# UNITED STATES OF AMERICA

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URL: https://www.frixlaw.com/law-library/documents/agency%3Asec%3A0037410656063a18

## Record

- **Collection:** Agency decision
- **Document type:** Agency decision

## Text

UNITED STATES OF AMERICA
Before the
SECURITIES AND EXCHANGE COMMISSION

ADMINISTRATIVE PROCEEDING
File No. 3-16753
:
In the Matter of
:
:
SIGNATOR INVESTORS, INC. :
and
:
GREGORY J. MITCHELL,
:
:
Respondents.
:
:
ADMINISTRATIVE PROCEEDING
File No. 3-16754

In the Matter of
CORY D. WILLIAMS
Respondent.

:
:
:
:
:
:
:

PROPOSED PLAN OF DISTRIBUTION
I.

Overview

1.
Purpose. The Division of Enforcement (“Division”) submits this proposed plan
of distribution (the “Plan”) pursuant to Rule 1101 of the Commission’s Rules on Fair Fund and
Disgorgement Plans (“Commission’s Rules”), 17 C.F.R. § 201.1101. As described more
specifically below, the Plan provides for the distribution of the disgorgement, prejudgment
interest, and civil money penalties paid by Signator Investors, Inc. (“Signator”), Gregory J.
Mitchell (“Mitchell”) and Cory D. Williams (“Williams”) (collectively, the “Respondents”) in
the above-captioned matters, and monies recovered by the Commission in a related federal
district court civil action.
2.
Background. On August 13, 2015, the Commission issued an Order Instituting
Administrative Proceedings Pursuant to Section 15(b) of the Securities Exchange Act of 1934
and Sections 203(e) and 203(f) of the Investment Advisers Act of 1940, Making Findings, and
Imposing Remedial Sanctions against Signator, a registered broker-dealer and investment adviser

and Mitchell, a Director of Compliance at Signator (the “Signator and Mitchell Order”)1. Also,
on August 13, 2015, the Commission issued an Order Instituting Administrative and Cease-andDesist Proceedings Pursuant to Section 15(b) of the Securities Exchange Act of 1934, Sections
203(f) and 203(k) of the Investment Advisers Act of 1940, and Section 9(b) of the Investment
Company Act of 1940, Making Findings, and Imposing Remedial Sanctions and a Cease-andDesist Order against Williams, a registered representative and investment adviser representative
at Signator collectively, with the Signator and Mitchell Order, the “Orders”).2
In the Orders, the Commission found that Signator and Mitchell failed reasonably to
supervise James R. Glover (“Glover”) and Williams, former registered representatives and
investment adviser representatives at Signator with a view of preventing and detecting Glover’s
and Williams’ violations of the federal securities laws. While associated with Signator, from
approximately May 1998 through May 2012, Glover conducted an offering fraud that defrauded
approximately 125 Signator advisory clients and brokerage customers of approximately $13.5
million by soliciting them to invest in Colonial Tidewater Realty Income Partners, LLC
(“CTRIP”), a security not approved for sale by Signator’s representatives. Glover made
materially false and misleading statements regarding the financial health of CTRIP, the expected
returns and risk of investing, and deceived investors by, among other things, creating the false
impression that CTRIP was a Signator-approved investment. Glover and Williams met with
investors to discuss investments in CTRIP in Signator’s offices and provided clients with reports
generated from Signator computer systems that included false valuations of their CTRIP
investments. Williams assisted Glover in managing Signator’s advisory client portfolios,
including clients who invested in CTRIP. Williams also breached his fiduciary duty to his
clients by failing to disclose to them that he had received undisclosed fees from CTRIP.
Williams knew that a substantial number of his advisory client were investing in CTRIP, but he
knew virtually nothing about this unregistered offering, except that it was not an investment
sanctioned or approved by Signator.
As a result of the conduct described in the Orders, the Commission ordered Signator to
pay a civil penalty of $450,000; Mitchell to pay a civil penalty of $15,000, and Williams to pay
disgorgement of $94,191, prejudgment interest of $9,854 and a civil penalty of $94,191 to the
Commission.
Signator and Mitchell have paid the amounts ordered by the Commission ($465,000).
Williams has defaulted on his payment.
The Signator and Mitchell Order created a fair fund, pursuant to Section 308(a) of the
Sarbanes-Oxley Act of 2002, so the penalties, along with the disgorgement and prejudgment
interest, collected can be distributed to harmed investors (the “Fair Fund”), and further provides
that the Fair Fund, may accept funds paid in a related or federal court action or administrative
proceeding arising out of the same underlying facts.

1
2

Exchange Act Rel. No. 75690 (Aug. 13, 2015).
Exchange Act Rel. No. 75691 (Aug. 13, 2015).

2

On August 13, 2015, the Commission also filed a related civil action (the “Civil Action”)
in the District Court of Maryland against CTRIP, Glover and Sherman T. Hill (“Hill”).3 On
August 20, 2015, the Court entered Final Judgments against CTRIP, Glover and Hill, ordering:
CTRIP to pay $1,319,386 (disgorgement of $527,844, prejudgment interest of $66,542, and a
civil penalty of $725,000); Glover to pay $1,354,105 (disgorgement of $839,128, prejudgment
interest of $64,977, and a civil penalty of $450,000); and Hill to pay a civil penalty of $75,000.
The Commission has recovered a total of $534,735.15 from the Civil Action, which has
been added to Fair Fund. 4
The Fair Fund consists of the $465,000 paid by Signator and Mitchell, together with the
$534,735.15 recovered from the Civil Action for a total of $999,735.13. Any additional funds
collected from the Civil Action or received from Williams will be added to the Fair Fund for
distribution to investors, pursuant to this Plan. The Fair Fund is currently deposited in an
interest-bearing account at the United States Department of the Treasury’s Bureau of Fiscal
Service (“BFS”), and all interest accrued will be added to the Fair Fund.
This Plan provides for the distribution of the Fair Fund, plus accrued interest and
earnings thereon, less the Reserve (defined below) for taxes, investment fees, and fees and
expenses of the Tax Administrator (“Net Available Fair Fund”) to those Eligible Investors, as
defined in paragraph 7 below.
3.
Jurisdiction and Control. The assets of the Fair Fund are subject to the
continuing jurisdiction and control of the Commission. The Plan is subject to approval by the
Commission, and the Commission retains jurisdiction over its implementation.
II.

Definitions
As used herein, the following definitions shall apply:

4.
“Costs” shall mean all costs of administering Fair Fund, including taxes, fees, and
expenses of administration. All Costs shall be paid by the Fair Fund, first from the interest
earned on the funds, and if the interest is not sufficient, from the corpus of the Fair Fund.
5.
“Distribution Payment” shall mean the payment made to an Eligible Investor in
accordance with the Plan. No Distribution Payment shall be made under the Plan for less than
the “Minimum Distribution Amount”.
6.
“Eligible Investor” shall mean an “Investor”, identified by the Commission staff
during its investigation who suffered a Net Loss; whose Distribution Payment under the Plan

3

SEC v. Colonial Tidewater Realty Income Partners, LLC, et al., Civ. Act. No. 1:15-cv-02401-ELH (D. Md., Aug.
13, 2015).
4
The Court ordered any funds recovered in the Civil Action to be paid to the Commission and distributed, with the
funds collected pursuant to the Orders, in accordance with a distribution plan to be approved by the Commission in
the Administrative Proceedings. Id. at Dkt. Nos. 148 and 161.

3

equals or exceeds the “Minimum Distribution Amount”; and who is determined eligible for a
payment under the methodology described in paragraph 19 below.
7.
“Investment” shall mean the amount invested by an Investor as determined by the
Fund Administrator.
8.
“Investor” shall mean any person or entity identified by the Commission staff
during its investigation of the underlying securities violations, who/which were harmed by the
Respondents’ conduct described in the Orders.
9.
“Minimum Distribution Amount” shall mean the specified dollar amount that a
Distribution Payment must equal or exceed in order for a distribution to be made to an Eligible
Investor. No Eligible Investor shall receive a distribution unless the Distribution Payment is
equal to or greater than $10.00.
10.
“Net Available Fair Fund” shall mean the Fair Fund, plus accrued interest and
earnings thereon, less the Reserve.
11.
“Net Loss” shall mean an Investor’s investment less any withdrawals by the
investor or “Recovery Amounts” received by the Investor.
12.
“Recovery Amount” shall mean the amount recovered by an Investor prior to a
distribution under this Plan from private litigation, private settlements with Signator and
Signator’s parent company, or NASD arbitration awards.
13.
“Reserve” shall mean the total amount reserved from the Fair Fund to pay all
costs of administering the Plan. The Reserve is estimated to be $28,670.00, consisting of: (a)
$20,455.00 for estimated future taxes, investment fees, and the fees and expenses of the Tax
Administrator, and (b) administrative expenses of the Third-Party engaged to assist the Fund
Administrator in implementing the Plan in the amount of $8,215.00. After the distribution is
completed, any remaining amounts in the Reserve will become part of the Residual described in
paragraph 28 below.
III.

Administration of the Plan

14.
Fund Administrator. Noel Gittens is proposed to be the fund administrator for the
Fair Fund (the “Fund Administrator”). As a Commission employee, the Fund Administrator
shall receive no compensation, other than his regular salary as a Commission employee, for his
services in administering the Fair Fund. In accordance with Rule 1105(c) of the Commission’s
Rules,5 no bond is required since the Fund Administrator is a Commission employee.
The Fund Administrator will, among other things: oversee the administration of the Fair
Fund; obtain contact and mailing information for the Eligible Investors; distribute money from
the assets of the Fair Fund to Eligible Investors in accordance with the Plan; resolve payment
issues, prepare a final accounting; and provide the Tax Administrator with funds to pay tax
5

17 C.F.R. § 201.1105(c).

4

liabilities and tax compliance fees and costs. The Fund Administrator will engage a third-party,
Analytics Consulting LLC, to perform some of the administrative tasks associated with
implementing the Plan (the “Third-Party”). The Fund Administrator may be removed at any time
by order of the Commission or hearing officer.
15.
Tax Administrator. Pursuant to the Omnibus Order Directing the Appointment of
Tax Administrator in Administrative Proceedings that Establish Distribution Funds governing
calendar years 2019-2021,6 the Commission appointed Miller Kaplan Arase LLP as the tax
administrator (the “Tax Administrator”) for the Fair Fund. 4 Further, the Fund Administrator will
cooperate with the Tax Administrator for purposes of timely and accurately fulfilling the
information reporting and withholding obligations of the Fair Fund in compliance with IRS
regulations, including but not limited to the Foreign Account Tax Compliance Act (“FATCA”).
The Tax Administrator shall prepare a description of the tax information reporting and other
related tax matters, which shall be provided to the Fund Administrator for dissemination to
Eligible Investors before or contemporaneously with their distribution payments. The Tax
Administrator shall be compensated for all reasonable costs and expenses from the Fair Fund
according to the terms of Tax Administrator’s 2019-2021 Letter Agreement with the
Commission, and tax obligations will be paid out of the Fair Fund.
16.
Qualified Settlement Fund. The Fair Fund constitutes a Qualified Settlement
Fund under Section 468B(g) of the Internal Revenue Code, 26 U.S.C. § 468B(g), and related
regulations, 26 C.F.R. §§ 1.468B-1 through 1.468B-5.
IV.

Plan Procedures

17.
No Claims Process. Based on information obtained by the Commission staff
during its investigation and the review and analysis of applicable records, the Commission staff
has reasonably concluded that it has all records necessary to calculate Net Loss as described in
paragraph 11 above. As a result, the Fair Fund is not being distributed according to a claimsmade process, so procedures for making and approving claims in accordance with Rule
1101(b)(4) of the Commission’s Rules, 17 C.F.R. § 201.1101(b)(4), are not applicable.
18.
Locating Investors. Subject to paragraph 20 below regarding each Investor’s
obligation to communicate changes in contact information to the Fund Administrator, the Fund
Administrator will use his best efforts to ensure all communications are properly directed to
Investors. Review of the information provided by the Commission staff, and use of commercial
computer databases regularly available to the Division of Enforcement shall constitute best
efforts to locate and communicate with Investors.
19.
Methodology for Determining Distribution Payments. The Plan uses the “Net
Loss” methodology to calculate the distribution payments to Eligible Investors. Under the Net
Loss methodology, each Eligible Investor will receive a pro-rata distribution from the Net

6

Exchange Act Rel. No. 85174 (Feb. 22, 2019).

4 Exchange Act Rel. No. 88005 (Jan. 17, 2020).

5

Available Fair Fund, and the distribution amount is calculated based upon each Eligible
Investor’s Net Loss in proportion to total Net Loss of all Eligible Investors.
Based upon records obtained, and subject to the methodology below, the Fund Administrator
has identified the Eligible Investors and determined the amount to be distributed to each Eligible
Investor in the following manner:
(a)

Determine each Eligible Investor’s Net Loss;

(b)

Calculate the “Total Net Loss” of all Eligible Investors as the sum of the Net
Losses of all Eligible Investors;

(c)

Calculate each Eligible Investor’s “Pro-Rata Share” by dividing each Eligible
Investor’s Net Loss by the Total Net Loss;

(d)

Calculate each Eligible Investor’s “Tentative Distribution Payment” by
multiplying the Eligible Investor’s Pro-Rata Share by the Net Available Fair
Fund;

(e)

Eligible Investors whose Tentative Distribution Payment is less than the
Minimum Distribution Amount will be removed from the list of Eligible
Investors, and steps (b) through (d) will be repeated resulting in a Distribution
Payment for each remaining Eligible Investor.

Based on information obtained during the Commission’s investigation and in accordance
with the methodology for determining harm above, the Fund Administrator has identified
approximately sixty (61) Eligible Investors. Under the Plan, each Eligible Investor will receive a
distribution payment preliminarily determined to be approximately 29% of the Eligible
Investor’s Net Loss amount. In the view of the Commission staff and the Fund Administrator,
this methodology constitutes a fair and reasonable allocation of the Fair Fund to compensate
investors’ Net Losses. If sufficient funds are recovered subsequent to this distribution, and the
Fund Administrator determines a second distribution to be feasible, such distribution will follow
the methodology outlined above.
20.
Procedures for Locating and Notifying Investors and Investors Obligation with
Respect to the Plan Notice. From information obtained by the Commission staff based on the
review and analysis of applicable records from its investigation, the Fund Administrator has
identified the Investors as defined in paragraph 8. The Fund Administrator will coordinate with
the Tax Administrator to obtain information that is needed to accomplish the distribution in
accordance with applicable tax requirements relating to the Fair Fund. Within thirty (30) days of
approval of the plan by the Commission, the Third-Party at the direction of the Fund
Administrator will send to each Eligible Investor’s last known email address (if known) and/or
mailing address a notice (the “Plan Notice”) regarding the Commission’s approval of the Plan,
including as appropriate: a statement characterizing the distribution; a link to the approved Plan
posted on the Commission’s website and instructions for requesting a copy of the Plan; a Net
Loss calculation and the amount of their Tentative Distribution; and a request to provide any
6

information needed to ensure an efficient and accurate delivery of their full distribution
payment(s), including but not limited to, confirmation of their contact information sufficient to
issue a distribution payment and for those Investors whose tax information is uncertain to supply
IRS Forms W-8 or W-9 tax information.
21.
Failure to Respond. If an Investor fails to provide the information requested in
the Plan Notice within thirty (30) days from the mailing of the Plan Notice, the Fund
Administrator will make no fewer than two (2) attempts to contact the Investor by U.S. Postal
Service Mail. The last attempt will in no event take place more than fourteen (14) days from the
mailing of the Plan Notice. If an Investor fails to respond to the Fund Administrator’s contact
attempts as described in this paragraph, the Fund Administrator, in his discretion, may remove
such Investor from the distribution and the allocated Tentative Distribution will be added to the
Net Available Fair Fund and will be distributed to the remaining Investors, pursuant to the
methodology described in paragraph 18 above. In no event will an Investor receive from the Fair
Fund more than the Investor’s Net Loss amount.
22.
Undeliverable Mail. If a Plan Notice and/or Distribution Payment is/are returned
as undeliverable, the Fund Administrator will make best practicable efforts to ascertain an
Investor’s correct address. If another address is obtained, the Fund Administrator will then
resend the Plan Notice and/or Distribution Payment to the Investor’s new address within ten (10)
days of receipt of the returned mail. If the Plan Notice and/or Distribution Payment is returned
again, and the Fund Administrator, despite best practicable efforts, is unable to find an Investor’s
correct address, the Fund Administrator, in his discretion, may remove such Investor from the
distribution and the Investor’s Distribution Payment will be added to the Residual described in
paragraph 27 below.
Any Investor who relocates or otherwise changes contact information after receipt of the
Plan Notice must promptly communicate any change in address or contact information to the
Fund Administrator.
23.
Distribution Timing. The Fund Administrator will use his best efforts to start the
distribution within sixty (60) days of the Plan’s approval.
24.
Disbursement of the Fair Fund. Pursuant to Rule 1101(b)(6) of the
Commission’s Rules, 17 C.F.R. § 201.1101(b)(6), the Fund Administrator will obtain an order
from the Commission to disburse the Fair Fund. Pursuant to the order, the Commission’s Office
of Financial Management will transfer funds to the Third-Party for issuance of the Distribution
Payments.
25.
Distribution Payments. The Fund Administrator will make arrangement for and
oversee the transfer of funds to the Third-Party who is responsible for depositing the funds in an
account at a commercial bank not unacceptable to the Fund Administrator in order to issue
Distribution Payments. All Distribution Payment checks presented for payment or electronic
transfer will be subject to “positive pay” controls before being honored by the bank, and all such
checks issued shall bear a stale date of ninety (90) days. Accordingly, checks that are not
negotiated within this ninety (90) day period shall be voided and the issuing financial institution
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shall be instructed to stop payment on those checks. An investor’s claim to payment is
extinguished as of the stale date and the funds will remain in the Fair Fund. A check reissue
request should be made within ninety (90) days from the original check issuance date as
instructed in the mailing with the check.
All Distribution Payments shall be preceded or accompanied by a communication that
includes, as appropriate: (a) a statement characterizing the distribution; (b) a statement that the
tax treatment of the distribution is the responsibility of each recipient and that the recipient
should consult his or her tax advisor for advice regarding the tax treatment of the distribution; (c)
a statement that checks will be void after ninety (90) days; and (d) the name of a person or entity
to contact, if the Eligible Investor has any questions regarding the distribution. Any such
communication shall be submitted to the Commission staff and the Tax Administrator for review
and approval. The Distribution Payments, on their face, or the accompanying mailing shall
clearly indicate that the money is being distributed from a Fair Fund established by the
Commission to compensate investors for harm as a result of the Respondents’ conduct described
in the Orders. Simultaneously with the mailing of the distribution checks, the Fund
Administrator will mail a letter to each Eligible Investor, indicating the Eligible Investor’s Net
Loss and Distribution Payment amounts and explaining how those two amounts were calculated.
26.
Amendments and Procedural Deadline Extensions. The Fund Administrator will
take reasonable and appropriate steps to distribute the Net Available Fair Fund according to the
Plan. If there are any changes to the Plan that are determined to be material, Commission
approval is required prior to implementation by amending the Plan. Immaterial changes may be
made by the Fund Administrator. For good cause shown, the Fund Administrator may extend
any of the procedural deadlines set forth in the Plan.
27.
Procedures for Disputing Distribution Payments. Disputes will be limited to
questions regarding calculations of the Distribution Payments. Within thirty (30) days of the
date of publication of the Plan, the Fund Administrator must receive a written communication
detailing the dispute along with any supporting documentation. The Fund Administrator will
investigate the dispute, and such investigation will include a review of the written dispute as well
as any supporting documentation. Within thirty (30) days of receipt of the written dispute, the
Fund Administrator will notify the Investor of his resolution of the dispute, which will be final.
28.
Disposition of Undistributed Funds. A residual account within the Fair Fund will
be established for any amounts remaining after the final disbursement to Eligible Investors from
the Fair Fund (the “Residual”). The Residual may include the Reserve, distribution checks that
have not been cashed, funds from checks that were not delivered or from funds returned to the
Commission, Fair Fund tax refunds for overpayment or for waiver of IRS penalties. All funds
remaining in the Residual that are infeasible to distribute to investors will be returned to the
Commission. Returning such money to Respondents would be inconsistent with the equitable
principle that no person should profit from his own wrongdoing. Therefore, in these
circumstances, distributing disgorged funds to the U.S. Treasury is the most equitable alternative.
29.
Accountings. When all funds have been disbursed, except for the Residual
described in paragraph 27 above of the Plan, the Fund Administrator will submit a final
8

accounting pursuant to Rule 1105(f) of the Commission’s Rules, 17 C.F.R. § 201.1105(f), for the
approval of the Commission prior to termination of the Fair Fund and discharge of the Fund
Administrator. Since the Fund Administrator is a Commission employee, no interim accountings
will be made.
30.
Termination of the Fair Fund. Following the final disbursement from the Net
Available Fair Fund to Eligible Investors, the Fund Administrator will make arrangement for the
final payment of taxes, Tax Administrator fees and expenses, and other administrative expenses,
and will submit a final accounting to the Commission. The Fair Fund will be eligible for
termination after all of the following have occurred: (a) a final accounting, appearing on the
standard accounting form supplied by the Commission staff, has been submitted by the Fund
Administrator, and has been approved by the Commission; and (b) all taxes, fees and expenses
have been paid. Upon Commission approval of the final accounting, Commission staff will seek
an order from the Commission authorizing: (a) transfer of the remaining residual amount, and
any amounts returned to the Fair Fund in the future to the U.S. Treasury; (b) termination of the
Fair Fund; and (c) discharge of the Fund Administrator.
V.

Notice of Proposed Plan and Opportunity for Comment

31.
Notice for Comment. The Notice of Proposed Plan of Distribution (the “Notice”)
will be published on the Commission’s website at http://www.sec.gov/litigation/fairfundlist.htm.
Any person wishing to comment on the Plan must do so in writing by submitting their comments
to the Commission within thirty (30) days from the date of the Notice: (a) to the Office of the
Secretary, United States Securities and Exchange Commission, 100 F Street, NE, Washington,
DC 20549-1090; (b) by using the Commission’s Internet comment form
(www.sec.gov/litigation/admin.shtml); or (c) by sending an e-mail to rule-comments@sec.gov.
Comments submitted by email or via the Commission’s website should include “Administrative
Proceeding File Numbers 3-16753 and 3-16754” in the subject line. Comments received will be
publicly available. Persons should only submit comments that they wish to make publicly
available.

9

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/agency%3Asec%3A0037410656063a18. Public record. Not legal advice.