SECURITIES AND EXCHANGE COMMISSION Washington, D.C. INVESTMENT ADVISERS ACT OF 1940 Rel. No. 1696 / January 21, 1998 Admin. Proc. File No. 3-8899 : In the Matter of : : JOHN FRANCIS D'ACQUISTO : : OPINION OF THE COMMISSION INVESTMENT ADVISER PROCEEDINGS Ground for Remedial Action Permanent Injunction Registered investment adviser was permanently enjoined from violating the antifraud provisions of the federal securities laws. Held, it is in the public interest to revoke his registration as an investment adviser and to bar him from associating with an investment adviser. APPEARANCES: John F. D'Acquisto, pro se. James A. Howell and Marianne Wisner, for the Commission's Division of Enforcement. Appeal filed: April 25, 1997 Briefing completed: July 25, 1997 I. John F. D'Acquisto, a registered investment adviser, appeals from the decision of an administrative law judge. The law judge found that a district court had permanently enjoined D'Acquisto from violating the antifraud provisions of the federal securities laws. Based on this injunction and consideration of the public interest, the administrative law judge revoked D'Acquisto's investment adviser registration and barred him from associating with an investment adviser. We base our findings on an independent review of the record, except for those findings not challenged on appeal. II. On September 20, 1995, the United States District Court for the Southern District of California permanently enjoined D'Acquisto from violating Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934, and Rule 10b-5 thereunder. <(1)> The district court found that in 1994 D'Acquisto fraudulently raised $6.8 million from two investors, Alliance Holdings Limited ("Alliance"), a European holding company, and Dr. Herbert Geisselmann, an Austrian attorney, by offering and selling securities in a prime bank investment program and an asset enhancement program. D'Acquisto acted through entities he controlled, D'Acquisto Financial Group, Inc. ("DFG") and Doubleday Trust ("Doubleday"). <(2)> D'Acquisto falsely represented <(1)> SEC v. D'Acquisto Fin. Group, Inc., No. CV 95-1105 H(AJB) (S.D. Cal. Sept. 20, 1995). Along with D'Acquisto, the district court enjoined D'Acquisto Financial Group, Inc. ("DFG"), a financial services company; Doubleday Trust ("Doubleday"), an investment trust; and Thomas F. Goodman ("Goodman"), corporate counsel for DFG and Doubleday. D'Acquisto was President of DFG and a trustee of Doubleday. The district court entered the permanent injunction pursuant to a grant of partial summary judgment for the Commission. The district court also ordered the Commission to conduct discovery on the amount of disgorgement to be ordered from the defendants. Although the district court's disposition of the disgorgement issue was not included in the record, we take official notice, pursuant to our Rule of Practice 323, that on October 24, 1996, the district court entered an order of disgorgement, assessed prejudgment interest, and entered a final judgment for the Commission. See Litigation Release No. 15140, 63 SEC Docket 336 (Oct. 29, 1996). <(2)> The district court noted that the facts were "substantially similar" to those contained in the Statement of Stipulated Facts accompanying the consent judgment entered in Sheridan Asset Management, Inc. v. Doubleday Trust, No. 94 C 6470 (N.D. Ill. Apr. 3, 1995) ("Sheridan Asset Management, Inc."), an interpleader action brought by Sheridan Asset Management, Inc. ("Sheridan") against D'Acquisto, DFG, Doubleday, and Alliance, among other defendants. The district court gave preclusive effect to the stipulated judgment in Sheridan Asset Management, Inc. when it entered a permanent injunction against D'Acquisto. The propriety of the district court's application of collateral estoppel to the stipulated judgment is unreviewable in this proceeding. Meyer Blinder, Securities Exchange Act Rel. No. 39180 (Oct. 1, 1997), 65 SEC Docket 1970, 1973. As a result, D'Acquisto (continued...) ======END OF PAGE 2====== to Alliance and Geisselmann that his companies were experienced money managers; that these investors' funds were secure and earning healthy profits; and that their initial investment was low risk and would be returned to them promptly. When the investors demanded that D'Acquisto return their funds, D'Acquisto refused to do so. The district court found that D'Acquisto had used the funds to purchase a contingent interest in a Mexican minor league baseball team, vacant land in Mexico, and three racehorses. This administrative proceeding brought under Sections 203(e) and 203(f) of the Investment Advisers Act of 1940 ("Advisers Act") followed. III. Sections 203(e) and 203(f) of the Advisers Act, as relevant here, permit us to sanction any person who is an "investment adviser" <(3)> or is "associated with an investment adviser," <(4)> if we find that the sanctions are in the public interest, and that, among other things, the person has been permanently enjoined from engaging in conduct in connection with the purchase or the sale of a security. <(5)> D'Acquisto admits that the permanent injunction entered against him provides sufficient grounds for us to sanction him. Nevertheless, D'Acquisto contends that we lack jurisdiction over him because he is not a registered investment adviser. The record reflects that D'Acquisto was registered with the Commission as an investment adviser during the relevant time period. In May 1984, D'Acquisto applied to register D'Acquisto, Goodman & Associates, Inc. <(2)>(...continued) is estopped from arguing before us that the district court erred in using the stipulation against him; that he signed the stipulation without reviewing it; and that he did not stipulate to "fraud." D'Acquisto should have raised these arguments before the district court in the injunctive action. <(3)> An "investment adviser" is "any person who, for compensation, engages in the business of advising others... as to the advisability of investing in, purchasing, or selling securities." 15 U.S.C.  80b- 2(a)(11). <(4)> A person who is "associated with an investment adviser" is any "partner, officer, or director of such investment adviser . . . , or any person directly or indirectly controlling or controlled by such investment adviser, including any employee of such investment adviser." 15 U.S.C.  80b-2(a)(17). <(5)> 15 U.S.C.  80b-3(e)(4), (f). ======END OF PAGE 3====== ("DGA") as an investment adviser. D'Acquisto subsequently amended his application form, changing the name of the registered investment adviser from DGA to D'Acquisto & Associates, Inc. ("D&A"). <(6)> In June 1984, the Commission granted D&A's registration as an investment adviser. In October 1986, D'Acquisto again amended the application form, this time naming himself as the registrant. The Commission's public records thereafter show that D'Acquisto was registered individually as an investment adviser. In fact, in March 1994, D'Acquisto represented in sworn testimony to our staff, "I'm an SEC-registered investment adviser." Thus, we have jurisdiction over D'Acquisto. <(7)> <(6)> The record reveals that D&A's corporate powers had been suspended by the State of California in 1982, two years before D'Acquisto applied for D&A's investment adviser registration. D'Acquisto contends that the suspension related to another corporation, and not D&A. D'Acquisto, however, has offered no evidence to support this claim. In any event, for such evidence to be admitted on appeal, the Rules require a showing that the evidence is material and could not have been produced before the law judge. See Rule of Practice 452, 17 C.F.R.  201.452 (motion for leave to adduce additional evidence "shall show with particularity that such additional evidence is material and that there were reasonable grounds for failure to adduce such evidence previously."). <(7)> At no time did D'Acquisto withdraw or this Commission cancel his investment adviser registration. To withdraw from registration, an investment adviser must file with the Commission a Notice of Withdrawal from Registration as Investment Adviser ("Form ADV-W"). 15 U.S.C.  80b-3(h); 17 C.F.R.  275.203-2. While D'Acquisto wrote to this Commission in 1993 requesting that his license be withdrawn, neither he nor D&A filed a Form ADV-W. At the hearing before the law judge, counsel for D'Acquisto acknowledged that D'Acquisto had not filed a Form ADV-W. To cancel an investment adviser's registration, this Commission must find that the registered person "is no longer in existence, is not engaged in business as an investment adviser, or is prohibited from registering as an investment adviser. . . ." 15 U.S.C.  80b-3(h). D'Acquisto essentially conceded that the Commission had not made the requisite finding to cancel his registration when, in March 1994, D'Acquisto testified before our staff that he was still registered as an investment adviser: (continued...) ======END OF PAGE 4====== IV. D'Acquisto raises several additional contentions on appeal. First, D'Acquisto disputes the district court's resolution of the factual and legal issues underlying the 1995 permanent injunction. <(8)> The <(7)>(...continued) Q: Do you have currently any securities -- do you hold any securities licenses currently? A: Well, as of right now, I've -- I have not received anything. I requested for [sic] a revocation of my securities registered investment advisor's license, but I haven't received anything from the Commission as such, so I would assume that I'm still under the SEC registered investment advisor's criteria since I have not received anything from the Commission. I would have to say it is still in effect, yes. D'Acquisto asserts that the Commission had a duty sua sponte to cancel his registration, but he points to no case or other authority in support of this assertion. D'Acquisto also asserts, for the first time on appeal, that in 1993 a Commission staff member had orally agreed to revoke his investment adviser registration. D'Acquisto, however, has introduced no evidence to support this assertion. Besides, such an agreement would conflict with the statutory revocation procedures set forth in 15 U.S.C.  80b-3(h) and 17 C.F.R  275.203-2, and could not be binding on us. George Salloum, Securities Exchange Act Rel. No. 35563 (Apr. 5, 1995), 59 SEC Docket 43, 56 n.40 (alleged verbal consent by our staff to allow trader and syndicate manager's continued association with broker dealer was not binding on this Commission, and so did not limit our ability to prosecute or sanction him). <(8)> Among the arguments that D'Acquisto advances are these: (1) Alliance's allegations were "false and erroneous"; (2) he did not convert Alliance's and Sheridan's funds; (3) he was the "victim," Alliance and Sheridan were the "crooks," and they defrauded him; (4) he did not engage in any unauthorized trades; (5) he was prevented from producing certain favorable and material evidence; (6) he did not intend to violate the securities laws; and (7) his attorney had a conflict of interest. ======END OF PAGE 5====== doctrine of collateral estoppel and our case law, however, preclude D'Acquisto from contesting the injunctive action here. <(9)> Second, D'Acquisto contends that the law judge erred when, pursuant to our Rule of Practice 200(d), <(10)> she granted the Division of Enforcement's motion to amend the Order Instituting Proceedings ("Order"). <(11)> At the hearing before the law judge, D'Acquisto's counsel represented that D'Acquisto did not oppose the Division's motion. The evidence that the Division produced amply supported the factual allegations contained in its motion. These allegations concerned matters that fell within the scope of our original Order. Under these circumstances, the law judge did not err in amending the Order. Third, D'Acquisto contends that the law judge used the wrong standard of proof, to the benefit of the Division. The law judge applied the <(9)> Meyer Blinder, Securities Exchange Act Rel. No. 39180 (Oct. 1, 1997), 65 SEC Docket 1970, 1973. D'Acquisto seeks to avoid the application of collateral estoppel by arguing that he filed an appeal from the permanent injunction, thereby "freezing all decisions pertaining to Mr. Goodman and myself . . . ." However, the record is devoid of evidence of any appeal by D'Acquisto. In any event, the pendency of an appeal does not diminish the preclusive effect of a final judgment. Blinder, Robinson & Co., Inc. v. SEC, 837 F.2d 1099, 1104 n.6 (D.C. Cir.), cert. denied, 488 U.S. 869 (1988). <(10)> Rule 200(d)(2) provides: Upon motion by a party, the hearing officer may, at any time prior to the filing of an initial decision or, if no initial decision is to be filed, prior to the time fixed for the filing of final briefs with the Commission, amend an order instituting proceedings to include new matters of fact or law that are within the scope of the original order instituting proceedings. 17 C.F.R.  201.200(d)(2). <(11)> The motion sought to include three allegations: (1) from June 20, 1984, through the present, D'Acquisto has been associated with D&A, a registered investment adviser; (2) D'Acquisto and D&A both registered as investment advisers; and (3) the Franchise Tax Board for the State of California suspended D&A as a corporation prior to June 20, 1984, and the corporation has not been revived. ======END OF PAGE 6====== preponderance of the evidence standard, which is the standard of proof in our administrative proceedings and the one we apply here. <(12)> Finally, D'Acquisto accuses Division counsel of engaging in vaguely described misconduct. <(13)> However, D'Acquisto cites no evidence to support his allegations, and our independent review of the record discloses none. V. The law judge considered the factors articulated in Steadman v. SEC, 603 F.2d 1126, 1140 (5th Cir. 1979), aff'd on other grounds, 450 U.S. 91 (1981), in sanctioning D'Acquisto. <(14)> Applying these factors, the law judge found that D'Acquisto's actions "were particularly egregious because they involved the theft of millions of dollars from investors." The law judge also found that the fraud occurred over several years and resulted from a pattern of coordinated acts. The law judge determined that D'Acquisto's ten-year employment in the securities industry, the complexity of his investment schemes, his financial interest in these schemes, and his recurring failures to repay the investors demonstrated his intent to deceive or defraud them. The law judge also determined that D'Acquisto failed to acknowledge his wrongful conduct, and made no assurances against future violations. Finally, the law judge found that, absent a bar, D'Acquisto was likely to have fresh opportunities to violate the securities laws. Based on these findings, the <(12)> Steadman v. SEC, 450 U.S. 91, 101 (1981). <(13)> D'Acquisto alleges variously that our staff was negligent "for not looking into the evidence more closely and not listening to the whole story," failed to bring "key witnesses" and present "important information" relevant to the case, and "withheld evidence." <(14)> The law judge considered: (1) the egregiousness of D'Acquisto's actions; (2) the isolated or recurrent nature of the infraction; (3) the degree of scienter involved; (4) the sincerity of D'Acquisto's assurances against future violations; (5) D'Acquisto's recognition of the wrongful nature of his conduct; and (6) the likelihood that D'Acquisto's occupation will present opportunities for future violations. Steadman v. SEC, 603 F.2d 1126, 1140 (5th Cir. 1979), aff'd on other grounds, 450 U.S. 91 (1981). As the law judge recognized, the particular sanction depends on the facts of each case and the effect of the sanction in preventing a recurrence. See Richard C. Spangler, Inc., 46 S.E.C. 238, 254 n.67 (1976); Leo Glassman, 46 S.E.C. 209, 211 (1975). ======END OF PAGE 7====== law judge concluded that the revocation of D'Acquisto's investment adviser registration and an order barring D'Acquisto from associating with any investment adviser were in the public interest. <(15)> We have independently weighed the Steadman factors and agree with the law judge that D'Acquisto's registration should be revoked and that he should be barred from the investment adviser business. Notwithstanding the permanent injunction entered against him in 1995, D'Acquisto continues his refusal to accept responsibility for his misconduct. Before this Commission, he portrays himself as victim, places the blame for his predicament on the investors he misled, and contends that it is they who defrauded him. <(16)> In addition to his failure to accept responsibility for his actions, D'Acquisto has continued to engage in fraud. Before the law judge issued her initial decision in this proceeding, D'Acquisto was convicted in an unrelated criminal action arising out of his attempt to defraud Prudential Securities, Inc., and was sentenced to 63 months in prison. <(17)> <(15)> Given the abundant evidence supporting the sanctions imposed, we need not rely on any adverse inference that may be drawn from D'Acquisto's failure to appear at the hearing before the law judge and to testify about the facts and circumstances within his own knowledge. See Strathmore Securities, Inc., 43 S.E.C. 575, 590-91 & n.36 (1969). <(16)> See supra note 8. We have considered all of D'Acquisto's arguments relating to the injunctive action insofar as they bear on our determination of what sanctions are in the public interest. Demitrios Julius Shiva, Securities Exchange Act Rel. No. 38389 (Mar. 12, 1997), 64 SEC Docket 157, 162 & n.16. None of his arguments, however, alter our conclusion regarding the appropriate sanction in this case. <(17)> See United States v. Dos Reis, Nos. 96-1671(L), 96- 1677(L), 1997 WL 259527 (2d Cir. May 16, 1997). A jury found D'Acquisto guilty of conspiring to utter a forged security and to commit wire fraud in violation of 18 U.S.C.  371; uttering a forged security in violation of 18 U.S.C.  513(a); and committing wire fraud in violation of 18 U.S.C.  1343. We take official notice of the length of D'Acquisto's sentence pursuant to our Rule of Practice 323. Rule of Practice 323, 17 C.F.R.  201.323; see Litigation Release No. 15140, 63 SEC Docket 336 (Oct. 29, 1996). Before us, D'Acquisto challenges his conviction on two grounds: (1) the district court erred in admitting into (continued...) ======END OF PAGE 8====== His conviction and sentence, which have been upheld on appeal, permit the inference that if given the opportunity he will pursue further illegal activity. <(18)> For the foregoing reasons, we believe that to protect public investors we should revoke D'Acquisto's registration as an investment adviser and bar him from associating with an investment adviser. An appropriate order will issue. <(19)> By the Commission (Chairman LEVITT and Commissioners JOHNSON, HUNT, CAREY and UNGER). Jonathan G. Katz Secretary <(17)>(...continued) evidence the Statement of Stipulated Facts that he signed in Sheridan Asset Management, Inc., and (2) the police officer who arrested him committed perjury. D'Acquisto is barred by the doctrine of collateral estoppel and our own case law from disputing the validity of his conviction here. See supra note 9 and accompanying text. The proper forum in which to raise these claims is on appeal of the conviction. D'Acquisto raised only the first challenge before the court of appeals, which rejected it. See Dos Reis, 1997 WL 259527, at *2-3. <(18)> Compare Marketlines, Inc. v. SEC, 384 F.2d 264, 267 (2d Cir. 1967) (per curiam) (holding that Commission may consider evidence that respondent failed an examination to qualify as an investment adviser in Illinois, and that he was convicted of various crimes and disbarred in New York, in determining whether it is in the public interest for him to continue as an investment adviser), cert. denied, 390 U.S. 947 (1968); Demitrios Julius Shiva, 64 SEC Docket at 161 n.12 (in determining the public interest under Section 15(b) of the Securities Exchange Act of 1934, it is proper to consider broker- dealer's prior conviction because it "bears upon applicant's trustworthiness in his dealings with others . . . .") (quoting Irving Grubman, 40 S.E.C. 671, 674 (1961)). <(19)> We have considered all of the parties' contentions and have rejected or sustained them insofar as they are inconsistent or in accord with the views expressed herein. ======END OF PAGE 9====== UNITED STATES OF AMERICA before the SECURITIES AND EXCHANGE COMMISSION INVESTMENT ADVISERS ACT OF 1940 Rel. No. Admin. Proc. File No. 3-8899 : In the Matter of : : JOHN FRANCIS D'ACQUISTO : : ORDER IMPOSING REMEDIAL SANCTION On the basis of the Commission's opinion issued this day, it is ORDERED that John Francis D'Acquisto be, and hereby is, barred from association with an investment adviser; and ORDERED that the investment adviser registration of John Francis D'Acquisto be, and it hereby is, revoked. By the Commission. Jonathan G. Katz Secretary