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Federal Court Imposes $7.4 Million Judgment Against Massachusetts Investment Adviser

Published Dec 29, 2016

The Securities and Exchange Commission announced yesterday the resolution of an enforcement action filed by the Commission on June 16, 2015 against a Massachusetts-based investment advisory firm, Interinvest Corporation, and its owner, Hans Peter Black. The Court entered default judgments against Interinvest and Black after both failed to answer the SEC's complaint.

The default judgments ordered each defendant to pay, jointly and severally, $5.4 million in disgorgement and prejudgment interest, reflecting management fees and other payments collected from investor funds. The Court also imposed $2 million in civil monetary penalites against Black and $1.5 million in penalties against Interinvest. In assessing the penalty, the Court observed that the defendants' breach of fiduciary duties through the fraudulent scheme constituted "recurrent and egregious conduct." In addition, the Court's judgment enjoins Interinvest and Black from violating Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, Section 17(a) of the Securities Act of 1933, and Sections 206(1) and (2) of the Investment Advisers Act of 1940. The SEC previously had obtained a preliminary injunction against Interinvest and Black to freeze their assets and to prohibit them from continuing to exercise investment authority over client assets under management.

The SEC's complaint alleged that Interinvest and Black funneled more than $17 million in client assets into four financially troubled Canadian penny stock companies in which Black had undisclosed business and financial interests. According to the complaint, Interinvest clients lost as much as $12 million of their $17 million investment based on the trading in the penny stock companies, some of which were purportedly in the business of exploring for gold or other minerals. Black served on the board of directors of these companies, which collectively paid approximately $1.9 million to an entity that he controlled. The SEC alleged that Black's involvement with these companies and his receipt of payments from them created a conflict of interest that he and Interinvest failed to disclose to their advisory clients.