In re CARL D. JOHNS

 UNITED STATES OF AMERICA 
 Before the 
 SECURITIES AND EXCHANGE COMMISSION 
 
INVESTMENT ADVISERS ACT OF 1940 
Release No. 3655 / August 27, 2013 
 
INVESTMENT COMPANY ACT OF 1940 
Release No. 30675 / August 27, 2013 
 
ADMINISTRATIVE PROCEEDING 
File No.  3-15440 
 
 
 
In the Matter of 
 
CARL D. JOHNS 
 
Respondent. 
 
 
ORDER INSTITUTING ADMINISTRATIVE 
AND CEASE-AND-DESIST PROCEEDINGS, 
PURSUANT TO SECTION 203(f) OF THE 
INVESTMENT ADVISERS ACT OF 1940, 
AND SECTIONS 9(b) AND 9(f) OF THE 
INVESTMENT COMPANY ACT OF 1940, 
MAKING FINDINGS, AND IMPOSING 
REMEDIAL SANCTIONS AND A CEASE-
AND-DESIST ORDER  
   
 
I. 
 
 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 Section 203(f) of the Investment Advisers Act of 1940 (“Advisers Act”) and 
Sections 9(b) and 9(f) of the Investment Company Act of 1940 (“Investment Company Act”) 
against Carl D. Johns (“Johns” or “Respondent”).   
 
II. 
 
 In anticipation of the institution of these proceedings, Johns has submitted an Offer of 
Settlement (the “Offer”) which the Commission has determined to accept.  Solely for the purpose 
of these proceedings and any other proceedings 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 and the subject matter of these proceedings, which are 
admitted, Johns consents to the entry of this Order Instituting Administrative and Cease-and-Desist 
Proceedings Pursuant to Section 203(f) of the Investment Advisers Act of 1940 and Sections 9(b) 
and 9(f) of the Investment Company Act of 1940, Making Findings, and Imposing Remedial 
Sanctions and a Cease-and-Desist Order (“Order”), as set forth below.   
 
 
 

 2 
III. 
 
 On the basis of this Order and Johns’ Offer, the Commission finds that: 
 
Respondent 
 
1. Respondent Carl D. Johns, 49 years old, is a resident of Louisville, Colorado.  From 
January 1999 to January 2011, Johns was employed in various capacities by Boulder Investment 
Advisers, LLC (“BIA”), including assistant portfolio manager.  Johns, on behalf of BIA and an 
affiliated adviser, Rocky Mountain Advisers, LLC (“RMA,” together with BIA, the “Advisers”), 
assisted in the management of the portfolios for, and served as an officer of, several registered 
investment companies.  On January 9, 2011, Johns was placed on administrative leave and, on 
January 12, 2011, he resigned from his positions with the Advisers and the Boulder Funds (as 
defined below).   
 
Other Relevant Entities 
 
2. BIA and RMA maintain their principal places of business in Boulder, Colorado.  
The Advisers are each registered with the Commission.   The Advisers provided investment 
advisory services to four affiliated, closed-ended management investment companies registered 
with the Commission (collectively, the “Boulder Funds”).  As of December 31, 2010, the Boulder 
Funds had approximately $900 million in combined net assets.   
 
Background 
 
3. While employed by the Advisers, Johns engaged in active personal trading in 
securities, including securities of companies held or to be acquired by the Boulder Funds.  From 
2006 through 2010, Johns executed approximately 850 personal securities transactions.  In many 
instances, Johns held the securities for only a few days.  
 
4. Rule 17j-1(d) under the Investment Company Act required Johns to submit 
quarterly reports of his personal securities transactions and annual reports of his securities 
holdings.  In addition, the Advisers’ and the Boulder Funds’ joint Code of Ethics (“Code of 
Ethics”), applicable to Johns, contained further restrictions on when and how Johns could trade 
in securities. The Code of Ethics (i) required that all securities transactions be pre-cleared by the 
chief compliance officer, subject to certain limited exceptions, (ii) restricted trading in securities 
that the Boulder Funds were buying or selling, and (iii) required annual certification of compliance 
with the Code of Ethics.  During the relevant period, Johns certified annually that he received, 
read, and understood the Code of Ethics. 
 
5. From 2006 through 2010, Johns failed to comply with the Commission’s reporting 
requirements and the Code of Ethics.  Johns did not pre-clear or report approximately 640 of his 
trades, including at least 91 trades in securities held or to be acquired by the fund, as that term is 
defined in Rule 17(j)-1(a)(10), and 14 trades that did not comply with the Code of Ethics’ 
restrictions on trading in securities that the Boulder Funds were buying or selling.   

 3 
 
6.  To conceal his personal securities trading, Johns submitted false quarterly and 
annual reports and falsely certified his annual compliance with the Code of Ethics.  Johns’ efforts 
to conceal his trading from the Advisers also included physically altering brokerage statements, 
trade confirmations, and pre-clearance approvals that were then submitted to the Advisers.  For 
example: 
 
 Johns created several documents that purported to be pre-clearance requests approved by 
the Advisers’ and the Boulder Funds’ chief compliance officer (“CCO”), but that were 
not actually reviewed or approved by the CCO.  Johns created these false pre-clearance 
approvals to cover-up instances in which his year-end annual report contained securities 
transactions that were not pre-cleared. 
 
 Johns altered trade confirmations submitted to the Advisers by backdating the dates of 
the securities transactions.  Johns backdated the trade confirmations to make it falsely 
appear as though pre-clearances were granted in advance of the transactions.  
 
 Johns manually deleted securities holdings listed on his brokerage statements before 
submitting them to the Advisers.  Johns did this to avoid disclosing securities purchases 
that were not pre-cleared.   
7. In late 2010, the CCO identified certain irregularities in the documents Johns 
submitted to the Advisers detailing his personal securities transactions.  Based on those 
irregularities, the CCO made certain inquiries of Johns to ascertain his full compliance with the 
Code of Ethics.   
 
8. In response, Johns misled the CCO.  Johns falsely told the CCO that certain of his 
brokerage accounts were closed, when in fact they remained open and reflected trades that were 
not pre-cleared as required by the Code of Ethics.  Johns also accessed the hard copy file of his 
previously submitted brokerage statements and physically altered them to create the false 
impression that Johns’ trading was in compliance with the Code of Ethics.  
 
Violations 
 
9. Section 17(j) of the Investment Company Act prohibits persons affiliated with a 
registered investment company (a “fund”) from engaging in any acts, practices, or courses of 
business in connection with the purchase or sale of a security held or to be acquired by the fund 
that violate the Commission’s rules adopted to prevent fraud.  Rule 17j-1(b) prohibits persons 
affiliated with a fund from, in connection with the purchase or sale, directly or indirectly, of a 
security held or to be acquired by the fund, employing devices, schemes, or artifices to defraud a 
fund, making untrue statements of a material fact to the fund or omitting to state material facts 
necessary in order to make the statements made to the fund, in light of the circumstances under 
which they were or are made, not misleading, engaging in acts, practices or courses of business 
which operate or would operate as a fraud or deceit on the fund, or engaging in manipulative 
practices with respect to the fund.  Rule 17j-1(d) further requires that Access Persons, which 
includes persons employed by an investment adviser who have access to a fund’s portfolio, must 

 4 
timely submit reports regarding personal securities trading in covered securities, as that term is 
defined in Rule 17j-1(a)(4). 
 
10. As a result of the conduct described above, Johns willfully violated Section 17(j) 
of the Investment Company Act and Rules 17j-1(b) and 17j-1(d) thereunder.  Johns (i) failed to 
pre-clear or report hundreds of his transactions, including transactions in securities held or to be 
acquired by the Boulder Funds and covered securities that did not comply with the Code of 
Ethics’ restrictions on trading in securities that the Boulder Funds were buying or selling, (ii) 
submitted false quarterly and annual reports, (iii) certified falsely his annual compliance with the 
Code of Ethics, and (iv) concealed his improper trading by physically altering documents 
submitted to the Advisers. 
 
11. Rule 38a-1(c) under the Investment Company Act prohibits an officer, director, or 
employee of a fund, or its investment adviser, from, directly or indirectly, taking any action to 
coerce, manipulate, mislead, or fraudulently influence the fund’s chief compliance officer in the 
performance of his or her duties under the Investment Company Act. 
 
12. As a result of the conduct described above, Johns willfully violated Rule 38a-1(c) 
under the Investment Company Act.  Johns misled the Advisers’ and Boulder Funds’ CCO in the 
performance of her duties by misrepresenting the status of certain of his brokerage accounts and 
tampering with the Boulder Funds’ compliance files. 
 
IV. 
 
 In view of the foregoing, the Commission deems it appropriate and in the public interest to 
impose the sanctions agreed to in Respondent’s Offer. 
 
 Accordingly, pursuant to Section 203(f) of the Advisers Act and Sections 9(b) and 9(f) of 
the Investment Company Act, it is hereby ORDERED that: 
 
 A. Respondent cease and desist from committing or causing any violations and any 
future violations of Section 17(j) of the Investment Company Act and Rules 17j-1 and 38a-1 
promulgated thereunder.  
 
B. Respondent be, and hereby is: barred from association with any broker, dealer, 
investment adviser, municipal securities dealer, municipal advisor, transfer agent, or nationally 
recognized statistical rating organization; and prohibited from serving or acting as an employee, 
officer, director, member of an advisory board, investment adviser or depositor of, or principal 
underwriter for, a registered investment company or affiliated person of such investment adviser, 
depositor, or principal underwriter, with the right to apply for reentry after five (5) years to the 
appropriate self-regulatory organization, or if there is none, to the Commission. 
 
 C.  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 

 5 
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 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. 
 
 D. Respondent shall, within 20 days of the entry of this Order, pay disgorgement of 
$231,169 prejudgment interest of $23,889, and a civil money penalty in the amount of $100,000 to 
the United States Treasury.  If timely payment is not made, additional interest shall accrue pursuant 
to SEC Rule of Practice 600 or 31 U.S.C. 3717.  Payment must be made in one of the following 
ways:  (1) Respondent may make direct payment from a bank account via Pay.gov through the 
SEC website at http://www.sec.gov/about/offices/ofm.htm; or (2) Respondent may pay by certified 
check, bank cashier’s check, or United States postal money order, made payable to the Securities 
and Exchange Commission and hand-delivered or mailed to: Enterprise Services Center, Accounts 
Receivable Branch, HQ Bldg., Room 181, AMZ-341, 6500 South MacArthur Boulevard, 
Oklahoma City, OK 73169.  Payments by check or money order must be accompanied by a cover 
letter identifying Carl D. Johns as a Respondent in these proceedings, and the file number of these 
proceedings; a copy of the cover letter and check or money order must be sent to Ian S. Karpel, 
Assistant Regional Director, Division of Enforcement, Denver Regional Office, Securities and 
Exchange Commission, 1801 California Street, Denver, CO 80202. 
 
 By the Commission. 
 
 
 
       Elizabeth M. Murphy 
       Secretary 
 

UNITED STATES OF AMERICA 

 Before the 

 SECURITIES AND EXCHANGE COMMISSION 

 

INVESTMENT ADVISERS ACT OF 1940 

Release No. 3655 / August 27, 2013 

 

INVESTMENT COMPANY ACT OF 1940 

Release No. 30675 / August 27, 2013 

 

ADMINISTRATIVE PROCEEDING 

File No.  3-15440 

 

 

 

In the Matter of 

 

CARL D. JOHNS 

 

Respondent. 

 

 

ORDER INSTITUTING ADMINISTRATIVE 

AND CEASE-AND-DESIST PROCEEDINGS, 

PURSUANT TO SECTION 203(f) OF THE 

INVESTMENT ADVISERS ACT OF 1940, 

AND SECTIONS 9(b) AND 9(f) OF THE 

INVESTMENT COMPANY ACT OF 1940, 

MAKING FINDINGS, AND IMPOSING 

REMEDIAL SANCTIONS AND A CEASE-

AND-DESIST ORDER  

   

 

I. 
 

 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 Section 203(f) of the Investment Advisers Act of 1940 (“Advisers Act”) and 

Sections 9(b) and 9(f) of the Investment Company Act of 1940 (“Investment Company Act”) 

against Carl D. Johns (“Johns” or “Respondent”).   

 

II. 
 

 In anticipation of the institution of these proceedings, Johns has submitted an Offer of 

Settlement (the “Offer”) which the Commission has determined to accept.  Solely for the purpose 

of these proceedings and any other proceedings 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 and the subject matter of these proceedings, which are 

admitted, Johns consents to the entry of this Order Instituting Administrative and Cease-and-Desist 

Proceedings Pursuant to Section 203(f) of the Investment Advisers Act of 1940 and Sections 9(b) 

and 9(f) of the Investment Company Act of 1940, Making Findings, and Imposing Remedial 

Sanctions and a Cease-and-Desist Order (“Order”), as set forth below.   

 

 

 



 2 

III. 
 

 On the basis of this Order and Johns’ Offer, the Commission finds that: 

 

Respondent 

 

1. Respondent Carl D. Johns, 49 years old, is a resident of Louisville, Colorado.  From 

January 1999 to January 2011, Johns was employed in various capacities by Boulder Investment 

Advisers, LLC (“BIA”), including assistant portfolio manager.  Johns, on behalf of BIA and an 

affiliated adviser, Rocky Mountain Advisers, LLC (“RMA,” together with BIA, the “Advisers”), 

assisted in the management of the portfolios for, and served as an officer of, several registered 

investment companies.  On January 9, 2011, Johns was placed on administrative leave and, on 

January 12, 2011, he resigned from his positions with the Advisers and the Boulder Funds (as 

defined below).   

 

Other Relevant Entities 

 

2. BIA and RMA maintain their principal places of business in Boulder, Colorado.  

The Advisers are each registered with the Commission.   The Advisers provided investment 

advisory services to four affiliated, closed-ended management investment companies registered 

with the Commission (collectively, the “Boulder Funds”).  As of December 31, 2010, the Boulder 

Funds had approximately $900 million in combined net assets.   

 

Background 

 

3. While employed by the Advisers, Johns engaged in active personal trading in 

securities, including securities of companies held or to be acquired by the Boulder Funds.  From 

2006 through 2010, Johns executed approximately 850 personal securities transactions.  In many 

instances, Johns held the securities for only a few days.  

 

4. Rule 17j-1(d) under the Investment Company Act required Johns to submit 

quarterly reports of his personal securities transactions and annual reports of his securities 

holdings.  In addition, the Advisers’ and the Boulder Funds’ joint Code of Ethics (“Code of 

Ethics”), applicable to Johns, contained further restrictions on when and how Johns could trade 

in securities. The Code of Ethics (i) required that all securities transactions be pre-cleared by the 

chief compliance officer, subject to certain limited exceptions, (ii) restricted trading in securities 

that the Boulder Funds were buying or selling, and (iii) required annual certification of compliance 

with the Code of Ethics.  During the relevant period, Johns certified annually that he received, 

read, and understood the Code of Ethics. 

 

5. From 2006 through 2010, Johns failed to comply with the Commission’s reporting 

requirements and the Code of Ethics.  Johns did not pre-clear or report approximately 640 of his 

trades, including at least 91 trades in securities held or to be acquired by the fund, as that term is 

defined in Rule 17(j)-1(a)(10), and 14 trades that did not comply with the Code of Ethics’ 

restrictions on trading in securities that the Boulder Funds were buying or selling.   



 3 

 

6.  To conceal his personal securities trading, Johns submitted false quarterly and 

annual reports and falsely certified his annual compliance with the Code of Ethics.  Johns’ efforts 

to conceal his trading from the Advisers also included physically altering brokerage statements, 

trade confirmations, and pre-clearance approvals that were then submitted to the Advisers.  For 

example: 

 

 Johns created several documents that purported to be pre-clearance requests approved by 

the Advisers’ and the Boulder Funds’ chief compliance officer (“CCO”), but that were 

not actually reviewed or approved by the CCO.  Johns created these false pre-clearance 

approvals to cover-up instances in which his year-end annual report contained securities 

transactions that were not pre-cleared. 

 

 Johns altered trade confirmations submitted to the Advisers by backdating the dates of 

the securities transactions.  Johns backdated the trade confirmations to make it falsely 

appear as though pre-clearances were granted in advance of the transactions.  

 

 Johns manually deleted securities holdings listed on his brokerage statements before 

submitting them to the Advisers.  Johns did this to avoid disclosing securities purchases 

that were not pre-cleared.   

7. In late 2010, the CCO identified certain irregularities in the documents Johns 

submitted to the Advisers detailing his personal securities transactions.  Based on those 

irregularities, the CCO made certain inquiries of Johns to ascertain his full compliance with the 

Code of Ethics.   

 

8. In response, Johns misled the CCO.  Johns falsely told the CCO that certain of his 

brokerage accounts were closed, when in fact they remained open and reflected trades that were 

not pre-cleared as required by the Code of Ethics.  Johns also accessed the hard copy file of his 

previously submitted brokerage statements and physically altered them to create the false 

impression that Johns’ trading was in compliance with the Code of Ethics.  

 

Violations 

 

9. Section 17(j) of the Investment Company Act prohibits persons affiliated with a 

registered investment company (a “fund”) from engaging in any acts, practices, or courses of 

business in connection with the purchase or sale of a security held or to be acquired by the fund 

that violate the Commission’s rules adopted to prevent fraud.  Rule 17j-1(b) prohibits persons 

affiliated with a fund from, in connection with the purchase or sale, directly or indirectly, of a 

security held or to be acquired by the fund, employing devices, schemes, or artifices to defraud a 

fund, making untrue statements of a material fact to the fund or omitting to state material facts 

necessary in order to make the statements made to the fund, in light of the circumstances under 

which they were or are made, not misleading, engaging in acts, practices or courses of business 

which operate or would operate as a fraud or deceit on the fund, or engaging in manipulative 

practices with respect to the fund.  Rule 17j-1(d) further requires that Access Persons, which 

includes persons employed by an investment adviser who have access to a fund’s portfolio, must 



 4 

timely submit reports regarding personal securities trading in covered securities, as that term is 

defined in Rule 17j-1(a)(4). 
 

10. As a result of the conduct described above, Johns willfully violated Section 17(j) 

of the Investment Company Act and Rules 17j-1(b) and 17j-1(d) thereunder.  Johns (i) failed to 

pre-clear or report hundreds of his transactions, including transactions in securities held or to be 

acquired by the Boulder Funds and covered securities that did not comply with the Code of 

Ethics’ restrictions on trading in securities that the Boulder Funds were buying or selling, (ii) 

submitted false quarterly and annual reports, (iii) certified falsely his annual compliance with the 

Code of Ethics, and (iv) concealed his improper trading by physically altering documents 

submitted to the Advisers. 

 

11. Rule 38a-1(c) under the Investment Company Act prohibits an officer, director, or 

employee of a fund, or its investment adviser, from, directly or indirectly, taking any action to 

coerce, manipulate, mislead, or fraudulently influence the fund’s chief compliance officer in the 

performance of his or her duties under the Investment Company Act. 

 

12. As a result of the conduct described above, Johns willfully violated Rule 38a-1(c) 

under the Investment Company Act.  Johns misled the Advisers’ and Boulder Funds’ CCO in the 

performance of her duties by misrepresenting the status of certain of his brokerage accounts and 

tampering with the Boulder Funds’ compliance files. 

 

IV. 

 

 In view of the foregoing, the Commission deems it appropriate and in the public interest to 

impose the sanctions agreed to in Respondent’s Offer. 

 

 Accordingly, pursuant to Section 203(f) of the Advisers Act and Sections 9(b) and 9(f) of 

the Investment Company Act, it is hereby ORDERED that: 

 

 A. Respondent cease and desist from committing or causing any violations and any 

future violations of Section 17(j) of the Investment Company Act and Rules 17j-1 and 38a-1 

promulgated thereunder.  

 

B. Respondent be, and hereby is: barred from association with any broker, dealer, 

investment adviser, municipal securities dealer, municipal advisor, transfer agent, or nationally 

recognized statistical rating organization; and prohibited from serving or acting as an employee, 

officer, director, member of an advisory board, investment adviser or depositor of, or principal 

underwriter for, a registered investment company or affiliated person of such investment adviser, 

depositor, or principal underwriter, with the right to apply for reentry after five (5) years to the 

appropriate self-regulatory organization, or if there is none, to the Commission. 

 

 C.  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 



 5 

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 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. 

 

 D. Respondent shall, within 20 days of the entry of this Order, pay disgorgement of 

$231,169 prejudgment interest of $23,889, and a civil money penalty in the amount of $100,000 to 

the United States Treasury.  If timely payment is not made, additional interest shall accrue pursuant 

to SEC Rule of Practice 600 or 31 U.S.C. 3717.  Payment must be made in one of the following 

ways:  (1) Respondent may make direct payment from a bank account via Pay.gov through the 

SEC website at http://www.sec.gov/about/offices/ofm.htm; or (2) Respondent may pay by certified 

check, bank cashier’s check, or United States postal money order, made payable to the Securities 

and Exchange Commission and hand-delivered or mailed to: Enterprise Services Center, Accounts 

Receivable Branch, HQ Bldg., Room 181, AMZ-341, 6500 South MacArthur Boulevard, 

Oklahoma City, OK 73169.  Payments by check or money order must be accompanied by a cover 

letter identifying Carl D. Johns as a Respondent in these proceedings, and the file number of these 

proceedings; a copy of the cover letter and check or money order must be sent to Ian S. Karpel, 

Assistant Regional Director, Division of Enforcement, Denver Regional Office, Securities and 

Exchange Commission, 1801 California Street, Denver, CO 80202. 

 

 By the Commission. 

 

 

 

       Elizabeth M. Murphy 

       Secretary