UNITED STATES OF AMERICA

Before the

SECURITIES AND EXCHANGE COMMISSION

SECURITIES EXCHANGE ACT OF 1934

Release No. 70533 / September 26, 2013

INVESTMENT ADVISERS ACT OF 1940

Release No. 3682 / September 26, 2013

INVESTMENT COMPANY ACT OF 1940

Release No. 30736 / September 26, 2013

ADMINISTRATIVE PROCEEDING

File No. 3-15526

In the Matter of

GEORGE B. FRANZ III

and

RUBY CORPORATION,

Respondents.

ORDER INSTITUTING ADMINISTRATIVE 

AND CEASE-AND-DESIST PROCEEDINGS 

PURSUANT TO SECTIONS 203(e), (f), AND 

(k) OF THE INVESTMENT ADVISERS ACT 

OF 1940, SECTION 21C OF THE SECURITIES 

EXCHANGE ACT OF 1934, AND SECTION 

9(b) OF THE INVESTMENT COMPANY ACT 

OF 1940

I.

The Securities and Exchange Commission (“Commission” or “SEC”) deems it 

appropriate and in the public interest that public administrative and cease-and-desist 

proceedings be, and hereby are, instituted pursuant to Sections 203(e), (f), and (k) of the 

Investment Advisers Act of 1940 (“Advisers Act”), Section 21C of the Securities 

Exchange Act of 1934 (“Exchange Act”), and Section 9(b) of the Investment Company Act 

of 1940 (“Investment Company Act”) against George B. Franz III and Ruby Corporation

(collectively, “Respondents”). 
2

II.

After an investigation, the Division of Enforcement alleges that:

1. From 2007 until 2011, Andrew J. Franz misappropriated over $490,000

from about 50 accounts of clients of Respondent Ruby Corporation, a registered 

investment adviser owned and managed by his father, Respondent George Franz. 

George Franz ignored signs of his son’s malfeasance and failed to take action to stop 

further thefts, thereby failing to protect Ruby clients. Moreover, George Franz not only 

declined to promptly tell Ruby’s clients that Andrew Franz had stolen from them, but 

actively concealed from clients that they had been victimized. Ruby clients were 

therefore deprived the opportunity to decide whether, in light of Andrew Franz’s thefts 

that Ruby had failed to prevent, they were comfortable remaining as clients of Ruby. 

George Franz impeded both the SEC’s examination and investigation of Ruby, 

providing the SEC staff with misinformation and fabricated documents in an effort to 

mislead the staff as to his poor supervision of Andrew Franz and his failure to disclose 

thefts to Ruby clients. This misconduct violated, among other things, the antifraud 

provisions of the Advisers Act. 

A. RESPONDENTS

2. George B. Franz III. George Franz founded Ruby Corporation, a registered 

investment adviser located in Beachwood, Ohio, in 2000 and is its sole owner and 

principal. George Franz had supervisory responsibility over Andrew Franz from at least 

2006 through 2011. George Franz, age 70, is a resident of Moreland Hills, Ohio and 

Marco Island, Florida. George Franz received his Series 6 license in 1982 and was 

associated with various brokerage firms from 1991 until September 2006, when he 

ceased to be associated with any brokerage firm.

3. Ruby Corporation. Ruby Corporation (“Ruby”) is an Ohio corporation 

with its principal place of business in Beachwood, Ohio. Ruby is registered with the 

Commission as an investment adviser. Since 2007, Ruby has had two or three part-time 

employees on its staff in addition to its owner George Franz. As of December 2012, 

Ruby had 99 clients with assets under management of $21 million. Ruby’s clients are 

typically middle-age and retirement-age individuals in the Cleveland, Youngstown, 

and Dayton, Ohio areas. Ruby’s client accounts are discretionary and are invested 

exclusively in mutual funds and variable annuities.
3

B. OTHER RELEVANT INDIVIDUAL

3. Andrew J. Franz. Andrew Franz, age 40, is a resident of Aurora, Ohio. 

Andrew Franz received his Series 6 license in 2002 and was a registered representative 

with various broker-dealers until March 2011. Andrew Franz was a paid employee of 

Ruby from 2002 until 2007, after which he ceased receiving a salary but continued to 

manage Ruby’s operations, specifically the billing of management fees on client 

accounts. At all times until his termination from Ruby in 2011, Andrew Franz

maintained an office at Ruby. 

4. In March 2012, the SEC filed an emergency action against Andrew Franz

in U.S. District Court, alleging among other things, that he had misappropriated funds 

from Ruby clients by issuing fraudulent management fee requests, and obtained an 

emergency asset freeze and a permanent injunction. SEC v. Andrew J. Franz, 5:12-cv00642 (N.D. Ohio). After an evidentiary hearing, in June 2012 the court made findings of 

fact, held that Andrew Franz had violated the antifraud provisions of the Exchange Act 

and the Advisers Act, and entered a permanent injunction against further violations of 

those provisions. On March 15, 2013, the Commission permanently barred Andrew 

Franz from the securities industry by declaring as final an initial decision by ALJ 

Cameron Elliot dated January 18, 2013.

5. On July 23, 2013, Andrew Franz pled guilty to charges of wire fraud, tax 

fraud, and violations of Section 10(b) of the Exchange Act and Sections 206(1) and (2) of 

the Advisers Act. U.S. v. Andrew J. Franz, 1:13-cr-00331 (N.D. Ohio). Andrew Franz is 

scheduled to be sentenced in October 2013.

C. FACTS

Andrew Franz misappropriated over $490,000 from Ruby clients.

6. From 2007 through early 2011, Andrew Franz misappropriated over 

$490,000 from approximately 50 Ruby client accounts via fraudulent management fee 

and redemption requests. The majority of these fraudulently withdrawn funds were 

initially deposited into Andrew Franz’s bank accounts; a smaller portion of the stolen 

funds was initially deposited into Ruby’s bank accounts.

7. Ruby clients’ funds were primarily invested in variable annuities or 

mutual funds. Most Ruby clients signed limited powers of attorney permitting Ruby to 

request management fees directly from their securities accounts. Andrew Franz and 

Ruby’s office manager were responsible for calculating and requesting Ruby’s 

management fees directly from the securities custodians, which was performed 
4

quarterly. These fees were calculated based on the ending balance of the client’s account 

as of the last day of the previous quarter. Most Ruby clients were charged .5% of the 

quarterly ending balance once per quarter.

8. Andrew Franz’s role in the fee request process allowed him to easily 

misappropriate client funds. In some instances, Andrew Franz provided false client 

account balances to the Ruby office manager who calculated fees. Sometimes, after the 

office manager calculated the appropriate management fees and prepared the fee 

request, Andrew Franz changed the amounts before submitting the request to the 

annuity or mutual fund company. In other instances, after the office manager prepared 

and submitted the legitimate management fee request, Andrew Franz submitted 

additional fraudulent management fee requests days or weeks later. 

9. In some instances, Andrew Franz submitted fee requests that instructed 

that checks be mailed to his home address instead of Ruby’s office address. In addition, 

Andrew Franz was able to easily intercept management fee checks mailed to Ruby 

because he was the primary person who opened mail at Ruby and because many checks 

were addressed “Attn: Andrew Franz.” 

10. Starting in approximately 2006, George Franz had Andrew Franz begin to

take over Ruby’s operations. George Franz intended to transfer the business to Andrew 

Franz, since George Franz expected to retire in the next few years. 

11. From 2006 through 2011, George Franz spent approximately four months 

a year in Florida, where he had a residence. During those months, Andrew Franz was

present at Ruby’s offices and managed Ruby’s daily operations. Even when George 

Franz was in Ohio, he often worked from home, and let Andrew Franz continue to 

manage Ruby’s daily operations.

12. From at least 2006 through 2011, George Franz had sole supervisory 

responsibility over Andrew Franz as an associated person of Ruby.

From at least January 2007 through early 2011, George Franz became

aware of numerous signs of, and instances of, fraud by Andrew Franz.

13. Andrew Franz’s repeated misappropriation of client assets was made 

possible by George Franz’s failure to supervise him or take any action to stop him. From 

January 2007 through early 2011, George Franz became aware of numerous indications 

of fraud by Andrew Franz.
5

14. By January 2007, George Franz was aware that in 2006, Andrew Franz had 

stolen approximately $12,500 in management fee checks due to Ruby. In response, 

George Franz instructed Ruby’s tax preparer to issue an IRS form 1099 from the 

company to Andrew Franz for these stolen funds. George Franz did not disclose this 

information to Ruby clients or take steps to prevent additional fraud by Andrew Franz.

15. In approximately April 2009, George Franz learned that Andrew Franz

had stolen hundreds of thousands of dollars from the Marie Franz Trust, a family trust 

for which George Franz served as trustee. The trust assets had been invested in mutual 

funds. George Franz learned that Andrew Franz had caused the mutual fund company 

to issue checks to Ruby’s address or to George Franz’s home. Andrew Franz then 

obtained the checks from Ruby’s mail or his father’s mailbox.

16. In approximately August 2009, George Franz learned that Andrew Franz

had also stolen numerous other management fee checks issued to Ruby. George Franz

also learned that Andrew Franz had diverted a large portion of the stolen funds from

management fee checks and the trust into Ruby’s bank accounts disguised as revenue, 

in order to conceal Ruby’s dwindling income from his father. George Franz never

disclosed this information to Ruby clients.

17. In approximately August 2009, George Franz instructed Ruby’s

accountant and tax preparer to conduct a review of Andrew Franz’s personal bank 

account to determine how much Andrew Franz had stolen and what he did with the 

stolen funds. George Franz asked for this review because the stolen funds deposited 

into Ruby’s accounts, disguised as legitimate revenue, caused Ruby and George Franz

to overreport income and thus to overpay income tax. 

18. In or before December 2009, George Franz learned that Andrew Franz had 

stolen a total of about $800,000 from the Marie Franz Trust from approximately August 

2007 through April 2009, depositing these funds into his personal bank account.

19. In or before December 2009, George Franz also learned that from 

approximately November 2007 through June 2009, Andrew Franz had diverted a total 

of approximately $170,000 in management fee checks issued from securities custodians 

to Ruby, depositing them into his personal bank account. George Franz did not disclose 

this information to Ruby clients.

20. In or before December 2009, Ruby’s accountant told George Franz that 

someone should analyze whether the diverted checks withdrawn from client accounts 

were properly requested (and thus constituted thefts from Ruby) or fraudulently 

requested (and thus constituted thefts from Ruby clients). George Franz assured the 
6

accountant that he would personally perform this analysis. Some of these checks had 

been fraudulently requested.

21. In or before December 2009, George Franz learned that from August 2007 

through July 2009, Andrew Franz had written checks from his personal bank account to 

Ruby totaling approximately $684,000, primarily from the stolen funds. These personal 

checks were reported as income in Ruby’s accounting records, based on 

misrepresentations by Andrew Franz to Ruby personnel or Ruby’s outside accountant.

22. In or before December 2009, George Franz also learned of various other 

suspicious transactions in Andrew Franz’s personal bank account, including a check 

written to a mutual fund company for “overpayment of fees,” various checks to 

Andrew Franz’s company, Wingate, Inc., and checks written directly to Ruby clients.

23. In approximately December 2009, George Franz told Ruby’s accountant 

that he was taking steps to ensure that Andrew Franz did not continue his misconduct. 

In particular, George Franz told the accountant that Andrew Franz was no longer 

permitted to touch incoming mail at Ruby and that he was no longer permitted to be 

involved in any deposits into Ruby’s bank accounts. Despite these representations, 

Andrew Franz continued handling incoming mail at Ruby and making deposits into 

Ruby’s bank accounts without consequence. George Franz did not disclose this 

information to Ruby clients.

24. Meanwhile, starting in approximately July 2009, George Franz became 

aware of numerous suspicious problems involving management fee checks withdrawn 

from Ruby client accounts. George Franz did not disclose this information to Ruby 

clients.

25. For example, in approximately July or August 2009, George Franz learned 

that Ruby was receiving management fee checks in the mail, drawn on client accounts,

that Ruby had never requested. George Franz learned that some Ruby clients appeared 

to have been billed twice for management fees for the same quarter, when Ruby had 

only asked for fees once.

26. In approximately October 2009, George Franz learned that on several 

occasions, there were management fee checks that had not yet been received by Ruby 

but had somehow already been cashed according to the mutual fund company. George 

Franz also learned that Andrew Franz had falsely claimed that the mutual fund 

company had told him the checks had not yet been cashed. George Franz did not 

disclose this information to Ruby clients.
7

27. On numerous occasions in 2010, George Franz learned of other 

irregularities regarding the management fee billing process and checks drawn on Ruby 

client accounts.

28. For example, in August 2010, George Franz learned that a total of 

$4,732.97 in unauthorized management fee checks had been recently withdrawn from 

four Ruby client accounts. George Franz also learned that these fee checks had 

subsequently gone missing. In September 2010, George Franz learned that three of these 

unauthorized checks had been deposited into Andrew Franz’s bank accounts. 

29. In October 2010, George Franz wrote checks from Ruby’s checking 

account to these four clients’ accounts to reimburse the clients for the $4,732.97 in total 

unauthorized fees. On the same day, Andrew Franz wrote a check to Ruby for 

$4,732.97. George Franz was aware of this check. Had George Franz not reimbursed 

these Ruby client accounts, these clients would have been more likely to discover that 

funds had been stolen. George Franz did not disclose this information to Ruby clients.

30. In January 2011, SEC examination staff conducted an examination of 

Ruby’s offices and operations regarding Andrew Franz’s May 2010 forgery of four 

client signatures on fee requests for the clients’ accounts (for fees legitimately owed to 

Ruby). During this examination, Andrew Franz was present in Ruby’s offices and 

George Franz was at his home in Florida. As part of this examination, George Franz

participated in SEC interviews via telephone.

31. During the January 2011 examination, SEC examination staff asked 

George Franz if he was aware of any potential violations of the securities laws other 

than Andrew Franz’s forgery of the four client signatures in May 2010. George Franz

lied, claiming that he was not aware of any other potential violations. In reality, George 

Franz was aware of numerous other indications of fraud by Andrew Franz, including 

but not limited to those instances noted in paragraphs 14 through 29 above.

32. From approximately January 2011 through May 2011, George Franz

became aware of numerous additional instances of management fee checks withdrawn 

from Ruby client accounts going missing, and numerous additional instances of 

Andrew Franz lying about missing management fee checks. George Franz did not 

disclose this information to Ruby clients.

33. From approximately January 2011 through March 2011, the Financial 

Industry Regulatory Authority (“FINRA”) made attempts to schedule an “On the 

Record Interview” (“OTR”) of Andrew Franz in connection with irregularities FINRA 

had discovered as part of their oversight of Andrew Franz’s associated broker-dealer. 
8

FINRA scheduled an OTR for Andrew Franz for March 4, 2011, but he did not appear. 

As a result, Andrew Franz’s broker-dealer promptly terminated him. After George 

Franz learned this, he failed to disclose it to clients or remove Andrew Franz as the 

listed broker on Ruby’s client accounts until many months later.

34. Andrew Franz finally appeared for a FINRA OTR on April 7, 2011 and

admitted to numerous instances of fraud and theft from Ruby clients. On May 2, 2011, 

Andrew Franz signed an Acceptance, Waiver, and Consent (“AWC”) with FINRA, in 

which he acknowledged some of his misconduct and consented to being barred from 

association with any FINRA broker-dealer. This AWC was accepted by FINRA on May 

24, 2011.

35. On April 29, 2011, George Franz informed Andrew Franz that he was 

terminated from Ruby as of May 31, 2011, after which he would not be allowed entry 

into Ruby’s offices. Andrew Franz continued to come in to the office and conduct Ruby 

business until approximately July 2011, without consequence.

36. Between April 29, 2011 and May 31, 2011, Andrew Franz misappropriated

another $15,000 from two Ruby clients. In June and July 2011, Andrew Franz 

misappropriated another nearly $60,000 from one Ruby client.

Respondents took no steps to prevent further thefts by Andrew Franz.

37. At all relevant times, George Franz was the Chief Compliance Officer of 

Ruby. However, George Franz and Ruby failed to adopt and implement written policies 

and procedures reasonably designed to prevent violations of the Advisers Act.

38. George Franz and Ruby failed to adopt written policies and procedures 

reasonably designed to prevent violations, even after learning that Andrew Franz had, 

among other things, stolen Ruby client funds. During the time that Andrew Franz 

worked at Ruby, the firm had no procedures reasonably designed to prevent violations 

of the Advisers Act in connection with the withdrawal of advisory client funds. 

Moreover, there were no compliance reviews of associated persons of Ruby or of Ruby’s 

compliance procedures until January 2012. 

39. Respondents owed a fiduciary duty to all Ruby clients to act in their best 

interest. Despite George Franz’s knowledge of Andrew Franz’s thefts, including but not 

limited to the instances described above, he did not disclose these issues to Ruby clients 

or take any meaningful steps to protect client assets from further thefts until at least 

approximately May 2011. 
9

40. Until at least approximately May 2011, Respondents did not: (A) remove

Andrew Franz and deny him access to Ruby’s offices; (B) remove Andrew Franz’s 

access to client accounts; (C) remove Andrew Franz as broker of record on client 

accounts; (D) inform securities custodians for client accounts to not accept instruction 

from Andrew Franz on behalf of client accounts; or (E) adopt and implement written 

policies and procedures reasonably designed to prevent violations of the Advisers Act

specific to Andrew Franz’s means of committing fraud.

41. After Andrew Franz was terminated from his broker dealer and barred 

from association with any FINRA broker-dealer, George Franz – to ensure that Ruby 

was paid its management fees – caused Andrew Franz’s signature stamp to be used on 

management fee requests to securities custodians. 

George Franz failed to inform Ruby clients that

Andrew Franz had stolen from their accounts.

42. On numerous occasions, George Franz became aware that Andrew Franz

had caused fraudulent withdrawals out of numerous client accounts and 

misappropriated the stolen funds. Rather than disclose to clients that Andrew Franz

had stolen from their securities accounts, George Franz instead concealed the thefts by 

secretly replenishing the victim clients’ accounts. For example, from October 2010 

through April 2012, George Franz wrote 7 checks totaling approximately $28,000 into 

the accounts of 22 different Ruby clients.

George Franz lied to Ruby clients about Andrew Franz’s thefts

and Ruby’s repayments of those stolen funds.

43. From approximately May 2011 through approximately July 2013, George 

Franz affirmatively misrepresented to numerous Ruby clients that Andrew Franz had 

not taken any funds from Ruby clients. He knew that was false.

44. George Franz told certain victims that the withdrawals from their 

accounts were due to mistake, but he knew they had been taken intentionally by 

Andrew Franz. For example, Andrew Franz issued quarterly management fee requests 

eleven times during 2010 for the account of one Ruby client (“Client A”), diverting 

$13,552 in fraudulent fee payments into his personal bank account. George Franz

learned in March 2011 that these funds were taken fraudulently.

45. In approximately late March 2011, George Franz falsely told Client A that 

Andrew Franz had mistakenly caused the $13,552 to be withdrawn from her account, 

and that the client’s account was being reimbursed. George Franz knew that Andrew 
10

Franz had intentionally caused the withdrawals. On March 30, 2011, George Franz

mailed a check for $13,552 from Ruby’s bank account to the securities custodian for 

Client A’s account, instructing that the funds be deposited into the client’s account. That 

same day, Andrew Franz obtained a cashier’s check from his bank payable to George 

Franz for $13,552, reimbursing him for the funds repaid to Client A’s account.

46. From at least 2007 through at least July 2013, George Franz also made 

numerous other material misrepresentations and omissions to Ruby clients regarding, 

among other things, Andrew Franz’s fraud, George Franz’s knowledge of that fraud, 

and the actions George Franz took after learning of that fraud.

During the SEC’s August 2011 examination, George Franz lied to 

SEC examination staff about what he knew and when he knew it.

47. During the first week of August 2011, SEC examination staff conducted an

examination of Ruby in connection with the misconduct uncovered by FINRA and its 

action against Andrew Franz, including Andrew Franz’s thefts from Client A and other 

Ruby clients in 2010 and early 2011. During this examination, the SEC interviewed 

George Franz.

48. George Franz told SEC examination staff that he first learned of any 

potential misconduct by Andrew Franz (other than thefts from the Marie Franz Trust 

and the four forged client signatures in May 2010) in early 2011. George Franz also told 

SEC examination staff that once he learned of this misconduct, he immediately fired 

Andrew Franz from Ruby. These were lies.

49. During the August 2011 examination, the SEC examination staff 

interviewed George Franz regarding instances of fraud by Andrew Franz that were 

known to the SEC staff at the time. The SEC examination staff asked George Franz if he 

was aware of any other potential violations of the securities laws. George Franz said he 

was not. This was not true; he was aware of numerous other indications of fraud by 

Andrew Franz, including but not limited to the instances noted in paragraphs 14

through 46 above.

After the SEC’s August 2011 examination and during the early stages 

of the SEC’s subsequent investigation, George Franz destroyed evidence 

of Andrew Franz’s thefts by shredding numerous Ruby Corporation records.

50. In mid-August 2011, George Franz and his attorney met with SEC 

enforcement and examination staff to discuss the SEC’s investigation, which at that time

had only involved instances of fraud by Andrew Franz in 2010 and 2011. During this 
11

meeting, the SEC staff told George Franz that he had a fiduciary responsibility to Ruby 

clients and an obligation to investigate Andrew Franz’s thefts to determine the full 

extent of his fraud. The SEC staff told George Franz that – at a minimum – he should 

investigate the prior five years of transactions, such as via a forensic accounting, to 

identify any additional thefts by Andrew Franz. The SEC staff also told George Franz

that the SEC would continue to investigate Andrew Franz’s fraud, including potential 

fraud prior to 2010. 

51. At all relevant times, Ruby was obligated under Section 204(a) of the 

Investment Advisers Act of 1940 and Rule 204-2 thereunder to maintain and preserve 

all books and records relating to Ruby’s operations, including revenue, for a total of five 

years after the end of the year to which the record relates. As of November 2011, Ruby 

was obligated to maintain and preserve all such books and records for the time frame 

January 1, 2006 through November 2011. 

52. In November 2011, George Franz knowingly caused numerous Ruby 

documents to be shredded. Such records contained important evidence of Andrew 

Franz’s thefts before 2010.

53. George Franz was aware that Ruby’s records for the time period prior to 

2010 contained evidence of additional fraud by Andrew Franz, as well as evidence of 

George Franz’s knowledge of Andrew Franz’s fraud prior to 2010. On various occasions 

in 2008 and 2009, Ruby’s former office manager informed George Franz of these 

instances of potential fraud by Andrew Franz as she became aware of them, and 

showed George Franz documents reflecting such fraud.

George Franz commissioned a sham “audit” that he 

used to mislead numerous Ruby clients.

54. From September 2011 through August 2012, Respondents engaged an 

accounting firm to perform an agreed-upon procedures engagement regarding 

management fees charged by Ruby ("engagement"), supposedly in an effort to identify 

all instances of misappropriation by Andrew Franz. This engagement was 

commissioned in response to the SEC’s discussions with George Franz in mid-August 

2011, as described in paragraph 50 above. 

55. This engagement was not an audit, as explicitly stated in the final report.

Rather, this engagement simply consisted of specified procedures, and included no 

attestation by the accounting firm as to whether Ruby clients were defrauded or 

overbilled. 
12

56. George Franz knew that these procedures were unlikely to uncover the 

types of transactions by which Andrew Franz typically misappropriated funds from 

Ruby clients. For example, the engagement only covered the time period of January 1, 

2010 through June 30, 2011. Moreover, George Franz substantially misled the 

accounting firm and withheld information material to their analysis to avoid detection 

of the extent of Andrew Franz’s thefts. For example, George Franz provided the 

accounting firm with a fraudulently altered check and lied to the accounting firm about 

the check’s purpose. As a result, the vast majority of Andrew Franz's fraud was not 

identified in the engagement. George Franz thus knew that the engagement was a 

sham.

57. Despite knowledge of the above facts and the sham nature of the exercise, 

George Franz told numerous Ruby clients that "an audit" had been performed of all 

Ruby client accounts. George Franz misled numerous Ruby clients, causing them to 

believe that if they had not been identified as a victim of in the "audit," they could rest 

assured that they had not been stolen from. George Franz even falsely told clients who 

he knew were victims of Andrew’s fraud that they had not been victims.

During the Division’s investigation, Respondents

provided fabricated documents to the Division.

58. During a September 11, 2012 investigative testimony, George Franz

testified that he had, either verbally or in writing, informed all known victims of 

Andrew Franz’s fraud that they had been victimized. 

59. In November 2012, in response to SEC subpoenas, Respondents produced 

to the SEC letters from George Franz to four Ruby clients who had funds stolen by 

Andrew Franz and whose accounts were later reimbursed by Ruby. These four letters 

stated that Andrew Franz had stolen the clients’ funds and that the amounts were being 

repaid by Ruby. Three of these letters referenced specific conversations between George 

Franz and the client regarding Andrew Franz’s misconduct.

60. None of these four clients ever received these letters, and the 

conversations referenced in three of the letters never took place.

61. In addition to these four letters, Respondents produced to the SEC a letter 

to another client (“Client B”) that the client never received. In an April 14, 2011 letter, 

Client B complained to George Franz that in March 2010 her account had been

transferred out of an existing variable annuity without her consent, causing an 

approximately $6,000 early surrender charge to the account. In her complaint letter, 

Client B told George Franz that throughout 2010, Andrew Franz had repeatedly lied to 
13

her about the surrender charge, falsely claiming it was a mistake that would be repaid. 

62. In her complaint letter to George Franz, Client B threatened to report the 

matter to FINRA and the SEC if George Franz did not reimburse her for the surrender 

charge. In a response letter on April 29, 2011, George Franz claimed that in March 2010 

he had previously informed Client B of the surrender charge, that he had thereafter sent 

Client B a letter disclosing the charge, and that the client had agreed to the account 

transfer despite being aware of the surrender charge. These were lies.

63. In reality, Andrew Franz had forged Client B’s signature on the account 

transfer form. Client B never received the March 2010 disclosure letter, nor did she 

participate in any March 2010 meeting. George Franz simply fabricated a story in which 

Client B – with full knowledge of the surrender charge – had consented to the account 

transfer. He then fabricated a letter to support that story. George Franz took these steps

to protect Andrew Franz and Ruby from a potential FINRA or SEC investigation as a 

result of Client B’s complaint.

64. Client B’s April 14, 2011 complaint letter, George Franz’s April 29, 2011 

response letter, and the fabricated March 2010 letter were produced to the SEC 

pursuant to subpoena as part of Client B’s client file maintained at Ruby.

65. These five fabricated letters were not the only times that George Franz

“papered the file” with fabricated letters to clients in order to defend against claims that 

he lied or withheld material facts. In 2004 and 2005, George Franz told three potential 

clients that Ruby only received a fee if the clients’ securities account managed by Ruby 

gained in value, and that Ruby’s fee would be a percentage of that gain. This was false; 

Ruby was paid 2% of the clients’ portfolio value each year regardless of whether the 

account gained or lost value. A year later, after the clients complained about these 

undisclosed fees, George Franz claimed that he previously disclosed these fees, and 

specifically cited two letters he supposedly wrote to the clients. The clients never 

received these letters.

George Franz lied under oath during the investigation.

66. During investigative testimony before the SEC enforcement staff, George 

Franz lied under oath on numerous occasions.

67. For example, during investigative testimony on September 11, 2012, 

George Franz testified that he had disclosed to all known victims of Andrew Franz’s 

fraud the fact that they had been victims of misappropriation from their accounts. This 

testimony was false.
14

68. Further, during investigative testimony on March 6, 2013, George Franz

testified that he had mailed the letters referenced in paragraphs 59 through 63 above, 

and that he had made the disclosures to clients referenced in those letters. This 

testimony was false.

Respondents filed a false SEC Form ADV Part II.

69. On or around April 16, 2012, Ruby filed a Form ADV Part II (dated 

November 30, 2011), disclosing that Andrew Franz was a former associated person of 

Ruby, but was removed from the firm because he had consented to a FINRA bar based 

on allegations of misappropriation, and stating, in Item 9:

[Andrew] Franz: (1) misappropriated funds belonging to Ruby 

Corporation and its clients in violation of NASD Conduct Rule 2110 and (2) 

forged an investor’s signature and misappropriated his funds in violation 

of FINRA Rule 2010. This conduct was unknown to George B. Franz III and 

Ruby Corporation.

70. This Form ADV Part II was filed with the Commission and provided to 

Ruby clients.

71. The claim that “this conduct was unknown to George B. Franz III and 

Ruby Corporation” was false at the time this Form ADV Part II was filed. At the time 

this form was filed, George Franz knew that this claim was false.

D. VIOLATIONS

1. As a result of the conduct described above, Andrew Franz violated Section 

10(b) of the Exchange Act and Rule 10b-5 thereunder, which prohibit fraudulent 

conduct in connection with any purchase or sale of security.

2. As a result of the conduct described above, Andrew Franz violated 

Sections 206(1) and 206(2) of the Advisers Act, which prohibit fraudulent conduct by an 

investment adviser.

3. As a result of the conduct described above, George Franz and Ruby 

Corporation failed reasonably to supervise Andrew Franz.

4. As a result of the conduct described above, Ruby Corporation willfully 

violated Section 10(b) of the Exchange Act and Rule 10b-5 thereunder.
15

5. As a result of the conduct described above, George Franz and Ruby 

Corporation willfully violated Sections 206(1) and (2) of the Advisers Act.

6. As a result of the conduct described above, George Franz willfully aided 

and abetted and caused Andrew Franz’s and Ruby Corporation’s violations of Section 

10(b) of the Exchange Act and Rule 10b-5 thereunder and Sections 206(1) and 206(2) of 

the Advisers Act.

7. As a result of the conduct described above, Ruby Corporation willfully 

violated Section 206(4) of the Advisers Act and Rule 206(4)-7 thereunder, which among 

other things require that investment advisers registered with the Commission adopt 

and implement policies and procedures reasonably designed to prevent violations of 

the Advisers Act.

8. As a result of the conduct described above, George Franz willfully aided 

and abetted and caused Ruby Corporation’s violation of Section 206(4) of the Advisers 

Act and Rule 206(4)-7 thereunder.

9. As a result of the conduct described above, Ruby Corporation willfully 

violated Section 204(a) of the Advisers Act and Rule 204-2 thereunder, which require 

that investment advisers registered with the Commission maintain and preserve certain 

books and records. 

10. As a result of the conduct described above, George Franz willfully aided 

and abetted and caused Ruby Corporation’s violation of Section 204(a) of the Advisers 

Act and Rule 204-2 thereunder. 

11. As a result of the conduct described above, Ruby Corporation willfully 

violated Section 207 of the Advisers Act, which makes it “unlawful for any person 

willfully to make any untrue statement of a material fact in any registration application 

or report filed with the Commission . . . or willfully to omit to state in any such 

application or report any material fact which is required to be stated therein.” 

12. As a result of the conduct described above, George Franz willfully 

violated, and aided and abetted and caused Ruby Corporation’s violation of, Section 

207 of the Advisers Act. 

III.

In view of the allegations made by the Division of Enforcement, the Commission 

deems it necessary and appropriate in the public interest that public administrative and 

cease-and-desist proceedings be instituted to determine:
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A. Whether the allegations set forth in Section II hereof are true and, in 

connection therewith, to afford Respondents George Franz and Ruby Corporation an 

opportunity to establish any defenses to such allegations; 

B. What, if any, remedial action is appropriate in the public interest against 

Respondents George Franz and Ruby Corporation pursuant to Sections 203(e) and (f) of 

the Advisers Act including, but not limited to, disgorgement and civil penalties pursuant 

to Section 203 of the Advisers Act; 

C. What, if any, remedial action is appropriate in the public interest against 

Respondents George Franz and Ruby Corporation pursuant to Section 9(b) of the 

Investment Company Act including, but not limited to, disgorgement and civil penalties 

pursuant to Section 9 of the Investment Company Act; and 

D. Whether, pursuant to Section 21C of the Exchange Act and Section 203(k) of 

the Advisers Act, Respondents George Franz and Ruby Corporation should be ordered to 

cease and desist from committing or causing violations of and any future violations of 

Section 10(b) of the Exchange Act and Rule 10b-5 thereunder, Sections 206(1) and 206(2) 

of the Advisers Act, Section 204(a) of the Advisers Act and Rule 204-2 thereunder, Section 

206(4) of the Advisers Act and Rule 206(4)-7 thereunder, and Section 207 of the Advisers 

Act.

IV.

IT IS ORDERED that a public hearing for the purpose of taking evidence on the 

questions set forth in Section III hereof shall be convened not earlier than 30 days and not 

later than 60 days from service of this Order at a time and place to be fixed, and before an 

Administrative Law Judge to be designated by further order as provided by Rule 110 of 

the Commission's Rules of Practice, 17 C.F.R. § 201.110. 

IT IS FURTHER ORDERED that Respondents George Franz and Ruby Corporation 

shall each file an Answer to the allegations contained in this Order within twenty (20) days 

after service of this Order, as provided by Rule 220 of the Commission's Rules of Practice, 

17 C.F.R. § 201.220. 

If any Respondent fails to file the directed answer, or fails to appear at a hearing 

after being duly notified, the Respondent may be deemed in default and the proceedings 

may be determined against that Respondent upon consideration of this Order, the 

allegations of which may be deemed to be true as provided by Rules 155(a), 220(f), 221(f) 

and 310 of the Commission's Rules of Practice, 17 C.F.R. §§ 201.155(a), 201.220(f), 201.221(f) 

and 201.310.
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This Order shall be served forthwith upon Respondents personally or by certified 

mail.

IT IS FURTHER ORDERED that the Administrative Law Judge shall issue an 

initial decision no later than 300 days from the date of service of this Order, pursuant to 

Rule 360(a)(2) of the Commission’s Rules of Practice, 17 C.F.R. § 201.360. 

In the absence of an appropriate waiver, no officer or employee of the Commission 

engaged in the performance of investigative or prosecuting functions in this or any 

factually related proceeding will be permitted to participate or advise in the decision of 

this matter, except as witness or counsel in proceedings held pursuant to notice. Since this 

proceeding is not “rule making” within the meaning of Section 551 of the Administrative 

Procedure Act, it is not deemed subject to the provisions of Section 553 delaying the 

effective date of any final Commission action.

By the Commission.

Elizabeth M. Murphy

Secretary