Source: https://www.sec.gov/litigation/complaints/comp17864.htm
Timestamp: 2019-04-19 16:22:27+00:00

Document:
This action arises out of a fraudulent offering of securities over the Internet. The securities offered and sold were issued by Signature, an unregistered investment company created and managed by Fontaine. From at least July 2002 through at least October 22, 2002, Defendants deceived investors into purchasing Signature's securities by making false and misleading claims about Signature's track record, the amount of assets Signature managed, and Signature's purported affiliation with several well-known financial institutions and professionals. Defendants made these false and misleading statements on Signature's website and in Signature's prospectus (collectively, "marketing materials"), and in e-mails to investors and prospective investors.
Signature "averaged over a 39.5% annual return" over its 13-year history, including returns "during the bear market of the past 2 years [of ] over 21% per year;"
Investors' funds were being held in trust at Delaware Charter Guarantee & Trust Company.
Defendants also made false and misleading statements about various other investment advisory services purportedly offered by Signature, such as a Roth IRA program, a "Traditional IRA Investment Plan," and a 401(k) program.
All of these representations were false. Signature had no track record, much less the long and extraordinary one Defendants claimed. Fontaine simply made up the claimed performance returns. Fontaine had no prior investment advisory experience. Signature never had anywhere near $250 million under management. SSB never advised Signature or provided any services to it. KPMG never provided any auditing or other services to Signature. None of Signature's investors' funds were held at Delaware Charter. The 401(k), IRA and other managed accounts described in Signature's marketing materials did not exist.
Defendants raised at least $29,300 from at least two investors through their fraudulent solicitations.
Through this conduct, Signature and Fontaine, directly and indirectly, have engaged, and may be continuing to engage, in violations of Sections 5(a), 5(c), and 17(a) of the Securities Act of 1933 ("Securities Act"), 15 U.S.C. §§ 77e(a), 77e(c), and 77q(a); Section 10(b) of the Securities Exchange Act of 1934 ("Exchange Act"), 15 U.S.C. § 78j(b), and Rule 10b-5 promulgated thereunder, 17 C.F.R. § 240.10b-5; and Sections 206(1) and 206(2) of the Investment Advisers Act of 1940 ("Advisers Act"), 15 U.S.C. §§ 80b-6(1) and 80b-6(2); and Signature has engaged, and may be continuing to engage, in violations of Section 7 of the Investment Company Act of 1940 ("Investment Company Act"), 15 U.S.C. § 80a-7.
Defendants Signature and Fontaine, unless enjoined and restrained by this Court, will continue to engage in the transactions, acts, practices and courses of business alleged herein, and in transactions, acts, practices, and courses of business of a similar type and object.
By this action, the Commission seeks: (a) permanent injunctive relief; (b) disgorgement of all ill-gotten gains plus prejudgment interest; (c) civil penalties; and (d) such further relief as the Court may deem appropriate.
The Commission brings this action pursuant to the authority conferred upon it by Sections 20(b) and 20(d) of the Securities Act, 15 U.S.C. §§ 77t(b) and 77t(d); Section 21(d) of the Exchange Act, 15 U.S.C. § 78u(d); Sections 42(d) and 42(e) of the Investment Company Act, 15 U.S.C. §§ 80a-42(d) and 80a-42(e); and Sections 209(d) and 209(e) of the Investment Advisers Act, 15 U.S.C. §§ 80-9(d) and 80-9(e).
This Court has subject matter jurisdiction over this action pursuant to Sections 20(d) and 22(a) of the Securities Act, 15 U.S.C. §§ 77t(d) and 77v(a); Sections 21(e) and 27 of the Exchange Act, 15 U.S.C. §§ 78u(e) and 78aa; Section 44 of the Investment Company Act, 15 U.S.C. § 80a-44; and Sections 214 and 209(e) of the Investment Advisers Act, 15 U.S.C. §§ 80-14 and 80-9(e).
Defendants, directly and indirectly, made use of the means or instruments of transportation or communication in, or the means or instrumentalities of, interstate commerce, or of the mails, in connection with the transactions, acts, practices, and courses of business alleged in this complaint.
Ryan J. Fontaine, age 22, resides in Bloomfield Hills, Michigan. Fontaine created and controlled Signature and held himself out as Signature's portfolio manager. Fontaine has never been registered with the Commission as an investment adviser or in any other capacity.
Simpleton Holdings Corporation a/k/a Signature Investments Hedge Fund was incorporated in Delaware on February 2, 2002. Signature is an unregistered investment company that, until recently, advertised itself and related investment advisory services on an Internet website, http//www.signatureinvestments.com. Signature has never been registered with the Commission as an investment company or investment adviser, or in any other capacity.
From at least July 2002 until at least October 22, 2002, Defendants conducted a public offering of securities by offering and selling Signature shares to the public through advertisements on Signature's Internet website and otherwise. Defendants advertised Signature as a "private investment corporation" or "hedge fund" that invested in stocks, bonds and options in exchange for a management fee payable to Signature's investment adviser. At least two investors bought Signature shares, investing a total of at least $29,300.
No registration statement was ever filed with the Commission or in effect for the offer and sale of Signature's securities, and no exemption from registration was available.
From at least July 2002 until at least October 22, 2002, Defendants fraudulently induced investors to purchase Signature's securities by making false representations about Fontaine's and Signature's prior performance, investment experience, and Signature's purported affiliations with well-known financial institutions and professionals. Defendants made these representations in advertisements on Signature's website, in Signature's prospectus, and in other communications with investors and prospective investors. Fontaine created Signature's marketing materials and personally solicited investors.
Defendants made false and misleading claims about Signature's past performance. Among other things, Defendants claimed that Signature: (a) was "one of the top private investment firms in the world;" (b) had "averaged over a 39.5% annual return" over the past thirteen years; (c) had "never had a losing year;" (d) had outperformed the Dow and NASDAQ over the last several years; (e) had returns during the bear market of the last two years of over 21% per year; (f) realized a purported return of over 100% annually in the years 1989 through 1993; and (g) had outperformed "nearly every mutual fund in the past 3 years." These performance claims were false. Neither Fontaine nor Signature had any experience managing other peoples' money - much less the 13 years' worth they claimed. Moreover, the performance returns touted in Signature's marketing materials were complete fabrications; Fontaine simply made them up.
Defendants falsely claimed Signature had $250 million under management. For example, in July and August 2002, Fontaine told one investor that Signature had $248 million under management, and told another, prospective, investor that Signature had over $250 million under management. These representations were false. Signature never had anywhere near $250 million under management. In fact, Signature had no assets under management at the time Fontaine began making these misrepresentations and may have raised as little as $29,300 from investors by making these misrepresentations.
(a) Signature's prospectus falsely stated that SSB was Signature's sub-advisor, and that SSB "provide[d] investment advice on secured debt instruments along with equities." These representations were false. SSB never provided Signature investment advice on secured debt instruments or equities or provided it with any other service.
(b) Defendants also fraudulently claimed KPMG had performed auditing services for Signature. Fontaine falsely claimed in e-mails to investors and prospective investors that KPMG had audited certain trading results of Signature. Fontaine also e-mailed investors and prospective investors a forged letter on KPMG letterhead captioned "Independent Auditor's Report," purportedly signed by KPMG, verifying certain trading results of Signature. These representations were false. KPMG never provided auditing or any other services to Signature and the KPMG report was a forgery.
(c) Finally, Defendants falsely represented to one investor that her funds were being held in trust at Delaware Charter. Fontaine sent this investor - a 55-year-old factory worker from Astoria, Oregon - an IRA application form from Delaware Charter and instructed her to complete the form and return it to him, which she did. Defendants' representations about Delaware Charter were false. Defendants did not maintain any accounts at Delaware Charter on behalf of any of Signature's investors, and Delaware Charter is not affiliated in any way with Signature.
Defendants made additional fraudulent representations about the management of Signature in its prospectus, identifying Fontaine Holdings as Signature's investment adviser and Matthew Backaitis as a portfolio manager and chief analyst. These representations were also false. Fontaine Holdings did not exist, and Backaitis, a high school friend of Fontaine, never provided any portfolio management or analytical services to Signature.
Beginning at least as early as July 2002 and continuing through at least October 22, 2002, Fontaine and Signature engaged, for compensation, in the business of advising Signature's clients on investing in securities. Signature's prospectus identified Fontaine as Signature's portfolio manager, and Signature held itself out as an investment adviser by offering over its website numerous investment advisory services in exchange for management fees. Accordingly, Defendants acted as investment advisers within the meaning of Section 202(a)(11) of the Advisers Act, 15 U.S.C. § 80b-2(a)(11).
From at least July 2002 through at least October 22, 2002, while acting as investment advisers, Defendants made numerous misrepresentations of material fact to clients and prospective clients.
Among other things, in Signature's marketing materials and in other communications to clients and prospective clients, Defendants made the misrepresentations set forth in paragraphs 1 through 6 and 12 through 21, above.
Defendants made additional false representations to clients and prospective clients, including the statements that: (a) Fontaine Holdings was the investment adviser to Signature; (b) Fontaine was an experienced portfolio manager; (c) Defendants offered a variety of investment advisory services, such as a Roth IRA investment program, a "Traditional IRA Investment Plan," and a 401(k) program; and (d) Signature was the "nation's private 401(k) leader" that "over the past 13 years [has] created more wealth for our 401(k) participants than any other firm." For example, in an attempt to induce one prospective client to invest with Signature, Fontaine advised this prospective investor to "roll [his] 401(k) into an IRA," and represented that "this step has been done by many of our investors." Fontaine assured him "we are a legitimate investment vehicle with impeccable performance over the past 13 years."
None of the foregoing representations were true. Defendants did not have the successful investment record they claimed; Fontaine Holdings did not exist; Fontaine was not an experienced portfolio manager; and Defendants never administered any of the advertised investment plans.
Defendants also made fraudulent representations to existing and prospective investors and advisory clients about the Commission's investigation and did so at least as late as October 22, 2002.
On October 17, the Commission staff informed Defendants that it was considering recommending to the Commission that it bring fraud charges against them. Despite this notice, on October 22, 2002 - five days after being informed of these potential charges - Fontaine solicited an additional investment from one of Signature's investors and made additional fraudulent representations during that solicitation. Specifically, Fontaine told this investor that: (a) the Commission staff's only concern with Signature's offering was Signature's use of the term "hedge fund" in offering materials; and (b) Fontaine did not expect to be charged by the Commission.
The Commission repeats and realleges the allegations contained in paragraphs 1 through 27, above, by reference as if fully set forth herein.
Signature's shares are securities within the meaning of Section 2(1) of the Securities Act, 15 U.S.C. § 77b(1), and Section 3(a)(10) of the Exchange Act, 15 U.S.C. § 78c(a)(10).
From at least July 2002 through October 22, 2002, while no registration statement was filed with the Commission or was in effect, Defendants, directly or indirectly, offered and sold at least $29,300 worth of Signature's shares to the public.
In offering and selling Signature's shares, Defendants used means or instruments of transportation or communication in interstate commerce, or the mails.
By reason of the foregoing, Defendants engaged and, unless enjoined, will continue to engage, directly or indirectly, in transactions, acts, practices and courses of business which constitute violations of Sections 5(a) and 5(c) of the Securities Act, 15 U.S.C. §§ 77e(a) and 77e(c).
Plaintiff realleges and incorporates Paragraphs 1 through 32 as if fully set forth herein.
The facts about Signature's and Fontaine's true track record and experience, about Signature's lack of association with SSB, KPMG, Delaware Charter, Fontaine Holdings and Backaitis, and about the Commission investigation were known to or readily ascertainable by Defendants.
From at least July 2002 through at least October 22, 2002, Defendants, directly and indirectly, in the offer or sale, and in connection with the purchase or sale, of securities, by the use of the means or instruments of transportation or communication in, and the means or instrumentalities of, interstate commerce, and the mails: (a) employed devices, schemes, and artifices to defraud; (b) obtained money or property by means of, or otherwise made, untrue statements of material fact or omitted to state material facts necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading; and (c) engaged in transactions, acts, practices and courses of business which operated as a fraud or deceit upon purchasers of Signature's shares.
As part and in furtherance of the violative conduct, and as more fully described in paragraphs 1 through 6, 12 through 27, and 34, above, Defendants knowingly or recklessly made false and misleading statements to purchasers and prospective purchasers of Signature's shares.
By reason of the foregoing, Defendants engaged and, unless enjoined, will continue to engage, directly or indirectly, in transactions, acts, practices and courses of business which constitute violations of Section 17(a) of the Securities Act, 15 U.S.C. §§ 77q(a), and Section 10(b) of the Exchange Act, 15 U.S.C. § 78j(b), and Rule 10b-5, 17 C.F.R. § 240.10b-5.
The Commission repeats and realleges the allegations contained in Paragraphs 1 through 37, above, by reference as if fully set forth herein.
As more fully described in paragraphs 1 through 6 and 12 through 27, above, Defendants, directly and indirectly, engaged, for compensation, in the business of advising clients as to the advisability of investing in, purchasing, or selling securities. As a result, Defendants acted as investment advisers within the meaning of Section 202(a)(11) of the Advisers Act, 15 U.S.C. § 80b-2(a)(11).
Defendants, while acting as investment advisers, by use of the mails or means or instrumentalities of interstate commerce, directly or indirectly, knowingly or recklessly, employed devices, schemes, or artifices to defraud clients or prospective clients, and engaged in transactions, practices or courses of business which operated as a fraud or deceit upon clients or prospective clients.
As part of and in furtherance of the violative conduct, and as more fully described in paragraphs 1 through 6, 12 through 27, and 34, above, Defendants made the misrepresentations alleged in paragraphs 1 through 6, 12 through 27, and 34, above.
By reason of the foregoing, Defendants engaged and, unless enjoined, will continue to engage, directly or indirectly, in transactions, acts, practices and courses of business which constitute violations of Sections 206(1) and 206(2) of the Advisers Act, 15 U.S.C. §§ 80b-6(1) and 80b-6(2).
The Commission repeats and realleges the allegations contained in paragraphs 1 through 42, above, by reference as if fully set forth herein.
As more fully described in paragraphs 1 through 6 and 12 through 27, above, from at least July 2002 through at least October 22, 2002, Signature issued securities in a public offering and held itself out as a "private investment fund" or "hedge fund." It advertised on the Internet and purportedly pooled investor funds to purchase and sell securities.
Accordingly, Signature was an investment company under Section 3(a)(1) of the Investment Company Act, 15 U.S.C. § 80a-3(a)(1), and was required to register with the Commission under Section 7(a)(1) of the Investment Company Act, 15 U.S.C. § 80a-7(a)(1). Signature was not so registered and, by acting as an investment company without being registered, violated Section 7(a)(1) of the Investment Company Act.
By reason of the foregoing, Signature engaged and, unless enjoined, will continue to engage, directly or indirectly, in transactions, acts, practices and courses of business which constitute violations of Section 7 of the Investment Company Act, 15 U.S.C. § 80a-7.
directing Defendants to pay civil monetary penalties pursuant to Section 20(d) of the Securities Act, 15 U.S.C. § 77t(d), Section 21(d)(3) of the Exchange Act, 15 U.S.C. § 78u(d), Section 42(e) of the Investment Company Act, 15 U.S.C. § 80a-42(e), and Section 209(e) of the Investment Advisers Act, 15 U.S.C. § 80-9(e), for the violations alleged herein.
Grant such other and further relief as the Court deems appropriate.

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