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CO?, SU.S. SECURITIES AND EXCHANGE COMMISSION .-

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dent of Documents, U.s Government Prmtmg Office

l1ashmgton, DC 20402
Table of Contents

Chairman's Letter of Transmittal 1

EnforcernentPTograrn 6

Key 1987 Results . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

Introduction 6

Program Areas 7

Corporate Reporting and Accounting 7

Insider Trading . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

Regulated Entities and Associated Persons 13

Securities Offering Violations .. . . . . . . . . . . . . .. . . . . . .. . . . . . .. .. 14

Market Manipulation 15

Changes in Corporate Control . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15

Sources for further Inquiry 16

Full Disclosure System 17

Key 1987 Results . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17

Rulemaking, Interpretive, and Legislative Matters. . . . . . . . . . . . . . . . . . 19

Pricing Amendments 19

Tender Offers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19

Proxy Rules 19

Shareholder Communications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20

Prospectus Delivery Requirements 20

Exempt Private Offerings 20

Employee Benefit Plans 21

Management's Discussion and Analysis. . . . . . . . . . . . . . . . . . . . . . . 21

Classification of Issuers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21

Publication of No-Action and Interpretive Letters . . . . . . . . . . . . . . . . 21

TrustIndenture Legislative Proposal , . . . . . . . . 21

Internationalization 22

Conferences . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22

SEC Government-Business forum on Small Business Capital

formation 22

SEC/NAS¥ Conference under Section 19(c) of the Securities Act. 22

Accounting and Auditing Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23

Key 1987 Results. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23

Accounting-Related Rules and Interpretations 23

Oversight of Private Sector Standards-Setting . . . . . . . . . . . . . . . . . . . . 25

fASB 25

financial Instruments 25

Consolidations and the Equity Method . . . . . . . . . . . . • . . . . . . . . . . . 26

Cash flow Reporting. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Income Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26

Regulated Enterprises . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26

Other Projects ...................................•........ 26

Timely Flnancial Reporting Guidance . . . . . . . . . . . . . . . . . . . . . . . . . 26

Oversight of the Accounting Profession's Initiatives. . . . . • • . . . . . . . . . 26

SEC Practice Section .....................•................ 27

SpecialInvestigations Committee .........................•.. 27

The EDGAR Project ......•.................................... 29

Key 1987 Results . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29

Introduction ...........•.................................... 29

Pilot System . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29

Operational System . . . . . . . . . . . . . . . . . . . . . . . • . . . . . . . . . . . . . . . . . . 30

Office of EDGAR Management 31

Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31

Regulation of the Securities Markets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32

Key 1987 Results . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32

Securities Markets, Facilities and Trading. . . . . . . . . . . . . . . . . . . . . . . . 33

The National Market System 33

National System for Clearance and Settlement of Securities

Transactions 34

Market Volatility Studies 34

Securities Immobilization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35

Internationalization 35

Options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37

Regulation of Brokers, Dealers, Municipal Securities Dealers,

and Transfer Agents 38

Broker-Dealer and Transfer Agent Examinations. . . . . . . . . . . . . . . . 38

Market Sweeps. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39

Short Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40

Bank Securities Activities 40

Zero-Coupon Securities 40

Financial Responsibility Rules 41

Customer Protection Rule. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41

Interpretations of the Customer Protection Rule . . . . . . . . . . . . . . . . . 41

Lost and Stolen Securities 41

Municipal Bond Redemption Processing 42

Oversight of Self-Regulatory Organizations 42

National Securities Exchanges 42

National Association of Securities Dealers, Inc. . . . . . . . . . . . . . . . . . 43

Municipal Securities Rulemaking Board (MSRB) . . . . . . . . . .. . . . . . 44

Clearing Agencies .. , . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44

SRO Surveillance and Regulatory Compliance Inspections 44

Applications for Re-entry 47

SRO Final Disciplinary Actions 48

ii
Invesbnent Companies and Advisers 49

Key 1987 Results. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . • . . . . . 49

Disclosure Requirements 50

EDGAR.................................................... 50

Regulatory Policy. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51

Investment Advisers ..........................•.............. 51

Insurance Products 51

Public Utility Holding Companies 52

Holding Company Financings .,. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52

Significant Applications and Interpretations 53

Investment Company Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53

Holding Company Act . . . . . . . .. . . . . .. . . . . . . .. .. . . . . . .. . . . . . . 53

Institutional Disclosure Program 54

Other Utigation and Legal Activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56

Key 1987 Results . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56

Utigation 57

Appeals in Commission Enforcement Actions. . . . . . . . . . . . . . . . . . 57

Petitions to Review Commission Orders . . . . . . . . . . . . . . . . . . . . . . . 58

Constitutional Challenges to Commission Enforcement

Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61

Commission Participation in Private Litigation . . . . . . . . . . . . . . . . . . 62

Trading on Material Non-Public Information. . . . . . . . . . . . . . . . . . . . 64

Tender Offer and Merger Litigation. . . . . . . . . . . . . . . . . . . . . . . . . . . 65

Litigation Involving Requests for Access to Commission

Records 66

Litigation Against the Commission and Its Staff. . . . . . . . . . . . . . . . . 66

Significant Legislative Developments 67

Insider Trading. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67

Regulation of Corporate Takeovers . . . . . . . . . . . . . . . . . . . . . . . . . . . 68

Proposed Bank Broker-Dealer Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68

Proposed Truth in Savings Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69

Agricultural Credit Act of 1987 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69

Commission Authorization Request 69

Financial Guarantee Study . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69

Report on the Internationalization of the Securities Markets . . . . . . . 70

Federal Government Loan Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70

Corporate Reorganizations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70

Committees ..... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71

Estate Administration 72

Disclosure Statements/Plans of Reorganization. .. . . . . . . . . . .. 73

Economic Research and Analysis 76

Key 1987 Results . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76

Management and Program Support. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78

Key 1987 Results . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78

iii
Policy Management. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78

Consumer Affairs and Information Services . . . . . . . . . . . . . . . . . . . . . . 78

Equal Employment Opportunity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79

Facilities Management 79

Fmancial Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79

Information Systems Management 80

Personnel Management 81

Public Affairs 81

Commission Operations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82

Commissioners and Principal Staff Officers. . . . . . . . . . . . . . . . . . . . . . . 83

Biographies of Commissioners 85

David S. Ruder . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85

Charles C. Cox . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86

Aulana L. Peters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86

Joseph A. Grundfest 87

Edward H. Fleischman 87

Regional and Branch Offices and Administrators 89

Footnotes 92

Appendices 103

APPENDIX TABLES

1 Unconsolidated Financial Information for Broker-Dealers. . . . . . . . 104

2 Unconsolidated Annual Revenues and Expenses for BrokerDealers Doing a Public Business 105

3 Unconsolidated Balance Sheet for Broker-Dealers Doing a

Public Business 106

4 Securities Industry Dollar in 1986 for Carrying/Clearing

Firms.. . . . . . . . . . . . . .. . . . . . . . . . . . . .. . . .. .... . . .. . . . ... . . . 108

5 Unconsolidated Revenues and Expenses for Carrying/Clearing

Broker-Dealers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 109

6 Unconsolidated Balance Sheet for Carrying/Clearing BrokerDealers 110

7 Broker-Dealers and Branch Offices . . . . . . . . . . . . . . . . . . . . . . . . . . 111

8 Brokers and Dealers Registered Under the Securities Exchange

Act of 1934 , , . . . . . . . . . . . .. . . . . .. . . .. . . .. . . 112

9 Applications and Registrations of Brokers, Dealers and

InvestrnentAdvisers ..........•......... ,. . .. . . . 113

10 Applications and Registrations of Brokers, Dealers and

Investment Advisers . . .. . . .. . . . .. . .. .... .. . .... ..... . ... . .. 114

11 Consolidated Financial Information of Self-Regulatory

Organizations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 117

12 Self-Regulatory Organizations-Clearing Agencies

1986 Revenues and Expenses 118

iv
13 Municipal Securities Rulemaking Board Statements of Revenues

and Expenses and Changes in Fund Balance................. 119

14 Companies Registered Under the Investment Company Act of

1940 as of September 30, 1987 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 121

15 Companies Registered Under the Investment Company Act of

1940 122

16A Market Value of Equity/Options Sales on U.S.Securities

Exchanges 123

16B Volume of Equity/Options Sales on U.S. Securities

Exchanges 124

17 Market Value of Equity/Options Traded on AllU.S. Securities

Exchanges 126

18 Share Volume by Exchanges............................... 127

19 Dollar Volume by Exchanges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 128

20 Special Block Distributions Reported by Exchanges . . . . . . . . . . . . 129

21 Securities Listed On Exchanges. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 130

22 Value of Stocks Listed on Exchanges 131

23 Securities Traded on Exchanges 132

24 Immobilization Trends , , .. . .. . . . . . 132

25 Effective Registrations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 133

26 Securities Effectively Registered with SEC 134

27 Securities Effectively Registered with SEC 135

28 Effective Registrations by Purpose and Type of Security:

Fiscal Year 1986r . . . . . . . . . . . . . . . . . . .. . . . .. . . . . . . . . . . . . .. . . 137

29 Effective Registrations by Purpose and Type of Security:

Fiscal Year 1987p 137

30 Effective Registrations Cash Sale for Account of Issuers . . . . . . . . . 138

31 Cash Offerings Under Regulation A . . . . . . . . . . . . . . . . . . . . . . . . . . 139

32 Types of Proceedings 140

33 Fiscal 1987 Enforcement Cases Listed by Program Area . . . . . . . . 144

34 Enforcement Cases Initiated by the Commission During Fiscal

1987 in Various Program Areas. . . . . . . . . . . .. . . . . . . . . . . . . .. . . 150

35 Investigations of Possible Violations of the Acts

Administered by the Commission 151

36 Administrative Proceedings Instituted During Fiscal Year

Ending September 30, 1987 151

37 Injunctive Actions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 151

38 Reorganization Proceedings Under Chapter 11 of the

Bankruptcy Code in Which Commission Entered Appearance. . . . 155

39 Appropriated Funds vs Fees Collected 158

40 Budget Estimate and Appropriations. . . . . . . . . . . . . . . . . . . . . . . . . 159

v

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON. D.C. 20549

O..... CK 0"

THE CHAIR .. '"

May 6. 1988

The Honorable George Bush

President of the Senate

Washington. D.C. 20510

Gentlemen:

The Honorable Jim Wright

Speaker of the House

Washington. D.C. 20515

It is an honor to transmit the Fifty-Third Annual Report of the Securities and Exchange

Commission for the fiscal year ended September 30. 1987.

The 1987 fiscal year was somewhat unusual because three different people chaired the

Commission during the year. Former Chairman John Shad concluded his long and distinguished service at the Commission on June 18, 1987. Commissioner Charles C. Cox

served admirably as Acting Chairman until I became Chairman on August 7, 1987.

During fiscal year 1987, the excellent work of the staff enabled the Commission to fulfill its

statutory mission while meeting new challenges, in the headquarters and regional offices.

Increased budgetary resources, requested from Congress for upcoming fiscal years,

would enhance the Commission's ability to continue this high level of performance.

Statutory responsibilities of the Commission include enforcing the federal securities laws,

ensuring complete and accurate disclosure regarding the issuer and its securities, overseeing stock exchanges and secondary market participants, regulating investment companies and investment advisers and engaging in appellate and other litigation. The Commission again successfully discharged these responsibilities dUring the fiscal year.

1983 1984 1985 1986 1987

Enforcement Actions 261 299 269 312 303

Filings GIVen

Full Review 6,987 7,237 9,571 10,526 10,797

Broker-Dealer

Oversight Exams 324 389 447 481 452

*SRO Inspections 18 20 21 22 23

Investment Co. and

Adviser Inspections 1,085 1,334 1,606 1,906 2,033

*Self-Regulatory Organizations

1
Enforcement: During the fiscal year, the Commission's enforcement program continued to be vigorous and comprehensive. Primary program areas are fraudulent securities

offerings, violations of the securities laws by broker-dealers and other regulated entities, insider trading, and issuer financial disclosure. A total of 303 cases were brought during the

year. The Commission obtained court orders requiring defendants to retum illicit profits

amounting to approximately $121 million. Disgorgement in insider trading cases alone

amounted to $70.1 million, and civil penalties under the Insider Trading Sanctions Act

amounted to $62.6 million.

Some of the most significant insider trading cases in the Commission's history were

brought during the fiscal year. On November 14, 1986, the Commission instituted and settled a civil action against Ivan F. Boesky, an arbitrageur. As part of Boesky's settlement, he

agreed to cooperate with law enforcement officials in continuing inquiries. The cooperation was significant in the Commission's strategic approach to law enforcement

Full Disdosure: The full disclosure program is designed to provide investors with full

and accurate material information, foster investor confidence, contribute to fair and orderly markets, facilitate capital formation, and inhibit fraud. Ongoing activities and special

projects were carried out to accomplish the goals of the program.

Full reviews of disclosure filings increased during the fiscal year. Resources were devoted

to new issuers, tender offer fIlings, and to annual meeting proxies. The latter category included over 2,000 proxies requesting shareholder approval for reducing director liabilities

and broadening indemnification of corporate officers and directors as a result of new state

corporate laws. New issues of securities and corporate acquisitions and restructurings

were at high levels during the year.

Passage of the Tax Reform Act of 1986 required substantial staff resources for filings made

to assure certain tax consequences. Innovative securities, such as private and public collateralized loan obligations, continued to proliferate. Also during the year, the Commission

took action on a wide range of issues in rulemakmg, interpretive, and legislative matters.

Additionally staff prepared a chapter in the intemationalization report

Accouatlng and AucUting Matters: During the fiscal year, the Commission

adopted rules that improve and simplify disclosures made by bank holding companies

about loans to countries experiencing liquidity problems. It also amended its rules to delete certain requirements regarding disclosure of effects of inflation and changing prices.

The Commission also issued proposed rules regarding peer review and increased disclosure of disagreements between accountants and clients. The staff also studied the draft

proposals of the National Commission on Fraudulent Financial Reporting.

EDGAR: The Commission's pilot electronic disclosure system (known as "EDGAR" for

Electronic Data Gathering, Analysis and Retrieval) successfully completed its third full year

of operation, demonstrating the feasibility of electronic flUng and review. Over 20,000 filings have been made since the pilot program began in September 1984. Filers include

publicly-traded corporations, investment companies, and public utility holding companies. During the fiscal year, the Commission moved ahead with plans for an operational

system and the Request for Proposals, amended to reflect changes in the funding strategy,

was released on October 23, 1987. The Office of Edgar Management was created to direct

the procurement and implementation of the EDGAR operational contract

2
Regu1atlon ofthe Securities Malkeu: During the fiscal year, on-going programs

for oversight of the nation's securities markets and of market professionals were carried

out, and progress was made on new challenges presented by the markets.

Oversight examinations of broker-dealers were enhanced with the addition of on-line

computer systems to Improve collection of data and with development of software programs for use in field examinations. The staff increased the emphasis placed on review of

sales practices during the year in inspections of broker-dealers and of self-regulatory organizations. Also during the year, 500 new over-the-counter securities were designated as

National Market System securities, and unlisted trading privileges were granted for 25

NMS securities to be traded on the Midwest Stock Exchange. In the area of clearance and

settlement of securities, progress was made during the year. Specifically, mortgagebacked securities transactions settling in sameday funds, and mutual fund orders were

added to the National Clearance and Settlement System, and immobilization of securities

was encouraged during the year.

Issues associated with internationalization of the securities markets remained a high priority.The Commission approved certain linkages between exchanges and clearing agencies

and granted certain exemptions to accommodate foreign market structures. The Commission held a roundtable discussion on internationalization issues associated with primary and secondary markets. These issues were also discussed in the Staff Report on Internationalization.

Market volatility remained a concern of the Commission throughout the fiscal year. The

Commission took steps, in cooperation with the exchanges, to reduce volatility on socalled Expiration Fridays, and study of the results continued. Also during the fiscal year,

the staff completed and published an intensive review and analysis of market events of

September 11 and 12, 1987.Although that study did not find that immediate regulatory action was necessary, it expressed concern over a "cascade" scenario of certain sudden effects in the securities markets because of the close interplay and increased use of derivative products for index arbitrage and portfolio insurance.

Economic Research and Analysis: The economic staff provides the Commission

with economic advice and analysis regarding rule proposals, policy matters, and the capital markets. It also engages in statistical monitoring of the securities industry. During the

year, the staff reviewed 110 rules and rule proposals. It also provided advice to operating divisions regarding the requirements of the Regulatory Flexibility Act, reviewing 65 Regulatory Flexibility analyses and certifications. A major initiative during the year was the Staff

Report on Internationalization. Also, staff prepared studies concerning: the effects of multiple trading of options; the use of repurchase agreements; trading and returns behavior of

initial public offerings; alternative criteria for subjecting of issuers to the mandatory disclosure requirements; and effects of full cost accounting on oil and gas firms. Additionally, the

staff prepared several studies regarding changes in corporate control. These included tender offer financing; dual-class recapitalizations; effects of defeating takeover attempts;

market anticipation of takeovers; and the effects of the Ohio anti-takeover law. Other analyses were performed during the year regarding various aspects of mutual funds.

Utlgatlon and Legal Activities: The Office of the General Counsel represented the

Commission in 304 litigation matters. During the fiscal year, 36 federal court of appeals

and Supreme Court cases were concluded, all but three favorably to the Commission. Of

16 appeals in Commission injunctive actions, six were concluded, with only one outcome

3
unfavorable to the CommiSsion. There were also 23 appellate and district court actions

seeking to overturn Commission orders. Ten were concluded, with one adverse result

Also during the year, the Commission participated as amicus curiae in 46 cases, and entered its appearance in 32 of 94 reorganizations under Chapter 11. The General Counsel

handled more than 217 other proceedings before the Commission or in the federal district

courts, assisted the Commission in preparation of testimony on a number of important issues and on a legislative proposal to amend the Exchange Act to permit the Commission

to regulate certain brokerage activities of banks. The General Counsel also assisted in

preparation of the Staff Report on Internationalization.

Investment Companies and Advisers: The number of investment companies, investment advisers, and assets managed by them increased substantially during the fiscal

year, while staff levels in the Division of Investment Management remained essentially unchanged. For the first time, the number of examinations completed by regional and headquarters staff during the fiscal year exceeded 2,000, almost double the number completed

five years ago. Both regional and headquarters staff continued efforts to coordinate with

state regulators by conducting joint examinations, providing training for state examiners,

and routinely sharing examination results. Also during the year, substantial progress was

made on a report requested by Congress regarding the financial planners industry. Among

the areas discussed in the report is the National Association of Securities Dealers' pilot project to inspect investment advisers who are also NASD members.

Other initiatives undertaken by the staff durinq the year included work on legislative proposals, on the Staff Study on Intemationalization, rulemaking and disclosure and administration of the Public Utility Holding Company Act

Management and Program Support: During the fiscal year, management staff initiated 24 major projects, including reviews of information security and intemal controlobjectives. Consistent with prudent management, intemal audits were conducted of programs, activities and functions. Consumer affairs specialists responded to approximately

40,000 complaints and inquiries during the fiscal year, an 11 percent increase over the previous year. During fiscal year 1987, 1,908 Freedom of Information Act requests were processed, and 2,005 Congressional requests for records were fulfilled, Programs in support

of Equal Employment Opportunity were carried out during the year, as were programs designed to enhance computerization. Also during the year, training programs emphasized

computer literacy, leadership subjects related to equal employment opportunity, and other

significant areas.

In November 1986, the Commission received the Outstanding Employer of the Year

Award from the District of Columbia Rehabilitation Services Administration, recognizing

efforts in hiring, training and retaining the handicapped.

Also during the year, the Commission testified before Congress 19 times regarding issues

such as tender offers, insider trading, oversight and surveillance of the securities markets,

federal government loan sales, the role of auditors in financial reporting, and the Commission's authorization and appropriation.

As the new fiscal year began on October I, 1987, further regulatory challenges emerged.

Periods of volatility in the securities markets continued to be of deep concern. Automation

in the securities markets continued to bring farreaching changes. Speeded by automation,

4
internationalization of the markets continued at a rapid rate, presenting issues of policy for

regulators around the world. Addressing these issues will be a high priority during the coming fiscal year.

~n7[~

David S. Ruder

Chairman

5
Enforcement Program

Key 1987 Results

The Commission's 1987 enforcement program was both vigorous and comprehensive in nature. While the largest program areas continued to involve fraudulent

securities offerings and violations by broker-dealers and other regulated entities,

the Commission also brought record numbers of cases involving insider trading

and issuer financial disclosure, areas which have received continuing emphasis.

The Commission brought a total of 303 cases in fiscal year 1987. In fiscal 1986, it

brought 312.

FY'87

303

144

146

13

o

FY'86

312

162

136

14

o

Total Enforcement Actions Initiated

FY'83 FY'84 FY'85

261 299 269

151 179 143

94 114 122

14 4 3

221

Total

Civil lnjunctrve Actions

Admmistrative Proceedings

CIvIl And Cnrninal Contempt Proceedings

Reports of Investigation

In fiscal year 1987, the Commission obtained court orders requiring defendants

to return illicit profits amounting to approximately $121 million, either as disgorgement or as restitution to defrauded investors or entities. Disgorgement orders in insider trading cases amounted to $70.1 million, compared to $29.7 million in 1986.

Civil penalties under the Insider Trading Sanctions Act of 1984 (ITSA) amounted to

$62.6 million.

The Commission referred matters, or granted access to its files, to the federal

and state prosecutorial authorities in 150 cases. There were 72 criminal indictments or informations and 87 convictions obtained during fiscal year 1987 in

Commission-related cases.

Introduction

The Commission's enforcement program seeks to preserve the integrity, efficiency and fairness of the securities markets by enforcing the federal securities

laws. These laws provide civil and administrative remedies designed to rectify past

violations and prevent future violations.

Most Commission enforcement actions are preceded by a private investigation

to determine whether a violation of the securities laws has occurred or is about to

occur. Where necessary, the Commission may order a formal investigation and

thereby authorize the staff to issue subpoenas compelling testimony and the production of documents.

Depending on the results of an investigation, the Commission may authorize the

staff to commence a civil action in a United States District Court, institute an

administrative proceeding, or refer the matter to the Department of Justice for

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criminal prosecution. Matters may also be referred to state or local authorities or

self-regulatory organizations for appropriate action.

The Commission's primary civil remedy is a federal court injunction which directs the subject to comply with the law in the future. If an injunction is violated,

contempt of court proceedings may result in imprisonment or the imposition of

fines. Courts may also issue orders providing other equitable relief such as restitution, disgorgement of illicit profits, and other appropriate remedies. Those who

commit insider trading violations may be subject to a penalty not to exceed three

times the profit gained or loss avoided.

The Commission is authorized to bring administrative proceedings against regulated entities such as broker-dealers, investment companies, and investment advisers, as well as persons associated with such entities. Where the Commission

finds that a regulated entity has willfully violated the securities laws, it may impose

remedial sanctions ranging from a censure to revocation of the registration required for the entity to conduct business. The Commission also may censure or

limit the activities of associated persons, or suspend or bar such persons from association.

Issuers of securities are subject to administrative proceedings if they fail to comply with the disclosure, proxy and tender offer provisions of the Securities Exchange Act of 1934 (Exchange Act). Individuals causing such failures may also be

named as respondents in such proceedings. Respondents may be ordered to

comply with applicable provisions of the securities laws upon specified terms and

conditions, or to take steps to effect compliance.

Issuers may also be named as respondents in certain proceedings authorized by

the Securities Act of 1933 (Securities Act). In addition, the Commission may publish reports of investigation under Section 21 (a) of the Exchange Act.

Criminal sanctions for federal securities law violations include fines and imprisonment for up to five years for each violation. The Commission has developed

close working relationships with the Department of Justice and U.S. Attorneys' Offices to assist in the investigation and prosecution of such cases. The Commission

also cooperates closely with state securities regulators and self-regulatory organizations, including the National Association of Securities Dealers (NASD) and the

various national securities exchanges.

Program Areas

The Commission investigates and brings enforcement actions to remedy a

broad range of violations. Classified by primary violation, enforcement activity during fiscal year 1987 included (1) cases concerning corporate reporting and accounting, (2) insider trading, (3) violations by regulated entities and associated persons, (4) market manipulation, (5) securities offerings, (6) changes in corporate

control, (7) related party transactions, (8) fraud against regulated entities, (9) civil

and criminal contempt actions, and (10) delinquent filing cases against both issuers and individuals. (See Table 33 for a listing of all enforcement actions instituted

in fiscal year 1987).

CorporateReporting and Accounting- Financial disclosure cases continued to

be a high priority in fiscal year 1987. The Commission brought 61 cases containing

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significant allegations of financial disclosure violations against issuers, regulated

entities or their employees (including 18 actions in which financial disclosure violations were alleged in addition to other primary violations), compared with 35

such cases in 1986.1The Commission also brought 11 cases alleging misconduct

on the part of accounting firms or their partners or employees in fiscal year 1987,

including two of the issuer disclosure cases set forth above.2There were 15 enforcement actions against accountants or accounting firms in 1986.

Typical financial disclosure cases involve the improper valuation of assets or

liabilities; the improper recognition of revenue or income; the failure to establish

sufficient provisions for bad debts or other contingencies; or the failure to provide

adequate disclosure conceming the issuer's financial condition. Many cases also

involve violations of the accounting provisions of the Foreign Corrupt Practices

Act Financial disclosure cases are often complex and require more resources than

other types of cases, but their effective prosecution is essential to preserving the integrity of the disclosure system.

The Commission brought several enforcement actions this fiscal year conceming the adequacy of financial disclosures made by financial institutions. On September 21, 1987, the Commission instituted an injunctive proceeding, SEC v. FinanciaL Corporation of America (FCA),3

in which it alleged that the holding

company for a major savings and loan institution violated the reporting, books and

records, and intemal controls provisions of the federal securities laws. The complaint alleged, among other things, that FCA improperly and prematurely recognized income from certain real estate transactions, referred to as "buy/sell" transactions, which were designed to conceal FCA's involvement in the transactions

and its continuing financial exposure relative to the underlying real estate, causing

improper recognition of income of approximately $13.3 million in one year, and $7

million in the next. The Commission also alleged that FCA failed to maintain adequate reserves to cover losses in its loan and real estate portfolio, due to, among

other things, a decline in underwriting standards that led to an increased volume of

substandard loan assets. It also alleged that FCA improperly recognized income

from certain acquisition, development and construction loans. FCA consented to

the entry of a permanent injunction and to certain reviews, to be performed by its

independent accountants.

On February 27, 1987, the Commission instituted an administrative proceeding,

In the Matter of ContinentaL illinois Corporation." against the holding company

of Continental Illinois National Bank and Trust Co. of Chicago, one of the largest

banks in the United States. The Commission alleged that Continental mischaracterized a substantial portion of the loan loss provision reported in its Form 1O-Q for

the second quarter of 1984.

Continental characterized $425 million of the nearly $1 billion provision as "loss

on sale of loans subject to FDIC agreement" Continental did not disclose, however, that the Office of the Comptroller had directed a $950 million provision for

Continental to provide for credit losses in Continental's portfolio prior to the loan

sale.The Commission determined that it was materially misleading for Continental

to attribute the $425 million, which was clearly part of the $950 million provision,

to the event of the sale. Continental consented to a Commission order directing it,

among other things, to comply with various provisions of the Exchange Act, and to

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restate its financial statements to properly characterize the $425 million provision.

On August 17, 1987, the Commission instituted an administrative proceeding,

In the Matter of Texas Commerce Bencsheres; Inc. (TCB),5in which itfound that

TCB,a bank holding company, failed to have in place an adequate loan loss review

system, and that as a result, the consolidated loan loss reserve for TCB, as of December 31, 1984, was understated by $28.2 million.

The Commission pointed out four factors which played key roles in creating the

system's inadequacy: (1) substantial growth in TCB's aggregate loan portfolio

through the relevant period; (2) TCB's failure to adapt itsloan reviewsystem to the

increased loan level;(3) TCB's failure to give sufficient emphasis to an ongoing assessment of the loan portfolio; and (4) TCB's reliance on loan officers (rather than

on a separate loan reviewfunction) to identify problem loans on a continuing basis.

TCBconsented to the issuance of an order requiring itto comply withthe reporting, books and records, and intemal controls provisions of the Exchange Act, and

to comply with certain undertakings.

On August 10, 1987,the Commission instituted administrative proceedings, In

the Matter of DeLa.urentiis Entertainment Group, Inc. (DEG),6in which it found

that DEG, a company engaged in the financing, production and distribution of

motion pictures, violated the books and records and internal control provisions of

the Exchange Act. The Commission found that DEG incorrectly capitalized approximately $1.5 million in interest costs that should have been expensed, and at

the same time expensed an approximately equivalent amount of selling, general

and administrative costs, and other costs, which should have been capitalized as

production costs.

Italso found that DEG's books and records and system of internal controls failed

to adequately reflect such transactions, and led to the serious compromise of the

accuracy of DEG's financial statements. DEG consented to the Commission's

order which required itto comply with the books and records and internal control

provisions of the Exchange Act and to comply with its undertakings to put in place

certain remedial procedures.

Included in Commission enforcement actions against independent accountants

who examine and issue opinions on an issuer's fmancial statements is SEC v.

Grant Thornton, et al.,7an injunctive action which was flied on October 16, 1986.

The Commission alleged that Grant Thornton (formerly Alexander Grant & Co.)violated the antifraud provisions of the federal securities laws in connection with the

issuance of audit reports based on its examination of the financial statements of

ESM Government Securities, Inc. (ESM), a broker-dealer principally engaged in

government securities repurchase transactions. The Commission alleged that the

audits were not conducted in accordance with Generally Accepted Auditing Standards (GMS), and that the financial statements were not prepared in accordance

with Generally Accepted Accounting Principles (GMP).

The Commission alleged that many of the audit deficiencies stemmed from

Grant Thornton's failure to understand the nature of the business of ESM. The

complaint also alleged one of the individual defendants, a partner at the firm, became aware that Jose L Gomez, the partner with primary responsibility for ESM,

had taken money from ESM principals. thereby compromising his independence.

The defendants consented to the entry of permanent injunctions.

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On March 25, 1987, the Commission brought an administrative proceeding,

pursuant to Rule 2(e) of its Rules of Practice, against KMG Main Hurdman," a firm

of certified public accountants, alleging that Main Hurdman engaged in improper

professional conduct in connection with the audits of the First National Bank of

Midland, Texas (FNBM), and of Time Energy Systems, Inc. In the case of FNBM,

the Commission alleged that a sale and leaseback of the bank's principal properties was not recorded in accordance with GMP and was structured to allow the reporting of a profit in 1982. The Time Energy financial statements allegedly violated

GMP by prematurely recording incentive and management fees from research

and development contracts entered into with various limited partnerships with

which it conducted business.

Main Hurdman consented to the entry of a Commission order in which it was

censured and ordered to comply with certain undertakings, including undergoing

an augmented peer review and documenting certain internal consultations on auditing questions.

The Commission brought five cases primarily involving the misrepresentation

of or failure to disclose information conceming related party transactions, the

compensation of officers, or other matters during fiscal year 1987. The Commission also brought 23 delinquent filing actions during the fiscal year, compared with

18 in 1986.

Insider Trading-Insider trading refers generally to the act of purchasing or selling

securities in breach of a fiduciary duty or a relationship of trust or confidence, while

in possession of material nonpublic information about an issuer or the trading

market for an issuer's securities. The federal securities laws prohibit such trading

not only by corporate officers and directors and other persons having a relationship of trust or confidence with the issuer or its shareholders, but also by persons

who misappropriate material non public information from sources other than the

issuer. The tippees of any such person may also be subject to the prohibition.

The Commission's insider trading enforcement program achieved record results in fiscal year 1987. The Commission brought 36 cases in which insider trading was the primary violation alleged, including several of the most significant insider trading cases ever brought by the Commission. Insider trading violations

were also alleged in an additional six cases, which were primarily financial disclosure cases,"

On November 14, 1986, the Commission instituted the largest insider trading

case in its history against arbitrageur Ivan F. Boesky. 10 The Commission alleged

that Boesky caused certain affiliated entities to trade in securities while in possession of material nonpublic information concerning tender offers, mergers, and

other extraordinary corporate transactions. Boesky was alleged to have obtained

this information from investment banker Dennis B. Levine, who previously had

been enjoined in a Commission action brought in May 1986.

As part of a settlement of that action, Boesky consented to the entry of an order

of permanent injunction. He paid $50 million in cash as disgorgement of profits

obtained by his affiliated entities as a result of the illegal insider trading, and paid

a penalty consisting of securities which had an estimated aggregate value of $50

million. Boesky also consented to the entry of an administrative order permanently

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barring him from the securities industry. 11Additionally he pleaded guilty to a federalfelony charge of conspiracy to make false filingswiththe Commission. Boesky

thereafter cooperated with the Commission in its continuing investigation, which

resulted in several additional significant cases during fiscal year 1987.

On February 13, 1987,in SEC v. MartinA. SiegeL,12the Commission filedan injunctive action against an investment banker, alleging that he disclosed to Boesky

material nonpublic information which he obtained by virtue of his employment

Siegel allegedly disclosed the information to Boesky under circumstances in

whichSiegel knew that Boesky would cause certain affiliated entities to trade while

in possession of the information. Siegel allegedly received approximately

$700,000 from Boesky in return for the information.

Siegel consented to the entry of a permanent injunction and agreed to disgorge

cash or cash equivalents in the amount of approximately $4.25 million.Siegel also

agreed to disgorge his ownership interest in securities of the investment banking

firmwhich employed him at the time of the action and in partnerships sponsored

by that firm or its subsidiaries. Siegel also consented to the entry of an order barring him from the securities industry.P and pleaded guilty to two felony charges

arising out of insider trading violations.

On June 4, 1987,the Commission instituted an injunctive action against Kidder

Peabody & Co., Inc.,14alleging that ittraded securities while in possession of material nonpublic information. The information was allegedly disclosed to Kidder

through Siegel, who was then a senior mergers and acquisitions professional at

Kidder,by an arbitrageur at an investment bank.

Atthe time, Siegel was also involved in risk arbitrage activities at Kidder. The

Commission alleged that the Kidder risk arbitrage account purchased and sold securities and options based on information provided relating to tender offers,mergers, leveraged buyouts and other business combinations or extraordinary corporate transactions.

The complaint also alleged, as a separate matter, that Kidder illegally "parked"

securities on behalf of entities controlled by Boesky, by holding securities transferred from Seemala Corporation, a broker-dealer controlled by Boesky, subject to

an agreement that Seemala would repurchase the securities shortly thereafter, and

would bear responsibility for all profits and losses from the transactions. Such

transfers, among others, enabled Seemala to conceal its inability to maintain the

minimum net capital required of broker-dealers by the Commission.

Kidder consented to an injunction and was ordered to pay a total of

$25,294,775. Total disgorgement equaled $13,676,101. The remaining

$11,618,674 represented a double ITSApenalty.

In a separate administrative proceedmq.l" the Commission censured Kidder

and ordered the firm to comply with its undertakings to retain a consultant to review its policies and procedures. Kidder further consented not to resume previously terminated risk arbitrage trading activities before adopting the procedures

recommended by the consultant and special compliance procedures pertaining to

riskarbitrage trading. Kidder also agreed to cooperate withthe Commission's continuing investigation of these matters.

The Commission's continuing investigation has also led to the filing of several

cases involving securities law violations other than insider trading. In SEC v.Boyd

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L Jefferies, et el; 16 for example, the Commission alleged that the defendants violated the securities laws by engaging in market manipulation and in the the "parking" of securities.

Among other things, the Commission's complaint alleged that Boyd L Jefferies,

then owner of Jefferies & Co., a broker-dealer, entered into an agreement with

Boesky to "park" stock on behalf of Seemala Corporation. The Commission further alleged that securities parked at Jefferies & Co. dropped substantially in value,

leaving Jefferies & Co. with an approximate $3.6 million loss when it "sold" the securities back to Seemala. Boesky then paid Jefferies & Co. $3 million pursuant to

a false invoice created by Jefferies & Co. for purported "investment advisory and

corporate financial services" rendered. The complaint also alleged that Jefferies &

Co. parked its own securities at various Boesky entities, including Seem ala, under

a similar arrangement Each of the defendants consented to the entry of a permanent injunction and agreed to cooperate with the Commission in its continuing

investigation.

In a related administrative proceeding, 17Jefferies consented to an order barring

him from the securities industry, with a proviso that Jefferies may apply for re-entry

into the securities industry after the greater of five years or the period of any penalty

imposed on him in connection with criminal proceedings. Jefferies & Co. agreed

to a censure and was ordered by the Commission to comply with its undertakings

to, among other things, retain an outside consultant and implement recommendations made by that consultant conceming policies and procedures designed to

prevent future violations of the securities laws. On April 15, 1987, Jefferies pleaded

guilty to two felony charges arising out of the activities which led to the Commission's actions.

In fiscal year 1987, the Commission also brought a number of significant insider

trading cases which were not related to the Levine and Boesky investigations.

On December 10, 1986, the Commission filed an action against Michael N.

David,18 formerly an associate with a law firm, alleging that he misappropriated

material nonpublic information from the law firm conceming proposed or considered corporate takeovers. David allegedly conveyed the information to persons

who traded in the securities of the takeover targets for their own accounts or for an

account in which David had a beneficial interest Those persons also allegedly

conveyed the information to others who also traded in the securities of the takeover

targets. David consented to the entry of a permanent injunction against future violations, and agreed to disgorge $50,000 and pay a cMI penalty not to exceed

$100,000.

The Commission's investigation of the insider trading scheme in which David

was involved also led to criminal indictments against David and four others for

their participation in the scheme. David pleaded guilty to charges against him.

On February 17, 1987, the Commission instituted an action against Israel G.

Grossman.'? a former associate at a law firm, and six others for trading while in

possession of material nonpublic information allegedly misappropriated by

Grossman from the law firm. The Commission alleged that Grossman misappropriated information concerning a recapitalization of a client, and passed that information on to the other defendants. Those defendants allegedly traded while in possession of the information, realizing illegal profits of approximately $1.5 million. In

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supporting papers filed in the action, the Commission alleged that the defendants

attempted to conceal their activities from the Commission by fabricating a story

concerning the reasons for their trading. At the close of the fiscal year, the case was

pending against all seven defendants.

Grossman has been convicted of criminal violations arising out of the insider

trading scheme.

On March 11, 1987, the Commission filed SEC v. Nahum Vaskevitch, 20 against

a former managing director in charge of mergers and acquisitions in the London

office of a United States broker-dealer, David Sofer, a businessman, and two entities. The Commission alleged that Vaskevitch provided Sofer with material nonpublic information obtained during the course of his employment concerning mergers, tender offers, and other extraordinary corporate transactions. Sofer allegedly

traded while in possession of the information through accounts in the names of the

two entities. The defendants allegedly realized over $4 million in illegal profits as a

result of the scheme.

On March 30, 1987, an order was entered against the defendants preliminarily

enjoining them from future violations of the antifraud provisions of the securities

laws, and orders were entered freezing assets, providing for an accounting, and

preventing alteration or destruction of documents. At the end of the fiscal year, the

case was still in litigation.

Regulated Entities and Associated Persons-The enforcement program area

that accounts for the largest number of cases involves regulated entities such as

broker-dealers, investment companies, investment advisers and transfer agents.

Ensuring that regulated entities conduct their business with integrity and fairness is a consistent priority with the Commission. The Commission commenced

117 enforcement proceedings involving regulated entities during fiscal year 1987.

Seventeen of these cases involved securities offerings violations by regulated entities. Of the other cases, 75 were brought against broker-dealers or persons associated with broker-dealers, 18 primarily involved investment advisers, and six primarily involved investment companies.

Broker-dealer cases generally involve violations such as fraudulent sales practices, violations of the net capital and customer protection provisions, or brokerdealer books and records violations. On June 15, 1987, the Commission instituted

a proceeding, in which it found that Shearson Lehman Brothers, Inc}l a brokerdealer, on multiple occasions improperly used customers' securities for stock

loans. In violation of the customer protection provisions of the Exchange Act, the

securities were delivered out of safekeeping before receipt of anticipated deliveries

of equivalent securities had been verified. In the largest such transaction, the

broker-dealer improperly used customer's securities worth $69 million. Shearson

Lehman consented to a Commission order censuring it and ordering it to comply

with its undertakings to implement procedures and establish policies to prevent a

recurrence of the violations.

The Commission's financial recordkeeping and reporting provisions require

broker-dealers subject to the Currency and Foreign Transaction Reporting Act of

1970 to report currency deposits in excess of $10,000. On February 27, 1987, the

Commission filed an administrative proceeding, in which itfound that Dean Witter

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Reynolds, Inc. failed to file such reports in repeated instances.22 Dean Witter, by

consent, was censured and ordered to comply with its undertakings to implement

procedures designed to correct its reporting deficiencies, and to have its compliance with such procedures reviewed by an independent public accountant

In January 1987, the Commission instituted administrative proceedings, In the

Matter of Advest, Inc.,23 concerning alleged customer overcharges for mutual

fund sales commissions. The broker-dealer revised its compliance procedures

and refunded to customers over $600,000 after the Commission staff notified it of

the problem. The broker-dealer consented to a Commission order finding that it

had failed to ensure against such overcharges and censuring it for having failed

reasonably to supervise its registered representatives to prevent such overcharges.

At the end of the fiscal year the case remained pending against other respondents.

During fiscal year 1987, the Commission revoked the registration of 11 firms,

suspended 18 and censured 15. This compares with seven revocations, eight suspensions, and 15 censures in fiscal year 1986. Also during the fiscal year 79 individuals were barred, 26 suspended, and three censured, as compared to 58 bars,

20 suspensions, and 11 censures in 1986.

Securities Offering Yiolations-s-Sotne issuers fail to register public offerings of

their securities, although required to do so by the Securities Act Some purport to

rely on exemptions to registration requirements which are not available. Some violate antifraud provisions of the federal securities laws by making material misrepresentations or omissions in connection with a securities offering. There were 40

cases principally involving offering violations by issuers and other persons brought

during fiscal year 1987. (This figure does not include 17 cases principally involving

offering violations on the part of regulated entities, which are discussed above).

This past fiscal year, the Commission instituted a series of proceedings conceming so-called "blank-check" offerings, registered offerings in which the proposed use of proceeds has not been disclosed. Such offerings have been the subject of abuse by promoters and entrepreneurs in various parts of the country, who

have used them in connection with a variety of schemes. For example, on February

13, 1987, the Commission filed an injunctive action alleging that Steven A. Keyser,24former president of L'Oiseau Bleu Corporation which had a registered offering in November 1985 for the stated purpose of engaging "in the acquisition of

business endeavors in one or more industries", diverted almost all of the offering

proceeds to his own use. The case was pending at the end of the fiscal year.

On June 2, 1987, the Commission suspended the Regulation A exemption from

the registration requirements of the Securities Act of Gin Enterprises, Inc., based

on, among other things, the failure to disclose the involvement of the conflict of interest of George L. Norman, the promoter of the offering, who was also an affiliate

and promoter of 18 other blank-check offerings.25

In a separate proceeding, the Commission instituted administrative proceedings

pursuant to Rule 2(e) of the Commission's Rules of Practice against Myron E. Berryman,26 auditor of the financial statements of the registration statements or offering circulars filed for each of the 18 public offerings. Citing identical deficiencies in

each of the 18 audit reports, the Commission concluded that the auditor failed to

obtain sufficient evidence to provide a reasonable basis for the reports, and that

14
such failure to comply with GAASconstituted improper professional conduct. Berryman consented to the issuance of a Commission order permanently suspending

him from appearing before the Commission, but providing that after two years he

may apply to resume appearing before the Commission upon fulfilling certain

conditions.

On March 31, 1987, the Commission instituted an injunctive action against

Charles Phillip Elliott and others involved in the operation of an alleged unregistered broker-deelerf" The complaint alleged that the defendants obtained at least

$50 million from at least 1000 investors through the sale of unregistered debt securities, and that they failed to disclose, among other things, that securities purportedly pledged as collateral for the investments were routinely rehypothecated.

Elliotand the various entities through which he operated consented to the entry of

a permanent injunction, to an accounting of proceeds received, and to disgorgement of an amount to be determined by the court at a later date. A temporary restraining order was entered by the COllrt against the two remaining defendants.

Market ManipuLation-The Commission is charged with ensuring the integrity of

trading on the national securities exchanges and in the over-the-counter markets.

The Commission staff, the exchanges and the NASD engage in surveillance of

these markets. The Commission brought 12 cases primarily involving market manipulation during fiscal year 1987, compared with 14 in 1986. One of these cases

was SEC v. Boyd L. Jefferies, et aL.,discussed above.

On April 9, 1987, the Commission filed an action, SEC v. Andrew Nanos, et

ai.,28 inwhich it alleged that the six defendants violated the antifraud and the beneficialownership provisions of the federal securities laws.The Commission alleged,

among other things, that the defendants manipulated the market in a stock which

had been the subject of a negative news article by placing purchase orders for the

stock with numerous broker-dealers in order to prevent a price decrease. The case

was pending at the close of the fiscal year.

Changes in Corporate ControL-Section 13 and 14 of the Exchange Act govern

proxy solicitations and the filing of reports by persons or groups who make a tender offer or acquire beneficial ownership of more than five percent of a class of

equity securities registered with the Commission. These requirements are intended to ensure that investors have the material information needed to make informed investment or voting decisions concerning potential changes in the control

of a corporation. During fiscal year 1987, the Commission brought four enforcement actions which were primarily corporate control cases, compared to six in

1986.

On July 22, 1987, the Commission issued an order in an administrative proceeding, finding that Allied Stores Corporatiorr'" violated the tender offer solicitation provisions of the Exchange Act by failing properly to disclose steps taken by

Allied in response to a tender offer, including adoption of a resolution by Allied's

board of directors directing management to execute a merger agreement with a

third party. Allied consented to the entry of the Commission order to comply with

such provisions in the future.

15
The administrative proceeding was pending at fiscal year end against the attorney for AlliedStores, who was named as a respondent

Sources {or Further Inquiry-The Commission publishes in the SEC Docket litigation releases which describe its civilinjunctive actions and criminal proceedings

involving securities-related violations. Among other things, these releases report

the identity of the defendants, the nature of the alleged violative conduct, and the

disposition or status of the case. Commission orders that institute administrative

proceedings or provide remedial relief also are published in the SEC Docket

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Full Disclosure System

Key 1987 Results

The full disclosure system is administered by the Division of Corporation Finance. The disclosure system is designed to provide investors with full and accurate material information, foster investor confidence, contribute to the maintenance of fair and orderly markets, facilitate capital formation, and inhibit fraud in

the public trading, voting, purchase, and sale of securities.

Administration of the full disclosure program was affected by a number of legal

and economic developments in fiscal year 1987. The passage of the Tax Re(orm

Act of 1986 on October 22, 1986, required the dedication of substantial staff resources in the first quarter of the year to accommodate the large number of filings

made on an accelerated time schedule to assure certain tax consequences. The

1986-87 proxy season in the second and third quarters was characterized by over

two thousand issuers that sought shareholder approval of the implementation of

new state corporate law provisions allowing for reducing director liabilities and

broadening indemnification of corporate officers and directors. The new issue

market continued to flourish, with registration statements for initial public offerings

under the Securities Act of 1933 (Securities Act) approximating fiscal year 1986's

high. Approximately 43 percent of the regionally filed registration statements filed

in fiscal year 1987 covered blank check offerings.

Corporate acquisitions and restructurings were also at high levels. In fiscal year

1987,215 third party tender offers with a value of $85.5 billion were commenced,

representing a 47 percent increase over 146 offers with a value of $54 billion in fiscal year 1986. In view of the increasing complexity and multiplicity of accounting

issues arising in the filing review process, the Division hired 30 accountants during

the year. This effort is part of the Division's on-going program to have at least 50

percent of its review staff comprised of accountants.

The active acquisition market was evidenced in the 328 merger proxy filings and

the 209 going-private transactions filed during the year. That market was also

characterized by an increasing use of bridge loans financed by investment banking

firms and high-yield debt securities Gunk bonds). Proxy contests, which decreased

substantially for most of fiscal year 1987, increased during the last quarter to bring

the year end total to nearly the same level as fiscal year 1986. Asset-backed financings continued to increase, including those backed by credit card receivables, automobile loans, residential mortgage obligations, commercial mortgage leases,

Mack Truck loans, and loans made by the Federal Farmers Home Administration.

New instruments continued to proliferate with offerings of reverse principal

exchange-rate linked securities (pERtS), liquid yield option notes (LYONS), and

currency exchange warrants (CEWS) being filed.

In legislative, rulemaking and interpretive matters, the Commission took action

on a wide range of issues. The Commission adopted a rule that eliminates the need

to file most pricing amendments to Securities Act registration statements. In the

17
tender offer area, the Commission proposed for comment rules to govern "market

sweeps" and in an interpretive release, reiterated its view that material changes in

the terms of a tender offer must be disseminated in a manner that gives security

holders sufficient time to consider and act on the new information. The Commission also proposed to eliminate the requirement to file proxy statements in preliminary form where the shareholders at an annual meeting will consider only the election of directors, selection of auditors and certain shareholder proposals.

Amendments to modernize the Trust Indenture Act were recommended for submission to the Congress.

FY FY

1986 1987

10,526 10,797

Full Disclosure Filings Given a Full Review

FY FY FY

1983 1984 1985

Total Filings 6,987 7,237 9,571

SecuritiesAct Registrations

New Issuers 1,746 1,572 1,171 1,775 1,949

RepeatIssuers 256 586 597 807 775

Post-effectiveAmendments 433 519 617 695 7070

lO-KAnnual Reports 1,012* 1,283* 2,135* 1,741* 1,389*

Tender Offers (140-1) 92 121 148 146 215

~~~ m m ~ ~ ffi

Merger Proxies 165 181 255 240 248

Annual Meeting Proxies 895 1,217 1,683 1,629 3,046

Q Excludes reviewsof certain amendments to post-effective registration statements filed in

responseto staff comments on a prior post-effective filing.

* Includes reports reviewed in connection with other filings.

In fiscal year 1987, 82,883 full disclosure filings were made with the Commission, an increase of 8 percent over fiscal year 1986. The number of registration

statements filed under the Securities Act increased to 7,708 from 7,358 filings in

fiscal year 1986. This includes 2,233 and 2,182 filings, respectively, by issuers who

had not previously offered securities to the public.

During fiscal year 1987, the staff fully reviewed financial statements of 3,865 registrants. This was accomplished through the full review of, among other things,

1,949 and 187 registration statements filed by new issuers under the Securities Act

and the Securities Exchange Act of 1934 (Exchange Act), respectively; 775 registration statements filed under the Securities Act by issuers with existing public security holders; 1,389 annual reports filed by issuers under the Exchange Act; and

full financial statement reviews of 60 issuers. The staff also fully reviewed annual

meeting proxy statements of 3,046 issuers, and 65 proxy contest filings. The substantial increase in reviews of annual meeting proxy statements from the fiscal year

1986 level (l,629) was due primarily to issuers adopting new officer and director liability and indemnification provisions provided for under state law. During the year,

248 merger proxies and 215 third-party tender offer and 209 going private transactions were reviewed.

18
Rulemaking. Interpretive. and Legislative Matters

PricingAmendments

On May 27, 1987, the Commission adopted new Rule 430A under the Securities

Act,30 which was proposed earlier in the year. The rule allows registrants, under

specified conditions, to omit information on the public offering price, other matters

dependent upon the public offering price, terms of the securities dependent upon

the offering date, and the underwriting syndicate from the form of prospectus filed

as part of a registration statement that is declared effective. Rule 430A requires that

the omitted information be contained in a prospectus filed within a specified time

frame or in a post-effective amendment. Also adopted were amendments to the filing rules for prospectuses used after effectiveness, which eliminate unnecessary

filings, classify prospectuses according to the nature of the information being

added or modified, and shorten the filing period.

Tender Offers

On October 1, 1987, the Commission published for comment proposed rules

that would govern certain acquisitions undertaken during and shortly after a conventional tender offer for securities of the same class and related activities.31 With

certain exceptions the proposed rules would require that purchases, offers to purchase, arrangements or understandings to purchase and solicitations of offers to

sell securities undertaken during and shortly after a tender offer that would increase any person's ownership of the class of securities subject to the tender offer

by 10 percent or more of the class be made in compliance with the statutory provisions and rules applicable to tender offers.

The Commission issued an interpretive release on April 3, 1987, with respect to

the disclosure and dissemination of material changes in the terms of tender offers.32 The Commission expressed its view that a waiver of a minimum share condition is a material change in the terms of the offer and reiterated its view that material changes must be disseminated in a manner reasonably calculated to inform

security holders of such changes and within sufficient time for them to consider

and act on such new information, generally a minimum of five to ten business

days.

ProxyRules

On June 4, 1987, the Commission published for comment a proposal to eliminate the requirement to file proxy or information statements in preliminary form

where the only matters to be considered at an annual shareholder meeting are the

election of directors, selection of auditors and/or certain shareholder proposals."

The Commission also proposed certain amendments to the shareholder proposal

rule, including the deletion or modification of the provision for exclusion of a

shareholder proposal where a proponent delivers written proxy materials to holders of more than 25% of a class of the registrant's securities.

On May 21, 1987, the Commission adopted amendments, proposed earlier in

the year, to its proxy rules and certain other rules. The amendments conformed

further the proxy disclosure for mergers and similar transactions to that required

19
for registration of securities in certain business combinations. They also clarified

the timing requirements for such transactions where incorporation by reference is

used.34 The Commission also adopted a rule concerning modified or superseded

statements in documents incorporated by reference into a proxy statement

Shareholder Communications

On March 27, 1987, and June 18, 1987, the Commission published for comment proposals that would exclude, on an optional or mandatory basis, specified

employee benefit plan participants from the operation of the proxy processing

and/or direct communications provisions of the shareholder communications

rules.35 Under these alternative proposals, an employee benefit plan participant

would not receive proxy material through brokers and banks in accordance with

the proxy processing provisions of the shareholder communications rules where

(l) the plan provides a mechanism for forwarding such materials to plan participants; or (2) the registrant has access to participant names and addresses and is

not prohibited from communicating with them, with the registrant required to

cause proxy material to be furnished to plan participants. The alternative proposals

also provide for exclusion of plan participants from the direct communications

provisions ifthe registrant otherwise has access to the names and addresses of

such beneficial owners.

Prospectus De6very Requirements

On December 18, 1986, the Commission published for comment alternative

proposals to reduce the 40 or 90 day period during which dealers must deliver prospectuses in aftermarket securities transactions following public offerings.36 Both

of the proposals would provide relief, under certain circumstances, with respect to

aftermarket transactions in the securities of issuers not subject to the periodic reporting requirements under the Exchange Act prior to fIlingtheir registration statements.

On July 31, 1987,the Commission published for comment two alternative proposals for a new Rule 433 concerning the timing of delivery to investors of a prospectus meeting the requirements of Section 10(a) of the Securities Act37 The

proposals would permit, if all conditions are satisfied, the sending of a final prospectus no later than fivebusiness days after a confirmation ofsale is sent to a purchaser in a registered firm commitment offering of securities for cash.

Exempt Private Offerings

On January 2, 1987,38 the Commission published for comment proposed

amendments to Regulation D and Rule 215 and solicited comments on other possible revisions of Regulation D, including the application of a good faith compliance standard. The Regulation D amendments, as proposed, would (l) expand the

accredited investor defmition under Rule 501, (2) raise the offering ceiling and expand the aVailabilityof general solicitation under Rule 504, and (3) make certain

technical amendments to Regulation D in an effort to clarify the rules of the regulation and to codify certain staff interpretations under the regulation.

20
Employee Benefit Plans

On January 2, 1987, the Commission proposed new Rules 701, 702 and 703,

whichwould provide an exemption from the registration requirements ofthe SecuritiesActfor limited offers and sales of securities in connection with compensatory

employee benefit plans by issuers not subject to Exchange Act reporting requirements.39

As a result of public comments on the proposal, the rules were revised

and reproposed in August 1987.40

Management's Discussion and Analysis

The Commission published a concept release on April 17, 1987, discussing the

disclosure required by Management's Discussion and Analysis and requesting

public comment on the adequacy of these requirements." The Commission specificallyrequested comment on recent recommendations by several accounting

firms that Management's Discussion and Analysis contain more risk disclosure

and be subject to audit 42 The Commission is reviewing comments made in response to this release to determine whether any rulemaking is appropriate.

Classification of Issuers

Aconcept release was issued by the Commission on July 8, 1986,43 requesting

information and suggestions from the public concerning possible substitute or

supplementary threshold criteria governing entry into and exit from the Exchange

Actreporting requirements. In addition, a study was commissioned on the effect of

those requirements on small businesses. The study, which is being conducted by

TheSEC and the Financial Reporting Institute of the UniversityofSouthern California,is expected to be completed and a final report issued in fiscal year 1988.

Publication of No-Action and Interpretive Letters

On September 22, 1987, the Commission published for comment a proposal

that, with certain exceptions, would provide for the expedited publication of interpretiveand no-action correspondence at the time a response issent or given to the

requesting party, unless temporary confidential treatment is granted.44 The Commission also proposed to codify the application of the existing publication rule to

certain exemption letters.

Trust Indenture Legislative Proposal

On November 30, 1987, the Commission submitted its recommendations for

amendment of the Trust Indenture Act to Congress. Ifenacted, the proposed bill,

entitled the Trust Indenture Reform Act of 1987, will comprehensively modernize

federal regulation of publicly-offered debt securities. Under the proposed bill,

mandatory indenture terms would be self-executing and imposed by law, a measure that willsimplify preparation of indentures. Conflicts of interest would be relevant to a trustee's eligibility only after default The proposal would also broaden

the Commission's exemptive authority to allow variation from the statute in appropriate circumstances and would conditionally allow foreign trusteeships.

21
Internationalization

On July 29, 1987, the staff sent to Congress a report on the internationalization

ofthe securities market The report included a chapter prepared by the Divisionon

the disclosure and distribution standards in multinational and international issues

ofsecurities. The chapter included a descriptive analysis of the international financial markets and the effects of regulation on these markets. An overview of United

States distribution and disclosure practices that affect foreign issuers, and the disclosure, distribution, and tender offer practices in several nations other than the

UnitedStates were also discussed. The discussion concluded with an evaluation of

the major issues and problems raised by international offerings.

Conferences

SEC Government-Business Forum on Small Business Capital Formation

The sixth annual SEC Government-Business Forum on Small Business Capital

Formation was held in Washington, D.C. on September 14-15, 1987. Approximately 150 small business executives, accountants, attorneys, government officials and other small business representatives were in attendance. The format of

this year's conference was structured around a series of lectures and discussion

groups on federal, state and local equity financing programs and other more traditional equity financing techniques such as venture capital, securities offerings

and employee stock option plans. The final report on the conference, which Is issued to Congress and available to the public, will be presented this year in an

informational-type pamphlet rather than setting forth a list of recommendations

for legislative and regulatory changes in the area of small business capital formation which has been the basis for the final reports for most of the previous forums.

SEC/NASAA Conference under Section 19(c) of the Securities Act

InApril 1987, approximately 35 senior staff officials of the Commission met with

representatives of the North American Securities Administrators Association Inc.

in Baltimore, Maryland, to discuss methods of effectuating greater uniformity in

federal and state securities matters. Following the conference, the staff issued a

finalreport that described two resolutions that were approved, summarized the discussions of the working groups, and identified conference participants.

22
Accounting and Auditing Matters

Key 1987 Results

The federal securities laws provide for the audit of financial statements of publicly held corporations by independent accountants. Thus, those laws have placed

upon the accountant important responsibilities in facilitating the capital formation

processes, and as a result, the economy as a whole.

Today, the accounting profession is subject to a unique combination of public

and private sector initiatives that is designed to ensure that the profession meets its

public responsibilities. These initiatives include peer review and other membership

requirements of the American Institute of Certified Public Accountants' (AICPA)Division for CPA Firms, private sector standards-setting, the Commission's programs (including oversight of private sector initiatives), state licensing activities

and private civil litigation against accounting firms. This framework has been built

over time and is subject to continued refinements and improvements.

The primary Commission programs for ensuring compliance with the accounting and financial disclosure aspects of federal securities laws are:

• Rulemaking initiatives which supplement accounting standards, implement

financial disclosures and establish independence criteria for accountants;

• The review and comment process which results in improvement of filings,

identification of emerging accounting issues (which can result in rulemaking

or private sector standards-setting), and identification of problems warranting

enforcement actions;

• The enforcement program, which imposes legal sanctions and serves to deter irregularities by enhancing the care with which registrants and their accountants analyze accounting issues; and

• Oversight of private sector efforts to establish accounting and auditing standards, and to improve the quality of audit practice.

The Commission's direct efforts are multiplied by the efforts of the Financial Accounting Standards Board (FASB), the A1CPAand other activities of the profession

under Commission oversight In addition to Commission enforcement actions,

significant numbers of actions are brought by private litigants, many of which are

a direct result of Commission actions.

The cumulative effect of the Commission's programs, private sector initiatives

and civil litigation comprises a comprehensive system under which the integrity of

financial reporting for public companies is constantly being challenged, modified

and improved. The Commission's review and comment process and enforcement

programs are discussed elsewhere in this report The remainder of this section

summarizes the Commission's accounting-related rules and interpretations and

the oversight function.

Accounting-Related Rules and Interpretations

Regulation S-X provides guidance as to the form and content of financial statements filed with the Commission. The Commission has also adopted various rules

23
that specify disclosure of financial information outside of the financial statements.

For example, certain supplementary financial information, selected financial data

and a management's discussion and analysis ofthe company's financial condition

and results of operations are required by Regulation S-K.

To address significant accounting issues, the Commission may issue interpretive releases and, when announcing rule changes, provide guidance for compliance with new or amended rules. In addition, the Commission staff periodically issues Staff Accounting Bulletins (SABs) to inform the financial community of its

views on accounting and disclosure issues.

As for rulemaking initiatives, the Commission, during the past fiscal year,

adopted rules which improve and simplify disclosures made by bank holding companies about loans to borrowers in countries experiencing liquidity problerns.P

The Commission also amended its rules to delete certain requirements to disclose

the effects of inflation and changing prices called for by Statement ofFinancial Accounting Standards No. 33 to conform with a similar action taken by the FASB.46

In announcing this action, the Commission emphasized that registrants willcontinue to be required to discuss the effects of inflation withinManagement's Discussion and Analysis, when material. The Commission also issued a concept release

on Management's Discussion and Analysis based on suggestions from major accounting flrms.""

In the interpretive area, a release was issued to address various matters relating

to accounting for loan losses by registrants engaged in lending activities.48

In addition to requiring financial disclosure of registrants, Commission rules

also address the qualifications of accountants, including their independence and

accountants' reports on financial statements, and require disclosure about a registrant's public accountants. In April 1987, the Commission issued proposed rules

which would require all accountants of public companies to undergo peer review.49The Commission's proposal would require that financial statements included in filings be certified by an independent accountant that had undergone a

peer review of its accounting and auditing practice within the three years prior to

the filingand has established and is complying with an audit quality control system

meeting the requirements under generally accepted auditing standards. The proposal contains certain peer reviewstandards, minimum requirements for a peer review organization, and a procedure whereby the final authority to determine

whether an accountant may continue to practice before the Commission rests with

the Commission. This procedure would be used when a public accounting firm

failed to remedy material deficiencies in its quality controls. The comment period

expired July 9, 1987, and comment letters are presently being reviewed by the staff

with a view toward developing recommendations for Commission consideration.

On June 18, 1987, the Commission published for comment a proposal to

amend the disclosure requirements related to a registrant's change inindependent

accountants. Ifadopted, the proposed item would require disclosure by the registrant of issues related to the registrant's financial statements discussed with the

new accountant during approximately the two years prior to its engagement 50The

viewsofthe new and old accountants on those issues would be summarized by the

registrant, and the names of other accountants consulted on those issues (and the

extent their views materially differed from the new accountant's views) would be

24
disclosed. Also, amendments to the current requirement to disclose disagreements with the former auditor were proposed to clarifywhen such disagreements

are deemed to have occurred. The comment period expired September 24, 1987,

and the staff is in the process for developing recommendations for Commission

consideration.

During fiscal year 1987, SASs were issued regarding (1) risk sharing in business

combinations accounted for as poolings of interest; (2) disclosure by bank holding

companies regarding loans to countries experiencing liquidity problems; (3) the

appropriate income statement presentation of restructuring charges; (4) accounting for increasing rate preferred stock; (5) the appropriate disclosure of lending

and deposit activities by financial institutions other than bank holding companies;

(6) accounting for non-recourse debt collateralized by lease receivables; and (7) financial statements of properties securing mortgage loans.51

Oversight of Private Sector Standards-Setting

In addition to its direct action through rulemaking and other programs, the

Commission monitors the structure, activity and decisions of the private sector

standards-setting organizations.

FASB-Although the Commission has adopted Regulation S-x, promulgated

other rules and disclosure requirements in the financial reporting area, and has

published interpretations and guidance where necessary, it has generally refrained

from prescribing the accounting methods to be followed in the preparation of financial statements.

In lieu of specifyjng accounting principles, the Commission has presumed financial statements to be misleading or inaccurate unless prepared in accordance

with accounting principles which have substantial authoritative support Under this

concept, the Commission looks to the FASS to provide the initiativein establishing

and improving accounting principles. Oversight of the process involves not only

Commission review of the standards set, but also the direct participation of staff

members and, in some instances, the Commission itself in the initialsetting of

standards.

Staff members monitor developments closely and are in frequent contact with

the FASS, participate in meetings, public hearings, and task forces. The Commission monitors the progress of FASS projects and meets periodically withthe FASS

to discuss topical issues.

r7nandallnstruments-ln fiscal year 1986, the FASS (in response to a recommendation from the Commission's Chief Accountant) added a major long-term

project to its agenda that will address financial instruments and off balance sheet

fmancing issues. The project is comprised of several parts, some of which willbe

developed simultaneously. Significant parts of the project include (a) disclosure

about financial assets and transactions, (b) accounting for risk-transfer instruments such as guarantees and interest rate hedging instruments, (c) off balancesheet financing arrangements, (d) the appropriate measurement basis forfinancial

instruments; and (e) accounting for securities with both debt and equity characteristics.

Subsequent to fiscal year end, the FASS issued an exposure draft which would

require certain disclosures about financial assets and liabilities now canied in the

25
balance sheet and obligations. commitments and guarantees not now recognized

in financial staternents.Y

Consolidations and the Equity Method-In November 1987, the FASB issued

a statement requiring consolidation of all majority-owned subsidiaries unless control is temporary or does not rest with the majority owner.53 This statement is part

of a broader project which includes development of a concept of the reporting entity,and its application to the issue of consolidation policy.

Cash FLowReporting-The FASB issued a statement requiring a statement of

cash flowsto be presented as part of a fullset of financial statements of all business

enterprises, replacing the statement of changes in financial position.54

Income Taxes-Subsequent to fiscal year end, the FASBissued a statement on

accounting for income taxes. The statement represents a significant change in the

method of accounting for income taxes by adopting a liability approach to the issue of comprehensive interperiod tax allocatlon.P?

ReguLatedEnterprises-The FASB issued statements on accounting for abandonments and disallowances of plant costs and accounting for phase-in plans.56

Both of these statements involve rate-regulated enterprises and represent amendments to Statement of Financial Accounting Standards No. 71.

Other Projects-Other significant projects on the FASB's technical agenda include stock compensation plans, sales and leasebacks involving real estate, postemployment benefits other than pensions and accounting for universal life insurance.

TimeLyFinancial Reporting Guidance-Encouraged by the Commission, the

FASB has continued its efforts to provide more timely guidance on emerging issues. Technical bulletins issued in fiscal year 1987 by the FASBstaff included guidance on accounting for (a) certain effects of the Tax Reform Act;57(b) interests in

the residual value of a leased asset;58 and (c) changes in the method of accounting

for certain postretirement benefits.59 In addition, a technical bulletin concerning

accounting for mortgage servicing fees and rights was finalized after fiscal year

end.60

Also,the Emerging Issues Task Force (EITF) (in which the Commission's Chief

Accountant plays a significant role) has discussed over 150 issues since its inception in 1984, covering a range of specific issues such as financial instruments and

financial institutions, business combinations, and income taxes. A number of the

issues were introduced by or at the request of the Commission. On many issues,

the group reached a consensus that either: (a) a single method of accounting is

preferable based on existing literature; (b) existing guidance is adequate; or (c)the

issue does not present a pervasive problem. Other issues have been referred to the

FASBor the A1CPAfor action or further consideration. The Commission expects

the positions agreed upon at those meetings to be followed by registrants. Those

that do not follow them will be asked to justify departure from any consensus

reached. Based on the work of the EITF to date, the Commission believes that the

EITF is performing a useful role in providing timely guidance to registrants and

their accountants.

Oversight of the Accounting Profession's Initiatives

In addition to oversight of the private sector process for setting accounting stan26
dards, the Commission also oversees various activities of the accounting profession conducted primarily through the AICPA. These include (a) the Auditing Standards Board (ASB), which establishes generally accepted auditing standards; (b)

theAccounting Standards Executive Committee, which provides guidance on specific industry practices and prepares issues papers on accounting topics for consideration by the FASB; and (c) the SEC Practice Section (SECPS) of the Division

for CPAFirms, which seeks to improve the quality of accounting firms through various membership requirements including peer review.

The AICPA, along with other organizations, sponsored the National Commission

on Fraudulent Financial Reporting (NCFFR), an independent commission which

studied issues involved in the prevention and detection of fraud in the context of financial reporting. The NCFFR issued its report in October 1987.61 The report contains recommendations for the public company, the independent public accountant, and for the Commission and others to improve the regulatory and legal

environment The Commission staff is evaluating these recommendations.

In February 1987, the ASB issued for public comment ten proposed standards

which comprise the so-called "Expectation Gap" projects. These proposals include projects relating to the auditor's standard report and auditor responsibilities

for detection and reporting of fraud and evaluating an entity's continued existence.62 The Commission staff is supportive of the ASB's efforts to enhance auditors' communication and responsibilities and is closely monitoring the ASB's

progress toward establishing final standards in these areas.

SEC Practice Section-The Commission oversees the activities of the SECPS

through frequent contact with the Public Oversight Board (POB) and members of

the executive and peer review committees of the SECPS. In addition, the staff reviews POB files and selected working papers of the peer reviewers. The Commission believes the peer review process contributes significantly to improving the

quality control systems of member firms and thus should enhance the consistency

and quality of practice before the Commission. According to the POB's Annual Report as of June 30, 1987, 395 firms have voluntarily become members of the

SECPS, including all firms with 30 clients reporting to the Commlssion.F'

Special Investigations Committee-Activities of the Special Investigations

Committee (SIC) supplement peer review.The SIC determines whether allegations

of failure in the conduct of an audit indicate need for improvements in, or compliance with, quality control systems of the reporting firms, whether changes in professional standards are required, and whether any corrective action taken by the

firm was appropriate. The POB monitors the activities of the SIC and has complete

access to the process and to SIC files.

The Commission staff also monitors the SIC process. However, as the audits reported to the SIC are generally the subject of litigation, the Commission's access

to documentation of the SIC review has been limited. Because of this limited access the Commission does not have a basis for reaching any conclusions about

the SIC process. In an effort to find ways to improve the Commission's access to

SIC documentation and to address other concerns, the SECPS Executive Committee appointed the Task Force on SIC Methodology. This task force recommended, among other things, that more comprehensive and informative summaries be furnished to the Commission when a case is closed and that the SIC meet

27
reguladywith the Commission staff to discuss concerns the Commission staff may

have with actions taken by the SIC as reflected in the summaries and any changes

the Commission believes would make the process more effective. The Commission staff, however, has just begun to review SIC documents prepared under the

new procedures, and has not yet reached a conclusion as to whether they willenable the Commission to fully assess the effectiveness of the SIC function.

28
The EDGAR Project

Key 1987 Results

Introduction

The primary purpose of EDGAR is to increase the efficiency and faimess of the

securities markets for the benefit of investors, securities issuers, and the economy.

Under EDGAR, information will be filed electronically for acceptance and review

by the Commission staff. Once accepted, public information also willbe rapidly

available to investors, the media and others on computer screens via public reference rooms or subscription services. When fully operational, EDGAR willaccelerate dramatically the filing, processing, dissemination and analysis of timesensitive corporate information filed with the Commission.

The EDGAR Pilot system completed its third full year of successful operations

on September 24, 1987. It has demonstrated clearly the feasibility of electronic

filingand reviewprocedures. Over 20,000 electronic filings have been made since

September 1984.

The Commission also continued to move ahead with its plan to develop a fully

operational EDGARsystem. The Request forProposals (RFP)was amended to reflect changes in EDGAR funding strategy and released on October 23, 1987.

Pilot System

The Pilot system serves a group of volunteer companies whose filings are processed by the Divisions of Corporation Finance and Investment Management At

the end of fiscal year 1987,299 corporations plus 198 investment companies and

21 public utilities were filing electronically as fullyparticipating registrants. An additional 700 investment companies participate partially in the Pilot by electronically fIlingtheir annual and semi-annual reports on Form N-SAR.

As a consequence of this growth, the Pilotwas closed to most new participants

as of August 31, 1986. Generally, the only exceptions are for affiliates of current

Pilot participants and initial public offerings by registrants whose filings are processed by the Division of Corporation Finance. In addition, Public UtilityHolding

Company Act filings and Forms N-SAR and 13F-E may be submitted electronically even ifthe filer is not a current Pilot participant Companies also may continue to make test filings via the Pilot

In fiscal year 1987, certain enchancements were added to the Pilotto make electronic fIlingmore convenient and test potential productivity improvements forthe

operational system. For example, a reference fIling capability was added in November 1986. This capability permits filersto submit an electronic reference filing

which can then be included in subsequent electronic fIlingsby designation in lieu

ofretransmission. As a result of this enhancement, the Commission received more

than 4,400 reference fIlings through September 30, 1987. By using the reference

29
capability, the filers avoided the cost of submitting over 89,000 pages. One reference filing was incorporated into 726 separate electronic documents.

Another Pilot enhancement permits institutional investment managers to file

Form 13F voluntarily on magnetic tape using temporary Form 13F-E. Participating investment managers that maintain 13F information on a computer willno

longer need to transmit paper copies of these reports to the Commission. As more

filerssubmit Form 13F-E electronically, there willbe more rapid compilation and

dissemination of summary information. Processing of Form 13F-E tapes includes

automated receipt and acceptance procedures that are more efficient than the

procedures used to process other tape filings. The experience gained with these

new procedures willbe incorporated in the design of the operational system.

In January 1987, the central processing unit of the Pilot was upgraded from an

IBM-4381-ModeI2 to an IBM4381-Model Q14. This nearly doubled processing

capacity, improved internal response time, and added dual processing capabilities. Further enhancements were made at the end of fiscal year 1987 to increase

disk storage, tape backup and the number of EDGAR terminals within the Commission. These enhancements willenable the Pilotto handle the larger volume of

filingsthat is anticipated during the next fiscal year. They also provide a framework

fortesting procedural and system enhancements that may be incorporated in operational EDGAR.

Operational System

During fiscal year 1987, plans for Operational EDGAR continued to move forward. The EDGAR RFP was originally released on May 7, 1986. Bids were ultimately received on February 27, 1987, after two closing date extensions due to requests by potential offerors. On July 22, 1987, prior to awarding the contract, the

Commission announced its intention to reopen competition for 90 days because

of a change in the funding strategy for the operational contract.

Under the prior RFP, federal funding for the EDGAR contract was limited to a

maximum of $46.5 million for the acceptance and review subsystem. Excess

funds were to be spent on the receipt subsystem. The contractor was expected to

fund the remainder of the receipt subsystem and all of the dissemination subsystem and recover costs via the regulated sale of data and services. In response

to a GAO recommendation, and subsequent discussions with Congressional staff,

the Commission agreed to fully fund the receipt subsystem as well as the acceptance and review subsystem. This change, coupled with an analysis of the bids received and the requirements of the Federal Acquisition Regulation, resulted in the

decision to amend the RFP and reopen competition.

The Commission staff subsequently reviewed and amended the RFP to conform with the new funding strategy and the Commission's authorization legislation. Under the amended RFP,the Commission willfullyfund the development and

operation of the receipt and acceptance and reviewsubsystems. The cost of developing and operating the dissemination subsystem willbe borne by the contractor

and recovered as before. The amended RFP is structured as a costreimbursement plus fixed fee contract for the first three years with the fee calculated on labor and overhead costs only. The last fiveyears are structured as a fixed

price contract as before.

30
The RFP,as amended, requires that offerors who intend to provide retailservices

in addition to regulated services pay the same Levell subscription fee as other entitieswho purchase the entire EDGAR data base. This fee willnot be waived unless

the contractor can show that such payment willplace it at a significant competitive

disadvantage.

The amended RFP provides for an extended phase-in period for mandatory

filing,from 36 months up to 48 months, and longer ifnecessary. This is necessary

to allow a reasonable time for system development and a six month test period for

the initialgroup of mandatory filers.

The amended RFP was released on October 23, 1987,with proposals due in late

January 1988. Further consideration of existing offers willbe deferred until any additionalinterested parties have had an opportunity to submit their proposals.

Office of EDGAR Management

The Commission has enhanced its managerial and technical expertise in preparation for the operational system by creating a separate Office of EDGAR Management

The Director reports to the Chairman of the Commission and has overall responsibility for the procurement, implementation and operation of the EDGAR

system. In addition to overseeing the Office of Edgar Management, the Director is

the contract officer for the project with responsibility for maintaining liaison within

the Commission and with filers and users of the filed information. The Director will

be assisted in these tasks by a professional staff including two special assistants, a

legal counsel, and an industrial liaison representative. Also reporting to the Director willbe three branch chiefs for contract administration, filertraining and assistance, and technical systems administration. When fully staffed in late 1988, the

Office of EDGAR Management will consist of approximately 40 employees.

Conclusion

The Commission is firmly committed to proceeding with EDGAR.Work on the

operational system in fiscal year 1988 willinclude proposal evaluation, contract

award, rulemaking, development of a filertraining/support staff, and preparation

forthe transition from the Pilot to the Operational EDGAR.

31
Regulation of the Securities Markets

Key 1987 Results

The Division of Market Regulation, with the assistance of the regional offices, is

charged with the responsibility of overseeing the operations of the nation's securities markets and market professionals. In fiscal year 1987, over 11,000 brokerdealers and ten exchanges as well as the over-the-counter markets were subject to

the Commission's oversight

Market Value of Equity Sales on U.s. Exchanges

in billions

FY'83

$1,005

FY'84

$1,025

FY'85

$1,147

FY'86

$1,735

FY'87

$2,367

FY'83

324

BID Oversight Examinations

FY '84 FY '85 FY '86

389 447 481

FY'87

452

Surveillance and Regulatory Compliance Inspections of SROs

FY '83 FY '84 FY '85 FY '86 FY '87

18 20 21 22 23

FY'83

802

SRO Final Disciplinary Actions

FY '84 FY '85 FY '86

1,123 971 845

FY'87

991

During fiscal year 1987, the Commission designated 500 new over-the-counter

securities as National Market System (NMS) securities for a total of 3,000. Unlisted

trading privileges were granted to 25 National Association of Securities Dealers

Automated Quotation System (NASDAQ)/NMS securities to be traded by the Midwest Stock Exchange (MSE). Mortgage-backed securities transactions, transactions that settle in same-day funds and mutual fund orders were added to the National Clearance and Settlement System. The immobilization of the securities

certificate was expanded by the addition of California as the forty-seventh state to

allow domiciliary insurance companies to use securities depositories. The use of

book-entry systems was extended to corporate debt offerings when Ford Motor

Credit Corporation issued $200 million of three-year notes in "global certificate

form."

In response to increased market volatility, the staff examined the effects of indexrelated trading and published a study pertaining to specific market declines during

32

r

I

f

;

,

,-
fiscal year 1987. The staff has undertaken additional studies scheduled for release

in fiscal year 1988 which will further examine these issues.

Intemationalization of the securities markets was furthered through the linkage

of a variety of clearing agencies for both equities and options. Global securities offerings were granted certain exemptions from Rules 10b-6 and 10b-7 under the

Securities Exchange Act of 1934 (Exchange Act), to permit "passive market making" and to accommodate foreign regulations and practices with respect to offering and trading of securities. The Commission sponsored a roundtable discussion

on February 17, 1987, focusing on secondary market issues and primary offerings

in the intemational area. The Division also prepared a chapter in the Staff Report on

Intemationalization.

Rules were proposed to regulate certain acquisitions of blocks of securities

undertaken during and shortly after tender offers, referred to as "market sweeps."

Rules governing short sales practices in connection with underwritings were also

proposed.

The broker-dealer examination program was enhanced through the use of online systems which monitor the administration of the program by the nine regional

offices. Moreover, field examinations will shortly include review of net capital and

mark-up compliance by portable computers.

Securities Markets, Facilities and Trading

The National Market System

Rule 11Aa2-1 under the Exchange Act provides procedures for designating certain securities as NMS securities and Rule l1Aa3-1 requires that transactions in

NMS securities be reported on a real-time basis, increasing market efficiency and

improving execution of orders.

The Commission adopted amendments to Rules 11Aa2-1 and 11Aa3-1 resulting in the designation as NMS securities of all securities-whether traded on exchanges or over-the-counter (OTCHor which transaction reports are required to

be submitted pursuant to an effective transaction reporting plan. The Commission

also adopted conforming amendments to related rules. Over 3,000 OTC securities

now are designated as NMS securities, 500 more than in fiscal year 1986.

In April 1987, the Commission approved the Midwest Stock Exchange's application for unlisted trading privileges on 25 NASDAQlNMS securities and approved

an interim joint transaction reporting plan submitted by the MSE and the National

Association of Securities Dealers (NASD) to provide for consolidated reporting of

transaction and quotation data in these securities.64In addition, the Commission

is monitoring ongoing negotiations among the NASD and several exchanges, including the MSE, on a permanent transaction reporting plan for NASDAQlNMS

securities traded on one or more exchanges on a listed or unlisted basis.

The NASD submitted a proposed rule change to the Commission that, if approved, would provide the NASD with the authority to halt trading in NASDAQI

NMS securities pending the dissemination of material news by the issuer and to

halt trading in listed securities traded in the third market when the primary market

for the securities halts trading pending the dissemination of material news. The

Commission is currently considering the proposal.

33
The Commission also continued to study automation in the OTC market The

Commission issued a no-action position conceming the regulation of an automated OTC trading system (POSIT) informing the system developer that the Commission would not recommend enforcement action if such a system were not registered as an exchange.65 The Commission is now considering new regulatory

approaches for such systems.

National System for Clearance and Settlement of

Securities Transactions

In fiscal year 1987, the Commission approved proposals that expanded the services of the National Clearance and Settlement System (National System) to

mortgage-backed securities transactions, transactions that settle in same-day

funds, and mutual fund orders. In February, the Commission granted the MBS

Clearing Corporation (MBSCC) temporary registration as a clearing agency, in

order to provide trade clearance and certificate depository services for mortgagebacked securities, including Govemment National Mortgage Association passthrough certificates.66 In July 1987, the Commission approved, on a pilot basis

through January 1988, the Depository Trust Company's (DTC) proposed sameday funds system, which expanded DTC's certificate immobilization and bookentry delivery services to certain securities settling in same-day funds, such as

short-term municipal notes.'" The Commission also approved extension of the

National Securities Clearing Corporation's (NSCC) Mutual Fund Settlement, Entry

and Registration Verification (Fund/SERV) Service, which provides centralized, automated handling of mutual fund orders.68

The Commission also approved a proposal that reduces foreign currency delivery obligations to the Options Clearing Corporation (OCC) and the Intermarket

Clearing Corporation (ICC) for electing joint clearing rnernbers.P" This is accomplished by netting foreign currency delivery obligations arising from exercises and

assignments of foreign currency options at OCC with obligations to accept foreign

currency at ICC arising from settling foreign currency futures contracts.

Market Volatility Studies

On September 11 and 12, 1986, the Dow Jones Industrial average fell 120 points

on record volume, at that time one of the sharpest market declines in history. In response to public and Congressional concerns about the role of index-related arbitrage in the market decline, the Division of Market Regulation, in conjunction with

staff of the Commodity Futures Trading Commission (CFTC), conducted a review

of trading activity on those two days.

The Division observed the substantial use of index products by professional and

institutional investors to shift and control risk, and to respond to market movements. The Division concluded, however, that the magnitude of the September decline was a result of changes in investors' perceptions of fundamental economic

conditions, rather than artificial forces arising from index-related trading strategies.

Nevertheless, index-related futures trading was instrumental in the rapid transmission of these changed investor perceptions to individual stock prices, and may

have condensed the time period in which the decline occurred.

34
In addition, the Division has analyzed trading on "Expiration Fridays" and, with

the cooperation of the New York Stock Exchange (NYSE), has implemented a plan

to reduce volatility on those days.

On September 19, 1986, the NYSE, at the request of the Commission, conducted an experiment in disseminating order imbalances in an attempt to address

volatility associated with the coincident expiration of index futures and options.

The NYSE sent a circular to member firms instructing them to submit all marketon-close (MaC) orders in the 30 Dow Jones Industrial Average stocks by 3:30

p.m., and provided for the public dissemination of all significant MaC order imbalences,"" This experiment worked well, and for the December 19 expiration the

NYSE expanded the experiment to include 50 stocks.

Securities Immobilization

In fiscal year 1987, the Commission continued to make progress in its effort to

increase the immobilization of securities certificates in securities depositories. For

example, California removed restrictions on depository use by domiciliary insurancecompanies for their portfolio assets. Forty-seven states now allow domiciliary

insurance companies to use depositories. Also during the fiscal year, issuers,

transfer agents, broker-dealers and clearing agencies, through several task forces,

continued their cooperative efforts to identify ways to increase the immobilization

of securities certificates and to experiment with uncertificated book-entry systems.

In 1986, Ford Motor Credit Corporation became the first "book-entry only" corporate debt issuer by issuing $200 million of three-year notes in "global certificate

form" through the DTC. In August 1987, IBM Credit Corporation became the second issuer of global certificate corporate debt obligations, with a $200 million note

offering. To date, corporate debt distributed in global certificate form totals $3.25

billion. In calendar year 1986, approximately $7.2 billion in municipal debt obligations were issued in global certificate form.

Internationalization

In its continuing efforts to foster the development of the internationalization of

the securities markets, the Commission sponsored a roundtable discussion on

February 17 that focused on secondary market issues and primary offerings in the

intemational context A summary of the intemationalization roundtable was prepared by the Commission. In addition, on August 5, 1987, the Commission submitted to Congress a comprehensive staff study of the internationalization of the

world's securities markets,"! The Commission continues to monitor and review international trading and clearing linkages and proposals.

DUring fiscal year 1987, the Commission took several actions with respect to the

application of Rules 1Ob-6 and 10b-7 under the Exchange Act to multinational offerings involving concurrent United States and foreign distributions. Rule lOb-6

proscribes certain conduct by persons participating in a distribution to ensure that

they do not artificially condition the market for a security to facilitate its distribution.

Rule lOb-7 regulates stabilization activities during distributions. The Commission's actions permitted non-United States distribution participants to continue

certain customary market activities in foreign jurisdictions, subject to certain con35
cIitions designed to assure that there would not be a manipulative impact on the

United States market. For example, in September 1987, a letter was issued to the

International Stock Exchange of the United Kingdom and the Republic of Ireland

Umited (ISE) granting exemptions from Rules lOb-6 and lOb-7.72

The exemptions permit ISE member broker-dealers to engage in "passive market making" activities while such firms are participating in a multinational distribution of securities of certain United Kingdom issuers partially being offered in the

United Kingdom, or where the United Kingdom firms are affIliated with United

States broker-dealers participating in a distribution in the United States. "Passive

market making" refers to the ability of the United Kingdom rums to provide depth

and liquidity in the United Kingdom securities market by continuing to act as market makers, but the firms may not lead the market either in price or size of quotations. The exemptions were developed in a cooperative effort between the Commission and the ISE in response to a request from the ISE that the Commission

accommodate the ISE's new market making rules prohibiting "fair weather market

making" which appeared to be in conflict with Rule lOb-6.

Exemptions were also granted to permit affIliated purchasers of French and

Spanish distribution participants to bid for and purchase securities in the French

and Spanish markets, respectively, during multinational distributions?3ln France,

a bank sponsoring the undeIWriting (or the issuer) generallywiJl assist French market makers in the maintenance of an orderly market for a period of time following

the distribution. In Spain, it is customary for affIliates of the issuer to act as market

makers, even during distributions, to ensure liquidity and modulate price swings.

Without the granted exemptions, such activities would have been prohibited by

Rule lOb-6.

Fmally, in May 1987, the Commission issued two exemption orders under Rule

lOb-7 with respect to stabilization of global securities offerings. The exemption

orders treated certain foreign markets as the "principal market" for purposes of determining appropriate stabilizing price levels.74

As part of its secondary market internationalization program, the Commission

continued to foster the development of international linkages between clearing

agencies. For example, the Commission issued no-action letters to the international Securities Clearing Corporation (ISCC) and NSCC to permit a pilot link with

the ISE. 75 The Commission also granted a no-action request from Midwest Clearing Corporation (MCC), Midwest Securities Trust Company (MSTC) and the Sodate Interprofessionelle pour la Compensation des Valeurs MobiJieres (SICOVAM)

permitting MCC/MSTC to maintain custody of securities for SICOVAM and, on a

fully disclosed basis, SICOVAM participants?6

The Commission has also fostered foreign participation in the National Clearance and Settlement System. The Commission approved acc rule changes that

exempt Canadian clearing members from acC's accounting and capital requirements keyed to United States standards and requirements and permit Canadian

clearing members to maintain acc membership under Canadian net capital requirements and Canadian accounting standards.77 The Commission also approved an acc proposal to issue and clear options on the Major Market Index

(XMI) fungible with those currently traded on the American Stock Exchange

(Amexf8 for trading on the European Options Exchange.

36
Options

During fiscal year 1987,the Commission issued a Rule 9b-1 order under the Exchange Act that approved proposed revisions to the Options Disclosure Document (000).79 The revised ODD, submitted by the acc in conjunction with the

Amex,Chicago Board Options Exchange (CBOE), PacificStock Exchange (PSE),

NYSE,Philadelphia Stock Exchange (Phlx) and NASD, reflects recent changes in

the options market such as the introduction of evening trading hours in foreign

currency options and the growing international trading of options. In this regard,

the Commission approved rule changes by the Arnex and acc which enabled the

European Options Exchange to trade options on the XMI,a broad-based, priceweighted index constructed by the Arnex.80 This is the first occasion in which optionsthat are identical to and fungible with option contracts traded on a domestic

securities exchange have traded on a foreign securities exchange.

The Commission also approved a rule change that would allow the Phlx to list

options on a narrow-based utility index comprised of the common stocks of 20

domestic companies that are involved primarily in electric power generation.81 In

addition,the Commission issued an order that approved a PSE proposal to list and

trade options on the Fmancial News Composite Index (FNCI), a broad-based

price-weighted index comprised of 30 NYSE listed stocks designed to track the

overallmarkel82 Additionally,the PSE arranged with the International Futures Exchange (Bermuda), Ltd. (Intex), a foreign commodity exchange, for Intex to trade

futures on the FNCI.Also,the PSE ceased trading options on the PSE Technology

Indexas of the September 1987 expiration.83

The Commission approved proposed rule changes submitted by the Arnex,

PhIx,and NYSE to list foreign currency warrants for trading.84 These warrants, issued by highly capitalized corporations or their affiliated finance companies, are

cash settled, exercisable before their expiration date, and have a value linked to the

value of a foreign currency.

Pursuant to Section 2(a)(1)(B) of the Commodity Exchange Act, the Commission sent a letter to the CFTC not objecting to the designation of the Chicago

Board ofTrade (CBT) as a contract market for the trading ofstock index futures on

the Institutional Index (XII).85The XII,developed by the Arnex, is an index comprised of 75 stocks that are held by institutional investors. The Commission also

sent a letter to the CFTC not objecting to the designation of the CBT as a contract

market for the trading of futures contracts on the Long-Terrn Corporate Bond Index.86 The Long Terrn Corporate Bond Index, developed by the CBT,is composed

of 100 fixed-rete, non-convertible, publicly-offered, highly-rated, long-terrn, United

States dollar-denominated bonds issued by United States corporations with a principal value of $100 million.

In addition, the Commission sent a letter to the CFTC not objecting to the designation of the Commodity Exchange, Inc. as a contract market for the trading of

futures contracts on the Moody's Investment-Grade Corporate Bond Index.87 The

index, developed by Moody's Investors Service, is composed of 80 fixed-yield,

non-convertible, highly-rated, interrnediate and long-terrn bonds issued by United

States corporations with a principal value of at least $100 million. In response to a

CFfC request, the Commission also sent a letter to the CFTC not objecting to a

37
CFTC no-action position authorizing the Singapore International Monetary Exchange, Ltd. (SIMEX) to offer and sell stock index futures contracts based on the

Nikkei Stock Average (Nikkei) to United States citizens.88 The Nikkei is a priceweighted stock index which is calculated based on the prices of 225 highlycapitalized stocks on the Tokyo Stock Exchange.

Further, the Commission amended Rule 3a12-8 under the Exchange Act to

eliminate the requirement that futures on foreign government securities be traded

on a board of trade in the country that issued those securttles.P?

As previously noted in the market volatility section, the Commission continued

to examine the effects of index-related trading strategies involving index options

and futures and the underlying component stocks both on the last trading day before expiration (so-called "Expiration Friday") and on non-expiration days in fiscal

year 1987.In addition to the rule filing involving the submission of market-on-close

orders relating to index arbitrage in 50 designated stocks.P? the Commission approved a NYSE rule change to modify the settlement price of expiring stock index

options on the NYSE Composite Index and NYSE Beta Index to the opening prices

of component stocks, rather than the closing prices, on Expiration Friday.'" The

Commission also approved a NYSE rule change implementing special stock

opening procedures designed to reduce order imbalances due to the settlement of

certain index options and futures at the opening rather than the closing of trading.92 As previously discussed, the Commission also published a staff study looking at non-expiration volatility and, in particular, the role of index-related trading

strategies in the market decline of September 11 and 12, 1986.

In fiscal year 1987, the Commission revisited the question of eliminating the

existing options allocation plan and permitting trading of exchange-listed options

on more than one exchange. In particular, the Commission authorized a proceeding under Section 19(c) of the Exchange Act to consider whether to: (1) adopt a

policy permitting multiple trading on exchange-listed stocks; and (2) amend the

rules of the options exchanges to remove restrictions on the multiple trading of options on exchange-listed stocks.?"

Regulation of Brokers, Dealers, Municipal Securities Dealers,

and Transfer Agents

Broker-Dealer and Transfer Agent Examinations

During fiscal year 1987, the Commission continued to make increased use of

computers in the broker-dealer regulatory programs. A new on-line system now

captures all broker-dealer examination data. This data is used to monitor the activities of the Commission's nine regional offices in carrying out the examination program goals and objectives. Additionally, software programs for the review of net

capital and mark-up compliance were developed for use in field examinations,

when portable computers become available. By the end of the fiscal year, the Commission had ordered a number of portable computers, which will become available to field examiners for conducting broker-dealer and transfer agent examinations in fiscal year 1988. Previously, a pilot test program determined that portable

computers would improve examiner productivity.

The broker-dealer oversight program continued to emphasize review of sales

38
practice activities at large national firms. These examinations included on-site reviews at both the headquarters and branch offices of the selected firms. Also, the

Commission placed greater emphasis on compliance with the currency reporting

provisions of the Bank Secrecy Act As a result, the Commission brought enforcement proceedings against several broker-dealers for failure to report cash transactions and referred matters to the Department of Treasury for possible civilor criminal action.

The Commission completed 452 oversight examinations of SRO members, a

6.0 percent decrease from the 481 examinations completed in fiscal year 1986.

This decrease was the result of an increased emphasis on comprehensive oversight examinations with an increased emphasis on sales practice reviews.As a result, despite the decrease in the number of completed oversight examinations, the

Commission increased the amount of time spent on the oversight examination

program by 3.3 percent The Commission also completed 56 cause examinations,

a decrease from the 69 conducted in fiscal year 1986. The decrease in cause examinations has resulted from the Commission's determination to place greater reliance on the SROs to handle matters for which they have adequate remedies.

In addition, the Commission also reviewed several broker-dealers to examine

their procedures for limiting access to market-sensitive information within multiservice firms. This "Chinese wall" inspection revealed that each firm used a different approach to control the flow of inside information through the Chinese wall.

The Commission concluded that the firms would benefit by setting clearer minimum standards in several areas. Consequently, the NYSEagreed to include supervision of its members' Chinese walls in its regular examination program and the

Commission plans to aid in the development of an examination module and provide oversight of NYSE examinations.

The Commission also conducted 111 transfer agent examinations, an increase

of 2.8 percent from the 108 examinations conducted in fiscal year 1986. These examinations were conducted following guidelines set by the Commission which are

designed to improve examination selection and to follow-up on deficiencies noted

in prior examinations.

Market Sweeps

InSeptember 1987, the Commission approved issuance of a release soliciting

comments on proposed Rules 13e-2 and 14d-1 under the Exchange Act which

would govern certain acquisitions of securities undertaken during and shortly after

a conventional tender offer for securities of the same class and related actlvities.?"

Ifadopted, the proposed rules would apply to purchases, offers to purchase, arrangements or understandings to purchase and solicitations of offers to sell securitiesthat are the subject of the tender offer. Ifany such transaction is undertaken

during and shortly after a tender offer and would increase any person's beneficial

ownership of the class of securities subject to the tender offer by 10 percent or

more of the class, the transaction must be made in compliance with the statutory

provisions and rules applicable to tender offers. Exceptions would be provided for:

(l) purchases of blocks which had been reported to the Commission for one year;

(2) purchases from the issuer; (3) purchases pursuant to a pre-existing written

39
agreement; (4) issuer transactions approved by security holder vote, including recapitalizations and reorganizations; and (5) purchases in connection with mergers

approved by the issuer's security holders. The provisions would apply to all persons from the formal commencement of a tender offer until 1

°business days after

the scheduled expiration date.

Short Sales

On May 20, 1987,the Commission issued a release soliciting comments on proposed Rule lOb-21 under the Exchange Act. 95 If adopted, the rule would prohibit

a person who effects short sales of an equity security during the period between the

filing of a registration statement relating to the same class of equity securities and

the commencement of the public offering of such equity securities from directly or

indirectly covering such short sales with securities purchased from an underwriter

or broker or dealer participating in the public offering. The proposed rule is designed to prevent manipulative short selling by market participants in anticipation

of underwritten public offerings.

Bank Securities Activities

On May 4, 1987, the Commission submitted to Congress proposed legislation

entitled the Bank Broker-Dealer Act of 1987. The Bank Broker-Dealer Act, introduced in both the House of Representatlves'f and the Senate.'" would modify the

blanket exceptions for "banks" found in the definitions of "broker" and "dealer,"

and would remove the exemption for banks that engage in any of the activities enumerated in Rule 3b-9 under the Exchange Act. The Bank Broker-Dealer Act would

expressly require banks that fall within the definitions of "broker" or "dealer" to establish separate entities registered as broker-dealers with the Commission,

through which securities activities would be carried out

The proposed legislation is intended to codify the concepts first presented in

Rule 3b-9, which the Commission adopted on July 1, 1985.98 The rule would have

required banks to conduct certain securities activities through broker-dealers registered under the Exchange Act. These activities are: (l) public solicitation of brokerage for transaction-related compensation, (2) receipt of transaction-related

compensation for providing brokerage services for trust, managing agency, or

other accounts to which the bank provides advice, or (3) dealing in or underwriting

securities. The rule also contains several exceptions for banks that conduct only

limited securities activities. On November 4, 1986, the rule was invalidated by the

Court of Appeals of the District of Columbia Circuil99In its opinion, the Court suggested that perhaps Congress should address the issue of bank broker-dealer

activities.

Zero-Coupon Securities

In April 1987, the Commission issued a release reminding broker-dealers that

the Commission's and self-regulatory organizations' (SRO) mark-up policies apply

to transactions in zero-coupon securities. J 00 The Commission issued the release

because it had become concemed about mark-up and mark-down practices that

may have developed with respect to such securities.

40
Fmancial Responsibility Rules

On June 11, 1987,the Commission amended its net capital, recordkeeping and

quarterly securities count rules in connection with the treatment of repurchase and

reverse repurchase agreements entered into by registered broker-dealers,"?' The

record-keeping rule was amended to specifically require broker-dealers to maintain certain books and records with respect to their repurchase and reverse repurchase transactions, including securities records and copies of all confirmations.

The quarterly securities count rule was amended to clarify that broker-dealers are

required to account for securities that are the subjects of repurchase agreements

as they do for other securities for which they are responsible. The net capital rule

was amended to establish deductions from net worth in arriving at net capital for

repurchase and reverse repurchase agreements under certain risk circumstances,

to require additional capital when the broker-dealer has attained a high degree 'of

leverage as a result of those agreements and to require deductions in connection

withtransactions with affiliates when the affiliate's records are not made available

for examination.

Customer Protection Rule

On August 6, 1987,the Commission amended its customer protection rule, effective January 31, 1988, in connection with repurchase agreements where the

broker-dealer agrees to retain custody of the securities that are subject to those

agreements. I 02 The amendments to the rule willrequire registered broker-dealers

to obtain repurchase agreements inwriting,to make specific disclosures regarding

certain risks associated with hold-in-custody repurchase transactions and to disclose that the Securities Investor Protection Corporation (SIPC) has taken the position that coverage under the Securities Investor Protection Act of 1970 is not

available to repurchase agreement participants. The amendments further require

registered broker-dealers to maintain possession or control of securities subject to

hold-in-custody repurchase agreements, except that possession or control during

the trading day is not required if certain conditions are met

Interpretations of the Customer Protection Rule

On September 8, 1987, the Division issued a no-action letter to the New York

Stock Exchange Sponsored Joint Industry Rule 15c3-3 Committee regarding possession or control of customers' securities for purposes of the customer protection

rule.103 The letter permits broker-dealers to rely on the expected receipt of securities borrowed in order to process "today for tomorrow" delivery instructions for fail

to deliver requirements under certain conditions, until a permanent DTCsystem

designed to assist the broker-dealer community in segregating fullypaid or excess

margin securities is operational.

Lost and Stolen Securities

In 1977,the Commission instituted the Lost and Stolen Securities Program. The

Commission's designee, the Securities Information Center (SIC),maintains an upto-date database on lost, stolen and counterfeit securities. Program data for calendar year 1986 indicate the continuing utility of the program to broker-dealers,

41
banks, and investors. Program participants number just over 20,300, a three percent increase over 1985. In 1986, the dollar value of certificates that were reported

to SICas lost, missing, stolen or counterfeit was $2.3 billion, a 15 percent increase

over 1985. As a result, the aggregate dollar value of the database increased from

$9.8 billion to $12.1 billion. The number of certificates reported as lost, stolen,

missing or counterfeit increased approximately 18 percent, from 506,223 in 1985

to 596,707 in 1986. Registered institutions also made inquiries concerning 2.5 million certificates. The number of 1986 inquiries from participants that matched previous reports of lost, missing, stolen or counterfeit securities (hits) was 596, a decrease from 1,036 in 1985. The dollar value for hits, however, increased slightly,

from $15.4 million in 1985 to $15.5 million in 1986.

Municipal Bond Redemption Processing

To improve the processing of whole-issue and partial calls of municipal securities, the Commission endorsed voluntary notification and processing guidelines

that were developed in consultation with federal regulators, self-regulatory organizations, and organizations representing municipal securities issuers, bond counsel

and securities processors. I 04

During fiscal year 1986, the number of called bonds increased fourfold, due to

declining interest rates. The voluntary guidelines are designed, among other

things, to assure that bond holders receive timely and accurate notice to redeem

their bonds.

Oversight of Self-Regulatory Organizations

National Securities Exchanges

As ofSeptember 30, 1987, nine active exchanges were registered with the Commission as national securities exchanges.l?" During the fiscal year, the Commission granted applications by exchanges to delist 88 equity and debt and 16 option

issues and granted applications by issuers requesting withdrawal from listing and

registration for 29 issues. In addition, during the fiscal year the Commission

granted 1,188 applications by exchanges for unlisted trading privileges.

During fiscal year 1987, the Commission instituted proceedings pursuant to

Section 19{c) of the Exchange Actto consider the adoption of a new rule for certain

exchanges and associations. The rule would place a prohibition on an exchange

listing, or an association (i.e.,the NASD) authorizing for quotation the common

stock or equity securities of an issuer if,on or after May 15, 1987,the issuer issues

securities or takes other corporate action that would have the effect of nullifying,

restricting or disparately reducing the voting rights of any common stock of such

issuers.I06 As part of this proceeding, the Commission held a public hearing in

July for interested persons to present their views. The Commission decided to institute Section 19{c)proceedings after the NYSE submitted a proposal to amend

its "one share, one vote" rule to permit listed companies to issue stock with disparate voting rights if certain requirements were sattsfled.'!" Public hearings on the

rule change were held on December 16 and 17, 1986.

The Commission set aside actions by the NYSE denying two members, William

J. Higgins and Michael D.Robbins, permission to communicate by telephone from

42
the Exchange floor with non-member customers located off the floor.lOB In its

Opinion,the Commission rejected arguments by the NYSEthat ithad a longstanding rule prohibiting such communication links. The Commission held that the

NYSEhad no rule, or policy enforceable as a rule, denying members the right to

have direct telephone communication from the floor with their non-member customers located off-floor and ordered the NYSE to permit Higgins and Robbins to

installthe telephone connections they had requested.

During fiscal year 1987, the Commission received 205 proposed rule changes

from the stock exchanges. The Commission approved several significant rule filings,including proposals of the NYSE and Amex to permit them to waive or modifycertain of their corporate govemance and financial disclosure listing standards

forforeign issuers that conflict with the home country's laws or practices. 109Under

the Amex and NYSE rules, such a waiver may be granted only where the practices

ofthe foreign companies are in compliance with business practices and legal requirements of their country of domicile.

The Commission also approved proposed rule changes of the Amex and NYSE

that eliminate certain restrictions imposed on approved persons 110which own or

control specialist units on the floor of the exchanges ifthe approved persons establish an organizational separation, or "Chinese wall," between its entity and the

specialist unit111 Italso approved a proposed rule change by the Amex to require

specialists to accept stop orders in common stock and accept stop limit orders

where the stop and prices are not identical. 112

The Commission approved proposals by the NYSE to: (1) amend its rule pertaining to the execution of percentage orders to broaden the ability of NYSE specialiststo represent percentage orders in the trading process by allowing the specialistto convert such orders into limit orders on destabilizing ticks;113and (2)

establish, on a pilot basis, a policy for reviewing certain proposed mergers and

combinations between specialist units that could, in the NYSE's view, potentially

result in concentration levels harmful to the NYSE,the quality of its markets, and

its specialist comrnumty.l!"

Finally,the Commission approved a proposal by the Cincinnati Stock Exchange

(CSE) regarding an affiliation with the CBOE.11SThe affiliation provides CBOE

members access to trading on the CSE by allowing CBOE members to become

CSE members without having to purchase CSE certificates of proprietary membership. The affiliation,in part, is a result of the CBOE's desire to have access to a

stock market in the event the side-by-side trading of options and stocks is commenced.

National Association of Securities Dealers, Inc.

The NASD,the only national securities association registered with the Commission, has over 6,600 member firms. In fiscal year 1987,the NASD reported the disposition of 415 formal and summary disciplinary actions and 194 formal and summary actions by its NASDAQ and Market Surveillance Committees.

In addition, the Commission received 46 filings of proposed rule changes from

the NASD. The Commission approved 29 proposed rule changes in fiscal year

1987. The Commission approved NASD proposals: (1) extending for a two-year

period the pilot program for the exchange of quotation information between the

43
NASD and the ISE;116(2) establishing a NASDAQ Workstation pilot that would update terminals used in the NASDAQ marketplace by providing a state-of-the-art

workstation for NASDAQ market makers.'!" (3) amending Schedule D to the

NASD's By-Laws which governs the operation of the NASDAQ system;118and (4)

amending the NASD's Rules of Fair Practice to regulate members' communications with the public with regard to direct participation program advertismg.!'?

The Commission also approved amendments to the NASD's Transaction Reporting Plan with respect to NASDAQlNMS Securities. The purpose of the amendments was to specify eligibility requirements, including certain corporate governance standards, that determine the NASDAQ securities that can be included in the

NMS and thus have real-time last sale reporting. The eligibility criteria were added

to Schedule D of the NASD's By-Laws. 120

Municipal Securities RUlemaking Board (MSRB)

In fiscal year 1987, the Commission received 14 proposed rule changes from the

Municipal Securities Rulemaking Board and approved 11 MSRB rule filings. Of

particular note was the approval of an amendment of Rule G-8(a)(xi) to require

municipal securities dealers to record and maintain suitability information obtained pursuant to Rule G-19(b).

Clearing Agencies

During fiscal year 1987, the Commission received 98 proposed rule changes

from registered clearing agencies and approved 93. The Commission approved

self-regulatory organization rule changes designed to improve the transfer of customer accounts among member firms121 and clearing agency rule changes establishing automated systems for transferring customer funds and securities

among member firms. 122The Commission also approved an NSCC proposal that

established a Reorganization Processing System, which would allow, for the first

time, centralized automated netting and settlement of transactions in securities

subject to a reorganization (e.g., a tender offer). 123The Commission also approved

changes to OCe's by-laws to clarify OCe's authority, and standards for the exercise of that authority, to adjust the terms of outstanding options contracts, among

other things, for changes in securities underlying those contrects.F"

SRO Surveillance and Regulatory

Comptiancelnspectlons

During the fiscal year 1987, the Commission conducted 23 inspections of SRO

market surveillance, compliance, disciplinary and operational programs.

In fiscal year 1987, the staff completed a review of the NYSE program of formal

discipline for floor trading violations. Since the previous inspection, the NYSE has

made significant advances in its overall disciplinary program, resulting in the prosecution of more actions than in any other prior period. The inspection report noted

a need for further progress in the areas of timeliness of disciplinary actions, the determination of sanctions, case management, and document control procedures.

An inspection was conducted of systems to detect and deter insider trading at

three SROs and several broker-dealers. The staff reviewed surveillance procedures

44
for detection of insider trading at the NYSE, the Amex, and the CBOE. These systems were found to be operating effectively and additional enhancements were

being implemented to further improve surveillance capabilities. The staff also

noted that investigations resulting from surveillance procedures were generally

thorough and well-documented. Nevertheless, the Division suggested that the

SROs shorten the length of investigations. In an effort to improve the timeliness

and quality of insider trading referrals to the Commission, the Intermarket Surveillance Group formed an insider trading subgroup. This subgroup, consisting of

representatives from SROs and the Divisions of Market Regulation and Enforcement, formulated an insider trading initiative with the goal of reducing referral time

on SRO investigations, along with proposals for enhancing communication and

coordination between the SROs and the Commission. The initiative was endorsed

and the Intermarket Surveillance Group was commended by the Commission for

its efforts and response to the concems in the marketplace regarding insider

trading.

The inspection staff also visited several broker-dealers to examine their procedures for limiting access to market-sensitive information within multi-service

firms. This "Chinese wall" inspection revealed that each firm used a different approach to control the flow of inside information through the Chinese wall, but that

improvements could be made in documenting actions taken by the firm and in increasingthe auditability of the process. Consequently, the NYSE agreed to include

supervision of its members' Chinese walls in its regular examination program. The

Commission plans to aid in development of an examination module and provide

oversight of NYSE examinations.

An inspection of the new NASD free-riding and withholding program revealed

significant improvement in surveillance of manipulation in newly issued securities.

InJanuary 1986, the NASD implemented new procedures for manipulation review

into its oversight of new issues. Automated surveillance systems were combined

with manual procedures and improved questionnaires to greatly enhance the prior

review procedure. Minor recommendations were made regarding follow-up on

questionnaires at the district level. Nevertheless, the NASD was commended for

vastly improved procedures.

The Commission also conducted an inspection of NASD's surveillance of nonNASDAQ over-the-counter securities (commonly known as "pink sheet" stocks).

In response to this inspection, the NASD has enhanced its "pink sheet" surveillance program by agreeing to review all non-NASDAQ issues rather than just those

cleared by the NSCC. In addition, the NASD plans to implement a rule requiring

member firms to submit information to the NASD that will aid in the surveillance

procedure.

The May 1987 inspection of the PSE revealed significant improvements in surveillance procedures and implementation of an options audit trail. Additional recommendations for improvement of PSE surveillance systems were made in some

areas.The PSE was advised to further automate options surveillance procedures

by automating trading analyses of the underlying equities. In addition, the Commission suggested increased staffing and further automation of surveillance procedures.

The Commission also completed comprehensive inspections of the surveil45
lance, investigatory, and disciplinary programs for options and equities at the Phlx.

In both options and equities, the inspection found that the Phlx had improved its

surveillance procedures. The inspections also found improvement in timeliness

and quality of investigations. The Commission had minor recommendations for

strengthening Phlx penalties and for the specialist performance evaluation program.

During fiscal year 1987, the Commission completed an inspection of the surveillance, investigatory and disciplinary programs of the MSE. A review of the Listing

Department was conducted as well. The MSE surveillance procedures and staffing

levels were found to be satisfactory and minor recommendations were made regarding improvement in documentation of investigations and disciplinary actions.

In addition, enhancements to surveillance procedures and Listing Department operations were advised.

An inspection of the CSE revealed adequate surveillance and compliance programs. However, due to increasing trading volume, improvements were recommended in the areas of documentation of daily surveillance and investigatory activity and informal disciplinary actions for minor CSE rule violations.

A comprehensive inspection of CBOE's surveillance and disciplinary program

for trading violations was conducted in fiscal year 1987. The Commission found

that the CBOE's three-year surveillance automation project was proceeding on

schedule and promised to permit the surveillance program to keep pace with the

CBOE's increasing options trading volume. The Commission made recommendations for enhancements to existing surveillance procedures and advised the

CBOE to increase the severity of sanctions in appropriate cases of recidivist

violations.

The Commission conducted a comprehensive inspection of the Amex. Specifically, the inspection focused on four major program areas: (l) routine options

sales practices examinations of those firms for which the Amex is the designated

options examining authority; (2) investigations of customer complaints, terminations of registered representatives for cause and firms' notices of disciplinary actions; (3) processing of formal disciplinary actions resulting from examinations

and investigations; and (4) examinations and financial surveillance of those firms

conducting a public business for which the Amex is the designated examining authority under Rule 17d-1 of the Exchange Act. Overall, the inspection disclosed

that the Amex regulatory programs are functioning satisfactorily. The Commission

did note delays in processing disciplinary actions as well as isolated deficiencies in

the Amex's examinations and investigations of members' options sales practices.

The Commission conducted an inspection of the NYSE's handling of referrals

(typically, customer complaints) from the Commission. The inspection disclosed

that the initial processing of the referrals by the Customer Complaint Department

was being handled satisfactorily. However, the inspection found deficiencies in investigations conducted by the Department of Enforcement. The NYSE represented that significant increases in staff would be made and that procedural and

organizational changes were being made to improve the timeliness and quality

of investigation of all cause matters, including those cases referred by the

Commission.

The Commission also conducted an inspection of the MSE's broker-dealer ex46
amination, financial surveillance and formal disciplinary action programs, as well

asthe handling of customer complaints and Regulation T extension requests. The

Commission concluded that the MSE is ensuring members' compliance with the

federal securities laws in a satisfactory manner and is conducting effective regulatory programs with respect to MSE member firms. Minor deficiencies in the Regulation T and financial surveillance program were noted.

The Commission also conducted inspections of eight of the fourteen NASD district offices. Inspections of the district offices in California, Denver, Dallas, Atlanta,

Chicago, Cleveland, Philadelphia and New York were conducted by the Commission's regional offices. As in prior years, the Commission noted isolated deficiencies in the districts' financial surveillance routine examination, cause investigation

and formal disciplinary action programs. Nevertheless, the NASD district office inspections generally revealed that the NASD was satisfactorily meeting its oversight

responsibilities under the Exchange Act. In particular, the Commission noted significant improvements in the district office in New York as a result of management

and procedural changes. In addition, the Commission met with the NYSE and the

NASD on a quarterly basis to discuss current regulatory, examination and oversight issues.

The staff completed a comprehensive review of securities industry sponsored

arbitration that reflected the Commission's belief in the need for thorough oversight of SRO arbitration systems. The review found that while securities industry arbitration generally operates fairly, the process can be improved in a number of respects. Major recommendations regarding the operation of SRO arbitration

systems have been sent to members of the Securities Industry Conference on Arbitration, the group that drafted the rules under which SRO arbitration operates.l'"

The Commission's principal recommendations were that (1) SROs establish standards for who may serve as a public arbitrator, (2) make publicly available summary data on the results of arbitrations, (3) adopt improved discovery procedures,

(4) review arbitrator disclosure provisions, (5) implement effective arbitrator training programs, (6) institute arbitrator evaluation programs, and (7) explore flexible

rules for large cases. The SROs have been asked to respond to the recommendations in fiscal year 1988.

Applications for Re-entry

During fiscal year 1987, the Commission received 103 SRO applications to permit persons subject to statutory disqualifications, as defined in Section 3(a)(39) of

the Exchange Act, to become or remain associated with broker-dealers. The distribution of filings among the SROs was the following: NASD (89); NYSE (12); and

Amex (2). Of the total filings processed, 8 applications were subsequently withdrawn, 99 were completed, and 4 were pending at year-end.F" The Commission

refused to take a no-action position in two applications.

As part of the review of SRO arbitration, the Commission examined the operation of the NASD's arbitration program. In addition to the recommendations set

out above, the Commission recommended that the NASD improve the turnaround times of its cases. Discussions with the NASD on appropriate changes to

its program should conclude in fiscal year 1988.

47
SRO Final Disciplinary Actions

Section 19(d)(1) of the Securities Exchange Act of 1934 and Rule 19d-l thereunder require all self-regulatory organizations to file notice with the Commission of

all final disciplinary actions.

A Rule 19d-1 filing reports a completed action that may have been initiated at

any time during the previous years. The duration of a SRO action frequently reflects the severity of the violations(s) charged, the number of respondents involved,

and the complexity of the underlying facts. SROs generally conclude cases involving minor or techincal violations with a single respondent in less than a year; cases

involving serious trading violations (e.g., price manipulation, prearranged trading,

front-running, etc.) require more time to complete because of the necessity to

demonstrate specific intent to the disciplinary panel that acts as a trier of fact Consequently, the volume of Rule 19d-l notices submitted by a SRO in a given year is

not a precise measure of its proficiency in market surveillance and compliance.

Nevertheless, the number of actions reported can be useful in assessing the regulatory effectiveness of different SROs over similar time periods, and this information has proved useful in focusing inspections of SRO regulatory programs.

In fiscal 1987 the American Stock Exchange filed 44 Rule 19d-l reports, the

Chicago Board Options Exchange filed 145; the New York Stock Exchange ftled

128; the Philadelphia Stock Exchange filed 11; the Pacific Stock Exchange filed

50; the Boston Stock Exchange filed none; the Midwest Stock Exchange filed 4;

and the National Association of Securities Dealers filed 609.

SRO Fmal Disciplinary Actions

1983 1984 1985 1986 1987

Exchanges 475 394 530 419 382

NASD:

District Committees 227 667 348 252 415

NASDAQ and Market

Surveillance Committees 100 62 93 174 194

TOTAlS 802 1123 971 845 991

48
Investment Companies and Advisers

Key 1987 Results

The Division of Investment Management oversees the regulation of investment

companies and investment advisers under two companion statutes, the Investment Company Act of 1940 (Investment Company Act) and the Investment Advisers Act of 1940 (Investment Advisers Act), and administers the Public Utility Holding Company Act of 1935 (Holding Company Act).

FY'87

739

1,294

2,033

FY'87

3,305

12,690

Number of Active Registered Investment Companies

and Investment Advisers

FY'83 FY'84 FY'85 FY'86

InvestmentCompanies 2,057 2,210 2,458 2,912

InvestmentAdvisers 7,043 9,083 10,908 11,707

Investment Company and Adviser Assets Under Management

(inbillions)

FY'83 FY'84 FY'85 FY'86 FY'87

InvestmentCompanies $360 $370 $ 525 $ 742 $1,200

InvestmentAdvisers $780 $850 $1,170 $1,400 $3,500

Inspections/Examinations of Investment Companies and Advisers

FY'8] FY'84 FY'85 FY'86

348 497 567 643

737 837 1,039 1,263

1,085 1,334 1,606 1,906

InvestmentCompanies

InvestmentAdvisers

Total Examinations

During fiscal year 1987, the number of registered investment companies increased by 13 percent and the assets they manage increased by 62 percent The

number of investment advisers registered increased by 8 percent and the assets

they manage increased by 199 percent

The number of investment company and investment adviser examinations

completed during fiscal year 1987 exceeded 2,000 for the first time. almost double

the number completed in fiscal year 1982.

During fiscal year 1987, the Division and the regional offices continued efforts to

coordinate their regulatory activities with state authorities that share the Commission's jurisdiction over investment advisers, by conducting joint examinations, providing training for state examiners, and routinely sharing examination results.

The Commission staff is preparing a report on the fmancial planner industry, requested in July 1986 by Congressmen Timothy E. Wirth and Matthew J. Rinaldo of

the House Committee on Energy and Commerce's Subcommittee on Telecommunications. Consumer Protection and Finance. The report will focus on the financial planning industry's customer demographics, planner characteristics,

compensation, registration, inspection, and the National Association of Securities

Dealers' (NASD) pilot project to inspect investment advisers who are also NASD

members.

49
In June 1987, the Board of Governors of the National Association of Securities

Dealers passed a resolution to take steps to become a self-regulatory organization

with jurisdiction over the investment advising activities of its members and affiliates

who are investment advisers. The Commission will consider the NASD proposal in

greater detail after the related report on the financial planning industry is completed.

The Division's Office of the Chief Counsel coordinated the Division's work on a

number of Commission-wide special projects and legislative initatives, including

the Commission's internationalization and bank guarantee studies.

Disclosure Requirements

During fiscal year 1987, the Commission reproposed for comment Form N-7, a

simplified form under the Securities Act of 1933 (Securities Act) and the Investment Company Act for all unit investment trusts other than insurance company

separate eccounts.V" The Commission proposed for comment Rule 24f-3 under

the Investment Company Act, which would provide a simplified method for unit investment trusts to pay securities registration fees imposed under the Securities

Act 128 In addition, the Commission adopted an amendment to Regulation S-X to

require that registered investment companies account for net costs incurred under

a Rule 12b-1 plan as an expense.F? The amendment provides for uniform accounting treatment so that investors may more accurately compare investment results and expense ratios among investment companies. An amendment to Form

N-SAR, the semi-annual report filed by investment companies, was proposed that

would conforrn the form's change-of-accountant disclosure requirements to

those of Form 8-K under the Exchange Act130

The Commission also proposed amendments to Form N-1A, the registration

form for mutual funds to provide for a consolidated table of expenses (fee table)

near the front of the prospectus.P' The fee table is intended to assist investors in

comparing expenses among mutual funds.

EDGAR

In July 1985, the Office of Public Utility Regulation began accepting electronic

filings from registered public utility holding company systems and their member

companies. An EDGAR Pilot Branch was forrned in October 1985, which began

processing electronic filings for a volunteer group of investment company registrants in November 1985. The volunteers include a representative group of 184

management investment companies and 77 unit investment trusts with over 2,700

active series. Electronic filings on Form N-SAR, the semi-annual report of registered investment companies, also were made by 700 registered management investment companies not participating full-time in the EDGAR Pilot As of Septem30, 1987, the Commission received 16,368 investment company filings

throug e EDGAR Pilot Branch.

In March 1987,the Commission adopted a temporary rule and form to allow optional electronic filing of Form 13F, the report of securities holdings filed by institutional managers. The rule specifies a uniform format and requires that electronic

filings of this form be made on magnetic tape. These electronic filings, which

50
should facilitate tabulation of 13F data, are expected to begin in November 1987,

for the quarter ended September 30, 1987.

Regulatory Policy

In November 1986, the Commission adopted an amendment to Rule 31a-2 under the Investment Company Act to permit investment companies to maintain required records on magnetic tape, disk, or other computer storage media, in recognition of the greater use of computers in the industry.132

In December 1986, the Commission proposed Rule 11a-3 under the Investment

Company Act, which would permit, under specified conditions, a mutual fund or its

principal underwriter to make an exchange offer to the fund's own shareholders or

to shareholders of another fund in the same family of funds. At the same time, the

Commission proposed Rule 11c-l under the Investment Company Act which

would conditionally permit a unit investment trust or its sponsor to make exchange

offers to certain unit holders.

InJune 1987, the Commission proposed amendments to Rule 19b-1 under the

Investment Company Act, which restricts registered investment companies to

making one distribution of long-term capital gains for anyone tax year, plus a supplemental distribution not exceeding ten percent of the prior distribution. The

amendments, which were adopted in final form in October 1987, permit investment companies to make one additional distribution of longterm capital gains for

anyone tax year where the distribution is made to avoid the assessment of an excise tax on the investment company under the Internal Revenue Code, as

amended by the Tax Reform Act of 1986.

In October 1987, the Commission adopted Rule 6c-9, which provides an exemption from the Investment Company Act for foreign banks selling their own debt securities or non-voting preferred stock in the United States. The rule also applies to

the sale of those securities by a foreign bank's finance subsidiary.

Investment Advisers

The Commission adopted Rule 206(4)-4 under the Investment Advisers Act,

which codifies an investment adviser's fiduciary obligation to give material financial and disciplinary information to c1ients.133

The Commission also issued Investment Advisers Act Release No. 1092, which

sets forth uniform interpretations of federal and state investment adviser laws as

they apply to financial planners and other persons. Developed jointly by the Commission's staff and the North American Securities Administrators Association,lnc.,

the release revised Investment Advisers Act Release No. 770 issued in August

1981. Among other things, it clarifies the definition of investment adviser as applied to financial planners and discusses the staffs view that an adviser's duty to

disclose material facts includes the duty to disclose the various capacities in which

the adviser might act when dealing with a particular client.

Insurance Products

One exemptive rule under the Investment Company Act has been proposed,

and another adopted on a temporary basis, to facilitate the process under the se51
curities laws of bringing new variable insurance products to the marketplace. In

March 1987, a new approach to exemptive relieffor the deduction of mortality and

expense risk charges from the assets of lifeinsurance company separate accounts

was introduced in the reproposal of Rule 200-3. In May 1987, a new round of

amendments to Rule 6e-3(T) became effective, essentially codifying reliefgranted

in individual exemptive orders over the last several years, and updating the rule to

reflectthe latest features of flexible premium product designs.

In June 1987,the Commission issued a notice of the filing of an application by

the College Retirement Equities Fund (CREF) and The Teachers Insurance and

AnnuityAssociation ofAmerica for an order granting exemptions from certain sections of the Investment Company Act and approving certain transactions in order

to allow CREF to continue to operate as ithad before agreeing to register as an investment company. A number of requests for a hearing were filed before the expiration of the notice period by CREF participants, colleges and universities, and

mutual fund complexes. Several hearing requests were also filed on CREPs request for temporary exemptive relief pending the outcome of any hearing that

might be ordered on its exemptive application.

Public GtiBly Holding Companies

There are now 13 registered public utilityholding company systems with aggregate assets, as ofJune 30, 1987, of $873 billion, an increase of $43 billion, or 52

percent over June 3D, 1986. Total operating revenues, as of June 3D, 1987, were

$31.9 billion, a $2.0 billion decrease from June 3D, 1986. There are 68 electric or

gas utility subsidiaries, 73 non-utility subsidiaries, and 24 inactive companies in

the 13 registered systems, a total of 178 companies operating in 24 states (excluding seven power supply subsidiary companies).

InJune 1987,the Commission published for comment a proposed amendment

to Rule 45 under the Holding Company Act. The proposed amendment would

make unnecessary the fIling of declarations for orders of the Commission approving routine agreements where a parent company in a registered holding company

system guarantees, assumes joint liabilityupon, or acts as surety or indemnitor for

the obligations of its subsidiary company. Comments received have indicated that

substantial savings willinure to consumers and shareholders by the adoption of

the proposed rule amendment

HoLdingCompany Financing~uring fiscal year 1987,the Commission authorized $6.3 billion of senior securities and common stock financing for the 13

registered systems: $5.0 billion in long-term debt financing, with $13 billion in

common and preferred stock. Long-term debt financing decreased by 343 percent from fiscal year 1986, primarily due to an increase in long-term interest rates,

which reduced the economic incentives to refinance. In addition, approximately

$430 million in pollution control financing and $5.5 billion in short-term debt financing were approved. The pollution control fmancing was a 61 percent decrease

from amounts authorized in fiscal year 1986. Short-term debt increased by 43 percent over the previous year. Total financings in fiscal year 1987 of $123 billionwere

less than financings authorized in fiscal year 1986 by $3.4 billion, a decrease of

21.9 percent The Middle South Utilities,Inc. system accounted for approximately

52
15 percent of the total financing authorized under the Holding Company Act. The

Commission also authorized over $1 billion for fuel exploration and development

activities during fiscal year 1987. Substantial expenditures in fuel procurement

were incurred through the acquisition of $546 million of nuclear fuel and over

$380 million in coal mining equipment and refinancing.

The Commission's continuing review of holding company fuel procurement activities, accounting policies, audits of service companies and annual reports of the

subsidiary service companies and fuel procurement subsidiaries, and the review of

quarterly reports by non-utility subsidiaries resulted in savings to consumers during fiscal year 1987 of approximately $45.0 million.

The Commission required electric subsidiaries of public utility holding companies to credit revenues from their selling excess oil and gas ($32 million), and subleasing coal and oil barges ($13 million) to their fuel costs, reducing consumer

electric bills.

Significant App6cations And Interpretations

Investment Company Act-The Commission authorized ML-Lee Acquisition

Fund, LP., a limited partnership regulated as a business development company

under the Investment Company Act, to make joint purchases with its investment

adviser of so-called "mezzanine securities" (subordinated debt and preferred stock

with equity participation) issued in connection with leveraged buyouts. ML-Lee Acquisition Fund is the first leveraged buyout investment company made available to

retail investors. Its investment policies prohibit the fund from providing financing

for hostile takeovers.

Applications of FmHA Trust and ED Trust were filed by private parties on behalf

of trusts established to acquire loans made by the Farmers Home Administration

of the Department of Agriculture and the Department of Education. Exemptive

orders under the Investment Company Act were granted for the FmHA Trust on

August 24, and for the ED Trust on September 18. The FmHA Trust and the ED

Trust are collateralized by non-recourse loans originated by the respective agencies being sold as part of the federal govemment's pilot loan asset sales program.

An application filed by the National Rural Utilities Cooperative Finance Corporation was granted to exempt specified trusts it had established from most of the provisions of the Investment Company Act in connection with the public sale of certificates representing trust participation interests. Each trust will hold a single note

guaranteed by the Rural Electrification Administration evidencing loans used to refinance borrowings from the Federal Fmancing Bank

Holding Company Act-The Commission authorized Consolidated Natural

Gas Company (Consolidated), a registered holding company, to form a new,

wholly-owned, gas marketing subsidiary, CNG Trading Company (CNG Trading),

to engage in the marketing of low cost, non-regulated gas supplies.P" CNG Trading will purchase, pool, transport, exchange, store and sell gas supplies from competitively priced sources, including the spot markets, independent producers and

brokers, as well as from Consolidated system producing affiliates, CNG Development Company and CNG Producing Company.

The Commission authorized Middle South Utilities, Inc. (MSU), a registered

53
holding company, and its wholly-owned generating subsidiary, System Energy Resources, Inc. (formerly Middle South Energy, Inc.),to guarantee potential rate refunding obligations of Mississippi Power & Ught Company (MP&L),an operating

subsidiary of MSU.135 The guarantees were needed to obtain a bond to maintain a

stay pending MP&L'sappeal to the United States Supreme Court in the case of

Mississippi Power & Light Co. v. State of Mississippi.

Central and South West Corporation (CSW), a registered holding company, and

its wholly-owned subsidiary, CSW Credit, Inc. (CSW Credit) (collectively,Companies),was authorized to factor accounts receivable of the CSW electric utilitycompanies.136 Related financing was also approved. CSW Credit was also authorized

by the Commission in July 1986, to purchase receivables of nonassociate electric

utility companies, subject to the condition that the average amount of such purchases during any twelve-month period would be less than the corresponding

amount of associate company receivables. Related financing was also authorized.

The Companies are now requesting the removal of the limitation imposed by the

1986 order upon the factoring of nonassociate electric utility receivables by CSW

Credit.

The Commission authorized Wisconsin Energy Corporation to acquire all of the

common stock of the Wisconsin Electric Power Company and the Wisconsin Natural Gas Company, and exempted it from all provisions of the Holding Company

Act except Sections 9(a)(2), subject to certain condittons.P? Requests for a hearing were denied; however, jurisdiction was reserved on the retention of gas properties along with electric properties.

In a letter dated March 5, 1987,the Division stated itwas unable to concur in the

opinion of counsel for Noverco, Inc. (Noverco) that the acquisition by Noverco of

the limited partnership interests of the limited partners in Energy Future Limited

Partnership (EFLP) would not require prior approval by the Commission under

Sections 9(a)(2) and 10 of the Holding Company Act EFLP is the owner of all of

the voting securities of New England Gas Corporation (NNEG). NNEG, in turn,

owns all of the voting securities of Vermont Gas Systems, Inc. (VGS),a small gas

utilityincorporated and operating in Vermont. Based upon the facts and circumstances, the Commission was unable to conclude that the transaction would not

constitute an indirect acquisition by Noverco of 5% or more of the voting securities

of NNEG, and hence ofVGS. Noverco is already an affiliateof a Canadian gas utility

company.

In a letter dated June 18, 1987,to Central and South West Corporation (CSW), a

registered holding company, the Commission refused to assure CSW that itwould

not recommend any enforcement action to the Commission under the Holding

Company Act should a trust, funded by CSW, acquire shares of a non-affilated

electric utilityeven though CSW would agree (1) not to acquire the shares from the

trust without prior Commission approval under Section 9(a) of the Holding Company Act; and (2) to dispose of the shares held by the trust if approval for CSW to

acquire them was denied or not received within a specified period. In the Commission's view,the acquisition by such a trust would constitute an indirect acquisition

by CSW of public utilitysecurities and would be unlawful under Section 9(a)(1) unless approved in advance by the Commission under Section 10.

Institutional Disclosure Program-Securities Exchange Act Section 13(f)(1)

54
and Rule 13f-1 require specified "institutional investment managers" to file quarterlyreports on Form BE As noted above, under Rule 13f-2 (T), effective July 1,

1987,these managers may file the report on Form 13F-E through magnetic tape

by using the Commission's pilot electronic disclosure system, EDGAR.Managers

filingthese reports disclose specified equity holdings of the accounts over which

they exercise investment discretion. As of June 30, 1987, Form 13F reports had

been filed by 1,683 managers for holdings totaling $1.375 trillion.

Form 13F reports are available to the public at the Commission's Public Reference Room promptly after filing. Two tabulations of the information contained in

these reports are available for inspection: (1) an alphabetical list of the individual

securities, showing the number of shares held by the managers reporting the holding;and (2) a listwith the total number of shares of a security reported by all reporting managers. Both tabulations normally are available two weeks after the date on

which the reports must be filed.

The tabulations are prepared by a independent contractor selected through the

competitive bidding process. The contractor provides its services to the Commission without charge, and is required to make a variety ofspecified tabulations available to the public at reasonable prices within ten days after receiving the reports.

55
Other Litigation and Legal Activities

Key 1987 Results

FY'84 FY'85 FY'86 FY'87

Win Loss Other. Win Loss Other. Win Loss Other. Win Loss Other"

Supreme Court and

Appellate Courts 37 8 5 36 4 5 32 3 2 31 3 2

District Court 26 2 2 23 3 2 21 0 1 14 3 0

Bankruptcy Court 13 3 2 20 5 0 13 3 1 4 7 I

Other•• 4 0 0 7 0 0 4 1 0 3 0 0

• Issue not reached, split decision, etc .

•• State Courts and Administrative Tribunals.

The General Counsel represents the Commission in all litigation in the United

States Supreme Court and the Courts of Appeals, defends the Commission and its

employees when sued, prosecutes administrative disciplinary proceedings against

securities professionals, and appears amicus curiae on behalf of the Commission

in significant private litigation involving the federal securities laws. In addition, under the supervision and direction of the General Counsel, the regional offices represent the Commission in corporate reorganization cases under the Bankruptcy

Code that have a substantial public investor interest The General Counsel also

analyzes legislation that would amend the federal securities laws or otherwise affectthe Commission's work and prepares legislative comments and congressional

testimony. In addition, the General Counsel reviews proposed Commission action

to ensure that enforcement and regulatory programs are consistent with the Commission's statutory authority.

The General Counsel represented the Commission in 304 litigation matters in

fiscal year 1987. During the year, 36 court of appeals and Supreme Court cases

were concluded, all but three favorably to the Commission. There were 16 appeals

in Commission injunctive actions, six of which were concluded, with only one outcome unfavorable to the Commission. By comparison, the General Counsel handled 285 litigation matters in fiscal year 1986, including 18 appeals in injunctive actions. Seven such appeals were concluded in 1986, with only two outcomes

unfavorable to the Commission.

Infiscal year 1987,there also were 23 appellate and district court actions seeking

to overtum Commission orders in administrative proceedings or affirming selfregulatory organization disciplinary proceedings against securities professionals.

Of these appeals, ten were concluded, with only one adverse result Eight such actions were concluded in fiscal year 1986, with no adverse results.

The Commission participated as amicus curiae in 46 cases during the year,

compared to 42 such cases in fiscal year 1986. Itparticipated in nine private cases

that were decided, only one of which resulted in a decision adverse to the Commission.

The General Counsel also handled more than 217 other proceedings before the

Commission or in the federal district courts. These included 56 suits brought

56
against the Commission or its staff, and 86 suits seeking access to Commission

documents, including actions under various public information statutes. Of the latter, 78 suits involved discovery subpoenas in private actions where the Commission is not a party. In fiscal year 1986 there were 24 suits brought against the Commission or its staff and 54 suits (including 46 third-party subpoenas) under the

various public information statutes.

During fiscal year 1987, 94 debtors with publicly-held securities registered under

the Securities Exchange Act of 1934 (Exchange Act) commenced Chapter 11 reorganizations. The Commission entered its appearance in 32 ofthese cases, which

involvedassets of $22.6 billion and nearly 380,000 public investors. The largest of

these proceedings was that of Texaco, Inc., with $18.3 billion in assets and about

275,000 public investors. The 32 Chapter 11 cases are set forth in Table 38 of the

Appendix to this report.

Inaddition to litigation, the General Counsel is involved in significant legislatiVe

and regulatory work. For example, the office assisted the Chairman and the Commissioners in preparing testimony on a number of important issues, such as the

Commission's insider trading program and development of a definition of insider

trading; securities laws aspects of the sale of federal government loan assets; regulation of corporate takeovers; and the proposed Agricultural Credit Act of 1987,

which would provide for the creation of securities backed by pooled Farmers

Home Administration loans. The office also assisted the Commission in preparing

a legislative proposal to amend the Exchange Act to permit the Commission to

regulate certain brokerage activities of banks.

Utigation

Appeals In Commission EnforcementActions-This litigation consists of appeals of district court decisions in Commission injunctive actions. In most cases,

the defendants ask a court of appeals to reverse a district court's finding of securitiesviolations and its order enjoining future violations or providing for other relief

such as disgorgement of illegal profits, The Commission also may appeal when it

is denied relief.

InSECv. Bums, 138 the United States Court of Appeals for the Ninth Circuit affirmed a district court decision that a company's chief executive violated a Commission rule prohibiting participants in a stock distribution from purchasing that

stock during the distribution. The defendant had provided two corporate officers

with company funds to buy stock during the distribution. He argued that he did not

violatethe rule because some of the purchases had been made before the registration statement was filed and hence before the "distribution" commenced, and because the remaining purchases were made after the distribution was completed.

The court held that a distribution of securities may commence whenever there is

an incentive to influence the market artificially,even before a registration statement

is filed. Because the defendant had such an incentive in this case, the purchases

took place during a distribution. Moreover, the court held that any inducement to

purchase securities during the distribution period violates the rule, even ifthe actual purchase is made outside that period. The court also affirmed the district

court's decision that the defendant acted with scienter when the company improperlyinflated its revenues in fmancial statements filed with the Commission.

57
The Commission has appealed to the United States Court of Appeals for the District of Columbia Circuit a district court decision refusing to enter an injunction, on

First Amendment grounds, against a magazine publisher for violating the touting

disclosure provision of the Securities Act of 1933 (Securities Act). In SEC v. Wall

Street Publishing Institute, lnc., 139 the Commission had requested an injunction

to require a publisher to disclose that drafts of articles promoting securities of

companies were supplied by those companies. The Commission argued that such

an injunctive order, written in the language of the statute, is a valid way to enforce

an antifraud provision, and thus is not an impermissible prior restraint of the press.

In SEC v. The American Board of Trade, Inc; 140 the United States Court of Appeals for the Second Circuit affirmed a district court decision to appoint a receiver

for the defendant companies and their affiliates. The court had previously issued

two decisions in this litigation holding that the defendants were illegally selling corporate notes issued by one of the defendant cornpanies.I"! and that the defendants could not effect registration of the notes because the defendants were unable

to provide required certified financial statements.I''"

Finally, the positions of the Commission were affirmed without opinion in two

cases. In SEC v. Charles Byers, 143 the United States Court of Appeals for the Third

Circuit affirmed a district court decision ordering that all of the proceeds of illegal

securities sales be distributed to all defrauded investors on apro rata basis, rather

than imposing a constructive trust on some of the proceeds in favor of certain investors. In SEC v. Zoe Products, lnc., 144 the United States Court of Appeals for the

Ninth Circuit affirmed the district court's entry of summary judgment for the Commission, finding that the company and its chief executive officer acted with scienter

when they recklessly misstated facts concerning the company's financial condition

and future business prospects.

Petitions to Review Commission Orders-Petitions to courts of appeals for judicial review of Commission orders arise from administrative proceedings conducted under various provisions of the federal securities laws. These proceedings

include Commission review of disciplinary actions by national securities exchanges and the National Association of Securities Dealers, Inc. (NASD), which

often involve interpretative issues central to the Commission's own enforcement

program and thus to the integrity of the securities markets.

During fiscal year 1987, petitions for review were filed in several cases where the

Commission proceeded against broker-dealers for underwriting violations. In Cli.

Carlson, Inc. and Charles E. Carlson v. SEC, 145 a broker-dealer and its president

have requested review by the United States Court of Appeals for the Tenth Circuit

of a Commission decision imposing sanctions for fraudulently closing a "part-ornone" public offering. Petitioners, without disclosure to purchasers, personally

bought the final twelve percent of the shares needed to close the offering, financed

the purchases in large part with loans arranged from persons with a financial interest in the offering, and then repaid the loans with money obtained from the proceeds of the offering. The Commission had ruled that these transactions defrauded public investors by vitiating the part-or-none condition on which they had

relied.

Similarly, in Lowell H. Ustrom & Co. v. SEC, 146 the United States Court of Appeals for the Eighth Circuit affirmed the Commission's determination that a

58
broker-dealer violated Exchange Act recordkeeping, confirmation, and creditextension regulations in connection with "best-efforts" underwritings.ln affirming

the Commission's decision, the court gave substantial deference to the Commission's interpretation of its own rules. The court also agreed with the Commission's

finding that the broker-dealer, by paying for the securities of certain customers in

the underwritings, had extended credit to those customers in violation of the Exchange Act.

A third case, pending before the District of Columbia Circuit, seeks review of a

Commission decision upholding NASD sanctions imposed on principals of a

broker-dealer for concealing their purchases of approximately one million shares

in a "best efforts, all-or-none" public offering. In Sva/berg v. SEC, consolidated

with Lippitt v. SEC, 147 petitioners argue that their purchases were immaterial, that

they acted without scienter, and that the Commission abused its discretion in affirming their sanctions. The Commission argues that the purchases were material

and that petitioners' conduct constituted knowing or reckless misrepresentation in

connection with the purchase of securities. Moreover, an underwriter's undisclosed actions to complete an otherwise unsuccessful ali-or-none offering are

fraudulent.

Reviewhas been sought in two cases where the Commission held that securities

professionals failed to determine whether sales were part of an unregistered distribution. For example, in Butcher &Singer, Inc. and Thomas A. Grey v.SEC, 148 the

United States Court of Appeals for the Third Circuit affirmed the Commission's determination that a broker-dealer violated the registration provisions of the Securities Act by failing to conduct an inquiry into the need for registration when one of

the firm's salesmen sought to sell, through the firm, a large amount of a Iittleknown stock he owned. The Commission had found a breakdown in the firm's

compliance procedures because the trader who sold the salesman's stock did not

make a thorough inquiry into the need for registration or delegate that responsiblity to someone else within the firm.

Similarly, in Kane v.SEC, 149 a registered representative of a broker-dealer seeks

review of a Commission order suspending him from association with any brokerdealer for six months because of his participation in the sale of unregistered securities. The Commission argues that the petitioner was responsible for determining

whether the securities could be sold without registration, and that he failed to make

the "searching inquiry" necessary for this determination. The Commission contends that the sanction imposed on the petitioner, which the court may reverse only

for gross abuse of discretion, was not too severe, and is appropriate to deter Kane

and others from such violations in the future.

The severity of a sanction imposed by the Commission is frequently challenged.

InKuznetz v. SEC, 150 the United States Court of Appeals for the District of Columbia Circuit upheld a Commission order barring petitioner from association with any

broker or dealer based on a finding that he defrauded customers by making false

and misleading representations about a company's stock Petitioner had argued

that the Commission failed to specify its reasons for increasing the sanction recommended by the administrative law judge and abused its discretion when it

barred him from association with a broker or dealer. In upholding the sanction, the

Court pointed to the Commission's findings that petitioner had extensive experi59
ence in the securities business, that he had engaged in serious misconduct over

the course of a year, and that he must have been aware that there was no reasonable basis for his recommendations to his customers.

The United States Court of Appeals for the District of Columbia Circuit affirmed

the Commission's imposition of a six-month suspension in Dirks v. SEc.151 The

sanction was levied pursuant to the Securities Investor Protection Act of 1970

(SIPA)after the Commission found that petitioner was negligent when he failed to

take appropriate action in response to wamings that the brokerage firm of which

he was general partner was in precarious financial condition. The Commission

found that his negligence contributed to the firm's insolvency and subsequent liquidation. Petitioner argued that the sanction provision ofSIPA,which authorizes the

Commission to impose sanctions if "in the public interest", is unconstitutionally

vague. The Court, however, found that when Congress directs an agency to act in

the public interest, it is the agency's job to define that standard. In this case, the

Commission had given petitioner fairwarning of what conduct was proscribed because a prior administrative opinion had announced the use of a negligence standard for sanctions under SIPA.

Petitioners inBlinder, Robinson & Co. and Meyer Blinder v.SEC, 152 also pending before the District of Columbia Circuit, make a broad attack on, among other

things, the Commission's sanction determinations. The Commission had suspended a broker-dealer's registration for 45 days, limited the firm's underwriting

activitiesfor two years, and barred its president from association with any brokerdealer-provided that he may reapply for association after two years. The Commission proceeding was based on the entry of an injunction against petitioners in

a prior Commission civil action and on the findings of violations made in that action. Petitioners argue that the Commission employs a "double standard" in sanctioning broker-dealers based on whether they are affiliatedwiththe NewYorkStock

Exchange (NYSE). The Commission's order imposing sanctions found that, in

light of petitioners' serious and repeated violations and their regulatory history,the

sanctions were well within the Commission's discretion.

In the same case, petitioners also attack the Commission enforcement action

that was the basis for the administrative proceeding. They argue that the formal

order authorizing the investigation violated the Fourth Amendment The Commission responds that, since a formal order is neither a search nor a seizure,the Fourth

Amendment does not apply. Separately, petitioners argue that it is a violation of

due process forthe Commission to litigate an injunctive action in district court and

then initiate an administrative proceeding to impose sanctions for the same conduct. 153 The Commission argues that it is well-established that administrative

agencies may combine investigatory, prosecutorial and adjudicative functions.

Moreover,there is no due process violation where an independent decision maker

-a federal court-decides that petitioners have violated the securities laws, and

the Commission subsequently makes a separate determination of whether the

public interest requires a limitation upon petitioners' participation in the securities

business.

Petitioners also have sought judicial review of Commission orders in a variety of

other contexts. For example, the United States Court of Appeals forthe Eighth Circuit affirmed the Commission's order inPagel, Inc. v. SEC, 154where the Commis60
sion had found that, through the use of nominee accounts and other manipulative

devices, a broker-dealer and certain of its affiliates had unlawfully manipulated the

market price of common stock issued in connection with the first public offering of

an unseasoned research and development company.

The United States Court of Appeals for the Ninth Circuit is currently considering

a petition to review the Commission's order in Rutherford v. SEC. 155In that case,

the Commission had affirmed a two-month bar imposed by the NYSE against the

petitioner for deliberately lying on the Uniform Application for Securities Industry

Registration in response to two questions concerning arrests and convictions. Petitioner insists, among other things, that there is no public interest in imposing a

sanction since his arrests and conviction were not securities-related. The Commission contends that the sanction was not imposed on petitioner because of his arrest and conviction record, but because he deceived the NYSE. Therefore, it was in

the public interest to sanction him to deter future acts of deception.

Finally, in Newell v.SEC, 156the United States Court of Appeals for the Ninth Circuit dismissed a petition for review of a Commission order as untimely on the

ground that it was filed 63 days after the date of entry of the order, instead of within

the 60-day period allotted by statute. Newell contended that, for purposes of appellatejurisdiction, the date of entry of the order was the date on which notice of the

order is received. The court, however, agreed with the Commission that, under the

Commission's Rules of Practice, the date of "entry" of a Commission order is "the

date of the adoption of the order by the Commission, as reflected in the caption of

the order," and held that the rule is appropriate.

Constitutional Challenges To Commission Enforcement Authority-In several recent cases, defendants in Commission enforcement actions have moved to

dismiss suits on the ground that the Commission, as an independent agency

whose members are not removable at will by the President, is barred by Article II of

the Constitution from bringing enforcement actions. These defendants argue that

law enforcement is an executive function that may only be exercised by an official

who serves at the pleasure of the President

In SEC v. Thomas, 157the court denied this constitutional challenge from the

bench. InSEC v. Warner, 158the court rejected the constitutional attack in a written

opinion relying heavily on a 1935 Supreme Court decision. 159And in The American Board of Trade, Inc. v. SEC, 160the court dismissed an action for declaratory

and injunctive relief without reaching the constitutional issue, holding that plaintiffs

could assert their claim as a defense in two pending Commission enforcement actions.

Another district court rejected a similar argument in SEC v. Blinder, Robinson

& CO.161 The defendants in that case subsequently raised the argument in two

pending appeals-one to the United States Court of Appeals for the Tenth Circuit

from the district court's denial of a motion to vacate an injuntion in the Commission's enforcement action,162 and another to the United States Court of Appeals

for the District of Columbia Circuit for review of a Commission order in an administrative proceeding. 163In both cases, the Commission argues that the President's

substantial authority over the Commission, including "for cause" removal power,

satisfies the constitutional requirement that the President "take care that the Laws

be faithfully executed." 164

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Commission Participation in Private Litigation-The Commission also participates as a friend of the court in selected private lawsuits that involve significant securities law issues. Such litigation is an important supplement to the Commission's enforcement program. In addition, because the federal securities laws

provide for private remedies as well as government enforcement actions, decisions

in private cases may have precedential effect on the Commission's own regulatory

activities.

InShearson/American Express v. McMahon, 165 the Supreme Court ruled, in

accordance with arguments advanced by the Commission, that the Exchange Act

does not preclude enforcement of pre-dispute arbitration agreements between

brokers and customers to resolve Rule lOb-5 claims. The Commission had urged

that a 1953 decision166 holding a pre-dispute arbitration agreement unenforceable was not applicable in light of the expanded authority given to the Commission

under the Exchange Act since 1975 to regulate arbitration procedures and ensure

that statutory rights are adequately protected.

The Commission has participated in several cases conceming the availability of

private remedies under the federal securities laws. Pinter v. DahL,167 pending before the Supreme Court, concems what relief is available, and who may be liable,

under Section 12(1) of the Securities Act, which provides a private remedy of rescission for violations of the Act's registration provisions. A purchaser of unregistered securities who had encouraged his co-plaintiffs to purchase brought this action to rescind the sales. The defendant argued that the plaintiff was "in 'pari

delicto," or at equal fault, with the defendant and could not, therefore, rescind his

purchases. The Commission takes the position that the issuer may raise an "in pari

delicto" defense where (1) the plaintiff primarily promotes, rather than invests in,

the securities offering, and (2) the plaintiff bears substantially equal responsibility

forthe issuer's failure to register the securities or for the decision to conduct the offering in a manner that requires registration. The Commission also takes the position that only persons who either pass title or who solicit a purchase may be found

liable for the private remedy of rescission under Section 12(1). By contrast, Commission enforcement actions for violations of the registration provisions of the Securities Act may be brought against a broader range of persons, including aiders

and abettors of the seller.

In the case of Ettinger v. Merrill Lynch, 168 a private litigant sued MerrillLynch

under Rule 10b-5 for selling zero-coupon bonds at alleged undisclosed excessive

mark-ups. In a brief filed with the United States Court of Appeals for the Third Circuit, the Commission urged reversal of the district court's determination that a

broker-dealer's compliance with routine confirmation disclosure requirements

precludes fraud liability for undisclosed excessive mark-ups. The Commission

also reiterated its long-standing position that undisclosed excessive mark-ups by

securities dealers violate the general antifraud provisions of the securities laws.

Inanother case conceming the liabilityof a brokerage firm,the Commission has

disagreed with a district court's determination that, when a firm employs a salesman as an "independent contractor," the firm cannot be liable forthe actions ofthe

salesman when he steals its customers' money. In Hollinger v. Titan Capital

Corp., 169 pending before the United States Court of Appeals for the Ninth Circuit,

the Commission argues that, when a firm's salesman is not himself registered as a

62
broker-dealer, the salesman is an associated person of the firm, which has a duty

to supervise him.

InAZL Resources, Inc. v. Margaret Hall Foundation, Inc., 170 the Commission

filed a brief urging that certiorari be denied on the question whether Exchange Act

provisions that make a "controlling person" liable for acts of a company's employees or agents displace common law principles of vicarious liability. The Commission took the position that this question was not squarely presented in the case because the complaint alleged a claim that the company was directly liable for the

fraud at issue. The Supreme Court denied certiorari.

The Commission filed a friend of the court brief in the United States Court of Appeals for the Second Circuit in Brawer v. Options Clearing Corp. 171 This case

raised the question of whether there is an implied right of action, under Exchange

Act provisions relating to clearing agencies and stock exchanges, for violations of

the Options Clearing Corporation (Ocq by-law provision requiring adjustment of

options prices and terms in the event of certain recapitalizations. The Second Circuit agreed with the Commission's position that options investors and the options

markets generally are best served if the adjustment rule, which entrusts the decision to adjust the terms of an option contract to an OCC committee in its "sole discretion," is interpreted to be unreviewable except upon a showing of bad faith by

the decisionmakers.

The Commission recently filed briefs in two cases addressing the question

whether certain debt instruments issued by corporations not subject to federal

bank regulation are securities under the federal securities laws. In Holloway v.

Peat,Marwick, Mitchell &Co.,172 the district court held that debt instruments sold

to the public by a finance company, a trust company, and their parent holding

company met the statutory definition of "security." Nevertheless, relying on Marine Bank v. Weaver, 173 the court concluded that the trust company instruments

were not securities subject to regulation by the Commission. On appeal to the

United States Court of Appeals for the Tenth Circuit, the Commission argues that

the exception identified by the Supreme Court in Marine Bank was based on the

applicability of a comprehensive federal bank regulatory scheme designed to ensurethe solvency of the issuing bank and the safety of deposits. In Holloway, however,the issuers were not subject to federal bank regulation, or even to a comparable state bank regulatory scheme. Thus, the Commission urges that there is no

justification for ousting the protection of the federal securities laws.

Similarly, in Sanderson v. Roethenmund, 174 the Commission contends that

certain instruments called International Certificates of Deposit that are issued by a

corporation not subject to bank regulation are securities under the federal securities laws because: (1) they are "notes" within the definition of "security" in the Securities Act and the Exchange Act; and (2) they are not subject to the Marine Bank

exception. Additionally, the Commission argues that, because these instruments

are within the statutory definition of security, they need not satisfy the test for "investment contract" under the law.175

The Commission successfully urged the United States Court of Appeals for the

Tenth Circuit in Busch v. Cerpenter'l': to reverse the district court's finding that

certain securities were exempt from registration under the Securities Act's intrastate offering exemption. The court agreed with the Commission that this exemp63
tion is only available for a distribution of securities (including resales by persons

purchasing without investment intent) within one state by an issuer "doing business" withinthat state. The court disagreed, however, with the Commission's position that the defendant must show that the original buyers bought with investment

intent Rather, it held that the defendant may make a prima facie case that the securities were distributed in-state by demonstrating that the stock was originally

sold only to residents of that state. The plaintiffthen has the burden ofshowing that

the distribution continued through resales by those persons.

Finally,the Supreme Court, in an opinion involving the impact of the Hague Evidence Convention on the use of traditional discovery procedures, agreed with the

position urged by the United States and the Commission that the Convention does

not provide the exclusive means for obtaining evidence abroad. In deciding S0-

ciete NationaLe IndustrieLLe AerospatiaLe v. United States District Court for the

Southem District of Iowa, 177 the Court also rejected the argument that, before litigants may use ordinary discovery methods, they must resort to Convention procedures. Instead, the Court held that the particular facts of the case-including

sovereign interests and the likelihood that resort to the Convention's procedures

willprove effective-should determine whether the Convention procedures should

be used.

Trading On Material Non-Public Information-Cases involving trading on

material nonpublic information continue to be litigated actively. This year the

Commission participated on appeal in three such cases.

In Carpenter v. United States, 178 the Commission and the UnitedStates argued

to the Supreme Court that itshould sustain the criminal convictions for securities,

mail, and wire fraud of a newspaper reporter and two of his associates for trading

securities while in possession of market-sensitive information stolen from the reporter's employer. On the securities law issue, the Government argued that their

fraudulent scheme to purchase securities on the basis of nonpublic information

stolen in breach of the reporter's fiduciary duty to his employer violated the federal

securities laws. A primary purpose of the antifraud provisions isto preserve the integrity of the securities markets, and that integrity is threatened whenever persons

obtain an unfair advantage by trading on stolen nonpublic information. Subsequent to the close of the fiscal year, the Supreme Court unanimously affirmed the

mail and wire fraud convictions, and affirmed by an equally divided court the securities fraud convictions.

In SEC v. Certain Unknown Purchasers of the Common Stock and CaLLOptions of Santa Fe Intemational Corp., 179 an action based on illegalinsider trading,

two objectors to a Commission settlement appealed to the United States Court of

Appeals for the Second Circuit a decision by the district court to limit recovery

from the disgorgement fund to those who sustained net losses during the period

of illegaltrading alleged in the Commission's complaint The court dismissed the

objection of one investor whose losses occurred before that period. With respect to

the other investor, who had traded during the time period but who had sustained

no net losses, the Court held that, in light of the limited size of the disgorgement

fund,itwas reasonable for the district court to allow recovery only for investors who

suffered over-all losses.

Fmally, in another insider trading action, SEC v. Tome, 180 the United States

64
Court of Appeals for the Second Circuit affirmed a judgment in favor of the Commission against defendants who traded on nonpublic information about a corporate takeover. The district court had enjoined the defendants--an Italian national,

an Italian broker-dealer, and three Panamanian corporations-from further antifraudviolations and ordered disgorgement of more than $5.1 million in illegalprofits and interest The court of appeals rejected the argument of the Italian defendants that the district court never obtained jurisdiction over them because they were

never served personally with the complaint in the proceeding, but were served instead by notice published in a newspaper. Under the circumstances of this caseincluding efforts by the Italian defendants to deceive the Commission about their

involvement in the illegal trades and difficulties posed by foreign bank secrecy

laws-the publication notice was found by the court to be adequate and not in violation of constitutional due process guarantees. The court also dismissed argu-.

ments raised by all the defendants about the admissibility and sufficiency of the

evidence, and rejected a challenge to the lower court's disgorgement order. (The

court had earlier granted the Commission's motion to dismiss the appeal of another defendant in this case, who has refused to appear in response to an arrest

warrant issued in a related criminal case, on the ground that he is a fugitive from

justice.)

Tender Offer and Merger litigation-This year, as in past years, the Commission filed friend of the court briefs in several cases involving tender offers and

mergers.

InCIS Corp. v.Dynamics Corp., 181 the Supreme Court upheld the constitutionalityofthe Control Share Acquisitions Chapter of the Indiana Business Corporation

Law. The Commission and the United States had argued that the statute, which

strips certain securities purchasers of voting rights unless "disinterested" shareholders vote to restore them, is an unconstitutional restraint on interstate commerce. The Court rejected that argument, holding that the statute, to the limited extentitaffects interstate commerce, isjustified by the state's interests in defining the

attributes of shares in its corporations and in protecting shareholders. The Court

also found that the statute does not discriminate against interstate commerce in

securities since it does not distinguish interstate from intrastate acquisitions, and

does not create an impermissible risk of inconsistent regulation by differentstates.

In addition, the Court held that the Williams Act does not preempt the Indiana

statute.

In a pending case, Basic Incorporated v. Levinson, 182 the Commission filed a

briefin the Supreme Court concerning the standard for assessing the materiality of

merger negotiations under Rule lOb-5. The brief also addresses the issue of

whether the fraud-on-the-market theory can be used to show a plaintiffs reliance

on fraudulent corporate statements. The Commission argues that the proper standard for materiality is whether a reasonable investor would consider the information significant in making investment decisions. The significance to investors of an

uncertain event, such as a prospective merger, depends on balancing the importance of the merger to the company against the likelihood of its occurrence;

merger activity is material if the activity significantly increases the possibility of a

value-affecting merger. The Commission also argues that the fraud-on-themarket:theory is appropriate where there is an active secondary market, so that the

65
price of securities reflects corporate misstatements disseminated in the marketplace. A plaintiff who relies on a market price that reflects fraudulent statements

may be deemed to have indirectly relied on the fraudulent statements. Furthermore, the Commission argues, it is appropriate to presume that prices in active

secondary markets do reflect corporate statements and that investors do rely on

the integrity of the prices in those markets in making investment decisions.

At the request of the United States Court of Appeals for the Ninth Circuit, the

Commission filed a brief in Newmont Mining Corp. v. Pickens, et el., 183 arguing

that the federal securities laws do not require that a tender offeror have a firm financing commitment in place before commencing a tender offer. Rather, the

Commission argued, an offeror must fully and accurately disclose whatever financing arrangement has been made, and later amend its disclosure statement if

and when it acquires firm financing. This may require the offeror to extend the period of the tender in order to give shareholders an adequate opportunity to consider the new information. The court held, in a two-to-one decision, that the federal

securities laws do not require that a tender offeror have flxed financing before it

commences an offer.

The Commission filed a friend of the court brief in the Texas Supreme Court in

the case of Texaco, Inc. v. Pennzoil Co.,184 supporting review of an intermediate

state appellate court ruling that Pennzoil's contract to purchase stock did not violate Commission Rule 1Ob-13.The rule prohibits persons who have made a tender

offer for a security from purchasing, or making an arrangement to purchase, the

security other than through the tender offer. The Commission argued in its brief

that the alleged contract was an arrangement by Pennzoil to purchase stock outside of its outstanding tender offer for that stock, and thus violated the rule. The

Texas Supreme Court, finding no reversible error, refused to reviewthe case.

Litigation Involving Requests for Access to Commission Records-Although

the Commission received more than 5,000 Freedom of Information Act (FOIA)

and confidential treatment requests in fiscal year 1987, only three ofthose requests

resulted in the filing of court actions against the Commission. Two cases were resolved favorably to the Commission, and the third, decided adversely to the Commission, is on appeal. The Commission received 1,908requests under the FOIAfor

access to Commission records and 3,205 requests for confidential treatment from

persons who submitted information. In fiscal year 1987, there were 69 appeals of

FOIArequest denials to the Commission's General Counsel and four appeals of

confidential treatment request denials.

In one of the FOIA cases, Occidental Petroleum Corp. v. SEC, 185 the plaintiff

sought review of the Commission's partial denial of its request for confidential

treatment of documents obtained by the staff during its investigation of questionable foreign payments by Occidental. The district court remanded the matter to

the Commission for revision of its confidential treatment procedures and reconsideration of Occidental's request The Commission's appeal of the district court's

order is pending.

Litigation Against the Commission and Its Staff-During fiscal year 1987,the

Commission and its staff were defendants in 56 actions in which persons sought

to challenge Commission rules, to enjoin Commission law enforcement efforts,to

66
obtain awards for damages, or to challenge personnel decisions. The Commission

prevailed in all but one of the 15 cases decided during the fiscal year.

In Sprecher v. Fischer, 186 the United States Court of Appeals for the Second Circuit upheld a district court order dismissing Sprecher's second challenge of an ongoing Commission investigation. The district court concluded that resjudicata

and collateral estoppel barred his claims. In Panaro v. von Stein, 187 the plaintiff

has alleged that the same Commission investigation challenged in Sprecher v.

Fischer, 188 is unlawful. Panaro's motion to dismiss the complaint with prejudice as

to two defendants, and without prejudice as to the others, is pending.

In Kendrick v. Zenides, 189 plaintiff brought a baseless retaliatory private damages action against the Commission staff members who participated in successful

civil and criminal prosecutions against him for various federal securities law violations. After dismissing the action, the court awarded the Commission attorney's

fees as a sanction against plaintiff's counsel for filing this frivolous case. Plaintiff's

counsel appealed the fee award to the United States Court of Appeals for the Ninth

Circuit, but subsequently withdrew the appeal.

Three actions were filed under the Right to Financial Privacy Act seeking to block

Commission subpoenas of bank records. In each of these cases, the district court

found that the Commission was seeking the records for a legitimate law enforcement inquiry and ordered compliance with the Commission's subpoenas.

In addition, two motions were filed in fiscal year 1987 under the Equal Access to

Justice Act seeking attorneys fees and expenses. The court awarded fees in the first

case.The Commission's appeal of that award is pending. In the second action, an

insider trading case, the court found that the Commission was substantially justified in bringing the suit and denied defendants' fee applications. The defendants'

appeal of that order is pending.

Finally, three court actions were filed against the Commission raising allegations

of illegal discrimination under Title VII of the Civil Rights Act of 1964. One of these

actions is pending; the other two were decided favorably to the Commission.

Significant Legislative Developments

Insider Trading-On December 11, 1986, former Chairman Shad testified before the Subcommittee on Oversight and Investigations of the House Committee

on Energy and Commerce concerning the Commission's insider trading program.

The Chairman discussed some of the Commission's recent significant insider

trading cases, observing that these developments demonstrated the Commission's enhanced abilities to discover and prosecute inside traders.

During the lOOth Congress, the Senate held a series of hearings on legislation to

define insider trading. On June 19, 1987, Commissioner Cox testified before the

Subcommittee on Securities of the Senate Banking, Housing and Urban Affairs

Committee, concerning a statutory definition of insider trading. He stated that the

Commission could support a statutory definition that preserved its enforcement

authority, but the Commission did not support S. 1380, a proposal before the Subcommittee, because certain provisions in the bill would impede enforcement efforts. At the request of the Subcommittee, the Commission prepared its own proposal for an insider trading definition, which was submitted to the Subcommittee

on August 3, 1987, and discussed by Commissioner Cox in testimony on August

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7. Following the August 7 testimony, at the request of Senators Riegle and

D'Amato, the Commission participated in efforts to develop a consensus proposal

for legislation defining insider trading. As a result of this process, on November 18,

1987, the Commission submitted revised legislation defining insider trading.

Regulation of Corporate Takeovers-Both the House and Senate actively considered legislation conceming the regulation of corporate takeovers during the

first session of the 100th Congress. In April 1987, Commissioner Cox testified before the Subcommittee on Antitrust Monopolies and Business Rights of the Senate

Judiciary Committee. His testimony summarized the Commission's recent activity

in the tender offer area and discussed various proposals for amending the law governing takeovers.

On June 23, 1987, Commissioner Cox testified before the Senate Committee on

Banking, Housing and Urban Affairs concerning proposed corporate takeover legislation. Subsequently, on September 17, 1987, Chairman Ruder testified before

the Subcommittee on Telecommunications and Finance of the House Committee

on Energy and Commerce concerning legislative proposals on takeovers. The

Commission's testimony generally supported legislation that would reduce the initial Schedule 13D filing period and, until a Schedule 13D is filed, prohibit further

acquisitions once the filing threshold is crossed. The Commission also favored

legislation to enhance its enforcement remedies for violations of the Section 13(d)

reporting requirements, including the authority to seek monetary penalties. The

Commission did not, however, support a number of other proposals that would

substantially alter the present scheme for regulating tender offers.

Proposed Bank Broker-Dealer Act-On May 4, 1987, the Commission sent to

Congress the proposed Bank Broker-Dealer Act, which would amend the Exchange Act to allow the Commission to regulate certain brokerage activities of

banks. This legislation is an outgrowth of Rule 3b-9, which was invalidated by the

United States Court of Appeals for the District of Columbia Circuit in November

1986. The proposal would amend the Exchange Act's definition of "broker" and

"dealer" to include banks engaging in public solicitation of brokerage business,

banks receiving transaction-related compensation for brokerage services provided to trust, managing agency or other advised accounts, and banks dealing in

or underwriting securities. Additionally, the proposal would amend Section 15(a) of

the Exchange Act to require that banks establish separate entities, registered with

the Commission, to engage in securities activities, so that the Commission's regulation of those activities would not conflict with the regulation of banking activities

by other agencies. The Commission believes that this legislation is necessary to

protect the investors who do business with bank brokerage departments and to ensure that all entities engaged in the securities business are subject to a uniform regulatory scheme.

Proposed Truth in Savings Act-On August 5, 1987, General Counsel Daniel L.

Goelzer testified on behalf of the Commission before the Subcommittee on Consumer Affairs of the Senate Banking, Housing, and Urban Affairs Committee in

connection with the proposed Truth in Saving Act That legislation would require

uniform disclosure of interest rates payable on deposit accounts offered by depository institutions and of fees assessable against such accounts. The Subcommittee

asked the Commission whether the bill should be amended to include investment

68
companies. The General Counsel stated that such an amendment was unnecessary because the Commission has broad authority to regulate investment company advertising, and has exercised that authority to require widespread dissemination of investor information. In addition, in light of the functional differences

between deposit instruments and investment companies, there would be numerous practical problems if investment company activities were regulated under legislation designed for bank deposit accounts.

AgriculturaL CreditAct of 1987-0n September 14, 1987, Congressman John

D. Dingell, Chairman of the House Committee on Energy and Commerce, requested Chairman Ruder's views on H.R. 3030, the proposed Agricultural Credit

Act of 1987, which would provide for the creation of securities backed by pooled

Farmers Home Administration loans. On October 1,1987, General Counsel Goelzertestified on this Act on behalf of the Commission at hearings held before the

Subcommittee on Telecommunications and Finance of the House Committee on

Energy and Commerce. By letter dated October 15, 1987, the Commission objected to the proposed exemption of such securities from the Securities Act and

the Exchange Act, arguing that the securities law exemption granted to the securities of other federally chartered corporations should not be considered a precedent in the case of these new securities, where the federal guarantee would be for

lessthan 100 percent of the value of such securities. The Commission also stated

that brokers and dealers in the farm loan securities market should be regulated under the broker-dealer provisions of the Exchange Act, rather than the Govemment

Securities Act of 1986, which regulates the activities of govemment securities dealers.Following the hearings, the proposed Agricultural Credit Act was amended to

incorporate the Commission's recommendations.

Commission Authorization Request-On May 13, 1987, former Chairman

Shad testified before the Subcommittee on Securities of Senate Banking, Housing,

and Urban Affairs Committee in support of the Commission's authorization request for fiscal years 1988-1990. Commissioner Cox testified on the same subject

before the Subcommittee on Telecommunications and Finance of the House

Committee on Energy and Commerce on June 4, 1987. The authorization requests include a set of conforming, clarifying, and other technical amendments to

the securities laws. In addition to correcting errors and deleting various obsolete

provisions, the legislation would give the Commission and the appropriate bank

regulators authority to sanction not only transfer agents but persons associated

with transfer agents aswell. The grounds for sanctions would be expanded from violations of the transfer agent provisions of the Exchange Act to include convictions, injunctions, administrative orders, and misconduct of the type that are

grounds for sanctions against other securities professionals.

FinanciaL Guarantee Study-Section 105 of the Government Securities Act of

1986 directed the Commission to perform a study concerning "the use of the exemption contained in (S)ection 3(a)(2) of the Securities Act of 1933 (15 U.S.c.

77c(a)(2» for securities guaranteed by banks, and the use of insurance policies to

guarantee securities." On August 31, 1987, the Commission transmitted its report,

which concluded that the Section 3(a)(2) exemption places insurance companies

at an apparent competitive disadvantage, since a corporate security backed by a

bank standby letter of credit is exempt from the Securities Act's registration re69
quirements, but a corporate security backed by an insurance policy is not The

Commission, however, was unable to quantify the extent of disadvantage. To address any disparity, the Commission recommended that Congress amend Section

3(a)(2) of the Securities Act to eliminate the exemption from registration for securities issued or guaranteed by banks. At the same time, the Commission recommended that Congress amend the Securities Act to provide authority for the Commission to grant exemptive relief from the registration provisions of the Act for

those securities or securities transactions for which full registration is unnecessary.

Report on the InternationaLization of the Securities Markets-In July 1987,

the Commission's staff submitted its Report on the Internationalization of the Securities Markets to the House Committee on Energy and Commerce and the Senate Committee on Banking, Housing, and Urban Affairs. This comprehensive

report examined a wide range of issues raised by the accelerating internationalization of the securities markets, including: (1) United States and foreign disclosure

and distribution requirements and their application to international issues of securities; (2) differing accounting and auditing standards in relation to multinational issues of securities; (3) the globalization of securities markets and its effects on

broker-dealers, investment companies and investment advisers; (4) the enforcement of the United States securities laws in a global securities market; and (5) economic trends affecting internationalization. In preparing the report, the Commission staff conducted extensive research in the fields of law, economics and

accountancy. The staff anticipates that the report will be used by Congress and the

Commission to examine possible legislative, rulemaking, or policy initiatives to

deal with internationalization of the securities markets.

Federal Government Loan Sales-On February 19, 1987. former Chairman

Shad testified before the Senate Committee on the Budget about the applicability

of the federal securities laws to the sale of federal government loan assets. On

March 10, 1987, Commissioner Fleischman testified before the House Committee

on Small Business on the same subject. Sales of such federal assets are mandated

by the Omnibus Budget Reconciliation Act of 1986 in order to reach the GrammRudman-Hollings fiscal year 1987 deficit target of no more than $144 billion. The

Commission reviewed the applicability of the Securities Act to the proposed sales,

possible statutory exemptions that might be utilized, and the requirements imposed by registration under the Securities Act. The Commission also examined

how the government loan sales would be affected by other securities statutes, particularly the Exchange Act and the Investment Company Act of 1940.

Corporate Reorganizations

The Commission acts in a statutory advisor's role in reorganization cases under

Chapter 11 of the Bankruptcy Code to ensure that the interests of public investors

are adequately protected. In these cases a debtor generally is allowed to continue

business operations under court protection while it negotiates a plan to rehabilitate

the business and to pay the company's debts. Reorganization plans often provide

for the issuance of new securities to creditors and shareholders in exchange for

part or all of their claims or interests in the debtor, under an exemption in the Bankruptcy Code from registration under the Securities Act.

70
In its capacity as special advisor, the Commission may raise or present its views

on any issue in a Chapter 11 case. Although the Commission may not initiate an

appeal, it frequently participates in appeals taken by others. While Chapter 11 relief

is available to businesses of all sizes,the Commission generally limits its participation to cases involving debtors that have publicly traded securities registered under

the Exchange Act. In fiscal year 1987, the Commission presented its views on a variety of issues.

Committees-Official committees are empowered to negotiate with a debtor in

possession on the administration of a case and to participate in all aspects of the

case, including formulation of a reorganization plan. With court approval, an official committee is permitted to employ, as a cost of administration, one or more attorneys, accountants, or other agents to assist the committee in performing its

duties. In addition to a committee representing creditors holding unsecured

claims, the Code allows the court or a United States Trustee to appoint additional

committees for stockholders and others where necessary to assure adequate representation of their interests. During fiscal year 1987, the Commission moved or

supported motions for the appointment of committees to represent investors in

three Chapter 11 cases. 190

In In re Johns-Manville Corp.,191 the Official Equity Holders Committee, appointed at the outset of the case to represent both common and preferred interests,

moved to have itself disbanded because of irreconcilable conflicts over the

debtor's proposed plan, and sought the appointment of separate committees to

represent the two interests. The bankruptcy court disbanded the official committee

but refused to appoint separate replacement committees. In so doing, the court relied principally on the presence of individual common and preferred shareholders

who were active in the case. In addition, the court expressed its belief that shareholders would not suffer a "critical degree" of prejudice if new committees were not

appointed. The Commission supported an appeal by both classes of shareholders

to the district court, urging that the bankruptcy court had applied improper legal

criteria in refusing to appoint the substitute committees. The district court, however, found no abuse of discretion in the bankruptcy court's refusal to appoint the

committee. The court also concluded that, since Manville had already filed a plan

of reorganization substantially diluting common stockholder interest, there was no

longer a need for an official committee to represent shareholders.

The Commission supported a further appeal by certain Manville common

stockholders to the United States Court of Appeals for the Second Circuit from this

refusal to appoint a committee. In connection with this appeal, the Commission

joined the stockholders in seeking to stay the hearing on confirmation of Manville's

plan pending resolution of this key issue. The Commission urged that, contrary to

the reasoning of the lower courts, a committee was needed to represent common

stockholders at the critical stage of plan confirmation. The court denied the stay

and thereafter dismissed the appeal without reaching the merits, holding that it

lacked jurisdiction over the committee controversy since the order refusing to appoint an official committee was not a final, appealable order. The court concluded

that such orders were reviewable only on appeal from the final order of plan confirmation or upon certification of an interlocutory order from the district court

In In re The LTV Corporation, 192 the Commission, as a result of its experience

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in Manville, filed a motion for the appointment of separate equity security holders

committees to represent common and preferred stockholders. The Commission

argued that, because the appointment of separate committees is economically

feasible in a large case such as this (involving some $6.3 billion in assets), itis preferable to appoint such committees at the outset rather than waiting until an actual

conflict develops. Appointing a single committee to represent both interests is appropriate only in smaller cases where itis economically infeasible for the estate to

bear the cost of two committees for the duration of the case. The bankruptcy court

disagreed with the Commission and appointed a single committee to represent

both common and preferred shareholders.

Consistent with its reasoning in LTV, the Commission moved in In re Towle

Manufacturing CO.193 for the appointment of a single equity security holders

committee to represent both common and preferred stockholders. The Commission concluded that, in light of the debtor's relatively small size and number of

shareholders, two committees were impracticable. After initiallydenying the Commission's motion for a committee, the bankruptcy court, upon rehearing, ordered

the appointment of a single stockholder committee.

The Commission responded on another important issue related to committees,

in In re Psych Systems, Inc., 194 to objections filed by creditors concerning the

proper standard to be applied in awarding attorney fees for an official equity securityholders' committee when the estate proves to be insolvent and shareholders do

not ultimately participate in the plan of reorganization. The Commission urged that

the provision inSection 330(a) of the Bankruptcy Code, which authorizes payment

forthe "actual and necessary" professional services of a committee, permits compensation for attorney's services reasonably related to the perforrnance of duties

within the scope of the committee's official responsibilities, without regard to

whether those services produce a measurable benefit to the estate or to the committee's constituents. The Commission pointed out that the proper remedy is to

disband a committee when it becomes apparent that the committee is unnecessary, rather than altering the standard of compensation for committee counsel at

the end of a case. The bankrutpcy court, agreeing with the Commission, authorized payment to committee counsel.

EstateAdministration-The Commission acts to protect the interests of public

investors in reorganization cases by participating on selected issues involving administration of the debtor's estate that have a significant impact upon the rights of

public investors.

In In re Amarex, Inc., 195 the Commission supported an appeal to the district

court by limited partner investors, urging reversal of the bankruptcy court's decision to subordinate all their claims pursuantto Section 51O(b) of the Bankruptcy

Code, which provides for the automatic subordination of rescission or damage

claims arising out of the purchase or sale of securities. The Commission argued

that Section 51O(b) should not be read to subordinate every claim by a security

owner against a debtor. The Commission pointed out that itis not uncommon for

security owners to have distinct and legitimate claims other than securities fraud

type claims and that Section 51O(b)was not intended to affect those claims. The

district court agreed with the position urged by the Commission, noting that the

statute's language and the legislative history reveal that Congress intended subor72
I

j

dination to apply to claims related to the purchase or sale of a security--and to no

other claims. An appeal to the United States Court of Appeals for the Tenth Circuit

is pending.

The case of In re Standard Metals 196 raised the issue of whether a debtor that

has taken no steps to give notice of the time for filing claims to potential creditors

notlisted on itsschedules may cut offthe right ofsuch creditors who filelate claims

to participate inthe reorganization. The bankruptcy court concluded that, because

the claim involved in the case, which was based on the debtor's violations of the

federal securities laws, was presumably unknown to the debtor before the claims

bar date was established, notice of the bar date was not required, The district court

affirmed. The Commission argued in an appeal to the United States Court of Appeals for the Tenth Circuit, that the Bankruptcy Code and rules impose a duty on

the debtor to give at least publication notice to unscheduled creditors. In addition"

the Commission argued that due process requires an appropriate form of notice

before claims may be barred and discharged in a reorganization case. In its initial

opinion, a panel ofthe court affirmed the lower courts' orders without reaching the

question of notice. 197 A dissenting judge urged that due process required notice,

and that the debtor and the bankruptcy court had a duty to give notice once the existence of creditors claiming fraud became known.

Thereafter, the court granted a petition for rehearing on the issue of notice. On

rehearing, the Commission reiterated its viewthat the Bankruptcy Code and rules

as well as due process require publication notice to unscheduled creditors.

The Commission also argued that, where creditors subsequently become

known,the statute places a duty on the debtor and on the bankruptcy court to see

that appropriate notice is directed to those creditors. The appeal on rehearing is

pending.

The Commission has taken the position, both in Standard Metals and in In re

American Reserve, 198 a Chapter 7 case in which the Commission is appearing as

a friend of the court, that a creditor may file a class proof of claim in bankruptcy on

behalf of other similarly situated creditors. In its briefs,the Commission has argued

that neither the Bankruptcy Code nor the Bankruptcy Rules should be read to preclude the fIlingof class proofs of claims. In the Commission's view,the broadened

claim concept adopted in the Bankruptcy Code, and the prospect that many individuals in a bankruptcy may have similar claims, are inconsistent with a restrictive

interpretation of the proof of claim requirement The Tenth Circuitin its initialopinion in Standard Metals disagreed with the Commission on this issue and ruled

against class claims in bankruptcy. Likewise,a district court ruled inAmerican Reserve against the filing of class proofs of claim. An appeal to the Seventh Circuitis

pending in American Reserve, where the Commission has reiterated its longstanding position. An appeal is also pending on this issue in the district court in In

re Charter Co.,199 where the Commission has taken the same position.

Disclosure Statements/Plans of Reorganization-A disclosure statement is a

combination proxy and offering statement used in soliciting acceptances of a plan

of reorganization. Such plans often provide for the exchange of new securities for

claims and interests of creditors and shareholders of the debtor. The Bankruptcy

Code provides that adequate disclosure isto be made without regard to whether or

not the information provided would otherwise comply with the disclosure require73
ments of the federal securities laws. But, in recognition of the Commission's special expertise on disclosure questions, the Bankruptcy Code recognizes the Commission's right to be heard, distinct from its special advisory role, on the adequacy

of disclosure. For this reason, the Bankruptcy Rules require service on the Commission of all disclosure statements.

During fiscal year 1987, the Commission received approximately 5,288 disclosure statements filed in Chapter 11 cases involving both privately-held and

publicly-held corporations. The staff limits its review to those disclosure statements filed in cases involving a publicly-held company or a company likelyto be

publicly traded as a consequence of the reorganization. During 1987,the staff reviewed 143 disclosure statements.

Inits reviewof disclosure statements, the staffseeks to determine whether the issuance of securities under a plan is consistent withthe exemption from registration

in the Bankruptcy Code and otherwise in compliance with the federal securities

laws.The Commission also reviews statements to determine whether there is adequate disclosure concerning the proposed plan. Generally, the Commission seeks

to resolve questions concerning bankruptcy disclosure through staff comments to

the plan proponent If questions cannot be resolved through this process, the

Commission may object to the disclosure statement in the bankruptcy court.

During fiscal year 1987,the Commission commented on disclosure statements

in 108 cases, and objected to a disclosure statement in one case. In In re Custom

Laboratories, Inc.,200 the Commission filed objections to the debtor's disclosure

statement, arguing that it contained inadequate information concerning management, the feasibility of the reorganization plan, and the basis for relying upon the

bankruptcy exemption from Securities Act registration for the sale of securities to

existing shareholders. The Commission also urged the court to order amendment

of the plan to eliminate provisions that purported to release non-debtor individual

liability.Following the filing of the Commission's objections, the debtor withdrew

its disclosure statement

In addition to specific disclosure concerns, the Commission acts to assure that

public investors are given an opportunity to be heard on disclosure-related questions. From time to time, the Commission objects to confirmation of plans where

there is a significant legal question presented. During fiscal year 1987, the Commission objected to confirmation in two cases and filed a brief on issues raised in

an appeal from plan confirmation in a third case.

The Commission filed objections to confirmation of reorganization plans that

provided for the discharge of third party liabilityfor securities lawviolations in In re

Energy Exchange Corporation and Vulcan Energy Corporation,201 and In re

Storage Technology Corporation. 202 The Commission argued that, unless there

is separate consideration in exchange for the discharge, a plan cannot condition

the receipt of distributions under a plan on release of claims against third parties.

The Commission argued that such a discharge contravenes Section 524 of the

Bankruptcy Code, which provides that the discharge of a debtor does not affectthe

liabilityof any other entity with respect to the debt The Commission further argued

that insofar as a plan purports to release persons from liabilityunder the federal securities laws, it is contrary to public policy. In both cases, the bankruptcy courts

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overruled the objections, holding that the release provisions of the plan were not

improper discharges under the Code.

In In re Johns-ManvilLe,203 the Commission filed a brief in an appeal by common stockholders of the bankruptcy court's order confirming a plan of reorganization. In its brief, the Commission reiterated its position that common stockholders

in that case were improperly denied representation at the confirmation hearing because of the bankruptcy court's refusal to appoint an official committee. The Commission, however, recognized that the error in refusing to appoint a committee did

not necessarily require reversal and a new hearing. The Commission urged that the

appropriate standard of review in light of the error was whether there was a reasonable possibility that the shareholders, if represented by a committee, could have

presented evidence disputing the debtor's evidence of insolvency. The district

court subsequently affirmed the bankruptcy court's order confirming the plan of

reorganization .

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Economic Research and Analysis

Key 1987 Results

The economic and statistical research program provides the Commission and

the Divisions with the perspective and the technical support required to understand

and evaluate the economic aspects of Commission regulation. This program is

carried out by the Directorate of Economic and Policy Analysis (DEPA) and the Office of the Chief Economist (OCE).

The economic staff provides the Commission with economic advice and research studies on rule proposals, established policy and the capital markets. The

staff assists the Commission in making decisions affecting the efficiency and

structure of our nation's securities industry and markets. In addition, the program

encompasses statistical monitoring of major program initiatives impacting the securities industry, domestic and international capital markets, and publication of the

Commission's SEC Monthly Statistical Review.

Changes in the marketplace have increased the number and complexity of economic issues before the Commission. The trend toward increased internationalization of the securities markets, the recent turbulence in financial markets, the application of new technology within the industry, and the continued expansion of new

financial products have greatly complicated the analysis of the impact of Commission regulation. New and more complex market structures and trading systems

also increase the need for economic analysis. For example, the operation of options markets has significantly changed due to the introduction of new automated

execution systems and as a result of different exchanges trading options on the

same NASDAQ securities.

The world's securities markets have become more interdependent in response

to economic, institutional, technological and regulatory forces. At the same time,

the securities markets have assumed a larger role in the international capital market as international bond issues grew from $38 billion in 1980 to $225 billion in

1986. Regulatory changes are now occurring in the capital markets of, among

others, the United Kingdom, Canada, Japan and France. There has also been a

rapid maturation of foreign securities markets which have experienced faster

growth rates compared to the United States market

United States and Canadian securities markets have developed electronic trading links, and the London Stock Exchange now participates in the first transatlantic

link with United States markets, exchanging quotation information in selected

stocks. The National Association of Securities Dealers is also planning to begin the

exchange of quotations with the Stock Exchange of Singapore. Additionally, the

American Stock Exchange has entered into an agreement with the European Options Exchange which allows investors to open an options position in one market

and close it in the other. United States clearing agencies have begun to develop

links with clearing agencies from around the world.

During fiscal 1987, the economic staff reviewed 110 rules and rule proposals.

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Rule reviews emphasized the economic costs and benefits of alternative approaches to regulation. In addition, advice was given to the operating divisions on

requirements of the Regulatory Flexibility Act (RFA), particularly focused on reducing regulatory burdens on small business entities. In fiscal 1987,the economic staff

reviewed 65 RFA analyses and certifications.

Also during the fiscal year, the staff prepared a report to Congress, in conjunction with other divisions and offices, on the internationalization of securities markets.Specifically, the economics staff analyzed: (1) the extent and nature of international trading in securities; (2) United States and foreign portfolio investment

patterns; (3) the growth of the international bond and equity market; (4) major restructuring in overseas markets; and (5) the emergence of various international

funds as vehicles to facilitate international capital flows. The staff published a

major study on the effects of multiple trading in options based upon recent experience with options on OTC equities aswell as on the traditional listed equities. The

staff also prepared a report analyzing the use of repurchase agreements by brokerdealers and the risks which are involved in such transactions. This study was used

asa framework for considering several amendments to the broker-dealer financial

responsibility and recordkeeping rules. The staff also developed a system to detect

and analyze possible instances of market manipulation involving the use of options.

In the full disclosure area, the staff prepared an empirical analysis of the trading

and returns behavior of initial public offerings to assist the Commission in determining the appropriate time period needed for prospectus delivery. The staff also

updated an earlier analysis of Schedule 130 filings to aid in determining the need

for revisions in beneficial ownership reporting. Studies completed in the corporate

control area covered such topics as sources of tender offer financings, dual class

recapitalizations, effects of defeating takeover attempts, market anticipation of

takeovers and the effects of the Ohio takeover law. Additionally, the economics

staff assisted the Division of Corporation Finance in examining alternative criteria

for establishing the threshold parameters for including corporations in the mandatory disclosure system. The staff prepared a study assessing the effects of Rule 415

(shelf registration) on the revenues of securities underwriters. Another study analyzed the effects of an accounting ruling which upheld a book value ceiling test for

oil and gas companies using full-cost accounting.

The economics staff examined fund disclosure regarding the costs of buying,

holding and redeeming mutual fund shares to determine if it is meaningful and accessible enough to assist investors in making informed decisions. Other analyses

examined the use of fund assets in the distribution of mutual fund shares and the

results of this practice for investors, investment companies and the fund distribution system. The staff also examined problems that have developed in mutual fund

advertising practices in portraying fund performance and evaluated the impact of

potential regulatory solutions on the effectiveness of fund advertising and the ability of investors to make informed decisions.

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Management and Program Support

Key 1987 Results

The goals of program direction are to formulate and execute the Commission's

policies and to efficiently manage the agency's resources in support of those policies. Those goals are accomplished primarily in two ways-policy management

and administrative support. Policy management activities involve formulation, review and assessment, information dissemination, and executive resource management. Administrative support encompasses services such as accounting, data

processing, staffing and logistics to support the Commission's work.

Policy Management

The Commission continued hosting roundtable discussions and other forums

with industry and investor representatives on a variety of issues relating to the securities markets. The Commission held 120 meetings to consider approximately

570 rule proposals, enforcement actions, and other matters that significantly affect

the health of the securities markets and the nation's economy. In addition, Commission officials testified in 19 Congressional hearings on topics such as tender offer regulation, insider trading, program trading, and the internationalization of the

securities markets.

The Commission's management staff initiated 24 major projects during the fiscal year including reviews of the information security program and internal control

objectives. In addition, numerous internal audits were conducted of Commission

programs, activities and functions.

Consumer Affairs and Information Services

Consumer affairs specialists responded to approximately 40,000 complaints

and inquiries during fiscal year 1987, representing an 11 percent increase over last

year. Of these, approximately 46 percent involved investor disputes with registered

broker-dealers, 23 percent related to general inquiries, and 18 percent concemed

issuers of securities. The remaining complaints and inquiries related to mutual

funds, transfer agents, banks, or investment advisers. The majority of complaint

letters were processed internally. However, 29 percent of the letters were referred

on behalf of the investor to investment firms for review and resolution. In addition,

the Office of Consumer Affairs and Information Services developed materials to

apprise investors of the current status of companies involved in class action litigation and bankruptcy proceedings, and also began revising its consumer education

materials.

The office processed 1,908 Freedom of Information Act (FOIA) requests and

3,205 confidential treatment requests during the fiscal year, representing increases

of 24 and 64 percent, respectively, over fiscal year 1986. Confidential treatment requests were typically made in connection with proprietary corporate information

and were carefully evaluated. The staff also coordinated 2,005 Congressional re78
quests for Commission records, representing a 50 percent increase over last fiscal

year.The Commission's FOIA regulations were amended to comply with the Freedom of Information Reform Act of 1986 and subsequent policy guidance from the

Office of Management and Budget and the Department of Justice.

More than 21,000 visitors used the Commission's Public Reference Room in

Washington, D.C.The public can view most corporate filings, broker-dealer and investment advisor registrations, Commission releases, and other public materials at

this facility. Approximately 358,800 documents were recorded on microfiche and

made available to the public during the fiscal year. The Commission also maintains Public Reference Rooms in the New York and Chicago regional offices.

Equal Employment Opportunity

The Office of Equal Employment Opportunity (EEO) staff conducted a onehour seminar on the prevention of sexual harassment in the workplace for all Commission employees. The EEO staff also instructed 165 managers and supervisors

from headquarters and two regional offices on issues dealing with EEO law, affirmative action, complaint processing, and other EEO matters.

During fiscal year 1987, the employment of women increased 2.7 percent. Employment for all other minority groups remained constant. The Commission's

work force consists of 32 percent minorities and 49 percent women. As in past

years, the contributions and achievements of minority groups and women were

recognized with programs for Afro-American History Month, Asian-Pacific American Heritage Week, Hispanic Heritage Week, and Women's Week.

The Commission-Securities Industry Committee on Equal Employment Opportunity continued its financial support of minority students by awarding $17,000

in scholarships during the fiscal year. Scholarship funds were contributed by brokerage firms, exchanges, securities associations, broker-dealers, and investment

advisers that are members of the Committee.

Facilities Management

The Office of Administrative Services (OAS) assisted in relocating the Boston regional office and the San Francisco branch office and began negotiating with the

General Services Administration (GSA) on the forced relocation of the New York

regional office. OAS also acquired additional space in the Commission's headquarters building to support expanded enforcement operations and the EDGAR

project, requiring extensive alterations to accommodate new staff. In addition, GSA

delegated contract authority to the Commission over the existing guard contract

for the headquarters building. As a result, the Commission saved $70,000 because

GSA no longer received reimbursement for administering the contract.

Financial Management

Commission funding in fiscal year 1987 was initially provided by an annual appropriation of $110.5 million. This amount was later increased by $4 million to

cover the full costs of the January 1987 pay increase and the new Federal Employees' Retirement System (FERS). The Commission spent $112 million of its

total appropriation. The remaining $2.5 million, consisting of unspent funds for the

79
EDGARproject and FERS, was returned to the Department of the Treasury (Treasury).

The Commission continued to improve its financial management programs.

The use of microcomputers was expanded to expedite the preparation of financial

reports required by the Office of Management and Budget and other executive

oversight agencies. The fee collection process was enhanced through a greater

use of electronic funds transfer and Treasury-sponsored lockbox facilities. Also,

audits were conducted to ensure that distributed payroll, accounting and budget

functions were performed in strict compliance with established regulations. The

Commission reduced the amount of travel advances by increasing staff use of

Diners Club cards and by receiving travel vouchers promptly from staff.As a result,

an additional $70,000 was available for travel by program staff during the fiscal

year.Finally,the Commission payroll system completed itsthird year as a host system available to other Government agencies.

During fiscal year 1987, Commissioners participated in 61 meetings and conferences. To pay the cost of attendance, private entities reimbursed the Commission

$27,073 while the government's portion amounted to $8,201. Commission staff

participated in 376 meetings and conferences. The Commission was reimbursed

$109,319, while the government's portion of these costs totaled $30,865.

Information Systems Management

The Office of Information Systems Management (ISM)made significant progress in integrating and improving automation functions at the Commission. Specifically,ISMsuccessfully awarded a contract to acquire 80 portable, laptop microcomputers for regional office examiners and investigators. ISMalso acquired an

additional 128 desktop microcomputers for use by headquarters staff. Microcomputers already have demonstrated their effectiveness for applications such as word

processing and spreadsheet operations. In addition, ISMhas initiated analyses and

studies for an integrated office automation system at the Commission.

During fiscal year 1987,the Commission acquired and installed the Bridge Market Information system, which provides real-time price and volume information, as

well as consolidated quotes and news items on stocks and options traded on the

exchanges and over-the-counter. The system also provides historical trade information, including data on commodities and financial futures. This system has had

a substantial impact on meeting the information requirements of the Commission

staff in certain program areas because stock and futures trading can be monitored

more effectively.The staff can also perform on-line comparisons between financial

futures and their underlying indices and compute an annualized rate of return available through the execution of an arbitrage program.

ISMsuccessfully awarded a contract to replace one of the Commission's obsolete mainframe central processing units. A request for proposals was released to

procure a replacement for the remaining central processing unit with an award

projected for early 1988. The new units willpermit the Commission to upgrade its

capability to respond to increasing information reporting and analysis requirements.

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Personnel Management

During fiscal year 1987, employees currently enrolled in the Civil Service Retirement System were permitted to change to the new Federal Employees Retirement

System (FERS) and to participate in the Thrift Savings Plan. The Commission successfully implemented FERS on schedule in January 1987.This effort required extensive coordination among the Offices of Personnel, the Comptroller, and Information Systems Management. The Office of Personnel provided counseling and

disseminated information to help employees decide whether to switch to FERS.

The Commission assisted employees further by providing decision advisors and a

software package designed to analyze projected benefits under the two retirement

systems. •

The Office of Personnel improved its recruitment productivity through newly

delegated hiring authority for research assistants, examiners, accountants, and

secretaries. The office also obtained delegated authority to hire attorneys above

minimum pay rates and to offer special pay rates to headquarters typists. In addition, the staff participated in two job fairs which were extremely beneficial in generating applications, interviews, and new employees in a variety of occupations.

The training program emphasized computer literacy skills by enrolling 223 employees in 301 microcomputer applications courses. Other improvements to the

training program involved revising headquarters supervisory training to provide for

more participation by top Commission executives as guest speakers and conducting special training on stress management and leadership.

The Office of Personnel took steps to improve the efficiency of its position management program. For example, three standardized position descriptions were established for use throughout the Commission. The office implemented new standards issued by the Office of Personnel Management for paralegal specialists. The

Commission also initiated a program to study and evaluate occupations across organizationallines. In addition, several reorganizations were implemented and the

accuracy of position descriptions were certified in half of the Commission's divisions and offices.

In November 1986, the Commission received the Outstanding Employer of the

Year Award from the District of Columbia Rehabilitation Services Administration.

This award recognized the Commission's efforts in hiring and training handicapped individuals and enhancing supervisors' understanding of the handicapped.

Public Affairs

The Office of Public Affairs communicates information on Commission activities to those interested in or affected by Commission actions, including regulated

entities, the press, employees of the Commission and the general public. Both ongoing activities and special projects are undertaken by the office in support of the

Commission's mission.

Public Affairs staff prepares the SEC News Digest, which provides information

on vitually all SEC actions-rule changes, enforcement actions against individuals

or corporate entities, acquisition reports, releases, decisions on requests for exemptions, upcoming Commission meetings, and other events of interest.Inforrna81
tion on Commission activity is also disseminated through notices of administrative

actions, litigation releases, and other materials. The News Digest is available in the

Public Reference Room.

Press releases issued prior to Commission meetings and press briefings conducted after these meetings provide insight into proposed and adopted changes in

policies and regulation. The office also issues press releases on upcoming events,

on-going programs, and special projects. In all, 89 news releases were issued during the year. When appropriate, actions are brought to the attention of the national

and regional press. Special projects such as roundtable discussions on emerging

issues in the financial markets are also publicized.

The office directs publication of the SEC Annual Report that provides information on C~mmission activities to Congress, the securities bar and other interested

parties, and, through the Depositary Library System, to selected colleges and universities throughout the country.

Speeches presented by Commissioners and senior staff and testimony are retained and disseminated in response to requests from the public. During the year,

the staff responded to approximately 69,500 requests for information and coordinated programs for 93 groups of foreign visitors. Also during the year, the staff updated and revised such publications as the "SEC Publications Guide", "Investigate

Before You Invest", and "Q & A for Small Business".

Public Affairs publishes a regular newsletter, the Employee News, and prepares

a daily summary of news clips for Commission employees.

Commission Operations

For the fifth consecutive year and the sixth time in the Commission's 53-year

history, revenues collected exceeded the agency's annual appropriation. In fiscal

year 1987, the Commission collected $278.4 million for deposit into the general

fund of the United States Treasury. These revenues amount to 243 percent of the

Commission's 1987 appropriated funds. Total collections consisted of $263.9 million in fee revenue and $14.5 million in disgorgements from fraud actions. Fee revenue is generated from four primary sources: (1) securities registered under the

Securities Act of 1933 (61% of the total); (2) transactions on securities exchanges

(24%); (3) tender offer and merger filings (12%); and (4) miscellaneous filings

(3%).

82
Commissioners and Principal Staff

Officers

(As of September 30, 1987)

Commissioners

David S. Ruder, Chairman

Charles C. Cox

Aulana L. Peters

Joseph A. Grundfest

Edward H. Fleischman

Secretary: Jonathan G. Katz

EXecutive Assistant to the Chairman: Unda D. Fienberg

Principal Staff Officers

George G. KundahI, Executive Director

Kenneth A. Fogash, Deputy Executive Director

Unda C. Quinn, Director, Division of Corporation Finance

E6sse B. Walter, Deputy Director

Wil6am C. Wood, Senior Associate Director

Mary E. T. Beach, Associate Director

Ernestine M. R. Zipoy, Associate Director

Vacant, Associate Director

Gary G. Lynch, Director, Division of Enforcement

John H. Sture, Associate Director

Wil6am R. McLucas, Associate Director

Joseph I. Goldstein, Associate Director

Phil6p D. Parker, Chief CounseL

Thomas C. Newkirk, Chief litigation CounseL

Michael D. Mann. Chief, Office of International LegaL

Assistance

Richard G. Ketchum, Director, Division of Market ReguLation

Mark D. Atterman, Associate Director

Brandon C. Becker, Associate Director

Vacant. Associate Director

Term Expires

1991

1988

1989

1990

1992

83
Kathryn B. McGrath. Director, Division of Investment Management

Mary Joan Hoene. Deputy Director

Gerald Osheroff, Associate Director

Gene A. Gohlke. Associate Director

WilHam C. Weeden. Assistant Director, Office of Public

Utility Regulation

Daniel L. Goelzer, General Counsel

Paul Gonson.Solicilor

Jacob H. Stillman. Associate General Counsel

Benjamin Greenspoon, Associate General Counsel

Vacant. Associate General Counsel

Mary M. McCue. Director, Office of Public Affairs

Chiles T. A. Larson. Deputy Director

A. Clarence Sampson. Chief Accountant

Edmund Coulson. Deputy Chief Accountant

Jeffry L Davis. Director, Directorate of Economic and Policy Analysis

Terry M. Chuppe, Associate Director

Charles W. Bryson. Associate Director

Kenneth Lehn, Chief Economist

WilHam S. Stern. Director, Office of Opinions and Review

Herbert V. Efron. Associate Director

R. Moshe Simon. Associate Director

Warren E. Blair. Chief Administrative Law Judge

Lawrence H. Haynes. Comptroller

Henry I. Hoffman. Assistant Comptroller

Richard J. Kanyan, Director, Office of Administrative Services

David L Coman. Deputy Director

James C. Foster. Director, Office of Personnel

WilHam E. Ford. D. Assistant Director

Wilson Butler. Director, Office of Applications and Reports Services

Bonnie Westbrook. Director, Office of Consumer Affairs and Information Services

Gregory Jones. Sr. Director, Office of Information Systems Management

Steven N. Scheibe. Deputy Director

Cecile Z. Srodes, Director of LegisLative Affairs

James A. Clarkson. 10. Director of Regional Office Operations

Ernest B. Miller. Manager, Equal Employment Opportunity

John O. Penhollow, Edgar Project Manager

John A. Kelley. Director, Office of Edgar Management

84
Biographies of Commissioners

David S. Ruder

David Sturtevant Ruder was sworn in as the 23rd Chairman of the Securities and

Exchange Commission on August 7, 1987, by Associate Justice Antonin Scalia of

the Supreme Court of the United States.

Chairman Ruder was a member of the faculty of Northwestern University School

of Law from 1961 to 1987, teaching in the field of corporate and securities law. He

was dean of the School of Law from 1977 to 1985. Hetaught as a visiting professor

at the University of Pennsylvania Law School in 1971 and was a faculty member at

the Salzburg Seminar in American Studies in 1976.

He began his tenure as the tenth dean of the Northwestern University School of

Law in September 1977 and was responsible for the conduct and the successful

completion of an extensive and sophisticated faculty recruitment program that attracted 16 distinguished scholars and teachers to the faculty. He was an active participant in the planning, organization and successful completion of the $25 million

Law School Campaign for endowment, renovation and new facilities. The Arthur

Rubloff Building, the primary component of the Law School Campaign, was dedicated on August 4, 1984. It doubled the existing space for teaching, research and

scholarship.

Chairman Ruder was instrumental in the negotiations to attract the headquarters of the American Bar Association, the American Bar Foundation, and the

American Bar Endowment as tenants of Northwestern University in facilities adjacent to the Northwestern University School of Law, creating a national legal center

and resource. The American Bar Center was dedicated on August 3, 1984. He relinquished his responsibilities as dean of the Northwestern University School of

Law in July 1985 to return to research and teaching.

While at Northwestern, Chairman Ruder participated in planning the first Corporate Counsel Institute, held at the School of Law in 1962, and served as its director

for five years (1963-67). He has been a member of the Institute's Planning Committee throughout most of its 25 years of existence.

Chairman Ruder has also been active in various bar-association activities. On

the national level, Chairman Ruder has been actively involved in the American Bar

Association Section on Corporation, Banking and Business Law since 1970, as a

member of its Council (1970-74), its Committee on Federal Regulation of Securities (1974-present), its Committee on Corporate Law (1974-78; 1986-1987), its Ad

Hoc Committee on the American Law Institute Corporate Governance Project

(1986-1987); and as section competence advisor to the American Bar Association

Standing Committee on Lawyer Competency (1986-1987). He has been chairman

of the Public Interest Issues Committee.

Author of many articles on corporate and securities matters, Chairman Ruder

has been a speaker and participant in continuing legal education programs of numerous organizations and has been active in bar association activities in the corpo85
rate and securities law field. While at Northwestern, he was active in the organization and on-going activities of the Ray Garrett, Jr., Corporate and Securities Law

Institute and in the establishment of the Corporate Counsel Center at Northwestern

University School of Law, which sponsors legal research and provides continuing

professional education programs for corporate lawyers.

A native of Wausau, Wisconsin, Chairman Ruder received a bachelor's degree,

cum laude, in 1951 from Williams College, where he was a member of Phi Beta

Kappa and Gargoyle, the senior honorary society. He was editor-in-chief of the Williams Record, the college newspaper.

He received his law degree with honors in 1957 from the University of Wisconsin,

where he was a member of the Order of the Coif and the recipient of the Salmon

W. Dalberg Prize as the outstanding graduating student He was editor-in-chief of

the Wisconsin Law Review. Mr. Ruder served in the U.S. Army from 1951 to 1954,

attaining the rank of First Lieutenant

From 1957 to 1961, he was an associate with the Milwaukee law firm of Quarles

& Brady, and while teaching at Northwestern was also of counsel to the Chicago

law firm of Schiff, Hardin & Waite from 1971 to 1976.

Charles C. Cox

Charles C. Cox was sworn in as the 62nd Member of the Commission on December 2, 1983. His term expires in June 1988.

Mr. Cox joined the Commission on September I, 1982, as Chief Economist He

organized the Office of the Chief Economist to analyze the economic effects of

proposed rules and legislation, evaluate established Commission policy, and study

various capital market topics.

Previously, Mr. Cox was a professor of management at Texas A&M University

from 1980 to 1982, and a professor of economics at Ohio State University from

1972 to 1980. He served as a National Fellow of the Hoover Institution at Stanford

University from 1977 to 1978.

During his academic career, Mr. Cox focused his research on the economics of

public regulation of economic activity. He has published various articles on this

topic in scholarly journals. Mr. Cox is a member of the American Economic Association.

Mr. Cox was born in Missoula, Montana, on May 8, 1945. He received his undergraduate education at the University of Washington where he was elected to Phi

Beta Kappa in 1966, and earned a BA. degree, magna cum laude, with distinction

in economics in 1967. He received A.M. and Ph.D. degrees in economics from the

University of Chicago in 1970 and 1975, respectively.

Aulana L. Peters

Aulana L. Peters was swom in as the 64th Member of the Commission on June

11, 1984. Her term expires in June 1989.

Until her appointment, Mrs. Peters was a partner with the Los Angeles firm of

Gibson, Dunn & Crutcher, which she joined as an associate in 1973.As a member

of that firm's Litigation Department, she specialized in business and commercial

litigation with emphasis on the securities and unfair competition areas, particularly

86
class action suits. About one-third of her law practice involved cases of alleged violations of the Securities Act of 1933 and the Securities Exchange Act of 1934, representing both defendants and plaintiffs. She was also involved in tender offer/

proxy contest litigation.

She has frequently served on legal panels and has lectured for the California

Continuing Education of the Bar and others. Mrs. Peters is a member of the Los

Angeles County and American Bar Associations.

From 1963 to 1967, she lived in Milan and then in Paris, where she held various

positions, the last of which was an Administrative Assistant within the Secretariat of

the Organization for Economic Cooperation and Development. She has also lived

in San Salvador, Central America, and The Cameroons (West Africa).

Mrs. Peters,who was born on November 30, 1941, is the first black appointed to

the Commission. She earned a J.D. with honors from the University of Southern

California Law Center in 1973 and a BA in philosophy from the College of New

Rochelle in 1963.

Joseph A. Grundfest

Joseph A. Grundfest was sworn in as the 65th Commissioner of the Securities

and Exchange Commission on October 28, 1985. His term expires in June 1990.

Mr. Grundfest came to the Commission from the Council of Economic Advisers

in the Executive Office of the President, where he was counsel and senior economist for legal and regulatory matters. While at the Council, he played an active role

in the formulation of Administration policy regarding regulation of securities markets, financial institutions, international trade, and the reformation of the antitrust

laws. Mr. Grundfest is both an attorney and economist. He has practiced law with

Wilmer, Cutler £,. Pickering and has served as an economist with The Rand Corporation, the Brookings Institution, and Peat, Marwick £,. Mitchell.

Mr. Grundfest is author or co-author of numerous publications dealing with

topics such as contests for corporate control, the legal and economic regulation of

markets subject to kickback schemes, the regulation of markets for broadcast stations and television advertising, and the role of citizen participation in administrative proceedings. During his academic career, Mr. Grundfest served as a Brookings

Institution Fellow, a Stanford University Fellow, and a California State Fellow for the

Study of Law and Economics.

Mr. Grundfest was born in New York City on September 8, 1951. He received his

undergraduate education at Yale University where he earned a B.A. degree in economics in 1973. During an undergraduate year abroad, Mr. Grundfest completed,

with First Class Distinction, the M.Sc. Program in Mathematical Economics and

Econometrics at the London School of Economics. Between 1974 and 1978, he

earned his J.D. degree from Stanford University and completed all requirements,

other than the dissertation, for a doctorate in economics.

Edward H. Aeischman

Edward H. Fleischman was sworn in as the 66th Member of the Securities and

Exchange Commission on January 6, 1986. His term expires in June 1992.

87
He fonnerly practiced law with Gaston, Snow, Beekman & Bogue (previously

Beekman & Bogue), where he specialized in securities and corporate law and related areas.

During his career, Mr.Fleischman has been elected a member of the American

LawInstitute,the American College of Investment Counsel and the American Society of Corporate Secretaries, and has served as an Adjunct Professor of Law

teaching securities regulation at the New YorkUniversityLawSchool. He has been

a lecturer at seminars dealing with securities and futures law and practice. He was

co-author of a series of articles relating to Commission Rule 144.

Mr. Fleischman was born in Cambridge, Massachusetts, on June 25, 1932. A

member of the U.S.Army from 1952 to 1955, he served with the 173rd MilitaryIntelligence Platoon in Germany from 1954 to 1955. Mr.Fleischman received his undergraduate education at Harvard College and graduated with a B.A.degree cum

laude in history. He was a Stone Scholar at Columbia Law School, where he received his LL.B.degree in 1959.

Mr.Fleischman was admitted to the New YorkBar in 1959 and to the bar of the

U.S.Supreme Court in 1980. He serves on the Committee on Federal Regulation

ofSecurities where he has chaired the Ad Hoc Subcommittee on Rule 144 and the

Subcommittee on Broker-Dealer Matters, and was a co-draftsman of the Committee letter on utilization and dissemination of "inside" infonnation. He is also a

member of the Committee on Counsel Responsibility, and currently chairs the

Committee on Developments in Business Financing where he co-drafted the

Committee paper on resale of institutional privately placed debt and chaired the

Subcommittee on Simplified Indentures in addition to the Annual Reviewof Developments. Other bar activities include membership on the Committee on Developments in Investment Services, and the Administrative Law Committee on Securities, Commodities and Exchanges where he was vice chair for Commodities

before taking the chair for three years.

88
REGION 1

REGION 2

REGION 3

REGION 4

Regional and Branch Offices and

Administrators

Vacant

NEW YORK REGIONAL OFFICE

26 Federal Plaza, Room 1028

New York NY 10278

212/264-1636

Region: New York and New Jersey

Douglas Scarff

BOSTON REGIONAL OFFICE

John W. McCormack Post Office

and Courthouse Building, Suite 700

Boston MA 02109

617/223-9900

Region: Maine, New Hampshire, Vermont, Massachusetts,

Rhode Island, and Connecticut

Richard P.Wessel

ATLANTA REGIONAL OFFICE

1375 Peachtree Street, NE, Suite 788

Atlanta GA 30367

404/347-4768

Region: Tennessee, Virgin Islands, Puerto Rico, North

Carolina, South Carolina, Georgia, Alabama, Mississippi,

Florida, and Louisiana east of the Atchafalaya River

Charles C. Harper

MIAMI BRANCH OFFICE

Dupont Plaza Center

300 Biscayne Boulevard Way, Suite 500

Miami FL 33131

305/536-5765

William D. Goldsberry

CHICAGO REGIONAL OFFICE

Everett McKinley Dirksen Building

219 South Dearborn Street, Room 1204

Chicago IL 60604

312/353-7390

Region: Michigan, Ohio, Kentucky, Wisconsin, Indiana, Iowa,

Illinois. Minnesota, and Missouri

89
REGION 5

REGION 6

REGION 7

90

Mark A. Loush

DETROIT BRANCH OFFICE

1755 Patrick V.McNamara Federal Office

Building

477 Michigan Avenue

Detroit MI 48226

313/226-6070

T. Christopher Browne

FORT WORTH REGIONAL OFFICE

411 West Seventh Street, 8th Floor

Fort Worth TX 76102

817/334-3821

Region: Oklahoma, Arkansas, Texas, Louisiana west of the

Atchafalaya River, and Kansas

Joseph C. Matta

HOUSTON BRANCH OFFICE

7500 San Felipe Street, Suite 550

Houston TX 77063

713/266-3671

Robert H. Davenport

DENVER REGIONAL OFFICE

410 17th Street, Suite 700

Denver CO 80202

303/844-2071

Region: North Dakota, South Dakota, Wyoming, Nebraska,

Colorado, New Mexico, and Utah

Donald M. Hoerl

SALT LAKE BRANCH OFFICE

U.S. Post Office and Courthouse

350 South Main Street, Room 505

Salt Lake City UT 84101

801/524-5796

Irving M. Einhorn

LOS ANGELES REGIONAL OFFICE

5757 Wilshire Boulevard, Suite 500 East

Los Angeles CA 90036-3648

213/468-3098

Region: Nevada, Arizona, California, Hawaii, and Guam
REGION 8

REGION 9

Bobby C. Lawyer

SAN FRANCISCO BRANCH OFACE

901 Market Street, Suite 470

San Francisco CA 94103

415/995-5165

Jack HBookey

SEATTLE REGIONAL OFACE

3040 Jackson Federal Building

915 Second Avenue

Seattle WA 98174

206/442-7990

Region: Montana, Idaho, Washington, Oregon, and Alaska

James C. Kennedy

PHILADELPHIA REGIONAL OFACE

600 Arch Street, Room 2204

Philadelphia PA 19106

215/597-3100

Region: Pennsylvania, Delaware, Maryland, Virginia, West

Virginia, and District of Columbia

91
FOOTNOTES

IFinancial Disclosure cases include: SEC v. Pulsar Oil and Gas, Inc., et el., (no

release) (September 30, 1987); SEC v. Texscan Corporation, et el., Accounting and

Auditing Enforcement Enforcement Release No. 164 (September 30, 1987),39 SEC

Docket 579; In the Matter of Universal Money Centers, lnc., Accounting and Auditing

Enforcement Release No. 156 (September 28, 1987),39 SEC Docket 399; SEC v.

Stephen E. Hann, Litigation Release No 11578 (October 15, 1987),39 SEC Docket 740;

SEC v. Westmore Intemational, Inc., et ai., Utigation Release No. 11580 (October 15,

1987),39 SEC Docket 742; SEC v. Kaypro Corporation, (no release) (September 25,

1987); In the Matter of Human Edge, Accounting and Auditing Release No. 154

(September 25, 1987),39 SEC Docket 390; SEC v. George WAtkinson, et al.,

Accounting and Auditing Enforcement Release No. 163 (September 30, 1987); 39 SEC

Docket 577; SEC v. Donald E. Brown, Accounting and Auditing Enforcement Release

No. 162 (September 30, 1987),39 SEC Docket 575; SEC v. Morgan Petroleum, Inc., et

el., Utigation Release No. 11555 (September 24, 1987),39 SEC Docket 386; SEC v.

Financial Corporation of America, Accounbng and Auditing Enforcement Release No.

153 (September 21, 1987),39 SEC Docket 374; SEC v. Robert J. Buckley, Accounting

and Auditing Enforcement Release No. 152 (September 9, 1987) 39 SEC Docket 247;

SEC v. Allegheny Intemational, Inc., Accounting and Auditing Enforcement Release

No. 151 (September 9, 1987), 39 SEC Docket 241; In the Matter of Clayton A.

Sweeney, Securities Exchange Act Release 24888 (September 9, 1987),39 SEC Docket

196; In the Matter of Kraemer K. Hilton, Securities Exchange Act Release No. 24887

(September 9, 1987),39 SEC Docket 190; SEC v. Henry H. McFliker, et el., Accounting

and Auditing Enforcement Release No. 157 (September 21, 1987),39 SEC Docket 378;

SEC v. Anthony Peter Strangie, et ai., Utigation Release No. 11539 (September 14,

1987),39 SEC Docket 312; SEC v. Wallace C. Sparkman, Litigation Release No. 11532

(September 3,1987),39 SEC Docket 176; SEC v. PROS Intemationallnc., Accounting

and Auditing Enforcement Release No. 148, (August 26, 1987),39 SEC Docket 73; In

the Matter of Pioneer Venture Corporation, et el; (no release) (August 27, 1987); In the

Matter of West Coast Hair Products, lnc., Accounting and Auditing Enforcement Release

No. 147 (August 24, 1987),39 SEC Docket 75; In the Matter of Texas Commerce

Bancshares, Inc., Accounting and Auditing Enforcement Release No. 146 (August 17,

1987), 38 SEC Docket 1908; In the Matter of De Laurentiis Entertainment Group, inc;

Accounting and Auditing Enforcement Release No 144 (August 10, 1987),38 SEC

Docket 1804; SEC v. Robert D. Widergren, et el., Accounting and Auditing Enforcement

Release No. 145 (August 12,1987),38 SEC Docket 1801; SEC v. Michael Clinger, et el.,

Accounting and Auditing Enforcement Release No. 142 (July 27, 1987),38 SEC Docket

1640; SEC v. Frederick Holtrop, et ai., Accounting and Auditing Enforcement Release

No. 149 (September 2,1987),39 SEC Docket 169; SEC v. Cardillo Travel Systems, Inc.,

et el., Accounting and Auditing Enforcement Release No. 143 (July 23, 1987),38 SEC

Docket 1570; SEC v. United Educators, Inc., et el., Litigation Release No. 11484 (July 9,

1987),38 SEC Docket 1428; SEC v. Edward V. Gallagher, et ai., Accounting and

Auditing Enforcement Release No. 139 (June 25, 1987), 38 SEC Docket 1286; SEC v.

Human Edge, et el, Accounting and Auditing Enforcement Release No. 136 (June 19,

1987),38 SEC Docket 1284; In the Matter of First Chicago Corporation, Accounting

and Auditing Enforcement Release No. 134 (June 10, 1987),38 SEC Docket 965; SEC v.

92
Earl Brown, et ei., Utigation Release No. 11453 (June 8,1987),38 SEC Docket 1078;

SEC v. Aimado, lnc; Accounting and Auditing Enforcement Release No. 141 (July 14,

1987),38 SEC Docket 1468; In the Matter of Charles W Streicher, et el; Securities

Exchange Act Release No. 24588 (June 12, 1987),38 SEC Docket 1116; SEC v.

Healthdyne, lnc., Accounting and Auditing Enforcement Release No. 135 (June 9,

1987),38 SEC Docket 1080; SEC v. Windsor Holding Corp; et el., Accounting and

Auditing Enforcement Release No. 138 (June 2, 1987),38 SEC Docket 907; In the

Matter of Benny Aguirre, et ai., Securities Exchange Act Release No. 24535 (June 2,

1987), 38 SEC Docket 847; In the Matter of Leo D. Sye, Accounting and Auditing

Enforcement Release No. 137 (June 2,1987),38 SEC Docket 841; SEC v. American

Land Company, et el., Utigation Release No. 11443 (May 28,1987),38 SEC Docket

822; SEC v. Robert D. Mowry, et el., Accounting and Auditing Enforcement Release No

133 (May 18,1987),38 SEC Docket 714; In the MatterofWespercorp, Accounting and

Auditing Enforcement Release No. 132 (May 18, 1987),38 SEC Docket 628; In the

Matter of Thomas F. Saunders, Securities Exchange Act Release No. 24340 (April 13,

1987),38 SEC Docket 130; In the Matter of Timothy R. Murphy, Securities Exchange

Act Release No. 24339 (April 13, 1987),38 SEC Docket 127; In the Matter of George G.

Mead, Securities Exchange Act Release No. 24338 (April 13, 1987),38 SEC Docket 123;

In the Matter of Nicholes B. WaLLace,Securities Exchange Act Release No. 24337 (April

13, 1987),38 SEC Docket 120; In the Matter of Ronnie Ewton, Securities Exchange Act

Release No. 24336 (April 13, 1987), 38 SEC Docket 117; In the Matter of William D.

Sauers, Securities Exchange Act Release No. 24331 (April 13, 1987),38 SEC Docket

110; SEC v. Jerald Moskowitz, et ai., Accounting and Auditing Enforcement Release No.

131 (April 21, 1987),38 SEC Docket 326; SEC v. West Coast Hair Products, lnc., et ai.,

Accounting and Auditing Enforcement Release No. 130 (April 10, 1987),38 SEC Docket

208; SEC v. PauL T. Van WinkLe, et el., Utigation Release No. 11373 (March 19, 1987),37

SEC Docket 1714; In the Matter of Continental Illinois Corporation, Accounting and

Auditing Enforcement Release No 128 (February 27, 1987),37 SEC Docket 1365; SEC v.

Electro-Catheter Corp., et al., Litigation Release No. 11347 (February 4, 1987),37 SEC

Docket 1084; In the Matter of Quantum FinanciaL Services, lnc., Securities Act Release

No. 6686 (January 27, 1987),37 SEC Docket 954; SEC v. Storage Technology

Corporation, Accounting and Auditing Enforcement Release No. 125 (January 27, 1987),

37 SEC Docket 1008; SEC v. Dorothy M. Conway, et ai., Utigation Release No. 11339

(January 22, 1987),37 SEC Docket 950; In The Matter of Marsh & McLennan

Companies, Inc., Accounting and Auditing Enforcement Release No. 124 (January 22,

1987),37 SEC Docket 912; In the Matter of Pre-Paid Legal Services, lnc., Accounting

and Auditing Enforcement Release No 121 (December 22, 1986), 37 SEC Docket 528;

SEC v. CoElco, Ltd; et el., Litigation Release No 11315 (December 22, 1986), 37 SEC

Docket 520; SEC v. Berk: and Company, Inc; Accounting and Auditing Enforcement

Release No. 122 (December 23, 1987),37 SEC Docket 527; SEC v. Robert E. DeBiasse,

et aI., Accounting and Auditing Enforcement Release No. 119 (November 13, 1986),36

SEC Docket 1784; SEC v. Balanced Fiancial Management, Inc., et al., Accounting and

Auditing Enforcement Release No. 117 (October 15, 1986),36 SEC Docket 1429.

2Enforcement cases against accountants or accounting firms include: In the Matter of

C. O'Neal Rasmussen, Accounting and Auditing Enforcement Release No. 161

(September 30, 1987), 39 SEC Docket 454; In the Matter of Diane Martano Van Son,

Accounting and Auditing Enforcement Release No. 159 (September 29, 1987),39 SEC

Docket 413; In the Matter of Myron K. Berryman, Accounting and Auditing

Enforcement Release No. 150 (September 3, 1987),39 SEC Docket 106; SEC v. PROS

Intemational, Inc; et el., Accounting and Auditing Enforcement Release No. 148

(August 26, 1987),39 SEC Docket 73; Private Proceeding, August 4, 1987; SEC v.

93
CoElco Ltd., et al., Utigation Release No. 11315 (December 22, 1986),37 SEC Docket

520; ln the Matter of KMG Main Hurdman, Accounting and Auditing Enforcement

Release No. 129 (March 25, 1987), 37 SEC Docket 1731; In the Matter of Stephen Kutz,

Accounting and Auditing Enforcement Release No. 127 (January 28,1987),37 SEC

Docket 971; In the Matter of Marvin D. Haney, Accounting and Auditing Enforcement

Release No. 126 (January 28, 1987),37 SEC Docket 964; SEC v. Grant Thornton, et at.,

Accounting and Auditing Enforcement Release No. 118 (October 16, 1987),36 SEC

Docket 1443; In the Matter of Huber, Erickson and Butler, et at., Accounting and

Auditing Enforcement Release No. 115 (October 10, 1986),36 SEC Docket 1352.

3SEC v. Financial Corporation of America, Accounting and Auditing Enforcement

Release No. 153 (September 21,1987),39 SEC Docket 374.

41nthe Matter of Continental Illinois Corporation, Accounting and Auditing

Enforcement Release No. 128 (February 27, 1987),37 SEC Docket 1365.

SIn the Matter of Texas Commerce Bancshares, lnc., Accounting and Auditing

Enforcement Release No. 146 (August 17, 1987), 38 SEC Docket 1908.

61nthe Matter of De Laurentiis Entertainment Group, inc; Accounting and Auditing

Enforcement Release No. 144 (August 10, 1987),38 SEC Docket 1723.

7SEC v. Grant Thornton, et al., Accounting and Auditing Enforcement Release No.

118 (October 16, 1986),36 SEC Docket

81nthe Matter of KMG Main Hurdman, Accounting and Auditing Enforcement

Release No. 129 (March 25, 1987),37 SEC Docket 1731.

!1nsider trading cases include: In the Matter of David S. Brown, Securities Exchange

Act Release No. 23698 (October 9, 1986), 36 SEC Docket 1312; In the Matter of Ivan F.

Boesky, Securities Exchange Act Release No. 23802 (November 14, 1986),37 SEC

Docket 2; In the Matter of Randall D. Cecala, Securities Exchange Act Release No.

23919 (December 22, 1986), 37 SEC Docket 464; In the Matter of Robert Salsbury,

Securities Exchange Act Release No. 24019 (January 21, 1987),37 SEC Docket 892; In

the Matter of Martin A. Siegel, Securities Exchange Act Release No. 24098 (February 13,

1987), 37 SEC Docket 1185; In the Matter of Bernard Meir; Securities Exchange Act

Release No. 24499 (March 13, 1987),38 SEC Docket 768; In the Matter of Robert

DElia, SecuritIes Exchange Act Release No. 24295 (April 2, 1987),37 SEC Docket 1869;

In the Matter of Kidder, Peabody & Co., Inc., Securities Exchange Act Release No.

24543 (June 4,1987),38 SEC Docket 857; SEC v. James F. Flaherty, Jr., Utigation

Release No. 11254 (October 14, 1986),36 SEC Docket 1433; SEC v. David S. Brown,

Utigation Release No. 11245 (October 9, 1986),36 SEC Docket 1347; SEC v.llan K.

Reich, Litigation Release No. 11246 (October 9, 1986),36 SEC Docket 1349; SEC v.

Alfred E. Koptmenn, II, Litigation Release No. 11276 (October 28, 1986),36 SEC Docket

1610; SEC v.lvan F. Boesky, Utigation Release No. 11288 (November 14, 1986),37

SEC Docket 78; SEC v. Randall D. Cecala, Litigation Release No. 11313 (December 22,

1986),37 SEC Docket 518; SEC v. Alfred Elliott, Utigation Release No. 11335

(December 30, 1986),37 SEC Docket 698; SEC v. Anthony A. DePalma, Utigation

Release No. 11333 (December 30, 1986), 37 SEC Docket 696; SEC v. Melvin N.

Pomerantz, Litigation Release No. 11305 (December 11, 1986),37 SEC Docket 319;

SEC v. Michael N. David, Utigation Release No. 11334 (December 30, 1986).37 SEC

Docket 697; SEC v. Samuel M. Aksler, et el., Utigation Release No. 11325 (December

23, 1986), 37 SEC Docket 756; SEC v. Martin A. Siegel, Litigation Release No. 11354

(February 13, 1987), 37 SEC Docket 1276; SEC v. Nahum Vaskevitch, Utigation Release

No. 11365 (February II, 1987),37 SEC Docket 1606; SEC v.lsrael G. Grossman, et al.,

Utigation Release No. 11359 (February 17, 1987),37 SEC Docket 1281; SEC v. Robert

Salsbury, (January 7, 1987), (no release); SEC v. William Adams, et el; Litigation

Release No. 11439 (May 20,1987),38 SEC Docket 707; SEC v. Hendrix R. Bull,

94
Litigation Release No. 11395 (April 8, 1987),38 SEC Docket 93; SEC v. Jchn Naylor

Clark, III, et el., Litigation Release No. 11440 (May 21, 1987),38 SEC Docket 708; SEC

v.Kidder, Peabody & Co., Inc., Litigation Release No. 11452 (June 4, 1987),38 SEC

Docket 914; SEC v. Russell S. Douglas, Litigation Release No. 11479 (June 29, 1987),

38 SEC Docket 1422; SEC v. Marvin H. Ingram, Litigation Release No.1 1482 (July 7,

1987),38 SEC Docket 1426; SEC v. Robert DElia, et aI., Litigation Release No.1 1499

(July 28, 1987),38 SEC Docket 1638; SEC v. Ira Michael Patton, et aI., Litigation

Release No. 11561 (September 28.1987),39 SEC Docket 568; SEC v. Dennis Gillette,

Litigation Release No. 11502 (July 27, 1987) 38 SEC Docket 1639; SEC v. Albert Tate, et

aI., Litigation Release No. 11485 (July 14, 1987),38 SEC Docket 1465; SEC v. Armm

Kaufman, Litigation Release No. 11529 (September 3, 1987),39 SEC Docket 173; SEC

v. John M. Cochran, Securities Exchange Act Release No. 11572 (October 9, 1987),39

SEC Docket 733; SEC v. Charles R. Davis, et el., (September 17, 1987), (no release),

579; SEC v. Texscan Corporation et aI., Accounting and Auditing Enforcement Release

No. 164 (September 30, 1987),39 SEC Docket 579; SEC v. George WAtkinson, et aI.,

Accounting and AudIting Enforcement Release No. 163 (September 30, 1987),39 SEC

Docket 577; SEC v. Robert D. Widergren, et aI., Accounting and Auditing Enforcement

Release No. 145 (August 12, 1987),38 SEC Docket 1801; SEC v. Michael Clinger, et aI.,

Accounting and Auditing Enforcement Release No. 142 (July 27, 1987),38 SEC Docket

1640; SEC v. Cardillo Travel Systems, inc; et el., Litigation Release No. 11492 (July 23,

1987),38 SEC Docket 1570; SEC v. Electro-Cetherter Corporation, et el., Lttigation

Release No. 11347 (February 4, 1987),37 SEC Docket 78.

lOSECv.lvan F. Boesky, Litigation Release No. 11288 (November 14, 1986),37 SEC

Docket 78.

Illn the Matter of Ivan F. Boesky, Securities Exchange Act Release No. 23802

(November 14, 1986),37 SEC Docket 2.

12SECv. Martin A. Siegel, Litigation Release No. 11354 (February 13, 1987),37 SEC

Docket 1276.

131nthe Matter of Martin A. Siegel, Securities Exchange Act Release No. 24098

(February 13, 1987),37 SEC Docket 1185.

14SECv. Kidder, Peabody & Co., Inc., Litigation Release No. 11452 (June 4, 1987),38

SEC Docket 914.

151nthe Matter of Kidder, Peabody & Co., lnc., Securities Exchange Act Release No.

24543 (June 4, 1987), 38 SEC Docket 857.

16SECv. Boyd L Jefferies, et ei; Litigation Release No. 11370 (March 19, 1987),37

SEC Docket 1707.

171nthe Matter of Jefferies & Co., lnc; et el.. Securities Exchange Act Release No.

24231 (March 19, 1987),37 SEC Docket 1633.

18SECv. Michael N. David, Litigation Release No. 11334 (Decemeber 10, 1986),37

SEC Docket 697.

19SECv. Israel G. Grossman, et el; Litigation Release No.1 1359 (February 17, 1987),

37 SEC Docket 1281.

20SECv. Nahum Vaskevitch, Litigation Release No. 11365 (March I I, 1987),37 SEC

Docket 1606.

211nthe Matter of Shearson Lehman Brothers, lnc; Securities Exchange Act Release

No. 24595 (June 15, 1987),38 SEC Docket 1125.

22ln the Matter of Dean Witter Reynolds, lnc., Securities Exchange Act Release No.

24143 (February 27, 1987),37 SEC Docket

23ln the Matter of Advest Inc; Litigation Release No. 24072 (February 9, 1987),37

SEC Docket 1101.

95
24SEC v. Steven A. Keyser, Utigation Release No. 11357 (January 30, 1987),37 SEC

Docket 1279.

25ln the Matter of Gin Enterprises, lnc., Securities Act Release No. 6716 (June 2,

1987),38 SEC Docket 834.

261nthe Matter of Myron E. Berryman, Accounting and Auditing Enforcement

Release No. 150 (September 3,1987),39 SEC Docket 107.

27SEC v. Charles Phillip Elliott, et el; Utigation Release No. 11408 (April 20, 1987),

38 SEC Docket 325.

28SEC v.Andrew Nanos, et el; Utigation Release No. 11402 (April 15, 1987),38 SEC

Docket 212.

291nthe Matter of Allied Stores Corporation, et el., Securities Exchange Act Release

No. 24727 (June 29,1987),38 SEC Docket 1525.

30ReleaseNo. 33-6714 (May 27, 1987),38 SEC Docket 718.

31ReleaseNo. 34-24976 (October I, 1987),39 SEC Docket 486.

32ReleaseNo. 34-24296 (April 3, 1987),52 FR 11458 (April 9, 1987).

33ReleaseNo. 34-24552 (June 4,1987),38 SEC Docket 874.

34ReleaseNo. 34-24514 (June 9, 1987),38 SEC Docket 730.

35Release No. 34-24274 (March 27, 1987),37 SEC Docket 1847 and Release No.

34-24607 (June 18, 1987),38 SEC Docket 1149.

36ReleaseNo. 33-6682 (December 18, 1986),37 SEC Docket 335.

37ReleaseNo. 33-6727 (July 31, 1987).38 SEC Docket 1644.

38ReleaseNo. 33-6683 (January 16, 1987),37 SEC Docket 858.

391d.

40ReleaseNo. 33-6726 (July 30, 1987),38 SEC Docket 1588.

41ReleaseNo. 33-6711 (April 17, 1987),38 SEC Docket 219.

421tem303 of Regulation S-K, 17 CFR 229.303.

43ReleaseNo. 34-23407 (July 8,1986),36 SEC Docket 90.

44ReleaseNo. 33-6740 (September 22, 1987),39 SEC Docket 184.

45Financial Reporting Release No. 27 (November 25, 1986),37 SEC Docket 90.

46Financial Reporting Release No. 30 (August 7, 1987),38 SEC Docket 1714.

47Securit!es Act Release No. 6711 (April 24, 1987),38 SEC Docket 219.

48Financial Reporting Release No. 28 (December I, 1986),37 SEC Docket 194.

49Securities Act Release No. 6695 (April 1, 1987),37 SEC Docket 1825.

50Securities Act Release No. 6719 (June 18, 1987),38 SEC Docket 1097.

51Staff Accounting Bulletin No. 65 (November 5, 1986),36 SEC Docket 1705 (Risk

Sharing in Poolings of Interest), Staff Accounting Bulletin No. 66 (November 25, 1986),

37 SEC Docket 192 (Disclosures by Bank Holding Companies regarding Loans to

Countries Experiencing Uquidity Problems), Staff Accounting Bulletin No. 67 (December

8, 1986),37 SEC Docket 320 (Income Statement Presentation of Restructuring Charges),

Staff Accounting Bulletin No. 68 (May 4, 1987),38 SEC Docket 523 (Accounting for

Increasing Rate Preferred Stock), Staff Accounting Bulletin No. 69. (May 8,1987),38 SEC

Docket 610 (Disclosure of Lending and Deposit Activities), Staff Accounting Bulletin No.

70 (June 5,1987),38 SEC Docket 1091 (Accounting for Non-Recourse Debt

Collateralized by Lease Receivables and/or Leased Assets), and Staff Accounting Bulletin

No. 71 (August 12, 1987),38 SEC Docket 1805 (Financial Statements of Properties

Securing Mortgage Loans).

52proposed Statement of Financial Accounting Standards, Disclosures about

Financial Instruments.

53Statement of Fmancial Accounting Standards No. 94, Consolidation of all Majorityowned Subsidiaries.

54Statement of Financial Accounting Standards No. 95, Statement of Cash Flows.

96
55Statement of Financial Accounting Standards No. 96, Accounting for Income

Taxes.

56Statement of Financial Accounting Standards No. 90, ReguLated Enterprises -

Accounting for Abandonments and DisaLLowances of Plant Costs, and Statement of

Financial Accounting Standards No. 92, ReguLated Enterprises-Accounting for

Phase--in PLans.

57FASBTechnical Bulletin No. 86-1, Accounting for Certain Effects of the Tax

Reform Act of 1986.

58FASBTechnical Bulletin No. 86-2, Accounting for an Interest in the Residual VaLue

of a Leased Asset

59FASBTechnical Bulletin No. 87-1, Accounting for a Change in Method of

Accounting for Certain Postretirement Benefits.

60FASBTechnical Bulletin No. 87-3, Accounting for Mortgage Servicing Fees and

Rights.

61 Report of the NationaL Commission on Freudulent FinanciaL Reporting (October

1987).

62Proposed Statements on Auditing Standards, The Auditors Responsibility to Detect

and Report Errors and Irregularities, illegaL Acts by Clients, The Auditors

Consideration of an Entity's Ability to Continue in Existence, The Auditors

Responsibility for Assessing Control Risk, AnaLyticaL Procedures, The

Communication of Control-Structure Related Matters Noted in an Audit,

Communication with Audit Committees or Others With Equioelent Authority and

Responsibility, The Auditor's Standard Report and Auditing Accounting Estimates

and a proposed Statement on Standards for Attestation Engagements, Examination of

Managements Discussion and AnaLysis, respectively.

63public Oversight Board, Annual Report 1986-1987, Page 6.

64Securities Exchange Act Release Nos. 24406 (April 29, 1987),52 FR 17495 and

24407 (April 29, 1987),52 FR 17349.

65Letterfrom Brandon Becker, Associate Director, Division of Market Regulation, to

Uoyd H. Feller, Esq., Morgan, Lewis & Bockius, counsel for Jefferies & Co., Inc., dated

July 28, 1987.

66Securities Exchange Act Release No. 24046 (February 2, 1987),37 SEC Docket

1024.

67Securities Exchange Act Release No. 24689 (July 9, 1987),38 SEC Docket 1379.

68Securities Exchange Act Release No. 24513 (May 26,1987),38 SEC Docket 782.

69Securities Exchange Act Release No. 24781 (August 6,1987),38 SEC Docket 1671.

7°See Securities Exchange Act Release No. 24926 (September 17, 1987),39 SEC

Docket271.

71Report of the staff of the U.S. Securities and Exchange Commission to the Senate

Committee on Banking, Housing and Urban Affairs and the House Committee on Energy

and Commerce, July 27, 1987.

72Letter regarding InternationaL Stock Exchange of the United Kingdom and the

Republic of IreLand Limited (letter dated September 29, 1987).

73Letter regarding Rhone-Poulenc SA. (letter dated March 13, 1987); Letter

regarding Compania Telefonice NacionaL de Espana, SA. (letter dated June II. 1987);

Letter regarding Banco Central, SA.; (letter dated June 3D, 1987); Letter regarding

Banco de Santander, SA. (letter dated July 28, 1987).

74Lelter regarding Phillips N.v., Securities Exchange Act Release No. 24486 (May 12,

1987),38 SEC Docket 654; and Letter regarding &reLays PLC, Securities Exchange Act

Release No. 24487 (May 19, 1987),38 SEC Docket 661.

97
75SeeLetter from Jonathan Kallman, Assistant Director, Division of Market Regulation,

to Karen Saperstein, Associate Counsel, Intemational Securities Clearing Corporation

(September 10, 1986).

7~ Letter from Jonathan Kallman, Assistant Director, Division of Market Regulation,

to Jeffrey E. Lewis, Associate Counsel, Midwest Clearing Corporation/Midwest Securities

Trust Company (July 22, 1987).

nSecurities Exchange Act Release No. 24725 (July 21, 1987),38 SEC Docket 1512.

7SSecurities Exchange Act Release No. 24832 (August 21, 1987),38 SEC Docket

1896.

79Securities Exchange Act Release No. 24895 (September 9, 1987),39 SEC Docket

211.

80Securities Exchange Act Release No. 24831 (August 21, 1987),39 SEC Docket 3

(Amex rule change); Securities Exchange Act Release No. 24832 (August 21, 1987),39

SEC Docket 7 (OCC rule change).

81Securities Exchange Act Release No. 24889 (September 9, 1987),39 SEC Docket

202.

82Securities Exchange Act Release No. 23795 (November 12, 1986),36 SEC Docket

1751.

83Securities Exchange Act Release No. 25052 (October 21,1987),39 SEC Docket

755.

84Securities Exchange Act Release No. 24555 (June 5, 1987),38 SEC Docket 931

(Amex rule change); Securities Exchange Act Release No. 24680 (July 7,1987),38 SEC

Docket 1367 (Phlx rule change); Securities Exchange Act Release No. 24687 (July 8,

1987),38 SEC Docket 1370 (NYSE rule change).

85Letter from Jonathan G. Katz, Secretary, to Dr. Paula Tosini, Director, Division of

Economic Analysis, CITC, February 12, 1987.

86Letter from Jonathan G. Katz, Secretary, to Dr. Paula Tosini, Director, Division of

Economic Analysis, CITC, August 24, 1987.

87Letter from Jonathan G. Katz, Secretary, to Dr. Paula Tosini, Director, Division of

Economic Analysis, CITC, August 24, 1987.

88Letter from Richard G. Ketchum, Director, Division of Market Regulation to Kenneth

M. Raisler, General Counsel, CITC, November 25,1986.

89Securities Exchange Act Release No. 24209, (March 12, 1987),37 SEC Docket 1545.

90Seefootnote 70, supra.

91Securities Exchange Act Release No. 25040 (October 16, 1987),39 SEC Docket

746.

92Securities Exchange Act Release No. 24917 (September II, 1987),39 SEC Docket

263.

93Securities Exchange Act Release No. 24613 (June 18, 1987),38 SEC Docket 1158.

94Securities Exchange Act Release No. 24976 (October 1, 1987),39 SEC Docket 486.

95Securities Exchange Act Release No. 24485 (May 20, 1987),38 SEC Docket 614.

96H.R.2557, l00th Cong., 1st Sess. (May 28, 1987).

97S.1175, l00th Cong., Ist Sess, (May 8,1987).

9850 FR 28385 (July 12, 1985).

99804 F2d 739 (D.C. Cir. 1986).

IOOSecuritiesExchange Act Release No. 24368 (April 21, 1987),52 FR 15575.

IOISecurities Exchange Act Release No. 24553 (June 11, 1987),38 SEC Docket 923.

lO2Securities Exchange Act Release No. 24778 (August 6, 1987),38 SEC Docket 1665.

lO3Letterto Michael Minikes, Co-Chairman NYSE Sponsored Rule 15c3-3 Committee,

September 8, 1987.

98
I04Securities Exchange Act Release No. 23856 (December 3, 1986),37 SEC Docket

198.

I05Atenth exchange technically still registered with the Commission is the

Intermountain Stock Exchange (ISE). The Exchange is now inactive and conducts no

trading. As part of an agreement with the Commission, the Commodity Exchange

purchased the registration statement of ISE and must decide by January 1988, whether it

intends to reactivate trading at a later time. No trading could commence, however,

WIthout further Commission approval

106SecuritiesExchange Act Release No. 24623 (June 22, 1987), 52 FR 23665.

107FileNo. SR-NYSE-86-17, Securities Exchange Act Release No. 23724 (October 17,

1986),51 FR 37529. In December, the Commission had also held hearings on the NYSE

proposal and development of a uniform voting rights standard.

108Securities Exchange Act Release No. 24429 (May 6, 1987),38 SEC Doc. 432.

I09Securities Exchange Act Release No. 24634 (June 23, 1987),52 FR 24230.

1lOin general, an approved person IS an individual or entity that owns or controls a

member organization, or is engaged in the securities business and is either controlled by

or under common control with a member organization.

IIIFile Nos. SR-Amex-85-1 and SR NYSE-85-25, Securities Exchange Act Release No.

23768 (November 3, 1986),51 FR 41 183.

112FileNo. Amex-84-32, Securities Exchange Act Release No. 24021 (January 21,

1987),52 FR 3370.

113FileNo. SR-NYSE-85-1, Securities Exchange Act Release No. 24505 (May 22, 1987),

52 FR20484.

114Securities Exchange Act Release No. 24411 (April 29, 1987),52 FR 17870.

115FileNo. SR-CSE-86-6, Securities Exchange Act Release No. 24090 (February 12,

1987),52 FR 5225.

116Securities Exchange Act Release No. 24979 (October 2, 1987),39 SEC Docket 587.

IJ7Securities Exchange Act Release No. 24749 (July 27, 1987),38 SEC Docket 1601.

118SecuritiesExchange Act Release No. 24718 (July 20, 1987),38 SEC Docket 1504.

I19Securities Exchange Act Release No. 2457 (June 5, 1987),38 SEC Docket 934.

120SecuritiesExchange Act Release No. 24633 (June 23, 1987),38 SEC Docket 1247.

121Securities Exchange Act Release Nos. 22481 (September 30, 1985),34 SEC

Docket 254 (NSCC); 24536 (June 2, 1987),38 SEC Docket 852 (MCC); 24171 (March 4,

1987),37 SEC Docket 1405 (aCC); 24897 (September 10, 1987),39 SEC Docket 212

(SCCP).

I22Securities Exchange Act Release Nos. 24161 (March 2, 1987),37 SEC Docket 1394

(BSE); 24819 (August 19, 1987),38 SEC Docket 1883 (MSE); 24161 (March 2, 1987),38

SEC Docket 1394 (NYSE).

I23Securities Exchange Act Release No. 24365 (April 17, 1987), 38 SEC Docket 230.

124Securities Exchange Act Release No. 24024 (February 10, 1987),37 SEC Docket

966.

125SeeLetter to Members of the Securities Industry Conference on Arbitration from

Richard G. Ketchum, Director (September 10, 1987).

12~e staff also completed the processing of 8 applications that had been pending at

the end of the 1986 fiscal year.

127ReleaseNo. 33-6693 (March 9,1987),37 SEC Docket 1476.

128ReleaseNo.IC-15611 (March 9, 1987),37 SEC Docket 1587.

129ReleaseNo. 33-61718 (June 12, 1987),38 SEC Docket 1095.

I30ReleaseNo. 33-6719 (June 18, 1987),38 SEC Docket 1097.

131ReleaseNo. 33-6730 (Aug. 18, 1987),38 SEC Docket 1814.

132ReleaseNo.IC-l54lO (Nov. 13, 1986),36 SEC Docket 1778.

99
133ReleaseNo. lA-1083 (Sept 25, 1987), 39 SEC Docket 545.

134Holding Company Act Release No. 24329 (February 27, 1987),37 SEC Docket

1428.

135Holding Company Act Release No. 24458 (September 10, 1987),39 SEC Docket

222.

136Holding Company Act Release No. 24415 (June 18, 1987),38 SEC Docket 1187.

137Holding Company Act Release No. 24267 (December 18, 1986),37 SEC Docket

387.

138SECv. Bums, 816 F2d 471 (9th Cir. 1987).

139SECv. Wall Street Publishing Institute, lnc., No. 86-5646 (D.C. Cir.).

140SECv. The American Board of Trade, lnc., No. 86-6210 (2d Cir., Sept 28, 1987).

141SECv. The American Board of Trade, Inc., 751 F2d 529 (2d Cir. 1984).

142SECv. The Americart Board of Trade, lnc; 798 F2d 45 (2d Cir. 1986).

143SECv. Charles Byers, 815 F2d 1135 (3d Cir. 1987).

144SECv. Zoe Products, Inc., 807 F2d 178 (9th Cir. 1986).

145c.E.Carlson, Inc. and CharLes E. Carlson v. SEC, No. 86-2637 (1Oth Cir.).

146Lowell H. Listrom & Co. v. SEC, 803 F2d 938 (8th Cir. 1986).

I41SvaLberg v. SEC, No. 86-1674 (D.C. Cir.); Lippitt v. SEC, No. 86-1708 (D.C. Cir.).

148Butcher & Singer, Inc. and Thomas A. Grey v. SEC, No. 87-3065 (3d Cir. Oct 15,

1987) (without opinion).

149Kanev. SEC, No. 87-1080 (8th Cir.).

150Kuznetz v. SEC, No. 86-1508 (D.C. Cir. Sept 21, 1987).

151Dirks v. SEC, (1986-1987) Fed. Sec. L. Rep. (CCH par. 92,936 (D.C. Cir. Oct 10,

1986).

152BLinder,Robinson & Co. and Meyer Blinder v. SEC, Nos. 87-1080, 1086 (D.C. Cir.).

153Petitionersalso raise a constitutional challenge to the Commission's enforcement

powers. That aspect of the case is discussed below under the heading "Constitutional

Challenges to Commission Enforcement Authority."

154PageL,Inc. v. SEC, 803 F.2d 942 (8th Cir. 1986).

155Rutherford v. SEC, 87-7114 (9th Cir.).

156Newell v. SEC, 812 F2d 1259 (9th Cir. 1987).

157SECv. Thomas, No. 86-C-0313G (D. Utah 1986).

158SECv. Warner, No. 86-6742-CN (S.D. Fla. 1987).

15~e court relied principally upon Humphrey's Executor o. United States, 295 U.S.

602 (1935).

160TheAmerican Board of Trade, Inc. v. SEC, No. 86 Civ 3166(WK) (S.D.N.Y. 1986).

161SECv. Blinder, Robinson & Co., No. 80-M-1125 (D. Colo. 1986).

162SECv. Blinder, Robinson & Co., No. 86-2319 (1Oth Cir.).

163SECv. Blinder, Robinson s Co., Nos. 87-1080, 87-1086 (D.C. Cir.) (discussed

supra).

164Thesesame constitutional issues have been raised in cases involving the Federal

Trade Commission. See Ticor Title Ins. Co. v. FTC, No. 85-3089 (D.D.C. Jan. 3, 1986),

affd, (D.C. Cir. March 24, 1987); HospitaL Corp. of America v. FTC, 807 F.2d 1381 (7th

Cir. 1986), cert. denied, 107 S. Ct 1975 (1987); FTC v. American Nat'L. Cellular; lnc.,

810 F2d 1511 (9th Cir. 1987). The decisions in the first two cases did not reach the

constitutional challenge; in the last, the United States Court of Appeals for the Ninth

Circuit upheld the Federal Trade Commission's power to bring enforcement actions as

consistent with Humphrey's Executor, 295 U.S. 602 (1935). The issue was also raised

but dismissed as premature in FTC v. Monahan, 1987-1 Trade Cas. (CCH) 67,540 (D.

Mass. April 13, 1987), appeaL pending, No. 87-1392 (1st Cir.).

165Shearson/American Express v. McMahon, 107 S. Ct 2332 (June 8, 1987).

100
166Wilko v. Swan, 346 U.S. 427 (1953).

167Pinterv. Dahl, No. 86-805 (S. Cl).

168Ettinger v. Merrill Lynch, No. 87-1045 (3d Cir.).

169HoLLingerv. Titan Capital Corp; No. 87-3837 (9th Cir.).

170AZLResources, Inc. v. Margaret HaLLFoundation, lnc., cert. denied, 107 S. Ct,

2469 (1987).

l7lBrawer v. Options Clearing Corp; 807 F.2d 297 (2d Cir. 1986), cert. denied, 56

U.S.LW. (Oct 5, 1987).

172HoLLowayv. Peat, Marwick, MitcheLL & Co., Nos. 87-1486,1490 (lOth Cir.).

173lnMarine Bank v. Weaver; 455 U.S. 557 (1982), the Supreme Court held that

certificates of deposit issued by federally- regulated insured banks were exempt from the

antifraud provisions of the federal securities laws.

174Sanderson v. Roethenmund, No. 85-9527 (EW) (S.D.N.Y.).

175See SEC v. W.J.Howey Co., 328 U.S. 293 (l946).

176Busch v. Carpenter; No. 84-2501 (10th Cir. Aug. 18, 1987).

JnSociete Nationale IndustrieLLe Aerospatiale v. United States District Court for the

Southern District of Iowa, 107 S. o, 2542 (1987).

178United States v. Carpenter; 791 F2d 1024 (2d Cir.), cert. granted, 107 S. Ct, 666

(1986).

179SECv. Certain Unknown Purchasers of the Common Stock and Call Options of

Santa Fe International Corp., 817 F.2d 1018 (2d Cir. 1987).

180SECv. Tome, Nos. 86-6192(L), 86-6194, 86-6196 (2d Cir.).

181as Corp. v. Dynamics Corp; 107 S. o, 1637 (1987).

182Levinson v. Basic, lnc; 786 F.2d 741 (6th Cir. 1986), cert. granted, 107 S. o, 1284

(1987).

183Newmont Mining Corp. v. Pickens, et ei., No. 87-2712 (9th Cir. Nov. 6, 1987).

184Texaco,Inc. v. Pennzoil Co., No. C-6432 (S. o, Tex. November 2, 1987).

1850ccidental Petroleum Corp. v. SEC, 662 F. Supp. 496 (D.D.C. 1987), appeal

pending, No. 87-5279 (D.C. Cir.).

186Sprecher v. Fischer; No. 87-6038 (2d Cir. June I, 1987).

187Panaro v. von Stein, No. 87-1791 (S.D.N.Y.).

188Sprecher v. Fischer; No. 87-6038 (2d Cir. June I, 1987).

189Kendrick v. Zenides, 609 F. Supp.1162 (N.D.C. 1985), affirmed, 796 F.2d 480 (9th

Cir. 1986).

190/nre The LTV Corporation, Nos. 86-B-11270 to 11324, 86-B-11402 and

86-B-11464 (BRL) (Bankr, S.D.N.Y. Nov. 17, 1986); In re Towle Manufacturing Co., Nos.

86 Bkcy. 10497 to 10505 (Bankr. S.D.N.Y. Dec 10, 1986); In re Johns-Manville Corp;

(A/bero v. Manville Corp.), Nos. 82-B-11656-76 (Bankr. S D.N.Y. OCl 9, 1986), aff'd 68

B.R. 155 (S.D.N.Y. 1986), dismissed, No. 85-5068 (2d Or. 1986)

191Nos.82 B 11656-76 (Bankr. S.D.N.Y. Oct, 9, 1986), affd, 68 B.R. 155 (S.D.N.Y.

1986), dismissed, No. 86-5068 (2d Cir. 1986).

192Nos.86-B-] ]270 to ] ]324, 86-B-] ]402 and 86-B-] ]464 (BRL) (Bankr. S.D.N.V.

Nov. ]7, ]986).

193Nos.86 Bkcy. 10497 to 10505 (Bankr. S.D.N.V. Dec. 10, 1986).

194No.84-BX-]609 (Bankr. D. Md.).

19553 B.R. 888 (Bankr. W.D. Okla. ]985), reva and remanded, No. 86-]250 (W.D.

Okla. June 30, 1987), appeal pending, No. 87-2]45 (lOth Cir.).

19648 B.R. 778 (Bankr. D. Colo.), affd, No. 85-2-703 (D. Colo. Oct 28, ]985), aff'd,

817 F.2d 625 (lOth Cir. ]987), reh'g granted, No. 85-2783 (lOth Cir. June 23, 1987).

1971nre Standard Metals, 817 F.2d 625 (1Oth Cir. 1987), reh'g granted on other

grounds, No. 85-2283 (June 23, 1987).

101
1981nre American Reserve Corporation (HuddLeston v. HoLLand), 80 B 4786 (Bankr.

N.D. III.April 12, 1985), reod, 71 B.R. 32 (N.D. III 1987), appeaL pending, No. 87-8014

(7th Cir.).

1991nre The Charter Company, et at. (The Certified Class in the Charter Securities

Utigation and Certain IndividuaL Members Thereof v. The Charter Co.), Bankr. Nos.

84-289-BK-J-GP through 84-332-BK-J-GP and 851033-BK-J-GP (Bankr. M.D. Fla. Nov.

28, 1986), appeaL pending, No. 86-1 079-Civ-J-16 (M.D. Fla.).

200CaseNo. 4-86-1507 (Bankr. D. Minn.).

201/nre Energy Exchange Corporation and Vulcan Energy Corporation,

consolidated case No. 85-010-893-A (Bankr. W.D. Okla. Dec. 9, 1986).

202/nre Storage TechnoLogy Corporation, No. 84-B-5377-J (Bankr. D. Colo.).

203Nos.86-6124, etc. (S.D.N.V.July 17,1987).

102
THE SECURITIES INDUSTRY

Revenues, Expenses, and

Selected Balance Sheet Items

Broker-dealers that are registered with

the Commission produced revenues of

$64.9 billion in calendar year 1986, 29 percent above the 1985 level. Almost 70 percent of this increase in revenues stemmed

from the growth of revenues from securities brokerage. principal transactions and

underwriting. The "all other revenues,"

which include interest income from securities purchased under agreements to resell

and fees from handling private placements,

mergers and acquisitions. accounted for

the remaining 30 percent increase in revenues.

Securities commission income increased $3.0 billion or 27 percent, while

APPENDIX

revenues from mutual fund sales rose 65

percent

Trading gains on firms' securities accounts increased $3.7 billion, or 25 percent,

and represented 28 percent of total revenues in 1986. Profits from underwriting increased $1.8 billion, 36 percent, and stabilized as a percent of total revenues at ten

percent

Pre-tax income increased 26 percent

from the preceding year to $8.3 billion, as

expenses grew by $13.0 billion (30 percent)

to $56.6 billion in 1986.

Assets rose by $68.2 billion to $524.8 billion and liabilities grew $61.7 billion to

$493.8 billion. Ownership equity increased

$6.5 billion during 1986 to $31.0 billion at

year's end.

103
Table 1

UNCONSOLIDATED FINANCIAL INFORMATION FOR BROKER.DEALERS

1982-1986

(MdIJons of DoDars)

1982 1983 1984 1985r 1986p

Revenues

1 SecunlJes ColTllTllSSlOns $ 7,370 $ 10,493 $ 9,294 $ 11,087 $ 14,090

2 G8In (loss) mTradlllQ 7,668 8,690 9,644 12,603 16,442

3 G8In (Loss) m Investments 867 1,178 1,126 2,014 1,879

4 Profit (Loss) hom Underwntmg and SeUmg Groups 2,668 4,097 3,253 4,992 6,753

5 Revenue hom Sale of Investment Company

Secuntles 629 1,494 1,453 2,750 4,544

6. AI Other Revenues . 9,579 11,191 14,903 16,822 21,241

7 Total Revenues . $ 26,801 $ 37,143 $ 39,673 $ 50,268 $ 64,949

Expenses

8 All Employee Compensatx>n and Benefits (Except

RegIStered RepresentalJves' Col'Jl'9nsabon) 1

$ 4,714 $ 6,442 $ 6,777 $ 8,198 $ 11,105

9 CommosslOns and Clearance Paid to Other Brokers 1,299 1,818 1,912 2,373 3,045

10 Interest Expense 6,452 6,914 10,701 11,601 14,403

11 Regulalory Fees and Expenses . 149 202 227 347 422

12 Col'Jl'9nsallOn to Partners and Vobng Stockholder

Offocers 1,179 1,555 1,509 1,791 2,263

13 All Other Expenses (Including ReglSlered

RepresentalJves' Compensatx>n) 1 10,935 14,979 15,695 19,339 25,389

14 Total Expenses $ 24,728 $ 31,910 $ 36,821 $ 43,649 $ 56,627

15 Pre-Tax Income $ 4,073 $ 5,233 $ 2,852 $ 6,619 $ 8,322

Assets, LJab1IltJesand Capital

16 Total Assets $201,275 $252,270 $314,121 $456,622 $524,815

17 lIablirtoes

a Totalllablirtoes (Excluding Subordinated Debt) 186,026 232,551 290,661 425,452 482,n5

b Subordinated Debt 2,306 3,083 4,805 6,640 11,038

c Total LlabllrtJes (17a + 17b) 186,334 235,634 295,466 432,092 493,813

16 Ownership Equrty 12,941 16,636 16,655 24,530 31,002

19 Total LlBbllrtoes and Ownership Equrty $201,275 $252,270 $314,121 $456,622 $524,615

Number of Firms 6,165 7,429 8,298 6,766 9,328

Fogures may not sum due to rounding

p : prelurnnary

r = revised

1 RegIStered representeuves' compensatton IS Included In "All Other Expenses" because It JS not reported separately on Part IIA of

the FOCUS Report

Source FOCUS Report

104
Table 2

UNCONSOUDATED ANNUAL REVENUES AND EXPENSES FOR BROKER-DEALERS

DOING A PUBUC BUSINESS'

1982-1986

(Iaons of DoIars)

1982 1983 1984 1985r 1986p

Rev8nuBs

1 SecunlJeS ComnJssIons .. .. $ 7.129 $ 9,829 $ 8,824 $10,420 $13,546

2. Realized and Unreaized GallS or Losses III Tradmg

and InveslmenI Accoun1s . 8,138 9,106 9.935 13.675 16.873

3 Convnodlbes Revenues .. 731 951 799 1,148 1.073

4 Profits or Losses From Underwriting and SeIlIng

Groups .. .. 2,673 3,990 3.207 4,924 6,683

5 Revenues From SlIJe of Investment Cof11>any

SecunlJeS 625 1.474 1,400 2,6n 4,464

6 Marglll Interest . 2,060 2,150 2.924 2.722 3.001

7 AllOther Revenues . 6.536 7.405 10.705 12,329 16.581

8 Total Revenues $27,892 $34.905 $37.794 $47,895 $62,220

Expenses

9. SaIanes and Other E~ Costs for General

Partners and Vo1JngStockholder Officers . $ 1,095 $ 1.389 $ 1,382 $ 1,652 $ 2,075

10 AI Other E01JIoyee Compensabon and Benefits

(Except ReglSlered Representabves'

Compensabon)2 4.592 6.166 6,527 7,844 10,784

11 ComnJssIons and Clearance Paid to Others 1.231 1,615 un 2,168 2,788

12. Interest Expense . 6,389 6.513 10,331 11.339 14.049

13 Regulaloly Fees and Expenses 137 170 204 319 393

14 AI Other Expenses" . 10.722 14.390 15.168 18,643 24,651

15 Total Expenses . .. $24.166 $30,243 $35,389 $41.966 $54,741

Pre-Tax Income

16 Pre-Tax Income $ 3.726 $ 4,662 $ 2.405 $ 5,929 $ 7,480

Number of Finns .. 3,256 3.648 4.722 5.363 5,nl

FIQuresmay not sum due 10roundJng

p = preinInary

r = r8VISed

1 Inctudes broker-dealers WJIh four quarters of data only

2ReglSlered representaIJves' compensalJon ISIIlCIuded III "AIOther Expenses" because rt ISnot reported separately on Part IIAof

!he FOCUS Report.

Source. FOCUS Report

105
Table 3

UNCONSOLIDATED BALANCE SHEET FOR BROKER-DEALERS

DOING A PUBLIC BUSINESS

YEAR END, 1982-1986

(MillIOns of Dollars)

1982 1983 1984 1985r 1986p

Assets

1 Cash $ 4,636 $ 3,755 $ 4,169 $ 6,443 $ 8,913

2 ReceIVable from Other Broker-Dealers

a SecuntJes Failed to DelIVer 5,899 5,860 7,161 19,080 14,094

b Securmes Borrowed 15,936 17,992 20,761 36,392 37,358

c Other 2,700 3,544 3,095 11,927 14,048

3 ReceIVable from Customers 24,762 31,947 30,198 47,407 54,091

4 Long Posrtons In Securrttes and Comrnodmes 71,408 80,498 110,181 156,620 168,300

5 secunnes Owned-s-rot Readily Marketable 155 208 495 286 317

6 Securrtitls Borrowed under Subordinated

Agreements and Partners' IndIVidual and

Caprtal Securrtres Accounts 90 98 66 52 56

7 Securmss Purchased under Agreements to

Resell 53,733 78,362 107,434 143,068 188,2n

8 Secured Caprtal Demand Notes 306 303 399 409 403

9 Exchange Memberships 286 306 325 365 398

10 Other Assets 9,716 12,121 14,709 21,645 26,276

11 Total Assets $189,985 $234,994 $298,993 $443,692 $512,531

uab/lilles and EqUIty cepne:

12 Bank Loans Payable

a Secured by Customer Collateral $ 2,843 $ 4,416 $ 4,951 $5,587 $ 4,525

b Secured by Firm Collateral 8,749 15,606 22,835 38,474 34,764

13 secunnes Sold under Repurchase Agreements 77,330 93,270 135,075 167,604 224,361

14 Payable to Other Broker-Dealers and Cleanng

Orparazanons

a Securrtres Failed to ReceIVe 6,766 4,769 7,058 18,892 13,970

b SecunlJes Loaned 14,029 15,432 15,844 29,362 27,295

c. Other 2,529 4,267 3,827 8,264 9,240

15 Payable to Customers 16,400 18,697 19,694 31,357 40,337

16 Short PoSrtlOns In Securrtres and Comrnodmes 30,960 40,521 45,n3 81,788 78,372

17 Other lJabtlrtres 16,211 20,181 21,818 32,830 39,857

18 TotallJabllrtres (Excluding Subordinated Debt) 175,817 217,159 276,875 414,158 472,721

19 Subordinated Debt 2,158 2,711 4,682 6,358 10,752

20 Total lJabllrtJes $ln,975c $219,870 $281,537 $420,514 $483,473

21 EqurtyCaprtal $ 12,OlOc $ 15.124 $ 17,456 $ 23,178 $ 29,058

22 Total LlablrrtJes and Equrty Caprtal $189,985 $234,994 $298,993 $443,692 $512,531

Number of Firms 3,258 3,648 4,722 5,363 5,n1

FlQures may not sum due to roUnding

c = corrected

p = prebrronary

r = relllSlld

Source FOCUS Report

106
Securities Industry Dollar In 1986

For Carrying and Clearing Firms

Data for carrying and dearing firms only

are presented here to allow for more detail,

as reporting requirements for firms which

neither carry nor dear differ and data aggregatIon of these two types of firms necessarily results in loss of detail. Carrying and

dearing firms are those firms which clear

securities transactions or maintain possession or control of customers' cash or securities. This group produced 86 percent of

the securities industry's total revenues in

calendar year 1986.

Brokerage activity accounted for about

31 cents of each revenue dollar in 1986, exactly the same as in 1985. Securities comrnissions were the most important component, producing 20 cents of each dollar of

revenue, while margin interest and revenues from mutual fund sales generated 5

cents and 6 cents, respectively.

The dealer side produced 60 cents of

each dollar of revenue. Twenty-nine of

these cents came from trading and investment, 11 cents from underwriting, and 20

cents from other securities-related revenues. The latter is comprised primarily of

interest income from securities purchased

under agreements to resell and fees from

handling private placements, mergers and

acquisitions.

Total expenses consumed 89 cents of

each revenue dollar earned in 1986, almost

the same as the 1985 level of 88 cents. This

resulted in a pre-tax profit margin of 11

cents per revenue dollar.

Employee-related expenses (registered

representatives' compensation and clerical

and administrative employees' expenses)

are the largest component of expenses.

Employee-related expenses summed to

$19.9 billion, and consumed 36 cents of

the revenue dollar in 1986, a slight increase

from 1985. In dollar terms, interest expense

increased to $14.2 billion, $2.7 billion more

than the year before. As a percent of revenues, however, interest expense declined

slightly in 1986 to absorb 25 cents of each

revenue dollar. Other expense categories

consumed about the same proportion of

the Industry revenue dollar In 1986 as they

did in 1985.

Total assets of broker-dealers carrying

and clearing customer accounts rose by

$71.8 billion to $509.7 billion In 1986.

About 63 percent of this increase can be attributed to resale agreements, which rose to

$188.4 billion. By year-end 1986, resale

agreements had become the single most

important item on the balance sheet of

these firms, compnsing 37 percent of assets. Firms' proprietary positIons of $167.0

billion had a modest increase of 7.5 percent

and accounted for 33 percent of assets.

Most of the remaining assets represented

receivables either from customers or other

broker-dealers.

Total liabilities, including subordinated

debt, increased $66.1 billion or 16 percent

to $483.0 billion. About 87 percent of this

growth was due to the $56.0 billion increase in repurchase agreements. Owners'

equity rose 27 percent from $21.0 billion in

1985 to $26.7 billion, and total capital increased 36 percent to $36.7 billion from

$27.0 billion in 1985.

107
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108
TableS

UNCONSOLIDATED REVENUES AND EXPENSES FOR

CARRYING/CLEARING BROKER-DEALERS

(MlUIOIlS of Dollars)

1985r 1986p 1985-1986

Percent of Percent of Percent

Dollars Total Revenues Dollars Total Revenues Change

Revenues

1. Secunlles Commosslons $ 8,780 201% $11,158 199% 271%

2 Gam (Loss) on Trad'"!l 11,441 261 14,649 262 280

3 Gam (Loss) on Investments 1,733 4.0 1,613 29 (69)

4 Profit (Loss) lrom UnderwnlJng

and SeItng Groups 4,675 107 6.313 113 350

5 Revenue from Sale of Investment

Company Secunlles 2,036 46 3,208 57 576

6 Margon Interest Income . 2,800 64 3,071 55 97

7 Commodlbes Revenue 1,143 2.6 1,013 18 (114)

8 Other Revenue Related to

Secunlles BusIness 8,233 188 10,907 195 325

9 Revenues from All Other Sources .. 2,931 67 4,006 7.2 367

10 Total Revenues . $43,n2 1000% $55,938 1000"10 278%

Expenses

11 ReglSlered Represental1ves'

Compensation . $ 8,162 187% $10,730 192% 315%

12 Clencal and AdrrurustralJve

E~loyees' Expenses 6,759 154 9,147 164 353

13. COrmussIOllS and Clearance PlIJd

to Others . 1,501 34 1,858 33 238

14 Interest Expense 11,428 261 14,156 253 239

15 CommunocalJon and Data Processmg 2,095 48 2,490 45 189

16 OCcupancy and EqulJllTlent • 2,020 46 2,414 43 195

17. Co~nsatJon to Partners and Vobng

Stockholder OffICers 1,302 30 1.599 28 228

18 All Other Expenses 5,192 119 7,167 128 380

19 Total Expenses $38,459 879% $49,561 886% 289%

Pre-Iex' Income

20 Pre-Tax Income $ 5,313 121% $ 6,377 114% 200%

Number of FIrms 1,250 1,302 42%

F19ures may not sum due to roundIng

p ~ prehmmary

r = revised

Note Includes mtorrnaton for firms that carry customer accounts or clear securmes transacnons

Source FOCUS Report

109
Table 6

UNCONSOLIDATED BALANCE SHEET FOR CARRYING/CLEARING BROKER-DEALERS

(MIllIOns 01 Dollars)

Percent

Year End Percent 01 YearEnd Percental Change

1985r Total Assets 1986p Total Assets 1985.1986

Assets

1 Cash $ 6.291 14% $ 8,4n 17% 347%

2 RecetVable From Other

Broker-Dealers 69,414 158 71,584 141 31

a SecurrtJes Borrowed 39,053 89 40,291 79 32

b Other ReceIVableS 30,361 69 31,293 61 31

3 ReceIVable From Customers 47,624 109 54,336 107 141

4 Resale Agreements 143,289 327 188,406 370 315

5 Long Posmons In SecuntJes

and Spot Commodities 155,361 355 166,988 328 75

6. Other Assets 15.896 36 19,875 39 250

7. Total Assets $437,875 1000% $509,666 1000"10 164%

Liabilities and EqUity Capital

8 Bank Loans $ 44,361 101% $ 39,663 78% (106)%

a Secured by Customer Sec 5,586 13 4,464 9 (201)

b Secured by Propnetary Sec 38,n5 89 35,199 69 (92)

9 Payable to Other Broker-Dealers 62,573 143 57.674 113 (78)

a Secuntl9S Loaned 31,232 71 29,467 58 (56)

bOther Payables 31,341 72 28,207 55 (100)

10 Payable to Customers 31,732 73 40,891 80 289

a Free Credrt Balances 10,742 24 18,023 35 678

bOther Credrt Balances 20,990 48 22,868 45 90

11 Repurchase Agreements 168,364 385 224,363 440 333

12 Short Posrtoons In Secunt19S 76,468 175 n,070 151 8

13 Subordmated Debt 6,062 14 10,039 20 656

14 Other llabdrtJes 27,345 6.2 33,278 65 217

15 TotalllabJlrtl9S 416,905 952 462,978 948 158

16 Owners' Equrty 20,972 4.8 26,688 52 273

17 TotaillabdrtKlS and Owners' Equrty $437,875 1000% $509,688 100.0"10 164%

Total Caprtal $ 27,034 $ 36,727 358%

Number 01 Forms 1,250 1,302 42%

Fogures may root sum due to roundIng

p = preliminary

r = reV1S9d

Source FOCUS Report

Broker-Dealers, Branch Offices,

Employees

The number of broker-dealers filing

FOCUS Reports rose six percent from

8,766 in 1985 to 9,328 in calendar year

1986. During the same period, the number

110

of branch offices increased seventeen percent from 15,375 to 18,014. The number of

registered representatives employed in the

securities industry rose from 357,133 to

404,000 in 1986, a thirteen percent increase.
Table 7

Broker-Dealers and Branch Offices

Thousands

20,000

~, ~

:i

""'" 0':

'.: 0'::

16,000

12,000

I8.000

4,000

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1978 1979 1980 1981 1982 1983 1984 1985 1986

D-:Ji Broker-Dealers ttttII Branch Offices

r = Revised p = Preliminary

SOURCE: FOCUS REPORT and National

Association of Securities Dealers

111
Table 8

BROKERS AND DEALERS REGISTERED UNDER THE SECURmES EXCHANGE ACT OF 1934

EFFECTIVE REGISTRANTS AS OF SEPTEMBER 30, 1987

(CLASSIFIED BY TYPE OF ORGANIZATION AND BY LOCATION OF PRINCIPAL OFFICE)

Number 01 RegIStrants

Sole

Total Propne- Partner. Corporators/l4lS ships IJons t

ALABAMA 53 2 2 49

AlASKA . 5 1 0 4

ARIZONA • 102 4 4 94

ARKANSAS 61 2 0 59

CAlIFORNIA 1,350 286 130 934

COLORADO 234 8 4 222

CONNECTICUT 200 18 15 167

DELAWARE . 23 1 2 20

DlSmICT OF COlUMBIA . 52 3 2 47

FLORIDA 485 21 16 44B

GEORGIA 134 3 6 125

HAWAII 18 0 0 18

IDAHO 11 2 0 9

IlUNOIS 3,191 2,111 352 728

1N0lANA B4 10 2 72

'OWA 42 2 1 39

KANSAS 43 1 1 41

KENTUCKY. 35 3 0 32

LOUISIANA • • rr 5 5 67

MAINE 20 0 1 19

MARYLAND . •• 111 3 2 106

MASSACHUSETTS 255 25 12 218

MICHIGAN 133 12 2 119

MINNESOTA. 134 5 1 128

MISSISSIPPI . 27 1 0 26

MISSOURI 119 6 1 112

MONTANA . 6 1 0 5

NEBRASKA • 33 2 1 30

NEVADA 18 5 0 13

NEW HAMPSHIRE 9 1 0 8

NEW JERSEY 435 87 49 299

NEW MEXICO 20 0 0 20

NEW YORK 2,671 744 3B4 1,543

NORTH CAROlINA 90 6 0 B4

NORTH DAKOTA 3 0 0 3

OHIO 180 7 11 162

OKLAHOMA 50 2 0 48

OREGON 54 2 1 51

PENNSYLVANIA 480 20 80 3BO

RHODE ISLAND 32 5 1 26

SOUTH CAROLINA 49 2 2 45

SOUTH DAKOTA 5 0 0 5

TENNESSEE 135 6 2 127

TEXAS 523 36 10 4n

UTAH 51 2 0 49

VERMONT 10 2 1 7

VIRGINIA 90 3 2 as

WASHINGTON 130 6 1 123

WEST VIRGINIA 10 0 0 10

WISCONSIN 99 7 0 92

WYOMING 6 1 1 4

TOTAL 12,188 3,482 1,107 7,599

FOREIGN2 23 2 2 19

GRAND TOTAL 12,211 3,484 1,109 7,618

'Includes allorms 01organzabon au- than sole propnetOlS/lJPS and partnershIpS.

2ReglSlranlS whose pmapaI offices are located II1loretgn countnes or au- JUnsdlCbOns not listed

112
Table 9

APPUCATIONS AND REGISTRATIONS OF BROKERS, DEALERS

AND INVESTMENT ADVISERS

Foscal Year 1987

BROKER-DEALERS

AppbcatJons for Reglstrahon

Recetveddunng FJscaJ 1987

DIsposdJon 01 ApplicatJons

Regostrabon Effected

Returned . .

Wdhdrawn

Denied

Total ApplicatJons DISpOSed01

Total Pending as 01 September 30, 1987

TerTTIIIIlIlJOnS01 Regostrabon.

Wdhdrawn . .

Revoked . .

Canceled .... ..

Total TennonalJons dumg Foscall987

Total RegostratJons at end 01 Foscall987 •.

INVESlMENT ADVISERS

AppllcatJons for RBglSlr81Jon

Recetved dumg Foscall987

lJIsposmon 01AppbcatJons

Regostrabon Effected

Returned

Withdrawn . .

DenIed • • . •

Total AppIocatJons DISpOSed01 •

Total Pendong as 01 September 30, 1987

TerTTIIIIlIlJOnS01 Regostrabon.

Withdrawn

Revoked

Canceled ... ..

Total TerTTIIIIlIlJOnSat end 01Foscall987

TotaJRegostrabons at end of Foscall987

'ThIs figure reftecls resubmlsslons of returned IiIings as weH as II1IIIaI apphcabons

"These canceIabons are for lI1lIChve reglSlratJons not prevIOUSly rellected

3,818'

1,497

2,158

6

0

3,361

157

806

7

258

1,071

12,211

4,882

2,045

2,616

4

1

4,666

216

650

9

3,379'

4,038

15,595

113
Table 10

APPLICATIONS AND REGISTRATIONS OF BROKERS,

DEALERS AND INVESTMENT ADVISERS

FIScal Year 1987

MUNICIPAL SECURITIES DEALERS

Appllcabons for RegIstratIOn

ReceIVed dunng FIScal 1987

DlSposrtlOn of Appbcabons

RegIStratIOn Effected

Returned

Wrthdrawn

Denied

Total ApplicatIOns DISposed of

Total Pending as of September 30, 1987

Termmatons of RegIStratIOn

Wrthdrawn

Revoked

Cancelled

Total Terrmnanons dunng FIScal 1987

Total RegIStratIOns at end of FIScal 1987

TRANSFER AGENTS

Apptlcabons for RegIstratIon

ReceIVed dunng FISCal 1987

Dspcsnon of ApplocatlOns

RegIStratIOn Effected

Returned

Wrthdrawn

Denied

Total ApplicatIOns DISposed of

Total Pending as of September 30. 1987

Terrmnatons of RegIStratIOn

Wrthdrawn

Revoked

Cancelled

Total Termmatons at end of FIScal 1987

Total RegIStratIOns at end of FIScal 1987

'ThIS figure reflec1s resubmssons of returned filings as well as Inrtlal applicatons

"These cancellatIOns are for InactIVe regIStratIOns not preVIOUSly reflected

114

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108

902
Self-Regulatory Organizations:

Expenses. Pre-Tax Income and

Balance Sheet Structure

In 1986 the total revenues of selfregulatory organizations ("SROs") with

marketplace jurisdiction rose approximately $133.1 million to $778.2 million, an

increase of 21% over 1985 (the 1985 increase was 15% over 1984). The New York

Stock Exchange ("NYSE"), National Association of Securities Dealers ("NASD") and

American Stock Exchange ("Amex") accounted for 67% of these SROs' total revenues. Most of the SRO revenues came from

listing, trading, and market data fees. The

NYSE reported total revenues of $296.3

million, of which 58% consisted of listing

and trading fees. The Amex reported total

revenues of $102.2 million, and NASD reported $124.5 million. The Chicago Board

Options Exchange ("CBOE") had the largest percentage increase (31 % ) in revenues

for the second consecutive year.

The total expenses of all marketplace

SROs were $647.5 million in 1986, an increase of $83 million (15%) over 1985. The

Midwest Stock Exchange ("MSE") had the

largest percentage increase in total expenses, 22%. The Spokane Stock Exchange's ("SSE") total expenses remained

unchanged in 1986, with expenses totaling

$57,000.

Aggregate pre-tax income of these SROs

rose to $125.3 million in 1986 from $73.8

million in 1985, an increase of 70%. Pre-tax

profit margins widened because aggregated total revenues increased 21 % and

aggregate total expenses increased only

15%.These wider margins can be partly attributed to rising trading volume and a corresponding increase in transaction fees.

The NYSE had a pretax income of $48.6

million, a 36% increase from 1985. The

CBOE had an increase of $9.2 million,

from $9.2 million to 18.4 million. Amex had

an increase of $10.1 million or 105%, the

Philadelphia Stock Exchange ("Phlx") an

increase of $2.3 million or 115%, and the

Boston Stock Exchange ("BSE") an increase of $799 thousand or 116%. The Pacific Stock Exchange ("PSE") had a 1981

pre-tax income of $1.2 million, an increase

of 12% over 1985 pre-tax income. Finally

the CSE had a pre-tax income of $113thou

sand, a significant reversal of its 1985 performance in which the CSE had a pre-tax

loss of $37 thousand. In addition, 1986 was

the first year in five in which the CSE reported a net pre-tax gain rather than a pretax loss.

The total assets of all marketplace SROs

were $1,556 million in 1986, an increase of

31% from 1985. The NYSE'stotal assets increased by $27.8 million or 9%, from 1985

to 1986. The total assets of the MSE and the

Phlx also increased significantly but these

increases were due largely to increased asset levels at certain subsidiaries.

The aggregate net worth of the SROs

roseto $474.7 million in 1986 from $400.9

million in 1985, an increase of 18%. The

largest percentage increase was at the CSE

(160%), followed by the Spokane Stock

Exchange (40% ), the BSE (30% ), and the

NASD (27%). The NYSE's net worth increased by 14% from $162.7 million to

$184.8 million.

Aggregate clearing agency service revenue increased by 24%, or $54 million, in

1986 due to increases in securities trading

volume and additional use of depository

services. Total deposisitory service revenue

increased $36 million primarily due to a

$29 million gain by the Depository Trust

Company ("DTC") and a $5 million gain by

the Midwest Securities Trust Company

("MSTC"). Service revenue of clearing corporations increased by $18 million, which

was largely attributable to increases of

almost $4 million at the Options Clearing

Corporation ("OCC") and $12 million at the

National Securities Clearing Corporation

("NSCC").

The depositories continued to expand

the base for service revenues by increasing

the number of shares on deposit and the

face value of debt securities in custody. At

the end of 1986, the total value of securities

in the depository system reached $2.8 trillion, of which DTC alone held over $1.4 trillion not including some $1.1 trillion in cer115
tificates held by transfer agents as DTC's

agent. This movement of certificates into

depositories was due to further expansion

of the lists of depository eligible issues and

the desire of participants to avail themselves of depository services. The MSTC

had 541,000 eligible issues at year end, up

59%, and DTChad 372,000, up 42%. The

major portion of the growth was in debt issues, particularly municipal bonds, which

increased 38% to approximately $450 billion of face value. This represents 58% of

the value of all municipal bonds outstanding in the United States.

Total depository pre-tax income was

down $2.7 million, 47% from the previous

year's result. In 1986, DTCmade $2 million

less than last year when they had increased

shareholders' equity to mitigate business

uncertainties. DTC, like all clearing agencies, adjusts refunds of fees and fee structures to earn funds to meet expenses and

provide the amount of earnings which it

wishes to retain.

The clearing corporations recorded an

aggregate increase in pre-tax income of

almost $3.8 million. NSCC posted pre-tax

earnings of $6.5 million, up $32 million

over 1985. The acc recorded a significant

decrease in pre-tax income of almost $12

million;most of this change was due to last

year's one-time increase of over $1 million

which was used to capitalize a new subsidiary, the Intermarket Clearing Corporation

("ICC). acc, through management of

fees, reported a slight loss for the options

operations while reporting a profit at ICC

equal to ICC's loss of its initial year, 1985.

The Pacific Clearing Corporation

("PeC") incurred a pre-tax loss of over

116

$300,000 after reporting a loss of $12 million in 1985. The Pacific Securities Depository Trust Company ("PSDTC) reported a

pre-tax loss of $292,000 in 1986 versus a

pre-tax operating gain of $189,000 the previous year. In 1986, PSE, the parent company, transferred revenues from equities

trading to PCC and PSDTC in the amounts

of $787,000 and $322,000, respectively,

thus increasing service revenues. Further

PSE support to its subsidiaries was provided by forgiving allocated administrative

and financial services furnished by the parent to PeC and PSDTC in the amounts of

$654,000 and $2.1 million respectively.

The combined net worth of PCC and

PSDTC further declined to $124,000 from

$433,000 at the end of 1985. Subsequently,

in April 1987, the Board of Directors of the

PSE authorized the closure of those clearing and depository functions not essential

to the operation of the PSE. The one-time

cost of closure was projected to be between

$5 and $7 million.

The aggregate net worth of all clearing

corporations and depositories rose by $6

millionto a new high of almost $39 million.

In addition to the increase innet worth, participant clearing fund contributions which

provide protection to the clearing agencies

in the event of a participant default also increased. Should a participant default and

its losses exceed its deposit, the entire participants' fund may be charged on a pro rata

basis. However, no clearing agency has

ever assessed non-failing participants' contributions. The equity clearing (participants') funds increased by 30% to $360

million. Depository clearing (participants')

funds increased slightly to $223 million.
117
...

~ (0) ~

cD m~ ~

118
Table 13

MUNICIPAL SECURITIES RULEMAKING BOARD

STATEMENTS OF REVENUES AND EXPENSES AND

CHANGES IN FUND BALANCE

for the years ended September 30, 1987, 1986 and 1985

1987 1986 1985

Revenues

Assessment fees • $2,201,829 $4,489,810 $1,810,798

Annual fees 264,500 249,900 233,825

InIllal fees 29,400 33,800 27,300

Investment Income 337,292 160,465 79,892

Board manuals and other 90,016 66,561 40,631

2,923,037 5,000,536 2,192,446

Expenses

SaJanes and employee benefits 796,048 726,068 715,565

Board and commrttee 476,329 456,037 535,852

OperalJons 424,080 369,788 391,183

EducatIOn and comrnurucaton 336,296 306.647 321,164

Professional services 141,546 42,364 72,965

Depr9ClatlOn and arnornzaton 58,014 56,375 32,944

2,232,313 1,957,279 2,069,673

Income from operations 690,724 3,043,257 122,773

Gain on terrnmaton of lease 46,844

Excess of revenues over expenses 690,724 3,043,257 169,617

Fund balance, beginning of year 4,424,741 1,381,484 1,211,867

Fund balance, end of year $5,115,465 $4,424,741 $1,381,484

119
EXEMPTIONS

Section 12(h) Exemptions

Section 12(h) of the Exchange Act authorizes the Commission to grant a complete or partial exemption from the registration provisions of Section 12(g) or from

other disclosure and insider trading provisions of the Act where such exemption is

consistent with the public interest and the

protection of investors.

For the year beginning October I, 1986,

nine applications were pending and an additional six applications were filed during

the year. All fifteen of these applications

were granted. No applications were pending at the close of the year.

Exemptions For Foreign

Private Issuers

Rule 12g3-2 provides various exemptions from the registration provisions of

Section 12(g) of the Exchange Act for the

securities of foreign private issuers. Perhaps the most important of these is that

contained in subparagraph (b) which provides an exemption for certain foreign issu120

ers which submit, on a current basis, the

material specified in the rule. Such material

includes that information about which investors ought reasonably to be informed

and which the issuer: (I) has made public

pursuant to the law of the country of domicile or in which it is incorproated or organized; (2) has filed with a foreign stock exchange on which its securities are traded

and which was made public by such exchange; and or (3) has distributed to its security holders. Periodically, the Commission publishes a list of those foreign issuers

which appear to be current under the

exemptive provision. The most current list

is as of April 30, 1988, and contains a total

of 1,684 foreign issuers.

ANANCIAL INSTITUTIONS

There were 3,074 companies registered

under the Investment Company Act of

1940 as of September 30, 1987. New registrations totaled 422 with 44 registrations

terminated during the fiscal year. This compares with 1986 fiscal year figures of 2,583

total registrations, 299 new registrations

and 47 terminations.
Table 14

COMPANIES REGISTERED UNDER THE INVESTMENT COMPANY

ACT OF 1940

AS OF SEPTEMBER 30, 1987

Approxmale

Market Value of

Assets of AdNe

New ~

RegJstra!Jons TerTIWl8bOnS (BiIions)'

Management Open-End (Mutual Funds) 343 50 $ 913

(Non-Insurance Company)

Management Closed-End

SBlC's 3 0

AI/Others ., 76 11

Sub-Total • .. 79 11 60

Ullfllnvestmenl Trust .• 83 13 125

(NorHnsurance Company)

Face Amount CertJficates .. 0 0 2

Insurance Company. Both

Open-End Management and

Ullfllnvestment T~ • 0 0 110

TOTAlS for FISCal 1967 505 74 $1,210

Total Number of AclJVe ReglSlered Investment Con1Janies as of September 30. 1967 3,3053

'The approxJmale marl<at value of assets was caJculaled USIIlQ vanous published servICeS as weD as staff estmaIes

"could also be seltlng pressure from Il1SUrance~ because they do nof pernul SW1Ich"'9 among the vanous types of

onvestments (Le., equity and debt)

~ are approxomately 197108ClJVe~ reglSlered. lnacbve refers 10regIStered companoes which as of September 30.

1967, were onthe process of bell'lQ lIquodated or merged. or have IiIed an appIicalJon pursuant to SectIon 8(1) of the Act for

dereglSlralJon, or which have othel"WlSe gone out of exIStence and remaJn only until such tJme as the CommossIOI1ISSOOSan order

under SeclJon 8(1) lermnalJng lhetr reglSlralJOn.

121
Table 15

COMPANIES REGISTERED UNDER THE INVESTMENT COMPANY

ACT OF 1940

ApproxImate

market value

01assets

RegIStered RegIStered RegIStratIOn RegIStered ofacllve

FISCalyear ended at begInning dunng terrmnated at end of companies

September 30 01year year dunng year year (millIOns)

1941 0 450 14 436 $ 2,500

1942 436 17 46 407 2,400

1943 407 14 31 390 2,300

1944 390 18 27 371 2,200

1945 371 14 19 366 3,250

1946 366 13 18 361 3,750

1947 361 12 21 352 3,600

1948 352 18 11 359 3,825

1949 359 12 13 358 3,700

1950 358 26 18 366 4,700

1951 366 12 10 368 5,600

1952 368 13 14 367 6,800

1953 367 17 15 369 7,000

1954 369 20 5 384 8,700

1955 384 37 34 387 12,000

1958 387 46 34 399 14,000

1957 399 49 16 432 15,000

1958 432 42 21 453 17,000

1959 453 70 11 512 20,000

1960 512 67 9 570 23,500

1961 570 118 25 663 29,000

1962 663 97 33 727 27.300

1963 727 48 48 727 36,000

1964 727 52 48 731 41,600

1965 731 50 54 727 44,600

1966 727 78 30 775 49,800

1967. 755 108 41 842 58,197

1968 842 167 42 967 69,732

1969 967 222 22 1,167 72,465

1970 1,167 187 26 1,328 56,337

1971 1,328 121 98 1,351 78,109

1972 1,351 91 108 1,334 80,816

1973 1,334 91 64 1,361 73,149

1974 1,361 106 90 1,377 62,287

1975 1,377 88 66 1,399 74,192

1976 1,399 63 86 1,376 80,564

1977' 1,403 91 57 1,437 76,904

1978 1,437 98 64 1,471 93,921

1979 1,471 83 47 1,507 108,572

1980 1,507 136 52 1,591 155,981

1981 1,591 172 80 1,683 193,362

1982 1,683 305 45 1,944 281,644

1983 1,944 287 50 2,181 330,458

1984 2,181 256 54 2,331 250,321

1985 2,331 299 47 2,583 525,000

1986 2,583 422 44 3,074 742,000

1987" 3,074 505 74 3,305 1,210

'Began FISCalYear EndIng September 30, 1977

"Fogures Changed to Billions

122
.

1

SECURITIES ON EXCHANGES

Market Value and Share Volume

The market value of stocks, options, warrants and rights on registered exchanges

totaled $1.9 trillion in calendar year 1986.

Of this total, $1.7 trillion, or 91 percent, represented the market value of transactions in

stocks, rights and warrants and $160.8 billion or nine percent in equity (including

exercises) and non-equity options transactions. The value of equity/option transactions on the New York Stock Exchange (excluding exercises) was $1.5 trillion, up 42

percent from the previous year. The market

value of such transactions rose 64 percent

to $62.7 billion on the American Stock Exchange and increased 43 percent to $352.7

billion on all other exchanges. The volume

of trading in stocks on all registered exchanges totaled 48.3 billion shares in cal

endar year 1986, a 30 percent increase ove

the previous year, with 81 percent of the

total accounted for by trading on the Nev.

York Stock Exchange.

The volume of options contracts (including exercises) traded on options exchanges

was 303.7 million contracts in calendar

year 1986,25% higher than in 1985. The

market value of these contracts increased

49% to $160.8 billion. The volume of contracts (excluding exercises) executed on

the Chicago Board Options Exchange increased 21 percent to 180.4 million; option

trading on the American Stock Exchange

rose 35 percent; Philadelphia Stock Exchange contract volume rose 35 percent;

and Pacific Stock Exchange contract volume rose 10 percent

Table 16A

MARKET VALUE OF EQUITY/OPTIONS SALES ON U.S. SECURITIES EXCHANGES

(Thousands of Dollars)

Total Equl!YOplJons

Market Non-Equl!Y

Value Stocks' Warrants Roghts Traded2 ExerclSed3 OptIOns'

All RegIStered Exchanges for Past SIX Years

Calendar Year 1981 $ 567,089,795 $ 490,688,158 s 327,295 s 1,686 $41,423,216 $34,649,440 s 0

1982 693,850,963 602,669,878 423,236 1,152 53,659,796 37,046,803 50,098

1983 1,082,241,196 957,139,047 1,162,124 2,997 59,598,740 59,714,431 4,623,857

1964r 1,059,940,183 950,878,406 430,291 9,751 33,822,260 55,639,998 19,159,4n

1985r 1,259,109,168 1,199,350,836 751,850 25,162 29,952,739 49,182,980 29,028,581

1986 $1,867,887,058 $1,705,123,953 $1,663,395 $359,764 $40,054,282 $72,827,859 $47,887,805

Breakdown of 1986 Data by ReglSlered Exchanges5

All Regostered EXchanges

Amencan Stock Exchange s 62,671,005 s 43,432,469 s 215,572 $ 510 $12,868,992 $ NA $ 6,153,462

Boston Stock EXchange 24,604,904 24,604,904 0 0 0 0 0

Clr1CIMalJ Stock Exchange 6.936.151 6.936.151 0 0 0 0 0

MIdwest Stock EXchange 102.362,283 102,362,283 0 0 0 0 0

New York Stock Exchange 1,452,542,789 1,450.150,125 956,764 345,909 301,526 NA 788,465

Pacdic Stock Exchange 54,998,092 50.757,818 457,892 13,345 3,710,207 NA 58.830

PhIladelphia Stock 35,028.469 26,866,492 3.167 0 3,619,220 NA 4.539,590

Exchange

intermountain Stock 126 126 0 0 0 0 0

Exchange

Spokane Stock Exchange 13,585 13,585 0 0 0 0 0

Chocago Board OplJons $ 55,901,795 $ o $ 0 $ 0 $19.554,337 $ NA $36,347,458

Note' For footnotes see Table 16 B

123
Table 16 B

VOLUME OF EQUITY/OPTIONS SALES ON us, SECURmES EXCHANGES

(Data 11 Thousands)

EqUlly 0pIJ0ns Non-EqUIty

Stocks' Warrants RIghts Trade<f' ExerCiSed" OplJons'

(Shares) (l/nIls) (Unrts) (Contracts) (Contracts) (Contracts)

AI RegIstered Exchanges For Past Soc Years

Calendar Year 1981 15.910,050 46,553 12,583 109,404 7,431 0

1982 22,414.379 56,051 21,505 137.263 8.302 41

1983 30,146.335 157,942 11,737 134,286 13,630 14.399

1984r 30,456,438 n,652 13.924 118,927 11.919 n.512

1985r 37.045,909 108,111 33.547 118.556 10.512 114,246

1986 48,337.694 195,501 47,329 141,931 14,545 147,234

Breakdown 011986 Data by ReglSlered Exchanges

AI ReglSlered Exchanges

"Amencan Stock Exchange 2,998,859 50,576 1,883 47,139 4,567 18.301

1los1on Stock Exchange 647,135 0 0 0 0 0

"CII1CI-naI1 Stock Exchange 145,261 0 0 0 0 0

Midwes1 Stock Exchange 2,783,626 0 0 0 0 0

"New York Stock Exchange 39,258,480 106,331 44.508 1.051 101 3,nl

Pacific Stock Exchange 1,750.361 37,822 938 13,943 1,447 134

"PhiadeIphoa Slock Exchange 742,819 n2 0 15,054 1,616 9,418

lntermountal1 Stock Exchange 259 0 0 0 0 0

Spokane Slock Exchange 10,894 0 0 0 0 0

"Chocago Board 0pIJ0ns 0 0 0 64,744 6.794 115,610

Fogures may not sum due to roundll1Q

r = revISed

N.A = Not AvaJlabte

"Data 01 those exchanges marl<ed wrth an astensk cover transaclJons cleared dUrll1g the calendar month, clearance usually occurs

WIlIun live days 01 the execution 01 a trade. Data 01 other exchanges cover transactlOl1S effect trade dates Ialhrog wrthlO the

reporting month

'Includes votJng trust cerlJficates. certJlicates of depose lor stocks, and Amencan Oeposrtory ReceIJl1s lor stocks but excludes

roghts and warranls-

'Data lorJlme 1.2, and 3,1983 are not mcluded.

3Exerosed Contracts do not mclude January and February 1985 data

'Includes aft excharoge trades 01 call and put oplJons 10 stock IndICeS, I~erest rates and lorelgn CUrrenC18S.

sTotal market value lor indIVIdual exchanges does not mclude data lor equity oplJons exerosed

Source SEC Form R.31 and OplJons Cleanrog Corporatxm StatJstJcal Report

124
NASDAQ

(Volume and Market Value)

NASDAQ share volume and market

value information for over-the-counter

trading has been reported on a daily basis

since November I, 1971. At the end of

1986 there were 5,189 issues in the NASDAQ system. Volume for calendar year

1986 was 28.7 billion shares, up 39 percent

from the 20.7 billion shares traded in the

previous year. It was the highest volume in

NASDAQ's IS-year history. This trading

volume encompasses the number of

shares bought and sold by market-makers

plus their net inventory changes. The market value of shares traded in the NASDAQ

system was $378.2 billion at the end of

1986, the highest ever.

Share and Dollar Volume

by Exchange

Share volume in calendar year 1986 for

stocks, rights and warrants on exchanges

totaled 48.6 billion, an increase of 31 percent from the previous year. The New York

Stock Exchange accounted for 81 percent

of the 1986 share volume; the American

Stock Exchange, six percent; the Midwest

Stock Exchange, six percent; and the Pacific Stock Exchange, four percent

The market value of stocks, rights and

warrants traded was $1.7 trillion, 42 percent over 1985. Trading on the New York

Stock Exchange contributed 85 percent of

the total. The Midwest Stock Exchange and

Pacific Stock Exchange contributed six

percent and three percent, respectively.

The American Stock Exchange accounted

for three percent of dollar volume.
Table 17

Market Value of Equity/Options

Traded On All U.S. Securities Exchanges

Dollars Billions

1.800

~ Stocks, Rights

~ &Warrants

D

Options (Includes Exercises

and Non-Equity Opuonst'

1,400

1.000

600

200

o

1976 77 78 79 80 81 82 83 84 85 1986

'Includes equity opttons exercised as of 111180; non-equity options as of 10122182

126
Table 18

SHARE VOLUME BY EXCHANGES1

(Percentages)

Total Share Volume

Year (Thousands) NYSE AMEX MSE PSE PHLX BSE CSE Other2

1945 769,018 6587 2131 177 298 106 066 005 630

1950 893,320 7632 1354 216 311 097 065 009 316

1955 1,321.401 68 85 1919 209 308 085 048 005 541

1960 1,441,120 6847 2227 220 311 088 038 004 265

1961 2,142,523 6499 2558 222 341 079 030 004 267

1962 1,711,945 7131 20 11 234 295 087 031 004 207

1963 1,880,793 7293 1883 232 282 083 029 004 194

1964 2,118,326 7281 1942 243 265 093 029 003 144

1965 2,671,012 6990 2253 263 233 081 026 005 149

1966 3,313,899 6938 2264 256 268 086 040 005 123

1967 4,646,553 6440 2841 235 246 087 043 002 106

1968 5,407,923 6198 29 74 263 264 089 078 001 133

1969 5,134,856 6316 2761 284 347 122 051 000 119

1970 4,834,887 7128 1903 316 368 163 051 002 069

1971 6,172,668 7134 1842 352 372 191 043 003 063

1972 6,518,132 7047 1822 371 413 221 059 003 064

1973 5,899,678 7492 1375 409 368 219 071 004 062

1974 4,950,842 7847 1028 440 348 182 086 005 064

1975 6,376,094 8099 897 397 326 154 085 013 029

1976 7,129,132 8005 935 387 393 142 078 044 016

1977 7,124,640 7971 956 396 372 149 066 064 026

1978 9,630,065 7953 1065 356 384 149 060 016 017

1979 10,960,424 7988 1085 330 327 164 055 028 023

1980 15,586,986 7994 1078 384 280 154 057 032 021

1981 15,969,186 8068 932 460 287 155 051 037 010

1982 22.491,935 8122 696 509 362 218 048 038 007

1983 30,316,014 8037 745 548 356 220 065 019 010

1984r 30,548,014 8254 526 603 331 179 085 018 004

1985r 37,187,567 8152 578 612 366 147 127 015 003

1986 48,580,524 8112 628 573 368 153 133 030 002

r = reVISed

1 Sharevolume for exchanges Includes stocks, nghts, and warrants

2 IncludesaUexchanges notlostedIndIVIdually

Source SEC Fonn R-31

127
Table 19

DOLLAR VOLUME BY EXCHANGES1

(Pen:enlages)

Total DoIar Volume

Year (Thousands) NYSE AMEX MSE PSE PtVC BSE CSE 0tI1ef2

1945 $ 16,284.552 8275 10.81 200 1.78 096 1.16 006 048

1950 21.808.284 85.91 6.85 235 2.19 103 112 0.11 0.44

1955 38,039.107 8631 698 244 190 103 0.78 0.09 047

1960 45,309,825 8380 9.35 272 194 103 0.80 007 049

1961 64.071.623 8243 10.71 2.75 1.99 103 0.49 0.07 0.53

1962 54,855.293 8632 681 275 200 105 046 0.07 054

1963 64.437.900 85.19 751 272 239 106 0.41 006 066

1964 72,461,584 8349 845 315 248 114 042 0.06 081

1965 89.549.093 8178 991 344 243 112 0.42 008 082

1966 123,697.737 79n 1184 314 284 110 056 0.07 068

1967 162.189.211 n29 1448 308 279 113 066 003 054

1968 197,116,367 7355 1799 312 265 113 1.04 001 051

1969 176.389.759 7348 1759 339 312 143 067 0.01 031

1970 131.707,946 78.44 1111 376 381 1.99 067 003 019

1971 186,375,130 7907 9.98 400 379 2.29 058 005 024

1972 .. 205,956,263 nn 1037 429 394 256 0.75 005 027

1973 178.863.622 8207 606 454 355 245 100 006 027

1974 118,828,270 83.63 440 490 350 203 124 0.06 024

1975 157.256.676 8520 367 4.64 326 173 119 017 014

1976 195,224.812 8435 388 476 383 169 094 053 002

19n 187,393.084 8396 480 479 353 162 074 075 001

1978 251.618.179 8367 6.13 416 364 162 061 017 0.00

1979 300,475,510 83 72 694 383 278 180 056 0.35 0.02

1980 476,500.688 8353 733 433 2.27 161 0.52 040 001

1981 491.017,139 84 74 541 504 232 1.80 049 040 000

1982 603,094.266 8532 327 583 305 159 0.51 043 000

1983 958.304.168 8513 332 628 286 155 066 0.16 0.04

1984r . 951.318,448 85.61 2.26 657 2.93 1.58 085 019 000

1985r 1.200,127.848 8525 223 659 306 149 1.20 018 000

1986 $1.707,117.112 8502 2.56 600 300 1.57 1.44 041 0.00

r = reVISed

1 Do8ar volume lor exchanges IllCludes stocks, nghts and warrants.

2 Includes aD exchanges not ilsted IndMduaDy.

Source' SEC Form R-31

128
Special Block Disbibution

Incalendar year 1986, there were 12 special block distributions with a value of

$661.4 million. Secondary distributions accounted for all of these special block distributions.

Table 20

SPECIAL BLOCK DISTRIBUTIONS REPORTED BY EXCHANGES

(Value In Thousands)

Secondary DislrilutJons Exchange DtstrilulJons SpeaaI Offemgs

Shares Shares Shares

y- Number Sold Value Number Sold Value Number Sold Value

1944 ....•......•. 94 4,097,298 $ 135,760 0 0 $ 0 87 1,053,667 $32,454

1945 ............. 115 9,457,358 191,961 0 0 0 79 947,231 29,878

1946 ............ 100 6,481,291 232,398 0 0 0 23 308,134 11,002

1947 .... .. .. ... . 73 3,961,572 124,671 0 0 0 24 314,270 9,133

1948 .. .. . . .. .. .. 95 7,302,420 175,991 0 0 0 21 238,879 5,466

1949 .......... 86 3,737,249 104,062 0 0 0 32 500,211 10,956

1950 .......... 77 4,280,681 88,743 0 0 0 20 150,308 4.940

1951.. . ........ 88 5.193,756 146.459 0 0 0 27 323,013 10.751

1952 ........... 76 4,223.258 149,117 0 0 0 22 357.897 9.931

1953 .......... 68 6.906,017 108,229 0 0 0 17 380.680 10.486

1954 .......... 84 5,738.359 218.490 57 705.781 24.664 14 189,772 6.670

1955 .... 116 6,756,767 344,871 19 258.348 10.211 9 161,850 7,223

1956 ..... 146 11,696,174 520,966 17 156,481 4,645 8 131,755 4.557

1957 ..... 99 9,324.599 339,062 33 390,832 15.855 5 63,408 1,845

1958 ... 122 9,508.505 361,886 38 619.876 29,454 5 88,152 3.286

1959 ... 148 17,330.941 822,336 28 545,038 26.491 3 33,500 3,730

1960 ......... 92 11,439,065 424,688 20 441,644 11,108 3 63.663 5,439

1961 ......... 130 19,910,013 926,514 33 1.127,266 58.072 2 35.000 1,504

1962 ....... 59 12,143,656 658,780 41 2.345.076 65,459 2 48.200 588

1963 ....... 100 18,937.935 814.984 72 2,892.233 107.498 0 0 0

1964 ........... 110 19,462.343 909,821 68 2.553,237 97.711 0 0 0

1965 .......... 142 31,153,319 1.603.107 57 2.334.277 86.479 0 0 0

1966 ., .. - ... 126 29.045,038 1.523.373 52 3.042.599 118.349 0 0 0

1967 ........ 143 30.783.604 1,154,479 51 3.452,856 125,404 0 0 0

1968 ............ 174 36,110,489 1.571,600 35 2,669,938 93,528 1 3,352 63

1969 .. ... . ...... 142 38,224,799 1,244,186 32 1.706.572 52,198 0 0 0

1970 ........... 72 17,830,008 504.562 35 2,066,590 48.218 0 0 0

1972 ... . ....... 229 82,365,749 3,216,126 26 1.469,666 30.156 0 0 0

1973 . .. ...... .. 120 30.825,890 1,151,087 19 802,322 9,140 91 6,662,111 79.889

1974 ........... 45 7,512,200 133,838 4 82.200 6,836 33 1.921.755 16.805

1975 ...... .... 51 34,149,069 1,409,933 14 483,846 8.300 14 1,252.925 11,521

1976 ............ 44 20,568.432 517,546 16 752,600 13,919 22 1.475.842 18,459

1977 ......... 39 9.848,986 261,257 6 295,264 5,242 18 1.074,290 14.519

1978 .......... 37 15.233,141 569.487 3 79.000 1,429 3 130.675 1.820

1979 .......... 37 10,803,680 192,258 3 1,647,600 86.066 6 368.587 4,708

1980 ........... 44 24,979,045 813,542 2 177,900 5,101 4 434.440 7.097

1981 ............ 43 16,079.897 449,600 0 0 0 0 0 0

1982 ....... , . 76 40.024.988 1,284,492 0 0 0 3 717.000 11.112

1983 ............. 85 70,800,731 2,245,465 0 0 0 0 0 0

1984 .......... 23 21.180,207 680,543 0 0 0 0 0 0

1985 ........... 12 25,458,047 856,917 0 0 0 0 0 0

1986 ......... .. 12 16,747,273 $ 661,407 0 0 $ 0 0 0 $ 0

Source: NYSE and AMEX

129
Value and Number of Securities

Listed on Exchanges

The market value of stocks and bonds

listed on U.S. exchanges at the end of 1986

was $3.7 trillion, an increase of 11 percent

over 1985. The market value of stocks

(common and preferred), was $2.2 trillion,

an increase of 13 percent during 1986. The

value of listed bonds increased 9 percent

Stocks with primary listing on the NewYork

Stock Exchange had a market value of $2.1

trillion and represented 97 percent of the

value of common and preferred stocks

listed on registered exchanges. Those

listed on the American Stock Exchange accounted for almost all of the remaining

three percent of the total and were valued at

$70.3 billion,an increase of II percent over

the previous year.

Table 21

SECURITIES LISTED ON EXCHANGES1

December 31. 1986

EXCHANGES COMMON PREFERRED BONDS TOTAL SECURmES

Market Market Market Market

Value Value Value Value

RegIStered Number (MIllton) Number (Mdhon) Number (Mllioon) Number (Mdhon)

Arnencan n2 $ 63,459 117 $ 6,795 336 $ 19,634 1,225 $ 89,888

Boston 97 1,537 0 0 6 148 103 1,685

CInclnnatJ 4 166 3 59 7 99 14 324

Midwest 9 648 4 24 0 0 13 672

New York l,4n 2,079,195 717 49,316 3,513 1,447,023 5,707 3,575,534

Pacolic 54 1,204 30 716 98 4,111 182 6,031

Pluladelphoa 20 383 23 1,794 42 2 85 2,179

lntermount8ln NA NA NA NA NA NA NA NA

Spokane 33 11 0 0 0 0 33 11

Total 2,466 $2,146,603 894 $58,704 4.002 $1,471.017 7,362 $3,676,324

Includes Foreogn

Stocks

New York 59 $ 70,599 4 $ 148 98 $ 10,580 161 $ 81,327

Arnencan 51 22,503 4 682 5 203 60 23.388

Pacffic 3 22 2 8 2 2 7 32

Total 113 $ 93,124 10 $ 838 105 $ 10,785 228 $ 104,747

NA = Not Avadable

1 Excludes secuntHlS whICh were suspended from tradIng at the end of the year, and secuntJeS whICh because of InactIVIty had no

aVllllab1e quotes

Source SEC Form 1392

130
Table 22

VALUE OF STOCKS LISTED ON EXCHANGES

(Billions of Dollars)

Dec 31

1938

1939

1940

1941

1942

1943

1944

1945

1946

1947

1946

1949

1950

1951

1952

1953

1954

1955

1956 .

1957

1958

1959

1960

1961.

1962

1963

1964

1965

1966

1967

1968 ...

1969 .

1970

1971

1972.

1973 .

1974 .

1975

1976 ...

1977 .

1978 . .

1979 ..... ,

1980 .

1981

1982 .

1983 .

1984

1985. . ..

1986

Source. SEC Fonn 1392

New York

Stock

Exchange

$ 475

465

419

358

38.8

476

555

738

686

683

670

763

938

1095

1205

1173

1691

2077

2192

1956

2767

307.7

3070

3878

3458

4113

4743

5375

4825

605.8

892.3

6295

636.4

7418

8715

7210

511.1

685.1

858.3

776.7

8227

9606

1,242.8

1,1438

1,3054

1,5222

1,5295

1,8827

$2,1285

Amencan

Stock

Exchange

$108

101

86

74

78

99

112

144

132

121

119

122

139

165

169

153

221

271

31.0

255

317

254

242

330

244

261

282

309

279

430

612

47.7

395

49.1

556

387

233

293

360

376

39.2

578

1035

89.4

776

801

520

632

$70.3

ExclUSIVely

On Other

Exchanges

$30

31

33

32

31

28

36

40

38

31

43

42

41

53

40

43

43

47

40

39

60

54

48

4.7

56

41

29

4.3

4.2

42

2.9

39

29

50

68

6.6

58

5.9

$65

Total

$ 583

566

505

432

466

575

667

882

818

804

819

916

1110

1292

1405

1354

1948

2388

2540

2242

3127

3373

3353

4261

3742

4417

5068

5731

5144

6527

7595

6826

6807

7956

9327

7638

5373

7187

8985

8185

8648

1,022.3

1,3492

1,2382

1,389 7

1,8088

1,5873

1,951.8

$2,205 3

111
Securities on Exchanges

As of September 30, 1987, a total of

7,909 securities, representing 3,145 issuers, were admitted to trading of securities

exchanges in the United States. This compares with 7,891 issues, involving 3,133 issuers a year earlier. Over 5.600 issues were

listed and registered on the NewYorkStock

Exchange, accounting for 65.0 percent of

the stock issues and 80.7 percent of the

bond issues. Data below on "Securities

Traded on Exchanges" involved some duplication since it includes both solely on

dually listed securities.

Table 23

SECURmES TRADED ON EXCHANGES

Issuers Bonds'

Temporariy

Aegistefed ~ lkEled Total

Amencan ... . . . . . 762 1,332 26 1,358 336

Boston . . . .. 1,008 210 1,182 1,392 14

ChIcago 80aId ofTrade . . 5 1 5 6

CtncimaIJ . .. 1,ll33 31 1,245 1,276 49

lnIennountaJn . .. ... .. ..... ... 19 25 7 32

Mdwest 1,191 353 1,344 1JjfJl 35

New York . ... . .. ... .... 1,589 2Pl8 2 6 2,686 3,ll51

PaaIic Coast . . . . . . . . .. . 790 859 2S9 1,148 114

PhiIadetphoa •. . .. ...• • • fYJT 291 889 1,180 172

Spokane. . ... 20 40 3 43 3

'Issuers exempted urder SeclJon 3(a)(12) oltheAc1, such as obligaIionsol U.s GovemnenI. the-. andcdies. arenol

rduded 1l1lus table.

Table 24

IMMOBILIZATION TRENDS

1987 1986 1985 1984 1983 1982

Book-enlJy Deivenes at DTC

[Illhousands) . .. ... .. 78.000 66,700 55,800 48,000 5ll,OOO 37,000

Total Cer1J1icaIes WIlhdrawn

from ore (Illhousands) ... 10.000 9,200 9,100 10.100 13,600 12.500

Book-enlJy Deivenes per

GerlJIicate Wllhdrawn . • 7.8 7.3 6.1 4.8 3.7 3.0

Certificate Immobilization

Book-entry deliveries continued to outpace physical deliveries in the settlement of

securities transactions among depository

participants. This tendency is illustrated in

Table 24,IMMOBIUZAllON lRENDS. The

Table captures the relative significance of

the mediums employed, in a ratio of bookentry deliveries to certificates withdrawn

from DTC. The figures exclude municipal

bearer bonds. In 1987, while the number of

shares traded in U.S. markets increased by

32%, the total certificates withdrawn from

DTCincreased less than 10%, and the ratio

of book-entry deliveries to certificates with132

drawn continued to grow. In 1987, the ratio

was over two and a half times the 1982 figure of 3.0 book-entry deliveries rendered

for every certificate withdrawn.

1933 ACT REGISTRATIONS

Effective Registration

Statements

During fiscal year 1987, 5,914 registration statements valued at $454.7 billion became effective. In fiscal year 1986,5,925

statements, valued at $484.4 billion, became effective.
133

Table 25

EFFECTlVE REGISTRATIONS

~ofDolars)

Cash Sale lor Account of Issuers

Total Common

Slockand Bonds,

!'Unberof Other Debentures Preferred

Fiscal Year SlaIemerts VakJe Equdy' and Notes Stock Total

Fiscal Year Ended .b1e 30

19352 .............. 284 $ 913 $ 168 $ 490 $ 28 $ 686

1936 ............ 689 4,835 531 3,153 252 3,936

1937 ........ ... 840 4,851 802 2,426 406 3,634

1938 ......... .... 412 2,101 474 666 209 1,349

1939 ..... .' ...... 344 2,579 318 1,593 109 2,020

1940 .............. 306 1,787 210 1,112 110 1.432

1941 •..... 313 2,611 196 1,721 164 2,081

1942 193 2,003 263 1,041 162 1,466

1943 ........ 123 659 137 316 32 485

1944 ....... . 221 1,760 272 732 343 1,347

1945 340 3.225 456 1,851 407 2,714

1946 661 7,073 1,331 3,102 991 5,424

1947 .... 493 6,732 1,150 2,937 787 4.874

1948 • 435 6,405 1,678 2,817 537 5,032

1949 429 5.333 1.083 2,795 326 4,204

1950 487 5;307 1.786 2,127 468 4,381

1951 487 6.459 1,904 2,838 427 5169

1952 635 9,500 3,332 3,346 851 7,529

1953 593 7,507 2.808 3,093 424 6,325

1954 631 9,174 2,610 4240 531 7381

1955 779 10,960 3,864 3,951 462 8,277

1956 906 13,096 4,544 4,123 539 9206

1957 876 14,624 5,858 5,689 472 12,019

1958 813 16490 5,998 6,857 427 13,282

1959 1.070 15,657 6387 5,265 443 12,095

1960 . 1,426 14,367 7,260 4,224 253 11,737

1961 1550 19,070 9,850 6,162 248 16260

1962 1844 19547 11,521 4,512 253 16,286

1963 1,157 14,790 7227 4,372 270 '1,869

1964 1,121 16,860 10,006 4,554 224 14,784

1965 1266 19,437 10,636 3,710 307 '4655

1966 1523 30,109 18218 7,061 444 25723

1967 1,849 3421B '5.083 12,309 55B 27,950

1968 2,417 54076 22,092 14,036 1140 37,268

1969 3,645 86,810 39,614 11 674 751 52,039

1970 3,389 59,137 2B,939 18436 B23 4B,198

1971 2,989 69,562 27,455 27,637 3,360 5B,452

1972 3,712 62,487 26,518 20,127 3237 49,882

1973 3285 59310 26,615 14,841 257B 44034

1974 2,B90 56924 19,811 20,997 2274 43,OB2

1975 2,780 77457 30,502 37557 2,201 70,260

1976 2813 87733 37115 29373 3,013 69,501

Transibon Quarter

JIy-Sept 1976 639 15010 6,767 5,066 413 12,246

FISCal Year ended September 30

19n .. 2,915 92579 47,116 28,026 2,426 77,568

1978" . _ 3,037 65,043 25.330 23,251 2,128 50,709

1979 .. 3112 77,400 22,714 28.B94 1,712 53,320

1980 . 3,402 110583 33,076 42764 2,879 78,719

1981 4,326 144,132 49276 40,163 2,505 91,944

1982 4,846 164,455 50,486 63,950 3,939 118,375

1983 5,503 240,058 77,403 8O,71B 9339 167,460

1984 5,087 209,866 66,571 74,136 4,984 145,691

1985 .. 4,913 287,851 72,013 117,178 6,999 196,190

1986 ..... .. J 5,925 484,383 93,470 258,360 12,168 363,998

1987 . ..p 5,914 454,714 96,988 236,643 13,891 347.522

CumulalJve Total . 102,435 $3289,601 $1,037,834 $1;309,012 $95224 $2,442,070

P = preliII'Inary

r = rllVISed

'O:Iudes warranIs. shares of beneliaaJ I1lerest, certJficaIes of par1JcIpabon and aM other equdy Interests not elsewhere Included

"For 10 monlhs ended.b1e 30, 1935-

"The adoption of Rule 24J-2 (17 CFR 270.241-2) eff_ Noverrtler 3, 1977 made ft mpossilIe to report the dollar vakJe of

SllCUJibes regISIered by I1VllSImenI COIJ1l3rES.

Note: The Total Cash 5aIe <iIIers from earier ~ due to changes .. rounding procedures

scuce: 1933 Ad Aegislllllbi SIaIemenIs
Table 26

Securities Effectively Registered With S.E.C.

1935-1987

500

400

300

BILLIONS OF DOLLARS

200

100

o

1935 40 45 50 55 60 65 70 75 80 1987

(Fiscal Years)

In 1977 Fiscal Year End Changed From June To September

Data For Transition Quarter July-September 1976 Not Shown On Charts.

Number Of Registrations 639

1Does Not Include Investment Companies As Of 1/1/78 Due To Rule Change

r = Revised p = Preliminary

134
o

LO

CJ) zQ~~

ffi

a:

u, o

a:

Ml ~

::::> z

135
Purpose and Type of

Registration

Effective registrations for cash sale for

the account of issuers in fiscal year 1987

amounted to $347.5 billion, a decline of 5

percent from fiscal year 1986's total of

$364.0 billion. Of this amount, $106.9 billion were reqistrations for immediate, cash

sale, an increase of $15.2 billion (17 percent) from fiscal year 1986's figure of $91.8

billion.

Of the $106.9 billion, debt securities accounted for $48.7 billion (46 percent),

common stock and other equity accounted

for $49.7 billion (46 percent) and preferred

stock totalled $8.6 billion (8 percent).

Delayed and extended cash sales registered for the account of the issuer totalled

$240.6 billion or 53 percent of all registrations. Of reqistrations for delayed sales, domestic secunties accounted for $}95.9 billion while foreign securities accounted for

$} 0.6 billion. Registrations for extended

sales came to $34.2 billion.

Secunties registered for the account of

the issuer for other than cash sales (e.g., for

exchange offers) amounted to $88.4 billion

136

or 19 percent of all registrations. Registrations of securities for secondary offerings

amounted to $18.8 billion or 4 percent of

the value of all registrations.

Registrations of all types were valued at

$454.7 billion in flscel year 1987. Of this

total, $251.2 billion inbonds and other debt

securities were registered. Another $1812

billion of common stock and other equity

were registered and preferred stock registrations totalled $22.3 billion. Of the $251.2

billion registered in debt, $48.7 billion (19

percent) were registered for primary, immediate cash sale and registrations for primary, delayed and extended cash sales accounted for $188.0 billion (75 percent).

The total for preferred stock ($223 billion)

included $13.9 billion registered for issuers

for cash sale, $7.3 billion registered for issuers for other transactions and $1.2 billion

registered for secondary offerings. Of the

$181.2 billion of registrations for common

stock and other equity securities, registrations for issuers for cash sale came to $97.0

billion, other registrations for issuers totalled $75.3 billion and registrations for secondary offerings were valued at $8.9 billion.
Type of Secunty

Common

Bonds. Stock and

Debentures Preferred 0lI1er

Total and Notes Stock Equity'

$484,383 $272.os9 $20.550 $191.n4

363.998 258.360 12.168 93,470

91.756 46.874 8,231 36.651

272,242 211.486 3,937 56,819

220.192 202,668 3.656 13.868

8,966 8,816 0 150

43.084 2 281 42.BOI

104.752 9.841 7,334 87.ST7

s 15.633 s 3.858 $ 1,048 $ 10.727

Type of Secunty

Common

Bonds, Slockand

Debentures Prelerred Other

Total and Notes Stock Equity'

$454.714 $251,215 $22,349 $181,150

347,522 236,643 13,891 96,988

106,939 48,666 8.ST7 49,696

240.583 187.9n 5,314 47,292

195.858 178.411 4,362 13,085

10,552 9.568 0 986

34.173 0 952 33,221

88.406 5,873 7,260 75,273

$ 18.786 $ 8,699 $ 1.198 $ 8,889

Table 28

EFFECTIVE REGISTRATIONS BY PURPOSE AND TYPE OF SECURITY:

FISCAL YEAR 1986r

(MiIIJons of DoUars)

Purpose of RegJs!Jabons

AI RoglSlraboils (Esfmafed Value). ..

Aa:ounl of Issuer for Cash Sale . . .

knmediaIe OIIemg . .. . . . . .

Delayed and Ex1ended Cash Sale ..

Domestic Delayed .. . . . . . ..

Forelgn Delayed ...

Ex1ended •.•.•.. " •..•...•.

AccounI 01 Issuer lor Other Than Cash Sale

Secondary OIIemgs .. . .

r = revised

1h:bles warrants, shares of benefiClalllllerest, certJficales of par11C1pa!lOnand au other equity .nteres1s not elsewhere oncIuded

Soo.wce. 1933 Act Regtslrabon Statements

Table 29

EFFECTIVE REGISTRATIONS BY PURPOSE AND TYPE OF SECURITY:

FISCAL YEAR 1987p

(Miloons of DoUars)

Purpose 01 RegIslrabons

AI Regisbalioils (EslirnaIed Value) ..

AccounI of Issuer lor Cash Sale .. . .

mmedialeOflering .

Delayed and Ex1ended Cash Sale .

DomesbcDelayed .

ForeignDelayed .........•....... , .

Ex1ended ••.••••...••..••.•••..•

Account 01 Issuer lor Other Than Cash Sale . . . . ..

SecondaryOflemgs . .

r = revised

1h:bles warranIS, shares of benefiClallIlIerest, certJficaIes of par1Japabon and au other equity 1IlIeres1snot elsewhere oncIuded.

Source: 1933 Ad RegISlralion Slalements

137
Table 30

Effective Reg istrations

Cash Sale For Account Of Issuers

1935 -1987

Dollars Billoons

270

Bonds_

180

90

o

:"

Common StoCk-+1' ...

, -

,

I

~ p

Preferred Stock __

138

*In 1977 Fiscal Year End Changed from June to September

Data for Transition Quarter July-September 1976 Not Shown on Chart

Bonds $5,1 Billion, Preferred Stock $ 4 Bllhon, Common Slack $6 8 Billion

r = Bevised

p = Preliminary
Regulation A Offerings

During fiscal year 1987, 100 offering

statements for proposed offerings under

Regulation A were processed and cleared.

Table 31

CASH OFFERINGS UNDER REGULATION A

SIZe. (ooo's)

$ 5000' Less

501-1,000

1.001-1,500

Total

Underwnters

Used

Not Used

Total

Oflerors

IssuIl1g Comparnes

Stockholders •

Issuer & Stockholders JoIntly

Total

FISCal FIScal

1986 1987

34 46

26 27

44 27

104 100

10 16

94 84

104 100

104 100

0 0

0 0

104 100

139
Table 32

TYPES OF PROCEEDINGS

ADMINISTRATIVE PROCEEDINGS

Persons Subject to Acts Constrtutmg,

and Base for, Enforcement ActIOf1

Broker-dealer. municipal securities

-.er. government securities dealer.

transfer agent, Investment adviser or

8S8OCla18d person

WiDfuI V1OIatIOf1of secuntJes Jaws or rules, aJdmg or abettmg such

VJOlatoon. fadure reasonably to SUpelVlS8 others, WIllful

mosstalemenl or 00llSS1Of1"' filing wrth the CornmossJon, corMCbon

of or II1Unctoon agalllst certain cnmes or conduct

Registllred securities assoclatfon

SanclJon

Censure or lornrtalIon on aclMlJes, revocation, suspeIlSIOO or

delll8l of regostralJon, bar or susperISIOn from assoaabon (1934

Act, Secbons 15(b)(4)-(6), 15(c)(1)-(2), 15B(c)(2)-(6), 17A(c){3),

AdvIsers Act, SeclJon 203(e)-(f))

VIOlatJon of or mabdJly to comply wrth the 1934 Act, rules Suspenson or revocabon of reglSlratJon, censure or Iimtabon of

thereunder, or lis own rules, ullluslJfoed fadure to enforce acIMlJes, funcbons, or operations (1934 Act, SectIOf119(h)(1)~

~ wrth the foregomg or wrth rules of the MuIllClPl'l

SecuntJes RUlernakmg Board by a member or person assoaated

wrth a member

Member of registllred securities

8SSOCIatIon, or assocI8led person

Entry of ComrnosSIOn order agaJnst person pursuant \0 1934 Act,

SectIOf115(b); willful vIOlatJon of secuntJes Jaws or rules

thereunder or rules of Munoapal SecuntJes Rulemakmg Board,

elfec\Jng transae\Jon for other person wrth reason to believe that

person was COll1IllIlIJng IIIOIatJons of secuntJes Jaws

SUspenslOf1 or expulslOf1 from the assoaaIJon, bar or suspeIlSIOO

from assoaabon wrth member of assoaabon (1934 Act, SectIOf1

19(h) (2)-(30»

NaIIon8I securities lIllChange

VIOlaIIon of or IIllIbdI\y to CClf11l/y wrth 1934 Act, rules thereunder 5uspensIOf1 or revocabon of regostralJon; censure or IiTIIalJon of

or lis own rules; UIlJuslJfied failure \0 enforcecompiance wrth the acIMbes, funcbons, or operations (1934 Act, Section 19(h)(1)~

foregotng by a member or person assoaated wrth a member

Member 01national securities

exchange, or 8S8OCla18d person

Entry of ComrnosSIOn order agaJnst person pursuant \0 1934 Act, SuspensIOf1 or expulslOfl from exchange, bar or suspensIOl1 from

SectIOf115(b); willful vIOlatJon of secuntJes Jaws or rules assoaabon wrth member (1934 Act, SectIOf119(h)(2)-(3)~

thereunder, elfectmg transacbon for other person wrth reason to

believe that person was cornrmmg voolalxlns of secuntJes Jaws

Registllred clearing agency

VIOlaIIon of or onabdIIy \0 CClf11l/y wrth 1934 Act, rules thereunder, SuspensIOfl or revocabon of reglSlralJon; censure or IiTIIalJon of

or lis own rules, fallure to enforce compliance wrth lis own rules by acIMlJes, funcbons, or operalIons (1934 Act, SectIOf119(h)(1))

par\JClpanIS

PartIcIpant In registllred clearing agency

Entry of ComrnosSIOn order agaJnst par\Jclpant pursuant to 1934 5uspensIOf1orexpulslOflfromcleanngagency(1934Act, SecIJon

Act, SectIOf115(b)(4), Wllfut vIOlatJon of cIeamg agency rules, 19(h)(2)~

effec\Jng transae\Jon lor other person wrth reason to believe that

person was COll1IllIlIJng vooIaIxlns of secuntJes Jaws.

140
VIOIabon 01 or IllIbity 10 ~ WIth prOVISIOrIS011934 Act or

rules thereunder.

Censure or brnlIaIJon 01 aetMbes. suspensIOn or revocatton 01

reglSlralJor1 (1934 Act, SecIJon llA(b)(6»

WillulIIIOIaIJon 011933 Act, 1934 Act, Investment C<>n1>anY Act or Temporary or permanent prohlbdlOn agarlSl serving m certain

rules thereunder; llIdong or abellJng such vlOlaIJon, WIllful capaclbes WIlh regIStered Investment company (Investment

mosstaIernent ., fiIong wIIh ColllfT1lSSlOn Company Act, SectJon 9(b)).

0fIlc:er or dlreetor of senregulatory organization

WiIIIuIVlOlalJonoI1934Act, rules thereunder or the organozallOn's Removallrom office or censure (1934 Act, Seeton 19(h)(4))

own rules. WIllful abuse 01 au1honty or Unjustified tenere to enforce

oompIiance

PrIncipal of broker-<lealer

Engagong m bUSlOOSSas a broker-dealer alter appomtrnent 01

SIPC trustee

1933Act registration statemenl

Statement matenally Inaccurate or Incomplete

Issuer subject to Sec1tons 12,

13, 14 or 15(d) of the 1934 Act

or assocIated person

F8Jlure to comply wrth such provisions or haVing caused such

fatlure by an act or ormsson that person knew or shoukJ have

known would contnbute thereto

Securrtles regIstered

pursuant to section 12

of the 1934 Act

Noncompliance by Issuer wrth 1934 Act or rules thereunder

Publtc Interest requaes trading suspension

Registered Investment company

Fa.lure to file Investment Company Act reqistranon statement or

required report; filing matenally Incomplete or mlSleadong

statement or report

Company has oot attamed $100,000 net worth 90 days alter 1933

Act reglSlratx!n statement became eflectrve

Attorney, accountant, or other

professional or expert

Lack 01 requisite qualficabons 10 represent others. lackIng ,n

eharacleror negnty; unethICal or mprDpef prolllSSlOfl8l conduct;

...,.,,1 vIOIabon of secunbes laws or rules; or llIdlnQ and abellJng

such vioIabon.

Bar or suspenson from beIng or becomIng associated wdh a

broker-dealer (SIPA, Seeton lO(b))

Stop order refUSing to permrt or suspending ettecnveness (1933

Act. Section 8(d»

Order directing comphance or steps effectIng compl1ance (1934

Act. Section 15(C)(4»

Demal, suspenson of effectrve date. suspension or revocaton of

regiStratiOn protubmon against trading In secunues when registranon suspended or revoked (1934 Act, Seeton 12(j))

Summary suspension of over-the-counter or exchange trading

(1934 Act. Section 12(k»

Suspension or revocauon of reqistraton (Investment Company

Act, Section 8(e))

Stop order under 1933 Act, suspension or revocanon of reglstra-

\IOn (Investment Company Act, Seeton 14(a))

Permanent or temporary denoal of prMIege appeanng or pracbcong before the ComrnIssoon (17 CFR SecIJon 2012(e)(I)~

141
Attorney suspended or disbarred by court; expert's hcense revoked or suspended, COnvlC1:K)O of a felony or of a m&Sdemeanor

Involving moral turprtude

Permanent injunctIOn against or findmg of securmes votaton In

Cornrrasson-mstnuted acton, findIng of securmes votaton by

Oomrresson In admlnlSlratrve proceedIngs

Member 01 Municipal Securities

Ru_klng Board

Willful VIOlalJOnof 1934 Act, rules thereunder, or rules of the

Board, abuse 01 authonty

Automallc suspenson Irom appearance or pracnce belore the

CommISSIOn (17 CFR secron 201 2(e)(2))

Temporary suspension from practICIng, censure, permanent or

temporary disquanfcanon from practICIng belore the CommISSIOn

(17 CFR Seeton 201 2(e)(3»

Censure or removal from offICe (1934 Act, seeton 15B(c)(8))

CIVIL PROCEEDINGS IN FEDERAL DISTRICT COURTS

Persons Subject to Acts ConstrtUtlng,

and BasIS lor, Enforcement Actoon

Any person

EngagIng In or about to engage In acts or pracnces VIOlatIng secuniles laws, rules or orders thereunder (InclUdIng rules of a regIStered sell-regulatory orqaruzaton

Noncomploance WIlh provesons 01 the law, rule, or regulatIOn under 1933, 1934, or HoldIng Company Act, order ISSUed by Comrrasson, rules of a regIStered self-regUlatory orqaneaton, or undertakIng III a reglSlratlOn statement

TradIng while In possesson 01 matenal ron-pubtc mformeton In

a transacnon on an exchange or from or through a broker-dealer

(and transaetoon not part 01 a pubhc offenng), or aidIng and abetlJng such tradIng

5ecurltles Investor Protection

Corponrtlon

SanctIOn

InJunctoon aqamst acts or practees whICh constrtute or would constrtute VIOlatIOns (piUS other equrtable reuet under court's general

equrty powers) (1933 Act, secton 2O(b), 1934 Act, secton 21(d),

HoldIng Company Act, Section 18(1), Investment Company Act,

SectIOn 42(e), Advisers Act, SectIOn 209(e), Trust Indenture Act,

SectIOn 321)

Wnt 01 mandamus, injunctIOn, or order directIng compliance (1933

Act, Sectoon 2O(c), 1934 Act, secton 21(e), HoldIng Company Act,

SectIOn 18(g))

MaxImum CIVIlpenalty three bmes prolrt gaIned or loss avoided

as a resull 01 transacton (1934 Act. sectoo 21(d»

Relusal to cornmrt funds or act for the protectoon ot customers Order directIng dISCharge 01obl'9atlOns and other appropnate raIIllI (SIPA. Sectoon 7(b))

National securities exchange or

regls1ered securltles association

Failure to enlorce comphance by members or persons associated

wrth rts members wrth the 1934 Act, rules or orders thereunder, or

rules 01 the exchange or assocoatoon.

RegIs1Bred clearing agency

Failure to enlorce compllance by rts parloclpanls WIlh rts own

rules

Wnt 01mandamus, InJunctoon or order directIng such exchange or

assoeaton to enlorce complIance (1934 Act, Sectoon 21(e)

Wnt of mandamus, Illjunctoon or order dlrecbng c1eanng agency to

enforce comploance (1934 Act, SectIOn 21(e»

IlIauer subject to reporting reqUirements

FlllkJre to file reports required under Sectoon 15(d) 01 1934 Act. Forferture 01 $100 per day (1934 Act, Sectoon 32(b»

142
Registered Investment company

Name of company or of secunty ISSUed by rtdecepllve or rrasleadmg

Officer, director, member of advisory

board, adviser, depositor, or underwriter

of Investment company

Engage In act or practoce constrtul,ng breach of !Jduclllry dUlY In.

vOlvlng personal rnecorduct

Inluncbon agamst use of name (Investmerrt Company Act, Secton 36(d))

InjunctIOn agaJnst acting oncertam capaemes for Investmerrt company and other appropnate relief (Investment Company Act, Sec.

toon 36(a»)

CRIMINAl PROSECUTION BY DEPARTMENT OF JUSTICE

BasIS for Enforcement ActIOn

Anyperson

WilKul VIOlatIOnof securrtoes laws or rules thereunder; WIllful rrssstatemerrt In any document required to be filed by securrtoes laws

or rules, WIllful mlSSlatemerrt In any documerrt reqUired to be filed

by self.regulatory organlZatoon In conoecton with an appbcanon

for membership or assooaton wrth member

SanctIOn or Relief

Maximum penalfoes $250,000 fine and fIVe years Impnsonmerrt,

an exchange or a publlc.utllrty holding company may be fined up

to $500.000 (1933 Act, sectons 2O(b), 24, 1934 Act, Sectoons

21(d), 32(a), Holding Company Act, Secnons 18(1),29, Trust Indenture Act, sectors 321, 325, Investmerrt Company Act Sectons 42(e), 49, Advisers Act, sectons 209(e), 217,18 USC

3551.3586,3623)

Persons who engage In

foreign corrupt practices

Any ISSUer (whICh has securmes SUbject to reporting require- Maximum penally $1,000,000 fine (1934 Act, Sectoon 32(c)(l))

merrts of the 1934 Act) whICh votatss SectIOn 30A(a) olthe 1934

Act

Any officer or director of an ISSuer, of any stockholder acting on Maximum penally $250,000 fine and fIVe years Impnsonmerrt

behan of such ISSuer who WIllfully VIOlates Seeton 3OA(a) of the (1934 Act, Sectoon 32(c)(2), 18 USC 3551-3586, 3623)

1934 Act

Any employee. or agerrt subject to the Junsdoctoon of the Unrted Maximum penally $250,000 fine and fIVe years Impnsonmerrt

Slates of an ISSuer found to have VIOlated Sectoon 3OA(a) of the (1934 Act, Sectoon 32(c)(3), 18 USC 3551-3586, 3623)

1934 Act. who Willfully earned out the act or practice COnstrtutlng

such VIOlatIOn

"StaMory references are as folloWS "1933 Act," the Securrtoes Act of 1933, "1934 Act," the Securrtoes EXchange Act of 1934, "Investment Company Act," the Investmen1 Company Act of 1940, "AdvISers Act," the Investmerrt AdVISers Act of 1940, "Holding Company Act," the PublIC Utllrty Holding Company Act of 1935, "Trust Inden1ure Act," the Trust Inden1ure Act of 1939, and "SIPA," the Saeun10es Investor Protectoon Act of 1970

143
Table 33

Fiscal 1987 Enforcement Cases

Listed by Program Area

(Each case has been IlCluded In only one calegory listed below. even though many

cases II1VOIve mullJple aIIegabons and may fal under more than one caIelory.)

Program Area-Broker-Dealer Back Office

Name of Case

In the Malter of Ilenjamn J Taormana, et aJ

In the Malter of CrtlWlde Secun1leS Corp., et aJ

In the Malter of Kelly N TnmbIe

In the Malter of BrodlS Secun1leS Inc., et aJ

In the Malter of Ma1y Kala

In the Malter of Ruth E/aJne Berry

In the Malter of BenJarrvn B. Reuben, et at

In the Malter of Jana Kay Jones, et al

In the Malter of MIchael DaVIdoff

In the Malter of Bryan Funding Inc

In the Malter of Setrag Mooradlan

SEC v Benjamin B Reuben

SEC v MIChael DavJdoff

SEC v Ira S Schwartz

SEC v Broadhollow Funding Corp

SEC v Roy E Kraebel

SEC v Elvyn Q Evans. et al

Program Area-Broker.Dealer Fraud Agamst Customer

Name of Case

In the Malter of David A. Collins

In the Malter of John F Nappy

In the Malter of Beacon Financial Group, Inc, et al

In the Malter of John M Carpenter

In the Malter of Advest Inc. et al

In the Malter of RIChard Lyle Anderson

'" the Malter ot Russell A Ptupps

In the Malter of Gennaro Maffei

In the Malter of Ellen ZIVItZ

In the Matter of Lawrence Cranchetta

In the Matter of Brooks Welnger. Robbins & Leeds, Inc

In the Malter of Wilioam J Langheld

In the Malter of Gary M Wertman

In the Malter of Hereth, Orr & Jones. Inc , et aI

In the Malter of George G Mead

In the Malter of Ronnie R Ewton

In the Malter of Timothy R Murphy

In the Malter of NICholas B Wallace

In the Malter of Thomas F Sauders

In the Malter of Charles W Streicher

In the Malter of Henry A. Pawlik

In the Malter Robert Tassman

Program Area-Broker-Dealer Fraud Against Customer

Name of Case

In the Malter of Robert L Bev.1I

In the Malter of Alan M Pl€dmorrte

In the Malter of Kim 0 Rust

In the Malter of Jon R Bnttenum

In the Malter of Kenneth S Shashoua

In the Malter 01 G C George Secun1leS, Inc • et aJ

In the Malter ot Gordon Sargerrt

In the Malter of Clyde B Prtchford, Jr

SEC v John F Nappy .

SEC v EBS Brokerage Sennces Inc., et at

SEC v Brooks, WeUlger, RobbIns & Leeds, Inc., et at ..

SEC v Comteau, Levme & Co., Inc.. et at

SEC v Dey L Danoels. Jr., at at. ..

SEC v. Gary M. Woznoak. • •

SEC v. Kemeth S. Shashoua ....

144

Date Filed Release No.

021087 SIPA 138

121286 34-23885

032587 34-24269

032087 34-24238

062987 34-24660

062987 34-24659

050487 34-24421

061887 34-24602

040787 34-24305

090287 34-24879

092387 34-24937

043087 LR-ll426

040787 LR-11390

091787 LR-11542

092187 LR-ll556

072887 LR-11515

080387 NONE

Date Filed Release No

121686 34-23899

112586 34-23849

021787 34-24107

022487 34-24121

020987 34-24071

010987 34-23972

022687 34.24140

020987 34-24075

020987 34-24074

020987 34-24091

020987 34-24073

011387 34-23989

032387 34.24247

031287 NONE

041387 34-24338

041387 34.24336

O~1387 34.24339

041387 34.24337

041387 34.24340

061287 34.24586

061087 34.24568

050787 34-24436

Date Filed Release No

062987 34-24658

081187 34-24794

090287 34-24868

092187 34.24930

093087 34-24968

0930B7 34-24969

092BB7 34-24945

092287 34.24933

111386 LR-ll295

031387 LR-ll389

Of2987 LR-11351

021387 LR-ll466

................. 081787 LR-l1522

..................... 082BB7 LR-ll525

....................... 0930117 LR-11570
Program Area-8IOIcer-DeaJer. Other

Name of Case

SECv.M.J.Coen .....•..................

In the Maller of Marc D. Shiner, et aJ

In the Maller of Yn:ent Forma .. . . • . . .

In the Maller of Robert Beers . .

In the Maller of Walsh Greenwood &-Co., et aJ.. . .

In the Maller of Bany GraJSOO ..

In the Maller of Am L.IeweIyn ...

In the Maller of DavId J. Decker. . . . . ...

In the Maller of Dean WJ!ter Reynolds Inc. .. ,

In the Maller of DavId Davoudpour .... . . . . . .

In the Maller of Comdeau, levine & Co., Inc.. et aJ ....

In the Maller of Matm L Saposnck . .... . ...

In the Malter of MaMn Hamburger

In the Maller of w.am M. DeArman .

In the Maller of Garran Dee 8arl<er .

In the Maller of GabneI Rodriguez .

In the Maller of Carl D8VId HamiIIon . . . . . . . . ...

SECv.Ranl:wSahn .

SEC v w.amM.DeArman .

Program Area-8IOIcer-Dealer. Stock IJJan

Name of Case

In the Maller of Shearson Lehman Brothers, Inc. ..

SECv.JohnToaJ .

Name of Case

SECv.JasonW Smith,etaJ. .

SEC v ArthurN. Economou . ..

SECv.ErniI..lllner .

SECv.RobertA.DiIanro .

SECv.MiIIonMarks,etaJ. .

SEC v. The Royal Group Ud.. et aJ. .

SEC v. Mid Amenc:a Energy, et aJ. . . . .. . ....

SECv.AIv1nRBroerman ..•..............

SECv.JosephKlein .

Program AJea--{;ontsmpI--Climmal

Name of Case

u.s. ex rei. SEC v. D8VId R Yeaman. et aJ. .

u.s. ex rei. SEC v. MaMn Hartmurger, et at ..

u.s. ex rei. SEC v. Arthur N. Economou .

u.s.exreL SECv. MalShaIA.~ .......•.•.......

Program A1ea-CotponJIe Control. Tender Offers

Name of Case

In the Maller of AIed SIores Corp.. et aJ. . . .

SECv.N.NonnanMuier .

-SECv.PaulDavldHenlinger .

SECv Lenard D.Cash,j.etaJ. .

Program Area-Dehnquent Rings. Fonns 3 & 4

Name of Case

SEC v SamuelE.BeaI,UI ,

SECv.SletanLGen1ger .

SEC v. John F. Shanley •..•• • ...••• ,.

SECv.J. Ted Comam. IIIat .

DateFded Release No

093087 l..R-11564

120386 34-23862

021387 34-24099

020987 34-24076

121988 34-23981

030387 34.24160

032587 34-24258

011387 34.23988

0227fIl 34-24143

042087 34-24371

061687 34.24609

040187 34-24287

041087 34-24319

072287 34-24731

0707fIl 34-24676

080687 34-24n9

0706fIl 34-246n

101586 l..R-112n

071487 LR-11498

DateFied AeleaseNo

061587 34-24595

051487 l..R-11456

Date Foled Release No.

022687 l..R-11397

100886 NONE

062987 l..R-11528

090387 l..R-11530

0904fIl l..R-11437

0910fIl LR.II535

093087 NONE

0708fIl l..R-11399

0709fIl l..R-11484

Date Fied Release No

110786 l..R-11282

032487 l..R-11375

100886 NONE

0s07fIl l..R-11433

DateFied AeIease No

062987 34-24727

052887 l..R-11443

071687 l..R-llS04

092587 l..R-11623

Date Fied Release No

.. .. ... 010587 l..R-11326

0105fIl l..R-11326

0105fIl l..R-11326

.. ........... 071487 l..R-11497

145
Program Are&-Delmquent Fllmgs Issuer ReportJng

Name of Case Dale Flied Release No.

SECv InternatIOnal CapIta! Corp. 121686 LR-11309

SECv leadership PropertJes, Inc 122986 LR-11323

SECv Detrort Texas Gas Gathenng Co 022487 LR-11361

SECv Northstar Mmerals, Inc 031287 LR-ll368

SECv Alanco, Ud 032087 LR-11374

SECv The Rolfrte Co 033187 LR-11387

SECv Amencan Land Co , et al 052887 LR.ll443

Program Are&-Delmquent Fllmgs Issuer Reporting

Name of Case Date Flied Release No

SECv RepublIC Resources, Inc 041787 LR-ll406

SECv Urnque Mobtloty Inc. 050187 LR.11420

SECv US Video Vending Corp 062387 LR.11470

SECv CaplIaI Enterpnses, Inc 092287 LR-ll548

SECv Centenrual AcqUlslllOns, Inc 092287 LR.11549

SECv Coastal Funding Corp 092287 LR-ll550

SEC v.EncIbar Inc 092287 LR-11551

SECv Flnlech Inc 092287 LR.ll552

SECv Guide Energy Inc 092287 LR.11553

SECv Unlled Educators Inc , et al 070987 LR.ll484

SECv Eurocar Imports Corp 081087 LR.ll508

SECv StephenE Ham 092587 LR-11578

Program Area-Fraud Agamst Regulated EnbtJes

Name of Case Date Flied Release No

SECv BruceB Paul 093087 LR-11579

Program Are&-lnslder Tradmg

Name of Case Date Ried Release No

Inthe Matter of DavidS Brown. 100986 34-23698

In the Matter of IvanF Boesky 111486 34.23802

Inthe Matter of RandallD CecoIa 122286 34-23919

Inthe Matter of Robert Salsbury 012187 34-24019

Inthe Matter of MartInA SIllQ8I 021387 34.24098

Inthe Matter of Bernhard Meor 031387 34.24499

In the Matter of Robert D'EIoa,et a! 032087 34-24295

In the Matter of Kidder, Peabody& Co., Inc. 060487 34-24543

SECv James F. Flaherty, Jr 101486 LR-11254

SEC v. David S. Brown . 100986 LR.11245

SEC v. IJan K. ReICh 100986 LR-11246

SECv Alfred E. Kopfmam, II, et a!. 102886 LR-11276

SECv IvanF Boesky •. .... 111486 LR-11288

SECv RandalD CecoIa. 122286 LR-11313

SEC v. Alfred Eliott 123086 LR-11335

SECv AnthonyA DePalma 123086 LR-11333

SECv MeIvJnN Pomerantz 121186 LR-11305

SECv MIchael N. David 121086 LR-11334

SECv Samuel M. Aksler, et a! 122386 LR-11325

SECv MartInA SIllQ8I . 021387 LR-11354

SECv Nahum Vaskevllch• 031187 LR-11365

SECv IsraelG Grossman, e1 a! 021787 LR-11359

SECv Robert Salsbury• 010787 NONE

SECv WIIam Adams, e1 a! 051387 LR-11439

SECv HendnxR Bun 040787 LR-11395

Program Are&-lnslder Tradmg

Name of Case Dale Flied Release No

SECv John Naylor Clark, III, at a! 052087 LR-11440

SECv Kidder, Peabody& Co., Inc 060487 LR.ll452

SECv Russell S. Douglas 062987 LR-11479

SECv MarvInH Ingram 062387 LR-11482

SEC v. Robert D'EIa, at a! 072887 LR-11499

SECv Ira MIchael PaI1on, et a!. 091087 LR.11561

SECv Oems Gilelta 072787 LR-11502

146
SEC v. Allert Tale. el aL 071487 lA-11485

SECv Am*! Kaufman 090387 lA-11529

SEC v. John M. Cochran 092887 LR-11572

SECv ChaI1esR D8VIS,et aL . 091787 lA-11658

Program Area-lnvestment Adviser

Name of Case Date Flied Release No

In the Matter of Harmon Financtal Management, et aJ 120386 1A-1050

In the Matter of Lance Brotman 100286 lA-l044

In the Matter of InstrtutJonaJCapllal Growth. Inc. et al 010287 lA-l051

In the Matter of Cabot Money Management, Inc• et aJ 032387 1A-1063

In the Matter of MIchael DaVId Marant 020587 1A-1056

In the Matter of Staton Investments. Inc , et aI 011287 lA-l053

In the Matter of The Oppor!unrty Prospector, Inc• et al 022387 1A-1059

In the Matter of JosephL Usry 040387 lA-lOGS

In the Matter of MItton Adams Corey .. 051487 lA-l069

In the Matter of RaymondS Focere. Sr 051187 lA-l068

In the Matter of SIJIes-lane& Assoclated. Inc., et aI 081087 lA-l075

In the Matter of Max Edward zavaneU••et aI. 081787 IA 1077

In the Matter of Alfred S. Bearman, et al 092387 IA 1082

In the Matter of Hu1son Management Co 081787 IA 1078

In the Matter of George S. Goldner 081487 1A-1076

In the Matter of Barry Ziskon •• 092987 IA 1084

In the Matter of John Martone . 093087 IA 1089

SEC v. RobertA DllaMl 072787 LR-11500

SECv FISt Wdshlf8 Seambes Management. Inc., el aI 072387 LR-11493

Program Area-Investment Company

Name of Case Date Filed Release No.

In the Matter of Thomas W. Buclmgham. 100286 1G-15342

In the Malter of Paul Guiden .....• ... 021387 1C-15578

In the Malter of DaVId Lubart .... . .. 021387 1C-15577

In the Maller of Joseph Flusledet, et aL 021287 1C-15575

In the Maller of ..... Management, Inc., et al 093087 1C-16021

SEC v. QuiIin Porter, el aL• 052687 lA-11448

Program Are-'ssuer FlfIBIlCI8J DIsclosure

Name of Case Dale Filed Release No

In the Malter of West Coast Halr Products ... 082487 AAER147

In the Malter of Pre-PaJd Legal5ervoces, Inc. 122286 AAER121

In the Malter of MaIsh& Mclennan co, Inc. 012287 AAER124

In the Malter of ContJnentaJ illinois Corp. .. 022787 AAER 128

In the Matter of FISt Chlcago Corp. 061087 AAERl34

In the Matter of Benny Agu.m>, el aL 060287 34-24535

In the Matter of Leo D. Sye 060287 AAER137

In the Malter of Wespercorp 051887 AAER 132

In the Matter of UrwersaJ Money Centers, Inc. .. 092887 AAER 156

In the Matter of Texas Commerce Bancshares. Inc. 081787 AAER 146

In the Matter of Delaurentns EntertaJnment Group, Inc. 081087 AAER 144

In the Matter of Quantum FonanetaJServoces, Inc• 012787 33-6686

Inthe Matter of Human Edge 092587 AAER 154

In the Matter of Huber, Enckson& Bu1Ier,et aI 101086 AAER115

In the Matter of KMG MaIn Hurdman 032587 AAER 129

In the Matter of Stephen Kutz 012887 AAER127

In the Matter of Marvon0 Haney 012887 AAER 126

In the Matter of William0 Sauers 041387 34-24331

In the Matter ofC O'Ned Rasmussen 093087 AAER 161

In the Matter of MyronK Berryman 090387 AAER 150

In the Matter of RIChardS GJIman 092987 AAER 159

PRIVATE PROCEEDING 080487 NONE

SECv BerI<& ce, Inc. 120186 lA-11302

SECv BaJanced FonanetaJManagement, Inc , et aI 101586 AAER117

SECv Grant Thornton, et at 101686 AAER 118

SECv CoElco. Ud• et at 120886 LR-11315

SEC v. Robert E. DeBoasse, et aL 111386 AAER119

SEC v. Paul T. Van WI'lkIe. et al. 031387 lA-11373

SECv Dorothy M. Conway. et aL 012287 lA-11339

SEC v. Eleclro-CaIheter Corp.. et aL •.•• 020487 lA-11347

1"7
SECv.SlorageTechnoIogyCofp. , , .

SECv.Amado,Inc.,e1aL . .

SECv.HumanEdge .

SEC v. West Coast Hal" Products, eI aI. . .. .. . . . .. .. . ..

SEC v Jerald MoskowIlz, eI aL . ..... . . . .

SEC v. Edward V.GaIagher, eI aI

SEC v. Wondsor Holdings Corp.. eI aL . . . • .

SECv RobertO Mowry,e1a1 .. . .

SECv.Ear1Brown,e1aL . .

SEC v. AnIhony Peter SlrangJe, eI aL . . . .. . .

SECv DonaJdE.Brown ..

SECv FredenckHoftrop,e1aL ,

SECv HenryH.McFiker,e1aL ..

SEC v George W. AIkI'ISon, eI aI

SECv.KayproCorp .

SEC v TexscanCorp,e1at . .

SEC v FnanaaJ Corp 01Amenca.. .. .,

Program Are&-lssuer FtnanCIa/ DtscIosure

Name 01 Case

SEC v. Michael Cinger, eI at .. . .. . .. . .. .. . .

SEC v CardiIo Travel Systems Inc., eI aL .. .. .. . . . . .. . ..

SECv RobertO.Wodergren . , .

SEC v. Pros InIemabonaI, Inc., eI aI. ..

SEC v. Westmore IrtemabonaIInc., eI aL ........ .. ... ..... . . ...

Program Are&-Issuer Related PBJty TfIJIISaCt10nS

Name 01 Case

In the Maller 01GrMmer K. HiIIon .. . . .. . .. .. .. .. . .

In the Maller 01Clayton A s-,ey ...... ............ .

SEC v. Walace C. SpaIkman. eI aL . . . ..

SECv.RobertJ.BuckIey ..

SEC v. Allegheny lnIemabona1lnc. .. .. .

Program ~ Manipu/aIKJn

Name 01 Case

In the Maller 01RA Johnson & eo.. Inc. .. . .. . .

IntheMalleroIJeIlenes&Co.,Jnc.,elaL .

In the Maller 01Joseph V. PIgnabeIo . . . . .. . .

In the Maller 01 Edward Michael Furlong .. .. .. .. .. .. .. .. . .. . . . .. .. .. .

In the Maller 01 DavId Alan Parker, eI aL .. . ..

In the Maller 01 RJchanI BoIIon . .. .

In the Maller 01 0aVIlI SIegel . . ..

SEC v. Kenneth R Bums, eI aL . . .. ..

SEC v. lloyd L Jellenes, el aL . .. ..

SEC v. Andrew Nanos, eI at .. .. . .. .. .. .. .. . ..

SECv.MagnaTechnoIogIeslnc.,e1aL ..

SEC v. MedIcaJ DIspensIng Systems, Inc., eI aL .

Program Area--OIfering V"lOIa1Jons (By Non-ReguIaled Entibes)

Name 01 Case

In the Malter 01 M. Rrnson &eo.. Inc., eI aL .. ..

In the Malter 01Jerald Newman .. .. . .. ..

In the Maller 01 0aVIlI Leroy Buslrum, eI aL . ..

In the Maller 01 Lany B. GrooIIer . . .

In the Maller 01 GSS S Verdure CapilaI Cofp. .. .. .. .. .

In the Maller 01 Sherwood FinanaaJ Ud. .. .. . . .. . .. ..

In the Maller 01 PIlip C. Cordek . .. .. .

In the Maller 01 F. N. Wolf &Co., Inc. . .. .. .. . .. .. .. . . .. .

In the Maller 01Bun<er Securibes Corp., eI aL ..... ... ..... .. ... .. ..

Program Area--OIfering V"101abons (By Non-ReguIaled EntItJes)

Name 01 Case

In the Maller 01Balsa Donde USA, Inc. .

In the Maller 011.Dwlech. Inc. . ..

In the Malter 01 PageIus, Inc. .

In the Maller 01Beny Patch InYeslmenIs, Inc. .. .

148

012787 AAERl25

060587 LR-11462

062287 AAERl36

040887 LR-11398

040987 AAER 140

062587 LR-11471

060287 AAERl38

051887 LR-11436

060587 LR-11453

090187 LR-11539

092287 AAERl62

072487 AAER149

090287 AAERl57

092487 LR-11567

092587 LR-11599

092B87 AAERl64

092187 AAERl53

DateFied Release No.

rrrzT87 AAERl42

0722JI1 LR-11492

081287 LR-11511

082687 AAERl48

092587 LR-11580

Datefied Release No.

090987 34-24887

090987 34-24888

083187 LR-11532

090987 AAERl52

082787 AAER151

Dalefied Release No.

011287 34-23985

031987 34-24231

051187 34-24443

041387 34-24335

093087 34-24967

093087 34-24958

072187 34-24719

122286 LR-11362

031987 LR-11370

040987 LR-11402

050687 LR-11429

093087 LR-11563

DaleFied Release No.

121286 34-23887

051587 34-24457

062587 34-24642

042187 34-24373

061787 34-24597

061787 34-24598

093087 34-24966

093087 34-24959

093087 34-24960

Dalefied Release No.

120986 33-6680

051287 33-6712

090487 33-6739

090287 33-6737
In the Maller of Mohave Minerals Inc. •..•.•••.•••.••...•.•.•••..•...

In the Maller of Hughes CapilaJCorp. .........•................•...........

IntheMallerofNewsean:hReslauranls,Inc. ..............••...................

IntheMallerofGINEnterpnses,1nc. "

SECv.CapIlaISyslemsCorp. ....•..•..•..•...............•........•

SEC v. Balsa Conde USA Inc., at al. '" . ..

SEC v Texam Resources Inc., at al.. . .. .

SEC v Steven A Keyser '" .. .. .. .. .. .. .. .

SECv.JamesR8rantlIe,atal. . _ .

SEC v. HeaIIhdyne. Inc. .. .. . ..

SEC v Powers & Sadowski. Inc., at al. .. .. .. .. ..

SEC v. GSS VenIUnl CapdaI Corp , at aJ .... .

SECv.RobertCooper,etat .. .. ..

SEC v. Southwest Bank & Trust Co.. ltd. .. . .. . .. ..

SEC v. FP Industnes, Inc.. at al. .. .. . . .

SEC v. Thomas C S1w, at al. .. .. . .. ... .... .

SEC v Newporllnlerstale propertJes, Inc.. at al.. .. .. '" .. .. .. ..

SEC v Bernhard Oohrmam, at at.. .. .. ... ........

SEC v. Petro-5enIe. lid., et al.. . . ... ..

SEC v Pacific & Texas ~ & TransportaIJon co, at al.

SEC v MIchael K Thomas, at aJ ..... .. .. .

SEC v. NaIJonaJ Petroleum Inc., at al.

SEC v. Oliver C Reese. .. .. ...... .. .. ... .. .

SEC v lnlerslaIe ExpIofabon, Inc.. at al. . . . . .. ..

SEC v Pulsar Oil & Gas, Inc., at al. .. . .. .

SEC v. Stephen Michael Wood . ... ..... .. .. . ..

In the Maller of PIoneer Venture Corp., et al. .. ..

Progtam Area-Offenng VlOIatJons (By Regulated Entmes)

Name of Case

In the Maller of Jack R Mattuas. at al. .. ... .. . .

In the Maller of CapdaI Sumell Sectmbes. Inc.. at al. .. .. .. .

In the Maller of Joseph M. EIis .. .. .. .. . .

In the Maller of Robert Gray Gibson. .. .. .. .. .... .. .. .

In the Maller of Malcolm Kanan. . .. .. . ..

In the Maller of Hugh F. Sackett .. _.. .

In the Maller of HamiIIon Grant & Co.. Inc.. et al. . • ...

In the Maller ofTax & FnanaaJ PrograrmwJg Inc., at al... . .. .. .. ..

SEC v Charles R Hannon, at at .. .. . .. .. .

SEC v. Philp Cordek. at al. ... .. . . . . .. .. .. .

Program A1ea-Offenng VIOlations (By Regulated Entmes)

Name of Case

SEC v Oems A Thomas, at al.. .. . • .. .

SEC v CapdaI SlriJeIllnveslmenls, Inc. .. . .

SEC v Charles PIlip EIool, at al.. ..... .. ....

SEC v James D. Holmes, at at.. .. ..

SEC v Mo<gan Petroleum Inc., at al.. . . . .. ..,

SEC v. WOI1dwIdeII'MlSlmenl Research. ltd., at al. . . . . .

SEC v. WiIiam Edgar CrOMIer. at al. .. .. ...... .. . .. ..... . .. .. . .

081387 33-6729

(J12Ofr1 ~

032087 33-6694

060287 ~16

120886 lR-11312

120986 lR-11303

120486 NONE

013087 lR-11357

032087 lR-11413

060387 AAER135

042287 lR-11424

061787 lR-11467

052187 lR-11444

060487 lR-11468

063087 lR-11481

090487 lR-11537

081887 lR-11520

091087 lR-11536

07ZJ87 lR-11495

092487 lR-115n

092487 lR-11590

093087 lR-11592

093087 lR-l1591

082187 lR-11584

093087 lR-11600

093087 lR-11585

082787 33-67311

Date Filed Release No.

120886 34-23865

030487 34-241n

012087 34-24015

032387 34-24248

052687 34-24509

093087 34-24962

070787 34-24679

093087 IA 1088

120386 lR-11299

120986 lR-1131O

Date Filed Release No.

111486 lR-11301

102386 lR-11294

033187 lR-11408

031987 lR-11392

092287 lR-11555

092587 lR-11573

092887 lR-11575

149
Table 34

ENFORCEMENT CASES INITIATED BY THE COMMISSION

DURING FISCAL 1987 IN VARIOUS PROGRAM AREAS

(Each case lrutJated has been Included In only one category listed below, even though

many cases Involve mullJple allegatIOns and may fall under more than one category)

Program Area In WhICh a

CIVIlAclJon or AdrntlllSfratlVe

Proceeding Was fMlaled

Broker-Demer Cases

(a) Backoffice

(b) Fraud Ag8Jnst Customer

(e) Stock Loan

(d) Other •

Total Broker-Dealer Cases

SecunIJes Offenng Cases

(a) Non-regulated Entrty

(b) Regulated Entrty

Total Secun1leS Offenng Cases.

Issuer FinanCIal Disclosure

6 (7)

7 (19)

1 (1)

~

~

22 (95)

~

31 (131)

30 (92)

AdrntnlStralNe

Proceedings

11 (17)

30 (45)

1 (1)

~

58 (86)

16 (19)

~

24 (32)

22 (25)

Total'

17 (24)

37 (64)

2 (2)

~

75 (116)

38 (114)

~

55 (163)

52 (117)

%ofTotal

Cases

25%

19%

17%

InSider Trading Cases

Other RegUlated EnIJty Cases

28 (57) 8 (9) 36 (66) 12%

(a) Investrnen1 Advlsers

(b) Investrnen1 Companies

Total Other Regulated En11lyCases

Contempt Proceedings

(a) CMf

(b) Cnrrunal

Total Con1empt Proceedings

MarI<et Manlpulaoon Gases

Retated Party Transaeoons

2 (4)

~

3 (6)

9 (15)

~

13 (22)

5 (28)

3 (5)

o (0)

~

o (0)

7 (9)

2 (2)

19 (30)

~

25 (42)

9 (15)

~

13 (22)

12 (37)

5 (7)

9%

4%

4%

2"10

Corporate Control VloIaoons 3 (4) (2) 4 (6) 1%

Fraud Agamst RegUlated Enoty

SUBTOTALS

Delinquent Filings

_1 __ (_1)

134 (369)

1 (1)

280 (573)

0%

(a) Issuer Reporung

(b) Forms 3 & 4

19 (21)

4 (5)

o

o

(0)

(0)

19 (21)

4 (5)

6%

1%

GRAND TOTALS 303 (599) 100%

'The number 01delendan1s and responden1s ISnoted paren1hetlCally

9n1S category Includes InjunctIVe actIOns, and eMf and enlTllnaJcon1empt proceedings

150
Table 35

INVESTIGATIONS OF POSSIBLE VIOLATIONS OF THE ACTS

ADMINISTERED BY THE COMMISSION

Pendongas of October 1, 1986 .

Opened onfiscal year 1987 •

Total •

Closed onfiscal year 1987

Pendongas of September 30, 1987

During the fiscal year ending September 30,198772 Formal Orders of

Investigation were issued by the Commission upon recommendation of the

Division of Enforcement

Table 36

ADMINISTRATIVE PROCEEDINGS INSTITUTED DURING FISCAL YEAR

ENDING SEPTEMBER 30, 1987

Broker-Dealer ProceedIngs

Investment Adviser and Investment Company ProceedIngS

Stop Order and RegulalJon A ProceedIngs

Rule 2(e) ProceedIngS

DISClosureProceedIngS (SectIOn 15(c)(4) of the EXchange Act)

Total ProceedIngS In fiscal year 1987 .

Table3?

INJUNCTIVE ACTIONS

743

322

1,065

234

731

89

25

10

9

13

146

1976

19n

1978

1979

1980

1981

1982

1983

1984

1985

1986

1987

FISCalYear ActIOns InrtJated

158

166

135

108

103

115

136

151

179

143

163

142

Defendants Named

722

715

607

511

387

398

418

416

508

385

488

376

Trading Suspensions

During fiscal year 1987, the Commission

suspended trading in the securities of

twelve companies. This compares with five

in fiscal year 1986. In most instances, the

trading suspension was ordered because of

substantial questions as to the adequacy,

accuracy or availability of public information concerning the company's financial

condition or business operations, or because transactions in the company's securities suggested possible manipulation or

other violations.

151
Foreign Restricted Llst

The Securities and Exchange Commission maintains and publishes a Foreign

Restricted List which is designed to put

broker-dealers, fmancial institutions, investors and others on notice of possible unlawful distributions of foreign securities in the

United States. The list consists of names of

foreign companies whose securities the

Commission has reason to believe have

been, or are being offered for public sale in

the United States in possible violation of the

registration requirement of Section 5 of the

Securities Act of 1933. The offer and sale of

unregistered securities deprives investors

of all the protections afforded by the Securities Act of 1933, including the right to receive a prospectus containing the information required by the Act for the purpose of

enabling the investor to determine whether

the investment is suitable for him. While

most broker-dealers refuse to effect transactions in securities issued by companies

on the Foreign Restricted List, this does not

necessarily prevent promotors from illegally offering such securities directly to

investors in the United States by mail, by

telephone, and sometimes by personal

solicitation. The following foreign corporations and other foreign entities comprise

the Foreign Restricted List,

1. Aguacate Consolidated Mines, Incorporated (Costa Rica)

2. Alan MacTavish, Ltd. (England)

3. Allegheny Mining and Exploration

Company, Ltd. (Canada)

4. Allied Fund for Capital Appreciation

(AFCA, SA) (Panama)

5. Amalgamated Rare Earth Mines, Ltd.

(Canada)

6. American Industrial Research SA,

also known as Investigation Industrial

Americana,SJ\.(M~co)

7. American International Mining (Bahamas)

8. American Mobile Telephone and

Tape Co., Ltd. (Canada)

9. Antel International Corporation, Ltd.

(Canada)

10. Antoine Silver Mines, Ltd. (Canada)

152

11. ASCA Enterprisers Umited (Hong

Kong)

12. Atholl Brose (Exports) Ltd. (England)

13. Atholl Brose Ltd. (England)

14. Atlantic and Pacific Bank and Trust

Co., Ltd. (Bahamas)

15. Bank of Sark (Sark, Channel Islands

UK) ,

16. Briar Court Mines, Ltd. (Canada)

17. British Overseas Mutual Fund Corporation Ltd. (Canada)

18. California & Caracas Mining Corp.,

Ltd. (Canada)

19. Caprimex, Inc. (Grand Cayman, British West Indies)

20. Canterra Development Corporation,

Ltd. (Canada)

21. Cardwell Oil Corporation, Ltd. (Canada)

22. Caribbean Empire Company, Ltd.

(British Honduras)

23. Caye Chapel Club, Ltd. (British Honduras)

24. Central and Southern Industries

Corp. (Panama)

25. Cerro Azul Coffee Plantation (Panama)

26. Cia. Rio Banano, SA (Costa Rica)

27. City Bank AS. (Denmark)

28. Claw Lake Molybdenum Mines, Ltd.

(Canada)

29. Claravella Corporation (Costa Rica)

30. Compressed Air Corporation, Urnited (Bahamas)

31. Continental and Southern Industries

SA (Panama) ,

32. Crossroads Corporation, SA (Panama)

33. Darien Exploration Company, SA

(Panama)

34. Derkglen, Ltd. (England)

35. De Veers Consolidated Mining Corporation, SA (Panama)

36. Doncannon Spirits, Ltd. (Bahamas)

37. Durman, Ltd. Formerly known as

Bankers International Investment

Corporation (Bahamas)

38. Empresia Minera Caudalosa dePanama, SA (Panama)

39. Ethel Copper Mines, Ltd. (Canada)
40. Euroforeign Banking Corporation,

Ltd. (Panama)

41. Fmansbanker als (Denmark)

42. First Liberty Fund, Ltd. (Bahamas)

43. General Mining SA (Canada)

44. Global Explorations, Inc. (panama)

45. Global Insurance, Company, Limited

(British West Indies)

46. Globus AnIage-Vermittlungsgesellschaft MBH (Germany)

47. Golden Age Mines, Ltd. (Canada)

48. Hebilla Mining Corporation (Costa

Rica)

49. Hemisphere Land Corporation Limited (Bahamas)

50. Herny Ost & Son, Ltd. (England)

51. Hotelera Playa Aamingo, SA

52. Intercontinental Technologies Corp.

(Canada)

53. International Communications Corporation (British West Indies)

54. International Monetary Exchange

(Panama)

55. International Trade Development of

Costa Rica, SA

56. Ironco Mining & Smelting Company,

Ltd. (Canada)

57. James G. Allan & Sons (Scotland)

58. Jojoba Oil s Seed Industries SA

(Costa Rica)

59. Jupiter Explorations, Ltd. (Canada)

60. Kenilworth Mines, Ltd. (Canada)

61. Klondike Yukon Mining Company

(Canada)

62. KoKanee MolyMines, Ltd. (Canada)

63. Land Sales Corporation (Canada)

64. Los Dos Hennanos, SA (Spain)

65. f..¥nbar Mining Corp. Ltd. (Canada)

66. Massive Energy Ltd. (Canada)

67. Mercantile Bank and Trust & Co., Ltd.

(Cayman Island)

68. J.P. Morgan &Company, Ltd., of London, England (not to be confused

with J.P. Morgan & Co., Incorporated,

New York)

69. Norart Minerals Limited (Canada)

70. Norrnandie Trust Company, S.A.

(panama)

71. Northern Survey (Canada)

72. Northern Trust Company, S.A.

(Switzerland)

73. Northland Minerals, Ltd. (Canada)

74. Obsco Corporation, Ltd. (Canada)

75. Pacific Northwest Developments,

Ltd. (Canada)

76. Pan-Alaska Resources, SA (panama)

77. Panamerican Bank & Trust Company (Panama)

78. Pascar Oils Ltd. (Canada)

79. Paulpic Gold Mines, Ltd. (Canada)

80. Pyrotex Mining and Exploration Co.,

Ltd. (Canada)

81. Radio HillMines Co., Ltd. (Canada)

82. Rancho San Rafael, SA (Costa Rica)

83. Rodney Gold Mines Limited (Canada)

84. Royal Greyhound and Turf Holdings

Limited (South Africa)

85. SA Valles & Co., Inc. (Philippines)

86. San Salvador Savings & Loan Co.,

Ltd. (Bahamas)

87. Santack Mines Limited (Canada)

88. Security Capital Fiscal & Guaranty

Corporation SA (Panama)

89. Silver Stack Mines, Ltd. (Canada)

90. Societe Anonyme de Refmancement

(Switzerland)

91. Strathmore Distillery Company, Ltd.

(Scotland)

92. Strathross Blending Company Limited (England)

93. Swiss Caribbean Development & Finance Corporation (Switzerland)

94. Tam O'Shanter, Ltd. (Switzerland)

95. Tunberland (Canada)

96. Trans-American Investments, Limited (Canada)

97. Trihope Resources, Ltd. (West Indies)

98. Trust Company of Jamaica, Ltd.

(West Indies)

99. United Mining and Milling Corporation (Bahamas)

100. Unitrust Limited (Ireland)

101. Vacationland (Canada)

102. Valores de Inversion, SA (Mexico)

103. Victoria Oriente, Inc. (Panama)

104. Warden Walker Worldwide Investment Co. (England)

105. Wee Gee Uranium Mines, Ltd. (Canada)

106. Western Intemational Explorations,

Ltd. (Bahamas) .

107. Yukon Wolverine Mining Company

(Canada)

153
nancial records of a customer. The table

below sets forth the number of occasions

upon which the Commission obtained accesss to the financial records of a customer

using the procedures provided by (i) Section 1105 of the RFPA (12 U.S.c. 3405 I, applicable to administrative subpoenas; (ii)

Section 1104 of the RFPA (12 U.S.c. 3404],

applicable to customer consents; and (iii)

Section 1107 of the RFPA [12 U.S.c. 34071,

applicable to judicial subpoenas.

Right to F'mancial Privacy

Section 21 (h) of the Securities Exchange

Act of 1934 [15 U.S.c. 78u(h)(6)1 requires

that the Commission "compile an annual

tabulation of the occasions on which the

Commission used each separate subparagraph or clause of [Section 21(h)(21)] or

the provisions of the Right to Financial Privacy Act of 1978 [12 U.S.c. 3401-22 (the

RFPA)1to obtain access to financial records

of a customer and include it in its annual report to the Congress."

During the fiscal year, the Commission

made no applications to courts for orders

pursuant to the subparagraphs and clauses

of Section 21(h)(2) to obtain access to fi154

Section

1104

3

Section

1105

112

Section

1107

1
CORPORATE

REORGANIZATIONS

During fiscal year 1987, the Commission

entered its appearance in 32 reorganization

cases fIled under Chapter 11 of the Bankruptcy Code involving companies with aggregated stated assets of about $22.6 billion and close to 380,000 public investors

including the Texaco Chapter 11 case with

assets of $18.3 billion and about 275,000

public investors. Counting these new cases,

the Commission was a party in a total of

133 Chapter 11 cases dUring the fiscal year

In these cases the stated assets totalled approximately $42.1billion and almost 1 million public investors were involved. During

fiscal year 1987,35 cases were concluded

through confirmation of a plan of reorganization, dismissal, or liquidation, leaving 98

cases in which the Commission was a party

at year-end.

Table 38

REORGANIZATION PROCEEDINGS UNDER CHAPTER 11 OF THE BANKRUPTCY CODE

IN WHICH COMMISSION ENTERED APPEARANCE

Debtor

AD! ElecIronocs

A.H. Robons ce, Inc. •.••

IoJA IndusInes. Inc. .

Ar Ronda System, Inc. .. , . . . ..

AlrOne,Inc. ...•......

AIrIfIlnllll'llllbonal. Inc.. . .. ..

AIis-Chamenl .. .. .. . .

AIlecCo<p •....•.

Amarex,1nc. .

AmenclIn Fuel Tech •Inc. . . . . ...

AmenclIn Monitor Co<p. .

Amfesco Ind .• Inc. . .

AmIood Ind. • . .

An. Inc. . .. • ., .,

Beker Industnes Co<p

Berry Industnes Co<p. .,.

BevI. Bressler & Schulman' .

The BIshop's Glen Fndn. Inc.'

Branch Industnes. Inc. .

Bullas Gas & Oil co.

CapItol AIr. Inc.

Cas1Ie Industnes. Inc. .

Chalet Gourmet Corp .

Charter co.. .. .

Cltel. Inc. .

CItywIde SecunlJes Corp I

ClC of Amenca. .

CoEIco Ud

CoIonoaJ X-Ray Corp •

Columllla Data Products. Inc.. .

CombuslJon ProtectJon Corp ..

Commodore CorporalJon .

Commonweallh 011 Relining Co. Inc

Computer Depot. Inc.

Conesco Ind • Ud

ComorCo<p .

Cook Unfed. Inc. ..

Confyne Co<p. .

Crompton co.. Inc.

Crutcher Resources Corp . .,

F.Y

Dtstnct Opened

0 DE 1987

E.O VA 1985

E.O PA 1984

5.0 Fl 1984

E.O Me 1985

5.0 Fl 1981

SO. NY 1987

CO. CA 1985

W.O OK 1983

0 DE 1987

SO IN 1986

EO NY 1986

N.D. L 1986

0 NJ 1985

SO NY 1986

CO CA 1985

0 NJ 1985

N.O Fl 1985

5.0 NY 1985

SO TX 1986

SO NY 1985

E.O AR 1987

CO CA 1985

MO. Fl 1984

N.O CA 1985

5.0 NY 1985

ED MO 1986

CD CA 1986

SO Fl 1986

0 Me 1985

E.O NY 1987

NO IN 1985

WO TX 1984

0 MN 1986

0 NJ 1986

E.O NC 1987

NO OH 1985

0 OR 1987

SO. NY 1985

SO TX 1987

FY

Closed

1987

1987

1987

1987

1987

1987

1987

1987

1987

1987

1987

155
Table 38-C0ntinued

REORGANIZATION PROCEEDINGS UNDER CHAPTER 11 OF THE BANKRUPTCY CODE

IN WHICH COMMISSION ENTERED APPEARANCE

Debtor

Dakota MnlraIs. Inc . .,. .

D'IJtes 01 Amenca. Inc. .

EasImet Corp . .. ..

Emons Industnes, Inc. .

Er1dolr'orEs. Inc.

Energy Exchange Corp

Energy Management Corp .

Enertee Corp .

EnIerpnse Technologoes, Inc. ..•

Equestnan C\Js. 01 Amer .. Inc. •.

Evans Products Co. . .. .. . ...

Ftdeity Amencan FonanaaJ Corp 1

FIIl8IlCIaI&Bus. Serv.Inc.' .

FIaBgan Enterpnses ..

Galaxy Oil Company ..

General ExpIorabon Co ... . .

General Resources Corp. . ...

GIC Govl Secunlies, Inc.' .. . .

Global Mama, Inc.

Heck's. Inc.

HeionelJcs, Inc. . .. .. ... ...

Holiday Resources, Inc. .. .. . .. .. . . . .

HornecraIte<s Warehouse. Inc. . .

ICX, Inc. .. .. ..

~ ServIces. Inc. .. .. • .. • .. .. .. ... .... .. . .. ..

==..:;:,. Inc..:. ':'::"':.::::::::: .. .: .. :'

~SIeelCorp. , ", ..

Kenat Corp. ,.

LTV CorporalJon .... .... .. .

MagIc Cn:le Energy ~,

Manoa FIl811Ce Co., Inc. .

McLean Indusln9s, Inc. ••

ManviIe Corp. .. .. .

MchIgan General Corp. ..

Mcroc:omputer Memones. Inc. .,.

Mid-Amenca PeIroleum, Inc. . .. . . ..

Midland CapilaI Corp. .. . . .

MssIon Insurance Group. Inc. .. . .

MJrphy Industnes. Inc. ........ .. .. .... .. .

Natnt Bus. Coll"Inur.:abonS Corp. .. .. .. .. .. .. .. . ..

NO Resource, Inc. . .. .. . .. .. ........

New Brothers, Inc. .. .. ... ..

NickJos Oil & Gas Co. ..

Nucorp Energy. Inc. .... .....

OhIO Ferro-Aloys Corp

Oliver's Stores.. .. ...

Oxoeo, Inc.

Paafic Express Holding. Inc.

PaaJle Oil & Mnng Corp ..

Penn PaaIic Corp. ..

PeIIiIOne Corp. ..

Psych Systems .

aT&T, Inc. .. . ......... ..

AobIin 1ndUS1nes, Inc .. .. .. .. .

Ronco Teleproduets, Inc ....... .., ... , .

156

F.Y

DIslrict Opened

0 WY 1986

N.D GA 1986

0

,., 1986

$.0. NY 1984

D. YII 1987

W.D OK 1985

D. co 1986

N.D. TX 1986

$.0 TX 1984

CD. CA 1985

$.0. FL 1985

ED. PA 1981

W.D NC 1986

$.0 FL 1986

N.D TX 1987

N.D. OH 1986

N.D GA 1980

M.D. FL 1986

$.0. TX 1986

$.0. WA 1987

CD. CA 1987

$.0. TX 1987

N.D AI.. 1986

D. co 1984

$.0. NY 1987

D. DC 1983

M.D. PA 1985

D. co 1987

sn NY 1987

so NY 1986

WD OK 1985

0 HA 1983

sn NY 1987

sn NY 1982

N.D. TX 1987

CD. CA 1986

N.D TX 1986

sn NY 1986

CD CA 1987

sa FL 19116

D. AZ 1985

sn GA 1985

sn TX 1986

$.0. CA 1982

ND OH 1987

ED. NY 1987

5.0. TX 1986

ED. CA 1984

D. UT 1985

CD. CA 1986

N.D. L 19116

D. ,., 1986

ED. NY 1987

WD.NY 1985

N.D. L 1984

F.Y.

Closed

1987

1987

1987

1987

1987

1987

1987

1987

1987

1987

1987

1987
Table 38-C0ntinued

REORGANIZATION PROCEEDINGS UNDER CHAPTER 11 OF THE BANKRUPTCY CODE

IN WHICH COMMISSION ENTERED APPEARANCE

Auscolnduslnes,1nc. .............•.......... ,

SalanlCorp. __ ._.

Sealraa1lnlS,1nc. '" .

Se/ecIors,Inc. , .

SerYamalic Systems. Inc. . .. . .

ShaIIeIproof Glass Corp. . . . .. .. . .. ..

~ReaI EsIaIe

Fund,1Id .....••...•.•............

SpencerCos.,Inc. ....•............

SPWCotporabon ••••••••.••..•

SIandard Metals Corp. .. .. ... ." .

SlaIeCapilalCorp ...............•.

SIeogerTrae:tor.1nc. ..•.•.........

SlDrage TechooIogy, Inc.

SwanIonCorp .

SykesDalalrorics.Inc. .....•........... ,

TacoEds,Inc.' ..•........•.........

Taooma IloaIbuidI1g Co.. . . . . . . . .....

T~EqudJesCorp. " .,

Texaco,lnc. ......•............

TexscanCorp. .......•............

TllIweIhIuslries.lnc. ....•...........

Towle Maoofaclumg Con. . . . .. ... ..

Transwestem ExpIoraIion ., •.•. •. '" .••

TWIlQlyBatge.1nc. .

U'imelCorp. ........•.....

lh& Veta Grande Cos.. Inc.

VicIonaSlabon ....•..... '" ..•...............

VIdeoslabon,Inc. ., •......... , .. '" ,

W&JSIoaneCorp. ,

WedlBcltCorp. .

WesIWofId Comnuily

Healhcare.1nc. .. •.... ., .

WhealIand k1vesInelI Co.' . . ..

Wheeing-PiIIsbu SleeI Corp. .. . .

WindsorInd..1nc. .. , . . .

XenenlxCorp. ......•....................

ZZZZBeslCo..1nc. , .....•....... ,.

8.0 GA

8.0 NY

8.0. NY

E.O WA

N.O CA

E.O. MI

N.D. TX

O. MA

N.O TX

o CO

MD. Fl

O. NO

o CO

8.0 NY

W.O NY

NO. OH

S.D. NY

N.O CA

S.O NY

o AZ

N.D. Al

8.0 NY

NO. OK

o MN

N.D. OH

C.O CA

N.O CA

CD CA

8.0. NY

s.o NY

CD. CA

E.O. WA

WO PA

NO. II.

W.O OK

CD CA

F.Y

Opened

1986

1985

1981

1986

1986

1987

1987

1987

1985

1984

1985

1986

1985

1985

1986

1984

1986

1986

1987

1986

1986

1986

1985

1987

1986

1986

1986

1985

1986

1987

1987

1985

1985

1986

1986

1987

FY

Closed

1987

1987

1987

1987

1987

1987

1987

1987

1987

1987

1987

1987

Tolal Cases Opened (FY 1986)

Tolal Cases Closed (FY 1986)

'DebIor's secunbes 001 registered under SeclJon 12(g) of the Exchange Act

32

35

157
Table 39

Appropriated Funds vs Fees* Collected

Dollars Millions

300

-,

:~~;

..::::.::: .....

o

FY1976 77 78 79 80 81 82 83 84 85 86 1987

'excludes dlSQorgements from fraud actions

50

250

150

200

100

158
~oi

I

00

~~llO~

00+

~

I

~

I

~

I

~

I

reI

8o

M

I

o

~N

LL

~

... U) '"C

~g

159