the Request. If an Eligible 

Investor fails to respond to the Fund Administrator’s contact attempts as described in this 

paragraph, the Fund Administrator, in his discretion, may remove such Eligible Investor from the 

distribution and the allocated distribution amount will be added to the Residual described in 

paragraph 20.

14. Undeliverable Mail. If a Request and/or Distribution Payment is/are returned as 

undeliverable, the Fund Administrator will make his best practicable efforts to ascertain an 

Eligible Investor’s correct address. If another address is obtained, the Fund Administrator will 

then resend the Request and/or Distribution Payment to the Eligible Investor’s new address 

within ten (10) days of receipt of the returned mail. If the Request and/or Distribution Payment 

is returned again, and the Fund Administrator, despite best practicable efforts, is unable to find 

an Eligible Investor’s correct address, the Fund Administrator, in his discretion, may remove 

such Eligible Investor from the distribution and the allocated distribution payment will be added 

to the Residual described in paragraph 20. 

Any Eligible Investor who relocates or otherwise changes contact information after 

receipt of the Request must promptly communicate any change in address or contact information 

to the Fund Administrator.

15. Distribution Timing. The Fund Administrator will use his best efforts to start the 

distribution within sixty (60) days of the Plan’s approval.

16. Disbursement of the Fair Fund. The BFS will mail checks or electronically 

transfer funds to each payee as instructed by the Fund Administrator. The Fund Administrator 

will compile the payee information and prepare a payment file to make disbursements through 

the BFS. Pursuant to Rule 1101(b)(6) of the Commission’s Rules, 17 C.F.R. § 201.1101(b)(6), 

the Fund Administrator will obtain an order from the Commission to disburse the Fair Fund. 

Distribution checks and/or accompanying communications will clearly indicate that the 

money is being distributed from a Fair Fund established to compensate investors for harm 
6

suffered as a result of securities law violations. Simultaneously with the mailing of the 

distribution checks, the Fund Administrator will mail a letter to each Eligible Investor, 

explaining how the two components of the Distribution Payment – the Fees Paid plus Interest 

amount and the Loss Recovery amount, were calculated.

The Fund Administrator will work with BFS to obtain information about uncashed 

checks, any returned items due to non-delivery, insufficient addresses, and/or other deficiencies. 

The Fund Administrator is responsible for researching and reconciling errors and reissuing 

payments when possible. The Fund Administrator is also responsible for accounting for all 

payments. Checks issued by BFS will state on their face that they are valid for one (1) year. If 

any checks issued are not cashed within the one (1) year time period, the Fund Administrator 

will work with BFS to identify all uncashed checks. In the event that there are uncashed checks, 

the Fund Administrator will determine the extent to which, under the circumstances in this 

distribution, it would be appropriate and feasible to make additional efforts to contact the 

Eligible Investor(s). Following the conclusion of any efforts by the Fund Administrator to locate 

any such Eligible Investor(s), the amount of all uncashed checks will be credited to the Fair 

Fund, and will become part of the Residual.

17. Amendments and Procedural Deadline Extensions. The Fund Administrator shall 

take reasonable and appropriate steps to distribute the Net Available Fair Fund in accordance 

with the general purposes of this Plan. If there are any changes to the Plan that are determined to 

be material, Commission approval is required prior to implementation by amending the Plan. 

Immaterial changes may be made by the Fund Administrator. For good cause shown, the Fund 

Administrator may extend any of the procedural deadlines set forth in the Plan.

18. Procedures for the Receipt of Additional Funds. Should any additional funds, be 

received for this matter by the Commission, prior to the Commission’s termination of the Fair 

Fund, such funds will be added to the Residual. 

19. Procedures for Disputing Distribution Payments. Disputes will be limited to 

questions regarding the calculations of the Distribution Payments. Within thirty (30) days of the 

date of the distribution payment, the Fund Administrator must receive a written communication 

detailing the dispute along with any supporting documentation. The Fund Administrator will 

investigate the dispute, and such investigation will include a review of the written dispute as well 

as any supporting documentation. Within thirty (30) days of receipt of the written dispute, the 

Fund Administrator will notify the Eligible Investor of his resolution of the dispute, which will 

be final.

20. Residual and Disposition of Undistributed Funds. A residual account within the 

Fair Fund will be established for any amounts remaining after the disbursement to Eligible 

Investors from the Fair Fund (the “Residual”). The Residual may include, but is not limited to, 

the Reserve, distribution checks that have not been cashed, funds from checks that were not 

delivered or from funds returned to the Commission, and Fair Fund tax refunds for overpayment 

or for waiver of IRS penalties. All funds remaining in the Residual that are infeasible to 

distribute to investors will be transferred to the U.S. Treasury after the final accounting is 

approved by the Commission. Returning such money to the Respondents would be inconsistent 
7

with the equitable principle that no person should profit from their wrongdoing. Therefore, in 

these circumstances, distributing disgorged funds to the U.S. Treasury is the most equitable 

alternative.

21. Accountings. When all funds have been disbursed, except for the Residual 

described in paragraph 20 of the Plan, the Fund Administrator will submit a final accounting 

pursuant to Rule 1105(f) of the Commission’s Rules, 17 C.F.R. § 201.1105(f), for the approval 

of the Commission prior to termination of the Fair Fund and discharge of the Fund 

Administrator. Since the funds are being held in a Commission designated account at the 

Treasury and the Fund Administrator is a Commission employee, no interim accountings will be 

made.

22. Termination of the Fair Fund. Following the final disbursement from the Net 

Available Fair Fund to Eligible Investors, the Fund Administrator will make arrangement for the 

final payment of all Costs, and will submit a final accounting to the Commission. The Fair Fund 

will be eligible for termination after all of the following have occurred: (a) a final accounting, in 

a standard accounting format provided by Commission staff, has been submitted by the Fund 

Administrator, and has been approved by the Commission; and (b) all Costs have been paid. 

When the Commission has approved the final accounting, the Commission staff shall seek an 

order from the Commission authorizing: (a) transfer of the remaining Residual, and any amounts 

returned to the Fair Fund in the future, to the U.S. Treasury; (b) termination of the Fair Fund; and 

(c) discharge of the Fund Administrator.
8

EXHIBIT A

Distribution Chart

Investor # Fees Paid Plus 

Interest Loss Recovery Distribution Payment 

Investor # 1 $ 558.42 $ 935.92 $ 1,494.34

Investor # 2 $ 758.05 $ 2,752.70 $ 3,510.75

Investor # 3 $ 16,508.57 $ 25,691.90 $ 42,200.47

Investor # 4 $ 7,580.47 $ 16,516.22 $ 24,096.69

Investor # 5 $ 3,284.87 $ 7,340.54 $ 10,624.41

Investor # 6 $ 8,759.65 $ 14,681.09 $ 23,440.74

Investor # 7 $ 1,263.42 $ 2,752.70 $ 4,016.12

Investor # 8 $ 2,695.28 $ 7,340.54 $ 10,035.82

Investor # 9 $ 3,032.19 $ 7,340.54 $ 10,372.73

Investor # 10 $ 84.49 $ 1,835.14 $ 1,919.63

Investor # 11 $ 2,442.60 $ 5,505.41 $ 7,948.01

Investor # 12 $ 808.59 $ 2,202.16 $ 3,010.75

Investor # 13 $ 589.60 $ 1,835.14 $ 2,424.74

Totals $ 48,366.20 $ 96,730.00 $ 145,096.20