U.S. Securities and Exchange Commission v. Commonwealth Advisors, Inc. et al

Filing 310

FINAL JUDGMENT as to Defendants Walter A. Morales and Commonwealth Advisors, Inc. Signed by Judge John W. deGravelles on 2/14/2018. (LLH)

UNITED STATES DISTRICT COURT
MIDDLE DISTRICT OF LOUISIANA
SECURITIES AND EXCHANGE
COMMISSION,
Plaintiff,
No. 12-00700-JWD-DEK

v.
COMMONWEALTH ADVISORS, INC. and
WALTER A. MORALES,
Defendants.

FINAL JUDGMENT AS TO DEFENDANTS WALTER A. MORALES AND
COMMONWEALTH ADVISORS, INC.
The Securities and Exchange Commission having filed a Complaint and Defendants
Commonwealth Advisors, Inc. and Walter A. Morales (“Defendants”) having entered a general
appearance; consented to the Court’s jurisdiction over each Defendant and the subject matter of
this action; consented to entry of this Final Judgment without admitting or denying the
allegations of the Complaint (except as to jurisdiction); waived findings of fact and conclusions
of law; and waived any right to appeal from this Final Judgment:
I.
IT IS HEREBY ORDERED, ADJUDGED, AND DECREED that each Defendant and
each Defendant’s agents, servants, employees, attorneys, and all persons in active concert or
participation with them who receive actual notice of this Final Judgment by personal service or
otherwise are permanently restrained and enjoined from violating, directly or indirectly, Section
10(b) of the Securities Exchange Act of 1934 (the “Exchange Act”) [15 U.S.C. § 78j(b)] and
Rule 10b-5 promulgated thereunder [17 C.F.R. § 240.10b-5], by using any means or

instrumentality of interstate commerce, or of the mails, or of any facility of any national
securities exchange, in connection with the purchase or sale of any security:
(a)

to employ any device, scheme, or artifice to defraud;

(b)

to make any untrue statement of a material fact or to omit to state a material fact
necessary in order to make the statements made, in the light of the circumstances
under which they were made, not misleading; or

(c)

to engage in any act, practice, or course of business which operates or would
operate as a fraud or deceit upon any person.
II.

IT IS HEREBY FURTHER ORDERED, ADJUDGED, AND DECREED that each
Defendant and each Defendant’s agents, servants, employees, attorneys, and all persons in active
concert or participation with them who receive actual notice of this Final Judgment by personal
service or otherwise are permanently restrained and enjoined from violating, directly or
indirectly, Sections 206(1) and 206(2) of the Investment Advisers Act of 1940 (“Advisers Act”)
[15 U.S.C. §§ 80b-6(1) and 80b-6(2)], by using the mails or any means or instrumentality of
interstate commerce, directly or indirectly:
(a)

to employ any device, scheme, or artifice to defraud any client or prospective
client; or

(b)

to engage in any transaction, practice, or course of business which operates as a
fraud or deceit upon any clients or prospective clients.
III.

IT IS HEREBY FURTHER ORDERED, ADJUDGED, AND DECREED that each
Defendant and each Defendant’s agents, servants, employees, attorneys, and all persons in active
concert or participation with them who receive actual notice of this Final Judgment by personal
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service or otherwise are permanently restrained and enjoined from violating, directly or
indirectly, Section 206(4) of the Advisers Act [15 U.S.C. § 80b-6(4)] and Advisers Act Rule
206(4)-8 [17 C.F.R. § 275.206(4)-8], by using the mails or any means or instrumentality of
interstate commerce, while engaged in the business of advising a pooled investment vehicle for
compensation as to the advisability of investing in, purchasing or selling securities:
(a)

to make any untrue statement of a material fact or to omit to state a material fact
necessary to make the statements made, in light of the circumstances under which
they were made, not misleading, to any investor or prospective investor in the
pooled investment vehicle; or

(b)

otherwise engage in any act, practice, or course of business that is fraudulent,
deceptive or manipulative, with respect to any investor or prospective investor in
the pooled investment vehicle.
IV.

IT IS HEREBY FURTHER ORDERED, ADJUDGED, AND DECREED that Defendant
Commonwealth and Defendant Commonwealth’s agents, servants, employees, attorneys, and all
persons in active concert or participation with them who receive actual notice of this Final
Judgment by personal service or otherwise are permanently restrained and enjoined from
violating, directly or indirectly, Section 206(4) of the Advisers Act [15 U.S.C. § 80b-6(4)] and
Advisers Act Rule 206(4)-2 [17 C.F.R. § 275.206(4)-2], by using the mails or any means or
instrumentality of interstate commerce, while engaged in the business of advising a pooled
investment vehicle for compensation as to the advisability of investing in, purchasing or selling
securities, to have custody of client funds or securities without complying with the terms and
conditions of Advisers Act Rule 206(4)-2 [17 C.F.R. § 275.206(4)-2].

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V.
IT IS HEREBY FURTHER ORDERED, ADJUDGED, AND DECREED that Defendant
Morales and Defendant Morales’s agents, servants, employees, attorneys, and all persons in
active concert or participation with them who receive actual notice of this Final Judgment by
personal service or otherwise are permanently restrained and enjoined from aiding and abetting
any violation of Section 206(4) of the Advisers Act [15 U.S.C. § 80b-6(4)] and Advisers Act
Rule 206(4)-2 [17 C.F.R. § 275.206(4)-2], by knowingly or recklessly providing substantial
assistance to an investment adviser that, using the mails or any means or instrumentality of
interstate commerce, while engaged in the business of advising a pooled investment vehicle for
compensation as to the advisability of investing in, purchasing or selling securities, has custody
of client funds or securities without complying with the terms and conditions of Advisers Act
Rule 206(4)-2 [17 C.F.R. § 275.206(4)-2].
VI.
IT IS HEREBY FURTHER ORDERED, ADJUDGED, AND DECREED that Defendant
Commonwealth and Defendant Commonwealth’s agents, servants, employees, attorneys, and all
persons in active concert or participation with them who receive actual notice of this Final
Judgment by personal service or otherwise are permanently restrained and enjoined from
violating, directly or indirectly, Section 204 of the Advisers Act [15 U.S.C. § 80b-4] and
Advisers Act Rule 204-2 [17 C.F.R. § 275.204-2], by failing to make, keep, maintain on its
premises and provide to the Commission all required records, including but not limited to,
memoranda of all trade orders for the purchase or sale of securities showing the terms and
conditions of the order, the person who recommended the transaction to the client and who
placed the order.

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VII.
IT IS HEREBY FURTHER ORDERED, ADJUDGED, AND DECREED that Defendant
Commonwealth and Defendant Commonwealth’s agents, servants, employees, attorneys, and all
persons in active concert or participation with them who receive actual notice of this Final
Judgment by personal service or otherwise are permanently restrained and enjoined from
violating Section 206(4) of the Advisers Act [15 U.S.C. § 80b-6(4)] and Advisers Act Rule
206(4)-7 [17 C.F.R. § 275.206(4)-7], by using the mails or any means or instrumentality of
interstate commerce, directly or indirectly failing to adopt and implement written policies and
procedures reasonably designed to prevent violation of the Advisers Act and the rules
thereunder.
VIII.
IT IS HEREBY FURTHER ORDERED, ADJUDGED, AND DECREED that Defendant
Morales and Defendant Morales’s agents, servants, employees, attorneys, and all persons in
active concert or participation with them who receive actual notice of this Final Judgment by
personal service or otherwise are permanently restrained and enjoined from aiding and abetting
any violation of Section 206(4) of the Advisers Act [15 U.S.C. § 80b-6(4)] and Advisers Act
Rule 206(4)-7 [17 C.F.R. § 275.206(4)-7], by knowingly or recklessly providing substantial
assistance to an investment adviser that directly or indirectly, by using the mails or any means or
instrumentality of interstate commerce, fails to adopt and implement written policies and
procedures reasonably designed to prevent violation of the Advisers Act or the rules thereunder.
IX.
IT IS HEREBY FURTHER ORDERED, ADJUDGED, AND DECREED that Defendant
Commonwealth and Defendant Commonwealth’s agents, servants, employees, attorneys, and all
persons in active concert or participation with them who receive actual notice of this Judgment
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by personal service or otherwise are permanently restrained and enjoined from violating Section
207 of the Advisers Act [15 U.S.C. § 80b-7] by willfully making untrue statements of material
fact in Forms ADV filed with the Commission, or willfully omitting to state in such Forms ADV
material facts required to be stated therein.
X.
IT IS HEREBY FURTHER ORDERED, ADJUDGED, AND DECREED that Defendant
Morales and Defendant Morales’s agents, servants, employees, attorneys, and all persons in
active concert or participation with them who receive actual notice of this Judgment by personal
service or otherwise are permanently restrained and enjoined from aiding and abetting any
violation of Section 207 of the Advisers Act [15 U.S.C. § 80b-7] by knowingly or recklessly
providing substantial assistance to an investment adviser that willfully makes untrue statements
of material fact in Forms ADV filed with the Commission, or willfully omits to state in such
Forms ADV material facts required to be stated therein.
XI.
IT IS HEREBY FURTHER ORDERED, ADJUDGED, AND DECREED that Defendant
Morales is liable for a civil penalty in the amount of $130,000 pursuant to Section 21(d) of the
Exchange Act [15 U.S.C. § 78u(d)] and Section 209(e) of the Advisers Act [15 U.S.C. § 80b-9].
Defendant Morales shall satisfy this obligation by paying $130,000 to the Securities and
Exchange Commission within 365 days after entry of this Final Judgment.
Defendant Morales may transmit payment electronically to the Commission, which will
provide detailed ACH transfer/Fedwire instructions upon request. Payment may also be made
directly from a bank account via Pay.gov through the SEC website at
http://www.sec.gov/about/offices/ofm.htm. Defendant Morales may also pay by certified check,

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bank cashier’s check, or United States postal money order payable to the Securities and
Exchange Commission, which shall be delivered or mailed to
Enterprise Services Center
Accounts Receivable Branch
6500 South MacArthur Boulevard
Oklahoma City, OK 73169
and shall be accompanied by a letter identifying the case title, civil action number, and name of
this Court; Commonwealth Advisors Inc. and Walter A. Morales as defendants in this action; and
specifying that payment is made pursuant to this Final Judgment.
DefendantMorales shall simultaneously transmit photocopies of evidence of payment and
case identifying information to the Commission’s counsel in this action. By making this
payment, Defendant Morales relinquishes all legal and equitable right, title, and interest in such
funds and no part of the funds shall be returned to Defendant Morales.
Defendant Morales shall pay post judgment interest on any delinquent amounts pursuant
to 28 U.S.C. § 1961. The Commission shall hold the funds, together with any interest and
income earned thereon (collectively, the “Fund”), pending further order of the Court. The
Commission may propose a plan to distribute the Fund subject to the Court’s approval. Such a
plan may provide that the Fund shall be distributed pursuant to the Fair Fund provisions of
Section 308(a) of the Sarbanes-Oxley Act of 2002. The Court shall retain jurisdiction over the
administration of any distribution of the Fund. If the Commission staff determines that the Fund
will not be distributed, the Commission shall send the funds paid pursuant to this Final Judgment
to the United States Treasury.
Regardless of whether any such Fair Fund distribution is made, amounts ordered to be
paid as civil penalties pursuant to this Judgment shall be treated as penalties paid to the
government for all purposes, including all tax purposes. To preserve the deterrent effect of the

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civil penalty, Defendant Morales shall not argue that he is entitled to, nor shall he further benefit
by, offset or reduction of such compensatory damages award by the amount of any part of
Defendant Morales’s payment of a civil penalty in this action (“Penalty Offset”). If the court in
any Related Investor Action grants such a Penalty Offset, Defendant Morales shall, within 30
days after entry of a final order granting the Penalty Offset, notify the Commission’s counsel in
this action and pay the amount of the Penalty Offset to the United States Treasury or to a Fair
Fund, as the Commission directs. Such a payment shall not be deemed an additional civil
penalty and shall not be deemed to change the amount of the civil penalty imposed in this
Judgment. For purposes of this paragraph, a “Related Investor Action” means a private damages
action brought against Defendant Morales by or on behalf of one or more investors based on
substantially the same facts as alleged in the Complaint in this action.
XII.
IT IS FURTHER ORDERED, ADJUDGED, AND DECREED that the Consent is
incorporated herein with the same force and effect as if fully set forth herein, and that each
Defendant shall comply with all of the undertakings and agreements set forth therein.
XIII.
IT IS FURTHER ORDERED, ADJUDGED, AND DECREED that, solely for purposes
of exceptions to discharge set forth in Section 523 of the Bankruptcy Code, 11 U.S.C. §523, the
allegations in the complaint are true and admitted by each Defendant, and further, any debt for
civil penalty or other amounts due by Defendant Morales under this Final Judgment or any other
judgment, order, consent order, decree or settlement agreement entered in connection with this
proceeding, is a debt for the violation by Defendant Morales of the federal securities laws or any

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regulation or order issued under such laws, as set forth in Section 523(a)(19) of the Bankruptcy
Code, 11 U.S.C. §523(a)(19).
XIV.
IT IS FURTHER ORDERED, ADJUDGED AND DECREED that the Court’s January 5,
2016 order (Docket #179) (the “Order”) shall have no continuing effect and shall have no
preclusive, res judicata, or collateral estoppel effect with respect to any claim, litigation, dispute,
or cause of action, and within 60 days following entry of this Final Judgment, the SEC shall
return to the Defendants all of the documents that the Defendants produced to the SEC as a result
of the Order.
XV.
IT IS FURTHER ORDERED, ADJUDGED, AND DECREED that this Court shall retain
jurisdiction of this matter for the purposes of enforcing the terms of this Final Judgment.
Signed in Baton Rouge, Louisiana, on February 14, 2018.

S

JUDGE JOHN W. deGRAVELLES
UNITED STATES DISTRICT COURT
MIDDLE DISTRICT OF LOUISIANA

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