March 21, 1990
TO: SEC RULES MEMBERS NO. 23-90
RE: COURT PERMANENTLY ENJOINS INVESTMENT COMPANY
FROM VIOLATING 1940 ACT
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The United States District Court for the Western District
of North Carolina has permanently enjoined Genesis Capital
Corporation, a registered management investment company, from
violating the registration, custody, fidelity bond, code of
ethics, reporting and recordkeeping provisions of the Investment
Company Act of 1940.
The SEC filed a complaint last October against Genesis and
several other defendants, alleging numerous violations of the
1940 Act and rules thereunder. A copy of the release summarizing
the SEC's complaint is attached. The other defendants settled
the charges against them, without admitting or denying the
allegations.
The SEC's complaint alleged that Genesis (1) violated
Section 8(b) of the 1940 Act and Rule 8b-5 thereunder by failing
to file a registration statement within three months after filing
its notification of registration under Section 8(a), (2) violated
Section 17(f) of the 1940 Act and Rule 17f-2 thereunder by
failing to adopt required resolutions restricting access to the
company's securities and similar investments to two or more
designated persons jointly and by failing to retain an
independent public accountant to verify such securities and
investments, (3) violated Section 17(g) of the 1940 Act and Rule
17g-1 thereunder by failing to provide and maintain a fidelity
bond, (4) violated Section 17(j) of the 1940 Act and Rule 17j-
1(b)(1) thereunder by failing to adopt a written code of ethics,
(5) violated Sections 30(a), (b) and (d) of the 1940 Act and
Rules 30a-1, 30b1-1 and 30d-1 thereunder by failing to file
annual reports and semi-annual reports on Form N-SAR with the SEC
and failing to transmit annual and semi-annual reports to
shareholders, and (6) violated Section 31(a) of the 1940 Act and
Rule 31a-1 thereunder by failing to maintain and keep current
books, accounts and other documents as required.
The court's final judgment against Genesis, entered by
default, permanently enjoins Genesis, its officers, agents,
servants, employees, attorneys and those persons in active
concert or participation with them from directly or indirectly
violating the above provisions. In its final order, the court
also appointed F. Daniel Bell, former president of NASAA, as
receiver for the assets of Genesis.
Frances M. Stadler
Assistant General Counsel
Attachment