Table of Contents

Chairman's Transmittal Letter v

Commission Members and Principal Staff Officers vii

Biographies of Commission Members ix

Richard C. Breeden .. Edward H. Fleischman .. Mary 1.Schapiro ..

Richard Y. Roberts

Regional and Branch Offices and Administrators xiii

Enforcement 1

Key Results. 1

Enforcement Authority" Enforcement Activities" International

Enforcement" Violations Relating to Financial Institutions" Insider

Trading .. Market Manipulation .. Penny Stock Cases" Financial

Disclosure" Corporate Control" Securities Offering Cases" BrokerDealer Violations" Investment Adviser and Investment Company

Violations .. Sources for Further Inquiry

International Affairs 20

Key Results..................................................................... 20

Arrangements for Mutual Assistance and Exchanges of Information ..

Trilateral Communique" International Organizations" International

Requests for Assistance

Regulation of the Securities Markets 25

Key Results............................................ 25

Securities Markets, Facilities, and Trading" Market Reform Initiatives

.. Penny Stock Reforms" Major Market System Developments ..

National System for Oearance and Settlement .. Government Securities

Markets .. Internationalization" Options and Other Derivative Products .. Regulation of Brokers, Dealers, Municipal Securities Dealers, and

Transfer Agents .. Broker-Dealer Examination Program .. Transfer

Agent Examinations .. Form BD Amendments .. Foreign BrokerDealers" International Offerings" Public Disclosure of Material Short

Positions" Financial Responsibility Rules" Lost and Stolen Securities

.. Oversight of Self-Regulatory Organizations" National Securities

Exchanges .. National Association of Securities Dealers" Arbitration"

Oearing Agencies" Municipal Securities Rulemaking Board ..

Inspections of SRO Surveillance and Regulatory Compliance ..

Applications for Re-entry .. SRO Final Disciplinary Actions ..

Securities Investor Protection Corporation
Investment Companies and Advisers 45

Key Results 45

Investment Company and Adviser Inspection Program .. Redirection of Program Resources .. Results Achieved by the Program ..

Regulatory Policy .. Significant Investment Company Developments

.. Significant Insurance Products Developments" Significant Institutional Disclosure Program Developments" Significant Public

Utility Holding Company Act Developments" Significant Interpretations and Applications" Investment Company Matters .. Insur

ance Company Matters .. Holding Company Act Matters

Full Disclosure 55

Key Results...................................... 55

Review of Filings" Rulemaking, Interpretive, and Legislative Matters ..

Multijurisdictional Disclosure System .. Foreign Issuer Rights Offerings

.. International Tender and Exchange Offers" Roll-up Transactions ..

American Depositary Receipts" Transaction Reporting by Officers,

Directors and Ten Percent Holders--Section 16 .. Shareholder

Communications Rules" Blank Check Offerings" Proxy Review ..

Requirements Governing Age of Financial Statements of Foreign Private

Issuers .. Trust Indenture Rules .. Conferences" SEC GovemmentBusiness Forum on Small Business Capital Formation .. SEC/NASAA

Conference Under Section 19(c) of the Securities Act

Accounting and Auditing Matters 62

Key Results 62

Mark-to Market Accounting" Accounting-Related Rules and

Interpretations" Oversight of Private Sector Standard-Setting ..

Oversight of the Accounting Profession's Initiatives .. International

Accounting and Auditing Standards .. Independence

The EDGAR Project 68

Key Results 68

Pilot System .. Operational System

Other Litigation and Legal Activities 71

Key Results 71

Significant Litigation Developments" Insider Trading" Definition

of a Security .. Liability in Private Actions" Actions Involving the

Proxy Antifraud Provisions .. Actions Against Professionals Under

Commission Rule 2(e)" Motions to Vacate Permanent Injunctions"

Actions Under the Right to Financial Privacy Act .. Significant

ii
Adjudication Developments ... Significant Adjudicatory Decisions

Concerning Broker-Dealers and Market Professionals-e- Significant

Legislative Developments-e- Jurisdictional Proposal Bank-Related

Legislation and Testimony e- Roll-up Transactions Government

Securities-e- RICO Reform ... Statute of Limitations Legislation ...

Corporate Reorganizations e- Committees-e- Estate Administration-sDisclosure Statements/Plans of Reorganization-s- Conduct Regulation Matters

Economic Research and Analysis 84

Key Results.................... 84

Liaison, Planning, and Review Economic Studies Technical

Assistance

Management and Program Support 86

Key Results 86

The Executive Staff ... Office of the Secretary ... Office of Legislative

Affairs-e- Office of Public Affairs e- Office of the Executive Director ...

Administrative Support

Endnotes ,. 93

Appendix 104

Unconsolidated Financial Information for Broker-Dealers, 1986-1990 ...

Unconsolidated Annual Revenues and Expenses for Broker-Dealers

Doing a Public Business, 1986-1990 ... Unconsolidated Balance Sheet for

Broker-Dealers Doing a Public Business, Year End, 1986-1990 ...

Carrying/Clearing Firms Securities Industry Dollar in 1990 for

Carrying/Clearing Firms Unconsolidated Revenues and Expenses for

Carrying/Clearing Broker-Dealers Unconsolidated Balance Sheet for

Carrying/Clearing Broker-Dealers Self-Regulatory Organizations:

Expenses, Pre-tax Income, and Balance Sheet Structure-s- Consolidated

Financial Information of Self-Regulatory Organizations, 1987-1990 ...

Self-Regulatory Organizations--Clearing Corporations, 1990 Revenues

and Expenses e- Self-Regulatory Organizations-Depositories, 1990

Revenues and Expenses ... Exemptions ... Securities on Exchanges:

Market Value and Share Volume .. Market Value of Equity/Options

Sales on U.S. Securities Exchanges e- Volume of Equity / Options Sales

on U.S. Securities Exchanges ... NASDAQ ... Share and Dollar Volume

by Exchange e- Share Volume by Exchanges-e- Dollar Volume by

Exchanges e- Securities Listed on Exchanges ... Value of Stocks Listed on

Exchanges ... Certificate Immobilization ... Types of Proceedings ...

iii
iv

Enforcement Cases Initiated by the Commission during Fiscal

Year 1991 in Various Program Areas. Investigations of Possible

Violations of the Acts Administered by the Commission. Administrative Proceedings Instituted During Fiscal Year Ending September 30,

1991. Injunctive Actions. Foreign Restricted List. Fiscal 1991

Enforcement Cases Listed by Program Area. Right to Financial

Privacy. Corporate Reorganizations. Appropriated Funds vs. Fees

Collected. Budget and Appropriations. Securities and Exchange

Commission Organizational Chart
THE CHAIRMAN

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

The Honorable Dan Quayle

President of the Senate

Washington, D.C 20510

Gentlemen:

The Honorable Thomas S. Foley

Speaker of the House

Washington, D.C 20515

Itis my pleasure to transmit to you the Annual Report of the Securities and

Exchange Commission for fiscal year 1991. The annual report has been prepared

in accordance with the provisions of Section 23(b) of the Securities Exchange Act of

1934, as amended; Section 23 of the Public Utility Holding Company Act of 1935;

Section 46(a) of the Investment Company Act of 1940;Section 216 of the Investment

Advisers Act of 1940; Section 3 of the Act of June 29,1949 amending the Bretton

Woods Agreement Act; Section 11(b) of the Inter- American Development Bank Act;

and Section 11(b) of the Asian Development Bank Act.

Sincerely,

\6L<;)C~_-

Richard C Breeden

Chairman

v

Commission Members and Principal Staff Officers

(As of NO\'l'l1lber 4,1991)

Commissioners*

Richard C. Breeden, Chairman

Edward H. Fleischman

Mary L. Schapiro

Richard Y. Roberts

Principal Staff Officers

Term Expires

1993

1992

1994

1995

Barbara Green, Executive Assistant and Senior Advisor to the Chairman

Mary Ann Gadziala, Counselor to the Chairman

James M. McConnell, Executive Director, Office of the Executive Director

Kenneth A. Fogash, Deputy Executive Director

James A. Clarkson, III, Director of Regional Office Operations

Linda C. Quinn, Director, Division of Corporation Finance

Elisse B. Walter, Deputy Director

Robert Bayless, Associate Director

Mary E.T. Beach, Associate Director

William Morley, Associate Director

Mauri Osheroff, Associate Director

Vacant, Associate Director

William R. McLucas, Director, Division of Enforcement

C. Gladwyn Goins, Associate Director

Joseph I. Goldstein, Associate Director

Bruce A. Hiler, Associate Director

Harry J. Weiss, Associate Director

Colleen P. Mahoney, Chief Counsel

Thomas C. Newkirk, Chief Litigation Counsel

William H. Heyman, Director, Division of Market Regulation

Brandon Becker, Deputy Director

Catherine McGuire, Special Assistant to the Director

Larry Bergmann, Associate Director

Mark D. Fitterman, Associate Director

Vacant, Associate Director
Marianne K. Smythe, Director, Division of Investment Management

Matthew Chambers, Associate Director

Gene A. Gohlke, Associate Director

Mary S. Podesta, Associate Director

William C. Weeden, Assistant Director, Office of Public Utility Regulation

Thomas S. Harman, Chief Counsel

James R. Doty, General Counsel, Office of the General Counsel

Paul Gonson, Solicitor

Phillip D. Parker, Deputy General Counsel

Richard Humes, Associate General Counsel

Jacob H. Stillman, Associate General Counsel

Vacant, Associate General Counsel

William S. Stem, Counselor for Adjudication

Michael D. Mann, Director, Office of International Affairs

Kathryn Fulton, Director, Office of Legislative Affairs

Vacant, Chief Accountant, Office of the Chief Accountant

Vacant, Chief Economist, Office of Economic Analysis

Jonathan G. Katz, Secretary, Office of the Secretary

Warren E. Blair, Chief Administrative Law Judge, Office of the

Administrative Law Judges

Wilson A. Butler, Jr., Director, Office of Filings, Information

and Consumer Services

Lawrence H. Haynes, Comptroller, Office of the Comptroller

John Innocenti, Director, Office of Human Resources Management

Gregory Jones, Sr., Director, Office of Information Systems Management

Richard J. Kanyan, Director, Office of Administrative Services

John O. Penhollow, Director, Office of EDGAR Management

Vacant, Director, Office of Public Affairs

J. Carter Beese, Jr. was confirmed as a member of the Securities and

Exchange Commission on February 27,1992. His term expires on June

5, 1996.

viii
Biographies of COlnmission Melnbers

Chairman

Following his nomination by

President Bush and his confirmation by

the Senate, Richard C.Breeden was sworn

in as the 24th Chairman of the Securities

and Exchange Commission on October

11, 1989. The SEC oversees trading

markets in stocks, options, bonds and

other securities with more than $10trillion

in aggregate value. Itis also responsible

for overseeing the activities of allsecurities

firms and mutual funds, as well as for

establishing disclosure and accounting

policies for the nation's 13,500 publiclyowned companies. The SEC also enforces U.S. laws against insider trading and

other market abuses.

As Chairman, Mr. Breeden directs a staff of more than 2,500 persons operating

in offices throughout the United States. During his tenure, Mr. Breeden has

emphasized improvements to the capital raising process for small and large

businesses, increased market stability, control of unlawful practices and fundamental

reform of the corporate governance system in America. Mr. Breeden has testified

before Congress on more than 40 occasions, and he regularly appears on news and

investment programs in the U.S. and foreign countries to discuss capital market

issues.

In addition to his domestic responsibilities, Mr. Breeden is actively involved

in international financial regulation. During his tenure as Chairman, he has signed

more than a dozen international agreements to promote cooperation in law

enforcement and to provide technical assistance to emerging securities markets

around the world. Mr. Breeden has held several leadership positions in the

International Organization of Securities Commissions, and he is one ofthe founders

and the first President of the Council of Securities Regulators of the Americas, a

group linking securities regulators of North, South and Central America and the

Caribbean.

Prior to assuming the Chairmanship, Mr. Breeden served in several

governmental assignments, including most recently serving in the White House

under President Bush as Assistant to the President for Issues Analysis. From 1982-

1985, Mr. Breeden also served as Deputy Counsel to then-Vice President Bush and

Staff Director of the President's Task Group on Regulation of Financial Services, a

cabinet-level group established to recommend improvements in federal financial

regulatory programs.

Mr. Breeden is a lawyer by training. His legal practice has included corporate

and financial transactions of all types. In his most recent period of private practice,

he was a corporate finance partner with the Washington, D.C. office of one of the

nation's largest law firms. Prior to his original government service, Mr. Breeden

practiced law in New York City from 1976-1981. This followed completion of an

ix
apoointment to teach constitutional law and federal jurisdiction at the University

of Miami School of Law.

Educated at Stanford University (B.A. with honors in international relations,

1972) and Harvard Law School (1975), Mr. Breeden is the author of articles in both

legal and financial publications. Mr. Breeden resides in Virginia with his wife,

Holly, and their three sons. The family is active in local church, school, athletic and

civic affairs.

Commissioner

Edward H. Fleischman was sworn in as

the 66th Member of the Securities and

Exchange Commission on January 6, 1986.

His current term expires in June 1992.

Mr. Fleischman was admitted to the New

York Bar in 1959 and to the bar of the u.s.

Supreme Court in 1980. He formerly practiced

law with 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 Law

Institute, the American College of Investment Counsel (of which he was President

in 1990-1991) and the American Society of Corporate Secretaries, and has served as

an Adjunct Professor of Law teaching securities regulation at the New York

University Law School.

Mr. Fleischman was born in Cambridge, Massachusetts on June 25,1932. He

received his undergraduate education at Harvard College, served in the U.S. Army

from 1952 to 1955, and obtained his L1.B degree from Columbia Law School.

Mr. Fleischman is a member of the Council of the American Bar Association

Section of Business Law. He serves on that Section's Committee on Counsel

Responsibility and in 1987-1991 he chaired the Committee on Developments in

Business Financing, for which he co-drafted that Committee's 1979 paper on resale

of institutional privately-placed debt and chaired its Subcommittees on Simplified

Indenture and on Annual Review of Developments. He also serves on the

Committee on Federal Regulation of Securities, for which he chaired Subcommittees

on Rule 144 and on Broker-Dealer Matters and co-drafted the Committee's 1973

letter on utilization and dissemination of "inside" information. In addition, he

serves on the Committee on Futures Regulation and the Committee on Developments

in Investment Services, and has been active in the Section on Administrative Law.

Mr. Fleischman is also a member of Committee E-Banking Law and of

Committee Q--Issues and Trading in Securities of the International Bar Association

Section on Business Law. In the International Law Association (American Branch),

he has been appointed to membership on the Committee on International Regulation

of Securities.

x
Commissioner

Mary L. Schapiro was sworn in as the 67th

member of the Securities and Exchange

Commission on December 19, 1989 by the

Honorable Sandra Day O'Connor, Associate

Justice of the United States Supreme Court. Ms.

Schapiro was nominated to the Commission on

November 8, 1989 by President George Bush and

confirmed by the United States Senate on

November 18, 1989. Her term expires in June

1994. Ms. Schapiro had previously been appointed

by President Ronald Reagan for a one year term.

Ms. Schapiro was named chairman of the

SEC Task Force on Administrative Process in 1990, with responsibility for

comprehensive review and revision of the agency's rules for administrative

proceedings. Ms. Schapiro also serves on a clearance and settlement advisory

committee to the Developing Markets Committee ofthe International Organization

of Securities Commissions.

Before being appointed to the Commission, Ms. Schapiro was General

Counsel and Senior Vice President for the Futures Industry Association. While at

the FIA her work included regulatory, tax and international issues, including

extensive liaison with foreign government officials and analysis of state and Federal

legislation.

Ms. Schapiro carne to the PIA from the Commodity Futures Trading

Commission, where she spent four years. She joined the CFTC in 1980 as a Trial

Attorney in the Manipulation and Trade Practice Investigations Unit of the Division

of Enforcement, and later (from 1981 to 1984) served as Counsel and Executive

Assistant to the Chairman of the agency. In the latter position, Ms. Schapiro advised

on all regulatory and adjudicatory matters pending before the Commission and on

legislation. She also represented the Chairman with Federal and state officials,

Congress, and the futures industry, in addition to other duties.

A 1977 honors graduate of Franklin and Marshall College (Lancaster,

Pennsylvania), Ms. Schapiro earned a Juris Doctor degree (with honors) from The

National Law Center of George Washington University in 1980.

Commissioner

Richard Roberts was nominated to the

Commission by President Bush and confirmed

by the Senate on September 27, 1990. He was

sworn in as a Commissioner on October 1, 1990by

the Honorable Stanley Sporkin, Judge for the

United States District Court of the District of

Columbia. His term expires in June 1995.

Before being nominated to the Commission,

Mr. Roberts was in the private practice of law

with the Washington office of Miller, Hamilton,

Snider & Odom. Before joining the law firm in

April 1990, Mr. Roberts was administrative

xi
assistant and legislative director for Senator Richard Shelby (D., Ala.), a position

he assumed in 1987. Prior to that, Mr. Roberts was, for four years, in the private

practice of law in Alabama. From 1979 to 1982, Mr. Roberts was administrative

assistant and legislative director for then-Congressman Shelby.

Mr. Roberts is a 1973 graduate of Auburn University and a 1976 graduate

of the University of Alabama School of Law. He also received a Master of Laws

in taxation from the George Washington University National Law Center in 1981.

He is admitted to the bar in the District of Columbia and Alabama. Mr. Roberts

is a member of the Alabama State Bar Association and the District of Columbia

Bar Association.

He and his wife, the former Peggy Frew, make their home in Fairfax,

Virginia with their son and two daughters.

Mr. Roberts was born in Birmingham, Alabama on July 3, 1951.

xii
Regional and Branch Offices and Administrators

(r\.., of No\ ember -i, ]991)

REGION 1

REGION 2

REGION 3

REGION 4

Richard Walker

NEW YORK REGIONAL OFFICE

75 Park Place, 14th Floor

New York, NY 10007

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

3475 Lenox Road, N.E., Suite 1000

Atlanta, GA 30326-1232

404/842-7600

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

Northwestern Atrium Center

500 W. Madison Street, Suite 1400

Chicago,IL 60661

312/ 353-7390

Region: Michigan, Ohio, Kentucky, Wisconsin,

Indiana, Iowa, Illinois, Minnesota, and Missouri
REGION 5

REGION 6

REGION 7

REGIONS

xiv

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

Robert H. Davenport

DENVER REGIONAL OFFICE

1801 California Street, Suite 4800

Denver, CO 80202-2648

303/391-6800

Region: North Dakota, South Dakota,

Wyoming, Nebraska, Colorado,

New Mexico, and Utah

Donald M. Hoed

SALT LAKE CITY BRANCH OFFICE

500 Key Bank Building, Suite 500

50 South Main Street

Salt Lake City, UT 84144-0402

801/524-5796

Vacant

LOS ANGELES REGIONAL OFFICE

5757 Wilshire Boulevard, Suite 500 East

Los Angeles, CA 90036-3648

213/965-3998

Region: Nevada, Arizona, California, Hawaii, and

Guam

Vacant

SAN FRANCISCO BRANCH OFFICE

901 Market Street, Suite 470

San Francisco, CA 94103

415/744-3140

Jack H. Bookey

SEATILE REGIONAL OFFICE

3040 Jackson Federal Building

915 Second Avenue

Seattle, WA 98174

206/553-7990

Region: Montana, Idaho, Washington, Oregon,

and Alaska
REGION 9 James c. Kennedy

PHILADELPHIA REGIONAL OFFICE

The Curtis Center, Suite 1005 E.

601 Walnut Street

Philadelphia, PA 19106-3322

215/597-3100

Region: Pennsylvania, Delaware, Maryland,

Virginia, West Virginia, and District of Columbia

xv

Enforcelnent

The SEC's enforcement program is designed to protect investors and

foster investor confidence by preserving the integrity and efficiency of the

securities markets. To meet these goals, the Commission maintained a strong

presence in allareaswithin itsjurisdiction. The Commission alsoimplemented

important new remedies and procedures authorized by Congress during the

year.

Key 1991 Results

In 1991, the Commission obtained court orders requiring defendants to

disgorge illicit profits of approximately $119 million. Included are disgorgement

orders in insider trading cases requiring the payment of approximately $12 million.

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

imposed by orders requiring the payment of almost $11 million. In some instances,

the payment of disgorgement and/ or civil penalties pursuant to a court order was

waived based upon the defendant's demonstrated inability to pay.

The Securities Enforcement Remedies and Penny Stock Reform Act of 1990

(Remedies Act) became effective on October 15, 1990. As of the end of 1991, the

Commission had sought sanctions authorized by the Remedies Act in 35 cases.

Seventy-five criminal indictments or informations and 112 convictions were

obtained by criminal authorities during 1991 in Commission-related cases. The

Commission granted access to its files to domestic and foreign prosecutoriaI

authorities in 192 cases.

Total Enforcement Actions Initiated

1987 1988 1989 1990 1991

Total 303 252 310 304 320

Civil Injunctive Actions 144 125 140 186 171

Administrative Proceedings 146 109 155 111 138

Civil and Criminal 13 17 15 7 10

Contempt Proceedings

Reports of Investigation 0 1 0 0 1

1
Enforcement Authority

The SEC has broad authority to investigate possible violations of the federal

securities laws and to obtain appropriate remedies through litigation. The SEC's

investigations may be conducted either informally or formally. Informal

investigations are conducted on a voluntary basis, with the SECrequesting persons

with relevant information to cooperate by providing documents and testifying

before Commission staff. The federal securi ties laws also empower the Commission

to conduct formal investigations, in which the Commission has the authority to

issue subpoenas that compel the production of books and records and the appearance

of witnesses to testify. Both types of investigations are generally conducted on a

confidential, nonpublic basis. Enforcement actions initiated by the Commission

often are preceded by an examination pursuant to the Commission's inspection

powers. Under its inspection powers, the Commission is authorized to conduct

examinations of regulated entities, including broker-dealers, municipal securities

dealers, investment advisers, investment companies, transfer agents, and selfregulatory organizations (SROs).

The Commission's primary enforcement mechanism for addressing violative

conduct is the injunctive action filed in federal court. In these civil actions, the

Commission is authorized to seek temporary restraining orders and preliminary

injunctions as well as permanent injunctions against any person who is violating or

about to violate any provision of the federal securities laws. A federal court

injunction prohibits future violations. Once an injunction has been imposed,

conduct that violates the injunction will be punishable by either civil or criminal

contempt, and violators are subject to fines or imprisonment. In addition to seeking

such orders, the Commission often seeks other equitable relief such as an accounting

and disgorgement of illegal profits. Also, when seeking temporary restraining

orders, the Commission often requests a freeze order to prevent concealment of

assets or dissipation of the proceeds of illegal conduct. The Commission is

authorized to seek civil penalties in connection with insider trading violations

pursuant to ITSA, as amended by the Insider Trading and Securities Fraud

Enforcement Act of 1988 (ITSFEA). The Commission also is authorized to seek civil

penalties under the Remedies Act.

The Remedies Act adds significantly to the Commission's enforcement

authority in civil actions. The legislation authorizes the Commission to seek, and

the courts to impose, civil penalties for any violation of the federal securities laws

(with the exception of insider trading violations for which civil penalties are under

ITSA). The Remedies Act also affirmed the existing equitable authority of the

federal courts to bar or suspend individuals from serving as corporate officers or

directors.

In addition to civil actions in court, the Commission has the authority to

institute several types of administrative proceedings. The Commission may institute

administrative proceedings against regulated entities, in which the sanctions that

may be imposed include censure, limitation on activities, and suspension or

revocation of registration. The Commission may impose similar sanctions on

persons associated with such entities and persons affiliated with investment

companies. For example, the Commission may bar or suspend individuals

associated with a broker or dealer from participating in an offering of penny stock.

2
In the context of these proceedings, the Remedies Act authorizes the Commission

to impose civil penalties and order disgorgement against regulated entities and

persons associated with such entities.

The Remedies Act authorizes the Commission to institute administrative

proceedings in which it can issue cease-and-desist orders. A permanent cease-anddesist order can be entered against any person violating the federal securities laws,

and the order can require disgorgement of illegal profits. The Commission also is

authorized to issue temporary cease-and-desist orders (if necessary, on an ex parte

basis) against regulated entities and persons associated with regulated entities, if

the Commission determines that the violation or threatened violation is likely to

result in Significant dissipation or conversion of assets, significant harm to investors,

or substantial harm to the public interest prior to completion of proceedings.

Section B(d) ofthe Securities Act of 1933(Securities Act) enables the Commission

to institute proceedings to suspend the effectiveness of a registration statement that

contains false and misleading statements. Administrative proceedings pursuant to

Section 15(c)(4) of the Securities Exchange Act of 1934 (Exchange Act) can be

instituted against any person who fails to comply, and any person who is a cause

of failure to comply, with reporting, beneficial ownership, proxy, and tender offer

requirements. Respondents can be ordered to comply or to take steps to effect

compliance with the relevant provisions. Pursuant to Rule 2(e) of the Commission's

Rules of Practice, administrative proceedings can be instituted against persons who

appear or practice before the Commission, such as accountants and attorneys. The

sanctions.that can be imposed in these proceedings include suspensions and bars

from practice before the agency.

The Commission is authorized to refer matters to other federal, state or local

authorities, or SROs such as the New York Stock Exchange or the National

Association of Securities Dealers (NASD). The staff often provides substantial

assistance to criminal authori ties, such as the Department ofJ ustice, for the criminal

prosecution of securities violations.

Enforcement Activities

The Commission maintained an aggressive enforcement presence in the areas

within itsjurisdiction. Remedies and procedures newly-authorized by the Remedies

Act became key additions to the Commission's enforcement arsenal.

Unless otherwise noted in the discussion below, defendants or respondents

who consented to settlement of actions did so without admitting or denying the

factual allegations contained in the complaint or order instituting proceedings. See

Table 22 for a listing of enforcement actions instituted in 1991.

International Enforcement

A substantial number of investigations have international aspects, and the

staff took depositions in and obtained information from a number of persons and

entities of foreign countries. In conjunction with the Office of International Affairs,

the staff prepared more than 150 requests to obtain such information from foreign

authorities, pursuant to formal or informal agreements and understandings. Such

requests for assistance generally require detailed submissions describing the

investigation and setting forth the need for the requested information.

3
The staff worked on a substantial number of requests for assistance from

foreign securities authorities. Some of these requests involved extensive inquiries

or investigations in order to collect the requested information. Pursuant to

authority granted by ITSFEA, subpoena power was used in certain investigations

conducted at the request of foreign securities authorities.

As part of its increasing emphasis on international coordination and

cooperation, the staff participated in a number of training and education programs.

Representatives from approximately 30 foreign securities agencies attended the

1991Enforcement Training Program at the invitation of the DivisionofEnforcement.

Violations Relating to Financial Institutions

In the wake of the difficulties in the financial institutions industry, the

Commission recently focused increased attention on possible securi tieslaw violations

by those institutions. A special unit within the Division of Enforcement is dedicated

to investigating, among other things, financial fraud encompassing false financial

statements, misleading disclosures in filings by publicly-held institutions and

holding companies, and insider trading by persons associated with financial

institutions.

The Commission took enforcement action against a number of financial

institutions for violation of the reporting, books and records, and internal accounting

control provisions of the federal securities laws. In SEC v. Bank of New England

Corporation,' the Commission alleged that Bank of New England Corporation

(BNEC) understated the allowance for loan and lease losses and the related

provision for loan and lease losses in financial statements for the quarter ended

September 30, 1989. The complaint further charged that BNEC failed to disclose in

a quarterly report for the second quarter of 1989 and in a September 1989

registration statement that certain adverse trends, indicating a deterioration in the

New England real estate market and in BNEC's portfolio, were reasonably likely to

have material adverse effects on BNEC' sfuture operations. BNEC consented to the

entry of an injunction in this case.

On December 12,1991, the Commission filed a civil injunctive action against

Charles Keating, [r., and nine other individuals charging multiple violations of the

federal securities laws arising from the operations of American Continental

Corporation (ACC) and its former subsidiary, Lincoln Savings and Loan Association

(Lincoln). Keating and eight other former officers, directors, and high-ranking

employees of ACC and Lincoln, including three attorneys and four accountants,

were charged with participating in a scheme that systematically and deliberately

defrauded thousands ofinvestors. The fraudulent scheme alleged by the Commission

includes (1) filing financial statements during the period 1985 through 1988 which

overstated ACC's earnings by an aggregate of more than $120 million; (2) fraud in

connection with the sale of $275 million of ACC's subordinated debentures to the

public at Lincoln branches during the period 1986 through 1989; (3) false and

inadequate disclosures in ACC's filings with the Commission during the same

period about ACes liquidity, cash flow, related party transactions and due

diligence procedures with regard to real estate loans and securities investments; (4)

insider trading by Keating, in which he sold $7.5 million worth of ACC common

stock during a period when the market was unaware of the fraud; (5) the issuance

of a false press release by Keating to affect the price of ACC's stock; and (6) the

4
failure of Lincoln and certain defendants to register as broker-dealers. In addition,

four other individuals, including three former Lincoln officers, were enjoined by

consent decree from further violations of the antifraud and other provisions of the

federal securities laws.

The Commission utilized its cease-and-desist authority in proceedings in

which itwas alleged that Fleet/Norstar Financial Group, a bank holding company,

failed to account properly for declines in market values of certain marketable equity

securities (issued by other New England bank holding companies) in its portfolio

(In the Matter of Fleet/Norstar Financial Group, Inc.2). The order more particularly

alleges that Fleet/Norstar should have written down those securities to their

realizable values and recognized the corresponding losses in the appropriate

periods. Fleet / N orstar had previously restated its financial statements for 1990 to

reflect losses due to the other than temporary declines in the market values of those

securities. Fleet/ Norstar consented to the entry of a cease-and-desist order in these

proceedings. Similar issues were involved in the order, entered by consent, in the

Commission's cease-and-desist proceedings against Excel Bancorp, Inc. (In the

Matter of Excel Bancorp, Inc.3).

The Commission filed a joint action with the Federal Deposit Insurance

Corporation (FDIC) involving materially false and misleading statements made in

filings with the FDIC by Brooklyn Savings Bank (BSB) (SEC and Federal DepOSIt

Insurance Corporation v. Robert]. Aulie4). The joint complaint alleged that for the

second and third quarters of 1989, Aulie, the former president, chief executive

officer and a director of BSB, failed to maintain an allowance for loan losses

adequate to cover probable and estimatable losses in BSB's loan portfolio, thereby

materially overstating net income for those periods. Aulie allegedly failed to

identify and provide adequately for probable loss on a real estate joint venture when

he knew materially adverse information concerning the value of the project.

In an action against an accounting firm, SEC v. Ernst &Young/' the Commission

alleged that, among other things, Ernst & Young and its predecessor, Arthur Young

& Co., caused and aided and abetted violations of the reporting and proxy

solicitation provisions by RepublicBank Corporation. The financial statements

filed with the SEC by RepublicBank and its corporate successor on Form lO-K for

1983 and 1988 included unqualified accountant's reports, and were allegedly

materially false and misleading because of a lack of independence on the part of

Arthur Young. Arthur Young allegedly lacked independence in the conduct of its

audits because RepublicBank had made loans of over $5 million to certain Arthur

Young partners and loans of at least $15.8 million to tax shelter, real estate

partnerships owned by Arthur Young partners. Certain of RepublicBank' sfinancial

statements and the related accountant's reports were included in a proxy statement

issued in connection with a merger by RepublicBank. At the close of the year, this

matter was pending.

In SEC v. Peoples' Bank of Brevard, Inc.r the Commission alleged that the

defendants offered to sell common stock issued by the financial institution prior to

filing a registration statement for an initial public offering with the SEC, conduct

referred to as "gun jumping." In addition, they engaged in an active publicity

campaign for the offering during the waiting period prior to the effectiveness of the

registration statement. The defendants consented to the entry of injunctions.

5
Related party transactions were at issue in SEC v. CapitalBanc Corporation/ in

which the SEC alleged fraudulent loan schemes undertaken with management's

involvement, as well as improper revenue recognition in connection with a sham

sale of certain assets. Multiple nominee loan schemes were used to conceal a

misappropriation of approximately $2.7 million by the former chairman of

CapitalBanc Corporation and to repay the loan issued to the purported purchaser

in the sham sale of assets. In addition to other relief, the SEC's complaint seeks an

order barring the former chairman from acting as an officer or director of a public

company. At the close of the year, the action was still pending as to that individual

and CapitalBanc Corporation. Five other individual defendants consented to the

entry of injunctions.

Insider Trading

Insider trading refers generally to abuses of nonpublic information in the

securities markets. It encompasses more than trading and tipping by traditional

insiders, such as officers and directors, who are subject to a duty to disclose any

material, nonpublic information or abstain from trading in the securities of their

own company. Insider trading also includes the unlawful transmission or use of

material, nonpublic information by persons in a variety of other positions of trust

and confidence and by those who misappropriate such information. Insidertrading

cases are varied and, over the years, SEC cases have included actions against

investment bankers, risk arbitrageurs, attorneys, law firm employees, accountants,

bank officers, brokers, and financial reporters. Most insider trading cases are

brought under the general antifraud provisions of the securities laws--particularly

Section 10(b) of the Exchange Act and Rule lOb-5 thereunder. Exchange Act Rule

14e-3, promulgated under the Williams Act, separately proscribes most trading by

persons possessing material, nonpublic information concerning a tender offer.

The SECordinarily seeks permanent injunctions and ancillary relief, including

disgorgement of any profits gained or losses avoided, against alleged violators. The

ITSA penalty provisions authorize the SEC to seek a civil penalty, payable to the

United States, of up to three times the profit gained or loss avoided, against persons

who unlawfully trade in securities while in possession of material, nonpublic

information, or who unlawfully communicate material, nonpublic information to

others who trade. Civil penalties also can be imposed upon persons who control

insider traders. During the year, the SEC brought 42 civil and administrative

actions alleging insider trading violations.

The SECfiled an action against the former chief executive officer and chairman

of Ultrasystems Corporation (SEC v. Phillip]. Stevens8

). The complaint alleged that

the defendant, to protect and enhance his reputation as a corporate officer, made

unsolicited telephone calls to securities analysts in which he disclosed material

nonpublic information concerning Ultrasystems' anticipated earnings for the first

quarter of 1988. Two of the analysts tipped this information to clients, who sold

130,800 shares of Ultrasystems common stock prior to the public announcement

that the company anticipated lower first quarter earnings. Stevens consented to the

entry of an order by which he was enjoined and ordered to disgorge $126,455,

representing the losses avoided by the analysts' clients.

6
In an action against a former securities analyst at Cowen & Co., the SEC

alleged that the defendant obtained material nonpublic information from an officer

of Apollo Computer Inc. concerning the financial performance of Apollo for the

second quarter of 1988. The defendant sold 10,623 shares of Apollo stock prior to

the company's public announcement of its expected financial results, without

disclosing this information to Cowen or Cowen's clients. The defendant consented

to the entry of an order by which he was enjoined and ordered to disgorge $45,163,

representing the loss avoided by his sales (SEC v. Baruch Rosenberg'). In related

administrative proceedings, Rosenberg consented to the entry of an order by which

he was suspended for 12 months.

Two cases involved insider trading by individuals who obtained information

misappropriated from pre-release issues of BusinessWeek magazine. In SEC v. John

1.Petit," it was alleged that Petit traded the securities of several companies while

in possession of such information, obtained from an employee of a BusinessWeek

printer, and tipped this information to others. Petit consented to an injunction and

to entry of an order requiring him to pay disgorgement, penalties, and interest of

approximately $195,529. Petit consented to a bar in related administrative

proceedings. The SEC also filed an action, SEC v. Stephen R. Basinski." which was

still pending at the end of the year, against two individuals who were alleged to have

received tips from Petit.

In SEC v. Robert H. Willis,12 the SEC alleged that a psychiatrist obtained

material nonpublic information, concerning a possible merger of Shearson Loeb

Rhodes and American Express Company, from a patient, the spouse of Shearson's

chief executive officer. The defendant traded while in possession of this information

and communicated it to his broker, who also traded and tipped others. The

Commission further alleged that the defendant traded while in possession of

material nonpublic information regarding a plan to change the management of

BankAmerica Corp., obtained in the course of his professional relationship with the

same patient. The psychiatrist allegedly tipped this information to his broker who

again traded and tipped others. The psychiatrist consented to the entry of an order

by which he was enjoined and ordered to disgorge $109,103.95 and to pay a civil

penalty under ITSA of $27,476. Injunctions were entered by consent against two

other defendants, one of whom was ordered to disgorge $5,047. At the end of the

year, this matter was pending as to one other defendant. Willis also was the subject

of related criminal proceedings.

Several cases involved insider trading by corporate officials, or their friends

and relatives, in advance of mergers and acquisitions. In SEC v. Ernesto Tinajero, 13

the Commission alleged that the five defendants traded in the stock of Anchor Glass

Container Corporation while in possession of material nonpublic information

about a planned acquisition of Anchor Glass by Vitro, S.A., a Mexican corporation.

After allegedly purchasing approximately 150,000 shares of Anchor Glass stock,

they realized an aggregate profit of approximately $1.2 million. One defendant, at

the time the action was filed, consented to the entry of an order by which he was

enjoined and required to disgorge $47,431. Another defendant subsequently

consented to the entry of an injunction and an order by which he was required to

disgorge $819,868 and to pay a like amount as a civil penalty under ITSA. As of the

close of the year, this action was pending as to three other defendants.

7
The SEC alleged in SEC v. Louis Ferrero," that Louis Ferrero, the chairman,

president and chief executive officer of Anacomp, Inc., communicated material

nonpublic information concerning Anacomp's proposed acquisition of Xidex

Corporation to a friend, who purchased Xidex stock, and tipped tootherindividuals

who also traded. The traders realized profits in excess of $450,000 as a result of their

purchases of Xidex stock, and avoided losses in excess of $100,000 as a result of their

sales of Anacomp stock. Ferrero consented to the entry of an order enjoining him

and requiring him to pay a civil penalty of $277,750. At the close of the year, this

action was pending as to other defendants.

The SEC alleged in SEC v. Robert F. Hoogstraien" that Robert F. Hoogstraten,

the vice president of European operations for Tandem Computers, Inc., learned of

Tandem's proposed acquisition of Ungermann-Bass, Inc., and tipped this information

to the head of a Dutch brokerage firm who traded, and either traded for or caused

trades by the brokerage firm's employees and customers. This case was settled by

consent, and two defendants were ordered to disgorge a total of$142,160 and to pay

civil penalties totalling $83,000.

The SEC alleged in SEC v. Christopher ]. Moran" that the defendant, a

significant shareholder in the Zondervan Corporation, traded the securities issued

by Zondervan while in possession of material non public information concerning

the inability of Zondervan' sinvestment banker to find a purchaserfor the company.

At the end of the year, this matter was pending.

Market Manipulation

The Commission is charged with ensuring the integrity of trading on the

national securities exchanges and in the over-the-counter (OTC) markets. The

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

markets.

In SEC v. Mark P. Malenfant,17 the Commission alleged that defendants were

about to engage in a scheme involving manipulation of the stock of Texscan

Corporation. The Commission's complaint alleged a prearranged matching of

purchases and sales of Texscan common stock at increasingly higher prices; the

complaint also alleged prior high-pressure promotion of the stock to induce

purchases that would drive up the price. In addition to other relief, the SEC's

complaint seeks civil penalties under the Remedies Act. At the close of the year, this

action was pending.

The SECfiled an action against Peter Gardiner, a former employee of the High

Yield and Convertible Bond Department (HYBD) of Drexel Burnham Lambert

Incorporated (SEC v. Peter R. Gardinervy. The complaint alleges that Gardiner

engaged in manipulative practices at the direction of his superiors in the HYBD, by

directing or inducing security trades in the accounts of certain customers. Among

other things, Gardiner often directed or induced customers, prior to the offering of

convertible securities, to sell short the associated common stock, thereby depressing

the price of the common stock and reducing the price at which the convertible

securities would be sold. Gardiner consented to the entry of an injunction, and, in

related administrative proceedings, consented to the entry of an order by which he

was barred from association with any regulated entity.

8
The SEC filed an action against a former chairman of Madison National Bank

of Virginia and a former director ofJames Madison, Limited, the holding company

for Madison National Bank (SEC v. John G. Broumasri. The complaint alleges that

Broumas attempted to manipulate the price of James Madison stock by "marking

the close" (i.e., placing the last trade of the day at a price higher than the previously

executed trade) and executing "wash trades" (i.e.,transactions effectively involving

the purchase and sale of the same security at the same time). Broumas allegedly

attempted to support the price of James Madison stock to avoid margin calls and

prevent his accounts from being liquidated. Broumas consented to the entry of an

injunction.

The SEC exercised its cease-and-desist authority under the Remedies Act in

administrative proceedings involving an alleged manipulation of the price of stock

issued by Teleconcepts Corporation (In the Matter ofAndrew Doherty20). Doherty and

his registered representative at Advest, Inc. engaged in the practice of marking the

close with respect to TeleConcepts stock. The purpose of this practice was to avoid

or reduce margin calls in Doherty's securities accounts. In addition to other relief

obtained in this matter, Doherty and his registered representative consented to the

entry of a cease-and-desist order.

In SEC v. Mark Sendo,21 the SECalleged that the defendants engaged in a "freeriding" scheme, in which they ordered purchases of securities from broker-dealers

without possessing the funds to pay for the purchases, and ordered sales of

securities without owning the securities being sold. The defendants allegedly relied

on anticipated proceeds from offsetting matched trades to provide the means to

settle their transactions, and were therefore able to collectively order more than $50

million of securities trades without putting their own funds at risk. As a result of

their activities, 14 brokerage firms at which the defendants maintained accounts

lost more than $3.4 million. At the end of the year, this matter was pending.

In SEC v. Peter S. Adler,22 the SEC alleged that Adler opened numerous

brokerage accounts with various broker-dealers to conduct an elaborate free-riding

scheme. Adler repeatedly ordered securities and, if their price decreased, failed to

pay for them. Ifthe price of the securities increased, however, he sold the securi ties,

used the proceeds to pay for the initial purchase, and retained the remaining profit.

Adler consented to the entry of an order by which he was enjoined and required to

disgorge $230,000.

Penny Stock Cases

The SEC continued to prosecute actions involving penny stock fraud. These

stocks, which were widely marketed over the last decade, may involve various

types of violative activities, such as market manipulation and offering violations.

On March 11, 1991, the SEC filed an action alleging an intricate scheme by

which certain shell corporations were restructured and their unregistered securi ties

sold to the public. The complaint alleged that the scheme involved the falsification

of corporate records, the rendering of false legal opinions by an attorney, and the

unlawful removal of restrictive legends from stock certificates by a transfer agent

(SEC v. David D. Sterns23). The complaint seeks, among other things, permanent

injunctive relief against all defendants, restitution, and, as to David Sterns, penalties

under the Remedies Act and a corporate bar. Sixteen defendants consented to

9
injunctions in this action. Default injunctions were entered against David Sterns

and six other defendants. At the end of the year, this litigation remained pending

as to two defendants.

The SEC filed an action against ten individuals associated with J.T. Moran &

Co., Inc., a penny stock broker-dealer (SEC v. Robert F. HashcJlA). The SEC's

complaint alleged that the defendants used fraudulent boiler room telephone sales

techniques in the offer, purchase, and sale of certain speculative OTC securities. The

defendants (1) made baseless predictions or guarantees of quick and substantial

price increases, (2) misrepresented their possession of "inside" information, their

earning of commissions on transactions, and the supply of securities, and (3)

engaged in unauthorized transactions. Six defendants consented to the entry of

injunctions. At the end of the year, a decision was pending in the trial of the

remaining four defendants.

In SEC v. Henry W. Lorin." the SEC alleged violations by Eugene K. Laff,

Stanley Aslanian, Jr., and others. According to the SEC's complaint, the defendants

engaged in a scheme to manipulate the markets for seven OTC stocks. The

defendants artificially increased the price of the stocks, and artificially prevented

declines following the publication of negative articles regarding the issuers,

substantial short selling, and Significant selling by corporate insiders. The scheme

collapsed when Haas Securities, Inc., in which Laff and Aslanian were principals,

ceased doing business as a result of its net capital deficiencies. Laff and Aslanian

had been previously convicted in criminal actions against them. Four defendants

consented to the entry of injunctions. At the end of the year, this matter remained

pending as to six other defendants. In a related action that was settled by consent,

SEC v. Frank Shannon." the SEC alleged that the defendant filed a false and

misleading Schedule 13D and amendment regarding ownership of a company

manipulated in Lorin.

The SEC filed an action against Kochcapi tal, Inc. for alleged violations of Rule

15c2-6, the "cold call" rule, which was designed to prevent high-pressure, boiler

room solicitations. The SEC alleged that the firm failed to follow procedures

required by the rule and failed to obtain required documentation (SEC v. Kochcapital,

Inc?'). Among other things, the SEC's complaint seeks civil penalties for violations

occurring after the effective date of the Remedies Act. One defendant consented to

the entry of an injunction. At the end of the year, this action remained pending as

to Kochcapital and an individual defendant.

In SEC v. Superior Resources, Inc.,J1Jthe SEC alleged that the defendants

fraudulently revived shell companies that were then sold by a penny stock

promoter. At the close of the year, this case was pending.

Financial Disclosure

Actions involving false and misleading disclosures concerning the financial

condition of companies and the issuance of false financial statements are often

complex and require more resources than other types of cases. Their effective

prosecution is essential to preserving the integrity of the disclosure system. The

SEC brought 39 cases containing significant allegations of financial disclosure

violations against issuers, regulated entities, or their employees. Many of these

10
cases included alleged violations of the accounting provisions of the Foreign

Corrupt Practices Act. The SEC also brought 13 cases alleging misconduct by

accounting firms or their partners or employees.

The Commission filed an action against Forst-Hunter International Trade

Corporation and three individuals, alleging that Forst-Hunter employed improper

revenue recognition practices that resulted in materially misstated financial

statements for the nine months ended January 31, 1987 (SEC v. Forst-Hunter

International Trade Corporationei. Forst-Hunter allegedly recognized revenue by

recording sales at the time a purchaser agreed verbally to purchase equipment,

irrespective of the date of shipment or the date of delivery. In addition, ForstHunter allegedly misled its auditors by falsely indicating that certain tractors were

loaded for shipment and that risk of loss had passed to the purchasers. After ForstHunter was advised by its independent auditor that the January 31,1987 financial

statements were materially overstated, the financial statements were nevertheless

included in proxy materials filed with the SEC by Forst-Hunter. Forst-Hunter and

two of the individual defendants consented to the entry of injunctions. At the close

of the year, this litigation was pending as to the remaining individual defendant.

The SEC filed an action, SEC v. Michaei S. Weinstein,30arising from an alleged

multi-million dollar financial fraud involving Coated Sales, Inc. The complaint

alleges that Michael S.Weinstein, the chairman and chief executive officer of Coated

Sales, directed other officers and employees of Coated Sales to engage in a scheme

to inflate accounts receivable and inventory. As part of the scheme, the defendants

created phony invoices purporting to show sales of goods by Coated Sales, entered

phony invoices onto the company's accounts receivable records, and used funds

obtained from the sale by certain defendants of Coated Sales common stock to make

it appear that the phony invoices were being paid. As a result of the scheme, sales

and earnings were materially overstated in 1986through 1988. The SEC's complaint

further alleges that Weinstein and two other defendants sold Coated Sales common

stock when they knew that the market price of the stock was based on materially

false representations regarding the company's financial condition, and that certain

of their sales constituted an unregistered distribution. In addition to injunctive

relief, the SEC's complaint seeks disgorgement and the payment of civil penalties

for insider trading violations. Two of the defendants consented to the entry of

injunctions. At the close of the year, this proceeding was pending as to seven other

defendants.

In SEC v. Michaell. Bitterman." the SECalleged that former officers of Network

Control Corporation engaged in improper revenue recognition practices that led to

the material understatement of losses reported in Network's quarterly reports on

Forms 10-Q for the first three quarters of 1987. These improper sales practices

consisted of (1) recording transactions as sales when customers had not agreed to

purchase Network equipment and equipment had not been delivered to the

customers by quarter-end, (2)recording trials as sales transactions, and (3)removing

inventory from Network's premises to simulate delivery of goods sold to the

customer, when no such delivery had occurred. The defendants consented to the

entry of injunctions.

The SEC filed a complaint against 16 former senior officers and employees of

MiniScribe Corporation, alleging a series of fraudulent acts designed to inflate

materially MiniScribe' sreported net income (SEC v. Q. T. Wiles32). These fraudulent

11
acts resulted in MiniScribe overstating its net income for 1986by approximately $4.5

million, for 1987 by approximately $22 million, for its second quarter of 1988 by

approximately $14.4 million, and for its third quarter of 1988 by approximately

$17.2 million. Among a variety of acts allegedly committed by the defendants,

fictitious inventory was created by shipping boxes of bricks labeled as disk drives

to two distributors, and a computer program called "Cook Book" was created to

generate fictitious inventory numbers. Seven of the defendants consented to the

entry of orders by which they were enjoined and ordered to disgorge trading losses

avoided and bonuses received and to pay civil penalties under ITSA.

In an action against John R. Ward, the former chairman of Datamag, Inc., and

Thomas E. Weber, Datamag's former chief executive officer, the SEC alleged that

the defendants engaged in a fraudulent scheme to inflate Datamag's sales and

income for 1987. The company was required to show a profit as a condition to a

proposed underwriting of a public offering of its common stock. The complaint

alleged that Ward and Weber caused Datamag to ship defective products at the end

of 1987 to four entities and caused the company to report income from these

purported transactions in financial statements filed with the SEC. Among other

things, the defendants allegedly coerced Datamag's customers to falsely confirm

such sales to Datamag' s auditors, falsified checks, invoices and shipping documents

to support the transactions in question, and lied to Datamag' sindependent audi tors

to conceal their fraud (SEC v. John R. Ward33). At the close of the year, this matter

was pending.

The SEC filed an action against Earthworm, Inc. and three individuals

associated with the company (SEC v. Earthworm, Inc.34). The Commission alleged

conduct that resulted in the material overstatement of Earthworm's net sales and

cost of sales in its financial statements for the year ended December 31, 1986.

According to the complaint, Earthworm overstated net sales by $4,461,000, or 22%,

and overstated cost of sales by $4,394,425, or 25%, in its 1986 annual financial

statements. The defendants consented to the entry of injunctions. Among other

things, the court orderrequired Earthworm to file an amended Form 10-K for 1986

and amended Forms 10-Q for the first three quarters of 1988.

In SEC v. Ramtek Corporation." the SEC alleged that, in an effort to achieve

earning targets set by its senior management, the company improperly recognized

revenue from fictitious sales transactions, and prematurely recognized revenue

from other transactions. The complaint further charged that Ramtek materially

misstated its income (loss) and related financial statement captioned items in its

financial statements filed with the SEC. The misstated financial statements also

were included in a Form S-l registration statement filed with the SEC and declared

effective. Ramtek consented to the entry of an injunction in this case.

The SECcharged in SEC v. Malibu Capital Corporation" that Malibu Capital had

improperly treated an exchange of stock as a purchase of another company,

improperly adjusted the value of that company's assets, and omitted to state

historical cost of such assets, thereby overstating its consolidated assets in financial

statements filed with the SEC. This case was settled by consent. In SEC v. Joseph

Wolfer,37 the SEC alleged, among other things, improper recognition of revenue on

a fictitious bulk sale to another company. Two of the defendants consented to the

entry ofinjunctions. At the close of the year, this matter was pending as to two other

defendants.

12
Accountants were sanctioned in Rule 2(e) proceedings based on allegations of

Significant audit failures and/ or injunctions or convictions for alleged violations

related to their preparation or audit of financial statements. See, e.g., In the Matter

of Michael R. Ford, CPA;38 In the Matter of Raymond Baceki" In the Matter of Bruce F.

Kalem, CPA;40 and In the Matter of Merle E. Bright, CPA,41 The Commission also

instituted and settled Rule 2(e) proceedings against an attorney who allegedly

drafted periodic reports, filed with the Commission on behalf ofS. Taylor Comparties,

Inc., that contained material misstatements and omissions (In the Matter of Ronald

N. Vance42). See also SEC v. Norman Nouekajian" and SEC v. Michael A. Clark"

(consent orders enjoining two attorneys for corporations controlled by J. David

Oominelli from securities offering violations).

Corporate Control

The SEC's enforcement program scrutinizes corporate mergers, takeovers

and other corporate control transactions, and the adequacy of disclosures made by

acquiring persons and entities and their targets. The SEC recently brought cases

involving Sections l3and 14ofthe Exchange Act, which govern securities acquisition,

proxy, and tender offer disclosure. Increasingly, the SEC seeks orders requiring

violators to disgorge profits obtained from violations.

In SEC v. Burton R. Sugarman," the SEC alleged that a director of Rally's, Inc.

failed to make timely disclosure of his plan to acquire control of Rally's during its

initial public offering. A partnership formed by the director purchased 1.16million

of the 1.745million shares in the offering before the existence of the partnership was

disclosed in a Schedule 130. The director, in addition to consenting to an injunction,

agreed to disgorge $556,522, representing funds saved as a result of the failure to

make timely disclosure.

The SECinstituted administrative proceedings against Morgan Stanley &Co.,

Inc., alleging that Morgan Stanley sold over 2.4 million shares of KaiserTech, Ltd.

to satisfy margin deficiencies in an account owned by a Morgan Stanley client (In

the Matter of Morgan Stanley & Co., Inc. 46). The order alleges that Morgan Stanley,

at the time of these sales, knew, or had reason to know, that its client's stock was

control stock, and that it was subject to resale restnctions under Section 5 of the

Securities Act. Morgan Stanley consented to the entry of an order by which it was

required to adopt appropriate procedures to avoid future violations ofthe registration

provisions. These proceedings are related to an injunctive action filed and settled

in the previous year in which it was alleged that the client failed to make timely

amendments to his Schedule 130 to reflect his intent to take KaiserTech private

(SEC v. Alan E. Clor&").

InSEC v. Asher B. Edelman;" the SEC alleged that Edelman, the chairman of

the board of Oatapoint Corporation and a member of a Schedule 130 filing group

that beneficially owned approximately 10 percent of its outstanding stock, formed

a plan to defend against an attempt to replace him and the rest of Data point' s board

by purchasing additional Oatapoint shares. Edelman allegedly implemented this

plan by purchasing 3 million shares of Data point (approximately 30 percent of the

outstanding stock), without promptly amending the Schedule 130 to disclose the

acquisition plan. Edelman consented to the entry of an injunction.

13
The SEC exercised its cease-and-desist authority under the Remedies Act to

enforce the beneficial ownership requirements of the Exchange Act. The SEC

instituted cease-and-desist proceedings against Norman G. Baker, In the Matter of

Norman G. Baker." alleging that Baker had made false and misleading statements in

a Schedule 130 filed on January 29, 1990, to report his ownership of 4.979% of the

outstanding common stock of Oatamag, Inc. The allegedly false and misleading

statements concerned the source of the funds used by Baker for his purchases of

Oatamag stock, and Baker's intention and ability to purchase additional shares of

Oatamag. Baker consented to the entry of the cease-and-desist order.

Securities Offering Cases

Securities offering cases represent a significant portion ofthe SEC's enforcement

activities. These cases involve the offer and sale of securities in violation of the

registration provisions of the Securities Act. In some cases, the issuers attempt to

rely on exemptions to registration requirements that are not available. Offering

cases frequently involve material misrepresentations concerning, among other

things, use of proceeds, risks associated with investments, disciplinary history of

promoters or control persons, business prospects, promised returns, success of

prior offerings, and the financial condition of issuers. In appropriate cases,

disgorgement, restitution, civil penalties or other relief may be ordered by the

courts for offering violations.

The SEC filed an action against International Loan Network, Inc. (lLN) and

two individuals (SECv. International Loan Network, Inc. 50). The complaint alleges that

from October 1988 to the time of the filing, the defendants conducted a pyramid or

"Ponzi" scheme, inducing approximately 40,000 investors to invest in ILN. The

defendants made materially false and misleading statements and failed to state

material facts in connection with their sale of unregistered securities. Among other

things, the defendants falsely represented that investors would receive valuable

returns in the form of cash payments and/ or real estate with values greatly

exceeding the amount invested. The court granted a preliminary injunction and an

asset freeze. At the close of the year, this action was pending.

The SEC alleged in SEC v. Latin Investment Corporation" that the defendants

were engaged in offering and selling the securities of Latin Investment Corporation

to immigrants from Latin America. The complaint charges that these unregistered

securities were sold in the form of" pass books," and that Latin Investment, through

misrepresentation, induced 3,500 investors to invest $6.8 million. Investor funds

allegedly were used for the personal benefit of the defendants without disclosure

to investors. The Commission obtained emergency relief in the form of a temporary

restraining order and an asset freeze; the court subsequently entered a preliminary

injunction that strengthened the asset freeze. At the close of the year, this

proceeding was pending.

In SEC v. Eugene R. Karczewski and Eugene F. Karczewski,52 the Commission

alleged that the defendants, through Stockbridge Funding Corporation, sold more

than $34 million in unregistered, non-exempt securities to more than 1,200

individuals. While investors were informed that all funds invested with Stockbridge

were to be used for loans secured by mortgages on real estate, the complaint alleged

that, in fact, investor funds were misappropriated and used for purposes other than

secured mortgage lending. At the end of the year, this matter was pending.

14
In SEC v. Robert Elderkin,53 the SEC addressed allegedly fraudulent activity in

connection with a "roll-up" of a real estate limited partnership. In a roll-up

transaction, limited partnerships of limited duration are restructured, typically

through a conversion to corporate form. In Elderkin, the SEC alleged that the five

defendants fraudulently induced the limited partners of Pacific West Investors,

Ltd. to approve a transaction in which over $4 million in real estate was exchanged

for unregistered, restricted stock in Asiamerica Equities, Ltd. Among other things,

the defendants allegedly made false representations concerning the true terms of

the transaction, and while the general partner and individuals associated with it

received over $500,000 in cash and other compensation in the transaction, the

limited partners did not receive the Asiamerica stock to which they were purportedly

entitled. At the end of the year, this action was pending.

The SEC alleged in SEC v. FSG Financial Service, Inc.54 that FSG Financial raised

at least $250,000 from investors through the sale of securities represented to be

municipal bonds. The bonds purportedly sold did not in fact exist. In addition to

false and misleading statements about the purchase ofsecuri ties, FSGfailed, among

other things, to disclose to investors that a predecessor firm had been expelled from

the NASD for antifraud violations. The court granted a preliminary injunction in

this action which, at the close of the year, was pending.

InSEC v. BFMF Corporation." the SEC alleged that BFMF Corporation (doing

business as FMF Corporation) and three individual defendants made false and

misleading statements concerning the business of FMF, including among other

things, that the government of Equatorial Guinea had awarded the company a

concession to dispose of radioactive waste on Guinean territory when no such

concession had been granted, and that FMF had entered into and was performing

under a contract with Eli Lilly &Company for the disposal of contaminated material

in Guinea when in fact Lilly had never done business wi th FMF. The court granted

the Commission a temporary restraining order and an asset freeze. In addition to

a permanent injunction, the Commission's complaint seeks restitution and the

imposition of civil penalties under the Remedies Act. At the close of the year, this

action was pending.

The SEC filed an action against Neil E. Regen, a former chairman of Memory

Metals, Inc., in SEC v.Neil E. Rogen56 alleging that Rogen caused the company to file

a registration statement for an initial public offering that contained materially false

or misleading statements with respect to the plan of distribution of the securities,

and other matters. While selling Memory Metals securities for his own account,

Rogen allegedly issued or caused to be issued to actual or prospective investors and

others materially false and misleading press releases and other materials. In

addition, the complaint alleged that Rogen caused Memory Metals to file an Annual

Report on Form lO-K for 1985 that was materially false and misleading in that it

overstated the amount of Memory Metals securities beneficially owned by Regen,

The complaint further alleges that Rogen sold at least 390,000 shares of Memory

Metals securities while in possession of material nonpublic information concerning

the materially false and misleading statements, press releases and other materials,

that he failed to file timely statements of changes in his beneficial ownership of

Memory Metals securities, and that he filed false and misleading statements of his

15
beneficial ownership. In addition to injunctive relief, the complaint seeks

disgorgement and civil penalties under ITSA. At the close of the year, this action

was pending.

Broker-Dealer Violations

Each year the SEC files a significant number of enforcement actions against

broker-dealers. Typical broker-dealer cases may involve fraudulent sales practices,

net capital and customer protection violations, as well as violations of the books and

records provisions.

The SEC instituted administrative proceedings against Michael R. Milken

based upon his criminal conviction for conspiracy, aiding and abetting the failure

to file a truthful and accurate Schedule 13D, securities fraud, aiding and abetting

a registered broker-dealer's violation of the SEC's reporting requirements, mail

fraud, and assisting the filing of a false tax return, and upon the injunction entered

against him in the SEC's civil action (SEC v. Drexel Burnham Lambert, Incorporated'[).

On the same date, the SEC instituted administrative proceedings against Milken's

brother, Lowell Milken, based upon the injunction entered against him in the same

action. The Milkens consented to the entry of orders by which they were barred

from association with any broker, dealer, investment adviser, investment company,

or municipal securities dealer (In the Matter of Michael R. Milken58 and In the Matter

of Lowell]. Milken59).

The Commission issued a Report of Investigation pursuant to Section 21(a) of

the Exchange Act concerning violations by five broker-dealers of Section 5 of the

Securities Act and/ or Section 15(c) of the Exchange Act and Rule 15c2-11, which

requires broker-dealers, among other things, to obtain specified information about

certain OTC securities before initiating or resuming quotations (In the Matter of Laser

Arms Corporationwi. The report discusses the failure by certain of these brokerdealers to conduct appropriate inquiries required prior to selling large amounts of

a relatively unknown security, and the conduct of those broker-dealers that became

market-makers for Laser Arms wi thout reviewing the information required by Rule

15c2-11(a)(5).

The SECutilized its cease-and-desist authority in proceedings against Dominick

& Dominick and Werner F. Ulrich, in which it was alleged that Dominick failed to

create certain required records, and failed to keep other required records accessible

and make them available upon the SEC's demand (In the Matter of Dominick &

Dominick, Inc.61). The SEC instituted related cease-and-desist proceedings against

Albert Dreyfuss, formerly a registered representative with Dominick, alleging that

the respondent assisted Dominick in failing to create and maintain current and

accurate books and records with respect to certain accounts (In the Matter of Albert

Dreyfuss62). Dominick and Ulrich consented to the entry of cease-and-desist orders.

At the end of the year, the proceedings against Dreyfuss were pending.

In In the Matter of Walter Capital Corporation." the SEC alleged that a brokerdealer, through its employees, made false and misleading statements during an

initial public offering for the securities of Regional Funding Corporation. The

broker-dealer consented to the entry of an order by which its registration was

revoked.

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The SEC brought actions against persons associated with broker-dealers for

alleged misappropriations of customer funds in connection with the purchase or

sale of securities. In SEC v. Pilgrim Planning Associates, Inc. and John M. Mickner,64

the SEC alleged that Mickner, a registered representative formerly employed by

Pilgrim, misappropriated approximately $329,391 from Pilgrim customers, many

of whom he represented. Among other things, Mickner induced clients to write

checks payable to Pilgrim for the purchase of mutual fund shares or annuities.

Mickner then allegedly used all or part of the proceeds for his personal benefit. The

complaint further alleged that, as a result of Mickner's conduct, Pilgrim failed to

maintain the required net capital. Pilgrim consented to the entry of an injunction.

At the end of the year, this action was pending as to Mickner.

The SEC alleged that Robert F. Kurtz, an account executive associated with a

broker-dealer, misappropriated $1.5 million from two customer trust accounts

(SEC v. Robert F. Kurtz, Jr.65). Kurtz and a sales assistant acting at his direction,

allegedly forged customer signatures on checks as part of the scheme. The sales

assistant consented to the entry of an injunction against her. The injunctive action

was pending against Kurtz at the end of the year. In related administrative

proceedings, Kurtz consented to the entry of an order by which he was barred.

The SEC also brought enforcement actions against broker-dealers for failure

to supervise the activities of their employees. In proceedings against Dean Witter,

the SEC alleged that the firm failed reasonably to supervise four registered

representatives at a branch office who engaged in excessive, unauthorized, unsuitable

and unapproved options trading (In the Matter of Dean Witter Reynolds, Inc.66). Dean

Witter consented to the entry of an order by which it was censured and ordered to

comply with its undertakings respecting its supervisory practices and procedures.

In In the Matter of Richard Alan Lauerg;" the SEC alleged that the respondent, while

a branch manager for E.F. Hutton, failed reasonably to supervise four registered

representatives, two of whom engaged in unsuitable options trading and two of

whom engaged in excessive and unsuitable trading in government securities for

small municipalities and local agencies. Lavery consented to the entry of an order

by which he was suspended for a period of eight months. Proceedings were

instituted against a broker-dealer forfail ure to supervise a registered representative

who misappropriated client funds by, among other things, recommending purchase

of the securities of a fictitious entity. At the end of the year, these proceedings were

pending (In the Matter of Thomas F. White and Thomas F. White & Co., Inc.68).

Investment Adviser and Investment Company Violations

The SECinstituted several significant enforcement actionsinvolvinginvestment

advisers and investment companies.

In administrative proceedings against Home Capital Services, Inc., the SEC

alleged that the respondent, the former investment adviser to a money market fund

that used the amortized cost method to value its portfolio as permitted by Rule 2a7 under the Investment Company Act, caused the fund to purchase securities that

were not "high quality" as required by Rule 2a-7, and failed to determine whether

the best interests of the fund required the sale of the securities as required by the

rule (in the Matter of Home Capital Services, Inc. 69). The adviser was censured and

suspended for 60 days from conducting its business as an adviser (except to service

existing accounts at cost) and prohibited from acting as an adviser to a fund relying

17
on Rule 2a-7 until it adopted policies and procedures to ensure compliance with the

rule. In In the Matter of James L. Rapholz, Jr./o the SEC alleged, among other things,

that an adviser to a fund failed to follow the specified investment objective of the

fund. The adviser and its principal consented to the entry of an order by which the

adviser's registration was revoked and the principal was barred.

The Commission instituted administrative proceedings involving claims that

investment advisers permitted the interpositioning of broker-dealers between their

advisory clients and the market. In In the Matter of R.L. Kotrozo, Inc.,71 a firm

registered as both a broker-dealer and an investment adviser purchased certain

bonds in the market that were resold to a fund for which it acted as adviser and

exclusive broker. The fund was allegedly charged $319,216 in markups that would

have been avoided had the purchases been made directly from the sellers. The

SEC's order further alleged that the firm issued false and misleading proxies

regarding the payment of administrative expenses for one series of the fund, and

disseminated materially false and misleading advertising regarding that series'

earnings. The respondents in this matter consented to the entry of an order by which

the firm's registrations (as a broker-dealer, investment adviser, and transfer agent)

were revoked and the two individual respondents were barred.

In proceedings against the former president of an investment adviser, In the

Matter of Jack Allen Pirrie/? the SEC alleged that Pirrie, when informed that a

purchase for the adviser's largest client violated the client's investment guidelines,

redistributed the stock to other clients, not at its then current market price, but at

the higher price as of the original purchase date. Pirrie did not disclose the actual

market price to the other clients. Pirrie consented to the entry of an order by which

he was suspended for a period of nine months.

A scheme involving alleged kickbacks from certain corporations to a fund

adviser was the subject of administrative proceedings in In the Matter of Carl L.

Lazzell." The Commission's order also alleged that certain purchases by the fund

were in violation of limitations in the fund's prospectus, that the adviser sold

securities as principal to the fund, and that he embezzled from the fund. Lazzell

consented to the entry of an order by which he was barred.

SEC v. David B. Solomon" involved alleged activities by David B. Solomon, an

investment adviser, who had developed a business relationship with Michael

Milken, the manager of the High Yield Bond Department of Drexel Burnham

Lambert Incorporated. The Commission's complaint alleged that this relationship

involved a number of violative activities and transactions, some of which defrauded

Solomon's investment advisory clients and Drexel's investment banking clients.

Solomon consented to the entry of an order by which he was enjoined and ordered

to pay $7,292,307 as disgorgement and $661,674 as a civil penalty forinsider trading.

In related administrative proceedings, Solomon consented to the entry of an order

by which he was barred and his adviser's registration was revoked.

An injunction was obtained against the chairman of the board of an investment

company in SEC v. M. Wesley Groshans." The SEC's complaint alleged that the

defendant sold securities to the fund in violation ofthe fund's investment restrictions

and in violation of related party restrictions under the Investment Company Act.

In addition, the chairman artificially raised the price of the stock he had sold to the

fund, thereby causing an overstatement of the net asset values of four series of the

fund, and caused the fund to make unauthorized loans.

18
In SEC v. Renaissance Advisors, lnc.i" the SECalleged that, among other things,

the defendants, the former president of a fund and the fund's investment adviser,

violated the antifraud provisions of the Investment Advisers Act of 1940 by

distributing advertisements for the fund that made various claims about performance

of amodel portfolio and an investment" formula," without cautioning recipients as

to limitations and risks inherent in the formula. The advertisements also failed to

account for advisory fees and commissions in calculating the performance of the

model portfolio. The defendants consented to the the entry of injunctions and, in

related administrative proceedings, consented to the entry of an order by which the

adviser's registration was revoked and its president was barred.

Sources For Further Inquiry

The SECpublishes the SEC Docket, which includes announcements regarding

enforcement actions. The SEC's litigation releases describe civil injunctive actions

and also report certain criminal proceedings involving securities-related violations.

These releases typically report the identity of the defendants, the nature of the

alleged violative conduct, the disposition or status of the case, as well as other

information. The SEC Docket also contains SEC orders instituting administrative

proceedings, orders making findings and imposing sanctions in those proceedings,

and initial decisions and significant procedural rulings issued by Administrative

Law judges.

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International Affairs

The Office ofInternational Affairs (OlA) has primary responsibility for the

negotiation and implementation of information-sharing agreements and for

developing legislative and other initiatives tofadlitate international cooperation.

OlA coordinates and assists in making requests for assistance to, and responding

to requests for assistance from, foreign aut1writies. OlA also addresses other

international issues that arise in litigated matters, such as effecting service of

process abroad and gathering foreign-based evidence using various international

conventions, freezing assets located abroad, and enfordng judgments obtained by

the Commission in the United States against foreign-based parties. In addition,

OlA operates in aconsultative roleregarding the significant ongoing international

programs and initiatives of the Commission's other divisions and offices.

Key 1991 Results

In September 1991, the Commission hosted the 16th Annual Conference of the

International Organization of Securities Commissions (lOSCO), in Washington, o.c.

Securities regulators from more than 50 nations attended the conference, which was a

successful and prominent forum for the exchange of information on a wide variety of

securities matters. During the annual conference, laSCO's Technical Committee

issued important reports relating to the negotiation and implementation ofMemoranda

of Understanding (MOD) among nations and the adoption of international capital

adequacy standards.

During 1991, the Commission signed comprehensive MOUs for cooperation,

consultation, and the exchange of information with the United Kingdom Department

of Trade and Industry and the Securities and Investments Board, the Banking,

Insurance and Securities Commission of Norway, and the Comision Nacional de

Valores of Mexico. All three of these MOUs are being implemented pursuant to the

authority granted the Commission in the Insider Trading and Securities Fraud

Enforcement Act of 1988and the International Securities Enforcement Cooperation Act

of 1990. These MOUs dramatically strengthen the SEC's ability to obtain information

located in these countries and enhance international cooperation in regulatory matters.

During 1991,the Commission signed a Joint Statement with the Commission of

the European Communities, establishing a comprehensive framework for cooperation

and consultation on avariety ofsecurities-related matters. The Commission also signed

a Communique with the Bank Inspection Board of Sweden and with its successor

agency, the Financial Supervisory Authority of Sweden. This Communique represents

a first step in developing a cooperative relationship for enforcement issues and

establishes a framework for consultations regarding market oversight and other

matters of mutual interest involving the United States and Swedish securities markets.

In addition, the Commission signed an Understanding with the Inter-American

Development Bank and the United Nations Economic Commission for Latin America

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and the Caribbean to facilitate the provision of technical assistance to Latin American

nations. This assistance covers many aspects of the development, operation, and

regulation of the securities markets of Latin American countries.

Arrangements for Mutual Assistance and Exchanges of Information

The increasing internationalization of the world's securities markets has raised

many new and complex issues that affectthe Commission' s ability to enforce the United

States federal securities laws. For example, a central problem the Commission faces is

collecting information located abroad. The Commission has attempted to resolve this

problem by developing information-sharing arrangements on a bilateral basis with

various foreign authorities.

The information-sharing arrangements allow the Commission to obtain evidence

located abroad while avoiding the conflicts that may result from differences in legal

systems. In recent years, the Commission has entered into various arrangements with

foreign authorities from over 15 nations. These arrangements are an effective means

for obtaining information and developing cooperative arrangements betweenregulators.

In addition, the staff coordinates closely with the regulators with whom it has

information-sharing arrangements to develop ways to implement and improve the

arrangements. The Commission also cooperates on an informal basis with foreign

regulators with whom it does not have explicit information-sharing arrangements.

On October 18,1990, the Commission signed a comprehensive MOU with the

Comision Nacional de Valores of Mexico on consultation, technical assistance, and

mutual assistance for the exchange of information. The MOU provides for bilateral

assistance regarding enforcement matters, and specifies procedures forrequesting and

providing assistance, and the permissible uses and confidential nature of information

provided and obtained. Further, the MOU provides for continuing consultations

regarding the MOD's operation and ways of enhancing bilateral cooperation. The

MOU also provides for technical assistance for the development of the Mexican

securities markets, and for the mutual provision of technical assistance to emerging

securities markets.

On September 23, 1991,the Commission and the Financial Supervisory Agency

of Sweden (FSA) entered into a Communique on the exchange of information and the

establishment of a framework for cooperation. This Communique reaffirmed the terms

of a June 27, 1991Communique between the Commission and the predecessor agency

to the FSA,the BankInspectionBoard ofSweden. In the Communique, the Commission

and the FSA declared their intent to provide mutual assistance to the fullest extent

legally possible regarding enforcement matters, and to consult and coordinate about

market oversight and other matters of mutual interest. While the Communique is an

important step toward a comprehensive cooperative relationship with the FSA, the

signatories stated that the Communiqueis an interim measure, and that they contemplate

the development of a comprehensive MOU on cooperation in securities matters.

Also on September 23, 1991, the Commission issued a Joint Statement with the

Commission ofthe European Communities. Inthe Joint Statement, the parties declared

their intention to work together to (1)facilitate the exchange of information and the

provision of mutual assistance between the SECand the relevant national authorities

of the European Community (EC), (2)cooperate in maintaining the financial integrity

of the participants in both securities markets, and (3) consult regularly on matters of

mutual interest concerning the operation and oversight of the securities markets of the

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U.S. and the Ee. In addition, the parties expressed their intent to commence a regular

dialogue to review developments in the U.5. securities markets and those of EC

member countries, and to discuss principles underlying securities regulation in both

the U.S. and Ee.

On September 24, 1991, the Commission signed an extensive MOU with the

Banking, Insurance and Securities Commission of Norway concerning consultation

and cooperation in the administration and enforcement of the U.S. and Norwegian

securities laws. The NorwegianMOU covers a broad range ofissues for which bilateral

assistance can be provided, and establishes a framework for the fullest mutual

cooperation and communication concerning enforcement and other regulatory matters.

On September 25, 1991,the Commission entered into a comprehensive MOU on

mutual assistance and the exchange ofinformation with theUnited Kingdom Department

of Trade and Industry and the Securities and Investments Board. This MOU

supersedes the MOU signed in 1986, and makes assistance available in virtually all

types of cases that could arise under the securities and futures laws of the U.S. and the

U.K Further, thenewMOU enables the U.S.and U.K authorities to utilize the full range

of their investigative powers, induding compulsory means, to assist one another.

On September 26, 1991,the Commission entered into an Understanding with the

Inter-American Development Bank and the United Nations Economic Commission for

Latin America and the Caribbean to facilitate the provision of technical assistance and

training to the countries of Latin America for the development, administration,

operation, and regulation of those capital markets. In addition to specifying areas in

which technical assistance can be provided, the Understanding calls for the signatories

to conduct joint studies on a range ofsubjects aimed at fostering the growth and sound

regulation of the Latin American securities markets. Further, the Understanding

provides for periodic consultations to enhance cooperation and the promotion of

stability, efficiency, and integrity of the capital markets of the region.

Trilateral Communique

Since 1989,the staffhasorganized and actively been involved in the Commission's

bilateral and multilateral meetings with counterpart securities regulators. Some of

these periodic meetings have emerged as significant forums for the exchange of

information and agreement on matters affecting international securities regulation.

One of the most important of these meetings is the annual Trilateral Meeting between

the securities regulators of the United Kingdom, Japan, and the United States.

On July 19, 1991,the Commission, the U.K Department of Trade and Industry

and Securities and Investments Board, and the Securities Bureau of the Ministry of

Finance of Japan, met for the second time on a trilateral basis to consider issues of

importance to the world's three largest securities markets. At the conclusion of their

meetings, the parties issued a trilateral communique in which they:

agreed that competition, openness, and disclosure are important for the

integrity of markets and investor confidence;

agreed on the need to exchange information rapidly when problems appear

likely to affect the financial position of securities firms with multinational

operations;

agreed that the development of common regulatory principles could

facilitate international business with institutional and other professional

investors;

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noted the growing need for exchange of information between market

authorities, particularly between cash markets and derivatives markets;

and

considered questions involving international cooperation in the enforcement

of judgments, and agreed to investigate the possibility of improving

procedures under national law.

International Organizations

During 1991, the Commission participated in the following international

organizations:

TheInternational Organization of Securities Commissions. The Commission hosted

the 16th Annual IOSCO Conference inWashington, O.c. The Conference was attended

by representatives of 54nations and covered a wide range oftopics, including (1)crossborder equity offerings, (2) investment management services and funds, (3) the

development of strong, stable, and efficient secondary markets, (4) the protection of

investors from international fraud, (5) international accounting standards, (6) the

interplay between banking and securities laws, (7) automation and electronic trading,

and transparency issues, and (8) challenges for international financial markets in the

1990s.

Chairman Breeden played an active leadership role in IOSCO by chairing the

Technical Committee, a position he has held since 1990. Under Chairman Breeden's

leadership, the Technical Committee has re-examined its mission and goals, and has

undergone a significant restructuring of its organization and functions. The Technical

Committee issued two significant documents during the IOSCO Annual Conference.

One report endorsed a set of principles that can serve as a blueprint for the negotiation

and implementation of MOUs among nations. This report reflects the Commission's

approach to promoting international cooperation through the use of regulator-toregulator MOUs. Further, the principles constitute an important step toward fulfilling

IOSCO's long-held goal of fostering reciprocal assistance among members in the areas

of market oversight and the prevention of fraud.

Also issued during the IOSCO Annual Conference was a Technical Committee

memorandum to the Basle Committee of Banking Supervision (the international body

of banking supervisors known as the Basle Committee) on capital adequacy standards.

This memorandum, which presented the positions of the international securities

regulators, was an important component of the efforts to establish common minimum

capital standards for international securities firms and banks. During the IOSCO

Annual Conference, Chairman Breeden announced that the Technical Committee

members were willing, in principle, toconelude an agreement with the BasleCommittee

to establish minimum capital levels for holding equity and debt securities, and the types

of capital that can be included as regulatory capital for international banks and

securities firms.

In addition to the Commission's accomplishments at the laSCa Annual

Conference, throughout 1991 the Commission participated actively in IOSCO

committees and working groups. The staff worked with its foreign counterparts to

develop sound and harmonized policies on a wide range of issues, including (1) the

development of international accounting standards, (2) market transparency issues

and the study of screen-based trading systems, (3) coordination of the relationship

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between cash and derivatives markets, (4) the development of minimum capital

adequacy standards, and (5) international efforts to combat money laundering and

international boiler room fraud.

The Organization for Economic Cooperation and Development (OECD). The

Commission staff participated in discussions at the OECD regarding the establishment

of international standards governing illicit payments to government officials, the

OECD codes relating to securities matters, and accounting issues.

The GeneralAgreement on Tariffsand Trade (GATT). The Commission is an active

participant in the effort, through the Uruguay Round of the GATT, to establish a

multilateral framework of principles and rules for trade in financial services. Throughout

1991, the Commission consulted and coordinated with the Office of the United States

Trade Representative, the Department ofTreasury, and other United States government

agencies, in connection with the GA IT negotiations and other international trade and

investmentinitiatives, such as the North AmericanFree Trade Agreement negotiations.

TheWilton ParkGroup. This informal meeting issponsored by the UK Department

of Trade and Industry and includes regulators from 12 countries. During this year's

meeting, the staff participated in extensive discussions to develop practical methods

for facilitating the exchange of information among securities regulators.

The European Community. The Commission also has been involved with other

United States governmental agencies in reviewing the plans and directives of the

European Community, which is working toward achieving an internal market among

its 12-member countries by December 31,1992 (referred to as EC 92). The Commission

has been involved in several different studies, and provided assistance to other United

States government agencies, including the Department of the Treasury, in connection

with the impact of EC 92 on the U.S. financial services markets.

International Requests for Assistance

The table below summarizes the international requests for assistance made and

received by the Commission."

Fiscal SEC Requests to Foreign Requests to

Year Foreign Governments the SEC

1988 84 81

1989 101 150

1990 177"8 13079

1991 15180 21181

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Regulation of the Securities Markets

The Division of Market Regulation, together with regional office

examination staff, is charged with the responsibility of overseeing the

operations of the nation's securities markets and market professionals. In

1991, over 8,600 broker-dealers,8 active registered securities exchanges, as

well as the over-the-counter (OTC) markets and 15 clearing agencies were

subject to the Commission's oversight.

Key 1991 Results

1987 1988 1989 1990 1991

Broker/Dealer Oversight

Examinations 452 421 328 371 442

Broker/Dealer Cause

Examinations 56 89 148 176 121

Surveillance and Regulatory

Compliance Inspections

of Self-Regulatory

Organizations (SROs) 23 21 22 22 23

SRO Final Disciplinary

Actions 991 1,336 1,508 1,605 1,490

SRO Rule Changes 357 378 370 492 444

In 1991, the division continued to direct its attention toward a number of

significant issues. The division took steps to implement market reform legislation

designed to address oversight problems identified in the 1987 market decline and

subsequent episodes of extreme market volatility. Rules were proposed to combat

"penny stock" fraud and to maintain the financial integrity of firms servicing

investors. Internationalization of the securities markets continued to influence

virtually all of the division's activities. Finally, the division worked to ensure that

fundamental changes in the markets, including growth in size and diversity of firms

and products, proceed in a sound and orderly way and without unnecessary

regulatory restraints on industry, innovation, or competition.

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Securities Markets, Facilities, and Trading

Market Reform Initiatives

On September 25, 1990, Congress enacted the Market Reform Act of 1990

(Market Reform Act) to enhance the efficiency and fairness of the United States

capital markets and to address the causes of precipitous market declines. The

legislation authorizes the Commission to:

establish rules for reporting pertinent financial information about

broker-dealer holding companies for purposes of risk assessment;

promulgate rules providing for large trader reporting;

facilitate development of coordinated clearance and settlement systems;

promulgate uniform rules, preempting state law when necessary,

concerning the transfer and pledge of securities to facilitate the efficient

and safe operation of the national clearance and settlement system; and

limit trading practices that contribute significantly to extraordinary

volatility.

In addition, the legislation provides the Commission, subject to disapproval

by the President, with the emergency authority to halt trading in securi ties markets.

On August 22, 1991, the Commission proposed for comment Rule 13h-1,

which would establish a large trader reporting system, as contemplated by the

Market Reform Act. Rule 13h-1 envisions an efficient activity-based system for

gathering information to be used by the Commission to perform time-sequenced

reconstructions of trading activity for the evaluation of market volatility and other

market surveillance purposes. The proposed rule would require large investors to

file a form with the Commission, upon receipt of which the Commission would

assign each such investor an identification number. Broker-dealers would be

required to maintain, and electronically report to the Commission, records of

transactions effected by large traders.

On August 3D,1991,the Commission proposed for comment Rules 17h-lT and

17h-2T,which, together with proposed Form 17-H, would establish a risk assessment

recordkeeping and reporting system for registered broker-dealers concerning

certain of their associated persons. The proposed rules are designed to give the

Commission access to information concerning the financial and securities activities

of those associated persons of the broker-dealer whose business activities are

reasonably likely to have a material impact on the broker-dealer. Proposed Rule

17h-1T is a recordkeeping rule that sets forth the records and other information

broker-dealers would be required to maintain with respect to their material

associated persons. Proposed Rule 17h-2T is a reporting rule that would require

broker-dealers to file with the Commission on proposed Form 17-H a quarterly

summary of certain of the information required to be maintained by Rule 17h-1T.

In January 1991, the Commission formed the Market Transactions Advisory

Committee pursuant to new Section 17A(f) of the Securities Exchange Act of 1934

(Exchange Act). The Commission also published for comment proposed Exchange

Act Rule 17Ad-IS, which would govern the acceptance ofsignature guarantees. The

advisory committee's responsibilities and the proposed rule are discussed in

greater detail below in the section entitled "National System for Clearance and

Settlement."

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Penny Stock Reforms

The Securities Enforcement Remedies and Penny Stock Reform Act of 1990

(Remedies Act),82requires the Commission to: (1) establish criteria concerning

coverage of the category of penny stocks; (2) establish rules that bar disciplined

persons from participating in penny stock distributions; (3) specify additional

disclosure requirements or exemptions relating to transactions in penny stocks; (4)

generally prevent fraud and manipulation in penny stock transactions; and (5)

facilitate and oversee the establishment of self-regulatory organization (SRO)

operated automated quotations systems for penny stocks.

On April 17, 1991, the Commission proposed for public comment Rule 3aSl1, Rules 15g-1 through 15g-7, and Schedule 15G under the Exchange Act." The

proposed rules define the term penny stock and exempt certain transactions from

the disclosure requirements of the rules. The rules would require broker-dealers

effecting transactions in penny stocks to provide their customers with a document

describing the risks of investing in the penny stock market, information regarding

market quotations, if any, information on the compensation of the broker-dealer

and salesperson involved in the penny stock transaction, and monthly statements

giving the market value of penny stocks held in the customer's account.

Exchange Act Rule 15c2-11 prohibits, with certain exceptions, a broker or

dealer from publishing a quotation for a covered security in a quotation medium

unless it has in its records and reviews specific information concerning the security

and its issuer. The Commission adopted revisions to Rule 15c2-11 that require a

broker-dealer to review the specified information before publishing the quotation

and to have a reasonable basis under the circumstances for believing that the

information is accurate in all material respects and obtained from reliable sources.

The amendments also require a broker-dealer to have in its records a copy of any

trading suspension order, or Exchange Act release announcing a trading suspension,

issued by the Commission during the preceding 12 months respecting any of the

issuer's securities, and to review the required information together with the

information contained in the trading suspension order or release and any other

material information concerning the issuer in the broker-dealer's knowledge or

possession." In addition, the Commission published for comment revisions to Rule

15c2-11 to narrow the scope of the rule's piggyback provision that currently allows

broker-dealers under certain conditions to enter quotations without having the

information specified by the rule." The Commission also sought comment on the

possible repeal of the piggyback exception."

Congress also amended the Exchange Act by inserting new Section 17B,which

requires the Commission to facilitate the development of one or more quotation

systems for penny stocks and mandates that the Commission report in each of the

five subsequent annual reports on the progress that has been made inthe development

of such a system. In adopting Section 17B,Congress stated that a fully implemented

automated quotation system would further the information needs of investors and

market participants and would add transparency to the penny stockmarket, as well

as provide regulatory and surveillance data. Section 17Bprovides that the system

should collect and disseminate quotation and transaction information; provide

firm bid and ask quotations of participating broker-dealers, or comparable accurate

27
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and reliable pricing information; and provide for the reporting of the volume of

penny stock transactions, including last sale reporting, when volume in the system

reaches appropriate levels."

The Commission worked closely with the National Association of Securities

Dealers Inc. (NASD)to develop a system that will ultimately meet all the requirements

of Section 17B. Even before the legislation was passed, the NASD had made a

substantial commitment to achieving the broad goals outlined in the Remedies Act

and had introduced the OTC Bulletin Board Service (Bulletin Board). The Bulletin

Board provides a real-time quotation medium for NASD members to enter and

display quotation information for securities traded over-the-counter that are not

included in the NASDAQ System nor listed on a registered securities exchange. The

Commission first approved the implementation of the Bulletin Board for a pilot

term of one year," and subsequently granted further extensions of the pilot

program, most recently extending the pilot through March 31, 1992.89 As of

September 30, 1991,the Bulletin Board displayed quotations/ indications of interest

on 4,125 securities. Two hundred and thirty firms were registered as market

makers, with a total of 10,429 market making positions. On average, 2.5 market

making positions were displayed for each security.

Major Market System Developments

The Commission received 11amendments to various National Market System

(NMS) Plans and approved 10. In addition, the Commission received a newly

adopted NMS Plan that, if approved, will govern the operation of a linkage among

the various options exchanges. Finally, the Commission received 36 proposed rule

changes involving NMS issues in 1991 and approved 35 during that period.

On October 10, 1991, the Commission approved a proposal submitted by the

NASD to implementthe NASDAQ International service for a two-year pilot period.

NASDAQ International will support an early trading session in London--it will be

available from 3:30 a.m. to 9:00 a.m. EST on each U.S. business day that coincides

wi th the business hours of the London financial markets." NASDAQ International

is primarily designed to accommodate international trading byinstitutional investors

in the United States, United Kingdom, and other parts of Europe. Itwill consist of

the basic automation services currently provided during the domestic session to

support market making by NASD members in NASDAQ, NASDAQ/NMS, and

exchange-listed securities.

On September 6,1991, the Commission released to the Chairman of the Senate

Committee on Banking, Housing, and Urban Affairs a staff report that explored the

issues associated with increasing the market information available for high-yield

debt securities. This report sought to identify whether transparency (the extent to

which information about trading is made available to the public) in the high-yield

debt market could be improved. The report concluded that, at least for the 40 to 50

most actively traded high-yield securities, a quote and/ or trade reporting system

is feasible at this time.

The Commission issued its second Automation Review Policy Statement

(ARP II) on May 9, 1991.91 ARP II provided, among other things, detailed guidelines

on the independent review process for the SROs' capacity planning, systems

development, contingency planning, and security review programs. ARP II

represents the Commission's continuing efforts to promote safe and efficient

28
operation of the securities markets systems and provide further guidance to the

SROs for implementation of the recommendations found in the first Automation

Review Policy Statement (ARP 1).92 ARP I provided that the SROs, on a voluntary

basis, should establish comprehensive planning and assessment programs to

determine systems capacity and vulnerability.

On February 20, 1991, the Commission approved a request by Wunsch

Auction Systems Inc. (WASI) to exempt its computerized single-price auction

system (Wunsch System) from exchange registration under the Exchange Act. 93The

Wunsch System permits institutional and broker-dealer participants to enter buy

and sell orders for particular securities selected by WASI that are offered through

an auction format. The exemption was based on the limited volume of trades

expected to take place through the Wunsch System. In granting the exemption, the

Commission found that it was not practicable and not necessary or in the public

interest or for the protection of investors for WASI to register under Section 6 of the

Exchange Act. WASI is the first proprietary system to receive such an exemption.

In response to a congressional inquiry, the Commission issued a letter

discussing the impact of computerized trading systems on the national market

system." In particular, the Commission's response explained that the emergence

of a large number and variety of computerized trading systems had furthered the

national market system goal of decreasing transaction costs, increasing the

transparency of U.S. markets, improving market linkages and best execution

opportunities, and enhancing competition in the markets. The Commission

recognized the possibility that the number and use of such systems could change,

and indicated that the Commission would reexamine the national market system

structure and the incentives that Commission regulations may create in light of the

burgeoning use of those systems. The Commission's response contemplated that

any re-examination would cover not only the current regulatory approach to offexchange systems, but also would review the Commission's overall approach to

current market structure.

National System for Clearance and Settlement

The Commission continued to work with clearing agencies, banks, brokerdealers and other federal regulators to enhance all components of the national

system for clearance and settlement. For example, on January 14, 1991, the

Commission formed the Market Transactions Advisory Committee pursuant to

Section 17A(f) of the Exchange Act.95 The Advisory Committee's responsibilities

include assisting the Commission in identifying state and federal laws that may

impede the safe and efficient clearance and settlement of securities transactions and

advising the Commission on whether and how to use its authority, under the

Market Reform Act, to adopt, in certain circumstances, uniform federal rules

regarding the transfer and pledge of securities.

Work continued between the Commission and the United States Group of

Thirty Working Committee concerning its recommendations aimed at improving

the efficiency and safety of securities markets. These recommendations included

moving settlement from the fifth day after trade date to the third day after trade

date, using same-day funds in settlement, and adopting direct registration.

29
Temporary clearing agency registration of Participants Trust Company (PTC),96

Government Securities Clearing Corporation (GSCc),97 and MBS Clearing

Corporation (MBSCC)98was extended by the Commission for another year. PTC

provides depository services for mortgage-backed securities, GSCC provides

automated trade comparison and netting services for U.S. government securities,

and MBSCC provides trade comparison and netting services for mortgage-backed

securities.

The Commission published for comment proposed Exchange Act Rule 17AdIS, which would govern the acceptance of signature guarantees." The rule prohibits

inequitable treatment of eligible guarantor institutions, requires transfer agents to

establish written standards for the acceptance of signature guarantees, and enables

transfer agents to reject a request for transfer because the guarantor is neither a

member of nor a participant in a signature guarantee program.

Government Securities Markets

In 1991,the Commission completed ajoint report required by the Government

Securities Act of 1986 (GSA) entitled Study of the Effectiveness of the Implementation

of the Government Securities Act of 1986 (October 1990). The report examined the

regulatory structure established under the GSA and concluded that the

implementation of regulations promulgated under the GSA had met the objectives

of Congress. 100 Further, the Commission supported legislative improvements in the

regulatory structure established by the GSA and undertook a joint study with the

Department of the Treasury and Federal Reserve System of the oversight of the

government securities market in light of allegations of abuse in that market. 101

Recognizing that the overall level of regulation in the market for government

securities is lower than for the equities markets, the Commission supported

legislation to increase the transparency of the government market, to eliminate gaps

in the regulation of abusive sales practices by government securities brokers and

dealers, and to prohibit misleading written statements to issuers of government

securities in connection with a primary offering.

The Commission supported legislation re-authorizing the Department of the

Treasury to promulgate rules in areas specified by the GSA. In addition, the

Commission advocated additional regulatory protection for the government market.

Specifically, the Commission sought backstop regulatory authority to improve

market transparency'" by requiring government securities brokers and dealers to

disseminate transaction and quotation information, on a real-time basis, to all those

willing to pay the appropriate fees. Such backstop authority would be triggered

only if private sector initiatives prove inadequate.

The Commission also supported legislation that would remove gaps in the

NASD's regulation of sales practices. Specifically, the Commission proposed that

Congress, by removing certain statutory restrictions on NASD regulation, permit

the NASD to apply its rules, induding sales practice standards, to transactions by

itsmembers in government securities. In supporting such legislation, the Commission

sought to allow the NASD to regulate government securities transactions on the

same basis as transactions in non-exempt securities.

30
Finally, the Commission recommended legislation that would amend the

general antifraud and antimanipulation provisions ofthe Exchange Act to specifically

define the use of false or misleading written information in connection with any

primary offering of government securities as an express violation of the federal

securities laws.

Internationalization

During 1991,the Commission continued its efforts to widenintemationalization

of financial markets. Many of these developments are discussed in other sections

such as" Major Market System Developments" and "National System for Clearance

and Settlement" above, as well as sections below on "Options and Other Derivative

Products," "Foreign Broker-Dealers," "International Offerings," "Financial

Responsibility Rules," and "Oversight of Self-Regulatory Organizations."

In addition to the initiatives mentioned elsewhere, the Commission provided

technical assistance to several emerging market countries, including Greece,

Hungary, Bulgaria, and Poland. The Commission's assistance in this area has

centered on providing advice regarding regulatory structures for the government

and SROs, practical advice on clearance and settlement systems, and review of

proposed legislation and rules.

The Commission has been an active participant in the working groups of the

International Organization of Securities Commissions (IOSCO). In particular, as a

member of the Working Party on the Regulation of Secondary Markets, the

Commission discussed issues concerning the coordination between cash and

derivative markets, screen-based trading systems, and the importance of

transparency in order-driven and dealer markets. At the annual meeting of IOSCO

in September 1991, the Commission staff presented a paper discussing critical

issues raised by automation in the securities markets, including the nature of

regulatory structures appropriate for automated trading systems, market efficiency

goals in such an environment, and system integrity in computerized markets.'?"

The Commission also participated actively in the Working Party on Regulation

of Market Intermediaries. The primary focus of this Working Party has been

determining capital adequacy standards for multinational securitiesintermediaries.

Capital adequacy rules are critical to the soundness of securities firms. With the

increasing amount of cross-border activities by such firms, the financial status of a

firm in one country may affect the firm or its affiliates' activities in other countries.

Options and Other Derivative Products

During 1991, the Commission approved changes to SRO rules intended to

address market volatility concerns, particularly those arising in the markets for

equity securities and derivative instruments related to the equity markets. For

example, the Commission extended the effectiveness of New York Stock Exchange

(NYSE) Rule BOA, which provides for a pilot program that places conditions on the

execution of index arbitrage orders to buy or sell component stocks of the Standard

& Poor's 500 Stock Price Index (S&P 500 Index) when the Dow Jones Industrial

Average (DJIA) advances or declines by 50 points or more from its closing value on

the previous day.'?'

31
The Commission also approved rule changes submitted by the American

Stock Exchange (Amex), Midwest Stock Exchange (MSE), NYSE, Philadelphia

Stock Exchange (Phlx), and NASD to extend the effectiveness oftheircircuit breaker

procedures. ios In general, the circuit breaker procedures provide that trading in all

markets will halt for one hour if the DJIA declines 250 points or more from the

previous day's closing level and, thereafter, trading will halt for an additional two

hours if the DJIA declines 400 points from the previous day's close.

A proposal by the Chicago Board Options Exchange (CBOE) to reduce from

15 minutes to five minutes the time interval that the CBOE can declare a delayed

opening in index options was approved by the Commission.P" Under the new

procedures, if an opening delay is declared by the CBOE, the CBOE can open at 8:35

a.m., 8:40 a.m., or at the end of any succeeding five-minute interval.

The Commission also approved proposals to permit trading of new financial

instruments, including:

Trading in long-term equity options on the Amex and long-term equity

and stock index options on the Pacific Stock Exchange (PSE) and Phlx,

which options are designed to provide investors with additional means to

hedge investment portfolios against long-term market risk.!"

Trading in long-term options on reduced value indexes on the CBOE, Phlx,

and Amex.

Listing and trading warrants based on the CAC-40 Index on the Amex,

CBOE, MSE, NYSE, Phlx, and PSE. The CAC-40 is an internationally

recognized, capitalization-weighted index consisting of 40 leading stocks

listed and traded on the Paris Bourse and calculated by the Societe des

Bourses Francaises.''"

Trading in warrants based on the Financial Times-Stock Exchange 100

Index (FT-SE 100 Index) on the CBOE and the MSE. The FT-SE 100 Index

is an internationally recognized capitalization-weighted stock index based

on the prices of 100 of the most highly capitalized British stocks traded on

the London Stock Exchange.'?"

Listing and trading of currency warrants on the PSE, subject to the same

minimum listing and trading criteria that apply to index warrant issues."?

The Commission proceeded with several proposals relating to financial

futures. The divisionissued a letter to the Commodity Futures Trading Commission

(CFTC) indicating that the division would not object if the CFTC staff were to take

a no-action position to allow the offer and sale to U.s. citizens of futures contracts

overlying the All Ordinaries Stock Price Index, a broad-based index of Australian

stocks. III The division also sent a letter to the CFTC indicating that the SEC does

not object to designation of the Chicago Board of Trade (CBT) as a contract market

to trade options on Major Market Index (MMI) futures.!"

Finally, the Commission proposed amendments to Rule 3a12-8 under the

Exchange Act that would designate debt obligations issued by the Republics of

Ireland and Italy as exempted securities. The purpose of these proposed amendments

is to permit the marketing and trading of futures contracts on those securities in the

United States.1I3

32

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Regulation of Brokers, Dealers, Municipal Securities Dealers,

and Transfer Agents

Broker-Dealer Examination Program

The primary purpose of the broker-dealer examination program is to provide

Commission oversight of the SROs responsible for the routine examination of those

broker-dealers conducting a public securities business. This oversight evaluation

process is accomplished primarily through the examination of broker-dealer firms

recently examined by a SRO. Additionally, cause examinations are conducted

when the Commission becomes aware of circumstances that warrant direct

Commission inquiry rather than a SRO review.

During 1991, 442 oversight examinations and 121 cause examinations were

completed. Findings from 65 examinations were referred to the Commission's

enforcement staff and referrals to SROs were made in 53 examinations.

The number of oversight examinations increased by 19% over the number of

oversight examinations completed in 1990. However, fewer cause examinations

were completed than in 1990 because that staff conducted more examinations of

penny stock firms on an oversight rather than a cause basis. In addi tion, the NASD

examined a large number of penny stock broker-dealer branch offices that the staff

had planned to examine on a cause basis.

A significant aspect of the broker-dealer examination program involved

examinations of franchised branch offices of penny stock broker-dealers. Particular

concern focused on whether registered broker-dealers were exercising sufficient

control over the activities ofthese offices, and, ifnot, whether the franchised branch

office should be separately registered as a broker-dealer. In coordination with the

NASD, the staff reviewed supervisory procedures and recordkeeping at these

offices, looking particularly for evidence of unregistered salespersons and brokerdealer operations as well as sales practice abuses. An unregistered broker-dealer

was discovered during one of these examinations and legal action was promptly

instituted against the firm.

During 1991, the oversight examination staff examined 75 NYSE member

firms, including comprehensive financial and operational reviews of four of the

largest NYSE member firms. Several complex issues related to one firm's possession

and control of securities and the maintenance ofits special reserve bank account (for

the exclusive benefit of customers) arose during the examination. The issues were

resolved through the combined efforts of the Commission and other securities

industry regulators. At another firm, errors in net capital and customer reserve

formula computations were identified as well as serious systemic weaknesses in the

firm's compliance with credit restrictions of Regulation T. In addition to the above

4 examinations, the Commission's staff examined 71 other NYSE member firms.

33
Transfer Agent Examinations

The regional offices conducted 140 examinations of registered transfer agents

and 10 examinations of federally regulated banks. In total, the program resulted in

93 deficiency letters, 18 registration cancellations or withdrawals, 9 referrals to the

Division of Enforcement, 5 staff conferences with delinquent registrants, and 3

referrals to federal bank examiners.

Form BD Amendments

As the result of ongoing discussions between Commission staff, the North

American Securities Administrators Association's Forms Revision Committee,

representatives of the NASD and the securities industry, in September 1991 the

Commission published for comment amendments to Form BD, the uniform

registration form for broker-dealers under the Exchange ACt.114The amendments

would update the disciplinary background provisions of the form to reflect the

amendments to the federal securities laws made by the Market Reform Act and the

International Securities Enforcement Cooperation Act of 1990,115and eliminate

reporting of certain minor SRO rule violations. The amendments also would revise

the content and structure of the form's schedules to provide the Commission and

the SROs with more useful information concerning applicants for registration. In

addition, the amendments would eliminate duplication of information filed on

various forms with the NASD through the Central Registration Deposi tory system

and clarify certain items contained in the form.

Foreign Broker-Dealers

The Commission issued several no-action letters in 1991 in response to

developments in the international capital markets. Of particular note is a no-action

letter issued to the NASD116permitting United Kingdom broker-dealers affiliated

with registered United States broker-dealers that are members of the NASD to

participate in the NASD's NASDAQ International service during the period oftime

for which the Commission has approved the operation of the service.'? without

registering with the Commission as broker-dealers under Section 15(b) of the

Exchange Act. The NASD represented that approved U.K. affiliates would be

permitted to enter quotations in the service for certain eligible U.S. securities only

as agent for their sponsoring NASD member broker-dealers. Sponsoring NASD

member broker-dealers would be responsible, among other things, for ensuring

that their affiliated U.K. broker-dealers comply with the NA5D's rules governing

the service.

International Offerings

During 1991,the Commission addressed several types of transactions involving

concurrent U.S, and foreign distributions, rights offers and tender offers, including:

Rule lOb-6, which proscribes certain conduct by persons participating in a

distribution to prevent artificial conditioning of the market for a security

to facilitate the distribution;

Rule 10b-7, which governs market stabilization activities during an offering;

Rule 10b-8, which governs the market activities of participants in a rights

offering; and

34

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Rule 10b-13,which prohibits participant purchases otherwise than pursuant

to a tender or exchange offer from the time such offer is publicly announced

until the offer expires.

The Commission granted relief under these antimanipulation rules for

multinational offerings to permit non-U.S. persons to continue certain customary

market activities in foreign jurisdictions during multinational transactions, subject

to certain conditions designed to prevent a manipulative impact on the U.S. market.

Several examples are listed below.

An exemption was granted to permit distribution participants and their

affiliated purchasers (except issuer affiliates) to continue ordinary market

making activity in certain foreign markets, when the issuer is distributing

Rule 144A securities to qualified institutional buyers in the United States.l"

Common share specialists affiliated with an underwriter were granted an

exemption to make bids for and to purchase shares on the Montreal

Exchange during a multinational distribution by a Canadian issuer.!'?

Certain Mexican banks affiliated with the government of Mexico, a selling

shareholder, were permitted to continue their ordinary trading activity

prior to and during a multinational offering ofa Mexican issuer' ssecurities.P'

Affiliated market makers on the Paris Options Market were granted an

exemption to continue market making in standardized options during a

distribution of the underlying security, subject to certain conditions.!"

In connection with a rights offering of a Danish issuer, underwriters were

permitted to bid for or purchase common shares and rights on the

Copenhagen Stock Exchange and on the London Stock Exchange's SEAQ

International system, subject to certain conditions.F'

In connection with the adoption by the Commission of the United StatesCanadian Multijurisdictional Disclosure System (MJDS), which is designed to

facilitate cross-border capital formation.F' the Commission granted exemptions

from Rules lOb-6 and 10b-13 to permit securities purchases that are allowed under

Canadian provincial tender offer rules, subject to certain conditions.P' Also, the

Commission permitted" passive market making" in specialist-type arrangements

on the Toronto Stock Exchange and the Montreal Exchange in connection with

cross-border distributions qualifying for MJDS.I25

In the context of cross-border rights offerings pursuant to certain proposed

Securities Act rules and forms, the Commission proposed to issue an order to

exempt distribution participants from Rules 10b-6, lOb-7, and lOb-8, subject to

certain conditions.P The Commission proposed exemptions from Rules lOb-6, lOb7, and lOb-I3 during tender and exchange offers conducted pursuant to certain

proposed rules and forms designed to facilitate the inclusion of United States

investors in tender and exchange offers for a foreign target's securities.F' The

Commission also proposed an exemption from Rule lOb-13 for tender and exchange

offers for United Kingdom issuers subject to certain United Kingdomregulations.!"

Public Disclosure of Material Short Positions

The Commission issued a concept release soliciting public comment on

whether to require public reporting of material short positions in publicly traded

securities in a manner analogous to the annual reporting requirement for material

long security positions.?"

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Financial Responsibility Rules

On February 28,1991, the Commission adopted final amendments to the net

capital rule that relate to the ability of an affiliate of a registered broker-dealer,

including its holding company, to withdraw capital from the broker-dealer. The

amendments stemmed from concerns raised in large part by the Commission's

experience in the liquidation of Drexel Burnham Lambert, Inc.

The amendments, which became effective May 5,1991:

prohibit withdrawals of capital that would cause the broker-dealer's net

capital to decline below 25 percent of its deductions related to securities

positions under the rule, unless the broker-dealer has the prior approval of

the Commission;

require the broker-dealer to notify the Commission two business days in

advance of withdrawals of capital that would exceed 30 percent of the

broker-dealer's excess net capital, or within two business days of

withdrawals that would exceed 20 percent of the broker-dealer' s excess net

capital (notice would not be required in the event of a withdrawal of less

than $500,000); and

permit the Commission, by order, to prohibit withdrawals of capital for a

period of up to 20 business days if the proposed withdrawals would

exceed 30 percent of the broker-dealer's excess net capital and the

Commission believed such withdrawals would be detrimental to the

financial integrity of the firm or would unduly jeopardize the brokerdealer's ability to pay its customers or creditors.

In 1991, two rating agencies were added to the list of nationally recognized

statistical rating organizations (NRSROs): mCA Limited and its subsidiary, mCA

Inc., and Thomson Bankwatch, Inc. The staff specified in no-action letters issued

to the rating agencies the types of debt for which they may be considered NRSROs.l30

On July 9, 1991, the division issued a no-action letter to the Phlx and CBOE

indicating that broker-dealers computing charges under Rule 15c3-1(c)(2)(~ or

Rule 15c3-1a may, if in compliance with conditions set forth in the letter, (i) treat

foreign currency futures contract positions as underlying securities when such

positions are used to offset foreign currency option positions in the same underlying

currency, and (ii) treat options on foreign currency futures contracts as security

options.

On the same date, the Commission issued a no-action letter to the CBOE

indicating that broker-dealers may utilize a free allocation method in computing

certain net capital charges for options positions.

Lost and Stolen Securities

Rule 17f-1 under the Exchange Act sets forth participation, reporting, and

inquiry requirements for the Lost and Stolen Securities Program (Program). As of

September 31, 1991,23,402 institutions were registered in the Program. Statistics

for calendar year 1990 (the most recent year available) reflect the Program's

continuing effectiveness. During that year, registered institutions reported as lost

and stolen, missing or counterfeit 651,305 certificates valued at $2,593,031,073.

Those institutions also reported the recovery of 121,819 certificates valued at

$784,063,449. At the end of 1990, the aggregate value of securities contained in the

Program's database was $18,434,695,610. Program participants (e.g., banks and

36

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broker-dealers) made inquiries concerning 2,695,945certificates. Inquiries concerning

13,418 certificates valued at $130,852,732 matched reports oflost, stolen, or missing

securities on file in the database.

Oversight of Self-Regulatory Organizations

National Securities Exchanges

As of September 30, 1991, there were eight active securities exchanges

registered with the Commission as national securities exchanges: Amex, Boston

Stock Exchange (BSE),CBOE, Cincinnati Stock Exchange (CSE), MSE, NYSE, Phlx

and PSE.131During 1991, the Commission granted exchange applications to delist

95 debt and equity issues and two options issues, and granted applications by

issuers requesting withdrawal from listing and registration for 37 issues. In

addition, the Commission granted 1,016 exchange applications for unlisted trading

privileges.

The exchanges submitted 248 proposed rule changes to the Commission

during 1991. Many of these filings are described in the section above entitled

"Securities Markets, Facilities, and Trading." Among the most notable other rule

filings that were approved by Commission were proposals by the Amex, BSE,MSE,

NYSE, Phlx, and PSE to initiate limited off-hours trading sessions. The NYSE' s OffHours Trading (OHT) facility extended the NYSE's daily trading hours beyond the

regular hours of 9:30 a.m. to 4:00 p.m. (eastern time) to establish two new trading

sessions: Crossing Session I, which permits the execution of single-stock, singlesided closing-price orders, and crosses of single-stock closing-price buy and sell

orders at 5:00 p.m. (eastern time); and Crossing Session II, which allows the

execution of crosses of multiple-stock aggregate-price buy and sell orders from 4:00

p.m. to5:15p.m. (eastern time). The Commission approved the OHTfacility onMay

20, 1991 for a two-year temporary period ending May 24, 1993. Itbegan operation

on June 13, 199V32

The Commission also approved an Amex proposal to permit the execution

after the close of single-sided, closing-price orders and crosses of closing-price buy

and sell orders.P' In response to the NYSE and Amex proposals, several of the

regional stock exchanges established requirements that their specialists provide

primary market protection to limit orders designated as executable after the close

of the regular trading session, based on volume that prints in the primary market's

after-hours sessions.P' In addition, the PSE's post-1:00 p.m. (pacific time) auction

trading market hours were extended to 1:50p.m. (pacific time), permitting the entry

and execution ofthe same types of orders as during the PSE's current 1:00-1:30p.m.

(pacific time) trading session.P

The Commission approved a proposed rule change authorizing the CBOE to

trade stocks, warrants, and other securities instruments and contracts. The CBOE

was previously only a marketplace for options contracts.!"

The Division issued a report entitled Market Analysis of October 13 and 16, 1989

(December 1990)that contained a detailed analysis of market performance on these

two days of heavy trading volume and extreme price decline and volatility. The

report analyzes the performance of the U.S. securities and options markets in three

distinct areas: market maker and specialist performance, clearance and settlement,

and exchange operations. While the division found that performance in all three

37
areas has improved substantially as a result of the implementation of many of the

recommendations contained in the division's 1987 Market Break Report, the

division nevertheless made specific recommendations in several areas where

performance could be further improved.

National Association of Securities Dealers

The NASD, with over 5,800 member firms, is the only national securities

association registered with the Commission. It is the operator of the NASDAQ

System, the second largest stock market in the United States, and the third largest

in the world (after the Tokyo Stock Exchange and the NYSE). In 1991, the NASD

reported a total of 922 final disciplinary actions, which consisted of 781 formal and

summary disciplinary actions by its district committees and 141 formal and

summary actions by its NASDAQ and market surveillance committees.

In addition, the Commission received 68 proposed rule changes filed by the

NASD and approved 57 proposed rule changes in 1991. Among the significant

changes approved by the Commission was a proposal to revise the criteria forinitial

and continued inclusion for regular (non-NMS) NASDAQ securities.l" These

requirements were last amended in 1981. Since that time, significant changes in the

NASDAQ market and in the regulatory regime under which it operated, had

occurred. For example, since 1981 the number of issues included in the NASDAQ

system (regular and NMS) increased 28% from 3,687 issues in 1981 to 5,144 issues

in 1988. The revised initial authorization criteria include a minimum of two market

makers per issue, total issuer assets of at least $4 million, capital and surplus of at

least $2 million, a minimum bid price per share of $3, and a minimum public float

market value of $1 million. The revised maintenance criteria include a minimum

of two market makers per issue, a minimum of $2 million in total issuer assets,

minimum capital and surplus of $1 million, a minimum bid price per share of $1,

and a public float market value of at least $200,000.

The Commission also approved a series of four proposals to amend the

NASD's rules regarding the operation of the Small Order Execution System

(SOES).I38SOES was designed by the NASD as an efficient and economical system

for the automated execution ofretail customer orders of limited size. The four rules:

(1) expand the definition of professional trading account; (2) expand the definition

of day trading; (3) establish a IS-second delay between SOES executions to permit

market makers to update their quotations; and (4) allow market makers to specify

the firms from which they are willing to receive preferenced orders.

In addition, the Commission approved a NASD proposed rule change that

grants permanent approval to the limit order capability for 50ES.139The limit order

processing capability serves the purpose of permitting NASD members, and in

particular members that do not have proprietary systems with such capability, to

enter and store limit orders. The limit order capability, as approved, contains the

following features: (1) an alert that will bring to the SOES market maker's attention

those limit orders that are priced within the inside market and that potentially

match another order already pending on the limit order file; (2) a take-out function

that allows a market maker to execute limit orders at a specific price without

changing its quote; and (3) a matching function that will automatically match and

execute orders in the limit file if after five minutes the matched order has not been

executed. The limit order file became operative in December 1990.

38
The Commission also approved a rule change that amended the NAsD ByLaws to incorporate, for NAsDAQ/NMs securities only, the language set forth in

SECRule 19c-4140regarding shareholder voting rights. The rule essentially prohibits

the quotation of a N AsDA Q/ NMs issuer's common stock or other equity securities

if the issuerissues any class of stock or takes other corporate action that would have

the effect of nullifying, restricting or disparately reducing the per share voting

rights of outstanding common stock shareholders. Thus, the proposal prohibits the

disenfranchisement of existing holders of an outstanding class or classes of

common stock of a NASDAQ/NMS issuer. The amended rule sets forth the

following actions, which are presumed to be disenfranchising: (1) time-phased

voting, (2) capped voting plans, (3) super voting stock distributions, and (4)

exchange offers. On the other hand, the following actions are presumed not to be

disenfranchising, and thus are permitted: (1)initial public offerings, (2)subsequent

issuances oflowervotingstock, (3)bonafide mergers and acquisitions, and (4)stock

dividends.

The Commission also approved a proposed rule change that prohibits NASD

members from receiving compensation for soliciting votes or tenders from

participants in connection with a roll-up of a direct participation program (OPP)

unless such compensation meets certain criteria.l" The compensation must be: (1)

payable and equal in amount regardless of whether the limited partner votes

affirmatively or negatively on the proposed roll-up; (2) in the aggregate, not in

excess of two percent of the exchange value of the newly created securities; and (3)

paid regardless of whether the participants reject the proposed roll-up. In addition,

the rule prohibits members or persons associated with a member firm from

participating in the solicitation of votes or tenders in conjunction with the roll-up

of a DPP unless the general partner or sponsor proposing the roll-up agrees to pay

all soliciting expenses related to the roll-up, including all prepatory work related

thereto, in the event the roll-up is not approved.

Arbitration

The Commission has approved proposed rule changes by both the NAsD and

national securities exchanges that strengthen the arbitration rules for disputes

between investors and broker-dealers. The arbitration rules of the NAsD, the

Amex, the CBOE, and PsE were amended to facilitate the joinder and consolidation

of different parties' claims.l" The N AsD and CBOE also amended their arbitration

rules to clarify their ability to institute disciplinary actions against members and

associated persons of members that fail to honor awards issued by arbitrators.l"

The NASD and Amex expanded the required contents of arbitrators' awards to

include the name of counsel (if any) and the type of securities product(s) involved

in the dispute.!" The Amex, CBOE, and PSE also amended their rules to require the

prompt payment of arbitration awards and the payment of interest on those awards

in certain instances.l"

39
Clearing Agencies

During 1991, the Commission received 100 proposed rule changes from

registered clearing agencies. The Commission approved 98 such proposed rule

changes and three proposed rule changes were withdrawn by the clearing agencies.

The approved rules included the following proposals:

Depository Trust Company's (DTC) establishment of a repurchase (repo)

agreements tracking system that allows DTC to isolate the portion of each

participant's position that is subject to a repo transaction.'"

GSCC's comparison and netting of trades in Ll.S.Treasury securities that

occur prior to the U.S. Treasury auction.'?

GSCC's expansion of its netting service to include book-entry zero coupon

securities.!"

Options Clearing Corporation's (OCC) extension of its Theoretical

Intermarket Margin System to equities.'"

OCC and Intermarket Clearing Corporation expansion of their respective

valued securities programs (i.e., the forms of acceptable margin) to include

certain preferred stock and corporate debt issues.'"

PTC elimination of the pro rata charge to PTC participants for the cost of

financing principal and interest advances'!"

permit PTC to join the Securities Clearing Group.'" and

National Securities Clearing Corporation, Midwest Clearing Corporation

and PTC establishment of liability notice procedures for book-entry,

deliverable instruments that have exercise privileges.!"

Municipal Securities Rulemaking Board

The Commission received seven proposed rule changes from the Municipal

Securities Rulemaking Board (MSRB) and approved six. Of particular note, on] une

6, 1991, the Commission approved a proposed rule change that permits the MSRB

to establish and operate a central electronic facility, the Municipal Securities

Information Library, through which information regarding municipal securities

and their issuers would be made available to market participants and information

vendors. The Commission also approved a proposed rule change that amends

MSRB Rule G-36 to require underwriters to deliver advance refunding documents

to the MSRB.

Inspections of SRO Surveillance and Regulatory Compliance

The staff conducted an inspection of the NYSE oversight programs for

specialist trading. The inspection generally revealed improvement in all program

areas since the previous inspections in 1987 and 1988. In particular, the staff found

that the NYSE has developed effective automated surveillance programs for

specialist trading and specialist financial standing. Significant changes were made

in the allocation procedures for equity securities and in performance reviews.

Similarly, enhancements were made in the monitoring of the financial condition of

exchange specialists. Finally, the staff found that both the Member Trading

Analysis Department and the Enforcement Department were functioning adequately.

40

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•

•

•

•

•

•

•
An inspection of the N ASD' s Market Surveillance Committee (MSC) revealed

that the MSC was performing its duties properly. Nonetheless, in connection with

investigations filed without action, the staff recommended that the NASD forward

additional information to the MSC, thereby facilitating its review. The inspection

team also suggested that the MSC consider the severity and repetitiveness of

violations as well as prior disciplinary history when determining appropriate

sanctions.

In March and April 1991, the staff evaluated the corporate bond markets

following discussions with broker-dealers, SROs, and institutional investors. The

staff recommended that bond trading surveillance systems be enhanced by the

SROs with responsibility for the most active bond markets, i.e., the NASD and the

NYSE.

An inspection of the surveillance, investigatory, and disciplinary programs of

the PSEfound thatthese programs were fnnctioning adequately. Recommendations

made in the previous inspection had been implemented. According to the

inspection staff, however, some areas warranted continued consideration and

improvement. In particular, the staff recommended that the PSE improve the

accuracy ofits audit trail information and the efficiency of its automated surveillance

capabilities, and make improvements to the PSE specialist financial surveillance

procedures.

The staff conducted an inspection of the BSE. The staff found that the BSE's

surveillance and compliance programs for primary issues were functioning

adequately, and that the exchange was currently establishing a comprehensive

surveillance program for its secondary issues. The staff suggested that the BSE

develop a formal case tracking system, routinely request information from member

firms concerning trade activity in the securities of certain issuers, and request issuer

chronologies in all insider trading investigations. The staff also recommended that

the BSEreview its automated parameters for detecting possible marking-the-close

and prearranged trading. In a follow-up inspection of the Boston Stock Exchange

Clearing Corporation (BSECC), the staff recommended that the BSECC monitor its

specialists more closely, seeking additional clearing fund deposits where necessary,

and increase the specialists' minimum net capital requirements.

The staff also conducted routine inspections of the surveillance, investigatory,

and disciplinary programs of the MSE and CSE. While the programs were

functioning adequately at both exchanges, the staff recommended enhancements

to the surveillance reviews, improved documentation and coordination with other

SROs, as well as more stringent sanctions for trading violations.

The staff conducted two inspections of the NYSE's Division of Member Firm

Regulation. The first inspection evaluated the NYSE's Sales Practice Review Unit's

(SPRU) effectiveness in implementing NYSE examination procedures and the

adequacy of detection and disposition of sales practice abuses uncovered through

its routine and special examination program. The staff concluded that, overall,

SPRU generally conducts a satisfactory review of member firms' sales practice

activities. Although the staff found that the NYSE had made significant

improvements in the review of member firms' sales practice activities, the staff

noted the need for additional work on improving the depth and quality of options

sales practice examinations. Other minor deficiencies were discovered concerning

41
implementation of examination procedures and the documentation of examination

findings. The staff made several recommendations and urged the NYSE to continue

to improve its programs for monitoring sales practice examinations.

The second inspection of the NYSE Division of Member Firm Regulation

evaluated the programs used by the exchange to monitor the transfer of customer

accounts by NYSE member firms. The staff concluded that, overall, the NYSE has

adequately addressed deficiencies noted in the staff's 1989 inspection of customer

account transfers and currently is conducting a satisfactory review of the transfer

of customer accounts by NYSE member firms. The staff cited the NYSE's continued

efforts to improve its transfer of accounts supervision through the improvement of

the existing programs and the implementation of new programs. The staff

nevertheless found minor deficiencies in the NYSE's programs. These deficiencies

involved procedures for monitoring and enforcing compliance withNYSE governing

standards (Rule 412) and the documentation of the transfer of account process. The

staff made several recommendations to correct these deficiencies.

The Commission's 9 regional offices conducted routine oversight inspections

of regulatory programs administered by 9 of the NASD' s 11 districts. In 1991, the

NASD reorganized and reconfigured its district offices. Although the number of

NASD offices remained at 14, the number of actual NASD districts has been

reduced from 14 to 11. Inspections of NASD district offices included evaluations

of the districts' broker-dealer examinations, their financial surveillance and formal

disciplinary programs, as well asinvestigations of customer complaints ,terminations

of registered representatives for cause, and members' notices of disciplinary action.

Although the inspections disclosed minor deficiencies involving a variety ofissues,

the inspections revealed that, overall, the NASD districts conduct effective regulatory

programs for member firms.

The staff conducted comprehensive inspections of the arbitration programs

administered by the arbitration departments at the PSE, MSRB, and CBOE. These

inspections were designed to evaluate the effectiveness of these SRO programs in

the processing and resolution of disputes between members and their customers.

In particular, the staff reviewed the adequacy of case documentation, the efficiency

ofthe case management systems, and the role each department played in processing

its cases.

The PSE arbitration inspection disclosed that the PSE generally administers a

satisfactory arbitration program. The staff, however, noted several deficiencies

relating to arbitrator disclosure and case processing methods. Arbitrator profiles

contained insufficient disclosure on employment history and were not updated

each time an arbitrator was used. With regard to case processing, the staff found

delays in executing service of the statement of claim on respondents, and noted that

requests for extension of time for filing an answer were made and granted after the

date the answer was due. The staff made several recommendations to remedy these

weaknesses.

The MSRBarbitration inspection revealed that the MSRBgenerally administers

its program satisfactorily. Nevertheless, the staff discovered certain deficiencies.

The more serious deficiencies were similar to those identified in the PSE arbitration

inspection, i.e., inadequate disclosure in arbitrator profiles and delay in the service

42
of process. Among other recommendations, the staff suggested that the MSRBhave

another trained member of its staff help process claims when MSRB arbitration staff

members are absent.

The CBOEarbitration inspection disclosed that the CBOE generally administers

its arbitration program satisfactorily and revealed deficiencies similar to those

found in the PSE and MSRB arbitration inspections. The staff also discovered that

CBOE staff batches several simplified claims together before sending them to an

arbitrator for review. The staff found that this policy needlessly injected delay into

the processing of some simplified claims. Moreover, the CBOE used only a few

different arbitrators. For example, only two arbitrators were used in all 28

simplified arbitration claims during the two-year span covered by the staff's

review. The staff made recommendations to remedy these and other minor

deficiencies found in the inspection.

During 1991, the staff continued to develop the automated data collection and

analysis capabilities for its MarketWatch program. Existing MarketWatch systems

were upgraded substantially, and new systems providing access to data regarding

the Wunsch Auction System and Instinet were added. Expanded programs were

implemented to monitor when-issued and regular-way trading and financing

activity in United States Treasury securities. In addition, stand-alone databases

have been established for monitoring significant positions in index options and

futures prior to expirations. Other databases have been developed in a variety of

other areas, such as futures-related data shared with the staff by the Tokyo Stock

Exchange. Finally, the staff updated frequently the Commission's Market Volatility

Contingency Plan (MVCP).

Applications for Re-entry

During 1991, the Commission received 47 SRO applications to permit persons

subject to 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 NASD, 39 and NYSE, 8. Of the filings processed in 1991, including

those received but not completed in 1990, 2 were subsequently withdrawn and 45

were completed. No applications were denied.

SRO Final Disciplinary Actions

Section 19(d)(1) of the Exchange Act and Rule 19d-1 thereunder require all

SROs to file reports with the Commission of all final disciplinary actions. A Rule

19d-1 filing reports the facts about a completed action that may have been initiated

at any time during the previous years. The time needed to complete a SRO

disciplinary action frequently reflects the severity and number of violations

charged, the number ofrespondents involved, and the complexity ofthe underlying

facts. SROs generally conclude cases alleging minor or technical violations by a

single respondent in less than a year. Cases involving serious trading violations

(e.g., price manipulation, insider trading, frontrunning, etc.) require more time to

complete because of the necessi ty of demonstrating specific intent to the disci plinary

panel that acts as trier of fact. Consequently, the absolute volume of Rule 19d-1

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

43
reported can be useful in assessing the regulatory effectiveness of different SROs

over similar time periods, and this information has proven useful in focusing

inspections of SRO regulatory programs.

In 1991, the Amex filed 32 Rule 19d-1 reports; the BSE filed 3; the CBOE filed

126; the MSE filed 8; the NYSE filed 290; the Phlx filed 47; the PSE filed 62; the

registered clearing agencies, the Cincinnati and Spokane Stock Exchanges filed

none; and the NASD filed 922.

SAO Final Disciplinary Actions

1986 1987 1988 1989 1990 1991

Exchanges 419 382 624 639 594 568

NASD:

District Committees 252 415 542 794 893 761

NASDAQ and Market

Surveillance

Committees 174 194 170 75 118 141

TOTALS 845 991 1,336 1,508 1,605 1,490

Securities Investor Protection Corporation (SIPC)

The SIPC Fund amounted to $662.5 million on September 30, 1991, an increase

of $105.1 million from September 30,1990. Further financial support for the SIPe

program is available through a $500 million confirmed line of credit established by

SIPe with a consortium of banks. Inaddition, SIPe may borrow up to $1 billion

from the United States Department of the Treasury, through the Commission.

44
Inveshnent Companies and Advisers

The Division of Investment Management oversees the regulation of

investment companiesand investment advisers under two companion statutes,

the Investment Company Act of 1940 (Investment Company Act) and the

Investment Advisers Act of1940 (Investment Advisers Act), and administers

the Public Utility Holding Company Act of 1935 (Holding Company Act).

Key 1991 Results

In 1991,the Commission tightened the regulation of money market funds in

amendments to Rule 2a-7 under the Investment Company Act, redirected its

inspection resources to inspect funds in the 100 largest Investment company

complexes and all money market funds, and continued its reexamination of the

regulation of investment companies.

Investment Company and Adviser Inspection Program

The tables below show the number and size in terms of assets of registered

investment companies and investment advisers.

Number of Active Registrants

1987-1991

(end of year)

% Change

1987 1988 1989 1990 1991 1987-91

Investment

Companies 3,305 3,499 3,544 3,535 3,660 10.7%

Investment

Advisers 12,690 14,120 16,239 17,386 17,500 37.9%

Assets Under Management

1987-1991

($ in billions)

%Change

1987 1988 1989 1990 1991 1987-91

Investment

Companies $1,125 $1,125 $1,200 $1,350 $1,400 16.2%

Investment

Advisers $3,500 $3,400 $4,400 $4,900 $5,400 54.3%

45
The number of registered investment companies increased by nearly four

percent during 1991. Many investment companies combine several separate

portfolios or investment series in one investment company registration statement.

The number of series generally ranges from three to ten. However, some unit

investment trusts group as many as 900 separate series under one Investment

Company Act registration. In addition, the Commission was responsible for

regulating 17,500 investment advisers at the end of 1991, a 28 percent increase since

1987.

Although the Investment Advisers Act establishes a system of registration

and regulation designed to disclose to clients the basic facts about an adviser and

to hold the adviser to the highest standards of honesty and loyalty expected of a

fiduciary, the primary means by which the SEC enforces the Investment Advisers

Act is through a program of periodic inspections.

Redirection of Program Resources

A program of annual inspection of funds in the largest 100 investment

company complexes and all money market funds was instituted in 1991. The

inspection program redirected its resources away from routine examination of all

investment companies and advisers. Investment advisers managing at least $1

billion of non-investment company money were put on a three-year inspection

cycle. These changes were made in response to the increasing concentration of

money under management by these large entities. In addition, the staff conducted

inspections of other investment companies and investment advisers in response to

customer complaints and other indications of possible problems.

Investment companies in the 100 largest complexes have approximately 87

percent ofthe investment company industry's assets while the 500 largest investment

advisers managed 61 percent of all the assets under management. Money market

mutual funds have approximately $550 billion of assets and have become a popular

alternative to insured bank deposits for the liquid savings of many Americans. By

focusing the Commission's examination resources on these large pools of capital,

the staff is able to monitor more closely those entities where a major problem could

have a significant negative impact on investor confidence and willingness to

participate in the nation's financial markets.

Results Achieved by the Program

The staff conducted inspections of funds within each of the 100 largest

investment company complexes, focusing on portfolio management activities.

Each of the 999 money market mutual funds also was inspected. Total assets of

funds inspected were $1.1 trillion. The staff inspected 574 investment advisers

managing nearly $1.6 trillion of non-investment company assets. These inspections

covered approximately 3 percent of registered investment advisers and about 39

percent of non-investment company assets under management. These inspections,

among other things, resulted in 427 deficiency letters and 37 references to the

Commission's Division of Enforcement.

46
Regulatory Policy

Significant Investment Company Developments

In February 1991, the Commission adopted amendments to rules and forms

affecting money market funds, including amendments to Rule 2a-7 under the

Investment Company Act, which permits money market funds to maintain a stable

price of $1.00 per share.!" The amendments require prominent disclosure that an

investment in a money market fund is nei ther insured nor guaranteed by the United

States government and that there is no assurance that the money market fund will

be able to maintain a stable price per share. The amendments reduce the maximum

dollar-weighted average portfolio maturity of money market funds from 120 days

to 90 days and require that no money market portfolio security (other than U.S.

government securities held by certain types of money market funds) have a

maturity in excess of 397 days.

Under the amendments, money market funds may invest only in eligible

securities. Eligible securities are those that have received at least the second highest

rating from a nationally recognized statistical rating organization (NRSRO) or, if

more than one NRSRO has rated the securities, from two NR5ROs, or are unrated

securities of comparable quality. In addition, money market funds (other than taxfree money market funds) may not invest (1) more than five percent of fund assets

in securities of anyone issuer, except for U.5. government securities and temporary

investments in securities of the highest quality, (2) more than five percent of total

fund assets in "second tier" securities, i.e., eligible securities that are not" first tier"

securities (eligible securities that have received the highest rating from a NRSRO

or, if more than one NR5RO has rated the securities, from two NR5ROs, or are

unrated securities of comparable quality), and (3) more than one percent of fund

assets in the second tier securities of anyone issuer. The amendments also specify

the actions that a money market fund must take if it holds securities that have gone

into default or the ratings of which have been downgraded and clarifies the

circumstances under which a money market fund board of directors may delegate

certain portfolio management responsibilities to the fund's investment adviser.

Finally, the rule prohibits any registered investment company from holding itself

out as a money market fund unless it meets the conditions of Rule 2a-7 relating to

portfolio diversification, quality, and maturity.

In October 1991, the Commission adopted new Rule 3a-6 (and amendments

to certain related rules) under the Investment Company Act to exempt foreign

banks and insurance companies from the definition of the term "investment

company" as used in the Investment Company Act.ISS The new rule eliminates the

need for these foreign entities and, subject to certain conditions, their holding

companies and finance subsidiaries to obtain exemptive orders from the Commission

in order to offer and sell their securities in the United States.

The division's task force, responsible for reexamining the regulation of

investment companies, is finalizing its recommendations. The division expects to

recommend both legislative and rule changes to reform the treatment ofinvestment

companies under the Investment Company Act. During 1991, the task force

reviewed and analyzed over 200 comment letters received in response to the

Commission's request for comment on issues identified as meriting reexamination,

47
which included (1) internationalization and cross-border sales of investment

company and investment advisory services, (2)alternative structuresforinvestment

companies, (3) securitization of assets under the Investment Company Act, (4)

distribution of the shares of open-end investment companies, (5) repurchase of

shares by closed-end investment companies, (6)advertising by open-end companies

under the Securities Act of 1933 and the prospectus delivery requirements for unit

investment trusts and open-end companies, (7) reform of insurance product

regulation, and (8) bank involvement with investment companies.!"

Significant Insurance Products Developments

During 1991, there were a number of insurance company insolvencies. In

those instances where the insurance companies were the sponsors of separate

accounts registered as investment companies that sell variable insurance contracts,

the insolvencies raised novel legal issues regarding the relationship between state

insurance law and the Investment Company Act. When a troubled insurance

company is placed under state supervision, a state court usually imposes restraints

on surrender and withdrawal rights under insurance contracts issued by the

company. Variable insurance contracts, however, are subject to the Investment

Company Act, which prohibits the suspension of redemptions for more than seven

days. When state regulators seized an insurance company, the staff conferred

directly with state insurance regulators to ensure that the responsible state court did

not impose any restraints on surrenders or withdrawals under variable insurance

contracts absent a Commission order.

Insurance companies that wish to maintain continuous offerings of variable

life insurance and variable annuity contracts must file post-effective amendments

to the registration statements of the separate accounts funding these contracts. On

November 15, 1991, the staff issued a letter to insurance company sponsors/

depositors of separate accounts registered as investment companies to assist

registrants in preparing disclosure documents. The letter included comments

about recent substantive and procedural developments. For example, several

recent variable annuity registration statements have included a chart or graph

designed to demonstrate the advantages of tax-deferred investment. The letter

described those factors registrants should consider in developing tax-deferral

charts that are accurate and fair.

As a result of recent inspections of insurance company separate accounts, the

staff became concerned that agents of insurance companies were not promptly

forwarding applications and payments to the companies, and, hence, that investors

were not acquiring interests in the separate accounts at their current offering prices.

The staff also became concerned about the pricing and payments of death benefits

under variable insurance contracts. An industry comment letter advised registrants

that these practices will continue to be an important focus of separate account

inspections.

Significant Institutional Disclosure Program Developments

Section 13(£)(1)of the Securities Exchange Act of 1934 and Rule 13f-l require

"institutional investment managers" exercising investment discretion over accounts

holding certain equity securities with a fair market value of at least $100 million to

file quarterly reports on Form 13F. Under Rule 13f-2T, these managers may file the

48
report on magnetic tape submitted to the SEC's pilot Electronic Data Gathering,

Analysis, and Retrieval (EDGAR) system. For the quarter ended September 30,

1991,983 managers filed Form 13F reports, for total holdings of $1.7 trillion.

Form 13F reports are available to the public at the SEC's Public Reference

Room promptly after filing. Two tabulations of the information contained in these

reports are available for inspection--an alphabetical list of the individual securities

showing the number held by the managers reporting the holding, and an alphabetical

list of all reporting managers showing the total number of shares of securities held.

These tabulations are generally available two weeks after the date on which the

reports must be filed.

Significant Public Utility Holding Company Act Developments

The Commission regulates interstate public-utility holding company systems

engaged in the electric utility business and/ or the retail distribution of gas. The

Commission's jurisdiction also covers natural gas pipeline companies and other

non-utility companies that are subsidiary companies ofregistered holding companies.

There are three principal areas ofregulation under the Holding Company Act which

include (1) the physical integration of public utility companies and functionally

related properties of holding company systems, including the simplification of

intercorporate relationships and financial structures of such systems, (2) the

financing operations of registered holding company systems, the acquisition and

disposition of securities and properties, and affiliate transactions, and (3)exemptive

provisions relating to the status under the Holding Company Act of persons and

companies.

As ofjune 30, 1991, 13public-utili ty holding com pany systems were registered

with the SEC. The 13 registered systems are comprised of 73 public-utility

subsidiaries, 113 non-utility subsidiaries, and 37 inactive companies, for a total of

223 companies operating in 24 states.!" These registered systems had aggregate

assets of $93.8 billion as of June 30,1991, an increase of $700 million over June 30,

1990. Total operating revenues for the 12 months ended June 30,1991 were $36.6

billion, a $1.2 billion increase from the 12 months ended June 30,1990.

During 1991,the Commission authorized registered holding company systems

to issue $5.5billion in short-term debt, $2.5 billion in long-term debt, and $1.8 billion

in common and preferred stock. The Commission also approved pollution control

financings of $700 million, investments in qualified cogeneration facilities of $163

million, and nuclear fuel procurement financings of $470 million.

Total financing authorizations of $10.7 billion represented a 5.9 percent

increase over such authorizations during 1990. Whereas long-term debt decreased

by 36 percent in 1991 primarily as a result of fewer refinancings, short-term debt

increased by 20 percent and pollution control financing increased by 167 percent.

The SEC audits service companies and special purpose corporations. It also

reviews the fuel procurement activities, accounting policies, annual reports of

registered holding company subsidiary service companies and fuel procurement

subsidiaries, and quarterly reports by registered holding companies' non-utility

49
subsidiaries. The SEC's activities, which uncovered misapplied expenses and

inefficiencies, directly resulted in approximately $27million in savings to consumers

during 1991.

Significant Interpretations and Applications

Investment Company Matters

The staff stated that it would not recommend enforcement action if the

Resolution Trust Corporation (RTC) organized certain wholly-owned entities

(Issuers) to purchase non-investment grade debt securities and issue senior and

subordinated notes collateralized by those securities without registering the RTC

or the Issuers under the Investment Company Act in reliance on Section 2(b). The

staff also stated that no integration would occur between the Issuers and certain

private investment companies with the same adviser as the Issuers.!"

The staff said that it would not recommend enforcement action if a company

that manages and services real estate loans acquired from other entities did not

register as an investment company in reliance on Section 3(c)(S)(C) under the

Investment Company Act. The staff stated that in order for loans to be included as

mortgages and other liens on and interests in real estate, each loan would have to

be secured by a mortgage or deed of trust on one or more tracts of real estate, 100

percent ofthe principal amount ofthe loan would have to have been secured by real

estate at the time the loan was originated, and 100 percent of the fair market value

of the loan would have to be secured by real estate at the time the company received

the loan. The staff noted that the value of the real estate securing the loans would

have to be determined by recent independent third party appraisals.i"

The staff stated that it would not recommend enforcement action if an entity

acted as a foreign custodian for registered investment companies. The staff's

position was based, in particular, on the entity being both a clearing agency and,

with the exception ofthe central system for certain Mexican Government securities,

the only central securities depository for all securities traded on the Mexican Stock

Exchange and other securities that are publicly traded in Mexico.P"

The staff concluded that institutional investment managers should continue

to report loaned securities on Form 13F as being held by the manager for purposes

of complying with Section 13(f) of the Exchange Act and Rule 13f-1 thereunder. The

staff said that it was more consistent with the purposes of Section 13(f) to consider

loaned securities to continue to be held in accounts under the investment discretion

of the lender.>'

For purposes of record keeping and reporting under Rule 17j-1(c)(l) under the

Investment Company Act and Rules 204-2(a)(12) and (13) under the Investment

Advisers Act, the staff stated that beneficial ownership should be determined in

accordance with both parts of the definition of beneficial ownerin Rule 16a-1 under

the Exchange Act.l62 The staff subsequently modified this position so that for

purposes of the rules, beneficial ownership would be determined in accordance

with the definition of beneficial owner in Rule 16a-1(a)(2) only, i.e., that a person

must have a "direct or indirect pecuniary interest" to have beneficial ownership.t"

The staff indicated that it would not recommend enforcement action if a bank

established and operated a collective trust fund without registering the fund under

the Investment Company Act in reliance on Section 3(c)(ll). The staff's position was

50
based, in particular, on the representation that group trusts would not participate

in the fund.P'

The Commission issued a conditional order on an application filed by The

Drexel Burnham Lambert Group, Inc. (Drexel), a holding company.!" The order

under Sections 6(c) and 6(e) of the Investment Company Act exempts Drexel from

all the provisions of the act except Sections 8(a), 9, lO(a), 17(a), 17(d), 17(e), 31 (as

modified), and 36 through 53. The order also exempts certain companies controlled

by Drexel from all provisions of the act except Sections 9, 17(a), 17(d), 17(e), and 36

through 53 as well as certain transactions from Sections 17(a) and 17(d) of the act

and Rule 17d-1 thereunder. Drexel and certain companies controlled by Drexel

filed petitions for reorganization under Chapter 11 of the Bankruptcy Code. The

order grants the exemptions to Drexel while its activities are subject to the

jurisdiction and supervision of the bankruptcy court, and permits the transactions

exempted from Sections 17(a) and 17(d) ifthey are authorized by Drexel's board of

directors and by either the bankruptcy court or its designee.

The Commission granted an order under Section 26(b) of the Investment

Company Act approving, prospectively only, the substitution of a government

bond fund sponsored by First Investors Corporation (First Investors) as the

investment vehicle for two periodic payment plan unit investment trusts, one of

which invested entirely in the shares of one open-end investment company

distributed by First Investors, and the other of which invested entirely in the shares

of another open-end investment company distributed by First Investors. The order

also, under Section 6(c) of the act, exempted the trusts from Section 12(d)(1) to

permit them to hold securities issued by two investment companies. Finally, under

Sections ll(a) and l1(c) of the act, the Commission approved certain offers of

exchange.v" The two open-end investment companies had suspended sales of new

shares in response to civil and administrative proceedings brought by the states of

New York and Massachusetts in November 1990 alleging unlawful sales practices

and failure to make proper disclosures. As a result, each trust was unable to

purchase more shares, and each trust would have been required to terminate if

shares of its underlying fund were unavailable for 90 days and First Investors did

not substitute shares of another fund as the trust's investment vehicle.

The Commission issued a conditional, permanent order relieving Robert W.

Baird &Co. Incorporated, a registered broker-dealer and investment adviser, from

any ineligibility under Section 9(a) of the Investment Company Act resulting from

its employment of an individual who is subject to a securities-related injunction.v"

The individual, one of Baird's directors, also is employed by Baird to provide

research and publish a newsletter concerning the oil and gas industry. One of the

investment companies advised by Baird sometimes invests in oil and gas securities.

In granting the relief, the Commission required Baird to agree to a number of

conditions that are usual for applicants under Section 9(c) and, in addition, to take

into account the individual's actions as a director of Baird and a supervisor of the

newsletter.

The Commission issued a temporary conditional order to the Emerging

Germany Fund, Inc. (Fund) and its investment advisers granting them an exemption

from Section 15(a) of the Investment Company Act to permit the advisers to

continue to provide advisory services to the Fund.t'" The Fund's initial advisory

contract provided that it would terminate unless approved at the Fund's first

51
meeting of public shareholders. The Fund had a large percentage of foreign

shareholders, many of whom failed to vote on the advisory contract. Although over

90 percent of the shares cast on the advisory contract voted for approval, the Fund

was unable to obtain a "required majority" as mandated by the act. Relief was

granted to provide the Fund with additional time to solicit shareholders for

approval of the Fund's advisory contracts.

In connection with the issuance of securities by certain grantor trusts, the

Commission issued an order of exemption from all provisions of the Investment

Company Act, except Sections 26 (with certain exceptions), 36, 37, and, to the extent

necessary to implement the foregoing sections, 38 through 53.169 Each trust, which

holds a single note evidencing a loan to Israel, issues a single class of nonredeemable certificates of beneficial interest representing the right to receive a pro

rata share of the payments of principal and interest on the note held by that trust.

The trusts were established by the government of Israel to implement financing

authorized by the United States and contained in the Dire Emergency Supplemental

Appropriations Bill (Public Law 101-302) (May 1990). The bill in tum enabled the

Agency for International Development (AID) to guaranty up to $400 million in loans

to Israel for the purpose of providing housing and related infrastructure in Israel

for Soviet refugees. AID and Israel then developed a program for directing and

monitoring the use of the proceeds of the proposed financing.

Insurance Company Matters

The Commission approved, with certain conditions, several exchange

programs that permit investors to transfer investments among variable insurance

products and public mutual funds. In one application, the Commission approved

exchanges among public mutual funds, variable annuity contracts, and variable life

insurance policies. Although Rules lla-2 and lla-3 under the Investment Company

Act do not apply to exchange offers between variable life insurance policies and

variable annuity contracts, or to exchange offers between separate accounts and

public mutual funds, the Commission found that the exchange program was

consistent with the policies underlying these rules."? In another application, the

division, under delegated authority, approved an exchange program that allowed

variable annuity contract owners to make contract payments by requesting that

Scudder Fund Distributors, Inc. redeem shares of one of its public funds and apply

the proceeds to certain variable annuity contracts.l"

In two related cases, the staff considered the status under the Investment

Company Act of investment advisory contracts where the adviser's parent entered

court-ordered rehabilitation or bankruptcy. In the first case, the investment

companies claimed that the appointment of a rehabilitator for the parent, an

insurance company, did not constitute an assignment of the investment advisory

agreement. Because there had been no change in the actual control of the adviser,

the staff granted no-action relief under Sections 2(a)(4), 15(a)(4) and 15(b)(2) of the

Investment Company Act to allow certain investment advisers and underwriters,

who were indirect subsidiaries or partners of the parent insurance company, to

perform under existing advisory and underwriting agreements without a new

shareholder vote.F?

52
In the second case, an investment company stated that an assignment of its

advisory contract occurred upon the appointment of a trustee in bankruptcy for the

investment adviser's parent corporation, an insurance company holding company.

The investment company asserted that the delay and uncertainty surrounding the

bankruptcy proceedings made it impossible to hold a shareholder vote within the

120-dayperiod specified in Rule 15a-4,or obtain an exemption from the Commission

within that time. The staff agreed not to recommend enforcement action if the

investment company did not obtain shareholder approval of the investment

advisory contract under these circumstances. However, the staff made clear that

in the future, investment companies seeking an extension of the 120-day period in

Rule 15a-4 should obtain an exemption through the application process.!" The staff

concluded that an investment company affected by bankruptcy proceedings could

anticipate that related events may delay a shareholder vote beyond 120 days.

Holding Company Act Matters

The Commission authorized Northeast Utilities (Northeast), a registered

holding company, to acquire the largest electric utility in New Hampshire, Public

Service Company of New Hampshire (PSNH).174PSNH, which is operating under

a confirmed plan of reorganization in bankruptcy, owns a 35.6 percent share of the

Seabrook Nuclear Power Generating Project (Seabrook). The City of Holyoke Gas

and Electric Department and the Massachusetts Municipal Wholesale Electric

Company petitioned the Commission for rehearing. They alleged, among other

things, that the Commission had failed to analyze sufficiently the anti-competitive

effects of the acquisition, particularly with respect to the allocation of excess

generating capacity and transmission access. Upon reconsideration, the Commission

reiterated its decision and issued a supplemental order in which it addressed these

issues more fully.!" The Commission's decision, as supplemented, has been

appealed to the United States Court of Appeals for the District of Columbia.!"

In a related decision, the Commission authorized Eastern Utilities Associates

(EUA), a registered holding company, to pay up to $8 million in common stock

dividends out of capital surplus. EUA experienced financial difficulties related to

its investment in Seabrook. A write-off of $147.7 million resulted in negative

retained earnings of $78.3 million,"?

The Commission authorized The Southern Company (Southern), a registered

holding company, and certain ofits subsidiary companies to acquire common stock

and other securities of Gulf States Utilities Company (Gulf States), a non-associate

public utility and exempt holding company, in the settlement of litigation involving

long-term power sales contracts.!" Under a voting agreement, the Secretary of Gulf

States will vote the shares, on behalf of the Southern companies, proportionately to

the votes cast by all shareholders on a given issue. The Commission reserved

jurisdiction over various issues, including the exercise of any rights that might

accrue to the Southern companies upon a default by Gulf States under the

settlement.

The Columbia Gas System, Inc. (Columbia), a registered holding company,

and its principal non-utility subsidiary, Columbia Gas Transmission Corporation,

filed for protection under Chapter 11 of the United States Bankruptcy Code.179The

Commission authorized Col umbia, as a debtor-in-possession, to borrow up to $275

million through September 1993, to fund the system's operating needs."?

53
The Commission issued a supplemental memorandum opinion and order in

WPL Holdings, Inc., finding that the formation of a new holding company over

Wisconsin Power and Light, a public utility and exempt holding company, tended

toward the efficient and economical development of an integrated public-utility

system.!"

The staff gave assurance in Nevada Sun-Peak Limited Partnership that it would

not recommend enforcement action with respect to the indirect acquisition by

SCEcorp, an exempt holding company, of a 50 percent limited partnership interest

in an electric generating facility near Las Vegas, Nevada.l82

54
Full Disclosure System

The full disclosure system is administered by the Division of Corporation

Finance (Division). The system is designed to provide investors with material

information, foster investor confidence, contribute to the maintenance offair and

orderly markets, fad1itatecapital formation, and inhibitfraud in thepublicoffering,

trading, voting, and tendering of securities.

Key 1991 Results

Capital raising activities were affected by the economic environment and

worldwide events in 1991.During the latter part of calendar year 1990,there were some

signs of recovery from the significant downturn that immediately followed Iraq's

invasion of Kuwait, with some sizable equity offerings completed and the market for

new debt issues strong. This potential was realized for both equity and debt during the

next six months, particularly in the second quarter when the new issues market was

particularly strong. Volume slowed somewhat in the next three months, although by

the end of the quarter investment grade debt issues had already surpassed record

levels. The dollar amount ofsecurities registered with the SECduring the year reached

nearly $500 billion, the record amount since 1987. The decline in acquisition activity

continued during the year, with third party tender offer filings reaching an eight-year

low, and merger/proxy statements also dropping markedly. Blank check offerings

continued to constitute nearly half of the Form 5-18 registration statements processed

by the regional offices.

The staff reviewed 2,660publicly held issuers that filereports under the Securities

Exchange Act of 1934(Exchange Act). These reviews included over 360issuer reviews

conducted by a special task group of accountants devoted to reviewing banks and

savings and loan associations. The task group reviews were in addition to reviews of

financial institutions making transactional filings.

The Commission also (1)issued an interpretive release emphasizing the necessity

for clear and concise disclosure in roll-ups and partnership offerings, (2)proposed and

adopted new roll-up disclosure rules, and (3)proposed amendments to the proxy rules,

which will be reproposed in the coming year. The proxy rule amendments were

designed to facilitate securityholder communication, and thus promote informed

proxy voting, and to reduce the costs of compliance for issuers, securityholders and

other persons engaged in proxy solicitation.

The implications of continued internationalization of the securities markets

continued to be a major focus ofthe full disclosure program in 1991.Inthe international

area, the Commission adopted a multijurisdictional disclosure system (MJDS) with

Canada, which permits eligible cross-border offerings and tender offers to proceed on

the basis of home country requirements. To address the problem of discriminatory

treatment of United States holders of foreign securities inrights, tender and exchange

offers on a more global basis, the Commission proposed small issue exemptive rules

and forms.

55
The Commission began a review of the American Depositary Receipts (ADR)

marketplace. It issued a concept release soliciting information and comment with

respect to the function and characteristics of the ADR marketplace and various

regulatory issues relating to ADRs.

The staff is actively involved in planning the transition from paper to electronic

filing, and is developing rules for the operational Electronic Data Gathering, Analysis

and Retrieval (EDGAR) system. The phase-in of the first group of mandated filers will

be accomplished during 1993.

Review of Filings

During 1991,the staff reviewed 2,660 reporting issuers' financial statements and

related disclosures. The reporting issuer reviews were accomplished through the full

review of 1,066registration statements and post-effective amendments to registration

statements filed under the Securities Act of 1933 (Securities Act), 1,557 annual and

subsequent periodic reports, and 188merger and going private proxy statements. In

addition, the staff completed 712 full financial reviews of annual reports.

The table below describes the number ofselected filings reviewed during the last

five years. The decline in reviews of initial public offerings (!POs), tender offers,

contested solicitations, and going private transactions, which are not subject to selective

review, reflects the reduction in the number of transactional filings received by the

agency.

The Division's financial institutions task group is conducting comprehensive

reviews of the financial statements, management's discussion and analysis (MD&A),

and other related disclosures in the Exchange Act reports of certain banks and savings

and loan associations selected for review on the basis of their financial condition.

During the year, the task group completed reviews of 390 filings by 367 financial

institutions, with 26 issuers being referred to the Division of Enforcement for further

inquiry or investigation, in addition to the other 119 referrals made by the Division.

56
FULL DISCLOSURE REVIEWS

1987 1988 1989 1990 1991

Reporting Issuer

Reviews* 1,729 3,097 2,734 1,907 2,660

Major Filing Reviews

Securities Act

Registrations

New Issuers 1,949 1,444 1,1n 895 630

Repeat Issuers n5 640 604 635 n6

Post-Effective

Amendments** 707 1,045 929 708 583

Annual Reports

Full Reviews'" 1,389 2,166 1,949 1,129 1,557

Full Financial

Reviews 60 567 388 292 712

Tender Offers

(14D-1)  201 254 188 95 37

Going Private

Schedules 230 276 176 108 68

Contested Proxy

Solicitations 65 93 84 75 65

Merger/Going Private

Proxy Statements 248 314 291 240 188

Other** *** 2,563 790 428 351 374

.. Includes those issuers filing Exchange Act reports whose financial statements

and MD&A disclosures were reviewed in Securities Act and Exchange Act

registration statements, annual reports, merger and going private proxy

statements, and, for years beginning in 1988 when the information became

available, post-effective amendments to Securities Actregistration statements.

Excludes issuers whose financial statements were reviewed in tender offer

filings. .... Includes filings that contain new financial statements only . ...... Includes reports reviewed in connection with other filings. ........ Reflects limited partnership roll-up transactions as single filings regardless

of the number of Schedules 140-1 filed or the number of issuers involved

in the roll-up. .......... Excludes reviews of revised and additional preliminary proxy material .

57
RulemakJng, Interpretive, and Legislative Matters

Multijurisdictional Disclosure System

The Commission adopted its MJDS with Canada, including rules, forms, and

schedules intended to facilitate cross-border offerings of securities and continuous

reporting by specified Canadianissuers.l" Canadian securities regulators concurrently

adopted a parallel system for United States issuers. The MJDS permits Canadian

issuers meeting eligibility criteria to satisfy certain securities registration and reporting

requirements of the Commission by providing disclosure documents prepared in

accordance with the requirements of Canadian securities regulatory authorities. The

MJDS also allows cash tender and exchange offers for securities of Canadian issuers to

proceed in accordance with Canadian tender offerrequirements, instead ofinaccordance

with Commission tender offer requirements, where no more than 40 percent of the

target's shares are held in the U.S. and other offeror eligibility conditions are met. In

connection with the adoption of the MJDS, the Commission also revised existing rules

and forms to permit registration and reporting by Canadian foreign private issuers on

the same basis as other foreign private issuers.

Foreign Issuer Rights Offerings

The Commission published for comment a release proposing adoption of a small

issue exemptive rule under Section 3(b) of the Securities Act, covering up to $5million

of equity securities offered or sold in the U.S.in an eligible rights offering!" The release

also proposes adoption of a new registration form, which would permit registration of

rights offerings of any size under the Securities Act by eligible issuers on the basis of

home country disclosure and procedures. Finally, proposed amendments to Securities

Act registration Form F-3would permit foreign private issuers that fileperiodic reports

under the Exchange Act to register rights offerings and offerings in connection with

dividend or interest reinvestment plans, conversion of convertible securities, or

exercise of warrants on that Form without the requirement that the issuer satisfy the

reporting history or public float tests of Form F-3.

International Tender and Exchange Offers

TheCommission published proposed tender offer exemptive rules and registration

procedures intended to facilitate the inclusion of U.S. investors in tender offers and

exchange offers for a foreign target company's securities. ISS Ifadopted, the tender offer

proposals will permit third-party and issuer tender offers for a foreign private issuer

that are predominately foreign to be made in the U.s. on the basis of the procedural

requirements and documentation mandated by the foreign target's home jurisdiction.

The proposed rules would implement a two-tier system to facilitate exchange offers for

foreign securities made to U.S. holders that would normally require compliance with

the SEC's registration procedures. The rules would provide a registration exemption

for the foreign issuer's securities offered in exchange for a foreign target company's

securities, provided that the aggregate dollar amount of the securities being offered in

the U.S. does not exceed $5 million. An exemption also would be provided for

registration on the basis of home country disclosure documents, if five percent or less

of the foreign target company's securities are held by U.S. holders and certain other

conditions are met. The release also proposed procedures to be made available for

58
tender and exchange offers for United Kingdom companies to allow for compliance

with both the Williams Act and the United Kingdom Oty Code on Takeovers and

Mergers.

Roll-Up Transactions

Interpretive Release. On June 17, 1991, the Commission issued an interpretive

release providing guidance on disclosure with respect to roll-Up transactions and the

offerings oflimited partnership interests.P' Specifically, the release provides guidance

on the presentation of information, quality of disclosure, updating information, and

regulatory requirements applicable to matching services and crossing arrangements.

The release notes that information should be presented in the disclosure document in

a clear and concise manner, preferably in short explanatory sentences or bullet lists.

With respect to roll-up transactions, investors in each partnership involved in a roll-up

must be provided information from which to evaluate the potential risks, adverse

effects and merits of the transaction for their particular partnership interests.

Rulemaking. On October 30,1991, the Commission adopted rules designed to

enhance the quality of information provided to investors in connection with roll-Up

transactions and to establish a minimum solicitation period for such offerings.t" Under

the new rules, aroll-up isdefined as any transaction or series oftransactions that directly

or indirectly, through acquisition or otherwise, involves the combination or

reorganization ofone ormore finite-life partnerships, provided securities ofa successor

issuer will be issued in the transaction. The rules require distribution of disclosure

documents to investors at least 60 calendar days in advance of a meeting, unless under

applicable state law the maximum period permitted for giving notice is less than 60

calendar days. The rules also require inclusion of (1)separate disclosure supplements

for each partnership involved in the transaction, (2)a clear, concise and comprehensible

summary of the roll-up transaction, (3) disclosures concerning the risks and effects of

the transaction, (4)a brief description of the background of each partnership involved

in the transaction, (5) disclosure regarding the reasons for the transaction and

alternatives considered by the general partner, (6)information about the possibilities

of liquidating or continuing the partnerships, (7) information regarding the fairness of

the roll-up transaction, (8)information that reveals any possible" opinion shopping,"

(9) a clear and concise summary description of each material federal income tax

consequence, and (10)specified new financial information.

American Depositary Receipts (ADRs)

The Commission published a concept release soliciting public comment on a

variety of issues relating to ADRs and ADR market participants that arise under the

Securities Act and Exchange Act, including the effect of any changes in the regulatory

scheme on the operation of both the primary and secondary ADR markets.!" After

studying the information and comments received in response to this release, the

Commission will determine whether rulemaking or other action is appropriate.

Transaction Reporting by Officers, Directors and Ten Percent Holders-Section 16

The Commission adopted amendments to its rules and forms, as well as related

disclosure requirements for issuers, regarding the filing of ownership reports by

officers, directors, and principal securityholders, and the exemption of certain

transactions by those persons from the short-swing profit recovery provisions of

59
Section 16of the Exchange Act and related provisions ofthe Investment Company Act

of 1940 (Investment Company Act) and the Public Utility Holding Company Act of

1935.189 The Commission also issued a separate interpretive release setting forth its

views regarding shareholder approval for amendments to employee benefit plans

intended to comply with Rule 16b-3under Section 16,as well as technical amendments

to the rules."?

Shareholder Communications Rules

The Commission adopted amendments to the shareholder communications and

informabonstatementrulestoimplementprovisionsoftheShareholderCommunications

Improvement Act of 1990.191 The amendments require (1) investment companies

registered under the Investment Company Act to distribute information statements to

shareholders in connection with a shareholder meeting where proxies, consents, or

authorizations are not solicited by or on behalf of the registrant, and (2) brokers and

banks that hold shares for beneficial owners ofsecurities innominee names to forward

to the beneficial owners the proxy statements of investment companies registered

under the Investment Company Act, as well as the information statements of both

Investment Company Actregistrants and companies with a class ofsecurities registered

under Section 12 of the Exchange Act.

Blank Check Offerings

The Commission proposed for comment new Rule 419 under the Securities Act,

new Rule 15g-8 under the Exchange Act, and an amendment to Securities Act Rule

174.192 As mandated by the Securities Enforcement and Remedies Penny Stock Reform

Act of 1990,these rules would provide special registration procedures for offerings by

blank check companies. A blank check company is a company that (1) is devoting

substantially all of its efforts to establishing a new business in which planned principal

operations have not commenced, or have commenced but have not generated any

significant revenue, (2)is issuing penny stock, and (3) either has no specific business

plan or purpose or has indicated that its business plan is to engage in a merger or

acquisition with an unidentified company or companies.

Proxy Review

On June 17, 1991, as part of its ongoing proxy rule review, the Commission

proposed amendments to itsrules designed to facilitate securityholdercommunications

and informed proxy voting, and to reduce the costs of compliance with such rules for

issuers, shareholders, and all other persons engaged in a proxy solicitation.l" The

proposals would provide for (1) a new exemption from the filing and disclosure

requirements for solicitations by shareholders and other persons in response to a

proposal by management or other shareholders, so long as the soliciting party was not

seeking to act as a proxy or had a financial interest inthe matter to be voted upon, (2)

elimination of the preliminary filing requirement for all soliciting materials other than

proxy statements and proxy cards, (3) elimination of nonpublic treatment of all

preliminary materials, and (4) enhanced access to securityholder lists and more

information about securityholders.

60
Over 800 comment letters were received in response to the proposals. The

Conunissionhas announced that, in light ofsuggestions contained in those letters, itwill

revise the proposals and seek further comment prior to proceeding with the adoption

of new rules and exemptions.

Requirements Governing Age of Financial Statements ojForeign Private Issuers

The Commission published for comment proposed amendments to Regulation

S-X, Rule 3~19,Rule 15d-2, and Forms F-2 and F-3, relating to the age of financial

statements offoreign private issuers that register securities for sale under the Securities

Act.l94 The proposed amendments generallywould conform the requirements governing

the age of financial statements in registration statements to the financial statement

updating requirements of the home jurisdictions of a substantial majority of foreign

issuers.

Trust Indenture Act Rules

The Commission adopted new rules and a new form and revised existing rules

and forms to implement amendments to the Trust Indenture Act of 1939effected by the

Trust Indenture Reform Act of 1990.195 The new and revised rules and forms are to be

used in applying for (1) exemptions from one or more provisions of the act, (2) posteffective determinations of the eligibility of trustees under indentures relating to

securities to be offered on a delayed basis, (3)determination of the eligibility of foreign

persons to act as sole trustee under qualified indentures, and (4) orders staying a

trustee's duty to resign.

Conferences

SEC Government-Business Forum on Small Business Capital Formation

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

Formation was held in Washington, D.C. on September 30 and October 1, 1991.

Approximately 200 small business representatives, accountants, attorneys, and

govemment officialsattended the forum. Numerous recommendations were formulated

with a view toeliminatingunnecessmygovemmental impediments to small businesses'

ability to raise capital. A final report setting forth a list of recommendations for

legislative and regulatory changes approved by the forum participants was prepared

and provided to interested persons, including Congress and regulatory agencies.

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

On April 19,1991,approximately 40 SECsenior officials met with approximately

40 representatives of the North American Securities Administrators Association in

Washington, D.C. to discuss methods of effecting greater Uniformity in federal and

state securities matters. After the conference, a final report summarizing the discussions

was prepared and distributed to interested persons.

61
Accounting and Auditing l\rlatters

The Chief Accountant is the principal advisor to the Commission on

accounting and auditing matters arising from the administration of the various

securities laws. TheprimaryCommissionactivities designed toachieoecompliance

with the accounting and financial disclosure requirements of thefederal securities

laws include:

rulemaking that supplements private sector accounting standards,

implements financial disclosure requirements, and establishes independence

criteria for accountants;

review and comment processfor agency filings directed to improving

disclosures in filings, identifying emerging accounting issues (which may

result in rulemaking or private sector standard-setting), and identifying

problems that may warrant enforcement actions;

enforcement actions that impose sanctions and seroe to deter improper

financial reporting by enhancing the care with which registrants and their

accountants analyze accounting issues; and

oversight of private sector efforts, principally by the Financial Accounting

Standards Board (FASB) and the American Institute of Certified Public

Accountants (AICPA), which establish accounting and auditing standards

designed to imprave the quality of audit practice.

Key 1991 Results

The Commission oversaw a number of significant public and private sector

initiatives intended to enhance the reliability of financial reporting and to ensure that

the accounting profession meets its responsibilities under the federal securities laws.

Notably, the Commission continued to provide policy direction to the accounting

profession to move toward using appropriate market-based measures in accounting

for financial instruments. The Commission also continued to devote significant

resources toinitiativesinvolvingintemational accounting, auditing, and independence

requirements. The accounting staff issued three Staff Accounting Bulletins (SABs)to

address certain accounting and financial disclosure issues.

Mark-to-Market Accounting

Inthe Commission' sannual report for 1990,the agency emphasized the importance

of the FASB's continuing project to improve accounting guidance for investments in

financial instruments.l" As part of this project, the FASBrecently issued Statement 107

to require disclosure of the fair value of financial instruments.l"

62

I

•

•

•

•
The FASBdelayed action on the appropriateness of market value accounting for

investment securities, a project that Chairman Breeden encouraged in testimony before

the Senate Committee onBanking, Housingand Urban Affairs on September 10,1990.198

The accounting staff will closely monitor this project to ensure progress and to

determine whether additional agency initiatives are necessary.

Accounting-Related Rules and Interpretations

The agency's accounting-related rules and interpretations supplement private

sector accounting standards, implement financial disclosure requirements, and establish

independence criteria for accountants. The agency' sprincipal accounting requirements

are embodied in Regulation S-X, which governs the form and content of financial

statements filed with the SEC.

Staff Accounting Bulletins. The accountingstaffperiodical1y issues SABsto inform

the financial community ofthe staff's views on accounting and disclosure issues. Three

SABs were issued during 1991 concerning (1) required financial statements when a

troubled financial institution is acquired in a business combinatiort-" (2) certain

disclosure issues concerning the bankruptcy of an accounting firm with public

company clients, and relief that maybe sought byitsformerclientas" and (3)accounting

for the income tax benefits associated with the bad debts of thrifts pending adoption

of a new standard on accounting for income taxes.2Dl

Management Reports. The Commission proposed a rule that, if adopted, would

require a company's report on Form 10-K and its annual report to shareholders to

include areport from management. Theproposed report would describe management' s

responsibilities for preparing financial statements and for establishing and maintaining

a system ofinternal control directly related to financial reporting. Italso would provide

management's assessment of the effectiveness of that internal control system.202

Significant congressional interest in management reports continued during 1991.

Abill was introduced in the House ofRepresentatives that would require aCommission

study of registrants' compliance with the accounting and internal control provisions of

the Foreign Corrupt Practices Act and Section 13(b)(2) of the Securities Exchange Act

of 1934. The study also would focus on the extent to which this compliance and

reliability of registrants' financial statements would be improved by a requirement for

annual public reports bymanagementand their auditors on the adequacy ofregistrants'

internal control structures.

Wan Splitting. In March 1991, the Federal Financial Institutions Examination

Council (FFIEq requested public comment on a proposed accounting rule for use in

regulatory reporting tobankingand thrift regulators. This proposed rule would permit

a non-accrual loan to be returned to accrual status ifits recorded amount isreduced by

a partial charge-off. Use of the accounting method, referred to as "loan splitting,"

would have been optional and could have been selectively applied to different

qualifying loans. The Commission issued a request for public comment on the use of

loan splitting in filings with the agency because of questions concerning whether such

a method would comply with generally accepted accounting principles (GAAP) and

whether application ofthe method to only selected loans would depart from acceptable

accounting practice. After considering the views of commentators, the Commission

announced that the proposed accounting method would not be acceptable in agency

filings.203

63
Oversight of Private Sector Standard-Setting

The SEC monitors the structure, activity, and decisions of the private sector

standard-setting organizations. These organizations include the FASBand Financial

Accounting Foundation (FAF). The Commission and its staff work closely with the

FASB and the FAF in an ongoing effort to improve the standard-setting process,

including the need to respond to various regulatory, legislative, and business changes

in a timely and appropriate manner. An oversight committee formed by the FAF to

monitor the FASB's operations issued a report on the FASB's systems and procedures

for meeting the objectives of the FASB'smission statement. The committee found that

the FASB is generally achieving the objectives of its mission statement, and that the

mission statement continues to be appropriate for monitoring the effectiveness of the

accounting standard-setting process.

The FASBdeveloped and adopted a" strategic plan" foritsinternational activities

to achieve greater consistency between United States accounting standards and those

promulgated by other national standard-setters and by the International Accounting

Standards Committee (IASC)204.Consistent with that plan, the FASB developed and

implemented a policy of issuing comment letters to the lASC on amendments to

existing lASC standards.

The agency's Chief Accountant requested that the six largest accounting firms

survey and analyze certain accounting standards and practices as compared to IASC

standards and the standards employed by certain developed countries. The firms

conducted their surveys in late 1990and early 1991,in the context ofthen-Commissioner

Philip Lochner's inquiries concerning the cost and complexity of U.S. standards in a

global environment.e" The findings indicate that in several areas U.S. accounting

standards are more complex than those in other countries, and there are significant

differences in accounting methods used by enterprises in the surveyed countries that

may hamper comparative analysis by users of financial information.

The FASBissued a standard on employer's accounting for health care and other

forms of post-retirement benefits other than pensions.P Under the new accounting

standard, an obligation for health care and other post-employment benefits (OPEBs)is

recognized as services are performed. The new standard will result in a dramatic

change in the manner in which many public companies account for OPEBs and

generally is effective for years beginning after December 15,1992. Prior to adoption of

the new standard, SECregistrants are expected to provide disclosure ofthe anticipated

impact of adopting the new standard as set forth in SABNo.7 4, Disclosure of the Impact

that Recently Issued Accounting Standards will have on the Financial Statements of the

Registrant when Adopted in a Future Period.

The FASBdevoted substantial resources to a revised standard on accounting for

income taxes. The issue ofincome tax accounting has been controversial since the FASB

issued Statement 96 in December 1987 to supersede Accounting Principles Board

Opinion No. 11.The effective date ofStatement 96has been delayed three times to allow

the FASBto consider possible amendments to (1)change the criteria for recognition and

measurement of deferred tax assets and (2)reduce complexity. Subsequent to yearend, the FASB issued a revised standard under which entities would recognize and

measure a deferred tax asset for an entity's deductible temporary differences and

operating loss and tax credit carry forward. A valuation allowance would be

recognized ifit is more likely than not that some portion or all of the deferred tax asset

will not be realized.s"

64
Oversight of the Accounting Profession's Initiatives

The Commission oversees the process for setting auditing standards and various

other activities of the accounting profession. This includes oversight of initiatives by

the AICP A, ASB, SECPS, and AcSEC.

AICPA. The agency oversaw the following AICPA activities: (1) the Auditing

Standards Board (ASB), which establishes generally accepted auditing standards; (2)

the Accounting Standards Executive Committee (AcSEC), which provides guidance on

specific industry practices through its issuance of statements of position and practice

bulletins and prepares issue papers on accounting topics for consideration by the FASB;

and (3) the SEC Practice Section (SECPS), which seeks to improve the quality of audit

practice by member accounting firms that audit public companies through various

requirements, including peer review.

ASB. The staff worked closely with the ASB to enhance the effectiveness of the

auditprocess. With the encouragement of the Commission's staff, the ASB issued a new

auditing standard that establishes requirements for an auditor to inform management

and, in certain situations, audit committees of probable material misstatements

affecting interim financial information filed or to be filed with the SEC or the various

banking agencies.P The accounting staff also monitored a new auditing standard on

changes in the GAAP hierarchy-" and is continuing to monitor an ongoing project on

examination and reporting on management's assertions about the effectiveness of an

entity's internal control structure.

The ASB also continued to issue Audit Risk Alerts to provide auditors with an

overview of recent economic, professional, and regulatory developments that may

affect audits they perform. This procedure enables the AICP A to playa more visible

role in focusing auditor attention on high risk areas. A third series of annual Audit Risk

Alerts was issued to assist auditors in performing 1991 year-endaudits. This procedure

was initially suggested by the agency's Chief Accountant.

SECPS. Two programs administered by the SECPS are designed to ensure that

the financial statements of SEC registrants are audited by accounting firms with

adequate quality control systems. A peer review of member firms by other accountants

is required every three years and the Quality Control Inquiry Committee (QCIC)

reviews on a timely basis the quality control implications of litigation against member

firms that involves public clients. In 1990, the AICPA adopted a bylaw that requires

firms that employ AICPA members and audit SEC clients' financial statements to be

members of the SECPS. This action caused an additional 631 firms, that are auditors

to approximately 1,170 SEC registrants, to join the SECPS.210

The agency oversaw the activities of the SECPS through frequent contact with the

Public Oversight Board (POB) and members of the executive, peer review, and quality

control inquiry committees of the SECPS. The staff reviews POB files and selected

working papers of the peer reviewers. This oversight has shown that the peer review

process contributes significantly to improving the quality control systems of member

firms and, therefore, enhances the consistency and quality of practice before the

Commission.

The staff also reviews POB files and closed case summaries of the QCIC. This

review and discussions with the POB provide the staff with a better understanding of

the QCIC process. The SEC believes thatthe QCIC process provides added assurances,

as a supplement to the SECPS peer review program, that major quality control

deficiencies, if any, are identified and addressed in a more timely fashion. Therefore,

65
the agency believes that the QOC process benefits the public interest. The SEC

understands that additional improvements are being implemented, such as more

frequent review of other work of the engagement teams involved in matters reported

to the QOC and better documentation of the POB's oversight of the QOC. The SEC

believes that ongoing improvements such as these will provide even greater assurance

of the efficacy of the QCIC process.

AcSEC. The AcSEChas a key role in identifying accounting practices, particularly

those that impact specialized industries, such as financial institutions, insurance, and

computer software. During 1991,for example, the AcSECissued statements of position

on the appropriate financial reportingby entities in reorganization under thebankruptcy

code-" and on accounting by continuing care retirement communities.i" AcSEC also

made significant progress during 1991towards developing a statement of position on

revenue recognition in the computer software industry. The statement of position was

completed shortly after year-ends" and should eliminate the diversity of practice

previously existing in this industry. Because of recent changes in the GAAP hierarchy

approved by the ASB,the agency's staff no longer requires accounting firms to furnish

preferability letters to support changes in accounting policies adopted by their clients

to conform with standards established in AcSEC documents that have been cleared by

FASB.

International Accounting and Auditing Standards

Significant differences in accounting and auditing standards currently exist

between countries. These differences serve asanimpedimentto multinational offerings

of securities. The SEC, in cooperation with other members of the International

Organization ofSecurities Commissions (IOSCO),actively participated in initiatives by

international bodies of professional accountants to establish appropriate international

standards that might be considered for use in multinational offerings. For example, the

staff worked with the IASC to reduce accounting alternatives as an initial movement

toward appropriate international accounting standards. The IASC also commenced

projects to address issues relating to the extent of implementation guidance, adequacy

of disclosure requirements, and the completeness ofinternational accounting standards.

In 1991,the IASC issued five exposure drafts related to projects concerning cash flow

statements, research and development activities, inventories, capitalization ofborrowing

costs, and financial instruments.s"

The staffalso continued working with the International Federation ofAccountants

(IFAq to revise international auditing guidelines. Auditors in different countries are

subject to different independence standards, perform different procedures, gather

varying amounts ofevidence to support their conclusions, and report the results oftheir

work differently. The staff, as part of an IOSCO working group, worked closely with

the IFAC to expand and revise international auditing guidelines to narrow these

differences, and significant progress was made. For example, in October 1990the IFAC

revised International Auditing Guideline No. 12 to require the performance of

analytical review procedures in the planning phase of an audit and as an overall review

at the final stage of the audit.

66
Independence

The staffbegana study of the various national andintemational requirements for

auditor independence. The staffhasreceived detailed information about the nature and

extent of such requirements in several major countries. The IFAC issued a set of

guidelines to be used by national standard-setters in developing independence

requirements. Also, at the staff's request, the IFAC agreed to undertake a project to

develop a set of specific independence requirements that would apply to auditors of

transnational issuers.

67
The EDGAR Project

The primary purpose of the Electronic Data Gathering, Analysis, and

Retrieval (EDGAR) system is to increase the efficiency and fairness of the

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

economy. Under EDGAR, information currently submitted to the SEC on

paper will be transmitted and stored electronically using electronic

communication and data management systems. Once the electronic filing is

accepted, public information will beavailable quickly to investors, the media,

and others on computer screens via the SEC's public reference rooms and

through electronic subscription services. When fully operational, EDGAR

will acceleratedramatically thefiling, processing, dissemination, and analysis

of time-sensitive corporate information filed with the SEC.

Key 1991 Results

The EDGAR pilot system completed its seventh full year of successful operation

on September 24, 1991. During these seven years, almost 100,000 filings were

electronically received. The pilot system has demonstrated dearly the feasibility of

receiving, processing, storing, and retrieving electronic filings.

The SECcontinued to develop the operational EDGAR system. Among the many

important milestones achieved during 1991were:

opening the first release of the operational system for test filings by pilot

participants on May 1;

mailing the initial versions of the EDGAR Filer Manual and EDGARLink

filer assistance software to pilot filers, filing agents, and training agents;

designing and programming substantial portions of the second release of

the operational system;

delivering approximately 200 additional workstations to staff users and

continuing staff training on workstation applications;

installing the remaining portions of the primary hardware and operating

software for the operational system;

convening two public meetings (December 1990and June 1991)for filers

and other persons interested in the status of operational EDGAR; and

planning the successful move of the EDGAR system in November 1991 to

the new SEC Operations Center in Alexandria, Virginia.

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I

•

•

•

•

•

•

•
Pilot System

The EDGAR pilot serves a group of volunteer companies whose filings are

processed by staff in the Office of Filings, Information, and Consumer Services and the

Divisions ofCorporation Finance and Investment Management. At the end of 1991,624

registrants had participated fully in the pilot. In addition, numerous other registrants

had participated partially in the pilot by submitting electronic filings of certain forms.

This group of partial participants included:

1,329 investment companies submitting semi-annual reports on Form NSAR;

78 registered public utility holding company systems or subsidiaries

submitting forms required under the Public Utility Holding Company Act;

and

16 institutional investment managers submitting Forms 13F-Eto report

securities held in their managed accounts.

No enhancements have been or will be added to the EDGAR pilot since the award

of the operational system contract. The pilot system serves solely to permit the already

participating volunteer filers to continue to file and the staff to access filings until the

operational system is available in 1992.After the operational system becomes available,

the EDGAR pilot will be dismantled.

Operational System

The SEC is in the third year of an eight-year contract to design, implement, and

operate the EDGAR system. The primary contractoris BDM International. Disclosure

Information Services isthe subcontractor under the EDGAR contract that provides the

SEC with microfiche and paper reproduction services. Bechtel Information Services,

the former subcontractor, was purchased by Disclosure in 1991.

At the agency's request, the National Institute of Standards and Technology

(NIS1) conducted a technology assessment of the EDGAR system. NIST concluded

that the project isgenerally on course and that the system isfundamentally sound. NIST

has suggested and the agency has agreed that additional research should be conducted

in several areas. Specifically, in order to ensure that the system will perform as expected

when live filing begins, the SECwill: (1)conduct a security assessment; (2)undertake

validation and verification of system architecture documentation; and (3) update an

earlier capacity analysis.

The initial version ofthe operational system opened for test filings on May I, 1991.

The agency provided access codes, filer manuals and the EDGARLink filer assistance

software to pilot filers, filing agents, and training agents. By the end of 1991,1,021test

filings had been received from 81different filers. In addition, design and programming

of the next release of the EDGAR and EDGARLink software was begun.

The staff continued to develop and review proposed rules to accommodate

mandatory electronic filing. The Commission is expected to publish the initial EDGAR

rules for comment and modify and adopt the temporary rules for the EDGAR pilot

prior to the commencement of live filing, currently scheduled for July 1992.

Approximately200 additional workstations were installed for SECstaffmembers.

A total of 198 classes were held and attended by 1,307staff members. The curriculum

included classes on the OS/2 operating system, Presentation Manager, WordPerfect

(word processing), EXCEL(spreadsheet), cc:Mail (electronic mail), and use of the local

area network (LAN).

69

•

•

•
Continuing its long-standing concern for the public interest in the EDGAR

system, the staff convened public meetings in December 1990 and June 1991for filers,

financial printers, and other persons interested in the status of operational EDGAR

Nearly 300 people attended each of these meetings.

70
Litigation and Legal Activities

The General Counsel represents the SEC in all litigation in the United States

Supreme Court and the courts of appeals. The General Counsel defends the

Commissionand its employees when sued in district courts, prosecutes administrative

disciplinary proceedings against securities professionals, appears amicus curiae in

significant private litigation involving thefederal securities laws, and oversees the

regional offices' participation in corporate reorganization cases. The General

Counsel analyzes legislation that would amend the federal securities laws, drafts

congressional testimony, prepareslegislativecomments,andadvises theCommission

on all regulatory and enforcement actions under the securities acts. In addition,

the General Counsel advises the Commission in administrative proceedings under

various statutes.

Key 1991 Results

The office experienced a substantial increase inworkload as reflected in the table

below.

Increase in Matters Handled

1990 1991 % Increase

Litigation Matters Opened 185 263 42%

Litigation Matters Closed 126 247 96%

Adjudication

Cases Received 22 30 36%

Cases Completed 18 3~15 117%

Legislation

Testimony 18 29 56%

Comments to Congress and Others 26 29 12%

Corporate Reorganization

Disclosure Statements Reviewed 93 152 63%

Disclosure Statements Commented On 57 92 61%

Conduct RegUlation Matters 87 249 186%

71
Significant Litigation Developments

Insider Trading

In United States v. Chesiman/" the U.S. Court of Appeals for the Second Circuit,

en bane, as urged by the Commission as amicus curiae, upheld Securities Exchange Act

(Exchange Act) Rule 14e-3 by a ten to one vote and affirmed defendant Robert

Chestman's conviction for violations of that rule. The court held that the Commission

acted within its authority under Section 14(e) of the act in promulgating a rule that

departs from common law fraud by omitting breach of fiduciary duty as an element.

The court, however, by a six to five vote, reversed Chestman's conviction under

Exchange Act Rule lOb-5,holding that the relationship of husband and wife does not,

in itself, create a fiduciary duty sufficient to establish criminal liability under the

misappropriation theory.

In SEC v. Cherif,217 the United States Court of Appeals for the Seventh Circuit,

joining three other courts of appeals, adopted the misappropriation theory of insider

trading. In doing so, the court affirmed a preliminary injunction entered against one

of two defendants, Cherif, whom the Commission alleged had violated the antifraud

provisions of Section 10(b) of the Exchange Act and Rule 101>-5by trading while in

possession ofmaterial nonpublic information which he stole from his former employer

after his employment had ended. Although the Commission did not allege that the

other defendant, Sanchou, violated the securities laws, it sought disgorgement from

him of illegal profits obtained from trades made by Cherif in Sanchou's account. The

court acknowledged that the Commission could obtain a freeze of anon-violator's

assets ifit establishes that the party has no legitimate claim to them, but remanded the

case to permit the district court to make findings with respect to ownership ofthe funds

held by Sanchou. Agreeing with the Commission, the court also held that a defendant

has no constitutional right to use assets frozen in a civil case to pay attorneys fees.

Definition of a Security

InSEC v. Reynolds,2ls the United States Court of Appeals for the Ninth Circuit

agreed with the Commission that two programs that Reynolds sold to investors were

securities and expressly limited the reach ofits earlier decision against the Commission

in SEC v. Belmont Reid.219 The first program, the gold program, involved buyers

investing in a common fund by purchasing gold ore, and depending for their profits

on the efforts of others in developing a gold mining enterprise. The court found this

program governed by the investment contract analysis in SEC v. W.]. Howey CO.220

The second program, Managed Account Program, involved analysis ofpromissory

notes under the test established by the Supreme Court in Reves v. Ernst & Young.Z2.1 The

Ninth Circuit held that the notes were securities, not, as Reynolds had argued, personal

loans. The court said that the exception contained in the Securities Act of 1933

(Securities Act) and the Exchange Act for short-term notes of less than nine months

maturity should not be read literally, but, rather, should be read to effectuate

congressional purpose. Inreaching this conclusion, the Ninth Circuit joins the Tenth

Circuit in disagreeing with the four-justice minority in Reves, who said that any note of

less than nine months maturity is excluded from the definition of a security in the

Exchange Act.

72
Liability in Private Actions

In Lampf, Pleva, Lipkind, Prupis & Petigraw v. Gilberison/" the Supreme Court

adopted a uniform limitations period for implied private actions under Section 10(b)

of the Exchange Act. The Commission, as amicus curiae, had urged the Court to adopt

a uniform five-year limitations period based on recently enacted Section 20A of the

Exchange Act (for insider trading actions by contemporaneous traders). Although

agreeing that a uniform federal period was preferable to one drawn from the law of the

state in which the district court sat, the Court adopted a rule drawn from Section 9(e)

of the Exchange Act, requiring plaintiffs to file actions within one year after discovery

of the facts constituting the violation, and no later than three years after the violation

occurred. The Court applied its holding to dismiss the action as time-barred, even

though the lawsuit had been timely filed under the established law of the circuit.

Legislation was enacted by Congress at the end of 1991 to prohibit retroactive

application of the holding to cases filed before the Court's decision.

InAnixterv. Home-Stake,= the Court of Appeals for the Tenth Circuit held that a

securities fraud lawsuit was time-barred because plaintiffs were put on inquiry notice

of the defendant's fraud by a prior consent judgment in an unrelated Commission

action against the defendants. In so holding, the court rejected the Commission's

argument that Section 9(e) of the Exchange Act does not include an inquiry notice

requirement.

As urged by the Commission in an amicus curiae brief, the Supreme Court in

Gollust v. Mendelf224unanimously affirmed a decision of the United States Court of

Appeals for the Second Circuit. The Court of Appeals had held that a shareholder who

had properly instituted suit under Section 16(b) of the Exchange Act to recover shortswing profits from an issuer's statutory insiders, but who was subsequently divested

of his shares by a merger that resulted in an exchange of the plaintiff's stock for cash

and stock in the issuer' snew corporate parent, was not divested ofstanding to maintain

his suit. The decision holds that a plaintiff who properly institutes a Section 16(b)suit

may continue to prosecute that suit even when divested of his security, provided that

he maintains "some financial interest in the outcome of the litigation."

Actions Involving the Proxy Antifraud Pravisions

In Virginia Bankshares, Inc. v. Sandberg,225the Supreme Court held, as urged by the

Commission in an amicus curiae brief, that the statement of belief or reason by corporate

directors about a recommended course of action could be materially false and

misleading in violation ofthe federal proxy requirements of Section 14(a)and Rule 14a9 thereunder. The majority of the Court, however, concluded that where minority

shareholders were unable to block a proposed freeze-out merger, no causation had been

shown. In so doing, the Court rejected the argument that the plaintiffs could show

damages by demonstrating that they might have been able to pressure the majority

shareholders into abandoning or altering their plans. The Court left open the possibility

that minority shareholders in other cases could show damages by showing that they

might have obtained state court relief or preserved a state appraisal remedy ifthe true

facts had been disclosed.

In Kamen v. Kemper Financial Seroicesi" the Supreme Court, as urged by the

Commission as amicus curiae, unanimously reversed a decision by the United States

Court of Appeals for the Seventh Circuit in an action under the Investment Company

Act of 1940 (Investment Company Act) that had announced a new rule of federal

73
common law requiring a shareholder, prior to filing a complaint in a derivative lawsuit,

to make demand on the corporation, regardless of whether demand would be futile.

The Court held that the issue is governed by its decision in Burks o.Lasker, Zl.7 which held

that rules governing the allocation of power within a corporation shouldbe drawn from

state law, unless those rules are inconsistent with federal policy. The Court then held

that a futility exception is not inconsistent with the regulatory objectives of the

Investment Company Act, because the act imposes controls and restrictions on

directors ofinvestment companies, but does not give such directors greater power over

shareholder suits than they have under state law.

Actions Against Professionals Under Commission Rule 2(e)

During 1991,the new group formed within the Office of the General Counsel to

litigate administrative professional disciplinary casesunder Rule2(e)ofthe Commission's

Rules of Practice concluded several important cases. In In re Combellick and Reynolds,228

the Administrative Law Judge found that the accounting firm ofCombellick, Reynolds

& Russell, Inc. and two of its partners had engaged in improper professional conduct

by violating generally accepted auditing standards during 1983,1984, and 1985audits

of George Risk Industries, Inc. Each respondent was suspended from appearing or

practicing before the Commission for three months. No appeal to the Commission was

taken from the ruling.

In In reFrederick S. Todman &Co., the accounting firm ofFrederick S.Todman and

one ofits partners, Victor Marchioni, consented to a Commission Order under Rule 2(e)

finding that they engaged in improper professional conduct during the 1984audit of

BevillBresler & Schulman, Inc., a registered broker-dealerformerly engaged in trading

in government and municipal securities. The order found in part that the respondents

had failed to discover a shortfall of approximately $29 million in collateral in trading

accounts with a related party. The Commission censured the firm and suspended

Marchioni from appearing or practicing before it for six months.

Inln reCecil S.Mathis, the Commission, pursuant toRule 2(e),permanently barred

attorney Cecil S.Mathis from appearing or practicing before it. The bar was based on

an antifraud injunction entered against Mathis in SEC v. Lifeline Healthcare Group, Inc.

The SECalleged that Mathis, a former Assistant Regional Administrator ofthe agency's

Fort Worth Regional Office, participated in the preparation of certain false and

misleading filings and press releases disseminated to the public by Lifeline as part of

an aggressive campaign to artificially inflate the price of Lifeline's stock.

Motions to Vacate Permanent Injunctions

In SEC v. Sloan, the United States District Court for the Southern District of New

York denied defendant Samuel H. Sloan's motion to vacate an injunction entered

against him 17years ago. Thisinjunction enjoined him from violating bookkeeping and

net capital provisions ofthe securities laws. The court also found that, in light of Sloan's

long history of securities law violations and noncompliance with court orders, the

injunction continued to serve a useful pwpose.

In SEC v. Fabregas, the SECsuccessfully opposed defendant Stephen W. Porter's

motion to vacate a permanent injunction enjoining him from violating antifraud

provisions ofthe federal securities law. The United States District Court for the Central

District of California denied Porter's motion without opinion.

74
Actions Against the Commission and SMff

In FleetlNorstar Financial Group, Inc. v. SEC, the United States District Court for the

District ofMaine denied Fleet'smotion to nullify aCommission investigative subpoena

served on Fleet to obtain bank records. The Court dismissed Fleet's motion, agreeing

with the Commission that the Court did not have subject matter jurisdiction to entertain

an action challenging a Commission investigative subpoena.

In SEC v. Henry Lorin, defendant Eugene K Laff, who previously had been

convicted for criminal violations of the federal securities laws, filed a counterclaim

against the Commission and six former and current SEC staff members alleging staff

misconduct in its handling of a Commission investigation into his trading of various

securities in the over-the-counter market. The United States District Court for the

Southern District of New York dismissed the counterclaim, finding that it was barred

by Section 21(g) ofthe Exchange Act, which prohibits the consolidation ofCommission

injunctive actions with any private action without the Commission's consent. Thecourt

also found that the counterclaim against the Commission was barred by sovereign

immunity.

Requests for Access to Commission Records

The Commission received approximately 75 subpoenas for documents and/ or

testimony in 1991. In some of these cases, the Commission declined to produce the

requested documents or testimony because the information sought was privileged.

The Commission's assertions of privilege were upheld virtually 100%of the time when

the issuer of the subpoena challenged the assertion in court. On the one occasion in

which the Commission was ordered to produce documents, the court ordered the

documents produced under a strict confidentiality order. Among the most significant

of these challenges was United States v. Lnng,229 a criminal case. The defendants served

a pre-trial subpoena on the Commission, seeking production of several categories of

documents. The Commission moved to nullify the subpoena on the grounds that

disclosure of the documents could (1)reasonably be expected to impair an ongoing

Commission investigation and (2)reveal the staff's legal advice to the Commission, as

well as the policy and legal deliberations of the Commission and the work product of

its attorneys. The United States District Court for the District of Maryland agreed and

nullified the subpoena.

In In SIPC v. Blinder, Robinson &Co., Inc., the United States Bankruptcy Court for

the District of Denver denied Intercontinental Enterprises, Inc.'s motion for an order

to permit depositions of one former and three current SECstaff members and to obtain

agency documents. The court concluded that Intercontinental had inappropriately

sought to use Bankruptcy Rule 2004to discover information beyond the limit ofthe rule.

The court adopted the Commission's reasoning that the proposed depositions of the

agency officials would increase significantly the estate's fees and expenses without any

demonstrated benefit to the estate. The court also concluded that Intercontinental

sought without permission to obtain access to possibly privileged information to

support its proposed lawsuit against the SECand that such information was irrelevant

to the bankruptcy case, as contended by the Commission.

75
InBanes v. SEC,230petitioners requested copies of the investigative transcripts of

prior testimony they had given during a Commission investigation. The Comission

denied their requests on the ground that providing copies at that time could impair the

investigation. The petitioners appealed this decision in the United States Court of

Appealsforthe Ninth Circuit, arguing that itwas a final order, subject to direct appellate

review. The United States Court of Appeals for the Ninth Circuit Court held that the

Commission's decision to withhold the transcripts during the pendency of its

investigation was neither a final order nor a collateral order and dismissed the petition

for lack of subject matter jurisdiction.

The SECreceived 1,799requests and appeals under the Freedom of Information

Act (FOIA) for access to agency records and 4,256 confidential treatment requests and

appeals from persons who submitted information. There were 126appeals to the SEC's

General Counsel from initial denials by the FOIA office. None resulted in court actions

against the agency.

The SECobtained a favorable decision in a FOIA lawsuit filed against it in 1989.

In Safecard Services, Inc. v. SEC,231 the United States Court of Appeals for the District of

Columbia Circuit affirmed a district court decision granting summary judgment for the

SECand denying access to attorney work-products. The court of appeals also agreed

with the agency that personal identifying information regarding persons whose names

appear in SECinvestigatory filesis categorically exempt from release under Exemption

7(C).

Actions Under the Right to Financial Privacy Ad

Nine actions were filed against the SECunder the Right to Financial Privacy Act

(RFP A), to block Commission subpoenas for customer information from financial

institutions.P All of the challenges, except one which is still pending, were dismissed

after the courts found, in each case, that the agency was seeking the records for a

legitimate law enforcement inquiry, and the records were relevant to those investigations.

Of particular note is Kuhlman v. SEC,233in which the United States District Court for the

District of Nebraska was faced with the argument, by the law firm whose account was

subpoenaed, that the records were protected by the attorney-client privilege because

they were contained in a bank account maintained for the benefit of the firm's clients.

The court found that the challenger's claim of attorney-client privilege could not be

sustained.

Significant AdjUdication Developments

Substantial progress was made in addressing the backlog of appeals awaiting

staff review. The number of cases reviewed on the merits increased 117 percent over

FY1990,and there was a significantimprovementin the age ofthe staff's case inventory.

The case inventory was reduced by 16 percent, although the number of fully-briefed

cases received in 1991 increased by 36 percent over the number received in 1990.

Significant AdjudIcatory Decisions Concerning Broker-Dealers and Market Professionals

In Arthur J. HUff,234 the Commission, in two separate opinions, dismissed

proceedings against Huff, a vice president and senior registered options principal of

PaineWebber Incorporated (PW). Huff had been charged with failing to exercise

76
reasonable supervision over Dennis E. Greenman, a salesman in PW's Miami branch

office, who incurred heavy losses using customers' funds for options trading without

their authorization.

In James C. McIilmb,235 the Commission affirmed disciplinary action taken by the

New York Stock Exchange (NYSE) against McLamb, a former assistant vice president

and registered representative with Merrill Lynch, Pierce, Fenner & Smith, Inc. The

Commission found, as had the NYSE,that from October 1983toJuly 1984McLamb took

advantage of an in-house system for trading odd-lot market orders by executing 73

trades at prices that were more favorable to himself and his customers than the prices

allowed by the firm's procedures.

In Douglas Jerome Hellie,236 the Commission affirmed a National Association of

Securities Dealers (NASD) disciplinary action against Hellie, a partner in the investment

adviser firm of Hellie, Walch & Co. The Commission found, as had the NASD, that

Hellie made unsuitable recommendations with respect to a client's account. In

affirming the sanctions assessed by the NASD, the Commission stated that Hellie had

ignored his fundamental obligation of fair dealing, thereby causing his customer to

suffer a substantial loss.

In Brian G. Allen,237 the Commission affirmed disciplinary action taken by the

NASD against Allen for forging a check payable to himself from an affiliate of his

employer and converting the proceeds. In affirming the sanctions imposed by the

NASD, the Commission noted that" there can hardly be more serious misconduct in

the securities business than forgery and theft."

Significant Legislative Developments

Jurisdictional Proposal

On January 14,1991, Senators Leahy, Lugar, Kerrey, Bond, Dodd, and Heinz

introduced S. 207,the Futures Trading Practices Act of1991. Title IIIofthe act consisted

of the Intermarket Coordination Act of 1991, a compromise on the intermarket and

jurisdictional issues reached by leaders of the Senate Agriculture, Nutrition, and

Forestry Committee and the Senate Banking, Housing, and Urban Affairs Committee.

Title I of S. 207 contained the Commodity Futures Trading Commission's five-year

authorization and Title ITconsisted of a package to reform trading practices on the

futures exchanges. On March 6, 1991, the Senate Agriculture Committee ordered

reported an amended version of S. 207. On April 18, 1991,the Senate passed S. 207 as

H.R. 707,which the House had previously passed without the IntermarketCoordination

Act of 1991. No further action was taken on the legislation in 1991.

Bank-Related Legislation and Testimony

On December 19,1991,the President signed into law the Comprehensive Deposit

Insurance Reform and Taxpayer Protection Act of 1991.238Considerably narrower than

earlier versions of bank reform legislation considered by the 102nd Congress, the act

generally focused on bank supervision and took some steps toward limiting the

expansion of the federal deposit insurance system by reining in the too big to fail

doctrine.

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In February 1991, the Department of the Treasury submitted its report on the

banking system to Congress. The Department subsequently submitted to Congress the

Administration's legislative proposal, the Financial Institutions Safety and Consumer

Choice Act of 1991,which was based on the report.

The Administration's proposal generally would have, among other things:

(1) provided for more stringent calculation of limits on insured deposits; (2)limited

pass-through deposit insurance; (3)permitted banks to affiliatewith securities, insurance,

and other financial services firms; (4)repealed the exemptions in the Securities Act for

securities issued by banks and thrifts; (5)removed the blanket exclusions from the

Exchange Act's definition of broker and dealer and from the definition of investment

adviser in the Investment Advisers Act; (6) codified limitations on the scope ofthe bank

common trust fund exclusion from the definition of investment company in the

Investment Company Act; (7) provided for prompt corrective action by banking

regulators; (8) authorized nationwide banking in three years; (9) established a new

bank regulatory agency within the Department ofthe Treasury and abolished the Office

of Thrift Supervision and the Office of the Comptroller of the Currency; and

(10) authorized the Federal Deposit Insurance Corporation to borrow funds from any

Federal Reserve System bank..

On March 20, 1991,Senators Riegle and Gam introduced the Administration's

proposal as S.713. The Senate Banking Committee produced a Committee Print based

on S. 713 and S. 543, the Comprehensive Deposit Insurance Reform and Taxpayer

Protection Act of 1991. The Committee marked up the Committee Print and reported

it out as S.543 on August 2, 1991. Also on March 20, 1991,Congressmen Gonzalez and

Wylie introduced the proposal as H.R. 1505.

Chairman Breeden testified concerning H.R. 1505 before the Subcommittee on

Financial Institutions Supervision, Regulation and Insurance of the House Committee

on Banking, Finance and Urban Affairs on April 30, 1991 and before the Senate

Committee on Banking, Housing, and Urban Affairs on May 7,1991. After markup,

H.R. 1505 was reported out with amendments and renumbered as H.R. 6. On

November 4,1991, the House voted down H.R. 6. Chairman Breeden also discussed

H.R.1505inhis testimony before the House Subcommittee on Telecommunications and

Finance on June 20, 1991.

Roll-up Transactions

In response to concem about practices connected with so-called roll-up transactions,

which typically involve the combination ofmultiple limited partnerships into a single

public company, several legislative initiatives were introduced in 1991. Chairman

Breeden testified concemingroll-up transactions before the Subcommittee on Securities

ofthe Senate Committee onBanking, Housing and Urban Affairs and the Subcommittee

on Telecommunications and Finance ofthe House Committee on Energy and Commerce

on February 27 and April 23, 1991, respectively. James R. Doty, the SEC's General

Counsel, testified before the Subcommittee on Oversight and Investigations of the

House Committee on Energy and Commerce and the Subcommittee on Energy and

Agricultural Taxation ofthe SenateCommittee on Finance concemingroll-up transactions

on July 10 and 16, 1991,respectively.

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Government Securities

The Government Securities Act of 1986 authorized the Department of the

Treasury to adopt rules applicable to the government securities market and provided

that such authority be terminated after five years. Before congressional action to renew

the Department's rulemaking authority was taken, disclosures of certain abuses

received widespread publicity and triggered intense scrutiny of the market for

government securities. As a result, the Department's rulemaking authority expired on

October 1,1991.

On June 12, 1991, Chairman Breeden testified before the Subcommittee on

Securities ofthe Senate Committee on Banking, Housingand Urban Affairs concerning

possible amendments to the Government Securities Act. On September 4, 1991,

Chairman Breeden testified before the Subcommittee on Telecommunications and

Finance of the House Committee on Energy and Commerce concerning disclosures of

certain abuses in the government securities market and the implications of such

activities with respect to the regulation of transactions in government securities.

Chairman Breeden recommended several changes in law if Congress decided to

reauthorize the act pending a general evaluation of other changes. On September 11,

1991,Chairman Breeden testified again before the Subcommittee on Securities of the

Senate Committee on Banking, Housing and Urban Affairs concerning the government

securities market.

RICOReform

On April 25,1991,Commissioner Mary Schapiro testified before the Subcommittee

on Intellectual Property and Judicial Administration of the House Committee on the

Judiciary in support of H.R.1717, The RICO Amendments Act of 1991, which was

introduced in the House by Congressman Hughes.

Statute of Limitations Legislation

InLampI, Pleva, Lipkind, Prupis & Petigrow v. Gilbertson,239a case decided by the

Supreme Court on June 20,1991, the Court held that private actions brought under

Section 10(b)of the Exchange Act must be commenced within one year after discovery

ofthe alleged violation and not more than three years after the violation occurred. Prior

to the decision in Lampf, the relevant judicial precedents in a majority of circuits

provided a substantially longer period of time for filing private actions under Section

10(b).

On October 2, 1991, Chairman Breeden testified before the Subcommittee on

Securities ofthe Senate Banking, Housing, and Urban Affairs Committee in support of

legislation that would establish an express statute oflimitations providing that private

antifraud actions may be brought within two years after discovery of the violation and

five years after the violation occurred. On November 21, 1991, Chairman Breeden

testified before the Subcommittee on Telecommunications and Finance of the House

Committee on Energy and Commerce in support of similar legislation.

InresponsetoLampf, the Comprehensive DepositInsurance Reform and Taxpayer

Protection Act, enacted on December 19, 1991, added a new Section 27A of the

Exchange Act to apply to" any private civil action implied under Section 10(b)... that

was commenced on or before June 19, 1991." For those cases, the applicable statute of

limitations period isthat" provided by the laws applicable in thejurisdiction, including

principles of retroactivity, as such laws existed on June 19, 1991." The statute also

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allows the reinstatement of any case that may have been dismissed as the result of the

decision in l.Jlmpj. Such actions can be reinstated on motion ofthe plaintiff not later than

60 days after the enactment of Section 27A.

Corporate Reorganizations

The Commission acts as a statutory advisor in reorganization cases under

Chapter 11 of the Bankruptcy Code to see that the interests of public investors are

adequately protected. During a reorganization, the debtor generally is allowed to

continue business operations under court protection while negotiating a plan to

rehabilitate the business and to pay the company's debts. Although Chapter 11 relief

is available to businesses of all sizes, the Commission typically limits its participation

to cases involving debtors that have publicly traded securities registered under the

Exchange Act.

In 1990, the Commission authorized a review of its role in reorganization cases

and of the adequacy of public investor protections under Chapter 11. During 1991,the

staff completed its review of the bankruptcy program. Recommendations resulting

from the staff's review are expected to be considered by the Commission in 1992.

Committees

Officialcommittees are empowered tonegotiatewithadebtoron the administration

of a case and to participate in all aspects of the case, including formulation of a

reorganization plan. In addition to a committee representing unsecured creditors,

which must be appointed in all Chapter 11cases, the Bankruptcy Code allows the court

or aUnited States Trustee to appoint additional committees forstockholders and others

where necessary to assure adequate representation of their interests. During 1991,the

Commission moved for, and the court approved, the appointment of a committee to

represent investors in one Chapter 11 case.240

In a case having practical significance for the representation of both equity

securityholders and public debtholders by officialcommittees, In reFederatedDepartment

Stores, Inc. and Allied Stores COrp.,241the bankruptcy court adopted the position

advocated by the Commission and held that an institutional member of an official

committee did not violate its fiduciary duties as a committee member if it is engaged

in the trading of securities as a regular part of its business and has implemented an

appropriate information blocking device (commonly known as a Chinese Wall) that

was reasonably designed to prevent misuse of non public information obtained through

participation on the committee.

Estate Administration

The Commission protects the interests of public investors in reorganization cases

by participating in selected matters involving administration of the debtor's estate.

In Kaiser Steel Resources v. Action Traders, Inc.,242a case having major significance

for the protection of shareholders whose companies are taken over in leveraged

buyouts, the United States Court of Appeals for the Tenth Circuit, agreeing with the

position urged by the Commission, held that payments made to Kaiser's former

shareholders in a 1984leverage buyout (LBO)were protected from recovery under the

fraudulent conveyance laws by Section 546(e) of the Bankruptcy Code. That section

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shields from the normal operation of the Code's avoidance provisions settlement

payments made "by or to" stockbrokers, financial institutions, or securities clearing

agencies.

The court first held that the Kaiser LBO payments were settlement payments for

purposes of Section 546(e), basing its analysis on the plain meaning of the term

settlement payments as understood in the securities industry. The court then rejected

Kaiser's argument that Section 546(e) does not protect a settlement payment made by

a stockbroker, financial institution, or clearing agency unless that payment isto another

participant in the securities clearance and settlement system. The court noted that the

provision on its face applies to payments "by or to" the entities enumerated in the

statute, and that nothing in the legislative history indicates that following the statute's

plain meaning would produce an unreasonable result. Inthis regard, the court noted

that Section 546(e) was designed to avoid disruption of the securities markets, which

would be an inevitable result if LBOs could be undone years after they occurred.

In In re Amdura COrp.,243 the Commission filed a brief in an appeal to the district

court expressing its view that class claims are permissible in bankruptcy.r" The

bankruptcy court had rejected a class proof of claim on the ground that the decision of

the Tenth Circuit in In re Standard Metals, 817F.2d 625 (10th Cir.1987), concluding that

a class claim is not permissible in bankruptcy, was controlling authority. The

Commission argued that that decision isdictum and the issue remains open in the Tenth

Circuit. The Commission also pointed out that the better reasoned view, represented

by several subsequent circuit and district court decisions.r" isto permit class proofs of

claim in bankruptcy cases. The matter is pending.

InIn re LTV COrp.,246 the United States Court of Appeals for the Second Circuit

dismissed an interlocutory appeal on the class claim issue for lackofjurisdiction.-" The

Commission had filed abrief in the Second Circuit arguing that the district court's ruling

permitting the filing of class claims-" should be affirmed. The Second Circuit's

dismissal left intact the district court's decision.

In SIPC v. Blinder, Robinson & Co., Inc.,249 the Commission, in an appeal to the

United States Court of Appeals for the Tenth Circuit, filed a brief joining in the

arguments of the Securities Investor Protection Corporation (SIPC) that under the

bankruptcy laws and the Securities Investor Protection Act (SIPA), Blinder, a brokerdealer, was not eligible to utilize Chapter 11of the Bankruptcy Code and was properly

placed in a SIPC liquidation. The district court found that, as a matter of law, Blinder

was a stockbroker and therefore expressly prohibited from reorganizing under

Chapter 11. The court further found that a trustee should be appointed pursuant to the

provisions of SIPAbecause Blinder, by placing itself in Chapter 11,became" unable to

meet its obligations as they mature," a statutory ground for liquidation pursuant to

SIPA. The appeal is pending.

InIn re Revco D.S., Inc.,250the Commission disagreed with the proposition that an

indenture and related debentures are executory contracts subject to assumption or

rejection under Section 365of the Bankruptcy Code. The indenture trustee had moved

to require the debtor to assume the indenture and debentures, claiming they were

executory contracts. The Commission argued that assumption of the indenture as

requested by the indenture trustee, which would automatically secure an administrative

expense priority for its services, is contrary to the statutory scheme established in the

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Bankruptcy Code for compensating indenture trustees for services rendered in

connection with reorganization proceedings.The bankruptcy court denied the debtor's

motion without reaching the executory contract question.

Disclosure Statements/Plans of Reorganization

A disclosure statement is a combination proxy and offering statement used to

solicit acceptances of a plan ofreorganization. Such 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, pursuant to an exemption in Section 1145of the Bankruptcy

Code from registration under the Securities Act. Under the Code, the adequacy of

disclosure is to be determined without regard to whether the information provided

would otherwise comply with the disclosure requirements of the federal securities

laws. However, in recognition ofits special expertise on disclosure questions, the Code

gives the Commission the right to be heard, distinct from its special advisory role, on

the adequacy of disclosure. The staff limits its review to disclosure statements of

publicly-held companies or companies likely tobe traded publicly after reorganization.

During 1991,the staff reviewed 152disclosure statements and commented on 92. The

vast majority of the Commission's comments were adopted by debtors without the

need to file a formal objection.

The Commission filed a formal objection in In re Banyan COrp.251 to a disclosure

statement for a plan that sought to discharge claims of creditors of a substantially

assetless publicly-held shell corporation. The debtor sought through the plan to emerge

from Chapter 11asa publicly-traded company without assets or liabilities and to merge

with operating businesses at some unspecified time in the future. The Commission

contended that this would contravene Section 1141(d)(3) of the Bankruptcy Code,

which precludes a debtor from obtaining a discharge if it has liquidated all or

substantially all of its assets and does not engage in business after consummating the

reorganization plan. The matter is pending.

InIn reAmdura COrp.252 and In re Banyan COrp.,253 the Commission filed objections

to the confirmation of proposed plans, arguing, as it has on several other occasions.P'

that plan provisions purporting to release non-debtor third parties from liability were

beyond the discharge of liability provided for debtors in the Bankruptcy Code. The

Commission argued that under Section524(e)ofthe Code, abankruptcy court can affect

only the relationships of debtors and creditors, and cannot discharge the liabilities of

a non-debtor. InAmdura, the court overruled the Commission's objections in light of

a settlement between the debtor and securities law claimants. In Banyan, the matter is

pending.

In In re Southland Corp.,255 the Commission raised concerns about the discharge of

non-debtor parties as objections to the debtor's disclosure statement. Inresponse to the

Commission's objections, the debtor amended its plan and provided a separate vote,

unrelated to a vote on the plan itself, for those creditors who chose voluntarily to release

their claims against non-debtors.

Conduct Regulation Matters

The General Counsel oversees the agency's ethical conduct program. During

1991,the General Counsel implemented five new governmentwide ethics provisions

concerning procurement integrity, post-employment restrictions, an honorarium ban,

amendments to public financial disclosure provisions, and governmentwide host paid

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travel. The General Counsel also submitted extensive comments on the proposed

Standards of Ethical Conduct for Employees of the Executive Branch to the Office of

Government Ethics. In addition. expansion ofthe Commission' s activities into the areas

of bank holding companies, government securities, and the internationalization of

securities markets resulted in a great increase in the volume and complexity of ethics

inquiries from members and senior staff. During 1991, the number of conduct

regulation matters handled by the staff rose from 87 in 1990 to 249.

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Economic Research and Analysis

The Office ofEconomic Analysis provides technical support and analysis

to assist in evaluating the economic aspects of the Commission's regulatory

program. The economics staff provides the Commission with research and

advice on rule proposals, policy initiatives, and enforcement actions. The staff

also monitors developments in capital markets around the world and major

program initiatives affecting the United States financial services industry,

markets, and investors.

Key 1991 Results

The staff reviewed rule proposals encompassing the full range of the

Commission's regulatory program. The staff also provided advice, technical

assistance, and empirical analyses of issues of concern to the Commission and its

operating divisions. In addition, monitoring programs were maintained to study

the implementation of major rules, new trading facilities, and developments in the

domestic and international securities markets.

Liaison, Planning and Review

A comprehensive program of economic and policy analysis is provided by the

economics staff, focusing on issues related to corporate restructuring, stock price

volatility, mutual fund performance, financial disclosure, insider trading, and

market manipulation. During the year, the economics staff directed its attention

towards a number of issues. For example, debate in the securities market continued

over the effectiveness and economic consequences of circuit breaker mechanisms.

The Market Reform Act of 1990 required the staff to examine the practices found

to contribute significantly to market volatility. In the investment company area, the

proliferation of funds and fund types, coupled with marketing techniques by

investment companies, including the use of 12b-1 fees, resulted in complex

disclosure issues.

The number of bankruptcies and financial difficulties for firms that engaged

in going private transactions increased in 1991. Continued discussion of further

reforms, or outright repeal, of the Glass-Steagall Act required analysis of the

economic implications of merging banking, insurance, and broker-dealer activities.

The need for such analysis remained critical due to the deepening concerns over the

United States system of deposit insurance.

Economic Studies

The staff completed studies related to deposit insurance and institutional

ownership, among other things. The staff also studied the effects ofmark-to-market

accounting for banks, the effect of state merit regulation, and the performance of

limited partnership roll-up transactions.

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Technical Assistance

The staff prepared capital markets briefing reports that assessed the economic,

institutional, and regulatory developments outside the U.S. that impact the

international competitiveness of the U.S. securities market and the Commission's

regulatory program. The staff evaluated the European Economic Community's

move toward a unified capital market by 1992, analyzed changes in the Japanese

and other capital markets around the world, and closely monitored developments

in the international bond and equity markets. The staff also provided technical

support to the Office of International Affairs concerning international securities

regulation and enforcement matters.

As a result of the Securities Enforcement Remedies and Penny Stock Reform

Act of 1990, the enforcement staff required additional technical assistance from the

economics staff in analyzing trading events. The Commission's effort to combat

fraud in the penny stock market also required increased attention by the staff. In

addition, the staff provided technical advice and assistance to the Commission's

operating divisions on a wide variety of issues. The Office of Economic Analysis,

for example, furnished the Commission and divisions with a quarterly report on the

financial health of the securities industry. In the enforcement area, the staff worked

ona wide variety of cases, including insider trading, disclosure violations, suitability,

and market manipulation.

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Management and Prograln Support

Management and Program Support provides the Commission and operating

divisions with management and administrative services in support of the agency's

objectives. Management support includes overseeing theallocationand expenditure

of agency funds, liaison with Congress, disseminating information to the press,

facilitating Commission meetings, and developing and executing management

policies. Administrative support includes services such as accounting, data

processing, staffing, and space management.

Key 1991 Results

Anumber of Significant activities were highlighted during 1991.In particular, the

Commission held 75 meetings and considered 335 matters. Major activities of the

Commission included: (1)establishing amultijurisdictional disclosure system intended

to facilitate cross-border offerings of securities and continuous reporting by spedfied

Canadian issuers; (2) proposing rules to establish an activity-based large trader

reporting system; (3)proposing temporary rules to establish a risk assessment system

pursuant to the Market Reform Act of 1990;and proposing amendments to the proxy

rules which will be reproposed in the coming year.

Among other significant accomplishments were the collection of fee revenue of

$259million compared to a final appropriations level of $196million-a $63million net

gain to the United States Treasury. Additionally, a Memorandum of Understanding

with the General Services Administration (GSA) that transferred to the SEC several

GSA leases, including the headquarters' lease for approximately 300,000square feet of

office and related space, was completed.

The Executive Staff

The executive staffsupported the Commission in fulfilling itsleadership role with

respect to the globalization ofsecurities markets. The staff assisted in preparing for the

Sixteenth Annual Meeting ofthe International Organization ofSecurities Commissions

(IOSCO) conference that was held during September 1991 in Washington, D.C. The

Commission played a key role in developing policy and technical recommendations

adopted by IOSCO. Also, the executive staff directed the Emerging Markets Advisory

Committee and programs offered by the International Institute for Securities Market

Development (Institute). The Institute, an intensive two-week program for foreign

regulators, consists of comprehensive training in all aspects of securities markets and

their regulation. Representatives from over 30countries attended the inaugural session

in April.

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Office of the Secretary

The Commission held 75 meetings in 1991, during which it considered 335

matters, including rule proposals, enforcement actions, and other items that affect

significantly the stability of the markets and the nation's economy. Significant actions

taken by the Commission included:

adopting amendments to Rule 2a-7 under the Investment Company Act of

1940 to tighten requirements for portfolio quality, maturity, and diversity

of money market funds;

adopting comprehensive amendments to long-standing Commission rules

on disclosure of securities transactions by officers, directors, and principal

securityholders of reporting companies;

establishing a multijurisdictional disclosure system intended to facilitate

cross-border offerings of securities and continuous reporting by specified

Canadian issuers;

proposing rules to establish an activity-based large trader reporting system;

proposing temporary rules to establish a risk assessment system pursuant

to the Market Reform Act of 1990; and

proposing amendments to the proxy rules, which will be reproposed in the

coming year.

Office of Legislative Affairs

During 1991,the Congress actively considered a number of important pieces of

legislation relating to issues under the Commission's jurisdiction, all ofwhich remained

pending at the end of the year. These were most notably:

omnibus reform of the regulation of financial services in the United States,

including modernization of the Glass-Steagall Act, the Bank Holding

Company Act, and other United States financial laws;

government securities regulation coupled with the agency's inquiry into

the activities of Salomon Brothers and other participants in the government

securities market;

problems with real estate partnership "roll-ups" and their impact on

limited partner investors;

setting an explicit statute of limitations for implied rights of private action

in violations of the Securities Exchange Act of 1934 (an issue raised by the

decision of the Supreme Court in Lampj, Pleva, Lipkind, Prupis and Petigrow

v. Gilbertson, 111 S.Ct. 2773); and

reforms relating to accountants' responsibilities and shareholders' rights

relative to executive compensation levels.

Congressional interest in the agency's activities and initiatives reached new

levels. The Commission and staff members testified at 29 congressional hearings

during the year, more than a 50 percent increase over the prior year.

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Office of Public Affairs

The Office of Public Affairs communicates information on agency activities to

those interested in or affected by Commission actions, including the press, the general

public, regulated entities, and employees ofthe agency, through ongoing programs and

special projects. The office publishes the SEC News Digest daily, which provides

information on rule changes, enforcement actions against individuals or corporate

entities, acquisition reports, releases, decisions on requests for exemptions, upcoming

Commission meetings, upcoming testimony by Commission members and staff, lists

of Section 16letters, and other events ofinterest. Information on Commission activities

also is disseminated through notices of administrative actions, litigation releases, and

other materials.

Special projects, such as support for activities related to 10SCO, the Institute, and

meetings of the Emerging Markets Advisory Committee, the Market Transactions

Advisory Committee and the Market Oversight and Financial Services Advisory

Committee, also are undertaken by the office in support of the agency's mission.

Another important function is the coordination of the agency's interaction with

the press. Many of the agency's actions are of national and, increasingly, international

interest. When appropriate, these actions are brought to the attention of regional,

national, and international press. The office also issues press releases on upcoming

events, agency programs, and special projects. A total of 78 news releases were issued

during the year. Additionally, congressional testimony and speeches presented by

Commissioners and senior staff are retained and disseminated in response to requests

from the public. The office responded to over 85,000 requests for specific information

on the agency or its activities. Programs for 255 foreign visitors were coordinated

during the year.

Office of the Executive Director

The agency's management staff initiated or continued special projects such as

coordinating the effort to develop the automation systems mandated by the Market

Reform Act of 1990 and developing a plan to implement a comprehensive audit

followup program. The management staff worked closely with the Chairman and other

senior officials in formulating the agency's budget submissions for the Office of

Management and Budget and the Congress.

Equal Employment Opportunity. The Office of the Executive Director also

implemented improvements to the agency's Equal Employment Opportunity (£EO)

programs. These improvements included:

hiring an EEO Manager with specialized experience inmanaging and

developing EEO affirmative employment programs;

establishing the Hispanic and Black Employment Programs and Committees

to provide advice and recommendations to the EEO Manager and EEO

Director;

implementing a comprehensive evaluation program for the agency's

affirmative employment program to evaluate staffing patterns, promotions,

disciplinary actions, and other personnel areas monitored by the EEO office;

publishing statements by Chairman Breeden on equal employment

opportunity and prevention of sexual harassment;

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distributing a model EEO and Human Resources Management performance

standard to provide managers and supervisors guidance in evaluating

performance in EEO and personnel management;

developing an EEO Handbook titled Employee Guide to the Commission's

Equal Employment Opportunity Program to provide employees with

information about the SEC's Equal Employment Opportunity Program,

EEO counseling, and discrimination complaints processing;

creating an EEO task force to plan sexual harassment awareness initiatives

and to make recommendations to the Commission on conducting sexual

harassment training for all agency employees;

conducting special seminars under the sponsorship of the Federal Women's

Program Committee;

creating a system to monitor data on senior vacancies within the agency;

and

reestablishing an Upward Mobility Program within the agency to provide

career advancement opportunities to clerical and support personnel.

The agency continued to actively recruit minorities and women. At the end ofthe

year, women accounted for48.3 percent ofthe total agency workforce; BlackAmericans

accounted for 27 percent; Hispanic Americans accounted for approximately 3percent;

and Asian-Americans made up 2.4 percent.

Administrative Support

The administrative support offices provide the financial, data processing,

personnel, and facilities support necessary for the agency to carry out its mission.

Under the direction of the Office of the Executive Director, these support services are

provided by the Offices of the Comptroller, Information Systems Management,

Human Resources Management, Administrative Services, and Filings, Information

and Consumer Services.

Commission Operations. In 1991for the ninth consecutive year, the agency collected

revenue for the United States Treasury in excess of its appropriation. The agency

collected fee revenue of $259 million compared to a final appropriations level of $196

million--a $63 million net gain to the United States Treasury. The $196 million

appropriation level included an initial $157.5million in budget authority, a $1.6million

supplemental, and $36.9 million in offsetting fee collections. For 1991, offsetting

collections were generated as a result of a fee rate increase under Section 6(b) of the

Securities Act of 1933(Securities Act) to one-fortieth of one percent from one-fiftieth of

one percent.

Fee revenue is collected from four basic sources: registrations under Section b(b)

of the Securities Act (comprising 70 percent of total 1991fee revenue); transactions on

securities exchanges (24 percent); tender offer and merger filings (3.5 percent); and

miscellaneous filings (2.5 percent).

Financial Management. The agency completed its third year of operating the new

accounting system, the Federal Financial System (FFS). The FFSprovided the agency

with significant automation improvements such as:

entering voucher and payment data directly into the system;

creating travel authorization and procurement documents;

providing decentralized data throughout the agency;

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accomplishing voucher research on-line; and

making management data more readily available.

The agency continued to improve its automated collection and processing of

annual fee revenue through electronic funds transfer and developed systems and

procedures to make the voluntary Treasury-designated "lockbox" fee collection

system mandatory. The agency received over 43,000separate fee payments of differing

amounts for transactions of exchange listed securities and required and elective reports

from about 15,000 companies. The staff processed a 10 percent increase in payroll

actions (10,710),an 8percent increase in electronic fund transfers (82,498),a 112percent

increase in electronic fee deposits (4,500), a 20 percent increase in travel vouchers

(8,716), and an 8 percent increase in miscellaneous invoices (12,450).

The SEC's staff completed much of the work in the design of an automated fee

tracking, reporting, and accounts receivable system. The Office ofthe Comptroller also

developed a five-year plan to strengthen the agency's financial management system.

Information Systems Management. During 1991,the Office ofInformation Systems

Management continued to modernize the agency's automated data processing and

information services with a number of significant information initiatives that will

reduce the time spent by SEC staff in collecting and processing information. These

efforts included:

implementing the development of the agency's Automated Correspondence

Tracking system to replace the Office of Consumer Affairs Complaints

System and the Chairman's Correspondence Tracking System;

initiating system development for the new Entity Filing Fee System (EFF)

that will consolidate all entity information, filings, and their associated fees;

completing the functional and data requirements for EDGAR/EFF interface

that will enhance the automatic acceptance functions in the EDGAR

system;

completing the functional requirements for the Operational Interface

between the National Association of Securities Dealers' Central Registration

Depository system and the agency's Broker-Dealer system;

developing and implementing the 6(b) Fee Collection Reporting system

that allows monitoring of fees collected for filings made pursuant to Section

6(b) of the Securities Act; and

integrating the agency's two separate electronic mail services into a single

seamless system.

Human Resources Management. The Office of Human Resources Management

activities include employee compensation and benefits, recruitment and staffing,

training, position management and classification,labor relations, counseling, disciplinary

actions, employee recognition, and maintenance of official employee records. The staff

monitors turnover to assist in formulating hiring strategies to avoid personnel shortfalls

and their adverse effects on productivity.

90

•

•

•

•

•

•

•

•
I

i

J

1

I

During 1991, a new Personnel Operating Policies and Procedures Manual was

published to provide managers and employees with updated guidance to implement

various new authorities under the Federal Employee Pay Comparability Act (FEPCA)

of 1990. New policies were issued on recruitment bonuses, appointments above the

minimum of a grade based on superior qualifications, positions designated under the

performance management and recognition system, and performance standards on

EEO and human resources management for executives, managers and supervisors. As

part ofFEPCA,interim geographic differentials and the new Administrative Law Judge

pay system were implemented.

Due to a significant increase in the agency's staffing level in 1991and continued

turnover at higher than the governmentwide average, the agency continued an

aggressive recruitment campaign. Particular emphasis was placed on the hiring of

attorneys, accountants, securities compliance examiners, computer specialists, and

secretaries through use of the agency's delegated examining authorities, special OPM

hiring programs, advertising, and attendance at Office of Personnel Management

(OPM)job fairs. Recruitment brochures and other materials also were redesigned. The

agency's upward mobility program was reactivated and restructured. A total of 26

positions, representing about one percent of the agency's total work force, was

approved for inclusion in the program.

In addition, 1991was the first full year that contract services under the employee

assistance program were available to all SECemployees and their families. Use of this

counseling ana referral service increased by 82 percent to 40 persons in 1991. The

employee assistance counselors also support the agency's drug-free workplace plan by

providing education, consultation, and referral services.

Despite budget constraints from October to early December 1990,SECemployees

attended 3,370 training courses during the year. Areas emphasized were computer

applications, the Electronic Data Gathering, Analysis and Retrieval system, EEO,

cultural diversity, and international securities regulation training. A survey and initial

plans were completed for a series of professional development symposia.

To recognize excellence in performance, more than $1.48million in incentive and

performance awards was paid to employees. In addition, the agency implemented the

new recertification requirements for members of the Senior Executive Service (SES).

The staff participated in a number of OPM task forces and external working

groups, such as the OPM interagency work group to simplify SES procedures, the

interagency advisory group committee on automated classification, a focus group on

revising the classification system, and an interagency interview team to identify key

human resources initiatives throughout the Federal Government.

Paciliiieslvumagemeni. The OfficeofAdministrative Services manages the agency' 5

facilities and provides a wide range of logistic and office support services. Since

obtaining independent leasing authority in November 1990,the agency has obtained

new space that is of higher quality and has resulted in improved working conditions

for several of its field offices, such as Atlanta, Chicago, Miami, Denver, and Salt Lake

City. Inaddition, an 81,000 square foot facility in Northern Virginia was obtained to

house the agency's computer operations and training facilities. A Memorandum of

Understanding with the GSAwas completed. As a result, several GSAleases, including

the headquarters' lease for approximately 300,000 square feet of office and related

space, was transferred to the agency.

91
The agency awarded contracts and purchase orders in excess of $30 million

during 1991. The total number of actions was 2/613/a 5 percent increase over 1990. A

significant portion of the increase is attributed to computer equipment, software, and

support services acquisitions. In other areas, printing production increased from 60

million units to 61million units; incoming mail increased by approximately 6 percent,

while outgoing mail increased by approximately 10 percent. A comprehensive

telecommunications study was initiated to review and evaluate existing

telecommunications systems and to plan future systems.

Consumer Affairs. The Office of Filings, Information and Consumer Services is

responsible for: (1) responding to investor complaints and inquiries; (2) screening

information received to make referrals to SEC program divisions, self-regulatory

organizations, states, or other federal agencies; (3)collecting and analyzing complaint

information and trends to help target regulatory and enforcement activities; (4)

preparing educational materials to assist investors in protecting their interests; and (5)

developing and implementing the agency's consumer protection program.

The staff responded to41/216 contacts in 1991. Ofthe 41/216contacts, 19/280were

complaints, 11/636were inquiries, and 10/300were a combination of complaints and

inquiries. Approximately 44percent ofthe complaints (8/466)involved broker-dealers.

The remainder of the complaints was divided among issuers, mutual funds, banks,

transfer agents, and investment advisers. The single largest category of complaints

against broker-dealers (1/968)involved allegations of high pressure or fraudulent sales

tactics.

The new computerized correspondence tracking system, AgencyCorrespondence

Tracking System (ACTS), was implemented in June 1991. ACTS permits a more

thorough analysis of complaint information and trends and increases the timeliness of

the agency's response to investors and members of the public.

Public Reference. The Office of Filings, Information and Consumer Services is

responsible for making company filings, Commission rules, orders, studies, reports

and speeches available to the public in the public reference room. Visitors may review

and copy all public documents. In addition, copies may be ordered by writing the

agency, and/ or telephoning the agency's dissemination contractor.

During 1991,the staff answered questions and completed requests for documents

from 46,700visitors to the headquarters public reference room. A total of 334/944paper

documents and 363/941 microfiche records were added to the existing library of

publicly available information, which was maintained amid constant use by visitors.

A total of 4,816 requests for paper filings was processed while 114/897 telephone

inquiries regarding filings were answered. Inaddition, the staff processed 507 formal

requests for certifications of Commission filings.

92
f

Endnotes

lSEC v. Bank of New England Corp., Accounting and Auditing Enforcement

Release No. 286 (Dec. 21, 1990), 47 SEC Docket 2028.

2In the Matter of Fleet/Norstar Financial Group, Inc., Accounting and Auditing

Enforcement Release No. 309 (Aug. 14, 1991),49 SEC Docket 882.

3In the Matter of Excel Bancorp., Inc., Accounting and Auditing Enforcement

Release No. 316 (Sept. 11, 1991),49 SEC Docket 1325.

4SEC and Federal Deposit Insurance Corporation v. Robert]. Aulie, Litigation

Release No. 12899 auly 9,1991),49 SEC Docket 548.

5SECv. Ernst &Young, Accounting and Auditing Enforcement Release No. 301

(Iune 13, 1991),49 SEC Docket 95.

6SEC v. Peoples' Bank of Brevard, Inc., Litigation Release No. 12753 (Ian. 14,

1991),47 SEC Docket 2284.

7SEC v. CapitalBanc Corp., Accounting and Auditing Enforcement Release No.

303 (Sept. 18, 1991),49 SEC Docket 0243.

8SEC v. Phillip J. Stevens, Litigation Release No. 12813 (Mar. 19, 1991),48 SEC

Docket 841.

9SEC v. Baruch Rosenberg, Litigation Release No. 12986 (Sept. 24, 1991), 49 SEC

Docket 1618.

JOSECv. John L. Petit, Litigation Release No. 12693 (Nov. 5, 1990), 47 SEC

Docket 1340.

llSEC v. Stephen R. Rasinski, Litigation Release No. 12701 (Nov. 13, 1990),47

SEC Docket 1396.

12SECv. Robert H. Willis, Litigation Release No. 12754 (Ian, 14, 1991),47 SEC

Docket 2285.

13SECv. Ernesto Tinajero, Litigation Release No. 12843 (Apr. 22, 1991),48 SEC

Docket 1363.

14SECv. Louis Ferrero, etal., Litigation Release No. 12799 (Mar. 7, 1991),48 SEC

Docket 614.

15SECv. Robert F. Hoogstraten, Litigation Release No. 12791 (Mar. 6, 1991),48

SEC Docket 606.

16SECv. Christopher l.Moran, Litigation Release No. 13013 (Sept. 30, 1991),49

SEC Docket 1734.

17SECv. Mark P. Malenfant, Litigation Release No. 12848 (May 1, 1991),48 SEC

Docket 1438.

18SECv. Peter R. Gardiner, Litigation Release No. 12818 (Mar. 27,1991),48 SEC

Docket 944.

19SECv. John G. Broumas, Litigation Release No. 12999 (Sept. 27,1991),49 SEC

Docket 1722.

2°Inthe Matter of Andrew Doherty, Securities Exchange Act Release No. 29545

(Aug. 12, 1991),49 SEC Docket 859.

21SEC v. Mark Sen do, Litigation Release No. 12894 (Iune 27, 1991), 49 SEC

Docket 0408.

93
22SEC v. Peter S. Adler, Litigation Release No. 12945 (Aug. 15, 1991), 49 SEC

Docket 962.

23SEC v. David D. Sterns, Litigation Release No. 12802 (Mar. 11, 1991),48 SEC

Docket 705.

24SEC v. Robert F. Hasho, Litigation Release No. 12732 (Dec. 13, 1990),47 SEC

Docket 1749.

25SEC v. Henry W. Lorin, Litigation Release No. 12707 (Nov. 20,1990),47 SEC

Docket 1465.

26SEC v. Frank Shannon, Litigation Release No. 12708 (Nov. 20,1990),47 SEC

Docket 1467.

27SEC v. Kochcapital, Inc., Litigation Release No. 12847 (Apr. 22,1991),48 SEC

Docket 1437.

28SEC v. Superior Resources, Inc., Litigation Release No. 12898 (Iuly 5,1991),49

SEC Docket 0548.

29SEC v. Forst-Hunter International Trade Corp., Accounting and Auditing

Enforcement Release No. 311 (Aug. 20, 1991),49 SEC Docket 1074.

30SECv. Michael S. Weinstein, Accounting and Auditing Enforcement Release

No. 282 (Oct. 26,1990),47 SEC Docket 1284.

31SEC v. Michael 1. Bitterman, et al., Accounting and Auditing Enforcement

Release No. 279 (Oct. 11, 1990),47 SEC Docket 0879.

32SEC v. Q. T. Wiles, Accounting and Auditing Enforcement Release No. 308

(Aug. 14,1991),49 SEC Docket 957.

33SEC v. John R. Ward, Accounting and Auditing Enforcement Release No. 319

(Sept. 26,1991),49 SEC Docket 1624.

34SEC v. Earthworm, Inc., Accounting and Auditing Enforcement Release No.

291 (Feb. 28,1991),48 SEC Docket 531.

35SEC v. RamtekCorp., Accounting and Auditing Enforcement Release No. 280

(Oct. 23, 1990),47 SEC Docket 1120.

36SEC v. Malibu Capital Corp., Litigation Release No. 12635, (Sept. 26,1990),47

SEC Docket 0651.

37SEC v. Joseph Wolfer, Litigation Release No. 12758 (Ian, 17, 1991), 47 SEC

Docket 2289.

38Inthe Matter of Michael R. Ford, CPA, Accounting and Auditing Enforcement

Release No. 297 (May 6,1991),48 SEC Docket 1552.

39In the Matter of Raymond Bacek, Accounting and Auditing Enforcement

Release No. 296 (Apr. 22, 1991),48 SEC Docket 1368.

40In the Matter of Bruce F. Kalem, CPA, Accounting and Auditing Enforcement

Release No. 294 (Mar. 25,1991),48 SEC Docket 954.

41In the Matter of Merle E. Bright, CPA, Accounting and Auditing Enforcement

295, (Mar. 25, 1991),48 SEC Docket 0868.

42In the Matter of Ronald N. Vance, Securities Exchange Act Release No. 28625

(Nov. 19, 1990),47 SEC Docket 1404.

43SEC v. Norman Nouskajian, Litigation Release No. 13009 (Sept. 30, 1991),49

SEC Docket 1731.

44SEC v. MichaelA. Clark, Litigation Release No. 13010 (Sept. 30,1991),49 SEC

Docket 1732.

45SEC v. Burton R. Sugarman, Litigation Release No. 12914 Guly 18, 1991),49

SEC Docket 620.

94
46In the Matter of Morgan Stanley & Co., Inc., Securities Exchange Act Release

No. 28990 (Mar. 20, 1991), 48 SEC Docket 747.

47SEC v. Alan E. Clore, Litigation Release No. 12377 (Feb. 13, 1990),45 SEC

Docket 1114.

48SEC v. Asher B. Edelman, Litigation Release No. 12835 (Apr. 11, 1991),48 SEC

Docket 1107.

49In the Matter of Norman G. Baker, Securities Exchange Act Release No. 29108

(Apr. 22, 1991),48 SEC Docket 1297.

50SECv. International Loan Network, Inc.,Litigation Release No. 12858 (May 16,

1991),48 SEC Docket 1623.

51SEC u.Laiin Investment Corp., Litigation Release No. 12742 (Dec. 21,1990),47

SEC Docket 2027.

52SEC v. Eugene R. Karczewski and Eugene F. Karczewski, Litigation Release No.

12845 (Apr. 24, 1991),48 SEC Docket 1366.

53SEC v. Robert Elderkin, Litigation Release No. 12972 (Sept. 10, 1991),49 SEC

Docket 1382.

54SECv. FSG Financial Service, Inc., Litigation Release No. 12931 (Aug. 5, 1991),

49 SEC Docket 0828.

55SECv. BFMFCorp., Litigation Release No. 12725 (Dec. 6, 1990),47 SECDocket

1661.

56SEC v. Neil E. Rogen, Litigation Release No. 12812 (Mar. 18, 1991),48 SEC

Docket 841.

57SEC v. Drexel Burnham Lambert, Inc., Litigation Release No. 11859 (Sept. 7,

1988), 41 SEC Docket 1294.

58Inthe Matter of Michael R. Milken, Securities Exchange Act Release No. 28951

(Mar. 11, 1991),48 SEC Docket 645.

59In the Matter of Lowell ]. MiIken, Securities Exchange Act Release No. 28950

(Mar. 11, 1991),48 SEC Docket 643.

WIn the Matter of Laser Arms Corp., Securities Exchange Act Release No. 28878

(Feb. 14, 1991),48 SEC Docket 292.

61In the Matter of Dominick & Dominick, Inc., Securities Exchange Act Release

No. 29243 (May 29,1991),48 SEC Docket 1740.

62In the Matter of Albert Dreyfuss, Securities Exchange Act Release No. 29242

(May 29,1991),48 SEC Docket 1740.

63In the Matter of WaIter Capital Corp., Securities Exchange Act Release No.

29028 (Apr. I, 1991),48 SEC Docket 0962.

64SEC v. Pilgrim Planning Associates Inc., and John M. Mickner, Litigation Release

No. 13117 (Dec. 10, 1991), 50 SEC Docket 0775.

65SEC v. Robert F. Kurtz, lr.,Litigation Release No. 12989 (Sept. 23, 1991),49 SEC

Docket 1623.

66Inthe Matter of Dean Witter Reynolds, Inc., Securities Exchange Act Release No.

29447 Guly 18,1991),49 SEC Docket 578.

67In the Matter of Richard Alan Lauerv, Securities Exchange Act Release No.

28707 (Dec. 18, 1990),47 SEC Docket 1789.

68In the Matter of Thomas F. White & Co., Inc., Securities Exchange Act Release

No. 29745 (Sept. 27, 1991),49 SEC Docket 1638

69In the Matter of Home Capital Services, Inc., Investment Advisers Act Release

No. 1276 (May 8,1991),48 SEC Docket 1535.

95
7°In the Matter of James L. Rapholz, [r., Investment Advisers Act Release No. 1265

(Jan. 9, 1991),47 SEC Docket 2185.

71In the Matter of R.L. Kotrozo, Inc., Investment Advisers Act Release No. 1257

(Oct. 3, 1990),47 SEC Docket 0722.

72In the Matter of Jack Allen Pirrie, Investment Advisers Act Release No. 1270

(Jan. 31, 1991),48 SEC Docket 154.

73Inthe Matter of Carl L. Lazzell, Investment Advisers Act Release No. 1260 (Oct.

18,1990),47 SEC Docket 0948.

74SECv. David B. Solomon, Litigation Release No. 12712 (Nov. 27,1990),47 SEC

Docket 1552.

75SEC v. M. Wesley Groshans, Litigation Release No. 12677 (Oct. 19, 1990),47

SEC Docket 1122.

76In the Matter of Renaissance Advisors, Inc., Investment Company Act Release

No. 18245 (July 22, 1991),49 SEC Docket 683.

77Figuresare approximate.

78The1990 total for SEC requests to foreign governments is composed of: 173

enforcement assistance requests; 2 enforcement referrals; and 2 technical assistance

requests. Prior to 1990, separate totals for enforcement referrals and technical

assistance requests were not maintained.

79'fhe1990 total for foreign requests to the SECis composed of: 98 enforcement

assistance requests; 2 enforcement referrals; and 30 technical assistance requests.

BO'"fhe1991 total for SEC requests to foreign governments is composed of: 145

enforcement assistance requests; and 6 enforcement referrals.

8lThe1991total for foreign requests to the SECis composed of: 160enforcement

assistance requests; 7 enforcement referrals; and 44 technical assistance requests.

82pub. L. No. 101-429, 104 Stat. 931 (1990).

83Securities Exchange Act Release No. 29093 (Apr. 17, 1991),48 SEC Docket

1168.

84Securities Exchange Act Release No. 29094 (Apr. 17, 1991),48 SEC Docket

1205.

85Securities Exchange Act Release No. 29095 (Apr. 17, 1991),48 SEC Docket

1215.

86Id.

8715USC S 78q-2 (1990).

88Securities Exchange Act Release No. 27975 (May 1,1990),55 FR 19124.

89Securities Exchange Act Release No. 29261 (May 31,1991),56 FR 29297.

90Securities Exchange Act Release No. 29812 (Oct. 11, 1991),56 FR 52082.

"Securities and Exchange Act Release No. 29185 (May 9,1991) 48 SEC Docket

1498.

92Securities Exchange Act Release No. 27445 (Nov. 16, 1989) 44 SEC Docket

2037.

93SecuritiesExchange Act Release No. 28899 (Feb. 20,1991) 48 SECDocket 408.

94Letter from Edward J. Markey, Chairman, Subcommittee on

Telecommunications and Finance, Committee on Energy and Commerce, U.S.

House of Representatives, to Richard C. Breeden, Chairman, SEC, dated May 16,

1991; letter from Richard C. Breeden, Chairman, SEC, to Edward J. Markey,

Chairman, Subcommittee on Telecommunications and Finance, Committee on

Energy and Commerce, U.S. House of Representatives, dated July 11, 1991.

96
9SSecurities Exchange Act Release No. 29801 (Oct. 9, 1991),56 SEC Docket

52080.

96Securities Exchange Act Release No. 29024 (Mar. 28,1991),48 SEC Docket

0901.

97Securities Exchange Act Release No. 29236 (May 24, 1991),48 SEC Docket

1717.

98Securities Exchange Act Release No. 29751 (Sept. 27,1991),49 SEC Docket

1647.

99Securities Exchange Act Release No. 30146 (Ian, 10, 1992),50 SEC Docket 11.

lOO'fheReport, which was submitted jointly by the Department of the Treasury,

Federal Reserve System, and the Securities and Exchange Commission, did not

reach a conclusion whether additional regulation of the government securities

market was necessary. The Joint Report did conclude, however, that "expanded

access to government securities information would serve the public interest." See

Study of the Effectiveness of the Implementation of the Government Securities Act of 1986

(Oct. 1990), at 87.

101Department of the Treasury, Securities and Exchange Commission, and

Federal Reserve System, Joint Report on the Government Securities Market Gan. 1992).

l02Transparency is the degree to which real-time information about completed

transactions and firm quotations in a given market is made available to the public.

103Automated Securities Trading: A Discussion of Selected Critical Issues, Prepared

by the Division of Market Regulation, for the 1991 IOSCO Annual Meeting, Panel

on Automated Trading, Washington D.C., Sept. 26,1991.

l04Securities Exchange Act Release No. 29498 (Iuly 30,1991),49 SEC Docket

0721.

lOsSecurities Exchange Act Release No. 28580 (Oct. 25, 1990), 55 FR 45895

(Amex, MSE, NYSE and Phlx) 47 SEC Docket 1078 and Securities Exchange Act

Release No. 28694 (Dec. 12, 1990), 55 FR 52119 (NASD) 47 SEC Docket 1688. The

CBOE, CSE, and PSE circuit breaker procedures previously had been approved on

a permanent basis while the BSE procedures had been approved through October

1991.

l06SecuritiesExchange Act Release No. 28767 Gan.11, 1991),56FR 1831,47SEC

Docket 2198.

l07Securities Exchange Act Release No. 28722 (Dec. 28,1990),47 SEC Docket

2070.

108SecuritiesExchange Act Release Nos. 28544 (Oct. 16, 1990),47 SEC Docket

0909 (AMEX, NYSE, Phlx and PSE); 28587 (Oct. 30, 1990),47 SEC Docket 1281; and

28701 (Dec. 13, 1990),47 SEC Docket 1695.

l09Securities Exchange Act Release No. 28627 (Nov. 19, 1990),46 SEC Docket

1410 (CBOE) and Securities Exchange Release No. 28634 (Nov. 20, 1990),46 SEC

Docket 1422 (MSE).

llOSecurities Exchange Act Release No. 29578 (Aug. 16, 1991),49 SEC Docket

0997.

111Letterfrom William H. Heyman, Director, Division of Market Regulation,

SEC, to Joanne T. Medero, General Counsel, CFTC, dated Aug. 23, 1991.

1l2Letterfrom William H. Heyman, Director, Division of Market Regulation,

SEC, to Joanne T. Medero, General Counsel, CFTC, dated Sept. 24,1991.

97
l13Securities Exchange Act Release No. 29929 (Nov. 12, 1991), 56 FR 58194

(Nov. 18, 1991),50 SEC Docket 0315.

l14Securities Exchange Act Release No. 29643 (Sept. 6, 1991),49 SEC Docket

1237.

115pub.1. No. 101-550, 104 Stat. 2713 (1990).

116Letterregarding NASDAQ International Service (Oct. 11,1991).

mThe Commission approved the service as a two-year pilot program in

Securities Exchange Act Release No. 29812 (Oct. 11, 1991),49 SEC Docket 1937.

118Letterregarding the Application of Rules 10b-6, lOb-7, and 10b-8 to Rights

Offerings and Rule 144A Transactions Involving Foreign Securities (Apr. 25,1991).

119Letterregarding TransCanada Pipelines Limited (june 4,1991). .

12°Letterregarding Telefonos de Mexico, S.A. de C.V. (May 10,1991).

121Letterregarding Societe Nationale Elf Aquitaine (june 7,1991).

122Letterregarding Novo Nordisk A/S (june 12, 1991).

123SecuritiesExchange Act Release No. 29354 (june 21,1991),49 SEC Docket

267.

1240rder of Exemption from Provisions of Rules lOb-6 and 10b-13 under the

Securities Exchange Act of 1934for Canadian Multijurisdictional Disclosure System,

Securities Exchange Act Release No. 29355 (Iune 21,1991),49 SEC Docket 351.

125Letterregarding Distributions of Certain Canadian Securities (Aug. 22,

1991).

126SecuritiesExchange Act Release No. 29274 (Iune 4, 1991),48 SEC Docket

1829.

127SecuritiesExchange Act Release No. 29275 (june 5, 1991),48 SEC Docket

1847.

128Id.

129SecuritiesExchange Act Release No. 29278 (june 7,1991),49 SEC Docket 3.

130Lettersdated Oct. 11, 1990 to David 1.Lloyd, [r., Esq., of Dewey, Ballantine,

Bushby, Palmer & Wood on behalf of mCA Limited and mCA Inc. and Nov. 27,

1990,to Robin Monro-Davies, President mCA Limited, from Michael A. Macchiaroli,

Assistant Director of the Division of Market Regulation. Letter dated Aug. 6, 1991

to Gregory A. Root, President of Bankwatch, from Michael A. Macchiaroli,

Assistant Director of the Division of Market Regulation.

131TheSSE withdrew its registration as a national securities exchange and

ceased operations on May 24, 1991.

132SecuritiesExchange Act Release No. 29237 (May 24,1991),48 SEC Docket

1718.

1335ecuritiesExchange Act Release No. 29515 (Aug. 2, 1991),49 SEC Docket

779.

134SecuritiesExchange Act Release Nos. 29301 (Iune 13, 1991),49 SEC Docket

45; 29297 (june 13, 1991),49 SEC Docket 26; 29300 (Iune 13, 1991),49 SEC Docket

42;29749 (Sept. 27, 1991), 49 SEC Docket 1644;29305 (Iune 13, 1991),49 SEC Docket

50; 29543 (Aug. 9,1991),49 SEC Docket 856.

135SecuritiesExchange Act Release No. 29631 (Aug. 30,1991),49 SEC Docket

1202.

136SecuritiesExchange Act Release No. 28556 (Oct. 19, 1990),47 SEC Docket

1049.

98
137Securities Exchange Act Release No. 29638 (Aug. 30, 1991),49 SEC Docket

1222.

138Securities Exchange Act Release Nos. 29809 and 29810 (Oct. 10, 1991), 49 SEC

Docket 1835, 1841.

139Securities Exchange Act Release No. 28635 (Nov. 21, 1990),46 SEC Docket

1424.

140Securities Exchange Act Release No. 28517 (Oct. 5, 1990),47 SEC Docket

0802. Rule 19c-4 was adopted by the Commission on July 7, 1988 and was

subsequently vacated by the U.S, Court of Appeals for the District of Columbia

Circuit on August 3, 1990. See Business Roundtablev. S.E.c., 905 F.2d 406, Fed. Sec.

L. Rep. (CCH) 95,291 (D.c. Cir. June 12,1990).

141Securities Exchange Act Release No. 29582 (Aug. 19, 1991),49 SEC Docket

1002.

142Securities Exchange Act Release Nos. 29166 (May 7,1991),48 SEC Docket

1468; 29087 (Apr. 15, 1991),48 SEC Docket 1162; 29151 (May 1, 1991),48 SEC Docket

1397; and 28783 (Ian. 15, 1991),47 SEC Docket 2219.

143Securities Exchange Act Release Nos. 29166 (May 7,1991),48 SEC Docket

1468, and 29151 (May 1, 1991),48 SEC Docket 1397.

144Securities Exchange Act Release Nos. 29132 (Apr. 26,1991),48 SEC Docket

1374, and 29087 (Apr. 15, 1991),48 SEC Docket 1162.

145SecuritiE!'sExchange Act Release Nos. 29087 (Apr. 15, 1991),48 SEC Docket

1162; 29151 (May 1,1991),48 SEC Docket 1397; and 28783 (Ian, 15, 1991),47 SEC

Docket 2219.

146Securities Exchange Act Release No. 28765 (Ian, 10,1991),47 SEC Docket

2161.

147Securities Exchange Act Release No. 29732 (Sept. 24, 1991),49 SEC Docket

1549.

14S5ecurities Exchange Act Release No. 28842 (Ian. 31, 1991),48 SEC Docket

0113.

149Securities Exchange Act Release No. 28928 (Mar. 1, 1991),48 SEC Docket

0542.

lSOSecurities Exchange Act Release No. 29576 (Aug. 16, 1991),49 SEC Docket

0994.

151Securities Exchange Act Release No. 29311 (Iune 14, 1991),49 SEC Docket

0135.

152Securities Exchange Act Release No. 29639 (Aug. 30, 1991),49 SEC Docket

1230.

153Securities Exchange Act Release Nos. 28845 (Feb. 1, 1991); 28855 (Feb. 5,

1991); and 29206 (May 17,1991),48 SEC Docket 0175, 0183, and 1647.

154Investment Company Act Release No. 18005 (Feb. 20, 1991),48 SEC Docket

433.

155Investment Company Act Release No. 18381 (Oct. 29, 1991),50 SEC Docket

3.

156Investment Company Act Release No. 17534 Gune 15, 1990),46 SEC Docket

875.

157'fhetotal does not include the seven power supply company subsidiaries of

registered holding companies.

lSSResolution Trust Corporation (pub. avail. Sept. 24,1991).

99

~
159NABAsset Corporation (pub. avail. June 20, 1991).

160S.o.Indeval, S.A. de C.V. (pub. avail. Oct. 19, 1990).

161ClintonC. Hotaling (pub. avail. Nov. 16, 1990).

162Investment Company Institute (pub. avail. June 11, 1991).

163Investment Company Institute (pub. avail. July 31, 1991).

164TheProvident Bank (pub. avail. Sept. 24, 1991).

165Investment Company Act Release Nos. 18294 (Sept. 3, 1991),49 SEC Docket

1275 (Notice) and 18338 (Oct. 1, 1991),49 SEC Docket 1713 (Order).

166Investment Company Act Release Nos. 17942 (Ian, 10, 1991),47 SEC Docket

2179 (Notice) and 17981 (Feb. 5, 1991),48 SEC Docket 212 (Order).

167Jnvestment Company Act Release Nos. 18424 (Nov. 27, 1991), 50 SEC

Docket 588 (Notice) and 18457 (Dec. 24, 1991),50 SEC Docket 981 (Order).

168InvestmentCompany Act Release Nos. 18323 (Sept. 18,1991),49 SECDocket

1481 (Notice) and 18492 (Oct. 16, 1991),50 SEC Docket 432 (Order); International

Series Release Nos. 316 (Sept. 18, 1991),49 SEC Docket 1495 (Notice) and 330 (Oct.

16,1991),50 SEC Docket 1432 (Order).

169JnvestmentCompany Act Release Nos. 18047 (Mar. 8, 1991), 48 SEC Docket

813 (Notice) and 18069 (Mar. 28, 1991),48 SEC Docket 943 (Order); International

Series Release Nos. 242 (Mar. 8, 1991),48 SEC Docket 846 (Notice) and 248 (Mar. 28,

1991),48 SEC Docket 951 (Order).

17QWesternLife Insurance Company, et al., Investment Company Act Release Nos.

18103 (Apr. 17, 1991),48 SEC Docket 1252 (Notice) and 18150 (May 15, 1991),48 SEC

Docket 1603 (Order).

17lCharter National Life Insurance Company, et al., Investment Company Act

Release Nos. 18083 (Apr. 8, 1991),48 SEC Docket 1082 (Notice) and 18130 (May 1,

1991),48 SEC Docket 1520 (Order).

172MutualBenefit Fund, et al. (pub. avail. Aug. 23,1991).

173VariableInvestors Series Trust (pub. avail. Oct. 24, 1991).

17Wortheast Utilities, Holding Company Act Release No. 25221 (Dec. 21,1990),

47 SEC Docket 1887.

17SNortheast Utilities, Holding Company Act Release No. 25273 (Mar. 15, 1991),

48 SEC Docket 776.

176City of Holyoke Gas & Elec. Dept. v. Securities and Exchange Commission, Case

No. 91-100l.

177Eastern Utilities. Assoc., Holding Company Act Release No. 25330 (june 13,

1991),49 SEC Docket 67.

178TheSouthern Company, Holding Company Act Release No. 25371 (Sept. 6,

1991),49 SEC Docket 134l.

179InreColumbia Gas Systems, Inc., Case No. 91-803, 804 (B.R.Del. July 31,1991).

180Columbia Gas System, Inc., Holding Company Act Release No. 25380 (Sept.

20,1991),49 SEC Docket 1570.

181WPL Holdings,Inc., Holding Company Act Release No. 25377 (Sept. 20,

1991),49 SEC Docket 1440, on remand from Wisconsin's Envtl. Decade, Inc. v. SEC, 882

F.2d 523 (D.c. Cir. 1989), aff'g in part and rev'g in part WPL Holdings, Inc., Holding

Company Act Release No. 24590 (Feb. 26,1988),40 SEC Docket 634.

182NevadaSun-Peak Limited Partnership (pub. avail. May 14, 1991).

183SecuritiesAct Release No. 6902 (july 9,1991),49 SEC Docket 0267.

184SecuritiesAct Release No. 6896 (june 18, 1991), 48 SEC Docket 1829.

100
185Securities Exchange Act Release No. 29275 (June 18, 1991),48 SEC Docket

1847.

186Securities Act Release No. 6900 (July 2, 1991), 49 SEC Docket 0120.

187Securities Act Release No. 6922 (Nov. 12,1991),50 SEC Docket 12.

188Securities Act Release No. 6894 (June 4,1991),48 SEC Docket 1632.

189Securities Exchange Act Release No. 28869 (Feb. 26,1991),48 SEC Docket

0234.

1905ecurities Exchange Act Release No. 29131 (May 14, 1991), 48 SEC Docket

1370.

1915ecurities Exchange Act Release No. 30147 (Jan. 6, 1992),49 SEC Docket.

1925ecurities Act Release No. 6891 (Apr. 30, 1991), 48 SEC Docket 1131.

1935ecurities Exchange Act Release No. 29315 (July 2, 1991),49 SEC Docket

0139.

1945ecurities Act Release No. 6895 (June 18, 1991), 48 SEC Docket 1827.

1955ecurities Act Release No. 6892 (May 21,1991),48 SEC Docket 1442.

1961990 Annual Report, United States Securities and Exchange Commission, at 64.

1975tatement of Financial Accounting Standards No. 107, Disclosures About Fair

Value of Financial Instruments (Dec. 1991).

198TestimonyofRichard C.Breeden, Chairman, SEC, Concerning Issues Involving

Financial Institutions and Accounting Principles, before the Senate Committee on

Banking, Housing and Urban Affairs, Sept. 10, 1990 at 32.

1995taffAccounting Bulletin No. 89 (Jan. 7, 1991),47 SEC Docket 2189 (Financial

StatementRequirementsofTroubledFinancial Institutions Acquired or to be Acquired).

2005taffAccounting Bulletin No. 90 (Jan. 31, 1991), 48 SEC Docket 158 (Specific

Matters Relating to the Bankruptcy of an Accounting Firm which had Public Company

Oients).

201Staff AccountingBulletin No. 91 (July 19, 1991), 49 SEC Docket 621 (Accounting

for Income Tax Benefits Associated with Bad Debts of Thrifts).

202Securities Act Release No. 33-6789 (July 19,1988),41 SEC Docket 681.

203Financial Reporting Release No. 37 (July 29,1991),49 SEC Docket 710.

204TheIASC was founded in 1973 by private professional accountancy bodies of

nine countries. Today, the accountancy bodies of 79 countries are members. These

accountancy organizations typically are not the standard-setting bodies of the countries

they represent.

2(61990Annual Report, United States Securities and Exchange Commission, at 66.

206Statement of Financial Accounting Standards No. 106, Employers Accounting

for Post-Retirement Benefits Other than Pensions (Dec. 1990).

207Statement of Financial Accounting Standards No. 109, Accounting for Income

Taxes (Feb. 1992).

208Statement on Auditing Standards No. 66, Communication of Matters about

Interim Financial Information Filed or to be Filed with Specified Regulatory

Agencies-An Amendment of SAS No. 36, Review of Interim Financial Information

(June 1991).

209Statement on Auditing Standards No. 69, The Meaning of Present Fairly in

Conformity with Generally Accepted Accounting Principles in the Independent

Auditor's Report (Feb. 1992).

210Annual Report/1990-1991, Public Oversight Board, SEC Practice Section,

American Institute of Certified Public Accountants.

101
211Statement of Position 90-7, Financial Reporting by Entities in Reorganization

Under the Bankruptcy Code (Nov. 19, 1990).

2UStatement of Position 90-8, Financial Accounting and Reporting by Continuing

Care Retirement Communities (Nov. 28, 1990).

213$tatement of Position 91-1, Software Revenue Recognition (Dec. 12, 1991).

214IASCE 36, Cash Flow Statements (Iuly 1991); E 37, Research and Development

Activities (Aug. 1991); E 38, Inventories (Aug. 1991); E 39, Capitalization of Borrowing

Costs (Aug. 1991); and E 40, Financial Instruments (Sept. 1991).

21SFiguressubmitted for earlier years were compiled usingadifferentmethodology.

Each case was included in inventory until the Commission issued a decision. For 1991,

a case was included in inventory until a draft opinion was provided to the Commission

by the General Counsel.

216947F.2d551 (2d Or. 1991)(en bane), petitionfor cert. filed, 60U.S.L.W. 3500 (U.S.

Jan. 21, 1992) (No. 91-1085).

217933F.2d 403 (7th Or. 1991),cert. denied, 60U.S.L.W. 3520 (U.S. Jan. 28, 1992) (No.

91-605).

218[Current] Fed. Sec. L. Rep. (CCH) 96,464 (9th Or. 1991).

219794F2d 1388 (9th Cir. 1986).

2211328U.S. 293 (1946).

221110S.Ct. 945 (1990).

222111S.Ct. 2773 (1991).

123947F2d 897 (10th Or. 1991). 224111 S.Ct. 2173 (1991). 225111 S.Ct. 2749 (1991). 226111 S.Ct. 1711 (1991). 227441 U.S. 471 (1979).

228Combellick, Reynolds &Russell Inc., Richard P.Angell, and Raymond R. Russell, Jr.,

Initial Decision Release No. 21 (june 19, 1990),49 SEC Docket 244.

229Crim. No. WN-90-0404 (D. Md.).

230No.91-70272 (9th Cir.).

231SafecardServices, Inc. v. SEC, 926 F.2d 1197 (D.C Or. 1991).

232Bolenv. SEC, Case No. 91-0108 HLH (GHKx) (CD. Cal. Feb. 5,1991); Swinkv.

SEC, Misc. No. 4-91-402A (Mar. 25, 1991); Sepe v. SEC, Misc. No. 91-0128 (Apr. 5, 1991);

Gotshalkv. SEC, Case No. C91-0064 TEMMisc. (N.D. Cal. Apr. 22, 1991); Greenev. SEC,

Case No. 91 N1413 (D. Colo. Sept. 9, 1991);Jacksonv. SEC, C.A.No. 91 N 1414 (D. Colo.

Sept. 9, 1991); Kuhlman v. SEC, 8: CV91-0652 (D. Neb. Dec. 19, 1991); Kupchynskyv. SEC,

Misc. No. Ml8-304 (S.D.N.Y. Nov. 25,1991); and Lavinev. SEC, ex. No. 91-8728 (S.D.

Fla.). 2338: CV91-0652 (0. Neb. Dec. 19, 1991).

234Securities Exchange Act Release No. 29017 (Mar. 28, 1991),48 SEC Docket 878.

23S5ecurities Exchange Act Release No. 29446 (Iuly 17, 1991),49 SEC Docket 573.

236Securities Exchange Act Release No. 29468 (luly 23,1991),49 SEC Docket 635.

237Securities Exchange Act Release No. 28925 (Feb. 28,1991),48 SEC Docket 486.

238pub.L. No. 102-242, 105 Stat. 2236 (1991). 239111 S.Ct. 2773 (1991).

240Inre Columbia Gas Systems, Inc., Case No. 91-803 (Bankr. D. Del.).

241Inre Federated Department Stores, Inc. and Allied Stores Corp., No. 1-90-00130

(Bankr. S.D. Ohio, Mar. 7, 1991).

102

~
242Kaiser Steel Resources, Inc. v.Action Traders, lnc.,No. 90-1243 (10th Cir.) and Kaiser

Steel Resources, Inc. v. Pearl Brewing Co., No. 90-1245 (10th Cir.).

wIn re Amdura Corp., Case No. 90-3811-E et. seq. (Bankr. D. Colo.).

244Inre Amdura Corp., No. 91 N 1521 (D. Colo.).

24SInreAmerican Reserve Corp., 840 F.2d 487 (7th Cir.1988); In re The Charter Co., 876

F.2d866 (l1thCir. 1989),petitionforcert. dismissed, 110S.Ct. 3232 (1990); and Reidv. White

Motor Corp., 886 F.2d 1462 (6th Cir. 1989), cert. denied, 110 S.Ct. 1809 (1990). See also In

reChateaugayCorp., 104Bankr. 626 (S.D.N.Y.1989); and In reZenith Laboratories,lnc., 104

Bankr. 659 (D.N.]. 1989). Cf In re Mortgage & Realty Trust, 125 Bankr. 575 (Bankr. CD.

Cal. 1991).

246Inre LTV Corp., Case No. 86 B 11270 through 86 B 11334 Inclusive, 86 B 11402

and 86 B 11464 (BRL) (Bankr. S.D.N.Y.).

WIn re LTV Corp., 930 F.2d 245 (2d Cir. 1991).

248Inre LTV Corp., 104 B.R. 626 (S.D.N.Y 1989).

249SIPCv. Blinder, Robinson & Co., lnc., No. 90-1223 (10th Gr.).

2SOIn re Revco D.S., lnc., Nos. 588-1308 through 588-1321, 588-1305, 588-1761

through 588-1812, and 588-1820 Bankr. (N.D. Ohio).

251Inre Banyan Corp., Case No. 9112486(CB) (Bankr. S.D.N.Y.).

252Inre Amdura Corp., Case No 90-3811-E et. seq. (Bankr. D. Colo.).

253Inre Banyan Corp., Case No. 91 12486(CB) (Bankr. S.D.N.Y.).

254See,e.g., In re Southmark Corp. and In re SIS Corp., 56th Annual Report at 91

(objection to confirmation of reorganization plan); In re Custom Laboratories, lnc., 53rd

Annual Report at 74 (objection to disclosure statement); In re Energy Exchange Corp. and

Vulcan Energy Corp. and In re Storage Technology Corp., 53rd Annual Report at 74-75

(objection to confirmation of reorganization plan).

255Inre Southland Corp., Case No. 390-37119-HCA-ll (Bankr. ND. Tex.).

103
Table 2

UNCONSOLIDATED ANNUAL REVENUES AND EXPENSES FOR BROKER-DEALERS

DOING A PUBLIC BUSINESS

1986-1990 jJ

($ in Millions)

1986 1987 1988 1989' 1990P

"

Reyenues

Securities Commissions $13,513.2 $16,016.2 $11,5153 $13,012.7 $11,661.0

Gains (Losses) In Trading and

Investment Accounts 16,353.2 12,393.4 15,296.3 15,048.6 14,869.3

Profits (Losses) from Underwriting

and Selling Groups 6,739.0 5,718.5 5,605.6 4,536.4 3,728.0

Margin Interest 3,0058 3,467.0 3,1355 3,813.3 3,158.9

Revenues from Sale of

Investment Company Shares 4,540.1 4,069.5 2,643.2 3,037.8 3,241.6

All Other Revenues 17.432.8 21.450.2 26,039.0 35,189.4 32,5784

Total Revenues $61,584.0 $63,114.8 $64,235.0 $74,638.3 $69,237.2

Registered Bepresentatves'

Compensation (Part" Only) 2/ $10,675.4 $11,032.4 $ 8,993.3 $ 8,962.7 $ 8,245.9

Other Employee Compensation

and Benefits 10,7940 11,869.7 11,9009 12,1914 12,209.2

Compensation to Partners and

Voting Stockholder Officers 2,040.8 2,185.2 2,063.5 2,090.0 1,983.8

Commissions and Clearance Paid

to Other Brokers 2,781.5 3,355.8 2,641.0 2,8679 2,796.4

Interest Expenses 13,691.6 16,179.1 19,268.1 29,3546 27,630.6

Regulatory Fees and Expenses 384.9 3999 451.9 5160 509.4

All Other Expenses 2/ 14,024.1 16,2841 15,968.3 16,348.5 15,581.0

Total Expenses $54,392.3 $61,306.0 $61,287.0 $72,331.0 $68,956.4

Income and profitability

Pre-tax Income $ 7,191.7 $ 1,808.8 $ 2,948.0 $ 2,307.3 $ 280.8

Pre-tax Profit Margin 11.7 2,9 4.6 3.1 04

Pre-tax Return on Equity 29.0 6.1 9.0 6.8 0.8

Number of Firms 6,235 6,307 6,005 5,746 5,424

Figures may not add due to rounding.

r revised

p = preliminary

11 Calendar year data IS reported in this table.

2/ Registered representatives' compensanon for firms that neither carry nor clear is included in "other expenses.

as this expense Item is not reported separately on Part IIA of the Focus Report.

Source: Focus Report

106

~

=
Table 3

UNCONSOLIDATED BALANCE SHEET FOR BROKER-DEALERS

DOING A PUBLIC BUSINESS

YEAR-END, 1986-1990 lJ

($ in Millions)

1986 1987 1988 1989' 1990P

Cash $ 8,961.0 $ 7,538.9 $ 9,612.2 $ 9,870.8 $ 10,968.1

Receivables from Other

Broker-Dealers 65,407.4 61,9531 67,598.2 90,157.3 118,413.2

Receivables from Customers 54,177.3 38,706.4 40,236.3 40,320.4 37,177.8

Receivables from Non-customers 3,5758 3,370.1 3,061.9 1,362.9 1,157.7

Long Positions In Securities

and Commodities 165,748.5 118,150.2 130,758.1 211,232.1 208,1663

Securities and Investments

Not Readily Marketable 490.4 4604 618.9 1,247.5 1,190.2

Securities Purchased Under

Agreements to Resell (Part" Only) 21 187,568.9 213,935.0 258,034.5 257,235.0 237,235.6

Exchange Membership 294.6 345.4 363.7 360.5 332.3

Other Assets 21 20.328.8 21.339.1 23,424.1 26,356.5 26,014.3

Total Assets $506,552.7 $465,798.6 $533,707.8 $638,143.0 $640,655.5

Liabilities and Equity CaPItal

Bank Loans Payable $ 38,494.3 $ 20,756.0 $ 22,953.6 $ 22,759.5 $ 18,342.2

Payables to Other Broker-Dealers 51,069.4 43,138.1 46,336.5 49,6020 46,0389

Payables to Non-Customers 3,427.1 4,173.1 4,143.7 4,610.4 7,510.5

Payables to Customers 40,7472 34,328.7 39,312.9 46,969.3 55,5497

Short Positions In Securities

and Commodities 76,972.8 73,7258 92,414.4 93,682.7 104,690.0

Securities Sold Under Repurchase

Agreements (Part" Only) 21 223,832.2 213,049.9 243,828.7 328,382.8 320,7733

Other Non-subordinated Liabilities 21 34,158.4 32,681.0 37,016.5 43,067.2 40,973.2

Subordinated Liabilities 9,955.3 12,306.4 13,534.5 14,991.9 14,763.0

Total Liabilities $478,656.7 $434,158.9 $499,540.8 $604,065.8 $608,640.8

Equity Capital $ 27,896.1 $ 31,639.6 $ 34,166.9 $ 34,077.2 $ 32,014.6

Number of Firms 6,235 6,307 6,005 5,746 5,424

Figures may not add due to rounding.

r revised

p preliminary

jj Calendar year data is reported in this table.

21 Resale agreements and repurchase agreements for firms that neither carry nor clear are Included in "omer

assets. and "omar non-subordinated liabilities. respectively, as these items are not reported separately on

Part IIA of the Focus Report.

Source: Focus Report

107

~

=

=
Carrying and Clearing Firms

Data for carrying and clearing firms that do a public business is presented here

to allow for more detail as reporting requirements for firms that neither carry nor

clear differ and data aggregation of these two types of firms necessarily results in

loss of detail. Carrying and clearing firms are those firms that clear securities

transactions or maintain possession or control of customers' cash or securities. This

group produced 86% of the securities industry's total revenues in calendar year

1990.

Brokerage activity accounted for about 23 cents of each revenue dollar in 1990,

down slightly from the level in 1989. Securities commissions were the most

important component, producing 14 cents of each dollar of revenue, while margin

interest and revenues from mutual fund sales generated 5 cents and 3 cents,

respecti vely.

The dealer side produced 62 cents of each dollar of revenue, also slightly lower

than that earned in 1989. Twenty-three cents came from trading and investments,

up from 21 cents in 1989. Six cents came from underwriting, down from 1989, and

34 cents came from other securities-related revenues, down from 37 cents in 1989.

The latter is comprised primarily of interest income from securities purchased

under agreements to resell and fees from handling private placements, mergers,

and acquisitions.

Expenses exceeded revenues in 1990,resulting in a profitless year, compared

to a pre-tax profit margin of 2 cents per revenue dollar in 1989.

Interest remained the most important expense category in 1990, consuming 45

cents of each revenue dollar, compared to 44 cents in 1989. Employee-related

expenses, registered representatives' compensation, and clerical and administrative employees' expenses increased slightly to 29 cents from 28 cents in 1989.

Total assets of broker-dealers carrying and clearing customer accounts were

$632.1 billion at year-end 1990, virtually unchanged from 1989. Thedistributionof

these assets changed substantially, however. Driven primarily by an increase in the

contract value of securities borrowed, receivables from other broker-dealers grew

by $27.3 billion to $116.5 billion. By contrast, reverse repurchase agreements

declined by $20.0 billion to $237.2 billion. Even with this decline, reverse repurchase

agreements and U.S. Government securities combined still account for 60% of all

assets. Holdings of corporate securities by broker-dealers declined sharply in 1990.

The dollar value of corporate debt securities fell $3.8 billion to $26.4 billion while

the value of stock and securities held in arbitrage accounts declined by $4.5 billion

to $11.6 billion.

Total liabilities increased slightly to $604.3 billion in 1990. A small decline in

repurchase agreements was more than compensated for by increases in short

positions and monies owed customers. Owners' equity fell 7%, from $30.0 billion

in 1989 to $27.8 billion in 1990.

108
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Table 6

UNCONSOUDATED BALANCE SHEET FOR CARRYING/CLEARING

BROKER-DEALERS jJ

($ in Millions)

Year-end 1989' Year-end 1990P

Percent Percent Percent

of Total of Total Change

Dollars Assets Dollars Assets 1989-1990

Cash $ 9,3188 1.5 $ 10,405.3 16 11.7

Receivables from Other

Broker-Dealers 89,159.0 142 116,4693 18.4 306

(a) Securities Failed to Deliver 6,734.9 1.1 7,318.7 12 8.7

(b) Securities Borrowed 69,138.1 11.0 96,036.4 15.2 38.9

(c) Other 13,2859 21 13,114.2 21 (1.3)

Receivables from Customers 40,3204 64 37,177 8 59 (78)

Receivables from Non-customers 1,1265 02 899.2 0.1 (20.2)

Long Positions In Secu rmes

and Commodities 207,096.3 32.9 204,669.8 324 (1.2)

(a) Bankers Acceptances,

Certificates of Deposit and

Commercial Paper 14,712.5 2.3 14,872.5 24 1.1

(b) U S. and Canadian Government

Obligations 136,056.1 21.6 141,058.1 22.3 3.7

(c) State and MUnicipal Government

Obligations 7,082.8 1.1 7,908.1 1.3 11.7

(d) Corporate Obligations 30,2232 48 26,415.7 4.2 (126)

(e) Stocks and Warrants 13,400.8 2.1 9,7075 1.5 (27.6)

(I) Options 8245 01 8640 0.1 4.8

(g) Arbitrage 2,705.7 0.4 1,877.1 0.3 (306)

(h) Other Securities 1,437.4 0.2 1,422.5 02 (1.0)

(I) Spot Commodities 444.3 0.1 334.1 0.1 (24.8)

Securities and Investments

Not Readily Marketable 1,1320 02 1,052.1 0.2 (7.1)

Securities Purchased Under

Agreements to Resell 257,235.0 40.8 237,235.6 37.5 (7.8)

Exchange Membership 324.1 0.1 295.7 . (8.8)

Other Assets 24,3354 3.9 23,897.7 3.8 (1.8\

Total Assets $630.047.3 1000 $632,1026 1000 03

liabilities and Eguitv Capital

Bank Loans Payable $ 22,745.3 3.6 $ 18,257.7 2.9 (19.7)

Payables to Other Broker-Dealers 48,921.5 7.8 45,371.6 7.2 (7.3)

(a) Securities Failed to Receive 9,545.1 1.5 5,923.1 0.9 (37.9)

(b) Securities Loaned 31,060.0 49 31,181.8 4.9 04

(c) Other 8,316.4 1.3 8,266.7 1.3 (0.6)

Payables to Non-customers 4,481.2 0.7 7,287.4 1.2 62.6

Payables to Customers 46,969.3 7.5 55,5497 88 183

Short Positions In Securities

and Commodities 92,121.5 14.6 102,898.9 16.3 11.7

Securities Sold Under Repurchase

Agreements 328,832.8 52.1 320,773.3 50.7 (23)

Other Non-subordinated liabilities 41,887.6 6.6 39,870.5 6.3 (4.8)

Subordinated liabilities 14.4886 23 14.260.5 2.3 (1.6\

Total liabilities $599,997.7 95.2 $604.269.7 95.6 07

Equity Capital $ 30,049.5 48 $ 27,832.9 4.4 (7.4)

Number of Firms 1,053 947

Figures m~ not add due to rounding under .0 %

r = revised

p = srelimlnary 1/ alendar year data IS reported in this table.

Note: Includes information for firms dOing a public business that carry customer accounts or clear securities

transactions.

Source: Focus Report

111

~

•
Self-Regulatory Organizations: Expenses, Pre-tax Income and Balance

Sheet Structure

In 1990, the total revenues of all self-regulatory organizations (SROs) with

marketplace jurisdiction fell approximately $6 million to $864 million, a decrease

of nearly one percent from 1989 (1989 recognized a 5.1% increase over 1988,1988

a 7.8% decrease over 1987). The New York Stock Exchange (NYSE), National

Association of Securities Dealers (NASD), American Stock Exchange (Amex), and

Chicago Board Options Exchange (CBOE) accounted for 82.3% of all SRO total

revenues, up from 79.5% in 1989. The SROs' revenues are earned primarily from

listing, trading, and market data fees. The NYSE reported total revenues of $348.6

million, virtually unchanged from 1989, of which $187.1 million or 54% consisted

of listing and trading fees while $52.5 million or 15% consisted of market data fees.

The Amex reported total revenues of $106.7 million, down 2.7% from 1989. The

CBOE reported total revenues of $73.1million, up 3.8%from the previous year. The

NASD reported an increase in total revenues of $19.8 million, or 12.2%, to $182.6

million. Other SROs reporting revenue increases were the Boston Stock Exchange

(BSE), which reported a $100,000 increase, or nearly one percent, to $13.4 million;

and the Cincinnati Stock Exchange (eSE), which recorded a 15% increase, equating

to a $500,000 increase in total revenues to $3.8 million. Other SROs that reported

a decrease in revenues were the Midwest Stock Exchange (MSE), which reported

a $4.6 million, or 5.6% decrease, to $77 million; the Philadelphia Stock Exchange

(Phlx), which reported a $14.8 million decrease, or 42%, to $20.4 million; and the

Pacific Stock Exchange (PSE), which reported a $6.1 million decrease, or 13.7%, to

$38.4million. The largest percentage increase in total revenues, 15%,was experienced

by the eSE. The largest magnitude increase, $19.8 million, was recorded by the

NASD. The largest percentage decrease, 42%, was recorded by the Phlx.

The total expenses of all marketplace SROs were $846.4 million in 1990, an

increase of $14.4 million, or 1.7%, over 1989. The NASD incurred the largest

magnitude increase in expenses, $20.7 million, while the eSE experienced the

largest percentage increase, 23%. The Phlx recorded both the largest magnitude and

percentage decreases in expenses, $11.8 million, or 35.6% With aggregate total

expenses increasing and aggregate total revenues decreasing, pre-tax income of the

SROs declined in 1990 by 81.2% from 1989 levels of $7 million. The NYSE

experienced the largest magnitude decrease in pre-tax income, $7.1million, a 70.3%

decrease from 1989. The eBOE recorded the largest percentage decrease, 857%, or

$4.7 million as pre-tax losses increased from $549,000 in 1989 to $5.2million in 1990;

the Phlx also reported a large decrease, 150%, or$3 million. Although all ofthe SROs

suffered decreases in pre-tax income, the NASD experienced the smallest decline,

$200,000 (2.5%). The Amex recorded a decrease of $6.4 million (94%); the BSE a

decrease of $597,000 (74.8%); the eSE a decrease of $75,000 (28%); the MSE a

decrease of $2.5 million (49%); and the PSE a decrease of $5.8 million (120%).

The total assets of all marketplace SROs were $1,287 million in 1990, nearly

unchanged from 1989. Both the largest percentage increase as well as the largest

magnitude increase in total assets was experienced at the MSE where total assets

increased $67.3 million (31%) from 1989 to 1990. The total assets of the BSE, eSE,

NASD, and PSE also increased. The largest decrease in total assets occurred at the

Phlx, where total assets decreased $69.3million (71.4%). Slight decreases also were

112
experienced by the Amex (3.1%), CBOE (6.3%), and the NYSE (4.2%). The total

liabilities of marketplace SROs in 1990, $676.8 million, decreased .7% over 1989

levels. The greatest percentage and magnitude decrease in liabilities was recorded

by the Phlx--$68.3million (95.4%). The Amex (12.8%),CBOE (8.3%), andNYSE (7%)

also experienced decreases in total liabilities. The total liabilities of the MSE

increased $65.8 million (35%). The greatest percentage increase in liabilities

occurred at the NASD, whose liabilities increased 59.7% ($21.6 million). The BSE

(1.8%), CSE (7.1%), and PSE (5.3%) also recorded increased total liabilities in 1990.

The aggregate net worth of the marketplace SROs rose $6.8 million in 1990, an

increase of 1.1%. The largest percentage increase in net worth occurred at the CSE

(18%), representing an increase of $200,000 in net worth. The NASD's net worth

increased by $12.6 million (8.6%), the largest magnitude increase. The Amex (.4%),

BSE(2%), and MSE (5.4%) also experienced positive growth in their net worth. The

CBOE (4.6%), NYSE (1.3%), Phlx (3.5%), and PSE (6.1%) experienced decreases in

net worth.

Clearing agency results have been presented in two charts by their respective

types: depositories and clearing corporations. Aggregate clearing agency service

revenue increased almost 19% ($58 million) in calendar year 1990 due to increases

in income from services. This increase offset a reduction in interest income of 24%

($35 million). All clearing agencies adjust fee structure and refunds of fees to

provide participants with attractively priced services, and to meet expenses and

provide the amount of earnings which they desire to retain.

The total of all revenues at deposi tories increased $37 million (13%),incl uding

a $20 million increase at the PTC, a $4 million increase at DTC and a $2 million

reduction at MSTC due to a decrease in service revenues. Total depository pre-tax

income was up 2%, to almost $2.6 million. The PTC reported pre-tax net income of

$1.4 million as compared to a loss of $644,000 in 1989. MSTC recorded a dollar loss

of almost a half million in 1990 compared to $204,000 in pre-tax profits in 1989. The

Philadelphia Depository Trust Company had a loss of $343,000 in contrast with the

year earlier pre-tax net profit of $338,000.

The depositories continued to expand their base for service revenues by

increasing the number of shares on deposit and the face value of debt securities in

custody. This was made possible by the further expansion of depository eligible

issues and the desire of participants to avail themselves of depository services. The

MSTC had 891,000 eligible issues at year-end, up 11%, and the DTC had 828,000, up

14%. In general, eligibility for all types of securities increased. At the end of 1990,

the total value of securities in the depository system reached $4.3 trillion, of which

the DTC alone held $4.0 trillion, including$1.8 trillion in certificates held by transfer

agents as the D'I'C's agent. More than 87% of the principal amount of outstanding

municipal bonds and 67% of the shares of all NYSE-listed U.S. companies were in

the depository system at the end of 1990.

Service revenue of clearing corporations remained at $140million. As a group,

the clearing corporations recorded a net decrease in pre-tax income of almost $1.2

million. The National Securities Clearing Corporation's (NSCC) consolidated pretax earnings decreased by $519,000. However, International Securities Clearing

Corporation (ISCC), a wholly owned subsidiary of NSCC, posted an increase of

almost $1.9 million and Government Securities Clearing Corporation (GSCC), in

which NSCC has a 19% equity interest, had an increase of over $2.5 million. NSCC

113
recorded a decrease of almost $2.4 million. Stock Clearing Corporation of

Philadelphia reported a pre-tax loss of $376,000 after having a profit of $189,000 in

1989. The MBS Clearing Corporation reported an increase of $708,000 in pre-tax

income from continuing operations, up 24%, to almost $3.7 million.

The combined Pacific Clearing Corporation (PCC) and Pacific Securities

Depository Trust Company (PSDTC) had a pre-tax gain of almost $3.1 million, off

$68,000 from 1989. In April 1987, the PSE announced the closure of the clearance

and depository functions not essential to PSE's trading operations. The 1988 pretax figure included a $1 million provision for loss due to costs of discontinued

operations. An additional $50,000 was reserved by the PSE in 1989. In 1990 and

1989,payments charged against this reserve were $13,000 and $732,000,respectively.

The remaining reserve was valued at almost $864,000 at year end. The combined

stockholders' equity of PCC and PSDTC was almost $4.7 million at the end of 1990.

PSE, the parent corporation of pec and PSDTC, which guarantees their liabilities,

reported members' equity of $18.4 million at the end of 1990.

The aggregate shareholders' equity of all clearing corporations and depositories

rose to a new high of $95 million. Participant clearing fund contributions increased

by $347 million (27%) to over $1.6 billion. These funds provided protection to the

clearing agencies in the event of a participant default by means of a pro-rated charge

against the participants' fund.

114
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Table 9

SELF-REGULATORY ORGANIZATIONS-DEPOSITORIES

REVENUES AND EXPENSES AS OF DECEMBER 31 , 199011

($ in thousands)

Revenues

Depository Services

Interest

Other

Total Revenues 21

Employee Costs

Data Processing and

Communications Costs

Occupancy Costs

Contracted Services Cost

All Other Expenses

Total Expenses

Excess of Revenues

Over Expenses 'JI

Shareholders' EQuity

Participant's Fund

Depository

Trust

Company

$164,290

87,714

o

$252,004

$154,401

16,590

40,633

o

38,380

$250,004

$ 2,000

$ 18,758

$628,617

Midwest

Securities

Trust

Company

$28,205

2,767

o

$32,436

$14,208

1,735

4,377

2,631

9,977

$32,927

($ 492)

$ 3,745

$ 6,385

Participants

Trust

Company

$ 29,549

6,467

o

$ 36,016

$ 7,477

14,443

7,183

o

5,490

$ 34,593

$ 1,423

$ 15,019

$178,503

Philadelphia

Depository

Trust

Company

$7,110

601

o

$7,711

$3,770

1,128

383

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2,773

$8,054

($ 343)

$1,257

$ 466

Total

$229,154

97,549

1,464

$328,167

$179,856

33,896

52,576

2,631

56,620

$325,578

$ 2,588

$ 38,779

$813,971

11 Although efforts have been made to make the presentations comparable, any single revenue or expense

category may not be completely comparable between any two clearing agencies because of (i) varying

classification methods employed by the cleanng agencies in reporting operating results and (II) the grouping

methods employed by the SEC staff due to these varying classmcation methods IndiVidual amounts

are shown to the nearest thousand Totals are the rounded result of the underlying amounts and may not be

the anthmetic sum of the parts.

21 Revenues are net of refunds which have the effect of reducma a clearing agency's base fee rates.

'JI This is the result of operations and before the effect of Income taxes, which may SignifIcantly impact a clearing

agency's net income.

117

~
Exemptions

Section 12(h) Exemptions

Section 12(h) of the Securities Exchange Act of 1934 (Exchange Act) authorizes

the Commission to grant a complete or partial exemption from the registration

provisions of Section 12(g) or from other disclosure or insider trading provisions

of the act where such exemption is consistent with the public interest and the

protection of investors. A total of 175 applications were pending at the beginning

of 1991 and 16 applications were filed during the year. Of the 191 applications, 5

were granted and 36 were withdrawn. In addition, approximately 40 issuers

informally advised the staff that they intend to withdraw their applications.

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. The

most significant of these exemptions is that contained in subparagraph (b), which

provides an exemption for certain foreign issuers that submit to the Commission

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: (1)has made oris required to make publicpursuantto the law of the country

in which it is incorporated or organized; (2) has filed or is required to file with a

foreign stock exchange on which its securities are traded and which was made

public by such exchange; or (3) has distributed or is required to distribute to its

securityholders. Periodically, the SEC publishes a list of those foreign issuers that

appear to be current under the exemptive provision. The most current list contains

a total of 1,066 foreign issuers.

118
Securities on Exchanges

Market Value and Share Volume

The market value of equity and option transactions (trading in stocks, options,

warrants, and rights) on registered exchanges totaled $1.7 trillion in 1990. Of this

total, $1.6 trillion, or 93%, represented the market value of transactions in stocks,

rights and warrants; $130 billion, 7%, were options transactions (including exercises

of options on listed stocks).

The value of equity and option transactions on the New York Stock Exchange

(NYSE) was $1.4 trillion, down 12% from the previous year. The market value of

such transactions on the American Stock Exchange (Amex) fell 19% to $64.8 billion

and by 16% to $287.7 billion on all other exchanges. The volume of trading in stocks

on all registered exchanges totaled 53.3 billion shares, a 2% decrease from the

previous year, with 82% of the total accounted for by trading on the NYSE.

The volume of options contracts traded on options exchanges (excluding

exercises) was 210 million contracts in 1990, 8% lower than in 1989. The market

value of these contracts increased 3% to $79.0 billion. The volume of contracts

executed on the Chicago Board Options Exchange fell 2% to 129.5 million; option

119
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NASDAQ (Share and Dollar Volume)

NASDAQ share and dollar volume information for over-the-counter trading

has been reported on a daily basis since November 1, 1971. At the end of 1990, there

were 4,706 issues in the NASDAQ system as compared to 4,963 a year earlier and

3,050 at the end of 1980.

Share volume for 1990was 33.4 billion as compared to 33.5 billion in 1989 and

6.7 billion in 1980. This trading volume encompasses the number of shares bought

and sold by market makers plus their net inventory changes. The dollar volume of

shares traded in the NASDAQ system was $452.4 billion during 1990 as compared

to $431.4 billion in 1989 and $68.7 billion in 1980.

Share and Dollar Volume by Exchange

Share volume on all registered exchanges totaled 53.7billion, a decrease of 1%

from the previous year. The New York Stock Exchange accounted for 82% of the

1990share volume; the American Stock Exchange, 6%;the Midwest Stock Exchange,

5%; and the Pacific Stock Exchange, 3%.

The dollar value of stocks, rights, and warrants traded was $1.6 trillion, 12%

lower than the previous year. Trading on the New York Stock Exchange accounted

for 86% of the total. The Midwest Stock Exchange and Pacific Stock Exchange

contributed 5% and 3%, respectively. The American Stock Exchange accounted for

2% of dollar volume.

122
Table 12

SHARE VOLUME BY EXCHANGES 11

(In Percentage)

Total Share

Volume

Year (In Thousands) NYSE AMEX MSE PSE PHLX SSE CSE Others 2J

1945 769,018 65.87 21.31 1.77 2.98 1 06 0.66 005 630

1950 893,320 76.32 13.54 2.16 311 0.97 0.65 009 316

1955 1,321,401 6885 1919 209 308 0.85 048 0.05 541

1960 1,441,120 68.47 22.27 2.20 3.11 0.88 038 004 265

1961 2,142,523 64.99 2558 222 341 0.79 0.30 004 267

1962 1,711,945 71.31 2011 2.34 295 0.87 031 0.04 207

1963 1,880,793 72.93 18.83 232 282 083 0.29 004 1.94

1964 2,118,326 72.81 19.42 2.43 2.65 093 029 003 144

1965 2,671,012 69.90 22.53 2.63 233 0.81 0.26 0.05 1.49

1966 3,313,899 6938 2284 256 268 0.86 040 0.05 1.23

1967 4,646,553 64.40 28.41 2.35 246 0.87 043 002 106

1968 5,407,923 6198 29.74 2.63 264 0.89 0.78 0.01 133

1969 5,134,856 63.16 27.61 284 3.47 1.22 0.51 0.00 119

1970 4,834,887 71.28 1903 316 3.68 163 0.51 002 069

1971 6,172,668 71.34 1842 352 3.72 1.91 043 003 063

1972 6,518,t32 70.47 18.22 3.71 4.13 2.21 0.59 0.03 064

1973 5,899,678 74.92 1375 4.09 368 219 071 004 0.62

1974 4,950,842 78.47 10.28 440 3.48 182 086 005 064

1975 6,376,094 80.99 8.97 3.97 3.26 1 54 0.85 013 029

1976 7,129,132 80.05 9.35 3.87 393 1.42 0.78 044 016

1977 7,124,640 79.71 956 3.96 372 149 066 0.64 0.26

1978 9,630,065 79.53 10.65 356 3.84 149 0.60 0.16 017

1979 10,960,424 79.88 1085 330 3.27 164 0.55 028 023

1980 15,587,986 79.94 10.78 3.84 280 1.54 057 032 021

1981 15,969,186 80.68 932 460 287 1 55 0.51 037 010

1982 22,491,935 81.22 696 509 3.62 2.18 048 0.38 007

1983 30,316,014 80.37 7.45 5.48 3.56 2.20 0.65 019 010

1984 30,548,014 82.54 5.26 6.03 3.31 1.79 085 0.18 0.04

1985 37,187,567 81.52 5.78 6.12 366 1.47 1.27 015 0.03

1986 48,580,524 81.12 6.28 5.73 3.68 1.53 1.33 0.30 0.02

1987 64,082,996 83.09 5.57 519 3.23 1.30 128 0.30 0.04

1988 52,665,654 83.74 4.95 5.26 3.03 1.29 132 0.39 0.02

1989 54,416,790 81.33 6.02 5.44 3.34 180 1.64 041 0.02

1990 53,746,087 81.86 6.23 4.68 316 182 1.71 053 0.01

11 Share volume for exchanges includes stocks, rights and warrants; calendar year data is reported in this table

2J Includes all exchanges not listed individually.

Source SEC Form R-31

123

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l

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i Book-entry deliveries continued to outdistance physical deliveries in the

t settlement of securities transactions among depository participants of the Deposi1 tory Trust Company (DTC). This tendency is illustrated in Table 16, Certificate

! Immobilization Trends. The table captures the relative significance of the mediums

employed, in a ratio of book-entry deliveries to certificates withdrawn from DTC.

The figures include direct mail by agents and municipal bearer bonds. In 1990, the

total certificates withdrawn decreased 13%, and the ratio of book-entry deliveries

to certificates withdrawn continued to grow. Also, the ratio was 6 times the 1980

ratio of 1.8 book-entry deliveries rendered from every certificate withdrawn.

Table 16

CERTIFICATE IMMOBILIZATION TRENDS

Depository Trust Company

(Including Bearer Certificates)

1990 1988 1986 1984 1982 1980

Book-entry Deliveries

at DTC (m thousands) 72,600 67,200 66,700 48,000 37,000 28,000

Total of All Certificates

Withdrawn (m thousands) 6,700 9,200 11,600 12,600 12,500 15,800

Book-entry Deliveries per

Certificates Withdrawn 10.8 7.3 5.8 38 30 1.8

127
Table 17

TYPES OF PROCEEDINGS

ADMINISTRATIVE PROCEEDINGS

-r

Persons Subject to, Acts Constituting, and

Basis for, Enforcement Action

Any person

Violation of the federal securities laws

Broker-dealer, municipal securities dealer,

government securities dealer, transfer

agent, Investment adviser or associated

person

Willful Violation of securmes laws or rules;

BIding or abetting such violanon: failure

reasonably to supervise others, Willful

misstatement or orrussion in filing with the

Commission, convicnon of or In/unctIon

against certain crimes or conduct.

Registered securities association

Violation of or Inability to comply with the 1934

Act, rules thereunder, or its own rules;

unjustified failure to enforce compliance with

the foregOing or With rules of the MUnicipal

Securities Rulemaklng Board by a member or

person associated with a member.

128

Sanction

Cease-and-desist order, which may also

require a person to comply or take steps to

effect compliance wIth federal securities laws;

accounting & dlsgorgement of Illegal profits.

(1933 Act Sacnon SA, 1934 Section 21 C(a);

Investment Company Act Section 9(f);

Advisors Act secnon 203(k).

Censure or hrnltation on activities; revocation.

suspension or denial of regIstration; bar or

suspension from association (1934 Act,

Sections 15(b)(4)-(6), 15B(c)(2)-(5),

15(C)(c)(1 )-(2). 17A(c)(3)-(4); Advisers Act,

Section 203(e)-(f)).

CIVIl penalty up to $100,000 for a natural

person or $500,000 for any other person;

accounting and dlsgorgement of illegal profits.

Penalties are subject to other lmutatlons

depending on the nature of the Violation.

(1934 Act Section 21 B, Investment Company

Act Section 9. AdVisers Act Section (203).

Temporary cease-and-desist order, which

may. in appropriate cases, be issued ~.

(1934 Act, Section 21C).

Suspension or revocation of registration;

censure or limitation of activities, functions, or

operations (1934 Act, Section 19(h)(1)).

~
Member of registered securities

association, or associated person

Entry of Commission order against person

pursuant to 1934 Act, Section 15(b): willful

VIolation of securities laws or rules thereunder

or rules of Municipal Securities Rulemaklng

Board, effecting transaction for other person

with reason to believe that person was

cornrmtnnq violations of securities laws.

National securities exchange

Violation of or Inability to comply wrth 1934

Act, rules thereunder or its own rules,

unjustified failure to enforce compliance with

the foregOing by a member or person

associated with a member.

Member of national securities exchange. or

associated person

Entry of Commission order against person

pursuantto 1934 Act, Section 15(b), WIllful

violation of securities laws or rules thereunder,

effecting transaction for other person with

reason to believe that person was cornrmttmq

violation of secuntres laws.

Registered clearing agency

Violation of or inability to comply with 1934

Act, rules thereunder, or ItS own rules, failure

to enforce compliance with rts own rules by

parncipants

Participant In registered clearing agency

Entry of Commission order against participant

pursuant to 1934 Act, Section 15(b)(4), willful

violation of clearing agency rules, effecting

transaction for other person with reason to

believe that person was committing VIolations

of securities laws.

Securities Information processor

Violation of or inability to comply with

provislons of 1934 Act or rules thereunder.

Suspension or expulsion from the assccratron,

bar or suspension from assocratron wrth

member of association (1934 Act, Section

19(h)(2)-(3))

Suspension or revocation of registration:

censure or limitation of activmes, functions, or

operations (1934 Act, Section 19(h) (1))

Suspension or expulsion from exchange, bar

or suspension from association with member

(1934 Act, Section 19(h)(2)-(3))

Suspension or revocation of registration,

censure or limitation of acnvmes, functions, or

operations (1934 Act, Section 19(h)(1)

Sanction

Suspension or expulsion from clearing agency

(1934 Act, Section 19(h)(2)).

Censure or limitation of actrvrtres, suspension

or revocation of registration (1934 Act. Section

11A(b)(6))

129
Any person

Willful Violation of 1933 Act, 1934 Act,

Investment Company Act or rules thereunder;

aiding or abetting such violation; WIllful

misstatement in filing with Commission.

Officer or director of self-regulatory

organization

Willful violation of 1934 Act, rules thereunder

or the organization's own rules, willful abuse of

authority or unjustified failure to enforce

compliance.

Principal of broker-dealer

Officer, director, general partner, ten-percent

owner or controlling person of a broker-dealer

for which a SIPC trustee has been appomted,

1933 Act registration statement

Statement materially Inaccurate or Incomplete.

Person subject to Sections 12. 13. 14 or

15(d) of the 1934 Act or associated person

Failure to comply with such provisions or

haVing caused such failure by an act or

omission that person knew or should have

known would contribute thereto.

Securities registered pursuant to Section

12 of the 1934 Act

Noncompliance by issuer with 1934 Act or

rules thereunder.

Public interest requires trading suspension.

Registered Investment company

Failure to file Investment Company Act

registration statement or required report: filing

matenally incomplete or misleading statement

or report.

Company has not attained $100,000 net worth

90 days after 1933 Act registration statement

became effectIVe.

130

Temporary or permanent prohibition against

serving in certain capacities with registered

Investment company (Investment Company

Act, Section 9(b)).

Removal from office or censure (1934 Act,

Section 19(h)(4)).

Bar or suspension from being or becoming

associated WIth a broker-dealer (SIPA,

Section 14(b)).

Stop order refuSing to permit or suspending

effectiveness (1933 Act, Section 8(d».

Order directing compliance or steps effecting

compliance (1934 Act, Section 15(c)(4)).

Denial, suspension of effective date,

suspension or revocation of registration (1934

Act, Section 120».

Summary suspension of over-the-counter or

exchange trading (1934 Act, SectJon 12(k».

Suspension or revocation of registration

(Investment Company Act, Section 8(e».

Stop order under 1933 Act: suspension or

revocation of registration (Investment

Company Act, SeetJon 14(a».
Attorney, accountant, or other professional

or expert

Lack of requisite qualifications to represent

others; lacking in character or integrity;

unethical or improper professional conduct;

willful violation of securities laws or rules; or

BIdIng and abetting such violation.

Attomey suspended or disbarred by court;

expert's license revoked or suspended;

conviction of a felony or of a misdemeanor

Involving moral turpitude

Permanent Injunction against or finding of

securities Violation in Commission-mstituted

action; finding of secunties violation by

Cornrnissron in administrative proceedmgs.

Member or employee of Municipal

Securities Rulemaklng Board

Willful Violation of 1934 Act, rules thereunder,

or rules of the Board; abuse of authority.

Permanent or temporary denial of pnVllege of

appeanng or practicing before the Commission

(17 CFR Section 201.2(e)(1 )).

Automatic suspension from appearance or

practice before the Commission (17 CFR

Section 201.2(e)(2)).

Temporary suspension from practicing before

the Commission; censure; permanent or

temporary disqualification from practicinq

before the Comrrussron (17 CFR Section

201.2(e)(3)).

Censure or removal from office (1934 Act,

Section 15B(c)(8)).

CML PROCEEDINGS IN FEDERAL DISTRICT COURTS

Persons Subject to, Acts Constituting, and

Basis for, Enforcement Action

Any person

Engaging in or about to engage In acts or

practices violating securities laws, rules or

orders thereunder (Including rules of a

registered self-regulatory organization).

Noncompliance with provisions of the laws,

rules, or regulations under 1933, 1934, or

Holding Company Act, orders issued by

Commission, rules of a registered selfregulatory organization, or undertaking In a

registration statement.

Sanction

Injunction against acts or practices

constituting violations (plus other equitable

rehef under court's general equity powers)

(1933 Act, SectIon 20(b); 1934 Act, Section

21 (d); Holding Company Act, Section 18(e);

Investment Company Act, Section 42(d);

Advisers Act, Section 209(d), Trust Indenture

Act, Section 321).

Writ of mandamus, injunction, or order

directing compliance (1933 Act, Section 20(c);

1934 Act, Section 21 (e); Holding Company

Act, Section 18(f)).

131
t

"l

Violating the securities laws or a cease-anddesist order (other than through Insider

trading).

Trading whIle in possession of matenal nonpublic Information In a transaction on an

exchange or from or through a broker-dealer

(and transaction not part of a public offering),

aiding and abetting or directly or Indirectly

controlling the person who engages In such

trading.

Violating 1933 Act Section 17(a)(1) or 1934

Act section 10(b), when conduct demonstrates

substantial unfitness to serve as an officer or

director

Issuer SUbject to Section 12 or 15(d) of the

1934Act, officer. director. employee or

agent of issuer; stockholder acting on

behalf of Issuer

Payment to foreign officral, foreign political

party or offiCial, or candidate for foreign

political office, for purposes of seeking the use

of Influence in order to assist Issuer In

obtaining or retaining busmess for or with, or

directing business to, any person

Securities Investor Protection Corporation

Refusal to commit funds or act for the

protection of customers.

National securities exchange or registered

securities association

Failure to enforce compliance by members or

persons associated WIth ItS members with the

1934 Act, rules or orders thereunder, or rules

of the exchange or association.

Registered clearing agency

Failure to enforce compliance by Its

parncipants With ItS own rules

132

CIVIl penalty up to $100,000 for a natural

person or $500,000 for any other person QL If

greater, the gross gain to the defendant.

Penalties are subject to other limitations

dependent on nature of violation (1933 Act,

Section 20(d); 1934 Act, Section 21 (d) (3);

Investment Company Act, Section 42(e);

Advisers Act, Section 209(e».

Maximum Civil penalty. three times profit

gamed or loss avoided as a result of

transaction (1934 Act, Section 21A(a)-(b».

Prohibition from acting as an officer or director

of any public company. (1933 Act, Section

20(e), 1934 Act, Section 21 (d)(2»

Maximum CIVilpenalty. $10,000 (1934 Act,

Section 32(c».

Order directing discharge of obligations and

other appropriate relief (SIPA, Section 11 (b»

Writ of mandamus, injunction or order directing

such exchange or association to enforce

compliance (1934 Act, Section 21 (e».

Writ of mandamus, Injunction or order directing

clearing agency to enforce compliance (1934

Act, Section 21 (e»

"
Issuer sUbject to Section 15(d) of 1934Act

Failure to file required Information, documents

or reports.

Registered Investment company

Name of company or of security Issued by It

deceptive or misleading.

Officer, director, member of advisory

board, adviser, depositor, or underwriter of

Investment company

Engage In act or practice constituting breach

of fiduciary duty involving personal

misconduct.

Forfeiture of $100 per day (1934 Act, Section

32(b».

injunction against use of name (Investment

Company Act, Section 35(d»

Injunction against acting In certain capacitres

for Investment company and other appropnate

rehef (Investment Company Act, Section

36(a».

CRIMINAL PROSECUTION BY DEPARTMENT OF JUSTICE

Persons Subject to, Acts Constituting, and

Basis for, Enforcement Action

Any person

Willful violation of securmes laws or rules

thereunder; WIllful misstatement In any

document required to be filed by secunties

laws or rules. Willful misstatement In any

document required to be filed by selfregulatory organizallon In connection WIth an

application for membership or association WIth

member.

Issuer SUbject to Section 12 or 15(d) of the

1934 Act; officer or director of Issuer;

stockholder acting on behalf of Issuer;

employee or agent subject to the

Jurisdiction of the United States

Payment to foreign official, foreign political

party or official, or candidate for foreign

political office for purposes of seeking the use

of influence In order to assist issuer In

obtaining or retaining business for or with, or

directing busmess to, any person

Sanction

Maximum penalties. $1,000,000 fine and ten

years irnpnsonrnent for mdivrduals, $2,500,000

fine for non-natural persons (1934 Act,

Sections 21 (d), 32(a»; $10,000 fine and five

years Impnsonment (or $200,000 If a public

utility holding company for Violations of the

Holding Company Act) (1933 Act, Sections

20(b), 24; Investment Company Act, Sections

42(e). 49. Advisers Act, Sections 209(e), 217,

Trust Indenture Act, Sections 321, 325,

Holding Company Act, Sections 18(t), 29).

Issuer $2,000,000; officer, director,

employee. agent or stockholder $100,000

and five years nnpnsonrnent (Issuer may not

pay fine for others) (1934 Act, Section 32(c»

* Statutory references are as follows. "1933 Act," the Secunties Act of 1933; "1934 Act, the

Secunties Exchange Act of 1934; "Investment Company Act," the Investment Company Act of 1940,

"Advisers Act," the Investment AdVIsers Act of 1940; "Holding Company Act," the Public Utility Holding

Company Act of 1935, "Trust Indenture Act," the Trust Indenture Act of 1939; and "SIPA," the Securities

Investor Protection Act of 1970.

133

-

-

•
Table 18

ENFORCEMENT CASES INITIATED BY THE COMMISSION

DURING FISCAL YEAR 1991 IN VARIOUS PROGRAM AREAS

. (Each case initiated has been included in only one category listed below ~'

~' , even though many cases involve multiple allegations and may fall under .'4 ,-'

more than one category) r ,

t

:l i'

,,- - if ; Program Area m which a %of

r' Civil Acnon or Admmistratlve Civil Adrmmstrative Total

Proceeding was Initiated Action JJ Proceedmgs Total Cases 2/

Securities Offenng Cases

(a) Non-regulated Entity 28( 85) 12 ( 12) 40 ( 97)

(b) Regulated Entity 22 (115) 31 ( 39) 53 (154)

Total Secunties Offenng Cases 50 (200) 43 ( 51) 93 (251) 29%

Broker-Dealer Cases

(a) Back Office 3 ( 7) 7 ( 11) 10 ( 18)

(b) Fraud Against Customer 17 ( 27) 26 ( 33) 43 ( 60)

(c) Municipal Securities 1 ( 2) 1 ( 1) 2 ( 2)

(d) Other 2( 4) 12 ( 12) 14 ( 16)

Total Broker-Dealer Cases 23 ( 40) 46 ( 57) 69 ( 97) 22%

Issuer Fmancial Statement

and Reportmg Cases

(a) Issuer Financial

Disclosure 27 ( 91) 13 ( 13) 40 (104)

(b) Issuer Reportmg Other 2( 2) 2 ( 2) 4 ( 4)

(c) Issuer Related Party

Transactions 1 ( 7) O( 0) 7( 7)

Total Issuer Fmancial Statement 30 (100) 15 ( 15) 45 (115) 14%

and Reportmg Cases

Insider Tradmg Cases 31 ( 73) 3( 3) 34 ( 76) 11%

Market Manipulation Cases 13 ( 50) 16 ( 18) 29 ( 68) 9%

Other Regulated Entity Cases

(a) Investment Advisers 4( 9) 10 ( 4) 14 ( 25)

(b) Investment Companies 2( 4) 4 ( 6) 6 ( 10)

Total Other Regulated Entity Cases 6 ( 13) 14 ( 10) 20 ( 35) 7%

Contempt Proceedings 10 ( 13) o ( 0) 10 ( 13) 3%

Corporate Control Cases 5( 7) 1 ( 1) 6 ( 8) 2%

Fraud Agamst Regulated Entitles 4 ( 10) O( 0) 4 ( 10) 1%

Miscellaneous Disclosure! Reporting 3 ( 4) O( 0) 3 ( 4) 1%

Delinquent Filings

(a) Issuer Reporting 6 ( 6) O( 0) 6 ( 6)

(b) Forms 3 & 4 O( 0) 1 ( 1) 1 ( 1)

Total Deliquent Filing Cases 6( 6) 1 ( 1) 7( 7) 2%

GRAND TOTAL 181 (516) 139 (168) 320 (684) 101%

JJ This category includes injunctive actions and civil and crimmal contempt proceedings. The number of

defendants and respondents is noted parenthetIcally.

2/ Percentages total more than 100% due to roundmg of figures.

134

~

~

_

>-
Table 19

INVESTIGATIONS OF POSSIBLE VIOLATIONS OF THE ACTS

ADMINISTERED BY THE COMMISSION

Pending as of October 1, 1990 1,15

Opened in fiscal year 1991 33

Total 1,49

Closed in fiscal year 1991 22

Pending as of September 30, 1991 1,26

Formal Orders of Investigation

Issued in fiscal year 1991 13'

Table 20

ADMINISTRATIVE PROCEEDINGS INSTITUTED

DURING FISCAL YEAR ENDING SEPTEMBER 30, 1991

Broker-Dealer Proceeding 9

Investment Adviser and Investment Company 2

Stop Order Proceedings 1(

Rule 2(e) Proceedings t:

Suspensions of Trading in Securities in fiscal year 1991 :

135
Table 21

INJUNCTIVE ACTIONS

FiscalYear ActionsInitiated Defendants Named

,#

...,~ :' .. 1982 136 418

;; :.. 1983 151 416

:~

..... .... 1984 179 508

r ..

". 1985 143 385 i""' -'

1986 163 488

1987 144 373

1988 125 401

1989 140 422

1990 186 557

1991 171 503

136

•

"

' ~

"

"
Foreign Restricted List

The Securities and Exchange Commission maintains and publishes a Foreign

Restricted List which is designed to put broker-dealers, financial 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. While most broker-dealers refuse to

effect transactions in securities issued by companies on the Foreign Restricted List,

this does not necessarily prevent promoters from illegally offering such securities

directly to investors in the United States by mail, telephone, or 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, S.A.) (Panama)

5. Amalgamated Rare Earth Mines, Ltd. (Canada)

6. American Industrial Research S.A., also known as Investigation Industrial

Americana, S.A. (Mexico)

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)

11. ASCA Enterprisers Limited (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, U.K.)

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, S.A. (Costa Rica)

27. City Bank A.S. (Denmark)

28. Claw Lake Molybdenum Mines, Ltd. (Canada)

137
29. Claravella Corporation (Costa Rica)

30. Compressed Air Corporation, Limited (Bahamas)

31. Continental and Southern Industries, S.A. (Panama)

32. Crossroads Corporation, S.A. (Panama)

33. Darien Exploration Company, S.A. (Panama)

34. Derkglen, Ltd. (England)

35. De Veers Consolidated Mining Corporation, S.A. (Panama)

36. Doncannon Spirits, Ltd. (Bahamas)

37. Durman, Ltd. Formerly known as Bankers International Investment

Corporation (Bahamas)

38. Empresia Minera Caudalosa de-Panama, S.A. (panama)

39. Ethel Copper Mines, Ltd. (Canada)

40. Euroforeign Banking Corporation, Ltd. (Panama)

41. Finansbanker a/ s (Denmark)

42. First Liberty Fund, Ltd. (Bahamas)

43. General Mining S.A. (Canada)

44. Global Explorations, Inc. (Panama)

45. Global Insurance, Company, Limited (British West Indies)

46. Globus Anlage-Vermittlungsgesell-schaft MBH (Germany)

47. Golden Age Mines, Ltd. (Canada)

48. Hebilla Mining Corporation (Costa Rica)

49. Hemisphere Land Corporation Limited (Bahamas)

50. Henry Ost & Son, Ltd. (England)

51. Hotelera Playa Flamingo, S.A.

52. Intercontinental Technologies Corp. (Canada)

53. International Communications Corporation (British West Indies)

54. International Monetary Exchange (Panama)

55. International Trade Development of Costa Rica, S.A.

56. Ironco Mining & Smelting Company, Ltd. (Canada)

57. James G. Allan & Sons (Scotland)

58. [ojoba Oil & Seed Industries S.A. (Costa Rica)

59. Jupiter Explorations, Ltd. (Canada)

60. Kenilworth Mines, Ltd. (Canada)

61. Klondike Yukon Mining Company (Canada)

62. KoKanee Moly Mines, Ltd. (Canada)

63. Land Sales Corporation (Canada)

64. Los Dos Hermanos, S.A. (Spain)

65. Lynbar Mining Corp. Ltd. (Canada)

66. Massive Energy Ltd. (Canada)

67. Mercantile Bank and Trust & Co., Ltd. (Cayman Island)

68. Multireal Properties, Inc. (Canada)

69. J.P. Morgan & Company, Ltd., of London, England (not to be confused with

J.P. Morgan & Co., Incorporated, New York)

70. Norart Minerals Limited (Canada)

71. Normandie Trust Company, S.A. (Panama)

72. Northern Survey (Canada)

73. Northern Trust Company, S.A. (Switzerland)

74. Northland Minerals, Ltd. (Canada)

138
75. Obsco Corporation, Ltd. (Canada)

76. Pacific Northwest Developments, Ltd. (Canada)

77. Pan-Alaska Resources, S.A. (panama)

78. Panamerican Bank & Trust Company (panama)

79. Pascar Oils Ltd. (Canada)

80. Paulpic Gold Mines, Ltd. (Canada)

81. Pyrotex Mining and Exploration Co., Ltd. (Canada)

82. Radio Hill Mines Co., Ltd. (Canada)

83. Rancho San Rafael, S.A. (Costa Rica)

84. Rodney Gold Mines Limited (Canada)

85. Royal Greyhound and Turf Holdings Limited (South Africa)

86. S.A. Valles & Co., Inc. (Philippines)

87. San Salvador Savings & Loan Co., Ltd. (Bahamas)

88. Santack Mines Limited (Canada)

89. Security Capital Fiscal & Guaranty Corporation S.A. (Panama)

90. Silver Stack Mines, Ltd. (Canada)

91. Societe Anonyme de Refinancement (Switzerland)

92. Strathmore Distillery Company, Ltd. (Scotland)

93. Strathross Blending Company Limited (England)

94. Swiss Caribbean Development & Finance Corporation (Switzerland)

95. Tam O'Shanter, Ltd. (Switzerland)

96. Timberland (Canada)

97. Trans-American Investments, Limited (Canada)

98. Trihope Resources, Ltd. (West Indies)

99. Trust Company of Jamaica, Ltd. (West Indies)

100. United Mining and Milling Corporation (Bahamas)

101. Unitrust Limited (Ireland)

102. Vacationland (Canada)

103. Valores de Inversion, S.A. (Mexico)

104. Victoria Oriente, Inc. (Panama)

105. Warden Walker Worldwide Investment Co. (England)

106. Wee Gee Uranium Mines, Ltd. (Canada)

107. Western International Explorations, Ltd. (Bahamas)

108. Yukon Wolverine Mining Company (Canada)

13E
Table 22

FISCAL 1991 ENFORCEMENT CASES

LISTED BY PROGRAM AREA

~,

,

...

.;

»

... Date Filed Release No. .;

Broker-Dealer: Back Office '"-1

In the Matter of Michael S. Taylor 03/04/91 34-28939

In the Matter of Brenda Kross 06/27/91 34-29375

In the Matter of Norman L. Vance 06/27/91 34-29374

In the Matter of Domiruck & Dominick Inc., et al. OS/29/91 34-29243

In the Matter of Habersheir Securities lnc., et al. 09/25/91 34-29735

In the Matter of Thomas F. White & Co., Inc., et al. 09/27/91 34-29745

In the Matter of Albert Dreyfuss OS/29/91 34-29242

SEC v. Dennis J. Easter, et al. 06/11/91 LR-12897

SEC v. Dierdre C. Steinhaus, et al. 11/20/91 LR-12982

SEC v. First Ohio Equities, Inc. 05/01/91 LR-12853

Broker-Dealer: Fraud Against Customer

In the Matter of Oscar Ayala 12/18/90 34-28938

In the Matter of Robert L. Ridenour 11/07/90 34-28596

In the Matter of Joseph Jenkins, Jr., et al. 12/04/90 34-28675

In the Matter of Joel M. County 10/19/90 34-28555

In the Matter of Mark Stephen Benskin 01/09/91 34-28755

In the Matter of Eric R. Bryen 03/15/91 34-28975

In the Matter of Bruce Black 03/08/91 34-29059

In the Matter of Nicodemus E. Faitos 03/25/91 34-29010

In the Matter of Arthur L. DeMartme 06/17/91 34-29317

In the Matter of R. Michael Fagerlie 06/21/91 34-29357

In the Matter of Timothy Sirmer 04/16/91 34-29082

In the Matter of Great Lakes Equities Co., et al. 07/01/91 34-29391

In the Matter of Lawrence M. Kowal 07/01/91 34-29392

In the Matter of Steven Erik Johnston, et al. 07/18/91 34-29450

In the Matter of Prakash Rameshchandra Shah 07/18/91 34-29449

In the Matter of Roger WIlliam Ballou 07/18/91 34-29448

In the Matter of Steven M. Roberta 09/27/91 34-29744

In the Matter of Robert Killen 08/20/91 34-29585

In the Matter of Gregory Herbert 09/12/91 34-29678

In the Matter of Robert F. Hasho 08/13/91 34-29554

In the Matter of Kevin B. Sullivan 08/13/91 34-29552

In the Matter of Richard A. Chen nisi 08/13/91 34-29553

In the Matter of Lloyd Securities Inc., et al. 09/30/91 34-29757

In the Matter of Robert F. Kurtz, Jr. 09/25/91 34-29734

In the Matter of Natalie A. Causerano 09/26/91 34-29739

In the Matter of Edgemont Asset 06/18/91 IA-1280

Management Corp., et al

140
Date Filed Release No.

SEC v. Robert A. White 02/01/91 LR-12787

SEC v. Nicodemus E. Faitos, et al. 02/27/91 LR-12786

SEC v. Arthur L. DeMartine 06/27/91 LR-12912

SEC v. Walter L. Twiste 05/02/91 LR-12890

SEC v. Gregory Anders, et al. 09/13/91 NONE

SEC v. Carl V. May, Jr. 09/27/91 LR-13036

SEC v. Jay Kenneth Cox 09/30/91 LR-13057

SEC v. Richard Sol Rosen 09/23/91 LR-13054

SEC v. Joseph A. Hurton 09/04/91 LR-13017

SEC v. Gwendolyn Biggs 09/09/91 34-30042

SEC v. Steven M. Roberta 08/14/91 LR-12953

SEC v. Money Systems Inc., et al. 08/23/91 LR-12958

SEC v. Conrad Topacio 09/26/91 LR-13025

SEC v. Robert F. Kurtz Jr., et al. 09/23/91 LR-12989

SEC v. Molly C. Wilson 08/15/91 LR-12947

SEC v. Pilgrim Planning Associates, Inc., et al. OS/22/91 LR-13117

SEC v. Carolina First Securities Group, et al. 09/27/91 LR-13046

Broker-Dealer: Municipal Securities

SEC v. FSG Financial Service Inc., et al. 07/23/91 LR-12931

In the Matter of Arthur Abba Goldberg 11/02/90 34-28593

Broker-Dealer: Other

In the Matter of Laser Arms Corp. 02/14/91 34-28878

In the Matter of Henry H. Winkler, Jr. 12/06/90 34-28680

In the Matter of Wainwright Austin Stone & Co. 12/13/90 34-28695

In the Matter of Alan Lavery 12/18/90 34-28707

In the Matter of John A. Mulheren, Jr. 05/15/91 34-29192

In the Matter of Lisa A. Jones 07/01/91 34-29395

In the Matter of San Marino Securities 09/09/91 34-29658

In the Matter of Dean Witter Reynolds, Inc. 07/18/91 34-29447

In the Matter of Tim Eugene Reigel 09/23/91 34-29719

In the Matter of Kenneth Mason Jones 09/23/91 34-29718

In the Matter of Carl Caserta 08/02/91 34-29517

In the Matter of Donald W. Jones 09/30/91 34-29754

SEC v. Kochcapital, Inc., et al. 04/22/91 LR-12847

SEC v. G. Wesley Sodorff, Jr. 09/25/91 LR-13014

Contempt-Civil

SEC v. Thomas L. Powers, et al. 10/23/90 LR-12679

SEC v. Michael Kaufman 01/11/91 LR-12760

SEC v. Adrienne Wailes 01/15/91 NONE

141
Date Filed Release No.

SEC v. Eurell V. Potts 05/16/91 LR-12866

SEC v. Robert L. Ridenour 04/11/91 NONE

SEC v. Rosemary Grady 08/23/91 NONE .- SEC v. Mark Eames, et al. 07/22/91 NONE

<~

I'" SEC v. United Services Advisors 09/09/91 NONE ~? SEC v. Edward J. Carter 09/09/91 LR-12894 .~

.'" SEC v. William B. Clark 10/16/90 LR-12703

'"

-l

Corporate Control: Beneficial Ownership

In the Matter of Norman C. Baker 04/22/91 34-29108

SEC v. Frank Shannon 11/20/90 LR-12708

SEC v. Asher B. Edelman, et al. 04/11/91 LR-12835

SEC v. Burton R. Sugarman 07/18/91 LR-12914

Corporate Control: Other

SEC v. The Westwood Group, Inc. 04/15/91 LR-12839

SEC v. Christopher J. Moran 09/30/91 LR-13013

Delinquent Filings: Forms 3 & 4

In the Matter of Michael R. Henson 08/26/91 34-29609

Delinquent Filings: Issuer Reporting

SEC v. Triumph Capital Inc. 11/28/90 LR-12719

SEC v. International Meta Systems, Inc. 01/07/91 LR-12750

SEC v. Envirosure Management Corp. 06/20/91 LR-12891

SEC v. NPS Technologies Group, Inc. 06/17/91 LR-12886

SEC v. Direct Pharmaceutical Corp. 09/30/91 LR-13003

SEC v. Cezar Industries Ltd. 09/20/91 LR-12983

Fraud Against Regulated Entities

SEC v. Kiyoyuki Yasutomi 01/10/91 LR-12755

SEC v. Mark Sendo, et al. 06/27/91 LR-12894

SEC v. Jimmy Dale Swink, Sr., et al. 09/10/91 LR-12975

SEC v. Peter S. Adler 08/15/91 LR-12945

142

~~

•
1 Date Filed Release No.

Insider Trading

In the Matter John L. Petit 01/14/91 34-28798

I In the Matter of Kenneth L. Mick 06/27/91 34-29581 1

In the Matter of Baruch Rosenberg 09/30/91 34-29756

i SEC v. John L. Petit 11/03/90 LR-12693

SEC v. Stephen R. Rasinski, et al. 11/13/90 LR-12701

SEC v. Mollie E. Raab, et al. 11/20/90 LR-12709

SEC v. William Bronec, et al. 12/17/90 LR-12733

SEC v. Victor Teicher, et al. 03/08/91 LR-12800

SEC v. Jack Trachtman 01/17/91 LR-12757

SEC v. Joseph Wolfer, et al. 01/17/91 AAER 290

SEC v. Robert H. Willis, et al. 01/14/91 LR-12754

SEC v. Phillip J. Stevens 03/19/91 LR-12813

SEC v. Edward L. Ruggiero, et al. 02/04/91 LR-12772

SEC v. Louis Ferrero, et al. 03/07/91 LR-12799

SEC v. Marc J. Dworkin, et al. 03/06/91 LR-12792

SEC v. Robert L. M. Louis-Dreyfus, et al. 02/14/91 LR-12777

SEC v. Robert F. Hoogstraten, et al. 03/06/91 LR-12791

SEC v. S. Jay Goldinger, et al. 06/26/91 LR-12895

SEC v. Edwin J. Kleiman 05/16/91 LR-12860

SEC v. Bernard Korn 05/16/91 LR-12859

SEC v. Anthony M. Morelli, et al. 06/10/91 LR-12882

SEC v. Anthony R. Tavani OS/28/91 LR-12865

SEC v. Michael Trikilis, et al. 06/24/91 LR-12892

SEC v. Ernesto Tinajero, et al. 04/22/91 LR-12843

SEC v. Albert M. Harris 08/08/91 LR-12936

SEC v. Baruch Rosenberg 09/24/91 LR-12986

SEC v. Bruce Hegedorn, et al. 09/27/91 LR-13001

SEC v. Frederick J. Deangelis 07/26/91 LR-12933

SEC v. Charles H. Howard III 07/03/91 LR-12908

SEC v. Jay S. Goldinger, et al. 07/01/91 LR-12895

SEC v. Bettyann Lin 07/09/91 LR-12904

SEC v. Mark D. Cohen 07/09/91 LR-12905

SEC v. Howard F. Rubin 09/27/91 LR-12998

SEC v. Jerry A. Seifert 09/27/91 LR-13000

Investment Adviser

In the Matter of Halford Smith Associates Inc., 11/29/90 IA-1261

etal.

In the Matter of Walter L. Twiste, et al. 05/30/91 IA-1279

In the Matter of James M. Hardin 09/30/91 34-29758

In the Matter of R.L. Kotrozo Inc., et al. 10/03/90 IA-1257

In the Matter of David B. Solomon 12/04/90 IA-1262

In the Matter of James L. Rapholz, Jr. 01/09/91 IA-1265

In the Matter of Jack Allen Pirrie 01/31/91 IA-1270

143
Date Filed Release No.

In the Matter of Kingsley Jennison McNulty & 01/25/91 IA-1268

... Morse Inc., et al.

:.-~ In the Matter of First American Financial 09/30/91 IA-1288

~: Consultants, Inc., et al. >'.~ ;1..1 In the Matter of Raymond Bacek 04/22/91 AAER 296 :~

1'" "'": SEC v. David B. Solomon 11/27/90 LR-12712 ,,' SEC v. Douglas W. Polite, Jr., et al. 08/29/91 LR-12978 l-'-<" SEC v American Foresight Inc., et al. 08/08/91 LR-12935

SEC v. Wesley Allen Campbell, et al. 02/01/91 LR-13038

Investment Company

In the Matter of Home Capital Services Inc. 05/08/91 IA-1276

In the Matter of Renaissance Advisors Inc., 07/22/91 IC-18245

etal.

In the Matter of Howard H. Hutchinson, et al. 08/20/91 IA-1286

In the Matter of Carl L. Lazzell 10/18/90 IA-1260

SEC v. M. Wesley Groshans, et al. 10/19/90 LR-12677

SEC v. Renaissance Advisers, Inc., et al. 03/25/91 LR-12823

Issuer Financial Disclosure

In the Matter of Fred Engelbrechten 09/30/91 AAER 326

In the Matter of Richard D. Lemmerman 09/26/91 AAER 320

In the Matter of Excel Bancorp., Inc. 09/11/91 AAER 316

In the Matter of Fleet/Norstar 08/14/91 AAER 309

Financial Group, Inc.

In the Matter of Mast/Keystone, Inc. 03/12/91 33-6890

In the Matter of Merle E. Bright 03/25/91 AAER 295

In the Matter of Bruce F. Kalem, CPA 03/25/91 MER 294

In the Matter of Cecil S. Mathis 03/20/91 NONE

In the Matter of Michael R. Ford, CPA 05/06/91 MER 297

In the Matter of Terrance M. Wahl 09/30/91 AAER 321

In the Matter of Edward Anchel, CPA 08/29/91 AAER 314

In the Matter of Rodney Sparks, CPA 09/09/91 AAER 315

In the Matter of Samuel George Greenspan, CPA 08/26/91 AAER 312

SEC v. Ramtek Corp. 10/15/90 AAER 280

SEC v. Bank of New England Corp. 12/21/90 AAER 286

SEC v. Michael S. Weinstein, et al. 10/26/90 AAER 282

SEC v Michael I. Bitterman, et al. 10/11/90 AAER 279

SEC v. Arthur G. Lang, III, et al. 03/01/91 NONE

SEC v. Peter Franzen, et al. 03/14/91 LR-12803

SEC v. Earthworm, Inc., et al. 02/28/91 AAER 291

SEC v. Michael Gruenberg, et al. OS/28/91 LR-12896

SEC v, Samuel George Greenspan 05/09/91 AAER 298

SEC v. Larry G. Baker 05/09/91 AAER 299

144

"

~

..
Date Filed Release No.

SEC v. Ernst & Young 06/13/91 AAER 301

SEC v. Forst-Hunter International Trade 08/20/91 AAER 311

Corp., et al.

SEC v. Bernard Korostoff 08/21/91 AAER 313

SEC v. Q. T. Wiles, et al. 08/14/91 AAER 308

SEC v. John R. Ward, et al. 09/26/91 AAER 319

SEC v. Robert J. Aulie 07/09/91 AAER 305

SEC v. Louis J. Borget, et al. 07/11/91 AAER 306

SEC v. Robert M. Sauls, et al. 09/27/91 AAER 343

SEC v. Wedgestone Financial 07/12/91 AAER 307

SEC v. Qmax Technology Group Inc., et al. 09/27/91 AAER 325

SEC v. David T. Marantette III, et al. 09/05/91 LR-12977

SEC v. Robert D. Sparrow 09/27/91 AAER 323

SEC v. EDP of California tnc., et al. 09/30/91 AAER 322

SEC v. Lawrence J. Stern, et al. 09/30/91 AAER 327

SEC v. Douglas Matthews 09/27/91 LR-13043

SEC v. Delta Rental Systems Inc., et al. 09/30/91 LR-13073

Issuer Related Party Transactions Disclosure

SEC v. Capitalbanc Corp., et al. 09/18/91 AAER 303

Issuer Reporting: Other

In the Matter of Karen L. Galvin 09/09/91 34-29660

In the Matter of Ronald N. Vance 11/19/90 34-28625

SEC v. Karl R. Huber, Jr. 09/27/91 LR-13018

SEC v. Printron, Inc., et al. 09/26/91 LR-13019

Market Manipulation

In the Matter of Toni Vailen 06/21/91 IA-1281

In the Matter of Michael Wright 12/04/90 34-28673

In the Matter of Arnold Kimmes 12/04/90 34-28674

In the Matter of Brett A. Bernstein 03/11/91 34-28954

In the Matter of Sheldon G. Kanoff 03/11/91 34-28953

In the Matter of Glenn Siesser 03/11/91 34-28955

In the Matter of Robert W. Humphrey 03/11/91 34-28952

In the Matter of Jack Ringer 03/15/91 34-28976

In the Matter of Dale R. Dargie 01/16/91 34-28785

In the Matter of Peter R. Gardiner 03/28/91 34-29019

In the Matter of Randy Gleich 06/27/91 34-29376

In the Matter of Andrew Doherty, et al. 08/12/91 34-29545

In the Matter of Richard C. Avon 09/03/91 34-29644

In the Matter of Elliott L. Bellen 08/23/91 34-29602

145
Date Filed Release No.

In the Matter of Michael R. Milken 03/11/91 34-28951

In the Matter of Lowell J. Milken 03/11/91 34-29850 ..- SEC v. Mandrake Capital lnc., et al. 10/10/90 NONE

;..-

.." SEC v. Kevin L. Weakland 10/01/90 NONE ~:~ ;1'" SEC v. Henry W. Lorin, et al. 11/20/90 LR-12707

)7 SEC v. Dale R. Dargie 12/18/90 LR-12739 ..- ('~ SEC v. Peter R. Gardiner 03/27/91 LR-12818 r''i" SEC v. Robert A. Dworkin, et al. 06/06/91 LR-12898

SEC v. Mark P. Malenfant, et al. 05/01/91 LR-12848

SEC v. Bernard Deutsch, et al. 09/25/91 LR-12992

SEC v. Mark Creamer, et al. 08/29/91 NONE

SEC v. Phillip G. Wagers, et al. 08/27/91 LR-12955

SEC v. Gemini Energy Corp., et al. 07/30/91 LR-12927

SEC v. John G. Broumas 09/27/91 LR-12999

SEC v. John L. Vidakovich 09/29/91 NONE

Miscellaneous Disclosure Reporting

SEC v. E. Ronald Atkinson 03/06/91 LR-12806

SEC v. Michael Stern, et al. 02/07/91 LR-12775

SEC v. Paul Borman 03/18/91 LR-12811

Offering Violations (By Non-Regulated Entities)

In the Matter of Roger J. Houdek 08/01/91 NONE

In the Matter of Stephen T. Haley 09/09/91 NONE

In the Matter of Stephen D. Replin 09/24/91 34-29726

In the Matter of Laur Corp. 09/23/91 33-6918

In the Matter of Standish Corp. 09/23/91 33-6916

In the Matter of Kaila J Corp. 09/23/91 33-6915

In the Matter of Scott J Corp. 09/23/91 33-6914

In the Matter of Mazell Corp. 09/23/91 33-6912

In the Matter of Mazelll Corp. 09/23/91 33-6913

In the Matter of Stelar Corp. 09/23/91 33-6911

In the Matter of Alicia J Corp. 09/23/91 33-6917

In the Matter of Simone V. Palazzolo 03/14/91 34-28974

SEC v. BFMF Corp., et al. 12/05/90 LR-12725

SEC v. Latin Investment Corp., et al. 12/21/90 LR-12742

SEC v. Neil E. Ragen 03/18/91 LR-12812

SEC v. Peoples Bank of Brevard Inc., et al. 01/14/91 LR-12753

SEC v. Superior Resources, Inc., et al. 06/06/91 LR-12898

SEC v. Sam J. Recile, et al. 04/12/91 NONE

SEC v. Gary T. McWhorter, et el: 06/03/91 LR-12880

SEC v. Eugene R. Karczewski, et al. 04/24/91 LR-12845

SEC v. International Loan Network, Inc., et al. 05/16/91 LR-12858

SEC v. Robin Symes, et al. 09/24/91 LR-12987

146
Date Filed Release No.

SEC v. The Crown Companies Group, Ltd., et al. 09/26/91 LR-12996

SEC v. Compact Discounters, Inc., et al. 09/23/91 LR-12988

SEC v. Rogers Manufacturing Co. 09/18/91 NONE

SEC v. Raymond E. Tienter, et al. 09/30/91 LR-13032

SEC v. Charles E. Alfano 09/20/91 LR-12994

SEC v. Joseph Michael Haddad, Jr. 07/18/91 LR-12921

SEC v. Lester Edward Carroll 09/30/91 LR-13024

SEC v. PDS Securities International Inc., et al. 08/26/91 LR-13022

SEC v. Loi H. Tran 07/11/91 LR-12910

SEC v. Robert C. Lund 09/17/91 LR-13027

SEC v. Richard H. Steinberg, et al. 09/27/91 LR-12997

SEC v. Larson Myers Financial Inc., et al. 09/30/91 NONE

SEC v. Michael A. Clark 09/30/91 LR-13010

f'

SEC v. Norman Nouskajian 09/30/91 LR-13009

SEC v. Robert Elderkin, et al. 09/09/91 LR-12972

I SEC v. Sonic Electric Energy Corp., et al. 09/26/91 LR-13076

SEC v. James Lynn Averett, et al. 09/21/91 AAER329 II

r~

I

li

f~

Offering Violations (By Regulated Entities)

I.

t~

In the Matter of /Vthur Jackson Curry 12/03/90 34-28875

In the Matter of Paul Wagner, et al. 12/20/90 34-28710

In the Matter of Kim G. Girdner 02/26/91 34-28920 p In the Matter of Boyd R. Bader 03/26/91 34-29013

r, In the Matter of Clark R. Bader 03/26/91 34-29012 I<

" In the Matter of David G. Wilks 03/26/91 34-29014 I,"

1~ In the Matter of William Edward Kinzel 03/11/91 34-28949

!: In the Matter of Morgan Stanley & Co., Inc. 03/20/91 34-29625

Ii

:: In the Matter of Ronald D. Wheeler, Sr., et al. 06/27/91 34-29373

j In the Matter of Philip Falcone 04/19/91 34-29107

i In the Matter of Michael F. Umbro 04/19/91 34-29107

]

In the Matter of David C. Dever 04/19/91 34-29107

j

In the Matter of Walter Capital Corp. 04/01/91 34-29028

In the Matter of David N. Gliksman 06/14/91 34-29310

In the Matter of Norman L. Dixon 06/14/91 34-29309

I In the Matter of John A. Whitley 09/30/91 IA-1289

In the Matter of Charles E. Alfano 09/30/91 34-29759

I In the Matter of J. Paul Carter 09/23/91 34-29720

J In the Matter of Bradley & Associates Inc. 09/23/91 34-29716

In the Matter of Prudential Securities Inc. 09/23/91 34-29717

In the Matter of Gregory J. Simonds, et al. 09/23/91 34-29715

In the Matter of Arden R. Brown 09/27/91 34-29746

In the Matter of Steven M. Sanders 09/30/91 34-30190

In the Matter of Victor S. Fishman 12/20/90 34-28711

In the Matter of Candace M. Lacasto 07/09/91 34-29423

In the Matter of Asset Growth Management 03/11/91 34-28956

Inc., et al.

147

~

~~

~

~

"

~

"

~
Date Filed Release No.

In the Matter of Alan D. Karr 08/16/91 IA-1285

In the Matter of Ehrman Investment Group 07/19/91 IA-1282

,.-

.- Inc., et al . ,'"

, ..- ~'. In the Matter of K Alan Russel 02/26/91 34-28922 r""

. r : In the Matter of Reddington Securities Inc., et al. 02/26/91 34-28921 : :t;> ....... , In the Matter of David J. Kury, et al. 03/28/91 IA-1275

.r'.,A SEC v. Institute for Financial Planning, et al. 10/03/90 LR-12730 : t",\

SEC v. Victor S. Fishman 12/11/90 LR-12729

SEC v. Robert F. Hasho, et al. 12/13/90 LR-12732

SEC v. David G. Wilks 03/01/91 LR-12798

SEC v. Blazo Corp., et al. 03/07/91 LR-12807

SEC v. David D. Sterns, et al. 03/11/91 LR-12802

SEC v. L. George Reynolds, et al. 06/12/91 LR-12887

SEC v. Gary R. Slaughter, et al. 04/01/91 LR-12826

SEC v. Graystone Nash, tnc., et el. 09/30/91 LR-13002

SEC v. First Fidelity Financial Corp., et al. 08/21/91 LR-12951

SEC v. John Michael Pratt, et al. 09/23/91 NONE

SEC v. Michael J. Liskiewicz, et al. 09/18/91 LR-13020

SEC v. AEI Group lnc., et al. 09/18/91 LR-13015

SEC v. First Federated Capital Corp. of 08/19/91 LR-12951

Texas, et al.

SEC v. Deep Sands lnc., et al. 07/19/91 LR-12929

SEC v. Robert Killen 07/31/91 LR-12934

SEC v. Cardinal Financial Services tnc., et al. 09/27/91 LR-13029

SEC v. Kurt L. Hagerman 08/27/91 LR-13056

SEC v. Stephen Klos, et al. 09/18/91 LR-13065

SEC v. Robert I, Dowd 09/20/91 NONE

SEC v. Eric J. Walfoga, et al. 09/25/91 LR-13072

SEC v. Kenneth J. Adams, et al. 09/25/91 LR-13078

SEC v. Joseph E. Rusnock, et al. 09/30/91 LR-13031

148

•

•
I

r

I,

I

I:

Right to Financial Privacy

Section 21(h) of the Securities Exchange Act of 1934 [15 V.S.c. 78u(h)(6)]

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)(2)] or the provisions of the Right to Financial Privacy Act of 1978 [12 V.S.c.

3401-22 (the RFPA)] to obtain access to financial records of a customer and include

it in its annual report to the Congress." During the year, the Commission made one

application to a court for an order pursuant to the subparagraphs and clauses of

Section 21(h)(2)to obtain access to financial records of a customer. Set forth below

are the number of occasions on which the Commission obtained customer records

pursuant to the provisions of the RFPA:

Section 1104 (Customer Authorizations) 16

Section 1105 (Administrative Subpoenas) 353

Section 1107 (Iudicial Subpoenas) 24

149
.- -

Corporate Reorganizations

During 1991, the SEC entered its appearance in 50 reorganization cases filed

under Chapter 11 of the Bankruptcy Code involving companies with aggregated

stated assets of almost $27 billion and about 330,000 public investors. Counting

these new cases, the agency was a party in 186Chapter 11 cases during the year. In

these cases, the stated assets totalled approximately $85 billion and involved about

1.1billion public investors. Thirty-seven cases were concluded through confirmation

of a plan of reorganization, dismissal, or liquidation, leaving 149 cases in which the

Commission was a party at year-end.

150
Table 23

REORGANIZATION PROCEEDINGS UNDER CHAPTER 11

OF THE BANKRUPTCY CODE IN WHICH

THE SEC ENTERED APPEARANCE

FY FY.

Debtor District Opened Closed

Aca Joe, Inc' N.D CA 1988 1991

Action Auto Stores EA. MI 1990

ADI Electronics E.D. NY 1987

AlA Industries, Inc. ED. PA 1984

AI Copeland Enterpnses, Inc. WD TX 1991

Allegheny Internanonal, Inc. WD PA 1988

Allison's Place' C.D. CA 1988 1991

Amdura Corporation D CO 1990

Amencan Carriers, Inc. D KS 1989

Amencan Continental Corporation' D AZ 1989 1991

Amencan Medical Technologies WD TX 1990

Amencan Monitor Corp.' S.D IN 1986 1991

Amencan West Airlines, Inc. D AZ 1991

Ames Department Stores, Inc., et al. SD NY 1990

Anglo Energy, Inc.' S.D. NY 1988

BankEast Corporation D NH 1991

Banyon Corp. SD NY 1991

Barton Industries Inc. WD OK 1991

Bay Financial Corp., et al. D MA 1990

Beehive International D UT 1989

Beker Industries Corp S.D. NY 1986

Blinder Robinson & Company, Inc.3 D CO 1990 1991

Boardroom Business Products, Inc.2 C.D. CA 1989 1991

Branch Industries, Inc S.D NY 1985

Buttes Gas & 011Co SD TX 1986 1991

Calumet lndustrles" ND IL 1990 1991

Camera Enterpnses, Inc., et al D MA 1989

Canton Industrial Corp.' CD. IL 1988 1991

Carter Hawley Hale Stores Inc. CD CA 1991

C F & I Corporation D UT 1991

Citywide Securities Corp .• S.D. NY 1985

Coated Sales, Inc. S.D. NY 1988

Colorado-Ute Electric Association' D. CO 1990

Columbia Gas System, Inc. D DE 1991

Commonwealth Oil Refimng Co., Inc' W.D. TX 1984 1991

Consolidated Oil & Gas D. CO 1989

Consolidated Companies' N.D. TX 1989 1991

Conston Corporation ED PA 1990

Continental Airlines Holdings, Inc. D DE 1991

Oonnnentat lntormauon Systems S.D. NY 1989

Convenient Food Mart' N.D. IL 1989 1991

CPT Corp D MN 1991

Crazy Eddie, Inc., et al. S.D NY 1989

Crompton Co., Inc. S.D. NY 1985

Chyron Corporation ED NY 1991

Damson Oil Co. SD TX 1991

Dakota Minerals, Inc D. WY 1986

Dart Drug Stores, Inc D. MD 1989

151

'
Table 23 continued

REORGANIZATiON PROCEEDINGS UNDER CHAPTER 11

.~~ OF THE BANKRUPTCY CODE IN WHICH

,'".- THE SEC ENTERED APPEARANCE . r;;

... . ,.. , ('" F.Y F.Y

: :t" Debtor Dlstnct Opened Closed , "'~ . r ". , fi

: ~'1 Dest Corp NO CA 1989

Domain Technology, Inc N.D CA 1989

Doskocu Companies, Inc. 0 KS 1990

Drexel Burnham Lambert Group, ltd S.D NY 1990

Eagle Clothes, Inc. SO. NY 1989

Eagle-Pitcher tndusnres, Inc SO OH 1991

Eastern Air Lines, Inc, et al S.D. NY 1989

Enterpnse Technologies, Inc. S.D. TX 1984

Equestrian Ctrs of Amer , Inc CD CA 1985

EUA Power Corporation 0 NH 1991

Fairfield Communities Inc ED AR 1991

Fed Oepart.lAllied Stores et al SO. OH 1990

Financial & Bus. Serv., Inc 1 W.O NC 1986 1991

Financial News Network, Inc SO NY 1991

Finest Hour, Inc. e.D. CA 1988

Flnevest Foods, Inc. 0 FL 1991

First Executive Corporation CD CA 1991

First Republicbank Corp NO TX 1989

Forum Group Inc. et aJ. NO TX 1991

General Development Corporation S D. FL 1990

General Homes Corp (Texas) NO TX 1991

General Technologies Group ED NY 1990

Greyhound Lines, et al. SO TX 1990

Hampton Healthcare, Inc,3 MD FL 1988 1991

Helionetlcs, Inc CD CA 1986

Hills Department Stores SD NY 1991

Holland Industries, Inc 1 SO NY 1988 1991

Infotechnology Inc. SO NY 1991

Infllght Services, Inc. SO. NY 1987

insnco Corp. WD TX 1991

Integrated Resources, Inc SO NY 1990

Interco Inc ED MO 1991

Intn'l Pharmaceutical Products, Inc. C.D. CA 1988

Inter. Amencan Homes, Inc., et al 0 NJ 1990

Ironestone Group, Inc. NO CA 1991

Jumping-Jacks Shoes et all WO MO 1990 1991

Kaiser Steel Corp. 0 CO 1987

King of Video, Inc 0 NV 1989

Kurzwell Music Systems Inc 0 MA 1990

LaPointe Industnes, Inc 1 D CT 1989 1991

Laventhol & Horwath SD NY 1991

Leisure Technology, Inc. CD CA 1991

Llvlngwell Incorporated 2 S D. TX 1990 1991

152

-

~
Table 23 continued

REORGANIZATION PROCEEDINGS UNDER CHAPTER 11

OF THE BANKRUPTCY CODE IN WHICH

THE SEC ENTERED APPEARANCE

F.Y F.Y

Debtor District Opened Closed

Lone Star Industries, Inc SD NY 1991

Lomas Financial Corp. SD NY 1990

LTV Corporation S.D NY 1986

MacGregor Sporting Goods, Inc D NJ 1989

Marathon Office Supply, Inc. C.D. CA 1988

Mars Stores, Inc., et al D. MA 1989 1991

Maxtcare Health Plus Inc' CD CA 1989

Metro Airlines, Inc et al. ND TX 1991

McLean Industries, Inc SD NY 1987

MCorp (MCorp Financial, Inc

& MCorp Management) SD TX 1989

Meridian Reserve, Inc W.D. OK 1989

Midland Capital Corp. S.D. NY 1986

Midway Airlines Inc. N.D. IL 1991

Midwest Communications Corp. E.D KY 1991

MlmScribe Corporationt D CO 1990 1991

Monarch Capitol Corp. D MA 1991

Munslngwear Inc MN 1991

Munson Geothermal, Inc.' D NV 1988 1991

Mustang Resources Corp.' SD TX 1988 1991

National Bancshares Corp. of Texas' W.D. TX 1990 1991

National Financial Realty Trust SD IN 1990

National Gypsum Company ND TX 1991

Newmark & Lewis SD NY 1991

NBlinc D CO 1991

Nltram Oorporatront D UT 1989 1991

Nutn Bevco, Inc SD NY 1988

OCCidental Development Fund 1114 CD CA 1989

OCCidental Development Fund IV4 CD CA 1989

OCCidental Development Fund V4 CD CA 1989

Oliver's Stores ED NY 1987

OLR Development Fund LP C.D. CA 1989

OLR Development Fund II LP CD. CA 1989

Overland Express, Inc.' SD IN 1988 1991

Pacific Express Holding, Inc. ED CA 1984

PanAm Corporation SD NY 1991

Paul Harris Stores, Inc. SD IN 1991

Pantera's Corp .. et al.' N.D. TX 1990 1991

Pengo Industries, Inc.' N D. TX 1988 1991

Peregrine Entertainment, Ltd. C.D. CA 1989

Prime Motors Inns, Inc. SD FL 1991

PubliC Service Co of New Hampshire D NH 1988

aMax Technology Group, Inc SD OH 1989

crsr.me. ED NY 1987

aublx GraphiC Systems' ND CA 1989

153

-

'
Table 23 continued

REORGANIZATION PROCEEDINGS UNDER CHAPTER 11

OF THE BANKRUPTCY CODE IN WHICH ..- THE SEC ENTERED APPEARANCE t

..- . ~: F.Y. FY. loti

Debtor District Opened Closed : :t~

. ~- . ("" , .A Ramtek Corporation NO CA 1989 : r'" Raytech CO.l 0 CT 1989 1991

Refinemet International, Inc. CD CA 1988

Residential Resources Mortgage

Investment Corporation 0 AI. 1989

Resorts International, Inc. et al. 0 NJ 1990

Revco O.S Inc .• NO. OH 1988

Sahlen & Associates S.D NY 1989

Salant Corporation SO NY 1990

Saratoga Standardbreds, Inc. NO NY 1990

S.E. Nichols SO NY 1990

Seatram Lines, Inc. S.D. NY 1981

Sharon Steel Corp. W.O. PA 1987

SIS corporanon N.D. OH 1989

Sorg Incorporated, et al. S.D. NY 1989

Southmark cornoranon' N.D. TX 1989 1991

Southland Corporation NO TX 1991

Specialty Retail Concepts, Inc.' W.D NC 1988 1991

Spencer Cos., Inc. O. MA 1987

Spring Meadows Associates. C.D. CA 1988

Standard Oil and Exploration of

Delaware, Inc WD MI 1991

Statewide Bancorp 0 NJ 1991

Summit Oilfield Corp , N.D. TX 1989 1991

Swanton Corp. SO. NY 1985

Systems for Health Care, Inc. N.D. Il 1988

Telstar Satellite Corp. of America. C.D. CA 1989

Texas American Bancshares, Inc.' N.D. TX 1989 1991

TGXCorp. WD LA 1990

The Circle K O. AZ 1990

The Group, Inc. D. NV 1990

The First Connecticut Small

Business Investments Company 0 CT 1991

The lionel Corp. SO NY 1991

The Regina Co. D. NJ 1989

Tidwell Industries, Inc.3 N.D. Al 1986

Todd Shipyards Corp. D. NJ 1988

Towle ManufactJRosemar Silver SO NY 1990

Traweek Investment Fund No. 22, ltd .• C.D. CA 1988

Traweek Investment Fund No. 21, ltd. C.D. CA 1988

Traweek Investment Fund No. 18, ltd.' C.D. CA 1988 1991

Trump Taj Mahal Funding, Inc. 0 NJ 1991

TWlstee Treat Corporation 1 M.D. Fl 1989 1991

Univation, Inc N.D. CA 1989

United Merchants & Mfg., Inc. 0 DE 1991

U.S. Home Corp. SO NY 1991

154

-

~-

•
Table 23 continued

REORGANIZATION PROCEEDINGS UNDER CHAPTER 11

OF THE BANKRUPTCY CODE IN WHICH

THE SEC ENTERED APPEARANCE

FY

Debtor District Opened

Washington Bancorporanon 0 DC 1990

Wedgestone Financial 0 MA 1991

Wedtech Corp. S.D. NY 1987

Westworld Community Healthcare, Inc. C.D CA 1987

Wheeling-Pittsburgh Steel Corp. W.O. PA 1985

Worthington Co 1 NO OH 1991

WTD Industries, Inc. WD WA 1991

Zenth Corporation' D. NJ 1988

FY.

Closed

1991

1991

Total Cases Opened (FY 1991): 50

Total Cases Closed (FY 1991): 37

lPlan of reorganization confirmed

2Debtor liquidated under Chapter 7

3Chapter 11 case dismissed.

4Debtor's securities not registered under Section 12(g) of the Exchange Act.

155

-

"
Table 24

APPROPRIATED FUNDS vs FEES* COLLECTED

$ MIllions

300

250

200

150

100

50

a

259

196

tt 79 81

FY1976 78 80

83 85 87 89 1991

82 84 86 88 90

* Excludes disgorgements from fraud actions.

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