FINAL JUDGMENTS ENTERED IN COMMISSION ACTION AGAINST SECURITIES FRAUD SCHEME TARGETING ELDERLY VICTIMS IN SOUTHERN CALIFORNIA

U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 19287 / June 28, 2005
SECURITIES AND EXCHANGE COMMISSION v. D.W. HEATH & ASSOCIATES, INC., PRIVATE CAPITAL MANAGEMENT, INC., PRIVATE COLLATERAL MANAGEMENT, INC., PCM FIXED INCOME FUND I, LLC, DANIEL WILLIAM HEATH, AND DENIS TIMOTHY O'BRIEN, No. CV 04 - 02949JFW(Ex)(C.D. Cal.)
FINAL JUDGMENTS ENTERED IN COMMISSION ACTION AGAINST SECURITIES FRAUD SCHEME TARGETING ELDERLY VICTIMS IN SOUTHERN CALIFORNIA

The Securities and Exchange Commission announced that final judgments have been entered by the United States District Court in Los Angeles against the defendants in a $145 million scheme that targeted the elderly. In a complaint filed on April 28, 2004, the Commission alleged that D.W. Heath & Associates, Inc., Private Capital Management, Inc. ("PCM"), Private Collateral Management, Inc., and PCM Fixed Income Fund I, LLC ("PCM Fund"), and two individuals, Daniel William Heath, 48, formerly of Chino Hills, California, and Denis Timothy O'Brien, 50, formerly of Yorba Linda, California, fraudulently induced elderly investors to invest in "secured" notes that paid a "guaranteed" return. The court appointed Robb Evans as permanent receiver over Heath & Associates, PCM, Private Collateral Management, and the PCM Fund.

On March 8, 2005 and May 25, 2005, the District Court entered final judgments of permanent injunction and other relief against O'Brien and Heath, respectively. The judgments enjoin O'Brien and Heath from violating the antifraud provisions of Section 17(a) the Securities Act of 1933 ("Securities Act") and Section 10(b) of the Securities Exchange Act of 1934 ("Exchange Act") and Rule 10b-5 thereunder, the securities registration provisions of Section 5(a) and 5(c) of the Securities Act, and the broker-dealer registration provisions of Section 15(a) of the Exchange Act. The judgments order O'Brien to disgorge to the receiver $2,526,157 plus pre-judgment interest of $34,582, and Heath to disgorge to the receiver $106,031,605 plus pre-judgment interest of $3,302,553. O'Brien and Heath consented to the entry of the judgments without admitting or denying the Commission's allegations. On April 4, 2005 and June 24, 2005, the Commission instituted administrative proceedings against O'Brien and Heath, respectively, barring them from association with a broker or dealer based on the entry of final judgments of permanent injunction against them. O'Brien and Heath consented to the entry of the orders without admitting or denying the Commission's findings.

Previously, the District Court entered judgments of permanent injunction and other relief against Heath & Associates, PCM, Private Collateral Management, and the PCM Fund, pursuant to the consent of the receiver. The judgments enjoin the receivership entities from violating the antifraud and securities registration provisions, and specify that pursuant to one or more plans of distribution to be submitted by the receiver to the court, the funds and assets of the receivership estate will be distributed to investors less court-approved fees and expenses.

The final judgment against Heath concludes the Commission's action. Administration of the receivership estate will continue.

In a report to the court, the receiver stated that approximately $144.8 million was raised from investors through PCM and the PCM Fund, and of that amount, approximately $39.6 million in principal and interest was returned to investors. According to the receiver's report, over the life of the company, PCM suffered a net loss of about $41.8 million and earned only $1 million in total income.

On July 1, 2004, the Riverside County District Attorney's Office arrested Heath, O'Brien, John William Heath, formerly of Covina, California, and Larre Jaye Schlarmann, formerly of Carlsbad, California. They have been charged with multiple felony counts, including selling unqualified securities, selling securities by misrepresentation, violating a court order to desist and refrain from selling securities, elder abuse, grand theft, burglary, and money laundering. All four men are in custody awaiting a preliminary hearing. Bail was set at $144 million for each individual. The Riverside DA's Office also obtained asset freezes against Heath, O'Brien, John William Heath, and Schlarmann. Robb Evans was appointed receiver in the criminal action.

The Commission wishes to acknowledge and thank the Riverside County District Attorney's Office for their assistance in this matter.

For further information, see Litigation Release Nos. 18689 (May 3, 2004), 18703 (May 11, 2004), 18724 (May 24, 2004), and 18777 (July 9, 2004), and Administrative Proceeding Release Nos. 34-51473 (April 4, 2005) and 34-51922 (June 24, 2005).

http://www.sec.gov/litigation/litreleases/lr19287.htm

Administrative Proceeding Release No. 34-51922 In the Matter of DANIEL W. HEATH,

UNITED STATES OF AMERICA
Before the
SECURITIES AND EXCHANGE COMMISSION
SECURITIES EXCHANGE ACT OF 1934
Release No. 51922 / June 24, 2005

ADMINISTRATIVE PROCEEDING
File No. 3-11963
In the Matter of
DANIEL W. HEATH,
Respondent.

ORDER INSTITUTING
ADMINISTRATIVE PROCEEDING
PURSUANT TO SECTION 15(b)(6) OF
THE SECURITIES EXCHANGE ACT OF
1934, MAKING FINDINGS, AND
IMPOSING REMEDIAL SANCTIONS
I.
The Securities and Exchange Commission (“Commission”) deems it appropriate and in the
public interest that a public administrative proceeding be, and hereby is, instituted pursuant to
Section 15(b)(6) of the Securities Exchange Act of 1934 (“Exchange Act”) against Daniel W.
Heath (“Respondent”).
II.
In anticipation of the institution of this proceeding, Respondent has submitted an Offer of
Settlement (the “Offer”) that the Commission has determined to accept. Solely for the purpose of
this proceeding and any other proceeding brought by or on behalf of the Commission, or to which
the Commission is a party, and without admitting or denying the findings herein, except as to the
Commission’s jurisdiction over him, the subject matter of this proceeding, and the findings
contained in Section III.2 below, which are admitted, Respondent consents to the entry of this
Order Instituting Administrative Proceeding Pursuant to Section 15(b)(6) of the Securities
Exchange Act of 1934, Making Findings, and Imposing Remedial Sanctions (“Order”), as set forth
below.
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III.
On the basis of this Order and Respondent’s Offer, the Commission finds that:
1. Heath, age 47, resides in Temecula, California and was the president and a
senior financial consultant of D.W. Heath & Associates, Inc. (“Heath & Associates”), a California
corporation, which acted as an unregistered broker-dealer offering and selling securities in the form
of corporate notes of Private Capital Management, Inc. (“PCM”) and the PCM Fixed Income Fund
I, LLC (“PCM Fund”) (collectively, “PCM Notes”). Respondent has never been registered with the
Commission in any capacity.
2. On May 25, 2005, a judgment of permanent injunction was entered against
Respondent, pursuant to his consent, enjoining him from future violations of Sections 5(a), 5(c),
and 17(a) of the Securities Act of 1933 (“Securities Act”) and Sections 10(b) and 15(a)(1) of the
Exchange Act and Rule 10b-5 thereunder, in the civil action entitled Securities and Exchange
Commission v. D. W. Heath & Associates, Inc., et al., Civil Action Number CV 04-02949 JFW
(Ex), in the United States District Court for the Central District of California.
3. The Commission’s first amended complaint alleges that Respondent, acting
with and through Heath & Associates, PCM and the PCM Fund and their sales agents, engaged in
the unregistered offer and sale of at least $69.9 million of PCM notes. The Commission’s first
amended complaint also alleges that Respondent made material misrepresentations to prospective
investors concerning the use of investor proceeds and operated an undisclosed Ponzi scheme. The
Commission’s first amended complaint further alleges that Respondent knowingly failed to
disclose to investors commissions received by him and his sales agents.
IV.
In view of the foregoing, the Commission deems it appropriate and in the public interest to
impose the sanctions specified in Respondent’s Offer.
Accordingly, it is hereby ORDERED:
Pursuant to Section 15(b)(6) of the Exchange Act, that Respondent be, and hereby is, barred
from association with any broker or dealer.
Any reapplication for association by the Respondent will be subject to the applicable laws
and regulations governing the reentry process, and reentry may be conditioned upon a number of
factors, including, but not limited to, the satisfaction of any or all of the following: (a) any
disgorgement ordered against the Respondent, whether or not the Commission has fully or partially
waived payment of such disgorgement; (b) any arbitration award related to the conduct that served
as the basis for the Commission order; (c) any self-regulatory organization arbitration award to a
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customer, whether or not related to the conduct that served as the basis for the Commission order;
and (d) any restitution order by a self-regulatory organization, whether or not related to the conduct
that served as the basis for the Commission order.
By the Commission.
Jonathan G. Katz
Secretary

Polygraph tests urged after leak

12:31 AM PDT on Wednesday, June 22, 2005

By IMRAN GHORI / The Press-Enterprise

San Bernardino County Supervisor Paul Biane challenged his colleagues Tuesday to take a lie-detector test to determine who was responsible for leaking a memo about settlement talks with a real estate developer.

Calling it a serious breach of confidence, Biane said all five supervisors, their staffs and the county counsel's office should submit to polygraph tests.

"This kind of breach puts the taxpayers' money at risk," he said.

But while the challenge was issued to all of his colleagues, Biane aimed his comments at Supervisor Dennis Hansberger, whom Biane said he suspects of leaking the document.

Last week, Biane was quoted as saying Hansberger should not be a supervisor and deserved to go to jail -- statements he said he still stands behind.

"If I'm wrong, he deserves a retraction," Biane said Tuesday. " At this point, I still believe that to be the truth."

According to the confidential memo obtained by The Press-Enterprise, Biane and board Chairman Bill Postmus on March 25 personally tried to negotiate a settlement with the principals of Colonies Partners, developers of a 434-acre commercial and housing project in Upland, after both sides sent their attorneys out of the room.

About an hour later, they struck a tentative agreement that would have had the county pay Colonies more than $77 million, the memo said. A formal settlement has not been reached.

Last week, Postmus asked District Attorney Mike Ramos to investigate the leak.

Hansberger, who denies leaking the document, said Biane is attempting to distract attention from his own behavior in the settlement talks.

"It strikes me as a desperate act by somebody who feels very threatened," he said.

Hansberger has questioned the appropriateness of Biane and Postmus holding private settlement talks with the developer. He said the district attorney's office also should look into whether any discussions were held outside closed session, in violation of state law.

Although he dismissed lie-detector tests as proving nothing, Hansberger said he would agree to take a test if the investigation was expanded to explore those questions.

Supervisors Postmus, Gary Ovitt and Josie Gonzales all said they would take the tests if asked.

Biane said he would leave it up to the district attorney's investigator whether to expand the investigation.

"My answer to that is I'll answer any question posed to me by the district attorney's office," he said.

Ramos has said that he asked for the investigation to be made a priority and hoped to have some answers by the Fourth of July weekend.

District attorney' spokeswoman Susan Mickey said a decision on requesting polygraph tests would be made by the investigator. She said she could not comment on the investigation and whether polygraph tests would be sought. Mickey said lie-detector tests are not admissible in court.

Reach Imran Ghori at (909) 806-3061 or ighori@pe.com