Securities and Exchange Commission v. Kenneth W. Burnt, Perimeter Wealth Financial Services, Inc., and KSB Financial, Inc.

On December 20, 2010 the Securities and Exchange Commission filed a civil injunctive action in U.S. District Court for the Northern District of Georgia, charging Kenneth W. Burnt (“Burnt”), Perimeter Wealth Financial Services, Inc. (“Perimeter Wealth”) and KSB Financial, Inc. (“KSB”), with violations of federal securities laws for making false and misleading statements in connection with an unregistered covered-call equities trading program.

The Commission’s Complaint alleges that Burnt, through two entities which he controls, Perimeter Wealth and KSB, raised approximately $4.5 million from more than 20 investors. Burnt represented to investors that: (1) investment returns were guaranteed to be between 8% to 12% per annum; (2) Burnt would not be paid any funds for his advisory services unless investors were earning 8% minimum annualized returns; and (3) any principal losses or shortfalls to the guaranteed returns would be contractually covered by a reserve account funded by defendants. These representations were false in that Burnt failed to disclose to investors that he had begun directly drawing on investor funds prior to their earning the minimum guaranteed interest and that the purported reserve account was inadequately funded and incapable of covering the investor losses incurred. Since its inception through November 30, 2010, the defendants’ covered-call program has suffered net equalized losses of approximately 15%.

In its Complaint, the Commission alleges that Burnt and Perimeter Wealth violated Sections 5 and 17(a) of the Securities Act of 1933 (“Securities Act”), Section 10(b) of the Securities Exchange Act of 1934 (“Exchange Act”) and Rule10b-5 thereunder, and Sections 206(1), 206(2) and 206(4) of the Investment Advisers Act of 1940 (“Advisers Act”). The Complaint further alleges that KSB violated Section 10(b) of the Exchange Act and Rule 10b-5 thereunder and Sections 206(1) and 206(2) of the Advisers Act.

On December 21, 2010 the Honorable William S. Duffey, Jr., United States District Judge for the Northern District of Georgia, entered an order preliminarily enjoining the defendants’ violative conduct, instituting a limited asset freeze, and requiring defendants to produce an accounting of all funds raised in violation of the federal securities laws as well as an accounting of the disposition and use of said proceeds. The defendants consented to the order without admitting or denying the allegations of the Commission’s complaint. The SEC acknowledges the assistance of the U.S. Attorney’s Office for the Northern District of Georgia and the Federal Bureau of Investigation in this matter.