Client alleges negligence, gross negligence, breach of fiduciary duty, breach of contract, fraud, negligent misrepresentations, negligent supervision, and violations of State, SEC, and FINRA rules including, but not limited to: violations of 10-04-15 of the North Dakota Securities Act of 1951, Section 206(4) of and Rule 206(4)-7 under the Investment Advisers Act of 1940, FINRA Rule 2010, Standards of Commercial Honor and Principals of Trade: FINRA Rule 2111, Suitability; FINRA Rule 3010, Supervision; and FINRA Rule 2020, Use of Manipulative, Deceptive or Other Fraudulent Devices.

$130,000.00

$99,000.00

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

The Securities and Exchange Commission ("Commission") deems it appropriate and in the public interest that public administrative and cease-and-desist proceedings be, and hereby are, instituted pursuant to Sections 203(e) and 203(k) of the Investment Advisers Act of 1940 ("Advisers Act") against Classic Asset Management, LLC ("CAM") and pursuant to Section 15(b) of the Securities Exchange Act of 1934 ("Exchange Act") and Sections 203(f) and 203(k) of the Advisers Act against Douglas G. Schmitz ("Schmitz") (collectively, "Respondents"). The Commission finds that these proceedings arise out of breaches of the fiduciary duty of care and compliance failures by CAM, a registered investment adviser, and breaches of the fiduciary duty of care by Schmitz, an owner and investment adviser representative of CAM, who invested advisory clients in leveraged exchange traded funds ("LETFs") for extended periods of time and, in many cases, in significant concentrations. CAM and Schmitz purchased and held the LETFs in client accounts without having a reasonable basis to do so. This conduct was inconsistent with the prospectuses for the LETFs, which stated that the products carried unique risks, were designed to be held for no more than a single trading day, and required frequent monitoring. CAM and Schmitz misunderstood these fundamental characteristics of the LETFs and thus lacked a reasonable belief the LETFs were in their clients' best interests. Further, despite the offering documents' warning that the LETFs required frequent monitoring, CAM and Schmitz failed to appropriately monitor the products' performance. They consequently did not evaluate whether the LETFs were in the clients' best interest throughout the holding period. CAM also failed to adopt and implement policies and procedures reasonably designed to prevent violations of the Advisers Act. As a result of the conduct described herein, Schmitz willfully violated Section 206(2) of the Advisers Act.

Order

Cease and Desist

Censure

Civil and Administrative Penalty(ies)/Fine(s)

$100,000.00

Disgorgement

$523,086.00

Monetary Penalty other than Fines

$115,027.00

Client alleges lack of fiduciary responsibility.

$40,000.00

Client alleges Representative did not follow direction to liquidate account.

$5,200.00

Clients allege a trade execution failure in February 2020.

$750,000.00

$275,000.00

Clients are only clients of Classic Asset Management, LLC, the affiliated Investment Advisor firm.

Bankruptcy