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Municipal Bond Participants: The Underwriter Report under Section 21(a) of the Exchange Act SEC, Staff Report on Transactions in the Marine Protein Corporation Industrial Development Revenue Bonds, Exchange Act Release No. 15719 (April 11, 1979). . See "Obligated Persons" section. To Contents    Injunctive Proceedings Securities and Exchange Commission v. William C. Bethea, Civ. Action No. 3:98CV-457-LAC-MD (N.D. Fl.), Litigation Release No. 15985 (November 23, 1998) (settled final order). The Securities and Exchange Commission today filed and settled a pay-to-play case against William C. Bethea, the former head of Stephens Inc.'s Public Finance Department, for giving secret payments to certain Florida public officials in exchange for municipal securities business. The Complaint, filed in the Northern District of Florida, alleges the following: While serving as head of the Public Finance Department of Stephens, Bethea authorized secret payments to one Florida public official (Terry Busbee of the Escambia County Utilities Authority) and facilitated the secret compensation of another (Larry O'Dell of Osceola County), for the purpose of obtaining or retaining municipal securities business for Stephens. Bethea's failure to disclose the arrangements, the payments, and the actual and potential conflicts of interest they created, violated the antifraud provisions as well as fair dealing and gratuities rules of the Municipal Securities Rulemaking Board. Bethea also defrauded the issuer and purchasers of a 1992 Walton County, Florida bond issue by failing to disclose-in the face of a duty to do so-Stephens' compensation of a consultant and an employee of another underwriting firm, in violation of the same provisions. In addition, Bethea: endorsed the conferral of an undisclosed favor upon a third Florida public official; enlisted third parties to serve as conduits for campaign contributions; and created false and misleading books and records at Stephens to cover up the illicit payments, in further violation of fair-dealing rules. Simultaneous with the filing of the Complaint, and without admitting or denying the allegations contained in the Complaint, Bethea agreed to the entry of a final judgment of permanent injunction barring future violations of Section 17(a) of the Securities Act, Sections 10(b) and 15B(c)(1) of the Exchange Act and Rule 10b-5 thereunder, and MSRB rules G-17 and G-20; and ordering him to pay a civil penalty of $30,000. As part of his settlement with the Commission, Bethea has agreed to the entry of a Commission order barring him from the securities business. The Commission's Complaint against Bethea includes certain conduct alleged in the civil actions styled Securities and Exchange Commission v. Preston C. Bynum and Terry D. Busbee, Civil Action No. 95-30024-RV (N.D. Fla.); Lit. Rel. No. 14387/January 23, 1995; and Securities and Exchange Commission v. Larry K. O'Dell, Civil Action No. 98-948-Civ-Orl-18A (M.D. Fla.); Lit. Rel. No. 15858/August 24, 1998; and in the administrative proceeding styled, In the Matter of Stephens Inc., Exchange Act Rel. No. 40699/Nov. 23, 1998. Also today, the United States Attorney for the Northern District of Florida ("USAO") announced a civil settlement with Stephens, and the Commission instituted and settled an administrative proceeding against Stephens. Both the USAO's civil settlement, and the Commission's administrative settlement, are based on some of the same conduct alleged in the Commission's Complaint against Bethea. As part of the USAO's civil settlement, Stephens has agreed to forfeit to the Department of Justice $2.25 million in revenues of its Public Finance Department, to make payments to three Florida issuers in the aggregate amount of $886,672.16, to refrain from conducting municipal securities business in Florida for five years; and to refrain indefinitely and throughout the United States from utilizing consultants within the meaning of MSRB rule G-38. The Commission's pay-to play investigation in the Southeastern United States continues. To Contents    Securities and Exchange Commission v. First California Capital Markets Group, Inc., H. Michael Richardson and Derrick Dumont, Civ. No. 97-2761-SI (N.D. Cal.), Litigation Release No. 15423 (July 28, 1997) (complaint). The Securities and Exchange Commission today sued a securities brokerage and two of its executives for defrauding investors who bought $69 million worth of municipal bonds in five municipal bond offerings in California. The Commission's Complaint alleges that Defendants lied to investors and omitted to tell them important information in the offering materials for each bond offering about the risks connected with the bonds. The Commission filed its lawsuit against First California Capital Markets Group, Inc. ("First California"), a broker-dealer formerly headquartered in San Francisco (now located in San Diego), H. Michael Richardson, a principal of the firm who lives in the Bay Area, and Derrick Dumont, the former manager of the firm's land-based financing department who now lives in Calistoga. The Complaint was filed in the United States District Court for the Northern District of California. The Complaint alleges that the fraud was committed in connection with the Defendants' underwriting of municipal bonds issued by the County of Nevada ("Nevada County"), the City of Ione ("Ione"), the Avenal Public Financing Authority ("Avenal"), and the Wasco Public Financing Authority ("Wasco"), all located in Central California. The six-count Complaint asks the court to enjoin permanently the Defendants from violating the law, order them to return all ill-gotten gains plus interest, and impose civil penalties. Nevada County raised $9 million, and Ione in two offerings raised a total of $14 million, through the sale of "Mello-Roos" municipal bonds. Such bonds are issued to finance real estate development. The Complaint alleges that in the Official Statement for the Nevada County offering, the Defendants overstated the value of the property, misrepresented the developer's ownership interest in the property and overstated the developer's experience and financial condition. The Complaint alleges that in the Official Statement for the Ione offerings, the Defendants misrepresented that all of the listed improvements could be built with the offerings proceeds, overstated the value of the property to be developed, and failed to disclose that the developer had insufficient capital to complete the development. These misrepresentations and omissions were important to investors because they made the projects and the bonds seem less risky than they actually were. The Avenal and Wasco offerings, which raised $11 million and $35 million respectively, involved the sale of "Marks-Roos" municipal bonds. Such bonds are issued to form pools of money to finance a number of local projects. The Complaint alleges that First California and Richardson lied to investors or omitted to tell them important information in the Official Statements for these offerings about the need for the amount of money raised and the certainty of the intended use of the proceeds. The Complaint alleges that the Defendants failed to disclose that some of the projects listed in the Avenal Official Statement and nearly all of the projects in the Wasco Official Statement were highly contingent, if not speculative. These misrepresentations were important to investors because they falsely created the impression that the pools were fully subscribed. When a bond issue is not fully subscribed, investors could be exposed to the risk that the bonds would not be able to pay principal and interest. All of this conduct violated the antifraud provisions of the federal securities laws, including Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934 (the "Exchange Act") and Rule 10b-5 issued thereunder. Defendants also violated Section 1B(c)(1) of the Exchange Act and Rule G-17 of the Municipal Securities Rulemaking Board ("MSRB"), which require a municipal securities broker to deal fairly with its customers. The Complaint further alleges that First California and Richardson, when underwriting the Nevada County and Ione offerings, advised Wasco and Avenal to buy large blocks of the Nevada County and Ione bonds, even though they knew that these bonds did not meet certain requirements for Wasco and Avenal which investors had been told would be followed. In addition, First California and Richardson--aware of a representation to Wasco investors that proceeds not invested within a three-year period would be returned to bondholders--advised Wasco to purchase several low quality securities (for one of which First California acted as the underwriter) after the close of the three-year period. All this conduct violated Section 15B(c)(1) of the Exchange Act and MSRB Rule G-19, which require municipal securities brokers to recommend only suitable investments to its clients. Finally, the Complaint alleges that in February 1994, when Nevada County offered to redeem roughly half of its bonds with its remaining proceeds, First California and Richardson recommended to Wasco and Avenal that they not tender their bonds. This advice allowed First California's other clients holding Nevada County bonds to redeem at par while leaving Wasco and Avenal holding Nevada County's troubled bonds. This conduct violated Section 15B(c)(1) of the Exchange Act and MSRB Rule G-17. To Contents    Securities and Exchange Commission v. First California Capital Markets Group, Inc., H. Michael Richardson and Derrick Dumont, Litigation Release No. 16107 (April 7, 1999) (settled final orders). The Securities and Exchange Commission ("Commission") announced today that the Honorable Charles R. Breyer of the U.S. District Court, Northern District of California, entered judgment by consent against the San Francisco underwriting firm First California Capital Markets Group, Inc. ("First California"), now known as Badger Technologies, Inc., and bankers, H. Michael Richardson ("Richardson"), formerly of Lafayette, California, and Derrick P. Dumont ("Dumont") of Calistoga, California. The Court order permanently enjoins and restrains First California, Richardson and Dumont from violating or committing future violations of the anti-fraud provisions of the federal securities laws and Municipal Securities Rulemaking Board rules requiring fair dealing with investors. Richardson and First California agreed to jointly pay $600,000 in disgorgement and prejudgment interest, and civil penalties totaling $100,000. In addition, Richardson and Dumont have consented to the entry of administrative orders by the Commission barring them from association with any broker, dealer, investment adviser, investment company or municipal securities dealer, with the right to reapply for registration in three years and two years, respectively. The Commission did not seek to deregister First California because First California had withdrawn its registration as a broker-dealer in 1997 shortly after the Commission filed its district court action. The Commission's Complaint alleges that First California, Richardson, its CEO, and Dumont, Manager of its Assessment District/Mello-Roos Department, made numerous misrepresentations and omissions in offering material it distributed to investors which undermined the feasibility and security of $69 million in California municipal bonds. Between July 1989 and February 1994, First California underwrote five municipal bond offerings for four California municipalities: the Country of Nevada, City of lone, City of Wasco, and City of Avenal. Two of the bond offerings involved Marks-Roos bonds (pool bonds). The misrepresentations and omissions in those offerings involved oversizing of the pools and failure to disclosed the speculative nature of the intended projects to be funded. The three remaining bond offerings involved Mello-Roos bonds (land development bonds). In these bonds, the background, experience, and financial status of the developers, as well as the valuation of the underlying land and improvements securing the bonds were misrepresented. In addition, Richardson, acting as financial consultant to Wasco and Avenal, advised the cities to invest in the Nevada County and lone bonds, despite the fact that the bonds did not meet Avenal's and Wasco's minimum credit requirements for investment. Richardson also advised Wasco to invest more than half of its pooled funds after the three year limitation period at which time uninvested funds were to be returned to investors. The Commission's Complaint alleged that this conduct violated Sections 17(a) of the Securities Act, Sections 10(b) and 15B(c) of the Exchange Act, Rule 10b-5 promulgated thereunder, and Municipal Securities Rulemaking Board Rules G-17 and G-19. The Commission previously brought, and settled, administrative proceedings against Nevada County, City of lone, and City of Wasco, as well as numerous other individuals involved with the five bond offerings. An administrative ruling remains pending against Virginia Horler, the financial adviser to Nevada County. To Contents    Securities and Exchange Commission v. Robert D. Gersh, Boston Municipal Securities, Inc., and Devonshire Escrow and Transfer Corp., Civ. Action No. 95-12580 (RCL) (D. Mass.), Litigation Release No. 14742 (November 30, 1995) (complaint); Litigation Release No. 15310 (March 31, 1997) (settled final order). See "The Issuer" section. To Contents    Securities and Exchange Commission v. Robert M. Cochran, Michael B. Garrett and Randall W. Nelson, Civ. Action No. 95-1477T (W.D. Okla.), Litigation Release No. 14644 (September 20, 1995) (complaint) consolidated with Securities and Exchange Commission v. James V. Pannone and Sakura Global Capital, Inc., Civ. Action No. CIV98-146L (W.D. Okla.), Litigation Release No. 15630 (January 29, 1998) (complaint). The Securities and Exchange Commission ("Commission") announced today that it filed a Complaint in the United States District Court for the Western District of Oklahoma against Robert M. Cochran, Michael B. Garrett and Randall W. Nelson, former employees of Stifel, Nicolaus and Company, Incorporated, ("Stifel") a broker-dealer headquartered in St. Louis. The Complaint alleges that from 1989 through 1993, Stifel received millions of dollars in undisclosed payments from third parties that sold or brokered investments to municipal issuers, and that Stifel undermined the integrity of the bidding process set up for the purchase of certain of those investments. According to the Complaint, the defendants, who worked in Stifel's former Oklahoma Public Finance Office, had a duty to disclose conflicts of interest while advising the issuers about the purchase of the investments. The defendants breached their duty and defrauded the issuers in failing to disclose that Stifel received the payments from the investment providers or investment brokers. The Complaint further alleges that the defendants defrauded investors by failing to disclose the payments to participants in the bond issues, including the issuer, bond counsel and/or special tax counsel, thereby depriving investors of information material to an assessment of the tax exempt status of the bonds. The Complaint alleges that these actions by the defendants violated Section 17(a) of the Securities Act of 1933, Sections 10(b), and 15B(c)(1) of the Securities Exchange Act of 1934, Rule 10b-5 thereunder and Rule G-17 of the Municipal Securities Rulemaking Board (MSRB). The Complaint seeks relief including final judgments of permanent injunction barring future violations of those provisions, imposition of civil penalties, and against defendant Cochran, disgorgement of bonuses related to the improper payments made to Stifel. Last month the Commission filed a related action against the defendants' former employer, Stifel. Simultaneously, without admitting or denying the allegations contained in the Complaint, Stifel consented to the entry of a Final Judgment enjoining it from future violations of antifraud and books and records provisions of the federal securities. In addition, Stifel agreed to disgorge $922,741, pay prejudgment interest on that amount of $263,637 and pay a civil money penalty pursuant to Section 20(d) of the Securities Act and Section 21(d) (3) of the Exchange Act of $250,000. See Litigation Release No. 14587 (August 3, 1995). Also today, the United States Attorney for the Western District of Oklahoma announced that a federal grand jury indicted Cochran and Garrett on charges relating to the conduct alleged in the Complaint. The Commission's investigation continues as to the conduct of other entities and individuals involved in this matter. The Securities and Exchange Commission announced that on January 29, 1998, it filed a Complaint in the United States District Court for the Western District of Oklahoma against James Pannone, a former vice president of the Oklahoma Public Finance Office of Stifel, Nicolaus & Company, Inc. ("Stifel"), a broker-dealer registered with the Commission, and Sakura Global Capital, Inc. ("Sakura"), a subsidiary of Sakura Bank that is engaged in the business of selling derivatives. The Complaint alleges that the defendants committed fraud in connection with the sale of municipal securities. The Complaint alleges that in two municipal bond transactions underwritten by Stifel, Pannone engaged in bid-rigging to ensure Sakura's selection as the provider of the forward purchase agreements ("forwards") to the issuers. The Complaint also alleges that in those same securities transactions, Pannone and Sakura made materially misleading statements and/or affirmative misrepresentations to the issuers with respect to undisclosed payments that Sakura made to Stifel. The Complaint alleges that these undisclosed payments jeopardized the tax-exempt status of the bonds. The Complaint alleges that in a 1992 transaction for the Oklahoma Turnpike Authority, despite bond counsel's requirement that three competitive bids be obtained for the forward, Pannone rigged the bidding to ensure Sakura's selection as the forward provider. The Complaint also alleges that Pannone subsequently negotiated with Steven Strauss, Sakura's then managing director in charge of municipal securities transactions, a $6.593 million undisclosed brokerage fee to be paid by Sakura to Stifel, and that Pannone falsely described to the Turnpike Authority the bidding and negotiation process of the forward. The Complaint further alleges that the forward purchase agreement stated that Sakura did not intend to take any actions which would jeopardize the tax-exempt status of the bonds. The Complaint alleges that at the time Sakura executed the forward it was planning to pay a $6.593 million brokerage fee to Stifel, and that Sakura knew or was reckless in not knowing that such a brokerage fee would jeopardize the tax-exempt status of the bonds. The Complaint also alleges that in a 1992 transaction for the Sisters of St. Mary's Health Care Obligated Group, despite bond counsel's requirement that three competitive bids be obtained for the forward, Pannone rigged the bidding to ensure Sakura's selection as the forward provider. The Complaint further alleges that at the request of bond counsel, Pannone and Strauss provided certificates stating that Sakura would not make any payments, other than certain payments to the issuer, in connection with the forward. The Complaint alleges that Sakura made a $100,000 payment to Stifel and that Pannone concealed the payment by booking it to a different transaction. The Complaint alleges that by their conduct, Pannone and Sakura violated Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934 ("Exchange Act") and Rule 10b-5 thereunder, and that Pannone also violated Section 15B(c)(1) of the Exchange Act and Rule G-17 of the Municipal Securities Rulemaking Board. The Complaint seeks relief including a permanent injunction barring Pannone and Sakura from future violations of those provisions and the imposition of civil monetary penalties. The Commission previously sued Stifel, Robert Cochran, Stifel's former executive vice president in charge of its Oklahoma Public Finance Office, and Steven Strauss in connection with these transactions. The Commission settled its action against Stifel. The Commission's litigation is ongoing with respect to Cochran and Strauss. See Lit. Rel. No. 15569 (Nov. 24, 1997); Lit. Rel. No. 14644 (Sept. 20, 1995); and Lit. Rel. No. 14587 (Aug. 3, 1995). To Contents    Securities and Exchange Commission v. Robert M. Cochran, Randall W. Nelson, James V. Pannone, Steven Strauss, and Sakura Global Capital, Inc., (Order granting in part and denying in part motions for summary judgment of defendants) (January 28, 1999). To Contents    Securities and Exchange Commission v. Robert Cochran, James Pannone, Sakura Global Capital, Inc. and Steven Strauss, Litigation Release No. 16063 (February 17, 1999) (settled final orders). The Securities and Exchange Commission announced settlements with Robert Cochran, James Pannone, Sakura Global Capital, Inc. and Steven Strauss with respect to alleged fraud in connection with the sale of municipal securities underwritten by Stifel, Nicolaus & Company, Inc. Cochran was a former executive vice president of Stifel, in charge of its Oklahoma public finance office. Pannone was a former vice president of Stifel. Sakura, a subsidiary of Sakura Bank, was engaged in the business of selling derivatives, including forward purchase agreements ("forwards"). Strauss was a managing director of Sakura. All of the defendants consented to the entry of injunctions prohibiting them from violating the antifraud provisions of the federal securities laws, and collectively they agreed to pay $430,000 in monetary penalties. The Complaint alleges that in a 1992 transaction for the Oklahoma Turnpike Authority, despite bond counsel's requirement that three competitive bids be obtained for the forward, Cochran and Pannone rigged the bidding to ensure Sakura's selection as the forward provider. The Complaint also alleges that Cochran and Pannone subsequently negotiated with Strauss a $6.593 million undisclosed brokerage fee to be paid by Sakura to Stifel, and that Pannone falsely described to the Turnpike Authority the bidding and negotiation process of the forward. The Complaint further alleges that the forward purchase agreement stated that Sakura did not intend to take any actions which would jeopardize the tax-exempt status of the bonds. The Complaint alleges that at the time Strauss executed the forward on behalf of Sakura, Sakura was planning to pay a $6.593 million brokerage fee to Stifel. The Complaint alleges that Sakura and Strauss knew or were reckless in not knowing that such a brokerage fee would jeopardize the tax-exempt status of the bonds. The Complaint also alleges that in a 1992 transaction for the Sisters of St. Mary's Health Care Obligated Group, despite bond counsel's requirement that three competitive bids be obtained for the forward, Pannone rigged the bidding to ensure Sakura's selection as the forward provider. The Complaint further alleges that at the request of bond counsel, Pannone, at Cochran's direction, and Strauss provided certificates stating that Sakura would not make any payments, other than certain payments to the issuer, in connection with the forward. The Complaint alleges that Sakura made a $100,000 payment to Stifel and that Cochran and Pannone concealed the payment by booking it to a different transaction. The Complaint alleges that the $100,000 payment from Sakura to Stifel jeopardized the tax-exempt status of the bonds. Finally, the Complaint alleges that in a 1990 transaction for the Pottawatomie County Development Authority, Cochran recommended that the bond proceeds be invested in a guaranteed investment contract ("GIC"). The Complaint alleges that Cochran did not disclose to the issuer that Stifel received a payment of $87,220 in connection with the GIC. The Complaint alleges that this payment jeopardized the tax-exempt status of the bonds. Without admitting or denying the allegations in the Complaint, Pannone, Sakura and Strauss consented to the entry of injunctions prohibiting them from future violations of Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934 ("Exchange Act") and Rule 10b-5 thereunder. Pannone further consented to the entry of injunctions prohibiting them from future violations of Section 15B(c)(1) of the Exchange Act and Rule G-17 of the Municipal Securities Rulemaking Board. Pannone, Sakura and Strauss also consented to the entry of final judgments ordering them to pay monetary penalties of $30,000, $250,000 and $50,000, respectively. In addition, Pannone consented to the entry of an administrative order suspending him from association with any broker, dealer or municipal securities dealer for twelve months. On January 28, 1999, the Court entered an order dismissing the Commission's securities fraud claims against Cochran with respect to the Oklahoma Turnpike Authority and Pottawatomie County Development Authority transactions. Without admitting or denying the remaining allegations in the Complaint with respect to the Sisters of St. Mary's transaction, Cochran consented to the entry of a final judgment enjoining him from future violations of Section 17(a) of the Securities Act, Sections 10(b) and 15B(c)(1) of the Exchange Act and Rule 10b-5 thereunder, and Rule G-17 of the Municipal Securities Rulemaking Board, and ordering him to pay a monetary penalty of $100,000. The settlement with Cochran preserves the Commission's ability to appeal the dismissal of the Oklahoma Turnpike Authority and Pottawatomie County Development Authority transactions. See also, Lit. Rel. No. 15630 (Jan. 29, 1998); Lit. Rel. No. 15569 (Nov. 24, 1997); Lit. Rel. No. 14644 (Sept. 20, 1995); and Lit. Rel. No. 14587 (Aug. 3, 1995). To Contents    Securities and Exchange Commission v. Michael Goodman and Harold Tzinburg, Civ. Action No. 95CV 71563 (E.D. MI.), Litigation Release No. 14471 (April 19, 1995) (settled final order). The Securities and Exchange Commission announced that on April 14, 1995, a Complaint was filed in the U.S. District Court for the Eastern District of Michigan against Michael Goodman (Goodman) and Harold Tzinberg (Tzinberg) seeking a Permanent Injunction, based on their violations of Sections 17(a)(1), 17(a)(2) and 17(a)(3) of the Securities Act of 1933 (Securities Act), Section 10(b) of the Securities Exchange Act or 1934 (Exchange Act) and Rule 10b-5 promulgated thereunder. The Commission's Complaint alleges, among other things, that during the years 1984 through 1989, two not-for-profit corporations, First Humanics Corp. (First Humanics) and its successor, International Elderly Care, Inc. (IEC), participated in 26 public offerings of municipal bonds raising over $107 million. The purpose of these offerings was to acquire, renovate and operate nursing homes. In connection with two such offerings, First Humanics' 1987 offering to acquire the Medicos Recovery Care Center nursing home in Detroit, Michigan (Medicos) and IEC's 1988 offering to acquire the Colonial Gardens Convalescent Center in Boonville, Missouri (Colonial Gardens), Goodman served as the representative for the underwriter and Tzinberg served as the underwriter's counsel. During these offerings, however, both Goodman and Tzinberg participated in the preparation of false and misleading offering circulars. Specifically, the Medicos offering circular contained material misrepresentations and omissions concerning: the promoter of the offering, the promoter's control over First Humanics as well as his regulatory history and numerous prior bond and business failures; the prevalent commingling of revenues from existing First Humanics nursing homes and the resulting financial interdependence of all First Humanics nursing homes; and, First Humanics' on-going ponzi scheme. In addition, the Colonial Gardens offering circular contained material misrepresentations and omissions concerning the above promoter's role in the offering and his control over IEC as well as his background; the nexus between IEC and First Humanics; and First Humanics' prior bond defaults. Simultaneous with the filing of the Commission's Complaint, Goodman and Tzinberg, without admitting or denying the Commission's allegations, consented to the entry of a final judgment enjoining them from violations of Sections 17(a)(1), 17(a)(2) and 17(a)(3) of the Securities Act, Section 10(b) of the Exchange Act and Rule 10b-5 thereunder. To Contents    Securities and Exchange Commission v. Nicholas A. Rudi, Joseph C. Salema, Public Capital Advisors, Inc., George L. Tuttle Jr. and Alexander S. Williams, Civ. Action No. 95 Civ. 1282 (S.D.N.Y.), Litigation Release No. 14421 (February 23, 1995) (settled final orders against Tuttle & Williams). The Commission announced that it filed a Complaint today alleging violations of the federal securities laws and the Municipal Securities Rulemaking Board ("MSRB") Rules arising out from the payment of more than $300,000 in kickbacks in connection with the Camden County Municipal Utilities Authority's ("CCMUA") February 1990 offering of approximately $237,000,000 of debt securities ("Offering"). Named in the Complaint were: Nicholas A. Rudi, age 46, a resident of Haddon Township, New Jersey. During the period of the conduct alleged in the Complaint, Nicholas A. Rudi was the President and a fifty percent owner of Consolidated Financial Management, Inc., the financial advisor to the CCMUA for the offering Nicholas A. Rudi had been Camden County, New Jersey's ("Camden County") administrator during the early 1980s; Joseph C. Salema, age 46, a resident of Wenonah, New Jersey. During the period of the conduct alleged in the Complaint, Joseph C. Salema was the Executive Vice President and owned the other fifty percent of Consolidated Financial Management, Inc. In October 1990, Joseph C. Salema sold his interest in Consolidated Financial Management, Inc. to Nicholas A. Rudi; Public Capital Advisors. Inc., a financial advisory firm that until September 1993, was known as Consolidated Financial Management, Inc.. Consolidated Financial Management, Inc. was incorporated in New Jersey in 1985 and maintains its offices in Clementon, New Jersey. Consolidated Financial Management, Inc. was the CCMUA's financial advisor since February 1985. Nicholas A. Rudi is now the sole owner of Public Capital Advisors, Inc.; George L. Tuttle. Jr., age 47, who resides in Varnck, New York, and who was a senior vice president at First Fidelity Bank, N.A. ("FFB") during the period of the conduct alleged in the Complaint. In November 1994, George L. Tuttle, Jr. resigned from FFB; Alexander S. Williams, age 63, resides in Westfield, New Jersey, and who was an executive vice-president at FFB from 1970 until he retired in December 1994. During the period of the conduct alleged in the Complaint1 Alexander S. Williams was also the head of First Fidelity Securities Group ("First Fidelity"), and George L. Tuttle, Jr. reported to Alexander S. Williams. The Complaint alleges that: Consolidated Financial Management, Inc. was the financial advisor to the CCMUA on the Offering. Nicholas A. Rudi told George L. Tuttle, Jr. that the CCMUA had reduced Consolidated Financial Management, Inc.'s financial advisory fee on the Offering to a flat fee of $15,000. In prior offerings, Consolidated Financial Management, Inc. had received one dollar per $1,000 face value of bonds ("one dollar per bond"). Nicholas A. Rudi said that he thought Consolidated Financial Management, Inc. should still get paid one dollar per bond for working on the Offering and told George L. Tuttle, Jr. that he wanted First Fidelity to pay Consolidated Financial Management, Inc the difference. At the time of this conversation, George L. Tuttle, Jr. and Nicholas A. Rudi anticipated that the CCMUA would issue approximately $215 million in debt. George L. Tuttle, Jr. understood that Nicholas A. Rudi wanted to receive $215,000 for Consolidated Financial Management, Inc.'s work on the Offering, $15,000 from the CCMUA and the remaining $200,000 from First Fidelity. Accordingly, George L Tuttle, Jr. and Alexander S. Williams caused their employer, First Fidelity, of pay a kickback of over $200,000 between February and April 1990 to Consolidated Financial Management, Inc. The kickback was shared by Nicholas A. Rudi and Joseph C. Salema. Joseph C. Salema solicited and received an additional $90,000 kickback from Robert J. Jablonski ("Jablonski"), currently a Commissioner of the New Jersey Highway Authority. In exchange for Joseph C. Salema's assistance in securing for First Fidelity the lead underwriter position on the Offering, Jablonski agreed to pay Joseph C. Salema a portion of the finder's fee that First Fidelity paid to Jablonski in connection with the Offering. Joseph C. Salema and Jablonski agreed that Jablonski's kickback to Salema would be reduced by any political contributions that Jablonski chose to make in the interim. To conceal the kickback to Consolidated Financial Management, Inc., George L. Tuttle, Jr. and Alexander S. Williams paid the kickback to Consolidated Financial Management, Inc. through Jablonski and disguised these payments on First Fidelity's municipal securities dealer books and records. At Joseph C. Salema's direction, Jablonski in turn paid to Armacon Investment Co., a company owned by Joseph C. Salema, First Fidelity's kickback to Consolidated Financial Management, Inc. and Jablonski's kickback to Joseph C. Salema. George L. Tuttle, Jr. caused First Fidelity to make an additional $22,000 kickback to Consolidated Financial Management, Inc. in connection with the Offering through a fictitious invoice on another municipal securities transaction and concealed this payment on First Fidelity's municipal securities dealer books and records. George L. Tuttle, Jr. also caused First Fidelity to pay Armacon Securities, Inc., a broker-dealer jointly owned by Nicholas A. Rudi and Joseph C. Salema, a finder's fee for First Fidelity's role in a 1991 CCMUA Guaranteed Investment Contract. The payment was made in response to a series of false invoices that Nicholas A. Rudi submitted to First Fidelity on unrelated municipal offerings. George L Tuttle, Jr., who knew of the falsity of the invoices, improperly recorded these payments on First Fidelity's municipal securities dealer books and records. Each of the Defendants violated Section 17(a) of the Securities Act of 1933 ("Securities Act"), and Section 10(b) of the Securities Exchange Act of 1934 ("Exchange Act") and Rule l0b-5. In addition, George L. Tuttle, Jr. and Alexander S. Williams violated Section 15B(c)(1) of the Exchange Act, which prohibits effecting transactions in municipal securities in contravention of any rule of the MSRB, and MSRB Rules G-8 (books and records), G-17 (fair dealing) and G-20 (gifts and gratuities). In the Complaint, the Commission seeks a final judgment permanently enjoining each of the defendants from violating Section 17(a) of the Securities Act, and Section 10(b) of the Exchange Act and Rule 10b-5, and enjoining George L Tuttle, Jr. and Alexander S. Williams from violating Section 15B(c)(1) of the Exchange Act and MSRB Rules G-8, G-17 and G-20. In addition, the Commission seeks disgorgement and prejudgment interest from each of the defendants. Joseph C. Salema consented, without admitting or denying the allegations of the Complaint, to the entry of a final judgment permanently enjoining him from violating Section 17(a) of the Securities Act and Section 10(b) of the Exchange Act and Rule l0b-5. Joseph C. Salema also agreed to pay $324,764.55, representing disgorgement of the money he received as a result of the conduct alleged in the Complaint and prejudgment interest. George L. Tuttle, Jr. and Alexander S. Williams, without admitting or denying the allegations of the Complaint, have each consented to the entry of a final judgment permanently enjoining them from violating Section 17(a) of the Securities Act, Sections 10(b) and 15B(c)(1) of the Exchange Act and Rule 10b-5, and MSRB Rules G-8, G-17, and G-20. George L. Tuttle, Jr. and Alexander S. Williams have agreed to disgorge $l8,171.48 and $4,684.14, respectively, representing the money each received as a result of the conduct alleged in the Complaint. George L. Tuttle, Jr. has also agreed to cooperate with the Commission. The Commission's investigation is continuing. The litigation is pending as to defendants Nicholas A. Rudi and Public Capital Advisors, Inc. The Commission thanks the National Association of Securities Dealers Inc. for its assistance on this investigation. To Contents    Securities and Exchange Commission v. Terry D. Busbee and Preston C. Bynum, Civ. Action No. 95-30024 RV (N.D. Fla.), Litigation Release No. 14387 (January 23, 1995); Litigation Release No. 14508 (May 24, 1995) (settled final order). See "Public Officials" section. To Contents    Securities and Exchange Commission v. Matthews & Wright Group, Inc. et al.,Civ. Action No. 89-2877 (S.D.N.Y.), Litigation Release No. 12072 (April 27, 1989) (settled final orders). The Securities and Exchange Commission ("Commission") today announced the filing of a Complaint for Injunctive Relief in the United States District Court for the Southern District of New York against Matthews & Wright Group, Inc. ("M&W"), Matthews & Wright, Inc. ("M&W Inc."), a wholly owned, registered broker-dealer subsidiary of M&W, M&W's President and Chairman, George W. Benoit ("Benoit"), M&W's Executive Vice President, Arthur Abba Goldberg ("Goldberg") and M&W's Chief Financial Officer, Roger J. Burns ("Burns"), and M&W's outside counsel, Bernard A. Althoff ("Althoff"). M&W is a Delaware corporation with its principal offices at 100 Broadway, New York, New York. During the period covered by the Complaint, M&W engaged in investment banking through its subsidiaries by underwriting, trading, brokering and selling municipal securities. The Commission's Complaint charges the defendants with numerous violations of the antifraud, reporting, books and records and internal controls provisions of the Securities Act of 1933 (the "Securities Act"), the Securities Exchange Act of 1934 (the "Exchange Act"), the Commission's rules promulgated thereunder, and related rules of the Municipal Securities Rulemaking Board. In December 1985, the Complaint alleges, at a time when M&W's and M&W Inc.'s capital resources were grossly inadequate to perform the dollar volume of underwriting of new issue, tax exempt municipal securities which M&W and M&W Inc. were attempting to underwrite, M&W, M&W Inc., Benoit, Goldberg and Burns devised and carried out a fraudulent scheme to perform the underwritings through a series of sham closings. The Complaint alleges that the invalid closings were conducted as part of an effort to retain favorable tax treatment for the municipal securities by avoiding the scheduled effective dates of certain provisions in then pending federal tax legislation. Those provisions imposed or expanded certain restrictions applicable to tax-exempt municipal securities. On December 31, 1985, the Complaint alleges, the last day before the first of the scheduled effective dates in the pertinent tax legislation, defendant Goldberg wrote at least twenty-two checks totalling approximately $768 million on a nonexistent checking account at a credit union he had earlier helped to form and which he controlled. The checks were ostensibly used to purchase approximately $768 million of municipal bonds for M&W and M&W Inc., all with the advance knowledge and approval of defendants Benoit and Burns and the knowledge and assistance of defendant Althoff. M&W and M&W Inc. subsequently sold these twenty-two issues of municipal bonds to the public throughout 1986 using offering materials which affirmatively and falsely represented that the bonds had been "issued" on December 31, 1985, and omitted to disclose that the invalid closings created a special increased risk that interest on such bonds may be taxable. Throughout 1986, the Complaint alleges, as seventeen of the twenty-two bond issues "closed" on December 31, 1985 were actually issued and sold to the public by M&W and M&W Inc., the proceeds of the offerings were not used for the purposes stated in the bond offering materials. The offering materials for these bonds affirmatively and falsely stated that the bonds were issued to finance the construction of various projects, primarily multi-family housing to be occupied in part by low income families. In fact, the Complaint alleges, substantially all of the proceeds of the offerings were intended to be used, and were actually used, to purchase investment contracts to serve as credit enhancement instruments for the bonds, and not for the projects. The Complaint alleges that M&W and M&W Inc. sold these bonds to the public with the advance knowledge of Benoit and Goldberg that the proceeds were intended to be used for purposes other than those stated in the bond offering materials, and that defendant Althoff also knew about the possible misapplication of proceeds. The use of proceeds for such undisclosed purposes created a further special increased risk that interest on such bonds might not be exempt from federal income taxation because it prevented or impeded the use of the proceeds for the projects as required by the Internal Revenue Code. The Complaint also charges that in August 1986 M&W sold 1.5 million shares of its common stock to the public through the use of a materially false and misleading Registration Statement and Prospectus filed with the Commission. The Registration Statement and Prospectus were false and misleading because they included a description of M&W's business operations and financial condition which omitted to disclose that M&W, M&W Inc., Benoit, Goldberg and Burns had devised and carried out the foregoing invalid closing and misuse of proceeds schemes, and the consequences thereof. In connection with M&W's sale of its common stock to the public, defendant Althoff supervised the preparation and filing of M&W's false and misleading Registration Statement and Prospectus. Following the public offering, M&W failed to file a required report with the Commission on Form S-R to disclose the use M&W made of the proceeds of the public offering. The Complaint further alleges that, in August 1986, contemporaneously with the public offering of stock and just before the last of the scheduled effective dates in the pertinent federal tax legislation, M&W, M&W Inc., Benoit, Goldberg and Burns once again conducted additional invalid closings using worthless credit union checks. Specifically, Benoit and Burns signed at least four worthless credit union checks aggregating $554 million to purchase four bond offerings, and M&W and M&W Inc. thereafter sold such bonds to the public through the use of affirmatively false and misleading offering materials which stated that the bonds had been issued before the tax law changes, and which omitted to disclose the special increased risk, caused by the invalid closings, that interest on such bonds might not be exempt from federal income taxation. In furtherance of the foregoing scheme to defraud, the Complaint alleges that M&W thereafter failed to disclose any of the above-described events in reports filed with Commission and suspended or overrode its internal controls to prevent the accurate recording of these events in M&W's books and records. Benoit, Goldberg and Burns falsified M&W's business records, and Benoit and Burns made, or caused to be made, statements containing material omissions to M&W's outside auditors, all to conceal the scheme. M&W, M&W Inc., Benoit and Burns have consented, without admitting or denying the allegations of the Commission's Complaint, to the entry of final judgments permanently restraining and enjoining M&W, M&W Inc., Benoit and Burns from future violations of, or aiding and abetting future violations of, (1) the antifraud provisions contained in section 17(a) of the Securities Act and section 10(b) of the Exchange Act and rule 10b-5 thereunder; (2) the periodic reporting provisions contained in section 13(a) of the Exchange Act and rules 12b-20 and 13a-1 thereunder; (3) the provisions relating to books and records and representations to auditors contained in section 13(b) (2) of the Exchange Act and rules 13b2-1 and 13b2-2 thereunder; and (4) the antifraud and reporting provisions applicable to municipal securities broker-dealers contained in sections 15(c)(1) and 15B(c)(1) of the Exchange Act and rule 15c1-2 thereunder and related Rules G-8, G-9, G-14 and G-17 of the Municipal Securities Rulemaking Board. M&W Inc. has also consented, based upon and following the entry of the final judgment, to the institution by the Commission of administrative proceedings revoking M&W Inc.'s broker-dealer license. Benoit and Burns have also consented, based upon and following the entry of the final judgments, to the institution by the Commission of administrative proceedings barring Benoit and Burns from association with any broker, dealer, government securities broker or dealer, investment adviser or municipal securities dealer with the provisos that Benoit may make application to become reassociated with any such entity after four years, and Burns may make application to become reassociated with any such entity after two years. The Commission's litigation with Goldberg and Althoff of the allegations in the Complaint is pending. The Commission's investigation of related municipal securities matters is continuing. To Contents    SEC v. William H. Crossman, et al., Civ. Action No. 79C-2550 (N.D. lll.), Litigation Release No. 8809 (July 2, 1979) (complaint). William D. Goldsberry, Administrator of the Chicago Regional Office of Securities and Exchange Commission, announced that on June 20, 1979, the Commission filed a complaint in the United States District Court for the Northern District of Illinois, Eastern Division, seeking injunctive relief against William H. Crossman (Crossman) of Crystal Lake, Illinois, William H. Crossman and Associates (Crossman and Associates) of Crystal Lake, Illinois, a sole proprietorship, and Norman M. McDougall, Jr., of Wayne, Illinois, alleging violations of the anti-fraud provisions and municipal broker-dealer registration provisions of the Federal securities laws. The Commission's complaint alleges that the defendants made misrepresentations and omitted to state material facts in connection with the offer and sale of three separate offerings of bonds of the Hanover Park Park District (Park District) of Hanover Park, Illinois. The complaint alleges that the defendants falsely represented that a new recreational complex would be built by the Park District from the funds obtained in the sale of its bonds which complex would contain ice skating and ice hockey facilities; that earnings and revenue and debt service coverage would come from the ice skating and ice hockey facilities. The complaint further alleges that the defendants omitted to disclose that the construction of the ice skating facility had been completely abandoned; that the construction of the ice hockey facility would be constructed sometime after the completion of the recreational complex. The complaint further alleges that in the offer and sale of one of the three bond issues, the defendants failed to disclose that the bonds were issued and sold in a two-step process to circumvent an Illinois statute limiting the interest which a municipal issuer could pay on its bonds. Finally, the complaint alleges that after December, 1975, Crossman and Crossman and Associates failed to register as municipal broker-dealers, in violation of the Securities Exchange Act of 1934. To Contents    SEC v. William H. Crossman, et al., Litigation Release No. 8956 (December 18, 1979) (settled final orders). William D. Goldsberry, Administrator of the Chicago Regional Office of the Securities and Exchange Commission announced that on November 29, 1979, the Honorable Marvin Aspen, Judge of the United States District Court for the Northern District of Illinois, Eastern Division, entered a final judgment of permanent injunction against Norman McDougall, Jr. (McDougall), of Kildeer, Illinois, enjoining him from violating the anti-fraud provisions in the offer and sale of municipal securities. The final judgment was entered with the consent of the defendant, who neither admitted nor denied the allegations of the complaint. In addition, final judgments of permanent injunction were entered against William H. Crossman (Crossman) and William H. Crossman and Associates (Crossman and Associates) of West Dundee, Illinois on October 23, 1979. These final judgments enjoined the defendants from violating the anti-fraud provisions of the federal securities laws in the offer and sale of any securities and from violating the municipal broker-dealer registration provisions of the Securities Act of 1934. These final judgments were entered by default as these defendants failed to answer the complaint or appear. The Commission commenced this action on June 20, 1979, by filing a complaint which alleged, among other things, that Crossman, Crossman and Associates and McDougall violated the anti-fraud provisions of the federal securities laws in the offer and sale of revenue bonds, refunding revenue bonds and junior lien bonds of the Hanover Park District (Park District) concerning, among other things, the construction of ice skating facilities in a recreation complex to be built by the Park District, the projected revenues from the facility and the bond amortization schedule for repayment of bond principal and interest. In addition, the complaint alleged violations by Crossman and Crossman and Associates of the municipal broker-dealer registration requirement of the Securities Exchange Act of 1934. For further information, see Litigation Release No. 8809. To Contents    SEC v. Shelby Bond Service Corp., et al., Civ. Action No. C-77-2236 (W.D. Tenn.), Litigation Release No. 7888 (April 27, 1977) (complaint). Jule B. Greene, Administrator of the Atlanta Regional Office of the Securities and Exchange Commission, announced that on April 18, 1977, a civil injunctive complaint was filed in United States District Court for the Western District of Tennessee, Memphis Division, naming Shelby Bond Service Corporation (Shelby Bond), a municipal securities dealer, Precision Optical Laboratory, Inc. (Precision Optical), both Tennessee corporations, Max J. Baer, Robert E. Hawks, Charles M. West, Donald E. Helms, Richard C. Flick, Edward J. Blumenfeld, and Patrick Lawyer, all of Memphis, and Charles M. Beale of Cardova, Tennessee, Manuel W. Yopp of Germantown, Tennessee, and Richard Lutz of Southaven, Mississippi. The complaint alleges that Shelby Bond, Beale, Baer, West, Helms, Yopp, Flick, Lutz, Blumenfeld, and Lawyer violated the anti-fraud provisions of the federal securities laws in connection with the offer, purchase and sale of municipal securities by making numerous misrepresentations and omissions of material facts to prospective investors. The complaint also alleges that these defendants omitted to state to investors that they were being charged prices for their securities which were not reasonably related to the then current market price for the securities. Undisclosed mark-ups as high as 166 percent over the contemporaneous cost to Shelby Bond are alleged. The complaint further alleges that Shelby Bond, Precision Optical, Baer, Beale and Hawks violated the anti-fraud provision of federal securities laws by making numerous misrepresentations and omissions of material facts in connection with the offer and sale of municipal securities, namely industrial development revenue bonds issued by the Gallaway Industrial Development Board of Gallaway, Tennessee, underwritten by Shelby Bond, in which Precision Optical is the lessee. The misrepresentations alleged relate to the safety and merits of investment in these bonds and the financial status of Precision Optical. To Contents    SEC v. Shelby Bond Service Corp., et al., Litigation Release No. 7965 (June 9, 1977) (settled final orders). Jule B. Greene, Administrator of the Atlanta Regional Office, announced that on May 20, 1977, the Honorable Robert M. McRae, Jr., United States District Judge for the Western District of Tennessee, Memphis Division, issued orders of permanent injunction from further violations of the anti-fraud provisions of Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder against Shelby Bond Service Corporation ("Shelby Bond"), a now defunct Memphis, Tennessee, municipal securities broker-dealer, Precision Optical Laboratory, Inc. ("Precision Optical") of Gallaway, Tennessee, a Tennessee corporation, Max J. Baer, Charles M. West, Richard C. Flick, Patrick Lawyer, Donald E. Helms, all of Memphis, Tennessee, Manual W. Yopp of Germantown, Tennessee, and Richard Lutz of Southaven, Mississippi. Precision Optical, West, Flick, Lawyer, Helms, and Yopp consented to the entry of the orders of injunction. The judgments against Shelby Bond, Baer, and Lutz were by default. In addition, on May 27, 1977, Judge McRae issued orders of preliminary injunction from further violations of the anti-fraud provisions of the federal securities laws against Charles M. Beale of Cardova, Tennessee, and Robert E. Hawks and Edward J. Blumenfeld, both of Memphis, Tennessee, based upon findings set out in a memorandum opinion filed on that date. In addition, on May 27, 1977, Judge McRae issued orders of preliminary injunction from further violations of the anti-fraud provisions of the federal securities laws against Charles M. Beale of Cardova, Tennessee, and Robert E. Hawks and Edward J. Blumenfeld, both of Memphis, Tennessee, based upon findings set out in a memorandum opinion filed on that date. The first two counts of the complaint alleged fraud in the offer, purchase, and sale of municipal securities by Shelby Bond, its principals, and its salesmen by making misrepresentations and omitting to state material facts concerning the nature and merits of the securities, charging prices for securities which were unrelated to the market price of the securities, selling securities without regard to the investment objectives or financial status of investors, recommending securities without an adequate basis upon which to make the recommendation, and using sales techniques which amounted to a course of conduct which operated as a fraud upon purchasers of securities. Hawks was chairman of the board of directors of Shelby Bond, Beale was president and a director of Shelby Bond, and Baer was vice-president and a director of Shelby Bond. The third and fourth counts of the complaint alleged fraud in the offer and sale of municipal securities issued to finance Precision Optical (first mortgage industrial development revenue bonds of the Gallaway Industrial Development Board of Gallaway, Tenn., issued November 29, 1974) which were underwritten by Shelby Bond, unconditionally guaranteed by Shelby Bond, Precision Optical, Hawks, Baer and Beale, sold through Shelby Bond using the alleged fraudulent methods outlined in the first two counts of the complaint, and which defaulted in payments of interest and principal on November 1, 1976. (For further information see Litigation Release No. 7888.) To Contents    SEC v. Shelby Bond Service Corp., et al.., Litigation Release No. 8578 (October 27, 1978) (settled final order). Jule B. Greene, Administrator of the Atlanta Regional Office of the Securities and Exchange Commission, announced that on October 2, 1978, Honorable Robert M. McRae, Jr., Judge of the United States District Court for the Western District of Tennessee, at Memphis, entered an order permanently enjoining Charles M. Beale of Memphis from further violations of the anti-fraud provisions of the Securities Act of 1933 and the Securities Exchange Act of 1934. Beale consented to the entry of the order without admitting or denying the allegations of the complaint. Beale has been subject to a preliminary injunction since May 27, 1977. The complaint charged that Beale, while president and a director of Shelby Bond Service Corp., offered and sold municipal securities at excessive mark-ups, engaged in adjusted trades, and misrepresented the financial condition of issuers of securities and the speculative nature of an investment in such securities. (For additional information see Litigation Release No. 7965.) To Contents    SEC v. Washington County Utility District, et al., Civ. Action No. CA-2-77-15 (E.D. Tenn.), Litigation Release No. 7782 (Feb. 15, 1977) (complaint). See "The Issuer" section. To Contents    SEC v. Washington County Utility District, et al., Litigation Release No. 8466 (July 17, 1978) (settled final orders). Jule B. Greene, Administrator of the Atlanta Regional Office, announced that on June 29, 1978, the Honorable C. G. Neese, Judge of the U.S. District Court in Greenville, Tennessee, entered an order permanently enjoining Thomas R. Alcock of Hingham, Mass., and Diversified Securities, Inc., a New York corporation, from further violations of the anti-fraud provisions of the federal securities laws in connection with the offer, purchase, and sale of municipal bonds by the Washington County Utility District. Alcock and Diversified consented to the entry of the order, without admitting or denying the allegations in the Commission's complaint. For further information see Litigation Release Nos. 7782, 7868, 7983, 7984, and 8410. To Contents    SEC v. Astro Products of Kansas, Inc., et al., Civ. Action No. CA-76-359-L6 (D.C. Kan.), Litigation Release No. 7557 (September 13, 1976) (complaint); Litigation Release No. 7774 (February 10, 1977) (settled final orders); Litigation Release No. 8613 (December 8, 1978) (defaults entered). See "Obligated Persons" section. To Contents    SEC v. Reclamation District No. 2090, et al., Civ. Action No. C76-1231-SAW (N.D. Cal.), Litigation Release No. 7460 (June 22, 1976) (complaint). See "The Issuer" section. To Contents    SEC v. Reclamation District No. 2090, et al., Litigation Release No. 7688 (December 7, 1976) (settled final orders). Gerald E. Boltz, Regional Administrator of the Los Angeles Regional Office, and Leonard H. Rossen, Associate Regional Administrator of the San Francisco Branch Office, announced that on November 11, 1976, the Honorable Robert H. Schnacke, United States District Judge for the Northern District of California, entered a Final Judgment of Permanent Injunction against MFAL Associates, a registered broker-dealer, and Lawrence A. Luebbe, its president, both of Los Angeles, California. The injunction proscribes violations of the anti-fraud provisions of the federal securities issued by Reclamation District No. 2090 ("the District") and any other security of any other issuer. MFAL and Luebbe consented to the entry of the Permanent Injunctions without admitting or denying the allegations of the Commission's Complaint. The Commission's Complaint alleged that the defendants' conduct resulted in the fraudulent sales of approximately $55,000 of bond anticipation notes issued by the District of eight purchasers. For further information see Litigation Release No. 7460. To Contents    SEC v. The Senex Corporation, et, al., Civ. Action No. 74-53 (E.D. Ky.), Litigation Release No. 6451 (July 24, 1974) (complaint), Litigation Release No. 6769 (March 5, 1975) (settled final order); Litigation Release No. 8651 (January 23, 1979) (settled final order). See "Obligated Persons" section. To Contents    Administrative Proceedings - Commission Decisions In re Boettcher and Company, Exchange Act Release No. 8393, A.P. File No. 3-544 (August 30, 1968). Text: Findings, Opinion and Order Censuring Broker-Dealer In these proceedings pursuant to Sections 15(b), 15A and 19(a) (3) of the Securities Exchange Act of 1934 ("Exchange Act"), we granted petitions for review of the hearing examiner's initial decision in which he concluded that Boettcher and Company ("registrant"), a registered broker and dealer, should be censured, and that David F. Lawrence and Alfred A. Wiesner, general partners of registrant, and Bruce C. Newman, an employee of registrant, should each be suspended from association with any broker or dealer for 15 days. Briefs were filed, and we heard oral argument. On the basis of our review of the record and for the reasons set forth herein and in the initial decision, we make the following findings. Markups on Government Bonds in Connection with "Advance Refunding" Transactions Registrant acted as manager of an underwriting syndicate in connection with the "advance refunding" in 1963 of bonds of two Colorado school districts, Jefferson County District No. R-1 ("Jeffco") and Adams County District No. 50 ("Adams"). The "advance refunding" technique entails the issuance by a school district of new bonds for the purpose of "refunding" existing bonds which may not be due or callable. Under such technique, as here relevant, the proceeds of the new bonds issued by the school district are invested in United States Government obligations ("Governments") maturing at such times and in such amounts as to insure prompt payments of the "refunded" bonds. The Governments are then placed in escrow, and the "refunded" bonds are no longer deemed outstanding. The objective of these steps is to secure savings to the school district by enabling it to issue its "refunding" bonds at a lower interest rate than it receives on the Governments; and it may also be able to reduce the principal amount of its debt by purchasing Governments at a discount. In negotiated sales of refunding bonds, as here, the form of the underwriter's compensation may include a markup on the new bonds issued by, or on the Governments sold to, the school district, or cash paid by the district. In this case the syndicate purchased the refunding bonds from and sold the Governments to Jeffco and Adams, charging Jeffco a markup on the Governments over the syndicate's cost. The Governments involved in both transactions were acquired by the syndicate from registrant's wholly-owned subsidiary which, pursuant to syndicate authorization, had purchased such securities and charged the syndicate a markup of $1.25 per bond. The hearing examiner found that registrant failed to make adequate disclosure to Jeffco and Adams of the markups taken on the Governments, and respondents controvert this finding. 1. Jeffco Transaction Registrant reached an agreement with Jeffco on July 30, 1963, giving it the right to form a selling group to buy Jeffco refunding bonds for resale to the general public, the proceeds of which Jeffco would use to buy Governments from the underwriters at the prices paid by the latter, who undertook to acquire the Governments at the "best possible" price. The objective by Jeffco was to achieve net savings estimated at approximately $2,500,000. The option given registrant was not exercised by its extended expiration date of September 30, but negotiations with Jeffco continued. Registrant concluded that because of changed market conditions the gross profit it had anticipated could not be realized under the terms of the July 30 proposal, and determined to make up the deficiency in part by taking a markup on the Governments. It entered into a new agreement with Jeffco as of October 10, under which the syndicate formed by registrant would purchase $38,873,000 of Jeffco refunding bonds in exchange for which the underwriters would supply Jeffco with specified Governments sufficient to refund $39,757,000 of outstanding Jeffco bonds. The transaction was consummated on November 1, 1963. The prices paid the syndicate by Jeffco for the Governments, however, included a markup of $394,469 over the prices paid for such securities by registrant's subsidiary. Following a 1964 audit Jeffco instituted legal action against registrant to recover that amount, and the case was thereafter settled by the parties by a payment to Jeffco of $200,000. At the outset we note that no finding was made by the hearing examiner that registrant's underwriting compensation was in fact excessive or improper per se, and that Jeffco attained substantially the estimated savings of about $2,500,000. Our inquiry here relates solely to the question of the disclosure of the underwriting compensation. Respondents assert that in 1963 Jeffco was concerned only with the over-all compensation involved, and that in any event Jeffco was informed by registrant, but unreasonably failed to understand, that part of such compensation under the October 10 contract consisted of a markup on the Governments. It is certainly incumbent upon an underwriter to exercise care to make full and clear disclosure to issuers, both public and private, with respect to the nature and amount of the underwriting expense and profit involved. We are unable to find, however, that registrant failed in this duty in the Jeffco situation. Jeffco was experienced and knowledgeable in financial matters and was advised by counsel in connection with the transaction in question. The October 10 agreement, pursuant to which the transaction was consummated, repeated provisions of the July 30 proposal but did not include the earlier provision barring a markup on the Governments. In addition, an exhibit attached to the October 10 agreement prepared by registrant, which summarized the estimated underwriting costs and expenses per $100 bond issued, listed "U.S. Government bond underwriting" at $.893 (on which basis the markup on Governments would aggregate around $350,000) as well as "refunding bond underwriting" at $1.376. Moreover, a letter signed by Wiesner addressed to bond counsel, dated November 1, stated that the costs of the Governments included at least $394,469 for "underwriting, obtaining and maintaining physical availability" of such securities. Not only are these items inconsistent with an intent on registrant's part to conceal the markup on the Governments but at least the exhibit should have alerted Jeffco to the possibility of such a markup. In view of the integrated nature of a refunding transaction, it would have been reasonable to evaluate its fairness on the basis of overall results. The markup on the Governments of $394,469 was one aspect of a transaction involving the issuance of $38,873,000 of refunding bonds in which Jeffco achieved its estimated savings of around $2,500,000. The record as a whole indicates, as recognized by the parties in settling the civil action based on the issues now before us, a "mutual misunderstanding" with respect to registrant's compensation engendered by the "complicated nature" of the negotiations and transactions. 2. Adams Transaction Registrant entered into an agreement in August 1963 with Adams for an advance refunding of $7,735,000 of Adams bonds. That agreement, which was modeled after the July 30 Jeffco proposal, provided that registrant and its associates would purchase the necessary Governments at the "best possible" price and resell them to Adams at their purchase price. The transaction was consummated on September 30, 1963, around which time registrant's subsidiary acquired the Governments. The syndicate purchased the Governments from the subsidiary for $7,760,100, and sold them to Adams for the same price. However, unknown to Adams that price included a markup of $1.25 per $1,000 bond or a total of $9,031 taken by the subsidiary in the sale of the Governments to the syndicate. Newman, registrant's employee who prepared the Adams contract, contemplated that the markup would not be passed on to Adams but would be absorbed by the syndicate. However, he turned over the transaction to another employee without advising him of that intention, and the latter interpreted the contract to mean that Adams would purchase the Governments at the syndicate's cost (which included the markup charged by registrant's subsidiary). Upon discovering the markup after the closing date Adams claimed it was an improper charge, and around April 1966 registrant repaid the full amount. Respondents assert, and we find, that the markup was charged Adams through inadvertence. However, neither the inadvertence of the undisclosed markup nor the restitution following complaint can absolve registrant of the failure to carry out its responsibility to review transactions, particularly of the size here involved, and make certain that no unauthorized or undisclosed charges are imposed. It cannot by its own carelessness shift such burden to its customer. Under the circumstances we conclude that registrant failed to exercise reasonable supervision to prevent overcharging its customer in violation of the securities acts.n1 Registrant effected some of its over-the-counter transactions with customers on a principal basis, disclosing its principal capacity but not always disclosing the markups included in the prices. The hearing examiner held that under the circumstances registrant should have made clear what procedures and pricing policies it followed when it filled orders from inventory, and that the failure to do so made the advertisements false and misleading. The record does not show that the prices charged in the principal transactions referred to were not in fact the best possible prices, it being stipulated merely that the undisclosed markups in some instances exceeded the minimum commissions that would have been charged on transactions executed on the New York Stock Exchange. On the record before us we are unable to find that registrant violated the anti-fraud provisions. We also note that registrant discontinued the use of the advertisements after being alerted to the problems they created. Public Interest In determining what remedial action is appropriate in the public interest, we have taken into account the facts that registrant has been in business for over 50 years without any prior disciplinary action; that it has settled the claims of both Jeffco and Adams; and that it has made changes in its operations and forms designed to prevent a repetition of the problems respecting refundings that arose in this case. Nevertheless we consider that registrant should be censured for the failure to exercise proper supervision in the Adams situation. Since we have made no adverse findings with respect to the individual respondents, we shall enter an order dismissing the proceedings as to them. Accordingly, IT IS ORDERED that Boettcher and Company be, and it hereby is, censured; IT IS FURTHER ORDERED that the proceedings herein as to David F. Lawrence, Alfred A. Wiesner and Bruce C. Newman be, and they hereby are, dismissed. By the Commission (Chairman Cohen and Commissioners Owens, Budge, Wheat and Smith). Footnotes -[n1]-   During 1966 registrant used certain newspaper and radio advertisements containing statements which conveyed the impression that in every over-the-counter transaction registrant's traders try to get for the customer "the best possible price. "Although they also indicated that registrant maintained an inventory of some securities, nothing was said specifically about pricing in sales from inventory. Prior to the use of the advertisements registrant in accordance with the requirements of the New York Stock Exchange, of which it is a member, had submitted them to that Exchange for approval of their manner and form of presentation and the Exchange had raised no questions as to their use. To Contents    Commission Orders - Settled Administrative Proceedings In re John E. Thorn, Jr., and Thorn Welch & Co., Inc., Securities Act Release No. 7663; A.P. No. 3-8400 (March 31, 1999). This Order incorporates both an Order Making Findings and Imposing Remedial Sanctions and Cease-and-Desist Order in proceedings currently pending before the Commission and an Order Instituting Public Proceedings Pursuant to Section 8A of the Securities Act of 1933 and Sections 15(b), 19(h) and 21C of the Securities Exchange Act of 1934 Making Findings and Imposing Remedial Sanctions and a Cease-and-Desist Order (Part II, below).1 The Commission deems it appropriate and in the public interest that public proceedings pursuant to Section 8A of the Securities Act of 1933 ("Securities Act") and Sections 15(b), 19(h) and 21C of the Exchange Act of 1934 ("Exchange Act") be, and they hereby are, instituted against against John E. Thorn, Jr. ("Thorn") and Thorn, Welch & Co., Inc., formerly known as Thorn, Alvis, Welch, Inc. ("TWC") (Collectively "Respondents"). In anticipation of the institution of these proceedings, and in connection with pending proceedings, File No. 3-8400, previously instituted against Thorn and TWC pursuant to Section 8A of the Securities Act and Sections 15(b), 19(h) and 21C of the Exchange Act, the Respondents have submitted an Offer of Settlement ("Offer") solely for the purposes of those proceedings or any other proceeding brought by or on behalf of the Commission or in which the Commission is a party. In the Respondents' Offer, which the Commission has determined to accept, Thorn and TWC, without admitting or denying any of the factual assertions, findings, or conclusions contained herein, except as to the jurisdiction of the Commission over them and over the subject matter of these proceedings and as to the matters contained in findings 1 and 2, below which are admitted, consent to the entry of this Order Instituting Public Proceedings Pursuant to Section 8A of the Securities Act of 1933 and Sections 15(b), 19(h) and 21C of the Securities Exchange Act of 1934, Making Findings, and Imposing Remedial Sanctions and Cease-and-Desist Order and this Order Making Findings and Imposing Remedial Sanctions and Cease-and-Desist Order (collectively "Order"). I. Pending Proceedings On the basis of this Order, the Order Instituting Public Proceedings Pursuant to Sections 8A of the Securities Act and Sections 15(b), 19(h) and 21C of the Exchange Act, and the Offer, the Commission finds that: 1. TWC. TWC is a registered broker-dealer located in Jackson, Mississippi. TWC has been registered with the Commission pursuant to Section 15(b) of the Exchange Act since on or about March 10, 1977. On November 22, 1993, the firm changed its name to Thorn, Welch & Co., Inc. TWC's business consisted primarily of underwriting and trading municipal securities. 2. Thorn. Thorn is a resident of Jackson, Mississippi. During the period relevant to these proceedings, Thorn was the president and a director of TWC and also served as TWC's municipal securities principal since approximately 1975. 3. From August 1992 through October 1993, TWC, as underwriter, raised $19,464,541 from hundreds of investors nationwide through seven offerings of nonrated municipal urban renewal revenue bonds ("the bonds") designed to finance the purchase and rehabilitation of existing low-income housing projects located in and about Jackson and Vicksburg, Mississippi. 4. Thorn, on behalf of TWC, assisted in preparing, reviewed and distributed to potential investors, Official Statements for each of the TWC offerings. The Official Statements were the disclosure documents provided to prospective investors. 5. The bonds were offered and sold to investors as qualified tax exempt private activity bonds. 6. Pursuant to Section 147(g) of the Internal Revenue Code ("IRC"), no more than two percent of the bond proceeds could be used to finance issuance costs, such as bond counsel fees and the underwriter's spread. Pursuant to Section 142(a) of the IRC, at least ninety-five percent of the bond proceeds were required to have been used to provide the financed facility. Failure to comply with either Section 147(g) or Section 142(a) of the IRC could have resulted in interest on the bonds losing its exemption from gross income for federal income tax purposes. The TWC bonds failed to comply with both IRC §§ 147(g) and 142(a). 7. The Official Statements represented that the bond projects were financed by bond proceeds and a cash contribution from the development company. The development company for each project was a limited partnership formed to develop the project. The purported contribution from the development company was disclosed in the Sources of Funds section of the Official Statements of the bond offerings as a "Developer's Contribution." The amount described as a Developer's Contribution was determined by Thorn and others for each of the bond offerings and was based solely on the amount required to cover issuance costs which exceeded two percent of the proceeds of the bond offerings. The purported Developer's Contributions ranged from approximately $48,000 to approximately $404,000 and with respect to each offering consisted of more than 5% of the offering proceeds. 8. The purported Developer's Contribution was not paid with separate funds from the development company, but was paid exclusively with funds received from the bond proceeds by the contractor which renovated the projects. The compensation to the contractor, in exchange for its services on each project, was artificially inflated in an amount equal to the purported Developer's Contribution. The contractor received bond proceeds, in addition to those required by the contractor for construction in exchange for its services, for the purpose of making what was referred to as the Developer's Contribution. The purported Developer's Contribution was utilized in each of the bond offerings solely to pay issuance costs exceeding two percent of the bond proceeds. The use of offering proceeds to pay the purported Developer's Contribution in each offering was not disclosed to investors or prospective investors. 9. The manner in which proceeds derived from the bond offerings, in amounts equivalent to approximately 7 to 9 percent of the proceeds of each offering, were utilized to make the purported Developer's Contribution, created a substantial risk that the bond offerings failed to comply with the requirements of Sections 147(g) and 142(a) of the IRC and a substantial risk that interest payments on the bonds were not tax exempt as represented in the Official Statements. Thorn, and through him TWC, knew, or was reckless in not knowing, that a substantial risk existed as to the tax exempt status of interest payment on the bonds. The substantial risk to the tax exempt status of interest on the bonds was not disclosed in the Official Statements or otherwise.2 10. TWC, through Thorn and others, continued to offer, buy and sell the bonds in the aftermarket as qualified tax exempt, private activity bonds without disclosure of the substantial risk that interest on the bonds may not have been exempt from the federal income tax. 11. During the period from in or about August 1992 through at least February 1994, Thorn and TWC willfully violated Section 10(b) of the Exchange Act and Rule 10b-5 thereunder by, directly and indirectly, using the means and instrumentalities of interstate commerce and the mails to: (1) employ devices, schemes and artifices to defraud; (2) make untrue statements of material facts and to omit to state material facts necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading; and (3) engage in acts, practices, and a course of business which operated or would have operated as a fraud and deceit upon persons, in connection with the purchase and sale of securities, as more particularly described in paragraphs one through ten, above. 12. During the period from in or about August 1992 through at least February 1994, Thorn and TWC willfully violated Section 17(a) of the Securities Act by, directly and indirectly, using the means and instruments of transportation and communication in interstate commerce and the mails to: (1) employ devices, schemes and artifices to defraud purchasers; (2) obtain money and property by means of untrue statements of material facts and omissions to state material facts necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading; and (3) engage in acts, practices and a course of business which operated or would have operated as a fraud and deceit upon purchasers, in the offer and sale of securities, as more particularly described in paragraphs one through ten, above. 13. During the period from in or about August 1992 through at least February 1994, TWC willfully violated and Thorn willfully aided and abetted violations of, Section 15B(c)(1) of the Exchange Act and Rule G-17 of the Municipal Securities Rulemaking Board, by, in the conduct of the municipal securities business of TWC, not dealing fairly with other persons and engaging in deceptive, dishonest and unfair practices, as more particularly described in paragraphs one through ten, above. 14. Respondent Thorn has submitted a sworn financial statement and other evidence and has asserted his financial inability to pay disgorgement plus prejudgment interest. The Commission has reviewed the sworn financial statement and other evidence provided by Respondent Thorn and has determined that Respondent Thorn does not have the financial ability to pay complete disgorgement of $116,432, plus his equity interest in the partnerships which own the projects financed by the bond offerings, or any proceeds from the sale of such interests, plus prejudgment interest. 15. Respondent TWC has submitted a sworn financial statement and other evidence and has asserted its financial inability to pay disgorgement plus prejudgment interest. The Commission has reviewed the sworn financial statement and other evidence provided by Respondent TWC and has determined that Respondent TWC does not have the financial ability to pay complete disgorgement of $234,203 plus prejudgment interest. 16. The Respondents have submitted sworn financial statements and other evidence and have asserted their financial inability to pay a civil penalty. The Commission has reviewed the sworn financial statements and other evidence provided by Respondents and has determined that neither Respondent has the financial ability to pay a civil penalty. II. Proceedings Being Instituted Based on his Order and the Respondents' Offer, the Commission finds the following. 1. TWC, between November 1987 and May 1996, was the underwriter for 74 offerings of urban renewal revenue notes ("notes") issued by 39 Mississippi political subdivisions, including counties, cities and towns ("municipalities"). The offerings raised a total of approximately $287,300,000. 2. In each offering, the notes were sold based upon a representation that bond counsel had concluded that interest on the notes would be excludable from gross income for federal income tax purposes. The disclosure documents used in connection with the note offerings represented that the note proceeds would be utilized within three years on various public projects. In fact, the municipalities had no intention of spending more than a small percentage of the proceeds on public projects. That percentage, generally close to one percent of the proceeds, was received by the municipality as a "premium" or "fee" for issuing the notes. The remaining proceeds were invested in guaranteed investment contracts ("GICs") or certificates of deposit ("CDs") yielding a higher rate of return than the notes. Those instruments provided the cash flows to pay the debt service required by the notes. This financing structure resulted in a significant risk to the tax exempt status of interest on the notes. 3. Internal Revenue Code ("IRC") Section 103(b) provides that gross income includes interest on any state or local bond which is an "arbitrage bond" as that term is defined by IRC Section 148. IRC Section 148 (a) defines an arbitrage bond as "any bond issued as part of an issue any portion of the proceeds of which are reasonably expected (at the time of issuance of the bond) to be used directly or indirectly (1) to acquire higher yielding investments...." 4. IRC Section 148(c)(1) allows the proceeds of certain issues to be invested in higher yielding investments for a reasonable temporary period until such proceeds are needed for the purpose for which the bonds were issued. This provision is known as the "temporary period exception." It provides that the bonds will not be treated as taxable arbitrage bonds if the net sale proceeds and investment proceeds of an issue are reasonably expected to be allocated to expenditures for capital projects within specified time periods. Treas. Reg. Sec. 1.148-2(b) (1) and 2(e) (2) (i) (1993); Treas. Reg. Sec. 1.103-13(a) (2) (1979). When statements regarding reasonable expectations with respect to the amount and use of the proceeds are not made in good faith, the notes are deemed to be taxable arbitrage bonds. Revenue Ruling 85-182, 1985-2 C.B. 39. 5. Although all the note offerings were purportedly structured to comply with the requirements of the temporary period exception, at the time of the offerings, none of the issuers had the resources, intent or expectation to utilize any proceeds from the offerings, other than the premium or fee, for capital projects. Subsequent to the offerings, none of the issuers utilized any of the offering proceeds, other than the premium or fee, for any capital project. The lack of a reasonable expectation to utilize more than a small portion of the proceeds for capital projects would violate the reasonable expectation requirements of IRC Section 148(c)(1) and Treas. Reg. 1.148-2(e) (2). Therefore, a substantial risk exists that the issuers did not satisfy the requirements of the temporary period exception, making the structure of these transactions a prohibited arbitrage scheme that violates IRC Sections 103(b) and 148(a) (1). The violation of these sections created a substantial risk that the IRS would declare interest on the notes includable in gross income for federal income tax purposes. 6. The substantial risk to the tax exempt status of interest on the notes was not disclosed to investors or prospective investors in any of the offerings. The official statements and arbitrage certificates for each offering, among other documents, without exception, represented that the issuers intended to spend the full amount of the offering proceeds within three years on various capital projects, such as roads, parks, a courthouse, and other projects. Each official statement also represented that the issuer was negotiating with a specified firm for "architectural services." These statements were not true. Although the investors were under no duty to independently evaluate the degree of risk to the tax exemption, the false representations dealing with the municipalities' intentions to spend the proceeds and their current negotiations for services in that regard, would have made it difficult for investors, even those with access to tax advice, to ascertain the risk to the tax exemption. 7. TWC, through Thorn and others, sold the notes from each of the offerings using the official statements. Thorn knew, or was reckless in not knowing, that the official statements misrepresented the issuers' intent to spend the proceeds of the offerings on municipal projects. Thorn also knew, or was reckless in not knowing, that the tax exempt status of the notes was contingent on the issuers having a bona fide intent to utilize the note proceeds on municipal projects within three years from the date of the offering. Thorn, and through him TWC, knew, or was reckless in not knowing, that a substantial risk existed as to the tax exempt status of interest payment on the notes. That risk was not disclosed to purchasers of the notes. 8. During the period from November 1987 through May 1996, Thorn and TWC willfully violated Section 10(b) of the Exchange Act and Rule 10b-5 thereunder by, directly and indirectly, using the means and instrumentalities of interstate commerce and the mails to: (1) employ devices, schemes and artifices to defraud; (2) make untrue statements of material facts and to omit to state material facts necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading; and (3) engage in acts, practices, and a course of business which operated or would have operated as a fraud and deceit upon persons, in connection with the purchase and sale of securities, as more particularly described in paragraphs one through seven, above. 9. During the period from November 1987 through May 1996, Thorn and TWC willfully violated Section 17(a) of the Securities Act by, directly and indirectly, using the means and instruments of transportation and communication in interstate commerce and the mails to: (1) employ devices, schemes and artifices to defraud purchasers; (2) obtain money and property by means of untrue statements of material facts and omissions to state material facts necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading; and (3) engage in acts, practices and a course of business which operated or would have operated as a fraud and deceit upon purchasers, in the offer and sale of securities, as more particularly described in paragraphs one through seven, above. 10. Respondent Thorn has submitted a sworn financial statement and other evidence and has asserted his financial inability to pay disgorgement plus prejudgment interest. The Commission has reviewed the sworn financial statement and other evidence provided by Respondent Thorn and has determined that Respondent Thorn does not have the financial ability to pay disgorgement of $1,761,770, plus prejudgment interest. 11. Respondent TWC has submitted a sworn financial statement and other evidence and has asserted its financial inability to pay disgorgement plus prejudgment interest. The Commission has reviewed the sworn financial statement and other evidence provided by Respondent TWC and has determined that Respondent TWC does not have the financial ability to pay disgorgement of $1,513,418 plus prejudgment interest. 12. The Respondents have submitted sworn financial statements and other evidence and have asserted their financial inability to pay a civil penalty. The Commission has reviewed the sworn financial statements and other evidence provided by Respondents and has determined that neither Respondent has the financial ability to pay a civil penalty. III. ACCORDINGLY, IT IS HEREBY ORDERED: 1. That the broker-dealer registration of TWC be revoked; 2. That Respondent Thorn be barred from association with any broker, dealer, municipal securities dealer, investment adviser or investment company; 3. Pursuant to Section 8A of the Securities Act and Section 21C of the Exchange Act, that Thorn cease and desist from committing or causing any violation or any future violation of Section 17(a) of the Securities Act or Sections 10(b) or 15B(c)(1) of the Exchange Act and Rule 10b-5 thereunder, and Rule G-17 of the MSRB; 4. Pursuant to Section 8A of the Securities Act and Section 21C of the Exchange Act that TWC cease and desist from committing or causing any violation or any future violation of Section 17(a) of the Securities Act or Sections 10(b) and 15B(c)(1) of the Exchange Act and Rule 10b-5 thereunder, and Rule G-17 of the MSRB; 5. That Respondent Thorn shall pay disgorgement of $1,878,202 plus any equity interest Thorn owns in the seven limited partnerships which own the projects that were the subject of the bond offerings, plus prejudgment interest, provided that Thorn shall pay $10,000 within sixty (60) days of this order to the United States Treasury. Such payment shall be (a) made by United States postal money order, certified check, bank cashier's check or bank money order; (b) made payable to the Securities and Exchange Commission; (c) hand-delivered or delivered by overnight delivery service to the Comptroller, Operations Center, 6432 General Green Way, Stop 0-3, Alexandria, VA 22312; and (d) submitted under a cover letter which identifies Thorn as a respondent in these proceedings. Thorn is further ordered to comply with his undertaking to forego on any personal income tax return all unused income tax credits which have accrued and to which he may be entitled arising from his interest in the seven limited partnerships which own the projects that were the subject of the bond offerings. Payment of the remainder of the disgorgement is waived based upon Respondent Thorn's demonstrated financial inability to pay; 6. That the Division of Enforcement ("Division") may, at any time following the entry of this Order, petition the Commission to: (1) reopen this matter to consider whether Respondent Thorn provided accurate and complete financial information at the time such representations were made; and (2) seek any additional remedies that the Commission would be authorized to impose in this proceeding if Respondent Thorn's offer of settlement had not been accepted. No other issues shall be considered in connection with this petition other than whether the financial information provided by Respondent Thorn was fraudulent, misleading, inaccurate or incomplete in any material respect and whether any additional remedies should be imposed. Respondent Thorn may not, by way of defense to any such petition, contest the findings in this Order or the Commission's authority to impose any additional remedies that were available in the original proceeding; 7. That TWC shall pay disgorgement of $1,747,621 plus prejudgment interest, provided that TWC shall pay $15,000 within thirty (30) days of this order to the United States Treasury. Such payment shall be (a) made by United States postal money order, certified check, bank cashier's check or bank money order; (b) made payable to the Securities and Exchange Commission; (c) hand-delivered or delivered by overnight delivery service to the Comptroller, Stop 0-3, Securities and Exchange Commission, Operations Center, 6432 General Green Way, Stop 0-3, Alexandria, VA 22312; and (d) submitted under a cover letter which identifies TWC as a respondent in these proceedings. Payment of the remaining disgorgement is waived based upon Respondent TWC's demonstrated financial inability to pay; 8. That the Division may, at any time following the entry of this Order, petition the Commission to: (1) reopen this matter to consider whether TWC provided accurate and complete financial information at the time such representations were made; and (2) seek any additional remedies that the Commission would be authorized to impose in this proceeding if TWC's offer of settlement had not been accepted. No other issues shall be considered in connection with this petition other than whether the financial information provided by TWC was fraudulent, misleading, inaccurate or incomplete in any material respect and whether any additional remedies should be imposed. TWC may not, by way of defense to any such petition, contest the findings in this Order or the Commission's authority to impose any additional remedies that were available in the original proceeding. Footnotes -[1]-   The findings herein are made pursuant to the Offer of Settlement of Thorn and TWC and are not binding on any other person or entity named as a respondent in this or any other proceeding. -[2]-   In July 1997 the political subdivisions which issued the bonds announced a settlement with the Internal Revenue Service ("IRS") with respect to the bond offerings. In return for payments of $1.182 million, the IRS agreed not to seek to tax the interest earnings of investors who purchased the bonds. To Contents    In re Eugene J. Yelverton, Jr., Securities Act Release No. 7662, Exchange Act of Release No. 41232, A.P. No. 3-9859 (March 31, 1999). I. The Commission deems it appropriate and in the public interest that public proceedings pursuant to Section 8A of the Securities Act of 1933 ("Securities Act") and Sections 15(b), 19(h) and 21C of the Securities Exchange Act of 1934 ("Exchange Act") be, and they hereby are, instituted against Eugene J. Yelverton, Jr. ("Yelverton" or "Respondent"). II. In anticipation of the institution of these proceedings, the Respondent has submitted an Offer of Settlement ("Offer") which the Commission has determined to accept. Solely for the purpose of these proceedings and any other proceeding brought by or on behalf of the Commission or to which the Commission is a party, the Respondent, without admitting or denying the findings set forth herein, except as contained in Section III 1 and 2, below, and as to the jurisdiction of the Commission over the Respondent and over the subject matter of these proceedings, which are admitted, consents to the entry of this Order Instituting Public Proceedings Pursuant to Section 8A of the Securities Act of 1933 and Sections 15(b), 19(h) and 21C of the Exchange Act of 1934, Making Findings, and Imposing Remedial Sanctions and Cease-and-Desist Order ("Order"). III. Based on this Order and the Respondent's Offer, the Commission finds the following.1 1. Thorn, Welch & Co., Inc., ("TWC"). TWC is a registered broker-dealer located in Jackson, Mississippi. TWC has been registered with the Commission pursuant to Section 15(b) of the Exchange Act since on or about March 10, 1977. On November 22, 1993, the firm changed its name to Thorn, Welch & Co., Inc. TWC's business consisted primarily of underwriting and trading municipal securities. 2. Yelverton. Yelverton is a resident of Jackson, Mississippi. From 1987 through 1990, Yelverton was a consultant to TWC. From 1990 through the present, Yelverton has been a shareholder of TWC. Yelverton was a municipal securities principal of TWC from January 1991 through 1996. 3. Between November 1987 and May 1996, TWC was the underwriter for 74 offerings of urban renewal revenue notes ("notes") issued by 39 Mississippi political subdivisions, including counties, cities and towns ("municipalities"). The offerings raised a total of approximately $287,300,000. 4. In each offering, the notes were sold based upon a representation that bond counsel had concluded that interest on the notes would be excludable from gross income for federal income tax purposes. The disclosure documents used in connection with the note offerings represented that the note proceeds would be utilized within three years on various public projects. In fact, the municipalities had no intention of spending more than a small percentage of the proceeds on public projects. That percentage, generally close to one percent of the proceeds, was received by the municipality as a "premium" or "fee" for issuing the notes. The remaining proceeds were invested in guaranteed investment contracts ("GICs") or certificates of deposit ("CDs") yielding a higher rate of return than the notes. Those instruments provided the cash flows to pay the debt service required by the notes. This financing structure resulted in a significant risk to the tax exempt status of interest on the notes. 5. Internal Revenue Code ("IRC") Section 103(b) provides that gross income includes interest on any state or local bond which is an "arbitrage bond" as that term is defined by IRC Section 148. IRC Section 148 (a) defines an arbitrage bond as "any bond issued as part of an issue any portion of the proceeds of which are reasonably expected (at the time of issuance of the bond) to be used directly or indirectly (1) to acquire higher yielding investments...." 6. IRC Section 148(c)(1) allows the proceeds of certain issues to be invested in higher yielding investments for a reasonable temporary period until such proceeds are needed for the purpose for which the bonds were issued. This provision is known as the "temporary period exception." It provides that the bonds will not be treated as taxable arbitrage bonds if the net sale proceeds and investment proceeds of an issue are reasonably expected to be allocated to expenditures for capital projects within specified time periods. Treas. Reg. Sec. 1.148-2(b) (1) and 2(e) (2) (i) (1993); Treas. Reg. Sec. 1.103-13(a) (2) (1979). When statements regarding reasonable expectations with respect to the amount and use of the proceeds are not made in good faith, the notes are deemed to be taxable arbitrage bonds. Revenue Ruling 85-182, 1985-2 C.B. 39. 7. Although all the note offerings were purportedly structured to comply with the requirements of the temporary period exception, at the time of the offerings, none of the issuers had the resources, intent or expectation to utilize any proceeds from the offerings, other than the premium or fee, for capital projects. Subsequent to the offerings, none of the issuers utilized any of the offering proceeds, other than the premium or fee, for any capital project. The lack of a reasonable expectation to utilize more than a small portion of the proceeds for capital projects would violate the reasonable expectation requirements of IRC Section 148(c)(1) and Treas. Reg. 1.148-2(e) (2). Therefore, a substantial risk exists that the issuers did not satisfy the requirements of the temporary period exception, making the structure of these transactions a prohibited arbitrage scheme that violates IRC Sections 103(b) and 148(a) (1). The violation of these sections created a substantial risk that the IRS would declare interest on the notes includable in gross income for federal income tax purposes. 8. The substantial risk to the tax exempt status of interest on the notes was not disclosed to investors or prospective investors in any of the offerings. The official statements and arbitrage certificates for each offering, among other documents, without exception, represented that the issuers intended to spend the full amount of the offering proceeds within three years on various capital projects, such as roads, parks, a courthouse, and other projects. Each official statement also represented that the issuer was negotiating with a specified firm for "architectural services. "These statements were not true. Although the investors were under no duty to independently evaluate the degree of risk to the tax exemption, the false representations dealing with the municipalities' intentions to spend the proceeds and their current negotiations for services in that regard, would have made it difficult for investors, even those with access to tax advice, to ascertain the risk to the tax exemption. 9. TWC, through Yelverton and others, sold the notes from each of the offerings using the official statements. Yelverton knew, or was reckless in not knowing, that the official statements misrepresented the issuers' intent to spend the proceeds of the offerings on municipal projects. Yelverton also knew, or was reckless in not knowing, that the tax exempt status of the notes was contingent on the issuers having a bona fide intent to utilize the note proceeds on municipal projects within three years from the date of the offering. Yelverton knew, or was reckless in not knowing, that a substantial risk existed as to the tax exempt status of interest payment on the notes. That risk was not disclosed to purchasers of the notes. 10. During the period from November 1987 through May 1996, Yelverton willfully violated Section 10(b) of the Exchange Act and Rule 10b-5 thereunder by, directly and indirectly, using the means and instrumentalities of interstate commerce and the mails to: (1) employ devices, schemes and artifices to defraud; (2) make untrue statements of material facts and to omit to state material facts necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading; and (3) engage in acts, practices, and a course of business which operated or would have operated as a fraud and deceit upon persons, in connection with the purchase and sale of securities, as more particularly described in paragraphs one through nine, above. 11. During the period from November 1987 through May 1996, Yelverton willfully violated Section 17(a) of the Securities Act by, directly and indirectly, using the means and instruments of transportation and communication in interstate commerce and the mails to: (1) employ devices, schemes and artifices to defraud purchasers; (2) obtain money and property by means of untrue statements of material facts and omissions to state material facts necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading; and (3) engage in acts, practices and a course of business which operated or would have operated as a fraud and deceit upon purchasers, in the offer and sale of securities, as more particularly described in paragraphs one through nine, above. 12. Respondent Yelverton has submitted a sworn financial statement and other evidence and has asserted his financial inability to pay disgorgement plus prejudgment interest. The Commission has reviewed the sworn financial statement and other evidence provided by Respondent Yelverton and has determined that Respondent Yelverton does not have the financial ability to pay completely disgorgement of $877,350, plus prejudgment interest. 13. Yelverton has submitted sworn financial statements and other evidence and has asserted his financial inability to pay a civil penalty. The Commission has reviewed the sworn financial statements and other evidence provided by Yelverton and has determined that Yelverton does not have the financial ability to pay a civil penalty. ACCORDINGLY, IT IS HEREBY ORDERED: 1. That Respondent Yelverton be barred from association with any broker, dealer, municipal securities dealer, investment adviser or investment company; 2. That Respondent Yelverton cease and desist from committing or causing any violation or any future violation of Section 17(a) of the Securities Act or Section 10(b) of the Exchange Act and Rule 10b-5 thereunder; 3. That Respondent Yelverton shall pay disgorgement of $877,350, plus prejudgment interest, provided that Yelverton shall pay $3,000 within thirty (30) days of this order and shall pay an additional $27,000 within 270 days to the United States Treasury. Such payment shall be (a) made by United States postal money order, certified check, bank cashier's check or bank money order; (b) made payable to the Securities and Exchange Commission; (c) hand-delivered or delivered by overnight delivery service to the Comptroller, Securities and Exchange Commission, Operations Center, 6432 General Green Way, Stop 0-3, Alexandria, VA 22312; and (d) submitted under a cover letter which identifies Yelverton as a respondent in these proceedings. Yelverton is further ordered to comply with his undertaking to forego on any personal income tax return all unused income tax credits which have accrued and to which he may be entitled as of the date of this Order arising from his interest in the seven limited partnerships which own low-income housing projects financed by urban renewal revenue bonds underwritten by TWC between August 1992 and October 1993. Payment of the remainder of the disgorgement is waived based upon Respondent Yelverton's demonstrated financial inability to pay; 4. That the Division of Enforcement ("Division") may, at any time following the entry of this Order, petition the Commission to: (1) reopen this matter to consider whether Respondent Yelverton provided accurate and complete financial information at the time such representations were made; and (2) seek any additional remedies that the Commission would be authorized to impose in this proceeding if Respondent Yelverton's offer of settlement had not been accepted. No other issues shall be considered in connection with this petition other than whether the financial information provided by Respondent Yelverton was fraudulent, misleading, inaccurate or incomplete in any material respect and whether any additional remedies should be imposed. Respondent Yelverton may not, by way of defense to any such petition, contest the findings in this Order or the Commission's authority to impose any additional remedies that were available in the original proceeding; Footnotes -[1]-   The findings herein are made pursuant to the Offer of Settlement of the Respondent and are not binding on any other person or entity named as a respondent in this or any other proceeding. To Contents    In re James V. Pannone, Exchange Act Release No. 41065, A.P. File No. 3-9830 (February 17, 1999). I. The Securities and Exchange Commission ("Commission") deems it appropriate and in the public interest that public administrative proceedings be, and hereby are, instituted pursuant to Sections 15(b) (6), 15B(c) (4) and 19(h) of the Securities Exchange Act of 1934 ("Exchange Act"), against James V. Pannone ("Pannone"). II. In anticipation of the institution of these proceedings, Pannone has submitted an Offer of Settlement ("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, Pannone, without admitting or denying the findings contained in this Order Instituting Public Administrative Proceedings Pursuant to Section 15(b) (6), 15B(c) (4) and 19(h) of the Securities Exchange Act of 1934, Making Findings and Imposing Remedial Sanctions ("Order"), except that Pannone admits: (i) that the Commission has jurisdiction over him and over the subject matter of these proceedings, and (ii) the entry of the injunction set forth in paragraph III.D below, consents to the entry of the findings and the imposition of the remedial sanctions set forth herein. III. FINDINGS On the basis of this Order and the Offer, the Commission finds that:1 A. At all times relevant, Pannone was associated with Stifel, Nicolaus & Company, Inc. ("Stifel"), a broker-dealer and municipal securities dealer registered with the Commission. B. On September 21, 1998, the Commission filed its Second Amended Complaint ("Complaint") against Pannone [Securities and Exchange Commission v. Robert Cochran, et al., Case No. CIV-95-1477-A (W.D. Okla.)], alleging that Pannone violated Section 17(a) of the Securities Act of 1933 ("Securities Act"), Sections 10(b) and 15B(c)(1) of the Exchange Act and Rule 10b-5 thereunder, and Rule G-17 of the Municipal Securities Rulemaking Board ("MSRB"). C. The Complaint alleged that Pannone, in conjunction with others, defrauded two municipal bond issuers and the respective municipal bond purchasers by failing to disclose and/or making false statements concerning: (i) the rigging of the bidding process to ensure the selection of a certain entity as the investment agreement provider; and (ii) the resulting payments Stifel received from the investment agreement provider. D. On February 17, 1999, pursuant to a consent agreement in which Pannone neither admitted nor denied any of the allegations contained in the Complaint, the federal district court in the Western District of Oklahoma entered a Final Judgment of Permanent Injunction and Other Relief as to Defendant James Pannone, permanently enjoining Pannone from violations of Section 17(a) of the Securities Act, Sections 10(b) and 15B(c)(1) of the Exchange Act and Rule 10b-5 thereunder, and Rule G-17 of the MSRB. IV. ORDER In view of the foregoing, the Commission deems it appropriate and in the public interest to accept the Offer and impose the sanctions specified therein. ACCORDINGLY, IT IS HEREBY ORDERED that: A. Pannone be, and hereby is, suspended from association with any broker or dealer or municipal securities dealer for twelve months, effective on the second Monday following the entry of this Order; and B. Pannone shall provide to the Commission, within three days after the end of the twelve-month suspension period described above, an affidavit that he has complied fully with the sanctions described in Section IV A above. Footnotes -[1]-   The findings in this Order are made pursuant to Pannone's Offer and are not binding on any other person or entity in this or any other proceeding. To Contents    In re Randall W. Nelson, Securities Act Release No. 7635, Exchange Act Release No. 40984, A.P. File No. 3-9819 (January 27, 1999). 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 8A of the Securities Act of 1933 ("Securities Act") and Sections 15(b) (6) and 19(h) of the Securities Exchange Act of 1934 ("Exchange Act"), against Randall W. Nelson ("Nelson"). II. In anticipation of the institution of this proceeding, Nelson has submitted an Offer of Settlement ("Offer"), which the Commission has determined to accept. Solely for the purpose of this proceeding, and any other proceedings brought by or on behalf of the Commission, or to which the Commission is a party, Nelson, without admitting or denying the findings contained in this Order Instituting Public Administrative Proceedings Pursuant to Section 8A of the Securities Act of 1933 and Sections 15(b) (6) and 19(h) of the Securities Exchange Act of 1934, Making Findings and Imposing Remedial Sanctions and a Cease-and-Desist Order ("Order"), except that Nelson admits that the Commission has jurisdiction over him and over the subject matter of this proceeding, consents to the entry of the findings and the imposition of the remedial sanctions set forth herein. III. On the basis of this Order and the Offer, the Commission finds that:1 A. RESPONDENT Nelson is a resident of Tulsa, Oklahoma. From April 1991 until April 1993, Nelson was associated with Stifel, Nicolaus & Company, Inc. ("Stifel"), employed in its Oklahoma Public Finance Office in Oklahoma City. B. OTHER RELEVANT ENTITIES 1. Stifel is a broker-dealer and municipal securities dealer registered with the Commission and headquartered in St. Louis, Missouri. On August 3, 1995, the Commission filed a settled civil injunctive action against Stifel. The Commission's complaint against Stifel included allegations concerning Stifel's restructuring of the Grand River Dam Authority's debt service fund, as described below. Without admitting or denying the allegations in the complaint, Stifel consented to the entry of a final judgment which enjoined Stifel from violating certain provisions of the federal securities laws, and ordered Stifel to disgorge certain unjust gains plus prejudgment interest thereon, and to pay a civil monetary penalty. See SEC v. Stifel, Nicolaus & Co., Inc., Lit. Rel. No. 14587 (Aug. 3, 1995). 2. The Grand River Dam Authority ("GRDA") is a conservation and reclamation district and an agency of the state of Oklahoma. The directors of the GRDA are appointed by the Governor of Oklahoma, with the advice and consent of the Oklahoma Senate. The GRDA provides electrical service to a defined area in Oklahoma. The GRDA has a limited staff, and relies substantially on outside professionals in issuing municipal securities and related financial matters. C. THE GRDA RETAINS STIFEL AND NELSON TO RESTRUCTURE THE DEBT SERVICE FUND For several years prior to joining Stifel, Nelson was a trust department officer at an Oklahoma commercial bank which served as the trustee for certain GRDA bond issues. As a result, Nelson developed a relationship of trust and confidence with the GRDA and its staff. After joining Stifel's Oklahoma Public Finance Office in April 1991, Nelson approached the GRDA and proposed that the GRDA restructure a debt service fund associated with a previous bond issue. Nelson told the GRDA that he believed that Stifel could obtain for the GRDA a higher yield on the moneys in its debt service fund than it was then receiving, plus a one time, up-front cash payment of at least $1 million. In June 1991, based upon Nelson's proposal, the GRDA hired Stifel to act as its financial adviser in restructuring the debt service fund for a total fee of $75,000. Acting as financial adviser, Nelson proposed an investment contract for the GRDA's debt service fund. The investment contract, as proposed by Nelson, provided for an interest rate of seven percent. The winning bidder would be the bidder willing to make the largest up-front payment to the GRDA in excess of $1 million, in addition to paying the requested rate of interest. D. STIFEL RECEIVES A BROKERAGE FEE THAT IS NOT DISCLOSED TO THE GRDA Nelson and James Pannone ("Pannone"), another member of Stifel's Oklahoma Public Finance Office, contacted a then vice president (the "Vice President") at Pacific Matrix Financial Group, Inc. ("Pacific Matrix"), an investment contract broker, and requested that he solicit bids for the investment contract. Nelson and Pannone demanded, and the Vice President agreed, that Stifel would receive ninety percent of whatever brokerage fee was paid by the winning provider. Steven Strauss ("Strauss"), a then managing director of Sakura Global Capital, Inc. ("Sakura"), told Nelson, Pannone and the Vice President that Sakura was willing to pay the seven percent interest rate requested in the bid solicitation, plus an up-front payment in the amount of $1.4 million, which was the largest up-front payment offered by any of the bidders. Nelson, Pannone, the Vice President and Strauss agreed that Sakura would pay, from the amount of its gross bid, the sum of $283,500 directly to Stifel, as well as the sum of $31,500 to Pacific Matrix. After discussions within the Oklahoma Public Finance Office, Nelson told the GRDA that Sakura's bid included an up-front payment in the amount of $1.085 million and failed to disclose that the figure was net of the $283,500 Sakura paid to Stifel and the $31,500 Sakura paid to Pacific Matrix. About one week after the closing of the GRDA transaction, a member of Stifel's compliance department asked Nelson if Stifel's payment from Sakura had been disclosed to the GRDA. Because Nelson had not disclosed to the GRDA the payment from Sakura, Nelson wrote a letter to the GRDA advising the GRDA that Stifel would receive a payment from Sakura. Nelson gave the letter to his supervisor who acknowledged that the payment had not been disclosed. Nelson's supervisor told Nelson he would take care of the matter. Nelson's supervisor never sent the letter to the GRDA. E. NELSON CAUSED STIFEL'S VIOLATIONS OF SECTION 17(a)(2) AND (3) OF THE SECURITIES ACT As the financial adviser to the GRDA, Stifel had a duty to disclose conflicts of interest. Receiving a payment from Sakura was a conflict of interest which should have been disclosed to the GRDA at the time the potential conflict arose. Stifel violated Section 17(a)(2) and (3) of the Securities Act by not disclosing to the GRDA the payment it received from Sakura. By failing to disclose the conflict of interest to the GRDA, Nelson willfully aided and abetted and caused Stifel's violations of Section 17(a)(2) and (3) of the Securities Act. IV. FINDINGS From April 1991 until April 1993, Nelson was associated with Stifel, Nicolaus & Company, Inc., a broker-dealer and municipal securities dealer registered with the Commission. Based on the foregoing, the Commission finds that Nelson willfully aided and abetted and caused Stifel's violations of Section 17(a)(2) and (3) of the Securities Act. V. ORDER In view of the foregoing, the Commission deems it appropriate and in the public interest to accept the Offer and impose the sanctions specified therein. ACCORD