The SEC accepted a settlement offer from Oliver Grace, Jr. who, on behalf of 2 hedges he ran, violated the rules for purchasing shares in bank mutual-to-stock conversion offerings. The SEC alleged that, from 2003 to 2007, Grace employed a scheme which enabled him to acquire stock that exceeded the conversion offerings’ group purchase limits, in violation of offering terms and banking regulations.  He accomplished this by failing to disclose group relationships. During that period, Grace, 57, was the co-owner of Drake Asset Management, LLC (“DAM”), which served as the investment adviser to 2 hedge funds - Drake Associates, L.P. and Diversified Long-Term Growth Fund, L.P.  DAM, the management company, was not registered with the Commission.  The SEC specifically alleged that:

• Grace knowingly or recklessly failed to disclose on stock order forms his association with certain entities, including Drake and Diversified, which participated in 5 of the conversion offerings alongside Grace.
• DAM, under Grace’s oversight and supervision, knowingly or recklessly failed to disclose on Drake’s and Diversified’s stock order forms their association with Grace.
• Grace arranged for his associated entities to use addresses or signatories on order forms that would prevent converting banks from associating those orders with Grace.

SEC Settlement Sanctions. Grace agreed to be barred from associating with any broker, dealer, investment adviser, municipal securities dealer, municipal adviser, transfer agent, or nationally rating agencies, with the right to reapply for reentry after 3 years to the appropriate SRO, or if there is none, to the SEC.  Grace also must satisfy any or all disgorgement orders, arbitration award related to the conduct described herein, any SRO arbitration award to a customer, and any restitution order by an SRO.    [SEC Investment Advisers Act of 1940 Release 3319, 11/21/11]