The SEC sanctioned Schultze Asset Management LLC (SAM), a New York registered investment adviser, and George J. Schultze, age 37, its principal, for making false and misleading statements concerning SAM's soft dollar practices and for failing to provide and modifying books and records requested by the SEC's staff during an onsite inspection. SAM and Schultze agreed to settle the charges, without admitting or denying the SEC's findings, by agreeing to the issuance of a censure, a cease-and-desist order and payment of civil penalties of $100,000 and $50,000, respectively.
In 2004, Schultze, on behalf of SAM, represented and certified three different times to an advisory client that SAM was using soft dollars generated by the account only for expenses covered by the safe harbor provided by Section 28(e) of the Securities Exchange Act - that is, only for research and brokerage services. In fact, SAM knowingly used client commissions generated by the account to pay for non-Section 28(e) expenses, including Schultze's salary.
In addition, SAM, through Schultze, used an entity called SAMCO Distributors Inc. (SAMCO) to secure soft dollar payments from broker-dealers to cover some of SAM's operating expenses. SAMCO had no business purpose other than to provide a vehicle by which SAM and Schultze could secure soft dollars to pay SAM's operating expenses and Schultze's personal expenses. In an attempt to conceal SAMCO's role from OCIE, the SEC's examination arm, during a 2005 inspection, Schultze failed to provide to OCIE staff a key agreement relating to SAMCO and then gave the staff a modified version of a second agreement.
Please click http://www.sec.gov/litigation/admin/2007/ia-2633.pdf for a copy of the administrative order.