SEC Obtains Final Judgment Against Massachusetts-Based Broker and Investment Adviser
The Securities and Exchange Commission announced today that on December 4, 2013, the U.S. District Court for the District of Massachusetts entered final judgments against Arnett L. Waters of Milton, Massachusetts, and two entities that he controlled, broker-dealer A.L. Waters Capital, LLC and investment adviser Moneta Management, LLC, who are defendants in an enforcement action filed by the Commission in May 2012. The Commission filed its action on an emergency basis in order to halt the defendants' fraudulent sales of fictitious investment-related partnerships. The final judgment, to which the defendants consented, enjoins them from violating the antifraud provisions of the federal securities laws. The Court also found the defendants jointly and severally liable for $839,000 in disgorgement, which has been deemed satisfied by a restitution order of over $9 million in a parallel criminal proceeding.
The Commission's enforcement action filed May 1, 2012 alleged that from at least 2009-2012, Waters, A.L. Waters Capital and Moneta Management engaged in a fraudulent scheme through which they raised at least $780,000 from at least 8 investors, including $500,000 from Waters' church, by promising to use investor funds to purchase a portfolio of securities, when they instead misappropriated the money and spent it on personal and business expenses. On May 3, 2012, the Court entered a preliminary injunction order that, among other things, froze the defendants' assets, as well as those of two relief defendants, one of whom was Waters' wife, and required them to provide an accounting of all their assets to the Commission.
On August 7, 2012, the Commission filed a civil contempt motion against Waters, alleging that he had violated the court's preliminary injunction and asset freeze order by establishing an undisclosed bank account, transferring funds to that account, dissipating assets, and failing to disclose the bank account to the Commission, as required by the Court's order. On August 9, 2012, the U.S. Attorney for the District of Massachusetts filed a separate criminal contempt action against Waters based on the same allegations. On October 2, 2012, Waters pleaded guilty to the criminal contempt charges, and the Commission on December 3, 2012 barred Waters from the securities industry based on his guilty plea in the criminal contempt action.
The U.S. Attorney for the District of Massachusetts charged Waters with an array of securities fraud and other violations on October 17, 2012. On November 29, 2012, Waters pleaded guilty to sixteen counts of securities fraud, mail fraud, money laundering, and obstruction of justice arising out of both the conduct that is the subject of the Commission's civil action and a criminal scheme through which Waters defrauded clients of his rare coin business out of as much as $7.8 million. The criminal information to which Waters pleaded guilty further alleged that he engaged in money laundering through two transactions totaling $77,000. Finally, Waters pleaded guilty to obstruction of justice in connection with multiple misrepresentations to Commission staff, including that there were no investors in his investment-related partnerships, in order to conceal the fact that investor money was misappropriated in a fraudulent scheme. As a result of his guilty plea to this criminal conduct, Waters was sentenced on April 26, 2013 to 17 years in federal prison and three years of supervised release, and was ordered to pay $9,025,691 in restitution and forfeiture.
The final judgment in the Commission's enforcement action enjoins the defendants from violations of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder and Section 17(a) of the Securities Act of 1933, and also enjoins Waters and Moneta Management from violations of Section 206(4) of the Investment Advisers Act of 1940 and Rule 206(4)-8 thereunder. On November 18, 2013, the Court entered the parties' stipulation of dismissal against relief defendant Port Huron Partners, LLP, an unregistered entity owned by Waters. The Commission's case remains pending against relief defendant Janet Waters, Arnett Waters' wife.
The Commission acknowledges the assistance of the United States Attorney's Office for the District of Massachusetts, the Federal Bureau of Investigation and FINRA in this matter.