UNITED STATES OF AMERICA 

 Before the 

SECURITIES AND EXCHANGE COMMISSION 

SECURITIES ACT OF 1933 

Release No. 8563 / April 6, 2005 

SECURITIES EXCHANGE ACT OF 1934 

Release No. 51480 / April 6, 2005 

ADMINISTRATIVE PROCEEDING 

File No. 3-11515 

In the Matter of 

CHARLES W. CROUSE, JR. 

Respondent. 

ORDER MAKING FINDINGS AND 

IMPOSING REMEDIAL SANCTIONS AND A 

CEASE-AND-DESIST ORDER PURSUANT 

TO SECTION 8A OF THE SECURITIES ACT 

OF 1933 AND SECTIONS 15(b) AND 21C OF 

THE SECURITIES EXCHANGE ACT OF 

1934. 

I. 

In connection with the public administrative proceedings previously instituted pursuant to 

Section 8A of the Securities Act of 1933 (“Securities Act”) and Sections 15(b) and 21C of the 

Securities Exchange Act of 1934 (“Exchange Act”)1

, Respondent Charles W. Crouse 

(“Respondent” or “Crouse”) has submitted an Offer of Settlement (“Offer”) which the Commission 

has determined to accept. Solely for the purpose of these proceedings, and any other proceedings 

brought by or on behalf of the Commission or in which the Commission is a party, and without 

admitting or denying the findings herein, except as to the Commission's jurisdiction over him and 

the subject matter of these proceedings, which are admitted. Respondent consents to the entry of 

this Order Making Findings and Imposing Remedial Sanctions and a Cease-and-Desist Order 

(“Order”) pursuant to Section 8A of the Securities Act and Sections 15(b) and 21C of the 

Securities Exchange Act as set forth below. 

1 The Order Instituting Proceedings in this matter was issued on June 8, 2004. 
 

 

 

 

 

II. 

On the basis of this Order and Respondent’s Offer, the Commission finds2 that: 

Respondent 

1. Crouse, 46, resides in Marietta, Georgia. He has been a registered representative 

since May 1992. During the time period of the events discussed herein, Crouse was a registered 

representative at a broker-dealer, Fidelity National Capital Investors (the “Broker-Dealer”). He 

holds Series 7 and 63 securities licenses. Crouse left the Broker-Dealer in March 2001 and is 

currently associated with another broker-dealer. 

2. In December 1997, a customer (“Customer”) opened a brokerage account (“the 

Account”) at the Broker-Dealer. His registered representative at the Broker-Dealer was Crouse. 

The Ponzi Scheme 

3. From at least June 1998 through September 1999, Customer obtained funds from 

investors by representing that he would use their funds to buy and sell securities through an 

account at the Broker-Dealer in his name and under his management. During much of this 

period, Customer operated a Ponzi scheme in which he deposited approximately $6.3 million of 

investor funds into the Account. Customer’s investment strategy primarily consisted of daytrading or short-term trading of options and equities in the Account using a momentum computer 

program. 

4. Most of Customer’s investors signed management agreements provided by the 

customer allowing him to have “full and complete discretion to invest, trade and make 

transactions associated with the Account.” While the terms of the investments varied from 

investor to investor, in most cases, the customer promised guaranteed returns of up to fifty 

percent (50%) in ninety days or less. In some instances, Customer provided investors with oral 

and/or written agreements rolling over the original investment and purported profit. These 

rollover agreements often indicated a higher value of their investments than actually existed. 

5. Contrary to his representations to investors, Customer lost money from his trading. 

For the thirteen-month period from December 2, 1997 through December 31, 1998, the customer 

lost $225,660 in the Account. 

6. Customer’s trading, and his trading losses, increased substantially in 1999. For the 

nine-month period from January 1, 1999 through September 30, 1999, net losses in the Account 

2 The findings herein are made pursuant to Respondent's Offer of Settlement and are not binding on any 

other person or entity in this or any other proceeding 

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amounted to $634,453. With the exceptions of January and March, the Account lost money every 

month in 1999. 

7. Customer’s trading program was a Ponzi scheme in that payments to investors 

were funded from deposits into the Account that came from new investors. Customer was 

dependent on money from new investors to keep his scheme operating. 

Crouse’s Assistance In Furtherance of Customer’s Ponzi Scheme 

8. Crouse knew, among other things, of the Account’s high activity level and 

substantial losses. He also knew or was reckless in not knowing that almost all the money 

deposited into the Account was coming from checks written by other people to Customer 

because, as a matter of office procedure, he received copies of all checks deposited into the 

customer Account. Crouse also knew that Customer was managing the accounts of other BrokerDealer customers with whom power of attorney documents had been executed, and that he had 

lost large amounts of money in some of those accounts as well. Additionally, Crouse received 

letters from two of his other customer accounts at the Broker-Dealer in June 1999 telling him to 

transfer money into the Account; one letter stated “He [Customer] will manage this money from 

his account.” Taken together these facts showed a scheme by Customer to defraud investors, 

which Crouse facilitated by recklessly permitting Customer to trade with funds provided by 

others. 

9. Crouse substantially assisted Customer in furtherance of his Ponzi scheme by 

executing virtually all trades in the Accounts. 

10. From June through September of 1999, Crouse received commissions for his work 

with the Customer Account totaling $54,121. 

11. As a result of the conduct described above, Crouse willfully aided and abetted and 

caused Customer’s violations of Section 17(a) of the Securities Act, Section 10(b) of the 

Exchange Act and Rule 10b-5 thereunder, which prohibit fraudulent conduct in the offer and sale 

of securities and in connection with the purchase or sale of securities. 

Civil Penalties 

12. Respondent has submitted a sworn Statement of Financial Condition dated August 

27, 2004 and revised September 3, 2004, and other evidence and has asserted his inability to pay 

a civil penalty. 

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Undertakings 

Respondent shall provide to the Commission, within thirty (30) days after the end of the 

twelve (12) month suspension period described above, an affidavit that he has complied fully with 

the sanctions described in Section III below. 

III. 

In view of the foregoing, the Commission deems it appropriate, in the public interest to 

impose the sanctions agreed to in Respondent Crouse’s Offer. 

Accordingly, pursuant to Section 8A of the Securities Act and Sections 15(b) and 21C of 

the Exchange Act, it is hereby ORDERED that: 

A. Respondent Crouse shall cease and desist from committing or causing any violations 

and any future violations of Section 17(a) of the Securities Act, Section 10(b) of the Exchange Act 

and Rule 10b-5 thereunder, which prohibit fraudulent conduct in the offer and sale of securities and 

in connection with the purchase or sale of securities. 

B. Respondent be, and hereby is, suspended from association with any broker or dealer 

for a period of 12 months, effective on the second Monday following the entry of this Order. 

C. Respondent shall pay disgorgement in the amount of $54,121 and prejudgment 

interest in the amount of $20,824.71, for a total of $74,945.71. Crouse shall pay the amount of 

$17,000, required by the Offer to have been deposited in escrow with his attorney, within seven (7) 

days of the entry of this Order. The remaining amount of $57,945.71 shall be paid in 31 equal 

monthly installments of $1,869.22 due on the first of each month after the Offer has been accepted 

by the Commission. Such payments shall be: (A) made by United States postal money order, 

certified check, bank cashier's check, or bank money order; (B) made payable to the Securities and 

Exchange Commission; (C) hand-delivered or mailed to the Office of Financial Management, 

Securities and Exchange Commission, Operations Center, 6432 General Green Way, Alexandria, 

Stop 0-3, VA 22312; and (D) submitted under cover letter that identifies Crouse as a Respondent in 

these proceedings, the file number of these proceedings, a copy of which cover letter and money 

order or check shall be sent to Michael J. O’Leary, Senior Trial Counsel, Securities and Exchange 

Commission, Atlanta District Office, 3475 Lenox Road, N.E., Suite 1000, Atlanta, GA 30326-1232. 

D. Respondent shall comply with the undertaking enumerated above. 

Respondent agrees that if the full amount of any payment described above is not made 

within ten (10) days following the date the payment is required by this Order, the entire amount of 

disgorgement and prejudgment interest, minus payments made, if any, is due and payable 

immediately without further application. 

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E. Due to the Respondent’s financial condition, as set forth in his Statement of 

Financial Condition dated August 27, 2004 and revised September 3, 2004, a civil money penalty 

will not be imposed by the Commission. 

F. The Division of Enforcement ("Division") may, at any time following the entry of 

this Order, petition the Commission to: (1) reopen this matter to consider whether Respondent 

provided accurate and complete financial information at the time such representations were 

made; and (2) seek an order directing payment of the maximum civil penalty allowable under the 

law. No other issue shall be considered in connection with this petition other than whether the 

financial information provided by Respondent was fraudulent, misleading, inaccurate, or 

incomplete in any material respect. Respondent may not, by way of defense to any such petition: 

(1) contest the findings in this Order; (2) assert that payment of a penalty should not be ordered; 

(3) contest the imposition of the maximum penalty allowable under the law; or (4) assert any 

defense to liability or remedy, including, but not limited to, any statute of limitations defense. 

 By the Commission. 

 Jonathan G. Katz

 Secretary 

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