UNITED STATES OF AMERICA

UNITED STATES OF AMERICA

Before the

SECURITIES AND EXCHANGE COMMISSION

ADMINISTRATIVE PROCEEDING

File No. 3-19227

In the Matter of

Fieldstone Financial Management

Group, LLC and Kristofor R. Behn

Respondents.

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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 a civil money penalty paid by Fieldstone Financial Management Group, LLC and

Kristofor R. Behn (collectively, the “Respondents”) in the captioned administrative proceeding.

2.

Background. On July 1, 2019, the Commission issued an Order Instituting

Administrative and Cease-and-Desist Proceedings Pursuant to Section 8A of the Securities Act

of 1933, Section 21C of the Securities Exchange Act of 1934, Sections 203(e), 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-and-Desist Order (the

“Order”)1 against the Respondents.

In the Order, the Commission found that Kristofor R. Behn (“Behn”), and his registered

investment adviser, Fieldstone Financial Management Group, LLC (“Fieldstone”) failed to

disclose material conflicts of interest to their advisory clients. Behn and Fieldstone also solicited

an advisory client to invest $1 million in Fieldstone without disclosing that Behn planned to use

much of the money to cover his personal expenses.

Specifically, from 2014 to early 2016, on Behn’s recommendation, approximately 40 of

Behn’s advisory clients invested more than $7 million in securities issued by Aequitas

Commercial Finance, LLC (“ACF”), one of numerous entities affiliated with the Aequitas

enterprise, the parent of which is Aequitas Management, LLC (collectively referred to herein as

1

Securities Act Rel. No. 10655 (July 1, 2019).

“Aequitas”). Behn and Fieldstone did not disclose to the clients that Aequitas had provided

Fieldstone with a $1.5 million loan and access to a $2 million line of credit under terms that

created an incentive for Behn and Fieldstone to recommend the Aequitas investments.

In early 2017, Behn, through Fieldstone, advised a Fieldstone client to purchase an

interest in Fieldstone for $1 million. Behn represented that the client’s investment would be used

to support and expand Fieldstone’s business. Contrary to his representation, Behn used

approximately half the client’s money to pay his personal taxes and make other payments to

himself or for his personal benefit.

As a result of the conduct described in the Order, the Commission ordered the

Respondents to pay, jointly and severally, a total of $1,322,971 (consisting of disgorgement of

$984,778 (which represents $84,778 of advisory fees paid by forty (40) Fieldstone clients and the

net loss of $900,000 suffered by one (1) Eligible Investor in Fieldstone), prejudgment interest of

$63,193 and a civil money penalty of $275,000). In the Order, the Commission created a fair

fund, pursuant to Section 308(a) of the Sarbanes-Oxley Act of 2002, so the civil penalty, along

with the disgorgement and prejudgment interest, can be distributed to harmed investors (the “Fair

Fund”).

As of August 31, 2019, the Respondents have paid a total of $700,000, and pursuant to

the Order, the remaining $622,971 is due within 360 days of entry of the Order. The Fair Fund

consists of the $700,000 paid by the Respondents, along with any additional funds received

pursuant to the Order. 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”).

This Plan provides for the distribution of the Fair Fund, plus accrued interest and

earnings thereon, less the Reserve (defined below), taxes, investment fees, and fees and expenses

of the Tax Administrator (“Net Available Fair Fund”) to those Eligible Investors, as defined in

paragraph 10 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.

Administration of the Plan

4.

Costs. All costs of administering the Fair Fund, including taxes, fees and

expenses of administration (“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.

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

2

services in administering the Fair Fund. In accordance with Rule 1105(c) of the Commission’s

Rules,2 no bond is required since the Fund Administrator is a Commission employee.

The Fund Administrator will be responsible for, among other things: overseeing the

administration of the Fair Fund, obtaining accurate mailing information for the Eligible Investors

(as defined below), preparing accountings, cooperating with the Tax Administrator in providing

the information necessary to accomplish income tax compliance, and distributing money from

the Fair Fund in accordance with the Plan.

6.

Tax Administrator. Pursuant to the Omnibus Order Directing the Appointment of

Tax Administrator in Administrative Proceedings that Establish Distribution Funds governing

calendar years 2019-2021,3 the Commission appointed Miller Kaplan Arase LLP as the tax

administrator (the “Tax Administrator”) for the Fair Fund. 4 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.

7.

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.

8.

Reserve. A reserve of $15,953 will be held back for future Costs to accommodate

any unexpected expenditures or distribution payments (the “Reserve”). After all disbursements

and Costs are paid, any remaining amounts in the Reserve will become part of the Residual

described in paragraph 20.

III.

Plan Procedures

9.

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 harm as described in

paragraph 11. As a result, the Fair Fund is not being distributed according to a claims-made

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.

10.

Specification of Eligible Investors. Investors able to receive a payment pursuant

to this Plan are limited to only those persons who paid advisory fees and the sole investor who

invested $1 million in Fieldstone and suffered a loss on that investment (“Eligible Investors”).

Based on information obtained during the Commission’s investigation and in accordance with

the methodology for determining harm in paragraph 11, the Commission staff has identified forty

(40) Eligible Investors that paid advisory fees and one (1) investor in Fieldstone who suffered a

loss on that investment.

2 17 C.F.R. § 201.1105(c).

3

4

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

Exchange Act Rel. No. 87218 (Oct. 3, 2019).

3

11.

Methodology for Determining Distribution Amounts. Using information collected

by the Commission staff, the Fund Administrator will determine the amounts to be distributed to

each Eligible Investor, as the advisory fees paid by the forty (40) Eligible Investors and the

amount of the unpaid investment of the one (1) Eligible Investor in Fieldstone (“Harm

Amount”). As of August 31, 2019, the respondents have paid $700,000 of the $1,322,971 they

were ordered to pay, with the balance of $622,971 due within 360 days of entry of the Order.

Since the total Harm Amount incurred by the Eligible Investors exceeds the amount currently in

the Net Available Fair Fund and pursuant to the payment schedule in the Order, and receipt of

additional funds is anticipated, the Fund Administrator has determined to first, make a pro-rata

distribution from the available funds, and then after receipt of any additional funds, conduct a

second distribution to provide a total distribution amount up to each Eligible Investor’s Harm

Amount, plus reasonable interest.

a. The first distribution is based on the Net Available Fair Fund ($684,047) as of

November 30, 2019 (the “First Distributable Amount”). The amount to be

distributed to each Eligible Investor is then calculated as follows:

i

Calculate each Eligible Investor’s pro-rata share based on each Eligible

Investor’s Harm Amount as a percentage of the total Harm Amount of all

Eligible Investors (the “Loss Percentage”); and

ii Calculate the pro-rata distributable amount for each Eligible Investor by

multiplying the Loss Percentage for each Eligible Investor by the First

Distributable Amount (the “First Distribution Payment”).

b. For the second distribution, if sufficient funds are received, determine the amount

to be distributed as the difference between the total disgorgement paid by the

Respondents less the First Distributable Amount (the “Second Distributable

Amount”). The amount to be distributed to each Eligible Investor is then

calculated as follows:

i

Calculate the pro-rata distribution amount for each Eligible Investor by

applying the Loss Percentage (used in the first distribution) for each

Eligible Investor to the Second Distributable Amount (the “Second

Distribution Payment”); and

ii If sufficient funds are received, each Eligible Investor will be paid

reasonable interest on its Harm Amount, calculated using the short-term

Applicable Federal Rate compounded quarterly from the midpoint of the

trading period in which the harm occurred through August 31, 2019.

Accordingly, with the first distribution and anticipated second distribution, each Eligible

Investor is expected to receive a total distribution amount from the Net Available Fair Fund

equal to the Eligible Investor’s full Harm Amount plus reasonable interest. Each Eligible

Investor’s Harm Amount, Loss Percentage, and calculated First Distribution Payment are set

forth in Exhibit A.

4

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 an investor’s harm. It

is anticipated that there will be two distributions to Eligible Investors, which will take place as

described herein.

12.

Procedures for Locating and Notifying Eligible Investors. 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 Eligible Investors as defined in

paragraph 10. 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. To the extent possible, within sixty (60) days of the

publication of the Plan for notice and comment, requests will be sent to certain Eligible Investors

whose tax information is uncertain to supply IRS Forms W-8 or W-9 tax information, and such

other information needed to ensure an efficient and accurate delivery of the full distribution

payment(s) (the “Request”). The Eligible Investor shall respond within thirty (30) days in order

to receive a distribution payment.

13.

Failure to Respond. If an Eligible Investor fails to respond within thirty (30) days

from the mailing of the Request, the Fund Administrator will make no fewer than two (2)

attempts to contact the Eligible Investor by telephone or email. The second attempt will in no

event take place more than thirty (30) days from the mailing of the Request. If an Eligible

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 Eligible Investor from the

distribution and the allocated distribution amount will be added to the Residual described in

paragraph 20.

14.

Undeliverable Mail. If a Request and/or distribution payment is/are returned as

undeliverable, the Fund Administrator will make his best practicable efforts to ascertain an

Eligible Investor’s correct address. If another address is obtained, the Fund Administrator will

then resend the Request and/or distribution payment to the Eligible Investor’s new address

within ten (10) days of receipt of the returned mail. If the Request and/or distribution payment is

returned again, and the Fund Administrator, despite best practicable efforts, is unable to find an

Eligible Investor’s correct address, the Fund Administrator, in his discretion, may remove such

Eligible Investor from the distribution and the allocated distribution payment will be added to the

Residual described in paragraph 20.

Any Eligible Investor who relocates or otherwise changes contact information after

receipt of the Request must promptly communicate any change in address or contact information

to the Fund Administrator.

15.

Distribution Timing. The Fund Administrator will use his best efforts to start the

distribution within sixty (60) days of the Plan’s approval.

16.

Disbursement of the Fair Fund. The BFS will mail checks or electronically

transfer funds to each payee as instructed by the Fund Administrator. The Fund Administrator

5

will compile the payee information and prepare a payment file to make the disbursements

through BFS. 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.

Distribution checks and/or accompanying communications will clearly indicate that the

money is being distributed from a Fair Fund established to compensate investors for harm

suffered as a result of securities law violations.

The Fund Administrator will work with BFS to obtain information about uncashed

checks, any returned items due to non-delivery, insufficient addresses, and/or other deficiencies.

The Fund Administrator is responsible for researching and reconciling errors and reissuing

payments when possible. The Fund Administrator is also responsible for accounting for all

payments. Checks issued by BFS will state on their face that they are valid for one (1) year. If

any checks issued are not cashed within the one (1) year time period, the Fund Administrator

will work with BFS to identify all uncashed checks. In the event that there are uncashed checks,

the Fund Administrator will determine the extent to which, under the circumstances in this

distribution, it would be appropriate and feasible to make additional efforts to contact the

Eligible Investor(s). Following the conclusion of any efforts by the Fund Administrator to locate

any such Eligible Investor(s), the amount of all uncashed checks will be credited to the Fair

Fund, and will become part of the Residual.

17.

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.

18.

Procedure for the Receipt of Additional Funds. Should any additional funds,

other than funds ordered to be paid by the Respondents, be received for this matter by the

Commission, prior to the Commission’s termination of the Fair Fund, such funds will be added

to the Residual.

19.

Procedures for Disputing Distribution Amounts. Disputes will be limited to

questions regarding the calculations of distribution payment amounts to Eligible Investors.

Within thirty (30) days of the date of the distribution check, 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 Eligible Investor of his resolution

of the dispute, which will be final.

20.

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

6

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 will be transferred to the U.S. Treasury after the final accounting is

approved by the Commission.

21.

Accountings. When all funds have been disbursed, except for the Residual

described in paragraph 20 of the Plan, the Fund Administrator will submit a final 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 funds are being held in a Commission designated account at the U.S.

Treasury and the Fund Administrator is a Commission employee, no interim accountings will be

made.

22.

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 all Costs, 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 Costs have

been paid. When the Commission has approved the final accounting, Commission staff will seek

an order from the Commission authorizing: (a) the transfer of any amounts remaining in the

Residual, and any funds returned to the Fair Fund in the future, to the U.S. Treasury; (b) to

terminate the Fair Fund; and (c) to discharge the Fund Administrator.

IV.

Notice of Proposed Plan and Opportunity for Comment

23.

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 Number 3-19227” in the subject line. Comments received will be publicly

available. Persons should only submit comments that they wish to make publicly available.

7

EXHIBIT A

Investor 1

Investor 2

Investor 3

Investor 4

Investor 5

Investor 6

Investor 7

Investor 8

Investor 9

Investor 10

Investor 11

Investor 12

Investor 13

Investor 14

Investor 15

Investor 16

Investor 17

Investor 18

Investor 19

Investor 20

Investor 21

Investor 22

Investor 23

Investor 24

Investor 25

Investor 26

Investor 27

Investor 28

Investor 29

Investor 30

Investor 31

Investor 32

Investor 33

Investor 34

Harm

Amount

$

1,782.31

$

1,807.53

$

1,758.45

$

7,484.13

$

2,541.10

$

4,007.88

$

729.68

$

3,686.30

$

1,629.91

$

2,026.03

$

921.58

$

2,111.53

$

795.78

$

510.96

$

1,442.69

$

3,992.81

$

2,026.83

$

1,597.03

$

805.37

$

2,676.48

$

401.03

$

758.22

$

692.69

$

1,291.10

$

4,421.00

$

1,416.10

$

685.84

$

1,649.09

$

4,633.11

$

1,557.53

$

786.99

$

3,061.07

$

816.32

$

1,112.10

Loss

Percentage

0.1810%

0.1835%

0.1786%

0.7600%

0.2580%

0.4070%

0.0741%

0.3743%

0.1655%

0.2057%

0.0936%

0.2144%

0.0808%

0.0519%

0.1465%

0.4055%

0.2058%

0.1622%

0.0818%

0.2718%

0.0407%

0.0770%

0.0703%

0.1300%

0.4489%

0.1438%

0.0696%

0.1675%

0.4705%

0.1582%

0.0799%

0.3108%

0.0829%

0.1129%

8

Amount of First

Distribution

Payment

$

1,238.00

$

1,256.00

$

1,221.00

$

5,199.00

$

1,765.00

$

2,784.00

$

507.00

$

2,561.00

$

1,132.00

$

1,407.00

$

640.00

$

1,467.00

$

553.00

$

355.00

$

1,002.00

$

2,773.00

$

1,408.00

$

1,109.00

$

559.00

$

1,859.00

$

279.00

$

527.00

$

481.00

$

897.00

$

3,071.00

$

984.00

$

476.00

$

1,145.00

$

3,218.00

$

1,082.00

$

547.00

$

2,126.00

$

567.00

$

772.00

Investor 35

Investor 36

Investor 37

Investor 38

Investor 39

Investor 40

Investor 41

Totals

Harm

Amount

$ 2,349.22

$

4,910.27

$

758.22

$

1,360.73

$

5,595.55

$

2,187.44

$ 900,000.00

$ 984,777.98

Loss

Percentage

0.2386%

0.5986%

0.0770%

0.1382%

0.5682%

0.2221%

91.3912%

100.00%

9

Amount of First

Distribution

Payment

$ 1,632.00

$

3,411.00

$

527.00

$

945.00

$

3,887.00

$

1,519.00

$ 625,159.00

$ 684,047.00