FINRA

RESPONDENT DEMBSKI WAS NAMED A RESPONDENT IN A FINRA COMPLAINT ALLEGING THAT HE FRAUDULENTLY INDUCED RETAIL CUSTOMERS TO INVEST IN A HEDGE FUND. THE COMPLAINT ALLEGES THAT IN CONNECTION WITH SALES OF THE FUND, RESPONDENT KNOWINGLY OR RECKLESSLY MADE UNTRUE STATEMENTS OF MATERIAL FACT OR OMITTED TO STATE A FACT NECESSARY IN ORDER TO MAKE THE STATEMENTS MADE, IN LIGHT OF THE CIRCUMSTANCES UNDER WHICH THEY WERE MADE, NOT MISLEADING. RESPONDENT ALSO EFFECTED TRANSACTIONS IN, OR INDUCED THE PURCHASE OR SALE OF, SECURITIES BY MEANS OF A PRIVATE PLACEMENT MEMORANDUM (PPM) THAT WAS MATERIALLY MISLEADING. THEREFORE, RESPONDENT WILLFULLY VIOLATED SECTION 10(B) OF THE EXCHANGE ACT AND RULE 10B-5 THEREUNDER. THE COMPLAINT ALSO ALLEGES THAT RESPONDENT, IN THE ALTERNATIVE OF THE FIRST CAUSE OF ACTION, IN CONNECTION WITH THE OFFER OR SALE OF SECURITIES MADE MATERIAL MISREPRESENTATIONS AND OMITTED TO DISCLOSE MATERIAL INFORMATION, ALL TO OBTAIN MONEY OR PROPERTY, AND/OR ENGAGED IN TRANSACTION(S), PRACTICE(S), OR COURSES OF BUSINESS WHICH OPERATED AS A FRAUD OR DECEIT UPON THE PURCHASER. AS A RESULT OF THE CONDUCT IN CONNECTION WITH THE OFFER OR SALE OF THE FUND, RESPONDENT ACTED IN CONTRAVENTION OF SECTION 17(A) OF THE SECURITIES ACT OF 1933.

Decision & Order of Offer of Settlement

Bar (Permanent)

All Capacities

2/3/2016

Without admitting or denying the allegations, Dembski consented to the sanction and to the entry of findings that he fraudulently induced retail customers to invest in a hedge fund. The findings stated that through material misrepresentations and omissions, Dembski led investors to believe that the fund was a "growth" fund that would be based on a computer algorithm that included risk protections and stop-losses to limit losses in the fund. In fact, the fund was a speculative investment. The fund's chief investment officer, had complete control over the investments that the fund made and, contrary to what Dembski told prospective investors, the fund was not obligated to follow the computer algorithm. In the last full month that the fund traded, it lost over 80 percent of its value. In connection with the marketing of the fund, Dembski gave prospective investors the fund's confidential private placement memorandum (PPM) that he knew contained material misrepresentations about the fund's chief investment officer's professional experience. As a result, Dembski willfully violated Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. Also, Dembski recommended the fund to retail investors with limited investment experience, who had never invested in hedge funds before, and who used retirement assets or surrendered variable annuities in order to invest in the fund. Many of these individuals were unaccredited investors.

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

SEC ADMIN RELEASES 33-9686; 34-73801; IA RELEASE 40-3976; INVESTMENT COMPANY ACT RELEASE 40-31367, DECEMBER 10, 2014: THE SECURITIES AND EXCHANGE COMMISSION DEEMS IT APPROPRIATE AND IN THE PUBLIC INTEREST THAT PUBLIC ADMINISTRATIVE AND CEASE-AND-DESIST PROCEEDINGS BE, AND HEREBY ARE, INSTITUTED PURSUANT TO SECTION 8A OF THE SECURITIES ACT OF 1933, SECTIONS 15(B) AND 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 AGAINST TIMOTHY S. DEMBSKI ("DEMBSKI"), AND TOGETHER WITH OTHER RESPONDENTS. AFTER AN INVESTIGATION, THE DIVISION OF ENFORCEMENT ALLEGES THAT: THIS CASE INVOLVES MISCONDUCT BY DEMBSKI AND ANOTHER RESPONDENT, FOUNDERS AND JOINT OWNERS OF AN INVESTMENT ADVISER REGISTERED WITH THE COMMISSION. DEMBSKI AND THE OTHER RESPONDENT EACH MADE (OR USED) FALSE AND MISLEADING STATEMENTS TO THEIR ADVISORY CLIENTS AT THE INVESTMENT ADVISER IN RECOMMENDING AND SELLING INVESTMENTS IN A RISKY HEDGE FUND THAT THAT DEMBSKI FOUNDED WITH HIS LONG-TIME FRIEND. DEMBSKI SOLD INTERESTS IN THE FUND EXCLUSIVELY TO LONGSTANDING CLIENTS OF THE INVESTMENT ADVISORY AND TAX PREPARATION SERVICES AT HIS FIRM, AND AT ITS PREDECESSOR ENTITY. AS DEMBSKI UNDERSTOOD FROM ADVISING THESE ADVISORY AND/OR TAX CLIENTS OVER THE YEARS, MANY OF THEM WERE RETIRED OR NEAR RETIREMENT, ON FIXED INCOMES, AND LACKED INVESTMENT ACUMEN. AS DEMBSKI KNEW OR RECKLESSLY DISREGARDED, THE FUND WAS A HIGHLY SPECULATIVE, RISKY INVESTMENT. INDEED, NEITHER DEMBSKI NOR HIS LONG-TIME FRIEND HAD ANY EXPERIENCE IN MANAGING A HEDGE FUND AND, IN THE FRIEND'S CASE, VIRTUALLY NO INVESTING EXPERIENCE AT ALL. NONETHELESS, DEMBSKI KNOWINGLY OR RECKLESSLY MADE OR USED FALSE AND MISLEADING STATEMENTS TO HIS ADVISORY CLIENTS IN ORDER TO CREATE THE FALSE APPEARANCE THAT AN INVESTMENT IN THE FUND WAS LESS RISKY THAN IT REALLY WAS. AT THE RECOMMENDATIONS OF THE FIRM'S FOUNDERS, INCLUDING DEMBSKI, THEIR CLIENTS INVESTED APPROXIMATELY $12 MILLION IN THE FUND. THE FUND STARTED TRADING IN APRIL 2011. IN APPROXIMATELY 18 MONTHS AFTER THE FUND STARTED TRADING, THE OTHER FOUNDER WITHDREW HIS CLIENTS FROM THE FUND. THEN, IN APPROXIMATELY DECEMBER 2012, THE FUND COLLAPSED, LOSING APPROXIMATELY 80 PERCENT OF ITS VALUE, AS A RESULT OF DEMBSKI'S LONG-TIME FRIEND PLACING MANUAL TRADES, CONTRARY TO THE AUTOMATED TRADING STRATEGY SOLD TO INVESTORS. THUS, DEMBSKI'S CLIENT LOST THE VAST MAJORITY OF THEIR INVESTMENTS. AS A RESULT OF THE CONDUCT, RESPONDENT WILLFULLY VIOLATED SECTION 17(A) OF THE SECURITIES ACT AND SECTION 10(B) OF THE EXCHANGE ACT AND RULE 10B-5 THEREUNDER; AND WILLFULLY VIOLATED SECTIONS 206(1) AND (2) OF THE ADVISERS ACT. RESPONDENT WILLFULLY AIDED AND ABETTED AND CAUSED: THE HEDGE FUND'S VIOLATIONS OF SECTION 17(A) OF THE SECURITIES ACT, SECTION 10(B) OF THE EXCHANGE ACT AND RULE 10B-5 THEREUNDER; THE HEDGE FUND'S VIOLATIONS OF SECTION 206(4) OF THE ADVISERS ACT, AND RULE 206(4)-8 THEREUNDER; AND THE FIRM'S VIOLATIONS OF SECTION 17(A) OF THE SECURITIES ACT, SECTION 10(B) OF THE EXCHANGE ACT AND RULE 10B-5 THEREUNDER, AND SECTIONS 206(1) AND (2) THE ADVISERS ACT.

Order

Bar (Permanent)

broker, dealer, investment adviser, municipal securities dealer, municipal advisor, transfer agent, or NRSRO

Indefinite

3/24/2017

see comment

Indefinite

3/24/2017

penny stock

Indefinite

3/24/2017

Cease and Desist

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

$300,000.00

Disgorgement

$363,784.66

Monetary Penalty other than Fines

$51,933.53