1 9 9 4

Annual Report

United States

Securities and Exchange Commission

UNITED STATES 

SECURITIES AND EXCHANGE COMMISSION 

WASHINGTON, D.C. 20549 

The Honorable Albert Gore, Jr. The Honorable Newt Gingrich 

President of the Senate Speaker of the House 

Washington, D.C. 20510 Washington, D.C. 2051.5 

Gentlemen: 

I am pleased to transmit the annual report of the Securities and 

Exchange Commission for fiscal year 1994. During the year, the 

Commission: 

.enhanced its commitment to protect investors with initiatives to 

improve public awareness and educate investors; 

.completed a self-examination to create a more efficient reporting 

structure, improve resource utilization and streamline operations; 

.obtained court orders requiring defendants to disgorgeillicit profits 

of approximately $730 million; 

.streamlined the regulatory process by eliminating the need for 

review of certain SRO rule filings; 

conducted several oversight inspections of self-regulatory 

organizations with a particular focus on sales practice abuses; 

.released the report, Market 2000: An Examination of Current Equity 

Market Developments, which identified four areas where the markets 

could work better for investors and where competition could work 

better for the markets; 

.adopted several initiatives to simplify and lower the cost of 

registration and reporting for domestic issuers and foreign 

companies accessing the United States public securities markets; 
.	focused on improving and simplifying communications to 

investment company shareholders, enhancing the integrity of 

participants in the investment managementindustry, and evaluating 

the use of derivatives by investment companies; and 

.	collected $588.2 million in fee revenue, more than twice as much 

as its annual funding level of $260.3 million. 

The 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 ll(b) of the Inter-American 

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

Sincerely, 

Arthur Levitt 

Chairman 
Table of Contents 

Commission Members and Principal Staff Officers .......................................... ix 


Biographies of Commission Members ............................................................... xi 


Arthur Levitt + Richard Y. Roberts +J. Carter Beese, Jr. + 

Steven M.H. Wallman 

Regional and District Offices .............................................................................. xv 


Enforcement 

Key 1994 Results ......................................................................................................... I 

Enforcement Authority + Enforcement Activities + Sources for Further 

Inq* 

International Affairs 

Key 1994 Results ..................................................................................................... 20 

Arrangements for Mutual Assistance and Exchanges of Information + 

Enforcement Cooperation + Technical Assistance + International 

Organizations and Multilateral Initiatives + Trade Negotiations 

Regulation of the Securities h4arket.s 

Key 1994 Results .........................................................................................................28 

Securities Markets, Trading and Significant Regulatory Issues + Examination and Oversight of Brokers, Dealers, Muniapal Securities Dealers, 

and Transfer Agents + Oversight of Self-Regulatory Organizations 

Investment Management Regulation 

Key 1994 Results .........................................................................................................39 

eogram Overview + Special Reports + Regulatory Policy + Significant 

Applications and Interpretations 

Full Disclosure System 


Key 1994 Results .........................................................................................................
 53 

Review of Filings + Rulemaking, Interpretive, and Legislative Matters + 

Conferences 
Accounting and Auditing Matters 

Key 1994 Results .........................................................................................................61 

Accounting Related Rules and Interpretations + Oversight of PrivateSector Standard-Setting + Oversight of the Accounting Profession's 

Initiatives + International Accounting and Auditing Standards 

Other Litigation and Legal Activities 

Key 1994 Results ......................................................................................................... 67 

Significant Litigation Developments + Significant Adjudication Developments + Legal Policy Developments + Significant Legislative Developments + Corporate Reorganizations + Ethical Conduct Program + 

Workload 

Economic Research and Analysis 

Key 1994 Results ...................................................................................................... 81 

Economic Analysis and Technical Assistance 

Policy Management and Administrative Support 

Key 1994 Results ...................................................................................................... 

Policy Management + Administrative Support 

83 

Endnotes ............................................................................................................ 91 

Appendix ........................................................................................................... 101 

Enforcement Cases Initiated by the Commission During Fiscal Year 1994 

in Various Program Areas + Fiscal 1994 Enforcement Cases Listed by 

Program Area +Investigations of Possible Violations of the Acts Administered by the Commission + Administrative Proceedings Instituted During Fiscal Year Ending September 30,1994 + Injunctive 

Actions + Right to Financial Privacy + Types of Proceedings + Foreign 

Restricted List + Self-Regulatory Organizations: Expenses, Pre-tax 

Income and Balance Sheet Structure + Consolidated Financial Inforrnation of Self-Regulatory Organizations + Self-Regulatory OrganizationsClearing Corporations, 1993 Revenues and Expenses + SelfRegulatory OrganizationsDepositories, 1993 Revenues and Expenses + Certificate Immobilization + Exemptions + Corporate Reorganizations +The Securities Industry: Revenues, Expenses, and Selected 

Balance Sheet Items + Unconsolidated Financial Information for BrokerDealers, 1989 - 1993 + Unconsolidated Annual Revenues and Expenses 

for Broker-Dealers Doing a Public Business, 1989 -1993 + Unconsolidated Balance Sheet for Broker-Dealers Doing a Public Business Yearend, 1989 -1993 + Carrying and Clearing Firms + Securities Industry 

Dollar in 1993 for CanyinglClearing Firms + Unconsolidated Revenues 
and Expenses for CanyingJClearing Broker-Dealers +Unconsolidated 

Balance Sheet for Canying/Clearing Broker-Dealers +Securities Traded 

on Exchanges: Market Value and Volume +NASDAQ (Share Volume 

and Dollar Volume) +Share and Dollar Volume by Exchanges + 

Market Value of Equity/Options Sales on U.S. Exchanges +Volume of 

Equity/Options Sales on U.S. Securities Exchanges +Share Volume by 

Exchanges + Dollar Volume by Exchanges +Securities Listed on 

Exchanges +Value of Stock; Listed on Exchanges +Appropriated 

Funds vs. Fees Collected +Budget and Appropriations +Securities and 

Exchange Commission Organizational Chart 

Commissioners* Term Expires 

Arthur Levitt, Chairman 

Richard Y. Roberts 

J. Carter Beese, Jr. 

Steven M.H. Wallman 

Principal Staff Officers 

Lori Richards, Executive Assistant 

Linda C. Quinn, Director, Division of Corporation Finance 

Vacant, Deputy Director 

William E. Morley, Senior Associate Director 

Abigail Ams, Associate Director 

Meredith B. Cross, Associate Director 

Teresa E. Iannaconi, Associate Director 

Howard F. Morin, Associate Director 

Mauri L. Osheroff, Associate Director 

Robert A. Bayless, Chief Accountant 

David A. Sirignano, Senior kgal Adviser 

William R. McLucas, Director, Division of Enforcement 

Colleen P. Mahoney, Deputy Director 

Joseph I. Goldstein, Associate Director 

Thomas C. Newkirk, Associate Director 

Gary N. Sundick, Associate Director 

Joan E. McKown, Chief Counsel 

Barry R. Goldsmith, Chief Litigation Counsel 

Stephen J. Crimmins, Deputy Chief Litigation Counsel 

George H. Diacont, Chief Accountant 

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

Bany Barbash, Director, Division of Investment Management 


Barbara J. Green, Deputy Director 


Matthew A. Chambers, Associate Director 


Gene A. Gohlke, Associate Director 


C. Gladwyn Goins, Associate Director 


William C. Weeden, Associate Director 


Vacant, Chief Counsel 


*CommissionerMary L. Schapiro resigned from the Commission on 


October 21, 1994. 

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Brandon Becker, Director, Division of Market Regulation 


Robert LD. Colby, Deputy Director 


Larry E. Bergmann, Associate Director 


Mark D. Fitterman, Associate Director 


Mary Ann Gadziala, Associate Director 


Jonathan Kallman, Associate Director 


Howard Kramer, Associate Director 


Michael A. Macchiaroli, Associate Director 


Catherine McGuire, Associate DirectorlChief Counsel 


Holly Smith, Associate Director 


Simon M. Lome, Genera1 Counsel, Office of Geneml Counsel 

Paul Gonson, Solicitor and Deputy General Counsel 

Phillip D. Parker, Deputy General Counsel (Legal Policy) 

Anne E. Chafer, Associate General Counsel 

Richard M. Humes, Associate General Counsel 

Diane Sanger, Associate General Counsel 

Jacob H. Stillman, Associate General Counsel 

William S. Stem, Counselor for Adjudication 

Walter P. Schueke, Chief Accountant, Office of the Chief Accountant I, John P. Riley, Deputy Chief Accountant 

Brenda Murray, Chief Administrative Law Judge, Office of the Administrative Law 

Judge 

Susan E. Woodward, Chief Ecawmist, Office of Economic Anulysis 

Jeffry L. Davis, Director, Economic and Policy Research 

Nancy M. Smith, Dimtor, Ofie of Consumer Affairs 

Vacant, Director, Office of Equal Employment Opportunity 

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

Susan Baumann, Deputy Executive Director 

Femando L. Alegria, Jr., Associate Executive Director 

Wilson A. Butler, Jr., Associate Executive Director 

Lawrence H. Haynes, Associate Executive Director 

Vacant, Associate Executive Director 

Michael D. Mann, Director, Ofice of Intemtional Affairs I1 

Kathryn Fulton, Director, Office of Legislative Affairs 

Jennifer Kimball, Director, Office of Public Affairs, Policy Evaluation and Research 

Jonathan G. Kak, Secretary of the Commission 
1 Chairman 

Following his nomination by 


President Clinton and his confirmation 


by the Senate, Arthur Levitt, Jr. was 


sworn in as the 25th Chairman of the 


Securities and Exchange Commission 


on July 27, 1993. 


Before being nominated to the 


Commission, Mr. Levitt served as the 


Chairman of the New York City 


Economic Development Corporation 


and, from 1978 to 1989,the Chairman 


of the American Stock Exchange 


(Amex). 


Throughout his career, Mr. Levltt has been called upon to serve on 

many governmental task forces and boards of directors. At the federal 

level, he has served on four executive branch commissions, Including 

chairing the White House Small Business Task Force from 1978 to 1980. 

Most recently, he was a member of the President's Base Closure and 

I Realignment Commission and the Defense Department Task Force on the 

National Industrial Base. In addition to heading the New York City 

Economic Development Corporation, he chaired the Special Advisory Task 

Force on the Future Development of the West Side of Manhattan and the 

Committee on Incentives and Tax Policy of the New York City Mayor's 

Management Advisory Task Force. 

Mr. Levitt has served on 10 corporate and philanthropic boards, 

including those of the Equitable Life Assurance Society of the United 

States, East New York Savings Bank, First Empire State Corporation, the 

Revson Foundation, the Rockefeller Foundation, the Solomon R. 

Guggenheim Foundation and Williams College. 

Mr. Levitt founded Levitt Media Company in 1990. Its primary 

holding was Roll Call, the Newspaper of Congress. 

Prior to accepting the Amex chairmanship, Mr. Levitt worked for 16 

years on Wall Street. From 1969 to 1978, he was President and Director 

of Shearson Hayden Stone, Inc. (today Smith Barney Shearson) whose 

predecessor firm he joined as a partner in 1962. It was during this period 

that Mr. Levitt first involved himself with Amex, becoming one of its 

governors in 1975 and in 1977 accepting the additional position of Vice 

Chairman. 

From 1959to 1962,Mr. Levitt worked at the Kansas-based agricultural 

management firm Oppenheimer Industries, where he rose to the position 

of Executive Vice President and Director. From 1954 to 1959,Mr. Levitt 

was assistant promotion director at Time, Inc. 
Mr. Levitt, 63, graduated Phi Beta Kappa from Williams College in 

1952 before serving two years in the Air Force. Married since 1955 to 

the former Marylin Blauner, Mr. Levitt has two children, Arthur 111 and 

Lauri. 

Commlssloner 

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 

~ractice of law with the Washington office 

bf Miller, Hamilton, Snider & 0dk. Before 

joining the law firm in April 1990,Mr. Roberts was administrative 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. 

Commissioner 

J. Carter Beese, Jr. was nominated to 

the U.S. Securities and Exchange Commission 

in October 1991 by President George Bush 

and confirmed by the U.S. Senate onFebruary 

27,1992. Mr. Beese was sworn in as the 71st 

member of the Commission in a private 

ceremony held on March 10, 1992, by the 

Honorable Stanley Sporkin, Judge for the 

U;S. District Court for the District of 

Columbia. On April 20,1992,Mr. Beese was 

formally sworn in at the White House by 

Vice president Dan Quayle. 
During his tenure at the Commission, Commissioner Beese has been

particularly active in the areas of investment management, the derivatives

markets and cross-border capital flows. Commissioner Beese's focus on

these areas is centered on his belief that the transformation of savers into

investors through mutual funds, the development of new financial

instruments to reallocate risk, and the globalization of the world's capital

markets are fundamentally remaking our markets. Commissioner Beese

is committed to maintaining the competitiveness of U.S. capital markets

and is committed to a reassessment of the growing legal and regulatory

burdens imposed on the capital formation process.

Before joining the Commission, Mr. Beese was a partner of Alex.

Brown & Sons, the oldest investment banking firm in the United States.

Mr. Beese's corporate responsibilities included business development in

the areas of corporate finance, investment management, and institutional

brokerage. Mr. Beese joined Alex. Brown in 1978, became an officer in

1984, and was named partner in 1987. Mr. Beese was also active in the

founding of the Carlyle Group, a Washington based merchant bank, and

served as an advisory director from 1986 1989.

Mr. Beese has also served in other capacities in government, each

related to enhancing the competitiveness of U.S. industries and markets.

In 1990, Mr. Beese was appointed by President Bush, and confirmed by

the U.S. Senate, as a Director of the Overseas Private Investment Corporation

(OPIC). OPIC is a U.S. government agency that assists American private

business investment in over 120 countries by financing direct loans and

loan guarantees and by insuring investments against a broad range of

political risks. OPIC plays a vital role in the effort to gain access to new

markets for U.S. products and businesses.

Mr. Beese also served as a member of the Securities and Exchange

Commission's Emerging Markets Advisory Committee. As part of his

responsibilities, Mr. Beese provided technical assistance on the formation

and regulatory oversight of financial markets. Further, during 1991 Mr.

Beese also served as a member of the Committee on Financing Technology

in the U.S., a joint project between the Treasury and Commerce Departments

initiated to study the adequacy of investment in the technology needed

by U.S. companies to meet the challenges of global competition.

In addition, Mr. Beese has been involved in public and private sector

initiatives to enhance the economic development of the Asia-Pacific region.

He is a member of the United States National Committee for Pacific

Economic Cooperation (US-PEC), which advises the U.S. government on

ways to improve economic cooperation with countries in the Asia-Pacific

region. Mr. Beese also serves as co-chairman with former U.S. Senator

Adlai Stevenson of the US-PEC's Financial Markets Development project

committee. This committee will develop policy recommendations to spur

financial market development in the Pacific economies.

Mr. Beese is active in a number of civic organizations, including the

American Center for International Leadership (ACIL), of which he is a

director. ACIL brings young American leaders together with their

viii

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counterparts in various foreign countries. Mr. Beese participated in

ACIL missions to the Peoples Republic of China in 1988 and to the former

Soviet Union in 1990. He serves on the boards of Preservation Maryland

and the National Foundation for Teaching Entrepreneurship. He is also

active in the Order of St. John. Mr. Beese resides in Baltimore, Maryland

with his wife, Natalie, and three children, Courtney, John Carter and

Wilson.

Commissioner

Steven M.H. Wallman was nominated

to the Securities and Exchange Commission

by President Bill Clinton and confirmed by

the Senate on June 29,1994. He was sworn

in as a Commissioner on July 5, 1994. His

term expires in June 1997.

Before being nominated to the

Commission, Mr. Wallman was in private

practice with the Washington law office of

Covington and Burling. He joined the firm

in 1978 as an Associate, becoming a Partner

in 1986. While at Covington & Burling, Mr. Wallman specialized in

general corporate, securities, contract and business law. Mr. Wallman

also worked for the Boston Consulting Group in 1978. He is a member

of the American Law Institute and the American Bar Association.

Mr. Wallman received his J.D. from the Columbia University School

of Law in 1978. In 1976, he earned an S.M. from the Sloan School of

Management at the Massachusetts Institute of Technology and an S.B.

from M.LT. in 1975.

He and his wife live in Great Falls, Virginia.

Mr. Wallman was born on November 14, 1953.

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Central Regional Office

Robert H. Davenport, Regional Director

1801 California St., Suite 4800

Denver, CO 80202-2648

(303) 391-6800

Fort Worth District Office

T. Christopher Browne,

District Administrator

801 Cherry Street, 19th Floor

Fort Worth, TX 76102

(817) 334-3821

Salt Lake District Office

Kenneth D. Israel, District Administrator

500 Key Bank Tower

50 S. Main Street, Suite 500

Box 79

Salt Lake City, UT 84144-0402

(801) 524-5796

Midwest Regional Office

Mary Keefe, Regional Director

Citicorp Center

500 W. Madison St., Suite 1400

Chicago, IL 60661-2511

(312) 353-7390

Northeast Regional Office

Richard H. Walker, Regional Director

7 World Trade Center, Suite 1300

New York, NY 10048

(212) 748-8000

Boston District Office

Juan M. Marcelino, District Administrator

73 Tremont Street

Sixth Floor, Suite 600

Boston, MA 02108

(617) 424-5900

Philadelphia District Office

Donald M. Hoerl, District Administrator

The Curtis Center, Suite 1005 E.

601 Walnut Street

Philadelphia, PA 19106-3322

(215) 597-3100

xvi

Pacific Regional Office

Elaine M. Cacheris, Regional Director

5670 Wilshire Blvd., 11th Floor

Los Angeles, CA 90036-3648

(213) 965-3998

San Francisco District Office

David B. Bayless, District Administrator

44 Montgomery Street, Suite 1100

San Francisco, CA 90036-3648

(415) 705-2500

Southeast Regional Office

Charles V. Senatore, Regional Director

1401 Brickell Avenue, Suite 200

Miami, FL 33131

(305) 536-5765

Atlanta District Office

Richard P. Wessel,

District Administrator

3475 Lenox Road, N.E.

Suite 1000

Atlanta, GA 30326-1232

(404) 842-7600
Enforcement

The Commission's enforcement program is designed to protect investors

and foster confidence by preserving the integrity and efficiency of the

securities markets. The enforcemen tprogram's principal legislative mandates

contain explicit authority for the agency to conduct investigations and

prosecute violations of the securities laws by bringing enforcement actions in

federal court orinstituting administrative proceedings beforethe Commission.

Last year, as in prior years, the Commission maintained a strong presence in

all areas within its jurisdiction.

Key 1994 Results

In 1994, the Commission instituted a significant number of enforcement

actions in response to a wide range of securities law violations. In its

administrative and judicial proceedings, the Commission sought and

obtained relief from a broad and flexible array of remedies designed to

protect investors and the public interest.

The Commission obtained court orders requiring defendants to

disgorge illicit profits of approximately $730 million. Civil penalties

authorized by the Securities Enforcement Remedies and Penny Stock

Reform Act of 1990 (Remedies Act), the Insider Trading Sanctions Act of

1984 (ITSA), and the Insider Trading and Securities Fraud Enforcement

Act of 1988 (ITSFEA) totalled over $34 million. In some instances, the

payment of disgorgement pursuant to a court order was waived based

upon the defendant's demonstrated inability to pay. Courts have noted

also in some cases that civil penalties were appropriate but were not

imposed because of the demonstrated inability to pay.

In Commission-related cases, criminal authorities obtained 48 criminal

indictments or informations, and 53 convictions during 1994. The

Commission granted access to its files to domestic and foreign prosecutorial

authorities in 451 instances.

Total Enforcement Actions Initiated

1990 1991 1992 1993 1994

Total 304 320 394 416 497

Civil Injunctive Actions 186 172 156 172 196

Administrative Proceedings 111 138 226 229 268

Civil and Criminal Contempt

Proceedings 7 9 11 15 33

Reports of Investigation 0 1 1 0 0

1
Enforcement Authority

The Commission has broad authority to investigate possible violations

of the federal securities laws. Informal investigations are conducted on

a voluntary basis, with the Commission requesting persons with relevant

information to cooperate by providing documents and testifying before

SEC staff. The federal securities 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. Generally, both types of

investigations are conducted on a confidential, non-public basis.

Traditionally, the Commission's primary enforcement mechanism for

addressing violative conduct has been the federal court injunction, which

prohibits future violations. In civil actions for injunctive relief, 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. Once an injunction has been imposed, conduct that

violates the injunction is 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 disgorgemen t of illegal profi ts. 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 Remedies Act authorized 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 penalties are available

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.

The Commission has the authority to institute several types of

administrative proceedings, in addition to civil injunctive actions. The

Commission may institute administrative proceedings against regulated

entities in which the sanctions that may be imposed include a 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. In addition,

individuals participating in an offering of penny stock may be barred by

the Commission from such participation. In administrative proceedings

against regulated entities and their associated persons, the Remedies Act

also authorized the Commission to impose penalties and order

disgorgement.

The Remedies Act further authorized the Commission to institute

administrative proceedings in which it can issue cease and desist orders.

A permanent cease and desist order can be entered against any person

violating the federal securities laws and may 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 their associated persons if the Commission determines that

2
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 the completion of

proceedings.

Section 8(d) of the 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

professionals who appear or practice before the Commission, including

accountants and attorneys. The sanctions that can be imposed in these

proceedings include suspensions and bars from appearing or practicing

before the Commission.

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

or local authorities or self-regulatory organizations (SROs) such as the

New York Stock Exchange (NYSE) or the National Association of Securities

Dealers (NASD). The staff often provides substantial assistance to criminal

authorities, such as the Department of Justice, for the criminal prosecution

of securities violations.

Enforcement Activities

Set forth below are summaries of significant enforcement actions

initiated in various areas during 1994. Defendants or respondents who

consented to settlements of actions did so without admitting or denying

the factual allegations contained in the complaint or order instituting

proceedings. See Table 2 for a listing of all enforcement actions instituted

in 1994.

Offering Cases

Securities offering 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 from the registration requirements

that are not available under the circumstances. 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.

1. Telecommunications Technology Cases

The Commission has filed a number of cases in the past two years

arising from the fraudulent, unregistered sale of securities in ventures

involved in wireless cable, specialized mobile radio, interactive video and

data services, and similar telecommunication technologies. While many

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telecommunications technology companies raise capital through legitimate

means, the Commission has uncovered numerous fraudulent ventures,

which often take the form of limited liability companies or partnerships

that promoters falsely represent as outside the registration provisions of

the federal securities laws, and which often are promoted through

"infomercials" and high-pressure telephone sales pitches. Due to their

prevalence, the Division of Enforcement issued a general warning to

investors to beware of these frauds, indicating that it was particularly

concerned about the apparent targeting of retirement funds by promoters

of the frauds.' In the last year, the Commission filed eleven injunctive

actions in this area. Moving quickly to preserve assets for the benefit

of defrauded investors, the Commission obtained temporary restraining

orders and orders freezing assets, or other emergency relief, in most of

these cases. Each of the cases discussed below was pending at the end

of the year.

In SEC v. Parkersburg Wireless Limited Liability Company/ the

Commission alleged that the defendants offered and sold unregistered

securities in the form of public investments designated as "membership

Units" in Parkersburg Wireless. Parkersburg Wireless raised over $10.5

million, purportedly to acquire or develop a wireless cable television

system (i.e., a system using super high frequency transmissions rather than

actual cables) in the Parkersburg, West Virginia area. Investors were told

that they could expect a "4-to-1" return on investments within four years.

The projections had no basis in fact. After the payment of commissions

amounting to over fifty percent of the proceeds and payment of fees to

the defendants providing telephone solicitation services, Parkersburg

Wireless would not have had sufficient capital to remain in business long

enough to achieve the projected returns. The Commission obtained

preliminary injunctions against Parkersburg and thirteen other individual

and corporate defendants and an order freezing the defendants' assets.

The Commission filed an action against Knoxville, LLC a limited

liability company that was seeking to raise $35 million to acquire 80

percent of a joint venture that would acquire and operate a wireless cable

system in the Knoxville, Tennessee area (SEC v. Knoxville, LL(3). Prospective

investors were solicited by telephone, and up to 52 percent of the proceeds

from investors were to be paid as commissions or fees for telephone

solicitations. Investors were told that they could expect returns of 300

percent to 400 percent in two to four years; these projections had no basis

in fact. The Commission obtained a temporary restraining order and a

temporary asset freeze in this case.

The defendants in SEC v. Continental Wireless Cable Television, Inc.,'

were alleged to have raised over $34 million from 2,000 investors by

representing that the funds would be used to acquire, develop and market

wireless cable television systems in Nashville, Tennessee and New Orleans,

Louisiana. Only $7.1 million was used for those purposes. The defendants,

Continental Wireless and three of its officers and directors, misappropriated

and misused investor funds to pay at least $15 million of the company's

own overhead expenses, including $11 million in commissions and other

it
sales expenses and $1.2 million in "loans" to the three individual defendants.

The Commission obtained a preliminary injunction and an asset freeze

in this case.

In SEC v. Comcoa Ltd.,s the Commission alleged violations by Comcoa

and Thomas W. Berger, the chairman, president, and sole officer and

director of Comcoa. Comcoa is purportedly in the business of preparing

and filing applications with the Federal Communications Commission

(FCC) for specialized mobile radio (SMR) licenses. Comcoa guaranteed

that each investor would receive a license and represented that it would

arrange for a systems operator to lease or purchase the license when

granted. Although SMR licenses were promised, investors in fact obtained

Private Carrier licenses. Comcoa raised in excess of $13 million from about

1,200 investors through a boiler room operation and the use of high

pressure sales techniques; scripts used by Comcoa's telephone sales

representatives, and offering materials sent to investors contained material

misrepresentations as to the profits to be realized, among other things.

The Commission obtained a temporary restraining order and an asset

freeze in this case.

A fraud in the offer and sale of interests in purported general

partnerships to develop wireless cable television systems in Hot Springs,

Arkansas, Clarksville, Tennessee, and Valdosta, Georgia raised

approximately $9 million for one partnership through Transamerica

Wireless Systems, Inc., and began raising an additional $10.5 millon for

a second partnership through Intercontinental Telecommunications

Corporation. In the Commission's enforcement action, SEC v. Transamerica

Wireless Systems, Inc;" the complaint alleged that both companies used

television infomercials, mailings, and telephone boiler rooms to sell

partnership interests. The companies falsely claimed that they were

negotiating for FCC licenses and failed to disclose substantial sales

commissions. In addition, they failed to disclose a pending Federal Trade

Commission action alleging fraud in the sale of license application

preparation and filing services by Danny Sterk, the chief executive officer

of both companies and a defendant in the Commission's action. The

Commission obtained a temporary restraining order and an asset freeze

in this case.

2. Prime Bank Cases

During the last two years, the Commission has brought a number

of enforcement actions involving so-called "prime bank" securities. The

typical case involves the offer and sale of notes, debentures, letters of

credit, or guarantees purportedly issued by one or more major international

banks. Investors in these schemes are typically promised unrealistic rates

of return, e.g., a 150 percent annualized rate of "profits." The Commission

filed 11 injunctive actions alleging prime bank schemes during 1994.

Common targets of these schemes include both institutional and individual

investors, who also may be induced to participate in possible Ponzi

schemes, involving the pooling of investors' funds to purchase "prime"

bank financial instruments. During the year, the SEC issued a Bulletin
to alert investors to these frauds." The SEC also published a warning to

investors concerning possible ongoing fraudulent attempts to sell "prime

bank" securities purportedly issued by Banka Bohemia, A.5., a bank

located in Prague, Czech Republic." Despite Banka Bohemia's attempts

to retrieve and cancel such securities, approximately $600 million in such

securities remained outside the bank's control.

In SEC v. John D. Lauer/ the Commission alleged a scheme in which

at least $12.5 million was raised from at least one investor, the Chicago

Housing Authority's (CHA) Benefit Plan, through the offer and sale of

interests in a program designed to purchase and trade Up rime Bank

Instruments." John D. Lauer, CHA's manager of benefits, failed to disclose

to CHA the role of the company under his control in the administration

of the purported investment, his receipt of compensation in connection

with the investment, and the resulting conflict of interest. Lauer also

misappropriated $1.5 million from an account set up to facilitate

transactions. The Commission obtained a temporary restraining order and

an asset freeze in this case. In an August 25, 1994, opinion, the district

court rejected claims by Lauer that the alleged activities were outside the

scope of the federal securities laws. This case was pending at the end

of the year.

In SEC v. Northstar Investors Trust," the Commission alleged that the

defendants raised more than $3.2 million from about 20 investors by selling

an investment in which funds were pooled and purportedly used to

purchase and sell "Prime Bank letters of credit." Investors were told that

transactions between the banks and the institutional investors would

result in returns of 2 to 3 percent per month (i.e., 24 to 36 percent per

year). No bank instruments, letters of credit or other investments were

purchased on behalf of investors, and investor funds were in fact diverted

for other purposes. Northstar and defendants Stewart W. Cross, James

G. Hands, III, Del Olson, and Cross & Associates consented to the entry

of injunctions. Injunctions also were entered as a result of the Commission's

motion for summary judgment against Stephen Cross and SLM Corp.

The Commission alleged that the defendants in SEC v. North Pacific

Investments, Inc.," raised at least $10 million from an investor in Hawaii

in a scheme that would purportedly purchase and sell "European prime

bank debt obligations." The funds were not used to purchase securities

on behalf of the investor, but were in fact placed in bank accounts in the

names of the defendants and were disbursed for the benefit of the

defendants. Funds represented to be profits from prime bank debenture

transactions were in fact a return of a portion of the investor's initial

investment capital. The Commission obtained a preliminary injunction

and an asset freeze in this case. This case was pending at the end of the

year.

In SEC v. Cross Financial Services, Inc.,12 the Commission alleged that

the defendants offered and sold approximately $21 million in unregistered

securities to over 700 investors. Cross Financial and the four individual

defendants misrepresented that Cross Financial would use the investor

funds to make loans secured by accounts receivable and to purchase bank
guarantees or letters of credit. The defendants misappropriated over $12.9

million of the funds raised and engaged in a Ponzi scheme by using new

investor funds to make principal and interest payments totalling $4.5

million to prior investors. The Commission obtained a preliminary

injunction and an asset freeze in this case, as well as the appointment of

a permanent receiver for Cross Financial. This case was pending at the

end of the year.

The Commission's complaint in SEC v. Prime One Partners, Corp,"

alleged a fraudulent scheme involving the offer and sale of "general

partnership" interests in a prime bank investment program. Defendants

Prime One Partners, Corp., Capital Asset Management and Monarch

Associates International, Ltd., and their agents marketed the program

through investment seminars touting a prime bank investment program

in which investors were promised returns of 80 percent to 400 percent.

The defendants consented to the entry of injunctions and orders requiring

the disgorgement of investor funds plus prejudgment interest and civil

penalties in an amount to be determined. This case was pending at the

end of the year as to two individual defendants added by the Commission's

First Amended Complaint, filed after entry of the consent injunctions

against the original defendants.

3. Other Offering Cases

The Commission filed an action against European Kings Club, three

other corporate entities and four individuals, alleging a Ponzi scheme

involving the offer and sale of unregistered securities in the form of letters

of investment (SEC v. European Kings Club"). The letters purported to

guarantee annual returns of 71 percent on investments, even though Kings

Club had no legitimate means to generate sufficient revenues to pay such

returns. Among other things, Kings Club failed to disclose a criminal

investigation in Germany or actions by Swiss authorities to freeze and

liquidate Kings Club's assets in Switzerland. The defendants consented

to the entry of injunctions and orders requiring the payment of disgorgement

and prejudgment interest totalling $997,343 and civil penalties totalling

$1 million.

In the Commission's action against VestCorp Securities, Inc., First

Pension Corporation and eight individuals, SEC v. William E. Cooper," the

complaint alleged that VestCorp offered and. sold securities in the form

of real estate limited partnership units, raising approximately $99 million.

Many of the investors held their limited partnership interests in selfdirected IRA accounts at First Pension. The limited partnerships never

generated any income, and investor "returns" were paid by diverting other

First Pension client funds. Two of the individual defendants

misappropriated approximately $25 million of First Pension funds, and

another defendant wrote 114 unauthorized checks totalling over $1 million

on First Pension's custodial bank account. The complaint alleged that up

to $125 million in investor and pension funds was at risk. The Commission

obtained a preliminary injunction and other relief, including an asset

freeze and an accounting. This case was pending at the end of the year.

7
In SEC v. American Business Securities, Inc.,16 the Commission alleged

that twelve individual and corporate defendants engaged in the fraudulent

offer and sale of securities in the form of limited partnership interests

and units of participation in grantor trusts issued by Southwest Energy

Consultants, Inc. Through the aggressive sales efforts of American Business

Securities, Inc., a registered broker-dealer, and its registered

representatives, approximately $40 million was raised from about 1,000

investors. Funds were purportedly to be used to acquire interests in oil

and gas producing wells, and annual returns of 12 percent to 20 percent

were promised. In fact, returns to investors were preset and were not

based on the actual production of the wells, which in some cases were

no longer producing oil or gas. American Business Securities, Southwest

Energy Consultants, and seven other defendants consented to the entry

of injunctions. This case was pending at the end of the year as to two

other defendants, against whom the Commission had obtained a temporary

restraining order and an asset freeze.

In SEC v. Norman 1. Brooks," the Commission alleged a scheme by

twelve individual and four corporate defendants that raised $3.5 million

from over one hundred in vestors in 25 states through the sale of unregistered

securities in the form of promissory notes. The proceeds of the sales were

diverted and misused by the defendants. Tens of thousands of unsolicited

telephone calls were made through a boiler room, using scripts that

contained material misrepresentations and omitted material facts. Investors

were fraudulently induced to purchase the promissory notes by

"guarantees" of annual rates of return from 10 percent to 14 percent. In

addition, the sales personnel misrepresented that investments would be

used in a fully-insured, risk-free consumer automobile financial operation.

The Commission obtained a temporary restraining order and an asset

freeze in this case. Default injunctions were entered against three corporate

entities and two individuals. This case was pending at the end of the

year as to the remaining defendants.

Financial Disclosure

Actions involving false and misleading disclosures concerning matters

that affect the financial condition of an issuer, or involving the issuance

of false financial statements often are complex and, in general, demand

more resources than other types of cases. Effective prosecution in this

area is essential to preserving the integrity of the full disclosure system.

The Commission brought 78 cases containing significant allegations of

financial disclosure violations against issuers, regulated entities, or their

employees. Many of these cases included alleged violations of the books

and records and internal accounting control provisions of the Foreign

Corrupt Practices Act. The Commission also brought 31 cases alleging

misconduct by accounting firms or their partners or employees.

In cease and desist proceedings, In the Matter of Comptronix

Corporation," the Commission alleged that, as a result of a fraudulent

accounting scheme implemented by three members of Comptronix's senior

management, Comptronix reported materially overstated sales, net income,

8
and assets in periodic filings between 1989 and 1992. The inflated sales

and earnings enabled Comptronix falsely to report continued growth in

revenues and earnings when the company was not profitable. Overall,

Comptronix reported nearly $38 million in sales between 1989 and 1992

that had not taken place and cumulative profits of approximately $14.9

million when the company actually incurred cumulative losses during this

period of about $11.8 million.

In SEC v. Stanley Lepelstat," the Commission alleged a scheme extending

over at least seven years in which six of the former officers and directors

of Accuhealth, Inc., diverted corporate cash to fund a variety of off-books

cash payments, including payments to officers, directors, and employees,

and to make unrecorded purchases of inventory. Accuhealth also

manipulated its earnings by overstating year-end inventory from 1989

through 1992. In addition, Stanley Lepelsta t, Accuheal th' s former chairman

and chief executive officer, sold Accuhealth common stock while in

possession of material non-public information regarding the company's

true financial condition, thereby avoiding losses of $222,496.15. Two of

the defendants consented to the entry of injunctions and to orders

prohibiting them from serving as officers or directors of public companies;

one of the settling defendants also agreed to pay a civil penalty of $10,000.

This injunctive action was pending as to the other defendants at the end

of the year. In related administrative proceedings,In the Matter of Accuhealth,

lnc.P" the respondents consented to the entry of a cease and desist order.

In In the Matter of William Makadak, CPA,21 proceedings instituted pursuant

to Rule 2(e), a former principal financial and accounting officer for

Accuhealth consented to the entry of an order denying him the privilege

of appearing or practicing before the Commission.

In SEC v. PNF Industries, Inc.,22 the Commission alleged a financial

fraud in connection with the bid by PNF Industries to become listed on

the Emerging Company Marketplace of the American Stock Exchange in

1992. PNF inflated its stockholder's equity from a deficit of $255,361 to

a surplus of $16,125,963 by improperly accounting for a business

combination, thereby creating the appearance that the company qualified

for the exchange listing. PNF also omitted to state material facts about

a licensing agreement and letters of intent with respect to fire retardant

products for which it had obtained patents as a result of the business

combination. Among other things, a control person of PNF, Alfred Avasso,

engaged in insider trading in PNF stock and sold unregistered PNF stock;

PNF's auditor, Louis Fox, lacked independence because he had agreed

to have convertible preferred PNF stock transferred to a relative's account

on his behalf. All but one of the defendants consented to the entry of

injunctions. In addition, Avasso was ordered to disgorge $400,000. Fox

and two other defendants were ordered to pay civil penalties totalling

$50,000. This case was pending as to Otis Hastings, a former PNF officer,

at the end of the year. In related administrative proceedings pursuant

to Rule 2(e), Martin Halpern, the engagement partner on the audit of PNF's

9
1991 financial statements, consented to the entry of an order denying him

the privilege of appearing or practicing before the Commission (In the

Matter of Martin Halpern, CPAZ3).

The Commission filed an action against C.W. Earl Johnson, the former

chief executive officer of Barton Industries, Inc., and Victor L. Joyce,

Barton's former chief financial officer (SEC v. C. W. Earl [ohnson"), The

complaint alleged that the defendants directed Barton accounting personnel

to falsify recorded inventory, which inflated Barton's pretax income during

fiscal 1989 and 1990, and to record phony sales, further inflating pretax

income during fiscal 1990. On quarterly reports for the first three quarters

of 1990, Barton reported pretax income of $681,524, $719,404, and $1,034,251,

instead oflosses of at least $838,198, $1,022,301, and $1,254,305, respectively.

Both defendants avoided losses by seIling or donating Barton stock while

in possession of material non-public information about the falsified financial

statements. Johnson consented to the entry of an injunction and a bar

from acting as an officer or director of any public company. This matter

was pending as to Joyce at the end of the year.

The Commission's complaint against Jere Bradwell, the president,

chief executive officer and chairman of Silk Greenhouse, Inc. (SGn; Stuart

G. Lasher, SCI's chief financial officer; and William T. Gilbert, SGI's vice

president of finance, alleged that SGI, to avoid an expected third quarter

loss in 1989 and meet estimated earnings for the quarter, included in its

financial statements as "other income" the assets and liabilities of a

company created by Bradwell to divert real estate commissions on new

SGI store sites (SEC v. Jere L. Braduiellt"), The complaint also alleged that

$2.6 million of employee payroll expenses were improperly capitalized

and deferred to the fourth quarter, and $1.5 million of advertising expenses

were deferred. Bradwell sold 62,500 shares of SGI common stock prior

to the public announcement of the third quarter results, avoiding losses

of approximately $781,000. The defendants consented to the entry of

injunctions. Bradwell was ordered to disgorge $781,000 plus prejudgment

interest and to pay a civil penalty under ITSA. Lasher and Gilbert, who

are certified public accountants, also consented to an order in related Rule

2(e) proceedings, by which they were denied the privilege of appearing

or practicing before the Commission. In the Matter of Stuart G. Lasher,

CPA.26

In SEC v. Transmark USA, Inc.,27 the Commission alleged that the

defendants failed to disclose the nature of certain transactions and

materially misstated the financial condition of the company's principal

subsidiary, Guarantee Security Life Insurance Company (GSL). The

complaint alleged four instances of related sale and repurchase transactions

in high yield securities between GSL and Merrill Lynch. These transactions

occurred at year-end and were intended to replace temporarily GSt's

portfolio of high yield securities with either a cash receivable or liquid

Treasury securities, resulting in increased reported statutory capital and

surplus. The defendants consented to the entry of injunctions.

10
In In the Matter of Donald F. Withers, CPA,2s the Commission found

that the respondent, a partner in Coopers & Lybrand, engaged in improper

professional conduct in connection with the transactions alleged in SEC

v. Transmark USA, Inc. Withers consented to the entry of an order suspending

him from appearing or practicing before the Commission for a period of

five years.

The Commission alleged in In the Matter of Harry D. Sweeney, CPA,29

that Sweeney and Henry Gayer, the engagement partners for audits of

Sahlen & Associates in 1988 and 1987, respectively; and Timothy S. Hart,

the manager for both audits, caused unqualified audit reports to be issued.

The defendants also failed to obtain sufficient competent evidential matter

with respect to the existence, valuation, and presentation of at least $45

million of overstated receivables. This matter was pending at the end

of the year.

In Rule 2(e) proceedings against Edward Jan Smith, a partner at Price

Waterhouse, and Joel E. Reed, a senior manager for the firm, the Commission

alleged that the respondents failed to conduct the 1988 and 1989 audits

of Amre, Inc., in accordance with generally accepted auditing standards

(In the Matter of Edward Jan Smith, CPASO) As a result of a fraudulent scheme

by Amre's management, the company's earnings and revenues had been

overstated in its 1988 financial statements and understated in fiscal 1989.

The respondents consented to the entry of an order denying them the right

to appear or practice before the Commission.

Insider Trading

Insider trading occurs when a person in possession of material nonpublic information engages in securities transactions or communicates

such information to others who trade. Insider trading encompasses more

than trading and tipping by traditional insiders, such as officers or directors

who are subject to a duty to either disclose any material non-public

information or abstain from trading in the securities of their own company.

Violations also may arise from the transmission or use of material nonpublic information by persons in a variety of other positions of trust and

confidence or by those who misappropriate such information.

In addition to permanent injunctions, the Commission often seeks

ancillary relief, including disgorgement of any profits gained or losses

avoided. The ITSA penalty provisions authorized the Commission 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 non-public information or who unlawfully

communicate material non-public information to others who trade. Civil

penalties also can be imposed upon persons who control insider traders.

During 1994, the Commission brought 45 cases alleging insider trading

violations.

In connection with its proceedings involving financial fraud by

Comptronix Corporation, the Commission filed an injunctive action against

Richard F. Adler, a former director of Comptronix, who learned of the

fraud and tipped this information to Harvey L. Pegram, a friend and

11
business associate (SEC v. Richard F. Adler"). Pegram sold his Comptronix

stock and tipped Philip L. Choy, who sold Comptronix stock held in the

name of his company, Magatronic Trading Limited. Domer L. Ishler,

another friend and business associate of Adler's, also unlawfully received

the adverse information and purchased Comptronix put options. Pegram

and Choy avoided losses of approximately $2.3 million and $75,000,

respectively, and Ishler made a profit of approximately $368,000. This

case was pending at the end of the year.

SEC v. Eugene Dines" was an action against Bruce Dines, a former

director of Colorado National Bankshares (CNB), and his brother, Eugene

Dines. In connection with his employment, Bruce Dines learned that First

Bank Systems was making an offer to merge with or acquire CNB. He

communicated this information to his brother, who purchased 30,000

shares of CNB common stock prior to the public announcement of a merger

agreement. Eugene Dines realized profits of $214,000 on his CNB

transactions. The defendants consented to the entry of an injunction and

an order requiring them to disgorge a total of $214,000 plus prejudgment

interest of $12,847 and to each pay a civil penalty under ITSA of $214,000.

The defendant in SEC v. Jonathan Mayhew33 purchased the common

stock of Rorer Group, Inc., and call options on such stock, while in

possession of material non-public information concerning merger

discussions between Rorer and Rhone-Poulenc, S.A. Jonathan Mayhew'S

trades followed his receipt of a tip from an employee of a human resources

consulting firm that had been retained by Rorer in connection with the

merger discussions. After the public announcement of the discussions,

Mayhew realized profits of $255,000. This case was pending at the end

of the year.

Prior to the public announcement of a merger agreement between

MidSouth Corp. and Kansas City Southern Industries Inc., a lobbyist for

Kansas City Southern working in Washington, D.C. engaged in insider

trading in MidSouth common stock (SEC v. Julia Peck Mobley34). The

lobbyist, Sydney Probst, misappropriated material non-public information,

traded MidSouth securities while in possession of this information, and

recommended the purchase of MidSouth securities to a family member

and two friends, Julia Peck Mobley and Rosamond Brown, who also

traded. One of Probst's friends tipped an additional person who traded.

Probst and the tippees realized aggregate profits of approximately $35,000.

Probst consented to an injunction and to an order requiring her to disgorge

profits of $13,572 plus prejudgment interest and to pay an ITSA penalty

of $13,572. This case was pending as to Mobley and Brown at the end

of the year.

Manipulation

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

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

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

markets.

12
The Commission charged Ll.S, Environmental, Inc., Castle Securities

Corp., and nine individuals with conducting a fraudulent offering and

subsequent manipulation of common stock issued by U.S. Environmental

(SEC v. U.S. Environmental, Inc.3S). The defendants engaged in a fraudulent

"blind pool" offering bringing U.S. Environmental public and thereafter

caused the company to make false and misleading representations, including

that U.S. Environmental had a proven, cost-effective process for detoxifying

hazardous waste and owned a 50 percent interest in a pilot plant.

Defendants, who controlled the entire float, manipulated the price from

$0.05 per unit to approximately $5.00 per share; the defendants then paid

kickbacks to brokerage firms to sell several hundred thousand shares to

investors who paid a total of more than $1 million for the stock. The price

of the stock reached $7.00 per share before collapsing to between $0.06

and $0.11 per share. U.S. Environmental and two stock promoters, Mark

D'Onofrio and Ramon D'Onofrio, consented to the entry of injunctions,

and the D'Onofrios also were jointly and severally ordered to disgorge

$940,374.52 plus prejudgment interest. An order was entered prohibiting

the D'Onofrios from serving as officers or directors of public companies,

and they were enjoined from acting as promoters, finders, consultants,

agents or in any other capacity with any broker, dealer, or issuer in the

issuance or trading of securities. This case was pending as to the other

defendants at the end of the year.

In In the Matter of J. Peek Garlington, /r.,36 the Commission alleged

that the respondent, the chairman of Cousins Properties, Inc., engaged

in a series of illegal trades in the common stock issued by Cousins. The

respondent manipulated the closing price of Cousins common stock by

placing orders to buy small lots at the end of the trading day, i.e., by

"marking the close," on seventy-seven days over a six-month period.

These activities increased the closing price of Cousins common stock, and

thereby increased the equity in a margin account in which the respondent

held a substantial position of the stock. The purpose of the scheme was

to satisfy or prevent margin maintenance calls. The respondent consented

to the entry of a cease and desist order by which he was ordered to disgorge

$92,750 plus interest in the amount of $29,424.36.

In a case involving the operation of a boiler room by a former

registered broker-dealer, Chelsea Street Securities, Inc., the Commission

alleged that defendants Gary S. Williky and James J. Romano, and salesmen

under their control implemented undisclosed, manipulative sales practices,

including "matched" trading, the parking of securities in Chelsea customer

accounts, and "wash" purchase and sale transactions (SEC v. Gary S.

Williky37). These manipulative practices were implemented to generate

retail demand for four securities in which the broker-dealer made a

market, causing an artificial rise in the price of these securities. Williky

consented to the entry of an injunction and an order requiring him to pay

disgorgement and a civil penalty in amounts to be determined. This case

was pending at the end of the year.

13
The Commission filed an action against nine individual defendants,

alleging a scheme in which kickbacks were paid to registered representatives

to recommend the purchase of common stock issued by Fairmont Resources

Inc., a Canadian natural gas company traded on the Alberta Stock Exchange,

in an effort to manipulate the price and create the appearance of an active

trading market for the stock (SEC v. Robert L. Shu1l38). Three of the

defendants agreed to acquire a controlling interest in Fairmont, to

manipulate its stock, and to sell at artificially enhanced prices. Kickbacks

totalling more than $400,000 were paid to five other defendants.

Manipulative activity caused Fairmont stock to increase from C$0.30 per

share to C$3.05 per share in less than six months. The three defendants

controlling Fairmont realized illegal profits of as much as US$l million

from the scheme. This case was pending at the end of the year.

The Commission also took action in cases involving fraudulent schemes

involving the short sale of securities during the period between the filing

of a registration statement for a secondary offering and the time at which

sales pursuant to the registration statement may be made. Because short

selling in anticipation of a public offering may result in a decrease in the

price of the security, such activity may deprive the issuer of offering

proceeds that would otherwise have been obtained. In SEC v. Curtis Ivey,39

the Commission alleged that the defendants sold short the securities of

Safeway, Inc., Enron Corp., Dillard Department Stores, Inc., and Household

International, Inc., prior to the effective dates of registration statements,

and then covered with securities purchased in the public offering. The

defendants realized profits of $80,365. The defendants consented to the

entry of injunctions and an order requiring them jointly and severally to

disgorge $80,365 plus prejudgment interest.

The Commission alleged that Stanley Berk realized profits of $35,500

from short sales of the securities of Dillard Department Stores, Inc.,

Safeway, Inc., and Household International, Inc., and obtained

approximately $5,000 from trading associates who engaged in similar

unlawful conduct in connection with public offerings of five other issuers

(In the Matter of Stanley Berk"). This case was pending at the end of the

year.

Broker-Dealer Cases

Each year, the Commission files a significant number of enforcement

actions against broker-dealer firms and persons associated with them. The

Commission's actions against broker-dealers often focus on violations of

the net capital and customer protection rules, violations of books and

records provisions, or fraudulent sales practices. The Commission also

takes action against broker-dealer firms and their senior management for

failure to supervise employees with a view to preventing violations of

the federal securities laws.

Several cases against broker-dealer firms involved violations in the

market for United States Treasury securities. The Commission instituted

administrative proceedings against The Chicago Corporation (TCC), a

registered broker-dealer, alleging that between 1984 and 1991 it had

14
engaged in a practice that resulted in the submission of inaccurate bid

tender forms by two primary dealers in Treasury securities in connection

with noncompetitive orders in Treasury auctions (In the Matter of The

Chicago Corporation"), TCC submitted noncompetitive bids in the names

of various individuals in approximately thirty auctions per year, and then

purchased the securities acquired by these individuals pursuant to an

"option agreement." This practice allowed TCe to circumvent Treasury

regulations prohibiting the purchase of more than $1 million in Treasury

securities pursuant to noncompetitive bidding. TCC consented to the

entry of a cease and desist order and to an order requiring the disgorgement

of $250,000 plus interest and a civil penalty of $250,000.

Similarly, in In the Matter of Cantor Fitzgerald & CO.,42 the Commission

alleged that Cantor Fitzgerald &Co., a registered broker-dealer, committed

violations in the purchase and sale of Treasury securities issued through

the noncompetitive auction process. Cantor Fitzgerald's books and records

failed to reflect pre-auction agreements between the firm and its customers

to sell the securities awarded in the auction. Cantor Fitzgerald consented

to the entry of a cease and desist order requiring the disgorgement of

$90,000 plus interest and the payment of a $100,000 civil penalty.

In the Matter of Goldman, Sachs & CO./3 cease and desist proceedings

against Goldman Sachs & Co., a registered broker-dealer, the Commission

alleged that the firm falsely recorded prearranged transactions in Treasury

securities with Salomon Brothers, Inc., other broker-dealers, and certain

institutional customers during 1985 and 1986 to realize a total of $36.6

million in losses for tax purposes. Goldman Sachs also falsely recorded

prearranged trades in four transactions with Salomon during 1986 as an

accommodation to Salomon. Goldman Sachs consented to the entry of

a cease and desist order by which it was required to pay a civil money

penalty of $250,000.

The Commission alleged violations of the books and records provisions

in In the Matter of Merrill Lynch, Pierce, Fenner & Smith, Inc.,44 administrative

proceedings against Merrill Lynch; Robert Plunkett, a trader formerly

associated with Merrill Lynch; and Frederick Roemer, a Merrill Lynch

corporate bond salesman. The Commission found that Merrill Lynch

failed to record properly certain securities transactions in two separate

matters. The first matter involved related sale and repurchase transactions

designed to permit a customer, Guarantee Security Life Insurance Company,

temporarily to replace high yield securities with a cash receivable or liquid

Treasury securities at year end, thereby avoiding certain reserve

requirements of Florida insurance law. The second matter involved a

series of sale or repurchase transactions between Merrill Lynch, Reliance

Group Holdings, Inc., and a third party, designed to permit Reliance to

realize gains on certain securities. Respondents, without admitting or

denying the Commission's findings, consented to the entry of a cease and

desist order by which they were censured and Merrill Lynch was required

to adopt internal procedures, policies, and controls reasonably designed

to assure compliance with broker-dealer record keeping requirements.

15
In In the Matter of George F.M. Lee,45 the Commission alleged that the

respondent, who was president, general principal, compliance officer and

financial principal of a broker-dealer firm, failed reasonably to supervise

two former branch managers who had engaged in a scheme to distribute

unregistered securities of Pacific Waste Management, Inc. One of the

managers sold approximately 80,000 shares for his own account while

acting as a promoter for Pacific Waste. The other manager solicited at

least 41 customers to purchase approximately 183,020 shares he had

received gratuitously from an officer of Pacific Waste. The Commission

found that the respondent's failure to provide closer scrutiny of the branch

managers' activities contributed to their ability to engage in the wrongful

conduct. The respondent consented to the entry of an order suspending

him from association in a supervisory capacity for a period of six months

and requiring him to pay a civil penalty of $5,000.

The Commission alleged net capital violations in administrative

proceedings against Colonial Management Associates, Inc., a firm duallyregistered as a broker-dealer and an investment adviser (In the Matter of

Colonial Management Associates, Inc.46). Colonial failed to calculate timely

its net capital on a monthly basis for eight months during 1991 and 1992.

In addition, Colonial had a net capital deficiency during the period

November 2 to December 29, 1992, resulting from its use of approximately

$16 million from the liquidation of certain securities to reduce the

outstanding balance on a revolving credit line maintained by its corporate

parent.

SEC oversight of broker-dealers often involves actions alleging

fraudulent sales practices. InSEC v. Thomas Frank Bandvs," the Commission

alleged that the defendant engaged in unauthorized, excessive and

unsuitable trading, misrepresented and omitted to state several material

facts to customers in connection with such trading, and caused several

customers to suffer substantial losses. Among other things, the defendant

persuaded customers to sign margin agreements by misrepresenting that

the purpose of the agreements was to provide overdraft protection for

checks written against the accounts; customers receiving margin calls were

told that the calls were the result of computer errors and could be ignored.

Bandyk consented to the entry of an injunction.

The Commission has also taken action against persons associated

with broker-dealer firms who steal funds intended for the purchase of

securities. In administrative proceedings against a registered representative

of Ad vest, Inc., the Commission alleged that the respondent

misappropriated approximately $902,291 in customer funds that had been

given to him for investment (In the Matter of James M. Coyne, Jr.48). The

respondent forged customer signatures on liquidation authorization forms

and forged endorsements on checks issued by Advest to customers. The

respondent consented to a bar from association. In related criminal

proceedings, the respondent was sentenced to eighteen months incarceration

and ordered to pay restitution of $203,501.99.
Investment Adviser and Investment Company Cases

The Commission instituted several significant cases involving

investment advisers and investment companies.

The Commission instituted cease and desist proceedings against

Synovus Securities, Inc., a broker-dealer and investment adviser, and

Clark L. Reed, the president and director of Synovus at all relevant times

(In the Matter of Synovus Securities, Inc.49). Synovus was involved as

principal with certain customers and allegedly interpositioned an

individual, Richard T. Taylor, who promptly was able to purchase bonds

from, or resell bonds to, other brokers at a profit in over 120 municipal

bond transactions between 1988 and 1991. Synovus and Reed consented

to the entry of a cease and desist order and orders requiring them to pay

civil penalties of $200,000 and $50,000, respectively. Reed also consented

to a bar from association with regulated entities. Related administrative

proceedings against Taylor, In the Matter of Richard T. Taylor,50 were

pending at the end of the year.

In In the Matter of Strong/Cornelius on Capital Management, Inc.P' the

Commission alleged violations by Strong/Corneliuson Capital

Management, Inc. (SCCM), the investment adviser to eleven mutual funds

and to various pension funds and other clients; Richard S. Strong, the

founder, controlling shareholder and chairman of SCCM, and chairman

of each of the funds managed by SCCM; and Bruce D. Behling, a senior

vice president and former president of SCCM and the former president

and treasurer of each of the funds. SCCM and Strong caused the funds

to engage in securities transactions with each other and with Harbour

Investments Ltd, an investment company in which Strong and Behling had

a financial interest; these transactions with affiliated persons were not

disclosed by SCCM. SCCM also caused Harbour to invest in securities

recommended to SCCM clients, and Strong invested in the securities of

three issuers recommended to clients. The respondents consented to the

entry of a cease and desist order by which they were censured, and SCCM

was ordered to comply with undertakings designed to prevent future

violations.

In SEC v. Donna Tumminiu P the complaint alleged that Donna

Tumminia, the head trader for Shearson Lehman Ad visors (SLA), concealed

from her employer the volume of securities trades that she directed to

her husband, Philip Tumminia, who was a direct access broker on the floor

of the New York Stock Exchange and a registered representative of Adler,

Coleman & Co. Donna Tumminia also failed to disclose to her employer

that commissions paid on the transactions were going directly to her

husband, minus only a lit per share clearance fee to Adler. The Tumminias

caused advisory clients of SLA to pay excessive mark-Ups and mark-downs

on riskless principal trades executed by Philip Tumminia. The Tumminias

consented to the entry of an injunction and orders requiring them to

disgorge $617,314.62 plus prejudgment interest and to pay civil penalties

of $617,314.62.

17
The respondent inIn the Matter of Joan Conan" was a portfolio manager

in the high yield bond department of a registered investment adviser.

While performing research for the funds under her management, Conan

learned of certain warrants issued by Champion Parts, Inc., that offered

holders the option of paying the exercise price through the surrender of

notes issued by Champion. The notes so used would be valued at par.

Although the funds held Champion notes which were then trading at below

par, Conan purchased 50,000 Champion warrants for her own account for

$12,500, which she sold the following month for $225,000. Conan failed

to disclose her transactions to her employer. The Commission found that

Conan's activities were in breach of her fiduciary duty to the funds and

compromised her independence as a fiduciary. Conan consented to the

entry of a cease and desist order by which she was barred from association.

The Commission filed an emergency action in which it alleged that

the management of an investment company had become increasingly

deadlocked and in disarray (SEC v. Centurion Growth Fund, Inc.54). At the

time of the Commission's action, the fund did not have an investment

adviser, counsel, underwriter, president, secretary, or treasurer, nor did

it have a properly constituted board of directors. The Commission obtained

a preliminary injunction and other relief, including the appointment of

a receiver, an asset freeze, and an order suspending the offer, sale, and

redemption of the fund's shares until permitted by the court. This case

was pending at the end of the year.

The Commission instituted proceedings against Seaboard Investment

Advisers, Inc., a registered investment adviser with assets in excess of

$1.1 billion under management, and two of Seaboard's officers (In the

Matter of Seaboard Investment Advisers, Inc.55). The Commission alleged that

Seaboard published, circulated, or distributed advertisements that

contained false or misleading performance figures covering the period

from 1984 through 1991. Seaboard also falsely advertised that its

performance results were audited. The respondents consented to the entry

of cease and desist orders. In addition, Seaboard was ordered to pay a

civil penalty of $1 million.

Cease and desist proceedings against Terence Mulrooney involved

allegations that the respondent, a registered representative employed by

a bank's brokerage subsidiary, prepared a one-page sales sheet listing

some false and misleading characteristics and yields for mutual funds

offered by his employer (In the Matter of Terence Patrick Mulroonef"), The

sales sheets contained yield figures that were not computed in accordance

with statutory requirements, and failed to disclose the time periods to

which they corresponded. In some cases, the yield figures were, in

actuality, total return figures representing a time span of up to ten years.

The Commission alleged that the respondent's conduct violated advertising

rules promulgated under the Investment Company Act. Mulrooney

consented to the entry of the cease and desist order by which he was

censured and suspended from association for a period of twelve months.

18
The Commission's cease and desist proceedings against Melvin Hirsch,

In the Matter of Melvin L. Hirsch P arose from the respondent's diversion

of funds from Transportation Capital Corporation (TCC), which was a

registered closed-end management investment company of which Hirsch

was president and chairman. Hirsch caused TCC to make undocumented

loans to him that were not in accordance with TCes stated investment

policies and were never properly reflected on TCe s books and records

or otherwise disclosed to investors. Hirsch also purchased certain TCC

assets without obtaining an exemptive order from the Commission.

Sources For Further Inquiry

The agency publishes the SEC Docket, which includes announcements

regarding enforcement actions. SEC 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, and the

disposition or status of the case, as well as other information. The SEC

Docket also contains Commission orders instituting administrative

proceedings, making findings and imposing sanctions in those proceedings,

and initial decisions and significant procedural rulings issued by

Administrative Law Judges.

19
International Affairs

The Office ofInternational Affairs (OIA) has primary responsibility for

the negotiation and implementation of information-sharing arrangements,

and for developing legislative and other initiatives to facilitate international

cooperation. OIA coordinates and assists in making requests for assistance

to, and responding to requests for assistance from, foreign authorities. OIA

also addresses other international issues that arise in litigated matters, such

as effecting service of process abroad and gathering foreign-based evidence

under various international conventions, freezing assets located abroad, and

enforcing judgments obtained by the SEC in the United States against

foreign parties. In addition, OIA operates in a consultative role regarding the

significant ongoing international programs and initiatives of the SEC's other

divisions and offices. OIA is responsible for the SEC's technical assistance

programs for countries with emerging securities markets. OIA also consults

with and provides technical assistance to other Federal agencies regarding

trade-related issues relevant to the regulation of securities markets in the

United States.

Key 1994 Results

OIA made 226 requests for enforcement assistance on behalf of the

Commission to foreign governments and responded to 296 requests for

enforcement assistance from foreign governments.

The SEC signed a comprehensive Memorandum of Understanding

(MOU) for consultation and cooperation in enforcement-related matters

with the Australian Securities Commission. Also, the SEC signed an MOU

with the China Securities Regulatory Commission (CSRC) that provides

for training and technical assistance to the CSRC, and for mutual enforcement

assistance. This brings the total number of MOVs and other less formal

agreements executed by the SEC to more than 20.

The SEC's leadership role and active involvement in the Council of

Securities Regulators of the Americas (COSRA) and the International

Organization of Securities Commissions (lOSCO) have advanced

Commission goals for international enforcement assistance and cooperation

on a multilateral basis. Two important multilateral resolutions were adopted

by COSRA and IOSCO members. First, the membership of COSRA adopted

a precedent-setting resolution on enforcement cooperation that will serve

as a framework for multilateral collaboration to facilitate the enforcement

of COSRA members' securities laws. Second, the members of IOSCO

adopted a resolution which calls upon current members and future

applicants to make explicit their commitment to the core IOSCO principles

of high regulatory standards and mutual assistance.

20
Arrangements for Mutual Ass/stance and Exchanges of tnrormarton

There has been a dramatic increase in the SEC's need to obtain foreignbased information to protect the United States markets and investors from

cross-border fraud and other violations of the United States securities laws.

In this regard, the SEC has developed ways to enhance international

mechanisms for effective market surveillance and information sharing, and

for cooperation in the investigation and prosecution of cross-border fraud

and market manipulation.

The SEC has worked actively to forge strong bilateral and multilateral

relationships with its foreign counterparts. In particular, the SEC has

entered into more than 20 MOUs, and other less formal agreements, to

establish the means for sharing information and providing comprehensive

enforcement assistance in virtually all facets of the securities markets. Such

mechanisms have improved the SEC's ability to detect and prosecute

violations of the United States securities laws where information is needed

from abroad. In addition, the SEC's commitment to international securities

organizations has augmented its bilateral and multilateral efforts in the

enforcement area.

On October 20, 1993, the SEC entered into an MOU with the Australian

Securities Commission (ASC). The MOU creates a framework to facilitate

mutual assistance between the SECand the ASC, and formalizes the excellent

working relationship that has existed between the two Commissions. The

MOU also provides for consultation on matters relating to the operation

of the securities markets of their respective countries and on the operation

of the MOU. The MOU further provides for mutual assistance and

cooperation in the full range of enforcement and regulatory matters. For

example, it provides for assistance in securities matters involving insider

trading and other fraudulent or manipulative practices; disclosure

requirements for issuers, persons, and regulated entities; and the financial

or other qualifications of those involved in the securities industry.

On April 28, 1994, the SEC entered into an MOU with the CSRC, the

first such understanding between China and a Western securities regulatory

authority. The MOU formalizes a cooperative and consultative relationship

between the SEC and the CSRC, and establishes a framework for the SEC

to provide technical assistance to the CSRC. The MOU also provides for

mutual assistance in obtaining information and evidence to facilitate the

enforcement of the authorities' respective laws relating to United States

and Chinese securities matters. Thus, the MOU should facilitate Commission

enforcement actions in cases where relevant information is located in

China. Because Chinese securities laws and regulations were still being

formulated and adopted at the time of the signing of the MOU, the MOU

specifically provides that procedures for making and executing requests

for assistance, permissible uses of information, and confidentiality

requirements are to be addressed on a case by case basis.

On November 3, 1993, the governments of the United States and

Switzerland exchanged Diplomatic Notes relating to the Treaty Between

the United States and Switzerland on Mutual Assistance in Criminal Matters

which expand the Commission's ability to prosecute securities law violations

21
based on information located in Switzerland. Pursuant to the Notes, the

SEC now may use information located in Switzerland as evidence in civil

and administrative proceedings involving a wide array of securities-related

offenses. Based on an exchange of Notes in 1987, the SEC previously had

been only able to use such information in cases involving insider trading.

In 1994, the SEC established the first official mechanism by which it

may seek legal assistance from Germany. In a Diplomatic Note dated

March 22, 1994, the German Foreign Office confirmed that the SEC may

seek assistance under the German Law on Legal Assistance in Law

Enforcement Matters (Gesetz iiber die Internationale Rechtshilfe in

Strafsachen)(IRG). The IRG authorizes the German Ministry of Justice to

seek through the relevant state (Lander) governments, among other things,

documents and testimony on behalf of a foreign law enforcement authority

in connection with an investigation.

Enforcement Cooperation

The table below summarizes the international requests for assistance

made and received by the SEC.

Fiscal Year

Type of Request 1990 1991 1992 1993 1994

SEC Requests to

Foreign Governments

Enforcement Assistance 173 145 191 213 223

Enforcement Referrals 2 6 7 1 2

Technical Assistance 2 0 2 6 1

Total 177 151 200 220 226

Foreign Requests to

the SEC

Enforcement Assistance 98 160 184 232 296

Enforcement Referrals 2 7 11 16 10

Technical Assistance 30 44 58 59 78

Total 130 211 253 307 384

The case of SEC v. Jose Antonio Feliu Roviralta, Lit. ReI. No. 14232, C.A.

No. 94-1963 (D.D.C., September 13, 1994) provides an excellent example

of how international assistance can further an SEC investigation. Based

in part on assistance, including the provision of documents and taking of

testimony, provided by Italian, Spanish, and Swiss authorities, the SEC

was able to proceed with an insider trading investigation that otherwise

might have been closed due to a lack of evidence in the United States. As

a result, in September 1994, the Commission filed a civil injunctive action

against Jose Antonio Feliu Roviralta, alleging insider trading in connection

with his purchase of Altos Computer Systems, Inc. stock. Roviralta, without

22
admitting or denying the allegations of the Commission's complaint,

consented to the entry of a final judgment permanently enjoining him from

further violations of Section 14(e) of the Exchange Act and Rule 14e-3 and

agreed to pay a total of $252,971.66 in disgorgement, prejudgment interest,

and penalties.

In addition to ongoing work in the area of enforcement assistance,

in August 1994, OIA testified on behalf of the SEC before a subcommittee

of the United States Senate Judiciary Committee in support of the

International Antitrust Enforcement Assistance Act of 1994. The testimony

discussed the SEC's experience with in ternational enforcement coopera tion.

In 1988, Congress enacted Section 2l(a)(2) of the Exchange Act to allow

the SECto gather information about potential violations of foreign securities

laws at the request of foreign securities authorities. In addition, the

testimony stated that Section 2l(a)(2) has "become a model throughout the

world for developing legislation to authorize securities regulators to assist

their counterparts in investigating cross-border violations of law."

Subsequently, Congress has enacted the antitrust enforcement legislation.

Technical Assistance

The SEC is committed to providing technical assistance to emerging

securities markets to the extent to which resources allow it. Such technical

assistance is intended to develop a regulatory infrastructure to promote

investor confidence in emerging markets. OIA is responsible for

coordinating the SEC's overall international technical assistance program.

Each spring the SEC hosts the International Institute for Securities

Market Development (Market Development Institute), an intensive twoweek, management-level training program covering a full range of topics

relevant to the development and oversight of securities markets. The

Market Development Institute is intended to promote market development,

capital formation, and the building of sound regulatory structures in

emerging market countries. The fourth annual Market Development

Institute was held in the spring of 1994, with 87 delegates from 50 countries

in attendance.

In 1994, the SEC expanded upon the successful Market Development

Institute concept by inaugurating a one-week International Institute for

Securities Enforcement and Market Oversight (Enforcement Institute) for

foreign securities regulators. Itis anticipated that the Enforcement Institute

will be held on an annual basis, beginning in October 1994. The new

program is designed to promote market integrity and foster the development

of closer enforcement cooperation, and will include practical training

sessions on SEC enforcement investigations, investment company and

adviser inspections, broker-dealer examinations, and market surveillance.

Approximately 85 individuals representing 45 countries attended.

To complement its domestic training programs, the SEC has executed

agreements with foreign aid organizations, pursuant to which SEC staff

may provide technical assistance to foreign regulatory authorities. Most

recently, in September 1994, the SEC entered into a comprehensive twoyear interagency agreement with the United States Agency for International

23
Development (USAID) to fund SEC technical assistance in Russia and other

Newly Independent States of the former Soviet Union. The SEC also has

entered into a technical assistance understanding with the Inter-American

Development Bank which provides for assistance to emerging securities

markets in Latin America.

International Organizations and Multilateral Initiatives

The SEC benefits from the opportunity to better understand foreign

regulations, markets, and practices through participation in multilateral

organizations. Moreover, through its involvement in international

organizations, the SEChas the opportunity to promote its views on important

issues that affect the United States securities markets and the SEC's

regulatory program, and help develop international consensus on these

issues. During 1994, the SEC contributed to the work of the following

international organizations and multilateral initiatives:

The International Organization of Securities Commissions

IOSCO is an international forum created to promote cooperation and

consultation among regulators overseeing the world's securities markets.

With over 100 members, most of the world's securities regulators are

represented. The SEC plays a leadership role in IOSCO. Over the years,

the SEC has been actively involved in many aspects of the organization's

work, particularly in work relating to: facilitating multinational offerings;

identifying accounting and auditing standards that would be used in

multinational offerings; developing common capital adequacy requirements;

understanding the implications of international settlement requirements;

and fostering the international enforcement of securities laws.

The Working Party on Enforcement and the Exchange of Information

completed a report entitled, Issues Raised for Securities and Futures Regulators

by Under-Regulated and Uncooperative Jurisdictions, which was released at

the 1994 IOSCO Annual Conference. The report considers the difficulties

that regulators face when information they seek in investigating securities

or futures violations is located in jurisdictions that cannot or will not share

that information with foreign regulators. Based on the report, IOSCO

adopted a Resolution on Commitment to Basic IOSCO Principles of High

Regulatory Standards and Mutual Cooperation and Assistance. The

resolution calls upon IOSCO members to make explicit their commitment

to the core IOSCO principles of high regulatory standards and mutual

assistance, and requires members to prepare self-evaluations of their

regulatory systems. In publishing the report and adopting the resolution,

IOSCO took significant steps toward addressing the enforcement problems

caused by under-regulation and lack of cooperation. Those actions by

IOSCO are of importance to the SEC's international enforcement program

because they may serve as a springboard for enhancing enforcement

cooperation among IOSCO's overall membership.

24
During 1994, several other reports were prepared by working parties

and released by IOSCO's Technical Committee. These reports dealt with

regulatory issues involving cross-border proprietary screen-based trading

systems, over-the-counter derivatives, and cross-border mutual funds. The

SEC participated in the preparation of each of these reports.

Council of Securities Regulators of the Americas

In June 1992, the securities regulatory authorities of North, South, and

Central America, and the Caribbean announced the creation of a new

organization, COSRA, to provide a forum for mutual cooperation and

communication in the Americas. The SEC actively promoted the concept

of a regional organization and, currently, serves as its Chairman. COSRA's

membership represents both advanced and emerging markets, and the

organization strives to enhance the efforts of each country to develop and

foster the growth of fair and open securities markets.

In June 1994, during the Third Annual Meeting of COSRA, the members

reached a precedent-setting, multilateral understanding on enforcement

cooperation. From the SEC's perspective, the resolution substantially

advances its international enforcement program by developing a broadbased framework for cooperation with countries where bilateral MOUs

may not be feasible. In addition, the membership identified principles for

the provision of full and fair enterprise-related disclosure, and agreed to

use their efforts to implement and maintain a mandatory disclosure system

based on these principles.

The enforcement resolution directs COSRA members to use their

authority to assist one another, to the fullest extent possible according to

their respective laws, in obtaining information necessary to ensure

compliance with domestic securities laws. In addition, the resolution calls

on the members to strive to obtain the necessary legal authority, or seek

the assistance of other government agencies, to allow members to fulfill

their pledges of cooperation to one another. Lastly, the resolution directs

the members to review and assess continuously the degree to which

assistance can be provided with a view to enhancing cooperation among

the membership. The resolution does not modify or supersede in any

respect any understandings or agreements otherwise reached among or

between COSRA members.

The implementation of disclosure systems based on principles to

ensure full and fair enterprise-related disclosure and effective enforcement

will strengthen the market of each COSRA member. Recognizing this, the

members also adopted a corporate disclosure resolution. The resolution

identifies the steps necessary to establish and maintain a mandatory system

for corporate disclosure, and incorporates a set of principles governing

such things as the timing and content of corporate disclosures. The resolution

and its principles are intended to serve as a model for COSRA members

to use to implement mandatory disclosure systems in their domestic markets

and are similar in large measure to disclosure standards already in place

in the United States.

25
The Organization for Economic Cooperation and Development (OECD)

The anti-bribery provisions of the Foreign Corrupt Practices Act have

been criticized as potentially having an anti-competitive impact on

companies in the United States because the law prohibits companies with

securities listed in the United States from making payments to foreign

public officials to obtain or retain business, while no other country applies

such prohibitions to its companies. At the direction of Congress, the United

States government has initiated and continues to actively participate in

the efforts of the OECD to address the issue of illicit payments, and the

SEC participates in the United States efforts in that regard. By taking action

that will bring other countries up to the United States standard so that

bribery of foreign public officials will be universally proscribed, the goal

of ensuring a level playing field will be reached.

In May 1994, the OECD adopted a recommendation on measures that

OECD members should take to combat bribery of foreign public officials

by their nationals. The SEC worked with the United States Departments

of State, Justice, and Commerce in connection with efforts at the OECD

to reach consensus on this issue. Essentially, the recommendation urges

OECD members to take "concrete and meaningful steps" to meet the goal

of combatting illicit payments. Under the recommendation, these steps

may include: making bribery of foreign public officials a criminal act;

adopting civil and administrative laws and regulations to make bribery

illegal; amending the existing tax laws that might encourage bribery (such

as deductibility of the bribe); and other steps to ensure adequate financial

reporting.

The SEC staff provided technical assistance to the United States

Department of Treasury in connection with the OECD's examination of

regulation in the United States and the OECD Codes of Liberalization of

Capital Movements and Liberalization of Current Invisible Transactions.

In the course of the examination, aspects of United States regulation

pertaining to capital movements and financial services were reviewed in

light of the objectives of the Codes, which involve reducing barriers to trade

between OECD members.

Also, the staff provided technical assistance to the United States

Department of Treasury in responding to an OECD study on corporate

"private practices," i.e. aspects of corporate governance, that could have

a discriminatory impact on foreign investment.

The Wilton Park Group (The Group)

Her Majesty's Treasury of the United Kingdom sponsors this annual

program. This year's meeting in June was attended by securities regulators

from 13 countries. International regulatory cooperation issues discussed

by the Group included secret and under-regulated jurisdictions and

coordination of multinational investigations of "boiler rooms" and other

fraudulent schemes to ensure investor protection and market integrity.

26
Trade Negotiations

The SEC's primary responsibility is the regulation of the domestic

securities markets, and until recently, it had not been directly involved

in trade matters. However, as a result of the globalization of securities

markets, the SEC is now regularly engaged in discussions with fellow

regulators on ways to facilitate cross-border activities, including offerings,

securities trading, and the provision of advisory services. In addition, the

SEC increasingly has provided technical assistance to the Administration

in its negotiations involving trade and market access issues.

United States-Japan Framework Talks

SEC staff has provided technical assistance to the United States

Department of Treasury in connection with Treasury's participation in the

Working Group on Financial Services under the United States-Japan

Framework for a New Economic Partnership. The purpose of the Group

is to work toward reducing barriers to market access in the area of financial

services, including the investment adviser industry and the investment

trust management business.

General Agreement on Trade in Services (GATS)

The Uruguay Round of the General Agreement on Tariffs and Trade

includes GATS, which encompasses financial services. Throughout the

Uruguay Round, the SEC provided assistance to the Treasury Department

and the United States Trade Representative, as they worked to negotiate

an agreement that will further liberalize trade in financial services. The

SEC's approach has been to balance the goals of the Uruguay Round against

its mandate to regulate for the protection of investors in the face of new

and different regulatory challenges that will be brought about by GATS.

The SEC staff has pressed for, and obtained, the flexibility needed by the

Commission to regulate prudentially. With respect to financial services,

the Commission can take regulatory measures necessary for the protection

of investors and to ensure the integrity and stability of the United States

financial system. As the negotiations continue, the SEC will continue to

work with the Treasury Department and the United States Trade

Representative to ensure that this and other provisions of the current

GATS, or any new proposals, are interpreted in a manner consistent with

the SEC's statutory mandate.

The North American Free Trade Agreement (NAFT A)

NAFTA contains a Financial Services Chapter, which encompasses

activities of financial service providers, such as broker-dealers and

investment advisers, within NAFTA countries. The Financial Services

Chapter contains a strong "prudential carve-out," which enables the SEC

to adopt or modify measures for the protection of investors or the securities

markets, notwithstanding any other provision of the Agreement. The SEC

provided the Department of Treasury with technical assistance in connection

with NAFTA and consulted with the Mexican Comisi6n Nacional de Valores

regarding the implementation of certain provisions of the Financial Services

Chapter.

27
Regulation of the Securities Markets

The Division of Market Regulation (Division), together with regional

and district office examination staff, oversees the operations of the nation's

securities markets and market professionals. In calendar year 1993, the

Commission supervised over 8,600 broker-dealers with 34,000 branch offices

and over 470,000 registered representatives, 8 active registered securities

exchanges, the over-the-counter markets, and 16registered clearing agencies.

Broker-dealersfiling FOC US reports with the Commission had approximately

$1.2 trillion in assets and $75.6 billion in capital in 1993. The Division also

monitors market activity, which has experienced significant growth. In

calendar 1993, equity market capitalization stood at $5.2 trillion in the

United States and $14.1 trillion worldwide. The average daily trading

volume grew to over 264.5 million shares on the New York Stock Exchange

with volume on the NASDAQ Stock Market nearing that number. The

fastest growing area has been derivatives activities, where the approximate

notional amount for major United States broker-dealers and their affiliates is

$6 trillion with an aggregate replacement cost of approximately $31 billion.

Key 1994 Results

The Division continued to direct its efforts towards enhancing market

segments, particularly with respect to improving the overall efficiency of

the derivatives markets and the disclosure practices of the municipal

securities markets. Major market participants were monitored more

closely to determine their impact on the securities market. The Division

issued the Market 2000 Study, which presents a current view of the equity

markets and their regulatory structure. The Division also endeavored to

streamline the regulatory process by eliminating the need for review of

certain SRO rule filings. The national clearance and settlement system

made progress in preparing for a nationwide practice of three business

days for settlement of all broker-dealer trades. In addition, the Division

conducted several oversight inspections of SROs with a particular focus

on sales practice examinations.

Securities Markets, Trading and Significant Regulatory Issues

Market 2000

In January 1994, the Division issued its study, Market 2000: An

Examination of Current Equity Market Developments. The study, while

concluding that the equity markets are operating efficiently within the

existing regulatory structure, identified four areas where the markets could

work better for investors and where competition could work better for the

markets. Recommendations regarding transparency, fair treatment of

?R
investors, fair market competition, and open market access were formulated

to achieve those ends. During the year, the Commission began implementing

the recommendations contained in the study with the development of

rulemaking addressing payment for order flow practices, broker-dealer

automated order routing systems, and customer limit order handling in

the over-the-counter (OTC) market.

Derivatives

The Division was actively involved in several derivatives related

projects. For example, the Commission issued a release proposing the use

of a theoretical pricing model to set capital charges for exchange-traded

options and related positions." The director of the Division testified on

this release and other issues relating to derivative financial instruments

before the United States House of Representatives, Subcommittee on

Environment, Credit and Rural Development. The Division also monitored

and discussed derivatives-related issues with the industry. For example,

the staff surveyed some of the largest United States securities firms regarding

their compliance with the risk management control recommendations

contained in the Group of Thirty's report entitled, Derivatives: Practices

and Principlee/" In addition, the Division was active in an industry

initiative to study a range of policy and regulatory issues related to

financial derivatives in the areas of capital, regulatory reporting, internal

controls, and counterparty relationships.

The Division also was involved in derivatives projects on the

internationalleveI. For example, the Commission along with the Commodity

Futures Trading Commission and the United Kingdom Securities and

Investments Board issued a joint statement concerning the oversight of

the OTC derivatives market." This joint statement represents the first

international understanding among securities and futures regulators for

developing an approach to the oversight of the OTC derivatives market.

Subsequently, the Division participated in producing a paper which was

issued by the International Organization of Securities Commissions (IOSCO)

regarding management control mechanisms for regulators of securities

firms doing OTC derivatives business."

Government Securities Market

The Government Securities Act Amendments of 1993 reauthorized

the Department of the Treasury's (Treasury) financial responsibility

rulemaking authority for the government securities market and included

provisions for transaction recordkeeping, large position reporting, and

National Association of Securities Dealers (NASD) sales practice rulemaking

authority. The amendments also require the Commission to monitor

private sector efforts to improve the timely public dissemination and

availability for analytic purposes of information concerning government

securities transactions and quotations and to report these developments

to Congress annually.

?9
In the past year, GovPx, the entity formed by primary dealers and

inter-dealer brokers to provide non-exclusive distribution of government

bond data, added coverage of agency securities, zero-coupon bonds, and

Treasury strips to its service, and began disseminating real-time quotations

and trade information for basis trading in Treasury securities. GovPx now

carries data from five out of the six inter-dealer brokers in these securities.

GovPx also announced plans to offer theoretical pricing for those Treasury

securities for which it does not receive prices from inter-dealer brokers.

Prior to this year, only the prices of inter-dealer broker Cantor

Fitzgerald L.P. were provided outside of GovPx and made available in realtime through a vendor's screen (Telerate), In the past year, Liberty Brokerage

began to distribute its prices through Dow Jones Telerate and Reuters, and

Euro Brokers Inc. began offering its prices through Bloomberg and KnightRidder. Finally, this past year saw the introduction of the CrossCom

Trading Network, a PC-based system which promises to bring screen-based

trading to bond traders.

While efforts have begun to improve transparency in the debt markets

generally, the Commission has recognized that some debt markets still lack

basic price transparency. The Commission recently emphasized the

importance of pricing information in all debt markets in connection with

its decision to defer adoption of riskless principal mark-up disclosure in

debt securities transactions. In deferring adoption of mark-up disclosure

requirements, the Commission urged the industry to review the adequacy

of price transparency in certain debt markets, such as the mortgage-backed

and corporate debt markets, and report back to the Commission regarding

the adequacy of price information and the need for improvement of price

transparency in those markets.

SRO Rule Filings

In June 1994, the Commission proposed amendments to Rule 19b-4

under the Securities Exchange Act of 1934 (Exchange Act) to expand the

scope of SRO rule filings that may become effective upon filing under

Section 19(b)(3)(A).62 These amendments would streamline the process by

which rule changes of SROs are filed with and approved by the SEC. The

Commission also proposed amendments to streamline and conform the

annual filing requirements for SROs. These proposals were designed in

part to implement the recommendations contained in the Market 2000

study.

National Clearance and Settlement System

The SEC continued to work to enhance all components of the national

clearance and settlement system. In particular, the SEC worked closely

with the SROs, broker-dealers, and industry groups to ensure an efficient

conversion to a three business day settlement time frame for broker-dealer

trades beginning in June 1995. In adopting Rule 15c6-1, which requires

settlement of broker-dealer trades in three business days, the Commission

called on the Municipal Securities Rulemaking Board (MSRB) to implement

earlier settlement for trades in municipal securities concurrently with the
effective date of Rule 15c6-1. Subsequently, the MSRB filed a proposed

rule change to require that all broker-dealer trades in municipal securities,

other than trades done on a "when, as, and if issued" basis, settle within

three business days." The SEC also worked with other SROs to bring their

rules into compliance with Rule 15c6-1. In addition, the National Securities

Clearing Corporation (NSCC), at the request of the SEC developed a plan

for converting to a three business day settlement time frame.

Internationalization

The staff provided information and technical assistance to several

emerging market countries, including China, Thailand, Korea, Taiwan,

Russia, and Poland. Pursuant to the SEC's membership in IOSCO, the

staff participated in the Working Party on the Regulation of Secondary

Markets, which discussed issues concerning the regulation of screen-based

trading systems and transparency of markets. The Working Party produced

a paper discussing regulatory issues regarding proprietary screen-based

trading systems, which was endorsed by IOSCO at its 1994 annual meeting.

The Commission took a variety of actions pertaining to multinational

offerings. For example, consistent with its Statement of Policy regarding

class exemptions for certain foreign issuers that conduct distributions in

the United States." the Commission granted class exemptions from the

trading practices rules for distributions of securities by certain highly

capitalized French issuers. The exemptions permit distribution participants

to effect transactions in France in the security being distributed and related

securities, subject to certain disclosure, record keeping, record production,

and notice requirements."

Additionally, the Commission clarified its application of cooling-off

periods to distributions of foreign securities in the United States under

Rule lOb-6.66

Extension of Credit

The staff clarified its position with respect to the application of the

extension of credit prohibitions of Section 11(d)(l) of the Exchange Act

to the distribution of tranches of collateralized mortgage obligations," and

to a clearing broker-dealer extending credit on certain equity securities

to a customer of its correspondent broker-dealer."

Employee Retirement Programs and Financial Institution Networking

The staff issued two letters allowing broker-dealers to establish

retirement programs for certain of their employees without the employees

maintaining their status as registered representa tives of the broker-dealer. 69

The retiring employees were permitted to share sales commissions genera ted

by their client accounts with the active employees servicing those accounts,

provided that they did not contact their former clients or otherwise remain

in the securities business. The programs were limited to retiring employees

without a disciplinary history. In addition, having issued over 200 noaction letters during the past decade addressing networking arrangements

between broker-dealers and certain financial institutions, the staff issued

1
a definitive letter describing the conditions under which these arrangements

may be conducted without the financial institutions or their employees

registering under Section 15 of the Exchange Act.??

Hedge Funds

In response to Congressional concerns, and in light of the lack of

publicly available information about hedge funds and their impact on the

markets, Chairman Arthur Levitt wrote to several large hedge funds

requesting that they voluntarily provide the Commission with information

concerning their hedge fund positions and trading strategies. As a result,

the staff entered into ongoing discussions with various hedge funds, as

well as consultants to the industry. The staff also explored ways to increase

the availability of information regarding the trading activities of large

institutional traders, including hedge funds, in key markets. To this end,

in February 1994, the Commission reproposed Rule 13h-l, which would

implement the Commission's large trader reporting system."

The proposed large trader reporting system generally is designed to

supplement the Commission's existing authority to obtain trading and

other records from registered broker-dealers. In reproposing Rule 13h-l,

the Commission responded to concerns expressed by numerous commenters

and revised certain provisions of the proposed rule. The changes to the

proposed rule were intended to clarify the operation of the system and

to reduce the costs associated with the system, including the cost of

compliance. In addition, the Commission solicited comments regarding

the use of other existing industry systems.

Anti-Manipulation Concept Release

The Commission published a concept release seeking comment on

a broad range of issues relating to the anti-manipulation regulation of

securities offerings under the Exchange Act. In particular, the Commission

requested comment on Rules 10b-6, 10b-7, and 10b-8 under the Exchange

Act;72the concepts underlying these rules; and alternative approaches for

applying anti-manipulation principles to persons who may have incentives

to artificially influence the market during an offering.

Confirmation Disclosure

The Commission published for comment amendments to Rule 10b-l0

that would require disclosure regarding the unrated status of certain debt

securities, and assumptions about collateralized debt securities that may

affect yield. To address Congressional concerns expressed in the

Government Securities Act Amendments of 1993, the amendments also

would require broker-dealers that are not members of the Securities

Investor Protection Corporation to disclose that fact to their customers.

The Commission also proposed amendments that would require brokerdealers to provide customers immediate written notification of mark-up

information for riskless principal transactions in debt securities" and a

new Rule 15c2-13 that would require similar mark-up disclosure for

transactions in municipal securities. In addition, the Division explored

3?
various ways to improve transparency in the municipal securities market.

Since the proposals were published for comment on March 9, 1994, the

MSRB proposed a program that ultimately would provide same day price

reporting of all transactions in municipal securities, including same day

reporting of retail trades.

Theoretical Option Pricing Methodology

The Commission proposed for comment amendments to Rule 15c3-1

that would allow broker-dealers to use a theoretical pricing model when

calculating capital charges (haircuts) for listed options and related

positions." To determine haircuts for broker-dealers' options positions,

the Commission proposed that broker-dealers use The Option Clearing

Corporation's system for measuring market risk, which is based on the CoxRoss-Rubenstein binomial option pricing model. By better matching the

haircut charges to the market risk of the positions, the proposed amendments

provide significant improvement to the Commission's option haircut

methodology. Simultaneously with the proposing release, the Division

issued a no-action letter that provided broker-dealers the choice of using

the theoretical pricing methodology.

Short Sales in Anticipation of an Offering

The Commission permanently adopted Rule 10b-21 under the Exchange

Act, which had been adopted on a temporary basis in 1988. Rule 10b-21

is designed to prevent manipulative short sales of an equity security in

anticipation of a public offering by prohibiting the covering of short sales

with securities purchased in the offering."

Nationally Recognized Statistical Rating Organizations

In August 1994, the Commission issued a concept release" soliciting

public comment on a number of questions concerning the use of the term

"nationally recognized statistical rating organization" (NRSRO) in the

Commission's rules. This concept release examines the process employed

by the Commission to designate rating agencies as NRSROs and the nature

of the Commission's oversight role with respect to NRSROs.

Money Laundering

The Division continued to work with the Treasury and other United

States government offices to develop effective policies to combat money

laundering. For example, the staff (1) actively supported Treasury

rulemaking projects, (2) submitted comments on the Money Laundering

Suppression Act of 1994, (3) provided technical advice to the United States

delegation to the Financial Action Task Force on Money Laundering, the

independent group of major financial center countries and regions, and

(3) provided advice with respect to potential enforcement matters.

33
Automation Review

The staff continued to perform Automation Review Policy (ARP)

inspections of the exchanges and the NASD.77 The primary purpose of

the ARP program is to monitor and inspect the electronic data processing

facilities supporting the transaction and information dissemination

activities of the SROs in their relationship to the national market system.

The staff completed six on-site inspections and issued five reports, which

included fifty-one recommendations for improvements. Typical

recommendations included the need for back-up facilities for data centers,

enhancements to data security efforts, and better use of capacity planning

tools.

The staff held 12 technology briefings with the SROs to ascertain

recent and planned changes and improvements in their automated systems.

The staff also assessed the ability of SROs to respond to systems malfunctions

and examined SRO measures to prevent system outages. In addition, two

meetings were held with the 16 clearing agencies to discuss the application

of the program to clearing agencies.

Broker-Dealer Trading Systems

In response to the recommendations of the Market 2000 study, the

Commission adopted Rule 17a-23 under the Exchange Act to establish

record keeping and reporting requirements for brokers and dealers that

operate automated trading systems." Registered broker-dealer sponsors

of these systems would be required to maintain participant, volume, and

transaction records, and to report system activity periodically to the

Commission.

Examination and Oversight of Brokers, Dealers, Municipal Securities Dealers,

and Transfer Agents

Broker-Dealer Examination Program

The SEC completed a total of 680 examinations, consisting of 478

oversight and 202 cause examinations. Findings from 124 examinations

were referred for enforcement consideration. Referrals to SROs were made

in 47 examinations. A description of particularly significant examinations

follows.

The Division, working in conjunction with the New York Stock

Exchange (NYSE) and the NASD, completed a review of the hiring, retention,

and supervisory practices of nine of the country's largest broker-dealers."

Staff from the SEC, NYSE, and NASD conducted 170 broker-dealer

examinations of both home and branch offices of the nine firms and focused

their review on 268 registered representatives who had been the subject

of sales practice-related customer complaints, litigation, arbitration, or

disciplinary actions. Forty of these examinations resulted in enforcement

referrals.

In June 1994, the Division issued the Joint Regulatory Penny Stock

Examination Sweep Repori P The report was the culmination of the largest,

most ambitious joint SEC, SRO, and state project ever undertaken. The

34
nationwide sweep involved examinations of 130 penny stock firms by SEC

regional and district office staff, the NASD, the NYSE, and 40 states. The

SEC coordinated the sweep and drafted the report.

Lost and Stolen Securities

Rule 17f-1 of the Exchange Act sets forth participation, reporting, and

inquiry requirements for the SEC's Lost and Stolen Securities Program."

Statistics for calendar year 1993 (the most recent data available) reflect the

program's continuing effectiveness. As of December 31, 1993, 24,039

institutions were registered in the program, a 1 percent increase over 1992.

The number of securities reported as lost, stolen, missing, or counterfeit

decreased from 2,500,521 in 1992 to 1,634,161 in 1993, a 35 percent decrease.

The dollar value of these securities decreased from $71 billion to $4 billion,

a 94 percent decrease. The aggregate dollar value of the securities contained

in the program's database increased from $90.3 billion in 1992 to $92.6

billion in 1993, a 3 percent increase. In 1993, the number of inquiries from

participating institutions that matched previous reports as lost, missing,

stolen, or counterfeit securities was 44,902, a 99 percent increase from 1992.

The dollar value of these matches increased from $135 million in 1992 to

$252 million in 1993, an 87 percent increase. The total number of certificates

inquired about through the program rose from 5,281,185 in 1992 to 6,553,308

in 1993, a 24 percent increase.

Oversight of Self-Regulatory Organizations

National Securities Exchanges

As of September 30,1994, there were eight active securities exchanges

registered with the SEC as national securities exchanges: American Stock

Exchange (AM EX), Boston Stock Exchange (BSE), Chicago Board Options

Exchange (CBOE), Cincinnati Stock Exchange (CSE), Chicago Stock Exchange

(CHX), NYSE, Philadelphia Stock Exchange (PHLX), and Pacific Stock

Exchange (PSE). The SEC granted exchange applications to delist 72 debt

and equity issues, and granted applications by issuers requesting

withdrawal from listing and registration for 47 issues. In addition, the

SEC granted 1,591 exchange applications for unlisted trading privileges.

The exchanges submitted a total of 319 proposed rule changes during

1994. A total of 292 pending and new filings were approved by the

Commission, and 127 were withdrawn. Some of the significant rule filings

approved by the Commission included proposals to:

amend and extend through May 18, 1995 the existing pilot program

of the CSE relating to the preferencing of public agency market and

marketable limit orders by approved dealers and proprietary

mernbersr"

permit competing specialists on the floor of the BSE for a one year

pilot period ending May 18, 1995;83and

adopt the NYSE, AMEX, BSE, CHX, PSE, and PHLX programs for

off-hours-trading on a permanent basis."

35

•

•

•
National Association of Securities Dealers, Inc.

The NASD, with over 5,300 member firms, is the only national securities

association registered with the SEC. It is the operator of the NASDAQ

Stock Market (formerly NASDAQ), the second largest stock market in the

United States, and the second largest in the world (after the NYSE).

The NASD submitted 75 proposed rule changes to the Commission

during the year. The Commission approved 81 proposed rule changes,

which included many of the proposed rule changes submitted during the

year and several proposed rule changes submitted in prior years. Among

the significant changes approved by the Commission were:

more stringent listing and maintenance requirements for issuers on

the NASDAQ Stock Market;"

a comprehensive short sale rule applicable to the OTC market;"

greater limit order protection in the NASDAQ Stock Market:"

a requirement that all Consolidated Quotation System market makers

in Rule 19c-3 securities register as Intermarket Trading System/

Computer Assisted Executed Service market makers:" and

implementation of requirements imposed upon the NASD by the

Limited Partnership Roll-up Reform Act of 1993.89

Clearing Agencies

Sixteen clearing agencies were registered with the SEC at year-end.

In addition, the SEC extended the temporary registration as a clearing

agency for the Participants Trust Co.,9° MBS Clearing Corporation

(MBSCC)/l and the International Securities Clearing Corporation;" The

Intermarket Clearing Corporation notified the SEC of its intention to let

its temporary registration expire and requested that the SEC no longer

consider its request for permanent registration."

Registered clearing agencies submitted 124 proposed rule changes to

the SEC and withdrew 11. The SEC approved 139 proposed rule changes,

including the following:

implementation of the first three stages of The Depository Trust

Company's enhancements to its Institutional Delivery System that

facilitate communications between broker-dealers and their

institutional customers."

implementation of the Government Securities Clearing

Corporation's (GSCC) Auction Takedown System, which includes

within GSCC's netting system Treasury security purchases made

at auction by GSCC mernbersi'" and

the sale of MBSCC by the CHX to NSCC and the participants of

MBSCC.96

36

•

•

•

•

•

•

•

•
Municipal Securities Rulemaking Board

The SEC received 16 new proposed rule changes from the MSRB. A

total of 12 new and pending proposed rule changes were approved by the

Commission. In particular, the Commission approved MSRB Rule G-37,

which prohibits municipal securities dealers from conducting certain types

of municipal securities business with an issuer within two years after any

contribution by the dealer or certain affiliated persons to officials of the

issuer who could influence the awarding of municipal securities business."

The Commission also approved changes to MSRB Rule G-19 concerning

suitability of recommendations, and Rule G-8 concerning recordkeeping

to ensure that dealers, before making a recommendation to a customer,

take appropriate steps to determine that the municipal securities transaction

is suitable."

Inspections of SRO Surveillance and Regulatory Compliance

The staff completed oversight inspections of the sales practice

examination programs of the CBOE, AMEX, and NYSE. The staff completed

an inspection of the advertising program of the NASD relating to investment

company communications, non-investment company communications, and

bank affiliate communications. The staff also conducted oversight

inspections of the NYSE's preliminary investigation program and full

investigation program. In addition, the staff conducted an inspection of

the MSRB.

The staff conducted inspections of the arbitration programs

administered by the NASD and NYSE. These inspections were designed

to evaluate the effectiveness of these SRO programs in processing and

resolving disputes between SRO members and their customers. In particular,

the staff reviewed the adequacy and thoroughness of case documentation,

the efficiency of case management systems, and arbitrator qualification and

training procedures. Consideration also was given to whether major rule

changes, adopted by the NASD and NYSE in 1989 in response to Commission

concerns regarding the rules and procedures governing SRO-administered

arbitration, were successful in improving the fairness and efficiency of

these programs.

The staff reviewed the surveillance, investigatory, and disciplinary

programs of the CSE and AMEX. The staff also reviewed the Intermarket

Trading System operations of participating SROs and conducted an

examination of multiple traded options at the five options exchanges.

Arbitration

In response to the Commission's recommendations to enhance facilities

for arbitration matters involving employment discrimination claims, and

in light of a General Accounting Office report," arbitration departments

of SROs began to (1) implement procedures to track and analyze employment

discrimination cases, (2) evaluate the backgrounds of arbitrators, and (3)

appoint arbitrators with appropriate expertise for these matters.'?"

17
The Commission approved proposed rule changes by the NASD and

national securities exchanges that were designed to strengthen the

arbitration rules governing disputes among broker-dealers and between

broker-dealers and investors. In particular, the Commission approved

amendments to arbitration rules that (1) enabled securities industry parties

to pursue class actions in courts!" and (2) reinforced the ability of arbitrators

to refer matters to disciplinary cornmittees.!'"

SRO Final Disciplinary Actions

Section 19d-l of the Exchange Act and Rule 19d-l thereunder require

all SROs to file reports with the SEC of all final disciplinary actions. Rule

19d-l reports filed with the SEC were distributed as follows: AMEX-21;

CBOE-70; NYSE-192; PHLX-19; PSE-ll; CHX-l; NSCC-2; BSE-l;

CSE-none; and NASD-729.

SRO Final Disciplinary Actions

1990 1991 1992 1993 1994

Exchanges 594 568 498 362 317

NASD:

District Committees 893 781 966 646 660

NASDAQ and Market

Surveillance

Committees 118 141 160 75 69

Totals 1,605 1,490 1,624 1,083 1,046

Applications for Re-entry

Rule 19h-l under the Exchange Act prescribes the form and content

of, and establishes the mechanism by which the SEC reviews, proposals

submitted by the SROs to allow persons subject to a statutory disqualification

to become or remain associated with member firms. In 1994, the number

of SRO filings pursuant to Rule 19h-l processed by the staff increased 40

percent, from 53 in 1993 to 74 in 1994. Of the 74 filings, the NASD made

52, the NYSE made 21, and the CBOE made one. One application was

denied, and the staff declined to take a no-action position in another.

38
Investment Manageluent Regulation

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 Actof1940 (Investment Advisers Act),and administers

the Public Utility Holding Company Act of 1935 (Holding Company Act).

Key 1994 Results

In 1994, a large part of the work of the Division of Investment

Management focused on three areas: improving and simplifying

communications to investment company shareholders; enhancing the

integrity of participants in the investment management industry; and

evaluating the use of derivatives by investment companies. Key steps

taken to improve disclosures to investment company shareholders included

the Division's initiative to simplify investment company prospectuses and

rule changes modernizing the investment company proxy rules. In April

1994, the Commission adopted amendments to Rules 204-1 and 204-3 and

Form ADV under the Investment Advisers Act relating to wrap fee programs.

The amendments specify the content, format and delivery requirements

of the brochure that a wrap fee program sponsor must provide to clients

and prospective clients. Also, the Commission proposed amendments to

Rule 2a-7, under the Investment Company Act, which regulates money

market funds. The amendments, among other things, would tighten the

risk-limiting conditions imposed on tax exempt money market funds, and

clarify the manner in which the rule applies to certain types of adjustable

rate securities.

On September 27, 1994, the Division of Investment Management

released a report, Personal Investment Activities of Investment Company

Personnel, which describes the results of the staff's special examination of

the personal investment acti vities of over 600 portfolio managers employed

by 30 fund groups and analyzes the regulatory scheme that governs those

investment activities. If implemented, the report's recommendations to

improve the regulatory scheme would make available to the public

additional information about fund policies on personal investments, enhance

the oversight of personal investment policies by fund boards of directors,

make it easier for both agency and fund staff to monitor the personal

transactions of fund personnel, and clarify the scope of activities prohibited

by fund personnel.

The Division has taken a multi-faceted approach to mutual fund use

of derivatives, focusing on a broad range of issues, including disclosure,

pricing, liquidity, leverage, and risk management. In December 1993, the

Division formed a task force to study how investment companies use

derivatives, how the Commission regulates derivatives, and whether

legislative or regulatory changes are necessary or appropriate. In a

September 1994 report, the Division recommended to Chairman Arthur

39
Levitt that the Commission: (1) seek public comment on requiring some

form of quantitative risk measure in fund prospectuses; (2) reexamine how

the leverage restrictions of the Investment Company Act apply to derivatives;

(3) consider reducing the ceiling on mutual fund illiquid holdings; and

(4) submit to Congress legislation that would enhance the Commission's

ability to monitor fund use of derivatives.

Program Overview

Investment Company and Adviser Inspection Program

During 1994, the investment company and adviser inspection program

shifted its focus towards small and medium investment company complexes

(those outside of the largest 100 investment company groups) and new

entrants to the fund business. Examiners emphasized fund share distribution

and portfolio management activities during inspections. In particular,

examiners looked closely at the use and effects of derivative investment

products on registrants' disclosures, returns, and internal control systems.

The program also set a goal of examining investment advisers with

discretionary management authority that have not been examined since

1990.

The tables below show the number of registered investment companies

and investment advisers and the amount of assets under management. All

figures are reported for fiscal year-end.

Investment

Companies

Investment

Company

Portfolios

Investment

Advisers

Number of Active Registrants

% Change

1990 1991 1992 1993 1994 1990-94

3,535 3,660 3,850 4,300 4,530 28.1%

NA 16,000' 18,700 21,200 22,426 NA

17,386 17,500 18,000 20,000 21,600 24.2%

NA = Not Available

* Estimated

Assets Under Management

($ in billions)

1990 1991 1992 1993

% Change

1994 1990-94

Investment

Companies

Investment

Advisers

40

$1,350 $1,400 $1,800 $2,400 $2,510

$4,900 $5,400 $8,100 $9,600 $9,600

85.9%

95.9%
The number of registered investment companies increased by more

than 5 percent during 1994. Many investment companies combine several

separate portfolios or investment series in one investment company

registration statement. The number of portfolios generally ranges from

three to ten. However, some unit investment trusts group as many as 1,400

separate portfolios under one Investment Company Act registration. The

number of portfolios increased by almost 6 percent during the year.

Results Achieved by the Program

The inspection staff completed 313 investment company inspections

during the year. The 313 complexes inspected managed 1,669 portfolios,

approximately 25 percent of the mutual fund and closed-end fund portfolios

in existence at the beginning of 1994. This indicates an average inspection

frequency of once every four years. Of 313 inspections completed, 21 were

referred to the Division of Enforcement (Enforcement) as compared to 8

referrals during 1993. An additional 244 inspections resulted in deficiency

letters being sent to investment companies.

The inspection staff completed 963 investment adviser examinations

during the year including examinations of 684 advisers with discretionary

management authority. This represents a 35 percent increase over 1993,

reflecting a shift in focus towards smaller advisers. The 684 inspections

of discretionary advisers covered 9 percent of such advisers indicating an

average inspection cycle of once every 11 years. The overall inspection

cycle for advisers was an average of once every 22 years.

Of the 963 examinations, 94 were referred to Enforcement. Twentyseven percent of referrals included deficiencies related to investment policies

and / or prohibited transactions, and 46 percent involved potential conflicts

of interest in personal investing by access persons (persons with direct

knowledge of the portfolio). Over 90 percent of all investment adviser

examinations resulted in either a deficiency letter, an enforcement referral,

or both.

Special Reports

In 1994, the Division prepared two special reports, one addressing

mutual fund use of derivatives and the other addressing personal investment

activities of investment company personnel.

Mutual Fund Use of Derivatives

The Division has taken a multi-faceted approach to mutual fund use

of derivatives, focusing on a broad range of issues, including disclosure,

pricing, liquidity, leverage, and risk management. In December 1993, the

Division formed a task force to study how investment companies use

derivatives, how the Commission regulates derivatives, and whether

legislative or regulatory changes are necessary or appropriate. The task

force reviewed the disclosures of 100 investment companies, and the

Division's fund disclosure review staff has given heightened scrutiny to

derivatives disclosure in prospectuses. The Division has encouraged

41
registrants to modify their existing disclosure to enhance investor

understanding of pertinent risks.!" In addition, the Division's inspection

staff has examined and reported on the derivatives activities of each fund

inspected, and has conducted special examinations of certain funds holding

significant positions in derivatives.

On September 26, 1994, the Division reported to Chairman Levitt on

mutual fund use of derivatives.l'" In this report, the Division recommended

that the Commission: (1) seek public comment on requiring some form

of quantitative risk measure in fund prospectuses; (2) reexamine how the

leverage restrictions of the Investment Company Act apply to derivatives;

(3) consider reducing the ceiling on mutual fund illiquid holdings; and

(4) submit to Congress proposed legislation that would enhance the

Commission's ability to monitor fund use of derivatives. Chairman Levitt

presented the Division's report to Congress in September 1994.105

Personal Investment Activities of Investment Company Personnel

On September 27, 1994, the Division of Investment Management

released a report, Personal Investment Activities of Investment Company

Personnel, which describes the results of the staff's special examination of

the personal investment activities of over 600 portfolio managers employed

by 30 fund groups. The report analyzes the regulatory scheme that governs

those investment activities. With some exceptions, the fund managers

examined generally did not appear to invest extensively for their personal

accounts, and potential conflicts of interest between a manager's investments

and those of his or her fund appeared to be infrequent. The data collected

suggested that the existing regulatory scheme generally has worked well,

but can be improved. The Division made several recommendations, some

of which can be accomplished administratively. Others will require action

by Congress or the National Association of Securities Dealers (NASD). If

implemented, the staff's recommendations would make available to the

public additional information about fund policies on personal investment,

enhance the oversight of personal investment policies by the fund board

of directors, make it easier for both agency and fund staff to monitor the

personal transactions of fund personnel, and clarify the scope of prohibited

activities by fund personnel.

Regulatory Policy

Significant Investment Company Developments

In December 1993, the Commission proposed amendments to Rule

2a-7, under the Investment Company Act, which regulates money market

funds. The proposed amendments would, among other things, tighten the

risk-limiting conditions on tax-exempt money market funds, apply Rule

2a-7 to asset-backed and synthetic securities, and clarify the manner in

which the rule applies to certain types of adjustable rate securities. The

Commission also proposed related amendments to Form N-IA to impose

additional disclosure requirements on tax-exempt money market funds.

42
The amendments are designed both to increase the safety of money market

funds and to increase investor awareness of the risks of investment in a

money market fund.!"

In December 1993, the Commission proposed for public comment Rule

18f-3 under the Investment Company Act, and related amendments to other

rules under that Act and the Securities Act of 1933 (Securities Act). Proposed

Rule 18f-3 would allow open-end management investment companies to

issue multiple classes of shares without the need to apply for and receive

an order of exemption from the Commission, largely codifying over 150

exemptive orders issued by the Commission during the past decade.

Proposed amendments to Form N-IA, the registration form used by openend management investment cornpanies.t'" would make consistent the

disclosure requirements of multiple class and master-feeder funds (funds

which consist of one or more feeder funds investing in the same portfolio,

or master fund). The proposal also would make conforming changes to

several advertising and sales literature rules.

In May 1994, the Commission proposed for public comment Rule 17f-6

under the Investment Company Act to permit registered management

investment companies to use futures commission merchants and commodity

clearing organizations as custodians of their assets in connection with

futures contracts and commodity options regulated under the Commodity

Exchange Act.IOB Currently, investment companies must maintain special

accounts with their custodian banks for these transactions. The proposed

rule would enable investment companies to effect their commodity trades

in the same manner as other market participants under condi tions designed

to ensure the safekeeping of investment company assets.

In August 1994, the Commission adopted an amendment to Rule 415

under the Securities Act, which governs the registration of securities for

the shelf. The amendment permits closed-end funds that make periodic

repurchase offers, known as closed-end interval funds, to offer their shares

on a continuous or delayed basis.''" The amendment is intended to facilitate

offerings by closed-end interval funds to replenish assets that may be

depleted by periodic repurchases.

Significant Investment Adviser Developments

In January 1994, the Commission proposed and in April 1994, the

Commission adopted amendments to Rules 204-1 and 204-3 and Form ADV

under the Investment Advisers Act relating to wrap fee programs. A wrap

fee program provides an investor with two types of services: investment

advisory services and execution services for a single wrap fee, usually a

percentage of assets under management. The amendments specify the

content, format, and delivery requirements of the brochure that a sponsor

of a wrap fee program must provide clients and prospective clients and

are intended to facilitate the development of clear, concise and informative

wrap fee brochures.!"

43
,.

In March 1994, the Commission proposed for public comment two new

rules under the Investment Advisers Act. Proposed Rule 206(4)-5 would

make express the fiduciary obligation of an investment adviser to make

only suitable recommendations to a client, after a reasonable inquiry into

the client's financial situation, investment experience, and investment

objectives. An express suitability rule would underscore the importance

of this requirement, particularly to the many new entrants into the

investment advisory industry, and increase the level of attention given to

suitability determinations by advisory firms. Proposed Rule 206(4)-6 would

prohibit registered investment advisers from exercising investment

discretion with respect to client accounts unless they have a reasonable

belief that the custodians of those accounts send account statements to the

clients no less frequently than quarterly. These account statements would

provide clients with independent reports of account activity and permit

clients to protect themselves against wrongful or questionable conduct

such as inappropriately high levels of trading, unauthorized transactions,

or unsuitable investments.'!'

Significant Disclosure Program Developments

In August 1994, the Commission adopted amendments to Rule 485

under the Securities Act. Among other things, Rule 485 sets forth standards

for filing post-effective amendments to registration statements filed by

open-end management investment companies and unit investment trusts

and permits certain amendments to become effective automatically. The

adopted amendments simplify the operation of the rule and expand the

conditions under which post-effective amendments filed by investment

companies are permitted to become effective automatically. The Commission

adopted new Rule 486 that permits closed-end management investment

companies, which make repurchase offers to their shareholders at net asset

value in accordance with Rule 23c-3 under the Investment Company Act,

to obtain automatic registration effectiveness for additional securities using

procedures similar to those in Rule 485.112

In December 1993, the Commission proposed and, in October 1994

the Commission adopted, amendments to Schedule 14A under the Securities

Exchange Act (Exchange Act) to add a new item 22 that includes the specific

requirements applicable to the proxy statements of registered management

investment companies. Item 22 replaced Rules 20a-2, 20a-3, and 20a-4

under the Investment Company Act, which were rescinded. These

amendments update the proxy rules applicable to investment companies

to reflect current matters on which investment company shareholders are

commonly asked to vote, to improve the disclosure provided to shareholders,

and to simplify the preparation of investment company proxy statements.

The Commission also amended Form N-14, the form used by management

investment companies to register securities issued in connection with

business combination transactions, to require a comparative fee table in

the disclosure documents delivered in connection with such transactions.!"

44
In August 1994, the Commission proposed amendments to Rule 6-07

of Regulation S-X,the regulation setting forth form and content requirements

for financial statements included in registration statements, proxy

statements, annual reports, and shareholder reports under the various

securities laws, and Forms N-IA, N-2, N-3, and N-4, the registration forms

used by management investment companies and insurance company

separate accounts (funds) under the Securities Act and the Investment

Company Act. The proposed amendments would require a fund to adjust

the amount of expenses reflected in the statement of operations in its

financial statements to include amounts the fund would have paid to its

service providers had a broker-dealer or any affiliate of the broker-dealer

not paid or agreed to pay those service providers on behalf of the fund

in connection with the allocation of fund transactions to the broker-dealer.

The proposed amendments also would require that the adjusted expenses

be reflected in the fee table, the financial highlights table included in fund

prospectuses, and yield quotations. In addition, the proposed amendments

would require that the financial highlights table disclose the average

commission rate paid by the fund. The amendments are designed to allow

investors to evaluate fully the expenses of a fund that pays for services

with commission dollars and accurately compare expenses and yields

among funds."!

Considerable staff time and attention were devoted to efforts to simplify

and improve prospectus disclosure. The staff utilized focus groups to

research the views and opinions of investors in an effort to identify areas

for enhanced prospectus disclosure. The staff began to reevaluate the

process through which it comments on registration statements filed by

investment companies. This project is designed to enhance the clarity of

disclosure by reducing technical and legal prose. The staff also participated

in drafting a brochure to assist consumers who invest in mutual funds.

The staff continued to focus on the disclosure and policy issues raised

by funds investing in new products. For example, derivatives, structured

financing arrangements and strategic transactions were analyzed in terms

of adequacy of risk disclosure, potential for leverage, liquidity, and

assurance of accurate pricing. The staff also reviewed the disclosure and

policy issues raised by the increasing number of funds investing in emerging

markets or previously closed, centrally-planned economies.

In 1994, the staff reviewed filings by 508 new open-end fund portfolios,

616 existing open-end portfolios, 202 new closed-end portfolios,S existing

closed-end fund portfolios, 450 new unit investment trust portfolios, and

387 existing unit investment trust portfolios. In connection with its

regulation of variable insurance products, the staff reviewed filings by 76

new open-end funds, 245 existing open-end funds, 257 new sub-accounts

funded by variable annuity contracts, 482 existing sub-accounts funded

by variable annuity contracts, 112 new variable life insurance products,

and 273 existing variable life insurance products. In addition, the staff

reviewed 579 proxy filings by funds and insurance product separate

accounts.

45
Section 13(f)(1) of the Exchange Act 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. For the quarter

ending June 30, 1994, 1,222 managers filed Form 13F reports, for total

holdings of approximately $2 trillion.

Significant Insurance Products Developments

The staff of the Division's Office of Insurance Products continued

efforts to develop a new registration form to be used by separate accounts

offering variable life insurance contracts. Currently, separate accounts

register as unit investment trusts under the Investment Company Act on

Form N-8B-2 and also register their securities under the Securities Act on

Form S-6. The new Form N-6 will replace this procedure with a single,

three-part form that will integrate registration under both Acts.

In 1994, the staff began receiving registration statements involving

the two-tiered "master-feeder" structure. In this structure, the master fund

holds and manages the investment portfolio while one or more feeder funds

(i.e., insurance company separate accounts) offer shares to insurance contract

owners and invest all of the separate account assets in the master fund.""

As in master-feeder registrations outside the insurance products context,

the registration statements reviewed for feeders discuss both the features

of the variable insurance product as well as the operation of the underlying

master fund.

Significant Public Utility Holding Company Act Developments

The Commission began an evaluation of the Holding Company Act

to review the regulatory framework in light of developments in recent years

and to consider how federal regulation of utility holding companies can

best serve the interests of investors, consumers, and the general public in

the future. The Commission inaugurated the review with a roundtable

discussion, in Washington, D.C. on July 18 and 19, 1994 in which

representatives of the utility industry; consumer groups; trade associations;

investment banks; rating agencies; state, local, and federal regulators; and

others participated. The study is expected to be completed by the summer

of 1995.

The Commission adopted amendments to rules and forms to modernize

and streamline regulation under the Holding Company Act. The

amendments expand certain exemptions and generally update and clarify

the requirements of the rules. The Commission rescinded Rule 50 under

the Holding Company Act, which required competitive bidding in

connection with the purchase or underwriting of securities by companies

in a registered system. The rulemaking is intended generally to reduce

regulatory burdens under the Holding Company Act.

As of September 30, 1994, there were 14 public-utility holding

companies registered under the Holding Company Act. The registered

systems were comprised of 91 public utility subsidiaries, 193 non-utility

subsidiaries and 31 inactive subsidiaries, for a total of 329 companies and

46
systems operating in 26 states. These holding company systems had

aggregate assets of approximately $121.7 billion as of September 30, 1994.

Operating revenues for twelve months ending September 30, 1994, were

approximately $43.9 billion.

During 1994, the Commission authorized registered holding company

systems to issue $8.6 billion in short-term debt, $3.7 billion in long-term

debt, and $2.7 billion in common and preferred stock. Short-term debt

authorization increased by over $4 billion in 1994 from the previous year,

with common and preferred stock equity increasing by $2 billion. The

Commission approved pollution control financings of $1.8 billion, an

increase of 29 percent over 1993. The agency approved $240 million of

investments in cogeneration projects that were "qualifying facilities" under

the Public Utility Regulatory Policies Act of 1978 and rules thereunder.

The Commission also approved $418 million of investments in exempt

wholesale generators and foreign utility companies, an increase of over

263 percent over 1993, and $42 million in enterprises engaged in demandside and energy management. Total financing authorizations of

approximately $17.5 billion represented a 73 percent increase over such

authorizations in 1993.

In overseeing compliance with the Holding Company Act, the staff

examines service companies, special purpose companies, and exempt

wholesale generator and foreign utility company subsidiaries of registered

holding company systems. During 1994, six examinations were completed,

three of foreign utility companies, two of service companies, and one of

special purpose corporations, respectively. The staff continued to review

the accounting policies, cost determination, intercompany transactions,

and quarterly reporting requirements of all service companies and special

purpose corporations. Through the examination program, and by

uncovering misapplied expenses and inefficiencies, the Commission's

activities during 1994 resulted in savings to consumers of approximately

$11 million.

The Commission approved a joint legislative proposal by its staff and

the staff of the Federal Energy Regulatory Commission (FERC), intended

to resolve the issues raised by Ohio Power Co. v. FERe. The proposal would

amend section 318 of the Federal Power Act (FPA) to permit the FERC,

in the exercise of its ratemaking authority, to disallow costs incurred

pursuant to Section 13(b) of the Holding Company Act on a finding that

recovery of such costs would be inconsistent with the standards of the FPA.

On May 26, 1994, Commissioner Richard Roberts, on behalf of the

Commission, testified before the Subcommittee on Energy and Power of

the House Committee on Energy and Commerce, regarding policy issues

raised by Ohio Power, and other issues generally related to regulation under

the Holding Company Act. The testimony focused on the Commission's

47
efforts to address concerns that the decision can be read to challenge the

ability of the FERC and state and local ratemakers, to protect consumers

through traditional ratemaking proceedings.

On June 24,1994, Representatives Boucher, Dingell, Markey and Sharp

introduced H.R. 4645. This legislation, which was substantially similar

to the Commission-FERC joint staff proposal, would amend the FPA to

authorize the FERC to disallow Commission-approved costs on a finding

that recovery of such costs was inconsistent with the requirements of the

FPA. The legislation does not contain any provision for transfer of

administration of the Holding Company Act to the FERC.

On August 11, 1994, an amendment to S. 1822, the Communications

Act of 1994, was reported by the Senate Committee on Commerce, Science

and Transportation. Among other things, the legislation would permit

registered holding companies to engage in telecommunications activities,

generally without limit under the Holding Company Act. The Commission

had previously submitted a statement to that Committee and the Senate

Committee on Banking, Housing and Urban Affairs focusing on the need

for effective consumer protection if registered holding companies were to

be permitted to engage in telecommunication activities.

Significant Applications And Interpretations

Investment Company Act Matters

The Commission issued an order under Section 9(c) of the Investment

Company Act exempting First Investors Corporation (First Investors) and

certain of its corporate affiliates from Section 9(a) in connection with an

injunction entered in 1992 in federal court.!" The Commission also issued

an order exempting First Investors and certain individual affiliates from

Section 9(a) in connection with four state court injunctions."? Both the

federal and state injunctions were based on fraudulent sales practices

relating to two high yield, high risk bond funds.

Section 9(a) prohibits any person from serving as an employee, officer,

director, or investment adviser of any registered investment company if

the person has been enjoined from engaging in any conduct in connection

with the purchase or sale of any security. As a condition to its order, First

Investors agreed to submit to the Commission annual reports prepared by

an independent consultant on its broker-dealer operations for a period of

five years. The first report stated that First Investors had centralized and

standardized its procedures and systems concerning its sale practices in

order to comply with the federal securities laws, and had recruited new

senior management. The Commission granted relief to the applicants based

on these changes and certain continuing obligations agreed to by First

Investors.

The Commission issued an order under Sections 6(c), 17(b), and 17(d)

of the Investment Company Act and Rule 17d-1 to allow Emerging Markets

Growth Fund (the Fund), a United States closed-end investment company,

to invest in New Europe East Investment Fund, a foreign closed-end

investment company.J" Capital International, Inc., a United States registered

48
investment adviser, is the investment adviser of both the domestic and

foreign funds. The Fund seeks to achieve long-term capital growth by

investing in equity securities of developing countries. Consistent with this

objective, the Fund invests up to 2 1/2 percent of its assets in the New

Europe Fund, which invests in Eastern Europe and the former Soviet

republics. By purchasing securities of the New Europe Fund, the Fund

can invest in the emerging markets of Eastern Europe and former Soviet

republics while benefiting from the economies and diversification provided

by pooled investments. The Fund purchases shares of the New Europe

Fund at the same purchase price and on the same basis as all other purchasers

of the shares. The arrangement required relief because the applicants are

affiliated persons of each other.

The Commission issued an order under Section 6(c) of the Investment

Company Act to allow Invesco Treasurer's Series Trust, a registered openend investment company, to base its registration fee for shares registered

under the Securities Act on net sales, rather than gross sales, pursuant to

Rule 24f-2 under the Investment Company Act.'!" Invesco had filed a

declaration pursuant to Rule 24f-2 to register an indefinite number of

shares under the Securities Act. The rule provides that an investment

company that has filed a declaration must file notices with the Commission

indicating the number of shares sold during the prior year. If the notice

is filed within two months of the company's fiscal year-end, the investment

company may pay a registration fee based on net sales ti.e., the aggregate

sales price of the shares sold minus the aggregate sales price of the shares

redeemed); if not, the fee is based on gross sales. Invesco mailed its notice

for fiscal year 1993 seven days before the two month deadline; the notice

arrived at the Commission one day after the deadline. Invesco stated that

it acted reasonably and in good faith mailing its Rule 24f-2 notice seven

days before the end of the two-month period. It also noted that, at the

time the notice was mailed, the United States Postal Service's performance

was comparatively poor. The Commission granted the application after

finding that the relief was appropriate and Invesco was not at fault. In

addition, the Commission indicated that its staff would apply a four-day

standard in evaluating future exemptive requests in which an investment

company used the Postal Service to deliver its Rule 24f-2 notice and the

notice was not delivered timely.

The staff provided its views on several interpretive issues concerning

Rule 3a-7 under the Investment Company Act. Rule 3a-7 excludes from

the definition of investment company any issuer that pools certain eligible

financial assets and issues non-redeemable securities backed by those

assets (so-called structured financing programs). The staff stated that

cumulative preferred stock that has no determinable liquidation date is

not an eligible asset because it does not by its terms convert into cash within

a finite time period, as required by the rule. The staff also determined

that structured financing programs may be deemed to issue redeemable

securities when they issue two classes of securities and give the holders

of one class the absolute or conditional right to withdraw portfolio securities

upon presentation to the issuer of a certain amount of both classes of

49
securities. Whether such programs issue redeemable securities will depend

on whether there are substantial enough restrictions on the investor's right

to withdraw portfolio securities. The staff recited a number of factors it

considered important to make this determination yo

The staff concurred in the view that the board of directors of a registered,

open-end investment company may conditionally determine that certain

commercial paper issued in reliance on the exemption from registration

in Section 4(2) of the Securities Act (4(2) Paper) is liquid. Generally, an

open-end investment company may not invest more than 15 percent of its

assets in illiquid assets. An illiquid asset is one which may not be sold

or disposed of in the ordinary course of business within seven days at

approximately the value at which the investment company has valued the

asset. The staff stated that to be considered liquid the 4(2) Paper must

not be traded flat or be in default as to principal or interest. The staff

also required the board of directors to consider the rating and the trading

market for the 4(2) Paper in making the liquidity determination. Finally,

the staff concurred in the view that the board of directors may delegate

to the investment company's investment adviser the responsibility for

determining and monitoring the liquidity of 4(2) Paper in the investment

company's portfolio, provided the board retains sufficient oversight.'!'

The staff stated that it would not recommend enforcement action if

a newly created fund formed by the merger of three predecessor funds

advertised its performance using the historical performance data of the

predecessor fund that most closely resembled the newly created fund.122

To determine which predecessor fund, if any, a surviving or new fund

resulting from a reorganization most closely resembles, the staff stated that

funds should compare: the various funds' investment advisers; investment

objectives, policies, and restrictions; expense structures and expense ratios;

relative asset size; and portfolio composition. The staff noted that these

factors are substantially similar to the factors to be considered in determining

the accounting survivor of a business combination involving investment

companies.

The staff granted no-action relief under Section 11(a) of the Investment

Company Act to a mutual fund offering to waive its front-end sales load

(while imposing a contingent deferred sales load) to attract shareholders

of unaffiliated funds that charge front-end sales loads. The staff stated

that the purpose of Section l1(a) is to prevent brokers from "switching,"

or inducing shareholders of an investment company to exchange their

shares for those of a different investment company solely for the purpose

of exacting additional sales charges. The staff concluded that the legislative

history of Section 11(a) suggests that it should not apply to every offer

involving unaffiliated funds. Moreover, the Rules of Fair Practice of the

NASD and federal securities laws other than the Investment Company Act

provide the principal regulatory means to address concerns about brokers

imprudently switching investors between unaffiliated funds. Finally, the

staff noted that Section l1(a) does not prohibit waiver of a front-end sales

load for shareholders who redeem shares of a fund that imposes a contingent

deferred sales 10ad.123

50
Investment Advisers Act Matters

The Division staff continued to develop its interpretation regarding

the jurisdictional reach of the Investment Advisers Act with respect to

foreign advisers. In one no-action letter, the staff stated that it would not

recommend enforcement action if foreign research affiliates of a U'.S.

registered adviser provided research to the adviser, but did not separately

register under the Investment Advisers Act.124 The staff's response permits

a U.S. registered adviser to draw on the research of its multinational

affiliates as long as the affiliates do not have access to recommendations

given to the registered adviser's U.S. clients. In a second letter, the staff

permitted a foreign affiliate of a registered foreign adviser to provide

ad vice directly to U.S. clients and still rely on the exemption from registration

under the Investment Advisers Act for private advisers. This relief was

given on the condition that the affiliate operate separately and independently

from the registered foreign adviser.!"

Insurance Company Matters

The Commission issued an exemptive order limiting the

disqualification provisions of Section 9(a) of the Investment Company Act

to persons who participate directly in the management, administration, or

sale of the variable annuity contracts issued by an insurance company and

its affiliates.!" Insurance companies already have such relief with respect

to variable life insurance contracts pursuant to paragraphs (b)(4) and

(b)(15)(ii) of Rules 6e-2 and 6e-3(T), respectively, under the Investment

Company Act.

The staff, pursuant to delegated authority, issued orders granting

exempti ve relief (class relief) to the extent necessary to permi t the ded uction

of mortality and expense risk charges not only from assets of the separate

account applicantts) under certain variable annuity contracts, but also

from: (1) the assets of the separate account applicantfs) under any materially

similar variable annuity contracts offered in the future by the separate

account applicantts): or (2) the assets of any other separate account

established in the future by the insurance company depcsitor(s) of the

separate account applicantts) under materially similar variable annuity

contracts.!" The staff stated that it would not recommend enforcement

action to the Commission if a variable annuity separate account changed

the manner of calculating the contingent deferred sales load without

amending its existing order permitting the deduction of mortality and

expense risk charges.!" The staff took the position that it would not object

if any separate account lowers any of its charges without seeking an

amended order.

Holding Company Act Matters

The Commission authorized the acquisition by Entergy Corporation,

a registered holding company, of Gulf States Utilities Company and related

transactions. In its findings under Section lO(b)(l) of the Holding Company

Act, the Commission relied in part on the existence of a FERC approved

open-access tariff to mitigate any potential anticompetitive effects of the
.:

merger. The order was appealed by, among others, Houston Lighting &

Power Company. Before the appeal was decided, the U.S. Court of Appeals

for the District of Columbia Circuit remanded the FERC order approving

the open access tariff. Based on that decision, the Commission has requested

remand of its order.

The Commission authorized Central and South West Corporation, a

registered holding company, to form a special-purpose telecommunications

subsidiary .

52
Full Disclosure System

Thefull disclosuresystem isadministered by theDivision ofCorporation

Finance. The system is designed to provide investors with material

information, foster investor confidence, contribute to the maintenance of

fair and orderly markets, facilitate capital formation, and inhibit fraud in

the public offering, trading, voting, and tendering of securities.

Key 1994 Results

Spurred by the continuing need for capital by small and large

businesses, a record level of common stock offerings totalling more than

$330 billion were filed for registration in 1994, including over $82 billion

for initial public offerings (IPOs). The total of over $810 billion in

securities filed for registration during the year, equity and debt, was

exceeded only by the record level reached in 1993.

Foreign companies' participation in the United States markets

continued to show dramatic growth in 1994. One hundred thirty-eight

foreign companies from 17 countries, including Bank of Montreal,

Shandong Huaneng Power Development Company and Huaneng Power

International Inc., P.T. Indonesia Satellite Corp., Reed International pIc,

Elsevier NV, TeleDanmark, and Pharmacia Corp., entered the United

States public markets for the first time. At year-end, there were more

than 635 foreign companies from 41 countries filing reports with the

Commission. Foreign companies registered public offerings totalling

$36 billion in 1994.

REGISTRATION STATEMENTS FILED

DOLLAR VALUE ($BIWONS)

UNAI.l.OCATCD

SHELF OTHER EQ

67.4 25.9

B% 8%

1993

TOTAL $868.1

UNAI.l.OCATCD

SHELF

83.2

10%

1994

TOTAL $814.7

53

- -
The Commission adopted several initiatives to simplify and lower

the cost of registration and reporting for domestic issuers and foreign

companies accessing the United States public securities markets. These

initiatives included eliminating supplemental financial schedules for both

domestic and foreign registrants, as well as expanding the availability of

short-form and shelf registration for foreign issuers to the same extent

as available for United States issuers. In addition, reconciliation

requirements applicable to foreign private issuers were streamlined by,

among other things, (l) reducing first-time registrants' reconciliation

requirements to the two most recent fiscal years plus interim periods and

(2) permitting the use of the international accounting standard (lAS) for

cash flow statements without reconciliation. The Commission also proposed

to allow the use of lAS 21, "The Effects of Changes in Foreign Exchange

Rates," and lAS 22, "Business Combinations." These proposals were later

adopted.

Highly publicized defaults as well as the tremendous level of growth

during the past two years in the market for municipal securities have

raised concerns regarding the adequacy of municipal market disclosure

both for primary offerings and in the secondary market. In this regard,

the Commission published interpretive guidance regarding the disclosure

obligations of issuers and underwriters in the primary and secondary

municipal securities markets. The Commission also adopted amendments

to limit municipal dealers' underwriting activities to issuers that undertook

to provide secondary market disclosure and to enhance dealers' awareness

of this secondary market information when recommending such securities.

A number of public companies reported significant losses attributable

to derivatives activities and positions during the year. The staff conducted

a targeted review of disclosures of derivatives activities of approximately

500 filings. Through the comment process, the staff requested expanded

disclosures in those filings where necessary to investors' understanding

of the type, extent and potential effects of such activities.

In response to the increasing incidence of corporate restructuring

transactions, the staff issued a public announcement about accounting and

disclosure practices in connection with such restructurings and undertook

a targeted review of several hundred companies that had announced such

transactions.

As a follow-up to a 1993 special proxy review project to evaluate

compliance with new executive compensation disclosure rules, the staff

reviewed the compensation disclosures in 785 proxy statements.

Review of Filings

The staff conducted 3,400 reporting issuer reviews. A total of 1,599

new company registration statements also were reviewed. The reporting

issuer reviews were accomplished through the full review of 977 registration

statements and post-effective amendments to registration statements filed

54
under the Securities Act of 1933 (Securities Act), 1,540 annual and

subsequent periodic reports, 163 merger and going private proxy

statements, and 1,405 full financial reviews of annual reports.

The following table summarizes filings reviewed during the last five

years. The increases and declines in reviews of new issuer filings, tender

offers, contested solicitations, and going private transactions, all of which

are subject to review, reflect the increases and decreases in the number

of filings received.

FULL DISCLOSURE REVIEWS

1990 1991 1992 1993 1994

Reporting Issuer

Reviews al 1,907 2,660 3,058 3,531 * 3,400

New Issuer

Reviews !21 1,059 799 1,147 1,200 1,599

Major Filing Reviews

Securities Act Registrations

Home Office

New Issuers 568 465 831 877* 1,167

Relfeat Issuers 635 758 970 924* 863

PI Amdts. ~I 203 308 210 117* 114

Regions

Retstrations 327 183 158 189 217

PI Amdts. ~I 505 275 137 103 90

Annual Reports

Full Reviews dJ 1,129 1,557 1,450 1,826 1,54')

Full Financial

Reviews 292 712 1,126 1,155* 1,405

Tender Offers

(140-1 ) 95 37 27 56 82

Going Private

Schedules 108 68 61 61 75

Contested Proxy

Solicitations 75 65 58 35 42

Proxy Statements

MergerlGoing Private 240 188 141 149 163

Other 351 374 395 1,292 1,027

... Revised

~I Includes companies subject to Securities Exchange Act of 1934 (Exchange Act)

reporting whose financial statements were reviewed during the year.

hi Includes non-Exchange Act reporting companies whose Securities Act or

Exchange Act registration statements were reviewed during the year.

r;;.1 Includes only post-effective amendments with new financial statements.

g/ Includes reports reviewed in connection with other filings.

55
Rulemaklng, Interpretive, and Legislative Matters

Municipal Securities

The Commission published interpretive guidance regarding the

disclosure obligations of issuers and underwriters in the primary and

secondary municipal securities markets.':" The interpretive release

highlighted areas that create a risk of misleading investors and suggested

disclosure practices to minimize those risks. Municipal dealers also were

advised that they must have a reasonable basis for recommendations of

securities in the secondary market. FinaIIy, the release reiterated the

Commission's support for legislation repealing the exemption from the

registration requirements of the federal securities laws for corporate

obligations underlying certain non-governmental conduit securities.

The Commission adopted amendments to its rules that prohibit a

broker, dealer or municipal securities dealer from acting as an underwriter

of an issue of municipal securities before making a reasonable determination

that an issuer or obligated person has undertaken to provide certain

information to nationally recognized municipal securities information

repositories and/or the Municipal Securities Rulemaking Board and state

information depositories.l" The amendments also prohibit dealers from

recommending a municipal security subject to a disclosure covenant unless

the dealer has a system reasonably designed to notify the dealer of material

information regarding the security before the recommendation is made.

The amendments were first proposed on March 9, 1994 in a companion

release to the Commission's interpretive guidance.'!'

International Initiatives

The Commission adopted a number of amendments to its rules and

regulations to simplify registration and reporting requirements for foreign

private issuers. Amendments to Form F-3 were adopted to expand the

class of foreign issuers eligible to use short form registration and primary

delayed shelf offerings pursuant to Rule 415.132 The amendments shortened

the minimum issuer reporting period from 36 to 12 months, imposed a

requirement that one annual report on Form 20-F be filed, and reduced

the public float requirement for primary offerings of non-investment grade

securities from $300 million to $75 million. The amendments also permit

registration of debt, equity and other securities on a single unallocated

shelf registration statement, without having to specify the amount of each

class of securities to be offered.

The financial statement reconciliation requirements applicable to

foreign private issuers were streamlined to permit: (1) cash flow statements

prepared in accordance with lAS 7, "Cash Flow Statements," without any

additional information to reconcile to generally accepted accounting

principles in the United States (GAAP); (2) first-time registrants to reconcile

only the two most recent years plus interim periods rather than the

previously required five years; (3) separate financial statements of

significant acquisitions and significant equity investees without a

reconciliation to GAAP unless a defined size test was exceeded; (4) foreign

56
private issuers to omit differences in classification or display that result

from using proportionate consolidation; and (5) elimination of six financial

statement schedules.!"

The Commission adopted amendments to Regulation S-X to permit

foreign private issuers additional time to update their financial statements.

The amendments are intended to coincide with the updating requirements

of the home country of a substantial majority of foreign private issuers.!"

The Commission proposed amendments to its rules and forms to

allow foreign issuers flexibility in selecting the reporting currency used

in filings with the Cornmission.!" In addition, under the amendment, a

foreign private issuer that accounts for its operations in hyperinflationary

environments in accordance with lAS 21 would not have to reconcile the

differences that would have resulted from the application of GAAP. At

the same time, the Commission amended Form 20-F to streamline the

financial statement reconciliation requirements for foreign private issuers

that have entered into business combinations.!" The amendment eliminated

the requirements to reconcile certain differences attributable to the

determination of the method of accounting for a business combination and

the amortization period of goodwill and negative goodwill provided the

financial statements comply with lAS 22. The amendments were

subsequently adopted.

The Commission adopted amendments to the rules and forms that

would extend provisions adopted for foreign issuers to domestic issuers

that are required to provide financial statements for significant foreign

equity investees and acquired businesses.!" These provisions address the

age of financial statements, nature of reconciling information and thresholds

for providing such reconciliations. The amendments also eliminated

certain financial schedules that both domestic and foreign issuers were

required to include in annual reports and registration statements filed

with the Commission. In addition, the amendments eliminated the asset

test for determining the significance of investee financial statements.

Multijurisdictional Disclosure System

The Commission adopted amendments to the multi jurisdictional

disclosure system for Canadian issuers to: (1) amend the eligibility

requirements for use of Securities Act registration statement Forms F-9,

F-10 and 40-F to shorten the reporting history requirement from 36 to 12

months, (2) eliminate the market capitalization requirements under such

forms and (3) change the minimum public float requirement to United

States $75 million.!" The Commission also adopted amendments to Form

F-9 that recognize investment grade ratings by those rating organizations

that are accepted by Canadian securities regulators in addition to those

that are accepted under the SEC's rules.

57
Offering Publicity

The Commission adopted two new safe harbor rules covering

announcements of unregistered offerings and broker-dealer research

reports.!" The first safe harbor, under Rule 135c, is available to all United

States and foreign companies that are reporting under the Exchange Act

and to foreign companies that are exempt under Exchange Act Rule 12g3-

2(b). It also parallels the safe harbor which is available for announcements

in connection with registered public offerings. The second safe harbor

extends the previously existing safe harbor, under Rule 139, for brokerdealer research reports distributed in the normal course of business with

reasonable regularity to those reporting foreign companies that meet the

eligibility requirements for short-form registration, other than reporting

history, and that have traded offshore for at least 12 months.

Safe Harbor for "Forward Looking" Information

.: Responding to concerns raised by companies about liabilities for

disclosure of "forward looking" information, the Commission issued a

concept release soliciting comment on investor need for "forward looking"

information, the impediments to providing such information, and various

proposals to reduce such impediments.':"

Debt Securities

The Commission adopted new Rule 3a12-11 and amendments to

certain Exchange Act rules to reduce existing regulatory distinctions

between debt securities listed on a national securities exchange and those

traded in the over-the-counter market.!" The rule provides exemptive

relief to issuers listing debt securities on a national securities exchange

from the restrictions on borrowing under Section 8(a) of the Securities

Act and most of the proxy regulation of Sections 14(a), 14(b), and 14(c)

of the Exchange Act. Thus, debt securities listed on a national securities

exchange are exempt from the proxy and information statement rules,

except that the antifraud proscriptions, the provisions relating to the

transmission of materials to beneficial owners, and related definitions still

apply. In addition, the amendments simplify the filing requirements for

registration under the Exchange Act.

The Commission also solicited comments on extending reporting

obligations to issuers with significant levels of outstanding debt securities

whether or not listed on an exchange.

Security Ratings Disclosure

The Commission published for comment proposals to mandate

disclosure of security ratings in place of the current policy of voluntary

security ratings disclosure.t" In publishing these proposals, the Commission

recognized that ratings disclosure has remained largely static despite the

development of a vast market for derivative financial instruments and

increased variation in the scope and meaning of security ratings. The

proposals would require disclosure of nationally recognized statistical

rating organizations (NRSROs) security ratings obtained by the issuer, as

58
well as disclosure of any rating (whether or not assigned by an NRSRO)

that is used by a participant in a Securities Act offering. The proposals

also would require disclosure of material rating changes in an Exchange

Act report Form 8-K.

Section 16

The Commission issued a release soliciting public comment on

proposed amendments to the rules and forms under Section 16.143 The

proposals are intended to streamline the Section 16 regulatory scheme,

particularly with regard to the treatment of transactions involving employee

benefit plans, simplify and clarify certain reporting requirements, codify

staff interpretive positions, and establish new categories of transactions

exempt from short-swing profit recovery. The Commission also extended

the phase-in period for compliance with the substantive conditions of Rule

16b-3 regarding employee benefit plan transactions until September I,

1995, or such different date as the Commission may set in further

rulernaking.l"

In a subsequently issued release, the Commission solicited additional

public comment on a broad variety of approaches to cash-only instruments,

including narrowing or restructuring the current exemption.':"

Roll-ups

The Commission proposed amendments to its proxy, tender offer and

disclosure rules to implement the provisions of the Limited Partnership

Roll-Up Reform Act of 1993 (Roll-up Act).146 The amendments revise the

Commission's definition of a roll-up transaction to conform it more closely

to the definition in the Roll-Up Act and extend the protections of the Rollup Act to proxy and tender offer rules in the areas of shareholder

communications, security holder lists, and contingent or differential

compensation. These amendments and minor modifications to the rollup disclosure rules were subsequently approved by the Commission.

Timely Distribution of Proxy and Other Soliciting Material

The Commission published a release reminding registrants of their

obligation under Rule 14a-13 to timely distribute proxy and other soliciting

material to banks and brokers for forwarding to beneficial owners.r" This

release was issued in response to complaints from several beneficial

owners who did not receive their material in sufficient time to make an

informed proxy voting decision during the 1993 proxy season.

Electronic Data Gathering, Analysis, and Retrieval System

The Commission issued three releases to further implement the

operational EDGAR system. In the first release,':" the Commission

established September 1,1994 as the date on which Financial Data Schedules

would be required. The Commission also adopted an updated edition

of the EDGAR Filer Manual to accommodate the preparation and submission

of Financial Data Schedules.!" Finally, in the third release, the Commission

proposed minor and technical changes to the rules governing the submission

of EDGAR filings and identified some common filing mistakes.!"

59
Conferences

SEC Government-Business Forum on Small Business Capital Formation

The thirteenth annual SEC Government Business Forum on Small

Business Capital Formation was held in Washington, D.C. on September

8 9,1994. Approximately 150 small business representatives, accountants,

attorneys and government officials attended the forum. Numerous

recommendations were formulated with a view to eliminating unnecessary

governmental impediments to small businesses' ability to raise capital.

A final report will be provided to interested persons, including Congress

and regulatory agencies, setting forth a list of recommendations for

legislative and regulatory changes approved by the forum participants.

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

The eleventh annual federal/state uniformity conference was held

in Washington, D.C. on April 18, 1994. Approximately 60 SEC officials

met with approximately 60 representatives of the North American Securities

Administrators Association 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 and participants.

60

-
Accounting and Auditing Matters

The Chief Accountant is the principal advisor to the Commission on

accounting and auditing matters arising from the administration of the

various securities laws. The primary Commission activities designed to

achieve compliance with theaccounting andfinancial disclosure requiremen ts

of the federal securities laws include:

rulemaking and interpretation that supplements private-sector accounting

standards, implements financial disclosure requirements, and establishes

independence criteria for accountants;

review and comment process for 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 serve 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 improve financial accounting and reporting and the quality

of audit practice.

Key 1994 Results

The Commission continued its involvement in initiatives directed

toward reducing the disparities that currently exist between different

countries' accounting and auditing standards. In April 1994, the

Commission revised its rules so that foreign private issuers may now

submit a cash flow statement prepared in accordance with International

Accounting Standard 7 (lAS 7) without reconciliation to United States

standards. This represents the first time that the Commission has accepted

an international standard for cross-border offerings and filings.

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's principal accounting requirements are embodied in Regulation

S-X, which governs the form and content of financial statements filed with

the SEC.

61

•

•

•

•
Discontinued Operations. The staff issued interpretive guidance

regarding accounting and disclosures relating to discontinued operations.P!

The guidance was issued in response to a perceived deterioration in

compliance with the authoritative accounting literature governing the

reporting of discontinued operations by public companies.

Oversight of Private-Sector Standard-Setting

The SEC monitors the structure, activity, and decisions of the privatesector standard-setting organizations, which include the FASB. The

Commission and its staff worked closely with the FASB 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. A description of FASB activities in which

the staff was involved is provided below.

The FASB continued a joint project with standard-setters in Canada

and Mexico to compare accounting standards in the three countries. The

goal of this project is to develop recommendations for consideration by

standard-setters in the United States, Canada, Mexico, and the International

Accounting Standards Committee (lASC) concerning actions that can and

should be taken to move towards greater comparability.

As part of its consolidations project, the FASB continued a joint

undertaking with the Accounting Standards Board of the Canadian Institute

of Chartered Accountants (CICA) to consider the current reporting

requirements under Statement of Financial Accounting Standards No. 14,

"Financial Reporting for Segments of a Business Enterprise." An invitation

to comment was issued as part of the first phase of a standard-setting

project that will seek to develop common standards on disaggregated

disclosures. The invitation to comment was based on an FASB Research

Report and a CICA Research Study published earlier.

The FASBissued Statement 119requiring disclosures about the amount,

nature, and terms of derivative financial instruments.l'" Statement 119

amends certain provisions of existing Statements 105 and 107 to elicit

disclosures about derivative financial instruments-including futures,

forward, swap, and option contracts, and other financial instruments with

similar characteristics. Statement 119 requires that a distinction be made

between financial instruments held or issued for trading purposes and

those instruments held or issued for purposes other than trading. The

statement is effective for financial statements issued for fiscal years ending

after December IS, 1994, except for entities with less than $150 million

in total assets (for which effectiveness is delayed one year).

The FASB adopted an amended standard on accounting for loan

impairment by creditors.l" The amendment revised the existing standard

on recognizing a loss on impairment of a loan. The amended standard

allows creditors to use existing methods for recognizing interest income

on impaired loans.

62

"
The FASB continued its deliberations on an exposure draft (ED) of

a proposed standard on accounting for stock compensatton.!" Under the

ED's approach, compensation cost arising from awards of stock or options

under both fixed and performance stock compensation plans would be

measured as the fair value of the award at the date it is granted. The

estimated value at the grant date would be subsequently adjusted, if

necessary, to reflect the outcome of performance conditions and servicerelated factors such as forfeitures before vesting. No adjustment would

be made for changes in the market price of the stock. The comment period

on the ED expired on December 31,1993. Public hearings were held during

early 1994 and a field test was conducted.

In 1994, Congress continued to pursue accounting and accountants'

liability issues that were addressed during the previous session. For

instance, opposing bills were introduced last year in reaction to the FASB's

ED on the accounting for employee stock-based compensation. These bills

would have either required or prohibited the recognition of employee

stock options as compensation expense in income statements. In January

1994, Chairman Arthur Levitt, responding to Senators' request for his

views in this area, stated that itis inappropriate for Congress to prescribe

accounting standards. He supported the integrity and independence of

the FASB standard-setting process and indicated that the FASB project

should be permitted to continue. ISS On May 3, 1994, however, the Senate

passed two resolutions related to the FASB's project. One resolution stated

that the FASBshould not change the current accounting for employee stock

options/56 while the second resolution stated that Congress should not

impair the objectivity of the FASB's decisionmaking process by legislating

accounting rules.l" In an additional action related to the employee stock

compensation issue, at the end of the term a bill was introduced in the

Senate to mandate that accounting standards or principles may be used

in filings with the Commission only after an affirmative vote of a majority

of the members of the Cornmission.!" No action was taken on this bill.

Congress also considered litigation reform issues that impact the

accounting profession.!" These bills not only addressed litigation allegedly

being filed against accounting firms, but would have changed the

substantive standards for accountants' liability in the federal securities

laws and created an accountants' self-regulatory organization under the

indirect oversight of the Commission. Divergent views were expressed

on these bills at Congressional hearings and they were not voted on during

the 103d Congress.

Finally, there was significant Congressional interest in the accounting

for derivative financial instruments. Commission testimony described

then proposed FASB Statement 119 and indicated that the Commission

would consider additional quantitative disclosures in this area.160 The

Commission also noted that improved accounting for and disclosure about

derivatives would be more beneficial to investors than auditor reporting

on management's assessments of the registrant's internal control system

related to derivatives transactions.'?'
The FASB's Emerging Issues Task Force (EITF), in which the

Commission's Chief Accountant participates, continued to identify and

resolve accounting issues. During 1994, the EITF reached consensus on

a number of issues involving accounting for restructuring charges, thereby

narrowing divergent reporting practices in public companies' financial

staternents.t'"

Oversight of the Accounting Profession's Initiatives

The Commission and its staff continued to be active in overseeing

the audit standard-setting process and other activities of the accounting

profession. A discussion of the activities in which the SEC staff was

involved follows.

AICPA. The SEC oversaw various activities of the accounting

profession conducted primarily through the AICPA. These included (1)

the Auditing Standards Board (ASB), which establishes generally accepted

auditing standards; (2) the Accounting Standards Executive Committee

(AcSEC), which provides guidance 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 the financial statements of public companies

through various requirements, including peer review.

ASB. The staff continued to work with the ASB to enhance the

effectiveness of the audit process. The ASB issued a series of annual Audit

Risk Alerts to provide auditors with an overview of recent economic,

professional, and regulatory developments that may affect 1994 year-end

audits.

SECPS. The accounting profession's quality control endeavors for

SEC audit practice are coordinated by two committees of the SECPS. The

Peer Review Committee administers the triennial peer reviews that are

required of all SECPS member firms and the Quality Control Inquiry

Committee (QCIC) conducts timely inquiries into the quality control

implications of litigation against member firms alleging audit failures in

connection with audits of public companies.

Staff review of these two functions is conducted in coordination with

the Public Oversight Board (POB), which is independent of the AICP A

(except for funding). The POB facilitates SEC oversight of the accounting

profession's quality control efforts, and also engages in other activities

directed towards improvements in the financial reporting process.!"

Each year the staff selects for review a random sample of peer

reviews. For the selected peer reviews the staff reads the workpapers

of the peer reviewer and the oversight file of the POB. Questions that

arise during these reviews are generally answered by the POB staff and

occasionally by contacting the peer reviewer directly. This oversight has

shown that the peer review process contributes significantly to maintaining

the quality control systems of member firms and, therefore, enhances the

consistency and quality of practice before the Commission.

64
The staff also reviews all closed-case summaries prepared by the

QCIC and related rOB files. These reviews, plus discussions with the

rOB and QCIC staffs, provide the staff with enough information to conclude

that the QCIC process provides added assurances, as a supplement to the

peer review process, that major quality control deficiencies, if any, are

identified and addressed on a timely basis. Therefore, the Commission

believes that the QCIC process benefits the public interest.

AcSEC. The AcSEC issued statements of position on the accounting

for ad vertising costs 164 and revisions to the existing guidance on accoun ting

for employee stock ownership plans.l" A proposed audit and accounting

guide on broker-dealers in securities was issued during 1994.166 Also, the

AcSEC substantially completed a project calling for enhanced disclosures

about risks and uncertainties!" and initiated a project to develop an

accounting guide on environmental liabilities.

International Accounting and Auditing Standards

Significant differences in accounting and auditing standards currently

exist between countries. These differences are an impediment to

multinational offerings of securities. The SEC, in cooperation with other

members of the International Organization of Securities Commissions

(lOSCO), actively participated in initiatives by international bodies of

professional accountants to establish appropriate international standards

that might be considered for use in multinational offerings. Since the

completion in November 1993 of the IASC's project on comparability and

improvements, which reduced alternative accounting treatments and

improved guidance and disclosures in nine IASC standards, the staff

worked with the IASC to improve other existing accounting standards and

to develop new standards. During 1994 the IASC had major projects in

process on earnings per share,':" financial instruments, 169 intangible assets,'?"

reporting financial information by segment,"! and income taxes."?

The IOSCO Working Party on Multinational Disclosures and

Accounting (Working Party) informed the IASC of the necessary core

accounting standards that would comprise a comprehensive body of

principles for enterprises (not in a specialized industry) undertaking

cross-border offerings and listings. In June 1994, the Working Party

provided the IASC with its evaluation of the acceptability of existing and

recently improved IASC standards and identified the projects that would

be necessary to complete the development of a core set of standards. In

addition to existing standards and projects, the Working Party believes

that projects on employee benefits, interim reporting, discontinued

operations and other restructurings, and hedging for commodities, are

necessary to complete the standards. In the Working Party's view, further

improvements also are required to lAS 9 "Research and Development

Costs," lAS 10 "Contingencies and Events Occurring after the Balance

Sheet Date," lAS 17 "Accounting for Leases," lAS 19 "Retirement Benefit

Costs," and lAS 25 IIAccounting for Investments." In addition, a project

65
to review the alternatives for identifying and measuring impairment of

the cost or carrying amount of long-lived assets, identifiable intangibles,

and goodwill is considered important.

In April 1994, the Commission revised financial statement

requirements so that foreign private issuers may now submit, without

reconciliation, a cash flow statement prepared in accordance with lAS 7

"Cash Flow Statements." At the same time, the Commission proposed

to eliminate the need to reconcile the differences that would result from

the application of SFAS No. 52 "Foreign Currency Translation," if the

issuer accounts for its operations in hyperinflationary economies in

accordance with lAS 21 "The Effects of Changes in Foreign Exchange

Rates."!" Also, the Commission proposed to eliminate the requirements

to reconcile certain differences attributable to the method of accounting

for a business combination (pooling of interests or purchase) and the

amortization period of goodwill and negative goodwill, provided that the

financial statements comply with lAS 22 "Business Combinations."!"

The staff also devoted substantial efforts to the review and analysis

of three exposure drafts issued by the International Auditing Practices

Committee (JAPC) of the International Federation of Accountants. These

exposure drafts related to the IAPC's efforts to codify the International

Standards on Auditing (lSA) that were endorsed provisionally by IOSCO

in October 1992. As a result of its analysis, the staff determined that

substantial changes had been made to the provisionally endorsed ISAs.

The principal change was the introduction of black lettering, which resulted

in portions of the standards that were deemed by the IAPC to represent

"basic principles and essential procedures" to be presented in bold type.

The result of those changes was that uncertainty was introduced into the

standards regarding the amount of work to be performed by an auditor

in order to represent that his or her audit complied with the ISAs. The

staff's concerns were communicated to IOSCO and, through IOSCO, to

the IAPC. The IAPC did not address IOSCO's concerns in its final

standards. As a result, IOSCO was unable to reach a consensus to endorse

the codified ISAs. The staff advised the IAPC that additional changes

to the final codified standards are necessary before the staff would

recommend that the Commission support an IOSCO endorsement of the

ISAs.

66
Other Litigation and Legal Activities

The General Counsel represents the Commission in all litigation in the

United States Supreme Court and the courts ofappeals. The General Counsel

defends the SEC and its employees when sued in district courts, prosecutes

administrative disciplinary proceedings against attorneys, appears amicus

curiae in significant private litigation involving the federal securities laws,

and oversees the regional offices' participation in corporate reorganization

cases. The General Counsel analyzes legislation that would amend thefederal

securities laws or other laws affecting the work of the agency, drafts

congressional testimony, prepares legislative comments, and advises the

Commission on issues arising from the agency's regulatory and enforcement

activities including all public releases and rule proposals. In addition, the

General Counsel advises the Commission in administrative proceedings

under various statutes, and advises the Commission and prepares opinions

with respect to appeals from administrative law judges' decisions and selfregulatory organizations' (SRO) disciplinary actions.

Key 1994 Results

Issues of major importance were litigated by the SEC in 1994. In

a 5-4 decision in Central Bank of Denver v. First Interstate Bank of Denoer J"

in which the Commission filed an amicus curiae brief, the United States

Supreme Court held that although investors may sue to obtain money from

those who themselves commit fraud in violation of Commission Rule

10b-5, the investors may not sue those who merely give assistance to, i.e.,

aid and abet, the violators. The SEC has subsequently argued that the

decision does not apply to its own enforcement actions. In Gustafson v.

Alloyd CO.,176the SEC filed an amicus curiae brief urging the United States

Supreme Court to hold that buyers may recover under Section 12(2) of

the Securities Act for false or misleading representations in all types of

securities sales, not only public or initial sales. In SEC v. Posner.'? the

Court of Appeals for the Second Circuit held that, in appropriate

circumstances, the district courts may exercise their inherent equitable

powers to bar individuals who have engaged in securities fraud from

serving as officers or directors of public companies. In all, the number

of litigation cases opened in 1994 increased 29 percent to 339.

The number of legislative matters handled by the staff grew 46

percent in 1994 from 180 to 263. In 1994, Congress passed the Unlisted

Trading Privileges Act of 1994 (P.L. No. 103-390), which revised the

application and approval process by which exchanges may obtain unlisted

trading privileges in securities. It also simplified the securitization of

small business loans in the Riegle Community Development and Regulatory

Improvement Act of 1994 (P.L. No. 103-325). Many of the securities bills,

67
however, were debated out but not passed. Among these were bills to

strengthen the SEC's investment adviser inspection program and bills to

change the private securities litigation system.

The adjudicatory program eliminated what was once a substantial

and chronic adjudication case backlog. The staff submitted to the

Commission 72 draft opinions, a 12 percent increase from 1993. In 1994,

the staff also planned and held a successful inaugural conference on SRO

adjudication, as had been recommended in the report of a Commission

task force on administrative proceedings.

Significant Litigation Developments

Aiding and Abetting Liability

In Central Bank of Denver v. First Interstate Bank of Denver, the United

States Supreme Court held, in a 5-4 decision, that although investors may

sue to obtain money damages from those who themselves commit fraud

in violation of Commission Rule 10b-5, the investors may not sue those

who merely give assistance to, i.e., aid and abet, the violators. The SEC

has subsequently argued in two courts of appeals that the decision does

not apply to its own enforcement actions. In the Ninth and Eleventh

Circuits, the SEC has stressed that its enforcement cases are different from

class action law suits brought by private investors. First, the Commission

sues for injunctions to vindicate the public interest, not for money damages

as private plaintiffs do. Also, Congress expressly provided for Commission

enforcement of Section lO(b), but was silent on damage suits by private

investors. The Ninth Circuit has yet to decide the case before it, while

the Eleventh Circuit sent the case back to the district court to reconsider,

among other things, whether the Central Bank decision applies to

Commission enforcement actions.

Statutes of Limitation

The SEC, as amicus curiae in numerous cases, defended Section 27A

of the Exchange Act against constitutional attack. Section 27A eliminates

the retroactive application of the one-year Ithree-year statute of limitations

for Section 10(b) private actions announced by the United States Supreme

Court in Lampf, Pleva, Lipkind, Prupis & Petigrow v. Gilbertson P" It preserves

the application of the statutes of limitation then in effect for all cases filed

before Lampf was decided. The constitutionality of Section 27A as applied

to cases that were pending when the statute was enacted has been upheld

by the Courts of Appeals for the First, Second, Fourth, Seventh, Ninth,

Tenth and Eleventh Circuits."? This year, in its first consideration of a

case that had been reinstated after final judgment pursuant to Section 27A,

the United States Supreme Court affirmed by an equally divided court

a decision of the Court of Appeals for the Fifth Circuit holding that Section

27A did not violate separation of powers principles or due process."? The

Court subsequently agreed to hear a case in which the Court of Appeals

68
for the Sixth Circuit held that such reinstatement violates separation of

powers principles.!" The SEC filed amicus briefs in both cases jointly

with the Department of Justice.

Scope of Section 12(2) of the Securities Act

In Gustafson v. Alloyd CO.,182 the SEC filed an amicus curiae brief urging

the United States Supreme Court to hold that Section 12(2) of the Securities

Act is not limited to only public or initial sales of securities but instead

applies to all types of sales. Section 12(2) gives buyers a right of rescission

against sellers who make false or misleading representations.

Definition of Security

In Pollack v. Laidlaw Holdings, Inc.,183 the Court of Appeals for the

Second Circuit held, as urged by the SEC as amicus curiae, that participation

in mortgages sold to the investing public are securities under the Securities

Act and the Exchange Act. The court of appeals' decision also made clear

the limited scope of its 1992 decision in Banco Espanol de Credito v. Security

Pacific National Bank,184which held that certain loan participation that were

not offered or sold to individual investors are not securities.

Regulation of Securities Professionals

In Patrick v. SECps the Court of Appeals for the Second Circuit

affirmed a disciplinary sanction imposed by the New York Stock Exchange

(NYSE) on the president of Baird, Patrick & Co., Inc., a NYSE member

firm, for failing to discharge his supervisory duties reasonably when he

neglected either to supervise or to delegate responsibility for supervising

a firm vice president who was engaged in improper floor trading.

Officer-Director Bar

In SEC v. Posner P" the Court of Appeals for the Second Circuit held

that, in appropriate circumstances, the district courts may exercise their

inherent equitable powers to bar individuals who have engaged in securities

fraud from serving as officers or directors of public companies.

Disgorgement and Related Issues

In SEC v. Bilzerian i" the Court of Appeals for the District of Columbia

Circuit held that a disgorgement order entered in an SEC case is not

punitive where the amount ordered to be disgorged is a fair approximation

of the fruits of wrongdoing. The court also held that the double jeopardy

clause of the Constitution therefore does not prevent disgorgement being

ordered against a defendant who had previously been criminally convicted

for the same offense.

Markups

In First Independence Group v. SEC,188 Amato v. SEC,189 and Orkin v.

SEC,190 the Courts of Appeals for the Second, Fifth, and Eleventh Circuits

upheld the SEC's policies as to (1) how retail markups on securities are

to be calculated by securities dealers and (2) what constitutes an excessive

69
markup. BothAmato and Orkin specifically upheld the liability of securities

salesmen where they had reason to know that customers were being

charged excessive markups.

Requests for Access to Commission Records

The Commission received approximately 125subpoenas for documents

and testimony in 1994. In some of these cases, the SEC declined to produce

the requested documents or testimony because the information sought was

privileged. The SEC's assertions of privilege were upheld in every decided

case when the party issuing the subpoena challenged the assertion in court.

The Commission received 2,261 requests under the Freedom of

Information Act (FOIA) for access to agency records and 5,659 confidential

treatment requests from persons who submitted information. There were

35 appeals to the SEC's General Counsel from initial denials by the FOIA

Office. None of these appeals resulted in district court litigation. Two

FOIA appeals that resulted in district court litigation in 1993 remain

pending.

Actions Under the Right to Financial Privacy Act

Seventeen actions were filed under the Right to Financial Privacy Act

to quash SEC subpoenas for customer records from financial institutions.

Ten of these challenges were dismissed by district courts after the courts

found, in each case, that the records were relevant to legitimate law

enforcement inquiries."! Three of the challenges were withdrawn,"? one

was granted,"? and three remain pending.'?'

Actions Against Professionals Pursuant to Commission Rule 2(e)

In In re David L. Kagel, the Commission, pursuant to Rule 2(e) of its

Rules of Practice.!" permanently barred attorney David L. Kagel from

appearing or practicing before the Commission. This action was based

upon an injunction entered against him for violating antifraud provisions

of the federal securities laws.!" Kagel had orchestrated a fraudulent

scheme to take a private company public through acquisition by a public

shell company and, in doing so, prepared and filed with the Commission

several filings that contained false and misleading statements of material

fact.

Two court actions were filed against the Commission challenging its

authority to prosecute Rule 2(e) proceedings. In Checkosky and Aldrich

v. SEC,197the United States Court of Appeals for the District of Columbia

Circuit issued a per curiam decision which found that the Commission was

authorized to promulgate Rule 2(e) under its general rulemaking authority.

The court found that the rule represents an attempt by the Commission

to protect the integrity of its processes by ensuring that professionals

perform their tasks with a reasonable degree of competence.

70
In the other action, Danna and Dentinger v. SEC,198 the United States

District Court for the Northern District of California granted the

Commission's motion to dismiss an action filed by two auditors seeking

to enjoin a Rule 2(e) proceeding brought against them for improper

professional conduct in connection with an audit. The auditors argued

that the Commission could not predicate a Rule 2(e) proceeding based

on negligent-as opposed to willful-conduct. The court upheld the

Commission's authority to institute Rule 2(e) proceedings based on negligent

conduct. A two week trial of the underlying administrative proceeding

was completed in March 1994 and a decision is pending.

Motions for Attorney's Fees Under the Equal Access to Justice Act

Five defendants who prevailed in Commission enforcement actions

filed motions under the Equal Access to Justice Act seeking attorney's

fees and expenses aggregating approximately $3 million.!" In each of these

cases, the Commission opposed the motion arguing that it was substantially

justified in bringing the action or that special circumstances made an

award unjust. The Commission was successful in each of the actions that

was decided.

Wells Submission

In In re Salomon Brothers Treasury Litigation/Do the Second Circuit

found, as urged in the amicus brief filed by the Commission, that disclosure

to the Commission of a Wells submission waives the work-product privilege

for that document. The court also found that the Commission may enter

into an agreement with a witness in an investigation to maintain the

confidentiality of a privileged document produced to the Commission.

Scope of the Joint Defense Privilege

The Commission filed an amicus curiae brief in Durkin v. U.S. District

Court for the Southern District of Caliiornia.i" urging the United States Court

of Appeals for the Ninth Circuit to hold that the joint defense privilege

does not apply when there is subsequent litigation between the parties

to the agreement.

Significant Adjudication Developments

The staff submitted to the Commission 72 draft opinions, a 12 percent

increase from 1993's record number, and the Commission issued 70 opinions.

This continued high productivity eliminated what was once a substantial

and chronic backlog in opinions.

The Commission received 60 appeals in 1994, down from 1993's

record of 71. Itis anticipated, however, that appeals from SRO disciplinary

actions will return to prior levels. The adjudicatory caseload handled by

the Office of the General Counsel will be further expanded as a result

of (1) the Commission's increase in the number of administrative

proceedings against aiders and abettors, in the wake of the Supreme

Court's recent decision limiting private suits for aiding and abetting fraud,

71
and (2) the Office of the General Counsel's assumption, in late 1994, of

responsibility for advising the Commission with respect to appeals from

Commission Rule 2(e) proceedings against professionals other than

attorneys.

Significant Adjudicatory Decisions in 1994

In 1994, the Commission reviewed a number of cases finding sales

practice abuses. In Frank J. Custable, et al.,2°2for example, the Commission

found that a Chatfield Dean & Co. registered representative used deceptive

and fraudulent practices to induce a customer to purchase securities, and

purchased securities for a second customer without the customer's

authorization or consent. Also, the Commission concluded that the firm

and Custable's immediate supervisor failed to supervise Custable properly

and sustained the bar imposed on Custable by the National Association

of Securities Dealers (NASD). In Vanden J. Catli,2°3 the Commission also

sustained a permanent bar. Catli's misconduct included misappropriating

customer funds, trading in customer accounts without authorization,

effecting unsuitable transactions for and making misstatements to

customers, improperly advising customers to ignore margin calls, and

making misrepresentations to the NYSE. In another NYSE-instituted case,

the Commission concluded that a former salesman for NYSE member firm

Merrill Lynch, Pierce, Fenner & Smith, Inc. recommended to customers

various mutual funds that were unsuitable in light of the customers'

expressed desire for low-risk, income-producing investments, and effected

margin transactions without his customer's authorizations.t" The

Commission sustained the NYSE's order suspending the salesman for one

year and placing him under heightened supervision for an additional year.

On review of a complex and novel NASD action finding that a member

firm that bought and sold direct participation program (DPP) securities

in the secondary market had charged customers unfair markups, the

Commission set aside the findings and sanctions.i" In the majority of

the DPP transactions at issue, the firm dealt solely with registered brokerdealers who negotiated the price on behalf of the buyers. The Commission

concluded that these buyers were not the firm's customers, and therefore

that these transactions were not covered by the NASD's markup policy.

In other transactions, the firm dealt directly with a buyer, or dealt through

a third-party intermediary that was not a broker-dealer. With respect to

these transactions, the Commission held that the NASD did not establish

violations of its markup requirements. The Commission noted that, among

other things, the NASD failed to demonstrate a prevailing market price

for the securities.

Finally, in a case arising under the Public Utility Holding Company

Act of 1935 (Holding Company Act) ,206 the Commission rejected a proposal

by Central and South West Corporation (CSW), a registered holding

company, and CSW's wholly owned non-utility subsidiary, CSW Credit,

Inc., to increase CSW's investment in the subsidiary. The proposal

contemplated that CSW's increased investment would be used to expand

the subsidiary's business to factor accounts receivable of non-affiliate

72
utilities. The Commission concluded that this expansion would be

inconsistent with the statutory requirement that operations of public

utility holding companies be limited to such other businesses as are

"reasonably incidental, or economically necessary or appropriate" to the

operations of the utility system.

Legal Policy Developments

The General Counsel, as principal legal adviser to the Commission,

provided independent advice on legal and policy issues arising from

rulemaking and enforcement actions, and ensured that Commission actions

satisfied applicable administrative law and other legal requirements. The

staff drafted legislative proposals, developed the Commission's position

on pending bills in Congress, and prepared Commission testimonies for

congressional hearings. The staff also participated in the Commission's

program of technical assistance to emerging securities markets.

In November 1993, the Commission proposed for comment

comprehensive revisions to its Rules of Practice, which govern the conduct

of Commission administrative proceedings. The proposed revisions are

designed to improve the efficiency of the Commission's administrative

processes and to implement authority granted in the Securities Enforcement

Remedies and Penny Stock Reform Act.207

Significant Legislative Developments

In 1994, a number of securities bills were enacted into law.

Amendments to the Government Securities Act and a bill to reform "rollups" of limited partnerships were passed late in the first session of the

103rd Congress. In its second session, the 103rd Congress adopted

legislation to facilitate the securitization of small business and commercial

loans, and legislation revising the application and approval process for

exchanges to obtain unlisted trading privileges. Although Congress actively

considered important securities bills in a number of other areas, it failed

to reach agreement on final legislation. Thus, Congress considered but

did not pass bills relating to investment advisers, litigation reform, the

regulation of derivatives, and the question of SEC self-funding.

Government Securities

Important legislation involving the regulation of the government

securities markets was enacted early in the fiscal year. The Government

Securities Act Amendments of 1993 was Signed into law by the President

on December 17, 1993 (Pub. L. No. 103-202). The amendments represent

the culmination of three years' efforts. The House, in the 103rd Congress,

sought passage of broad reform legislation, including large position

reporting, sales practice rules, and targeted antifraud provisions. The

Senate bill was much narrower. The final legislation provides, among

other things, for: (1) permanent authorization of Treasury rulemaking

under the Government Securities Act; (2) SEC authority to obtain trade

records in machine-readable form; (3) Treasury authority to require large

73
position reporting; (4) SEC antifraud authority over government securities

brokers and dealers under Section 15(c) of the Exchange Act; (5) sales

practice rulemaking under the Government Securities Act; (6) antifraud

provisions governing bids in connection with primary offerings of

government securities; (7) two studies of aspects of the regulatory system

for government securities; and (8) reforms to the Treasury auction process.

Limited Partnership Roll-ups

"Roll-ups" are limited partnership reorganizations that usually involve

the merger of limited partnerships into new, larger, corporate entities.

In response to perceived abuses in roll-up transactions, Congress passed

roll-ups legislation as Title III of the Government Securities Act

Amendments (Pub. L. No. 103-202, discussed above). This legislation also

was the product of three years' efforts. The final legislation makes it

unlawful for any person to solicit a proxy, consent, or authorization

concerning a roll-up transaction, or to make a tender offer in furtherance

of a roll-up transaction (as statutorily defined), unless the transaction is

conducted in accordance with SEC rules. The SEC must have such rules

effective within 12months from the date of the bill's enactment; a rulemaking

is currently pending. The statute also requires the NASD or the exchanges,

again within 12 months, to adopt rules and establish listing standards for

limited partnership roll-ups. To a large extent, the final legislation codifies

rules adopted by the SEC in 1991 and NASD rules currently pending before

the SEC.

Small Business and Commercial Loan Securitization

H.R. 3474, the Riegle Community Development and Regulatory

Improvement Act of 1994, passed the House and Senate in August 1994;

it was signed into law by President Clinton on September 23, 1994 (Pub.

L. No. 103-325). This law contains small business securitization provisions

derived from a bill originally introduced in the Senate by Senator D' Amato

in 1993. TheSEC testified in support of the bill's securities law amendments

before the Senate in 1993, and before the House Energy Committee's

Subcommittee on Telecommunications and Finance on June 14, 1994. The

legislation also includes provisions relating to community development

banking, money laundering, and regulatory relief for banks.

The small business provisions of H.R. 3474 build on the framework

for securitization established by the Secondary Mortgage Market

Enhancement Act (SMMEA). The legislation amends the Exchange Act

to relax the margin, credit, and collateral requirements applicable to

qualifying "small business related securities." It also amends federal

banking law to permit banks to invest in small business related securities,

and preempts state blue sky and legal investment laws with respect to

such securities. In addition, the legislation mandates a joint SEC-Federal

Reserve study on the impact of the small business securitization provisions

on the credit and securities markets.

74
H.R. 3474 also contains other provisions that directly affect the work

of the SEC. One such provision amends SMMEA to include mortgages

on commercial real estate within the SMMEA securitization framework.

A separate provision establishes a new exemption from the registration

requirements of the Securities Act for equity securities issued or exchanged

in the context of qualifying reorganizations of banks or thrifts into holding

company structures.

Unlisted Trading Privileges

H.R. 4535, a bill revising the application and approval process for

unlisted trading privileges (UTP) passed the House in August 1994 and

the Senate in October 1994. It was signed into law October 22, 1994 (Pub.

L. No. 103-389). The UTP legislation embodies an agreement negotiated

by the SEC among the regional exchanges and the NYSE in November

1993. Under the legislation, trading in an initial public offering (IPO)

pursuant to UTP is no longer subject to a time-consuming application and

approval process. Instead, exchanges may extend UTP to an IPO on the

third day of trading on the listing exchange. The SEC must undertake

rulemaking within 180 days from enactment of the new law to determine

whether to require any delay in trading of IPOs pursuant to UTP. The

SEC testified before the House Telecommunications and Finance

Subcommittee in support of H.R. 4535 in June 1994.

Investment Advisers

In the 103rd Congress, both the House and the Senate passed legislation

to provide for enhanced SEC inspection of investment advisers. However,

the efforts of a House/Senate staff conference to reconcile the two bills

failed in the waning hours of the 103rd Congress.

The bill developed by the staff conference dropped certain provisions

that had been included in the House bill (H.R. 578) regarding recordkeeping

and transaction reporting, risk-based inspection of advisers, and suitability.

Notably, in March 1994, the SEChad proposed rules defining an investment

adviser's suitability obligations, thus eliminating the need for a statutory

provision. The compromise bill, however, did incorporate other measures

that were present in H.R. 578 but absent from the Senate-passed bill (S.

423), such as provisions for SEC designation of one or more SROs; periodic

SEC surveys of unregistered advisers; an electronic listing providing

disciplinary information about advisers; and an SEC study of steps to

disclose advisers' felony convictions. The compromise bill was approved

by the House on October 5, 1994, but the legislation was blocked from

coming to the Senate floor.

Litigation Reform

Both the House and Senate showed interest in the issue of litigation

reform. Senators Dodd and Domenici introduced S. 1976, a bill designed

to curb abuses in private securities lawsuits, including class actions in

particular, in March 1994. The Senate also held a hearing in May 1994

regarding the effects of the Supreme Court's Central Bank of Denver decision

7~
on private litigation and the SEC's antifraud enforcement program. Senator

Metzenbaum later introduced S. 2306, a bill aimed at restoring aiding and

abetting liability for violation of Exchange Act Section 10(b).

On the House side, the Subcommittee on Telecommunications and

Finance held a hearing in July 1994 on the issue of litigation reform. In

testimony before the Subcommittee, the SEC noted support for some of

the measures included in S. 1976 and in H.R. 417 (a House litigation reform

bill introduced in 1993). The SEC also called for legislation to restore

aiding and abetting liability and to extend the statute of limitations for

securities fraud actions.

SEC Authorization and Appropriation

In 1993, the House passed an SEC authorization bill for 1994-95, which

contained a provision for SEC self-funding. Senate budgetary rules, and

the opposition of some Senators to the concept of SEC self-funding,

prevented the Senate from taking comparable action. The SEC's fiscal

1995 appropriation, which relied on a form of self-funding to offset the

SEC's appropriation, was supported by the SEC's appropriations

subcommittees but ultimately fell to disagreements over SEC fees and selffunding generally. As a result of these disagreements, Congress passed

a stopgap SEC appropriation bill in August 1994 providing only $125

million (Pub. L. No. 103-317), with the intention of revisiting the issue

of SEC funding and passing a supplemental appropriations bill within five

months. OMB determined, however, that applicable federal law required

the SEC to apportion that partial appropriation as if it were the full

appropriation for the fiscal year. Consequently, the SEC faced a budget

shortfall of approximately $172 million and the possibility of severe

curtailment of operations.

Due to jurisdictional disputes in the House, the availability of an

additional SEC appropriation was conditioned on the enactment of separate

revenue legislation, raising SEC registration fees, that would offset the

SEC's additional appropriation. Thus, to fund the SEC fully, it was

necessary for Congress to pass two separate pieces of legislation in the

two month period before the end of the session-an additional appropriation

and a separate revenue bill.

The bill providing for an additional SEC appropriation of $192 million

was signed into law on September 30, 1994 (Pub. L. No. 103-335). The

revenue legislation, H.R. 5060, which set the filing fees under Securities

Act Section 6(b) at the rate of 1/29th of one percent, passed the House

on September 27, 1994, but was held up in the Senate as various Senators

sought to add unrelated provisions to the last major revenue bill of the

103rd Congress. H.R. 5060 finally passed the Senate on October 8, and

was signed into law on October 10, 1994 (Pub. L. No. 103-352), thus

bringing SEC funding to $297 million.!" In the early days of fiscal 1995

before the revenue bill's passage, the SEC had to curtail inspections,

enforcement activity, and other "non-essential" services. In addition,

76
since Section 6(b) filing fees had decreased from 1/29th of one percent

to l/SOth of one percent, the Treasury lost approximately $20 million in

filing fee receipts over the period.

Other Legislative Initiatives

Several other legislative initiatives of interest to the SEC were

considered during the 103rd Congress. For example, a number of bills

were considered that addressed the SEC's jurisdiction under the Holding

Company Act and / or would have authorized registered holding companies

to diversify into telecommunications. In the derivatives area, several bills

were considered, and hearings held, on derivative financial instruments.

Also, congressional and General Accounting Office (GAO) studies of the

derivatives market were conducted. In the mutual fund area, the House

held hearings on several bills that would have regulated bank sales of

mutual funds and other investment products and also held oversight

hearings regarding the personal trading of fund managers. In addition,

GAO conducted two congressionally-requested reviews of the mutual

fund activities of banks. In the enforcement area, the House held a hearing

on the problem of "rogue brokers." Finally, with respect to small businesses,

the House considered a bill, and held a hearing, on the Commission's small

business initiative.

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 protected adequately. Commission participation is generally

limited to cases involving debtors with publicly traded securities.

Committees

Official committees negotiate with debtors on reorganization plans

and participate generally in all aspects of the case. The Bankruptcy Code

provides for the appointment of an official committee for stockholders

where necessary to assure adequate representation of their interests.

During 1994, the Commission successfully supported motions for the

appointment of investor committees in two cases.!"

Estate Administration

In In re Envirodyne Industries, et al.,210and In re MEl Industries, Inc./II

the Commission argued that the bankruptcy court is required to find that

an indenture trustee's fees are reasonable before they can be paid from

plan distributions to bondholders. In Envirodyne, the indenture trustee

agreed to allow the bankruptcy court to pass on the reasonableness of

its fee request. In MEl Industries, the court followed the decision of the

court in In re National Convenience Stores, Inc.212 which had rejected the

Commission's request for a bankruptcy court determination of

reasonableness of fees.""

77
Inln reMEI Industries, Inc.214andln re Phar-Mor, Inc.,215the Commission

argued, as it has previously.t'" that the Bankruptcy Code allows discharge

of the liabilities of only a debtor-not of third parties like officers and

directors-unless there is separate consideration or unless the discharge

of liability is voluntary. This issue is of significance because in many cases

debtors seek to use the Chapter 11 process to protect officers and directors

from personal liabilities for various kinds of claims, including liabilities

under the federal securities laws. In MEl Industries, the court, agreeing

with the Commission, struck the plan provision that sought to protect the

indenture trustee from liability. The matter is pending in Phar-Mor.

In In re Amdura Corporation, Inc.,217 the district court, agreeing with

the Commission, reversed the bankruptcy court's order disallowing a class

proof of claim filed on behalf of public investors who allegedly were

victims of securities fraud by the debtors. The district court rejected the

bankruptcy court's conclusion that the decision in this case was controlled

by the ruling of the Tenth Circuit in In re Standard Metals, 817 F.2d 625

(IOth Cir. 1987), holding that a class proof of claim is not permissible in

bankruptcy. Rather, the district court agreed with the Commission that

the Tenth Circuit decision is dictum, and thus not controlling authority.

The district court, as pointed out by the Commission, agreed that the better

reasoned view, represented by several subsequent circuit and district

court decisions.?" is to permit class proofs of claim in bankruptcy cases.

In In re First City Bancorporation of Texas,219 the Commission filed a

memorandum supporting securities fraud plaintiffs' motion to withdraw

consideration of its class claim from the bankruptcy court pursuant to 28

U.S.c. 157(d) so that the district court may rule on the question. This

provision requires a district court to withdraw a proceeding from the

bankruptcy court when "resolution of the proceeding requires consideration

of both the Bankruptcy Code and other laws of the United States regulating

organizations or activities affecting interstate commerce," such as the

federal securities laws. The issue became moot after the parties agreed

to a revised claim filing procedure and to resolve the securities claim by

settlement.

In October 1994 In re NVF Company,220 the Commission supported the

right of shareholders to compel an annual shareholders meeting. NVF

Company is controlled by Victor Posner who has been barred by a federal

district court from serving as an officer or director of any company subject

to the reporting requirements of the federal securities laws and ordered

to place into a voting trust shares in public companies that he controls."!

The Commission argued that convening a shareholders' meeting would

serve the public interest and the best interest of the bankruptcy estate

by giving shareholders the opportunity to remove the existing Posner

controlled directors and choose an independent board to guide the

reorganization process. The Commission also argued that allowing

shareholders to exercise their corporate governance rights during the plan

negotiation stage of a Chapter 11 reorganization is consistent with existing

law. The matter is pending.

78
Disclosure Statements/Plans of Reorganization

A disclosure statement is a combination proxy and offering statement

used to solicit acceptances for a reorganization plan. Such plans often

provide for the issuance of large quantities of new unregistered securities

pursuant to an exemption from Securities Act registration contained in

the Bankruptcy Code. The Commission reviews disclosure statements of

publicly-held companies or companies likely to be traded publicly after

reorganization. During 1994, the staff reviewed 109 disclosure statements

and commented on 79. Most of the Commission's comments were adopted

by debtors; formal objections were filed in four cases.s" In addition, the

Commission prevented the unlawful issuance of securities in two cases.i"

In In re Enviropact, Inc.,224 the Commission filed an objection to the

debtor's reorganization plan that sought to discharge claims of creditors

and sell the assetless public shell corporation in order to make limited

payments to creditors. 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 consummation of

the reorganization plan. Following the filing of the Commission's objection,

the debtor withdrew its reorganization plan.

Ethical Conduct Program

The General Counsel is the Designated Agency Ethics Official for the

SEC. In 1994, the Ethics Counsel and staff continued to respond to a

demand for counseling services at the rate of approximately 20 new

matters per week. These inquiries reflected unique or novel issues, while

routine or repetitive inquiries were handled by ethics liaison officers and

deputies located within each division and office.

The staff implemented the annual training requirements for senior

and mid-level employees and the new government-wide program for

confidential disclosure of financial interests. In addition, major portions

of the review of the Commission's rule on securities holdings and

transactions of members and employees and their families were completed.

Workload

The General Counsel's Office has experienced substantial increases

in productivity and workload in recent years. In 1994, workload in the

litigation and legislative areas continued to experience substantial increases.

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Increase In Workload

1990 1991 1992 1993 1994

Litigation Matters Opened 185 263 264 262 339

Litigation Matters Pending 232 248 245 293 447

Adjudicatory Cases

Cases Received 22 30 56 65 48

Cases Completed 18 39 52 64 72

Legislative Matters 111 187 145 180 263

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Economic Research and Analysis

The Office ofEconomic Analysis provides technical support and analysis

to 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 and major

program initiatives affecting the United States financial services industry,

investors, and international capital markets.

Key 1994 Results

In 1994, the Office of Economic Analysis focused its efforts on a

number of areas including enforcement cases, mutual fund disclosure, and

market structure issues. The staff provided technical assistance to the

Division of Enforcement, initiated a mutual fund disclosure project, provided

economic analysis in connection with market structure and rulemaking

issues, and reported on the financial health of the securities industry.

Economic Analysis and Technical Assistance

The staff provided technical assistance to the Division of Enforcement

in more than 40 cases of insider trading, market manipulation, fraudulent

financial reporting, and other violations of securities laws. The staff uses

financial theory and event analysis to provide the empirical support key

to numerous enforcement cases. In addition, the staff advises the Division

of Enforcement regarding materiality and/or the amount of disgorgement

that should be sought. The staff assists in taking testimony in cases

involving complex financial instruments and in evaluating the testimony

of experts and the reports of consultants hired by opposing parties. The

staff assisted the U.S. Attorney's Office by providing expert testimony in

the sentencing hearing for SEC v. Antar, et al .

The staff began several projects in the area of mutual fund disclosure.

Focus group discussions designed to survey the public's understanding

of the risks associated with mutual funds identified significant

misconceptions. In response, the staff designed a survey to evaluate how

mutual fund materials help investors make informed decisions. This

survey will be conducted in early 1995. In connection with improved risk

disclosure, the staff studied various risk measures for mutual funds to

evaluate their stability and predictive power.

The staff provided advice, technical assistance, and analyses on

several market structure and rulemaking issues. The staff provided advice

on disclosure of payment for order flow. The staff analyzed a National

Association of Securities Dealers (NASD) report on passive market making

and studied the impact of the NASD's modification of the small order

execution system on bid-ask spreads. The staff also studied the effects

of over-the-counter trading by exchange members in exchange-listed stocks

on market quality.

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The staff continued to monitor the securities industry and

developments in the domestic and international securities markets. The

staff analyzed data from the 1993 penny stock examination sweep and

reported on the financial condition of penny stock dealers. In addition,

the staff developed a monthly analysis of investor complaints against

broker-dealers which is being integrated into the SEC's enforcement and

examination programs.

The staff provided advice on and monitored developments in the

markets for hybrid products and derivative securities. The staff assisted

the Office of the Chief Accoun tant on issues related to the financial reporting

of quantitative risk measures for derivatives and other financial instruments.

The staff also analyzed 90 rule proposals to assess their potential effects

on small entities, as required by the Regulatory Flexibility Act of 1980.

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Policy Management and Administrative Support

Policy management and administrative support provide the Commission

and operating divisions with the necessary services to accomplish the agency's

mission. Policy management is provided by the executive staff, including the

Office of Legislative Affairs; the Office of the Secretary; the Office of Public

Affairs, Policy Evaluation and Research; the Office of the Executive Director;

and the Office of Equal Employment Opportunity. The responsibilities and

activities ofpolicy management include developing and executing management

policies, formulating and communicating program policy, overseeing the

allocation and expenditure of agency funds, maintaining liaison with the

Congress, disseminating information to thepress,and facilitating Commission

meetings.

Administrative support includes services such as accounting, financial

management, fee collection, information technology management, data

processing, space and facilities management, human resources management,

and consumer affairs. Under the direction of the Office of the Executive

Director, these support services areprovided by the Offices of the Comptroller,

Information Technology, Administrative and Personnel Management, and

Filings and Information Services.

Key 1994 Results

In 1994, the Commission celebrated its 60th anniversary. During the

year, the Commission held 59 meetings and considered 317 matters. Major

activities of the Commission included adoption of a three-day securities

transaction settlement rule, simplification of registration and reporting

requirements for foreign companies, requirements for disclosure by

investment advisers regarding wrap fee programs, and requirements for

enhanced disclosure by broker-dealers of payment for order flow practices.

The agency collected fees for the United States Treasury in excess

of its appropriation for the twelfth consecutive year. The SEC's total fee

collections in 1994 were $588 million and the net gain to the Treasury was

$340 million.

Policy Management

Commission Activities. The Commission held 59 meetings in 1994,

during which it considered 317 matters, including the proposal and adoption

of Commission rules, enforcement actions, and other items that affect the

stability of the nation's capital markets and the economy. Significant

regulatory actions taken by the Commission included:

• adoption of a three-day securities transactions settlement rule;
adoption of amendments to the multi-jurisdictional disclosure

system for Canadian issuers;

adoption of executive compensation disclosure requirements

concerning securityholder lists and mailing requests;

simplification of registration and reporting requirements for foreign

companies; and

adoption of requirements for disclosure by broker-dealers of

payment for order flow practices.

Congressional interest in the agency's activities and initiatives

remained high. The Commission and staff members testified at 20

congressional hearings during the year, an increase of 66 percent over the

prior year. In addition, the Congress actively considered a number of

important issues under the Commission's jurisdiction. These were most

notably:

issues posed by derivatives investments;

proposed amendments to the Investment Advisers Act of 1940,

including fee provisions to fund more frequent Commission

inspections of investment advisers;

possible reforms in the government securities markets;

limited partnership "roll-ups" and their impact on investors;

securities litigation reform;

legislation to facilitate improved access to capital for small

businesses;

issues affecting the mutual fund industry;

the SEC staff's report entitled Market 2000: An Examination of

Current Equity Market Developments and the Unlisted Trading

Privileges Act of 1994, a bill to reduce procedural delays with

respect to unlisted trading privileges;

proposals to curtail frivolous securities litigation; and

the SEC's budget authorization and appropriation.

Public Affairs. The Office of Public Affairs, Policy Evaluation and

Research (OPAPER) communicated information on Commission activities

to those interested in or affected by Commission actions, including the

press, regulated entities, the general public, and employees of the agency.

Many of the agency's actions are of national and international interest.

When appropriate, these actions are brought to the attention of regional,

national, and international press. A total of 145 news releases on upcoming

events, agency programs, and special projects were issued. Additionally,

congressional testimony, speeches, opening statements and fact sheets

presented by Commissioners and senior staff were maintained on file and

disseminated in response to requests from the public and the press. The

staff responded to 60,000 requests for specific information on the agency

or its activities.

The OPAPER staff published daily theSEC News Digest which provided

information on rule changes, enforcement actions against individuals or

corporate entities, registration statements, acquisition filings, interim

reports, releases, decisions on requests for exemptions, Commission

meetings, upcoming testimony by Commission members and staff, lists

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•

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of Section 16 letters, and other events of interest. During the year, the

Digest was computerized and is now available to the staff on the SEC Local

Area Network (LAN) bulletin board and publicly accessible on FedWorld,

a federal electronic bulletin board.

The staff provided support for activities related to the SEC's

International Institute for Securities Markets Development, Consumer

Affairs Advisory Committee, Chairman Arthur Levitt's Consumer

Education Program, and the 60th anniversary of the Commission. In

addition, programs for 624 foreign visitors were coordinated during the

year.

Management Activities. The Office of the Executive Director coordinated

special projects, such as the restructuring of several divisions and offices,

and completed an assessment of the agency's operational efficiency. The

staff also coordinated the agency's compliance with and response to

actions under the National Performance Review (NPR) and the Government

Performance and Results Act of 1993, including completion of the agency's

Customer Service Plan. Working closely with other senior officials, the

staff formulated the agency's budget submissions to the Office of

Management and Budget and the Congress, and prepared and submitted

to Congress the agency's authorization request for fiscal years 1995 through

1997.

Equal Employment Opportunity. The Office of Equal Employment

Opportunity (EEO) provided the agency with support for compliance with

Title VII of the Civil Rights Actof 1964, as amended; the Age Discrimination

in Employment Act of 1967; the Rehabilitation Act of 1973; and Equal Pay

Act of 1963. This support was provided through the EEO Office's compliance

and affirmative employment activities.

The primary services provided by the compliance activity included

counseling and dispute resolution, administrative fact-finding

investigations, and final agency decisions on formal complaints of

employment discrimination. In connection with the affirmative employment

activity, EEO prepared the agency's annual accomplishment report to the

Equal Employment Opportunity Commission; conducted in-house EEO

training of supervisors and orientation of new employees; provided legal

support for the agency-wide sexual harassment prevention training program

that was completed in 1994; administered the Federal Women's Program,

the Hispanic Employment Program, and the Black Employment Program;

and sponsored the SEC's Disability Awareness Month Program.

Freedom of Information Act and Privacy Act. The Office of Freedom

of Information Act (FOIA) and Privacy Act Operations responded to

requests for access to information pursuant to FOIA, the Privacy Act, and

the Government in the Sunshine Act, and processed requests under the

agency's confidential treatment rules. Confidential treatment requests

were generally made in connection with proprietary corporate information

and evaluated in conjunction with access requests to prevent the

unwarranted disclosure of information exempt under the FOIA.

85
The agency received 2,288 FOIA requests and appeals, 8 Privacy Act

requests, 45 Government in the Sunshine Act requests, 9 government

referrals, and 5,667 requests and appeals for confidential treatment. All

responses to FOIA/Privacy Act requests were made within the statutory

time-frame.

Administrative Support

Financial Management and Operations. For the twelfth straight year,

the SEC collected fees in excess of its appropriation. The SEC's total fee

collections in 1994 were $588 million, 226 percent of the agency's

appropriated spending authority of $260 million (which consisted of $58

million in appropriated funds, $172 in current year offsetting fee collections,

and $30 million from a carry-over of prior year offsetting fee collections).

The $588 million in total fee collections, minus the SEC's current year

spending authority of $230 million ($260 million less the $30 million from

prior year offsetting fee collections) and $18 million in additional offsetting

fee collections, resulted in a net gain of $340 million to the United States

Treasury.

The SEC's total fee revenue in 1994 was collected from four basic

sources: registrations of securities under Section 6(b) of the Securities Act

of 1933 (comprising 78 percent of total fee collections), transactions of

covered exchange listed securities (17 percent), tender offer and merger

filings (4 percent), and miscellaneous filings (1 percent). Offsetting fee

collections were generated from an increase in the fee rate under Section

6 (b) of the Securities Act from one-fiftieth of one percent to one-twentyninth of one percent.

The Office of the Comptroller (OC) prepared an updated Five-Year

Financial Management Plan that responds to current financial system

issues, recognizes new legislative and NPR requirements, and is consistent

with the agency's information technology plan.

In 1994, the agency's central accounting system, the Federal Financial

System, was upgraded to provide enhanced user security, and accounts

receivable, payment processing, and direct on-line system functions to

headquarters and field offices. Development continued on the new

"paperless" electronic time and attendance system, an agency-wide Property

Management Program, and the Entity Filing and Fee System. Testing

began on the General Services Administration's approved credit card

system for the procurement of small purchases. When fully implemented,

this system will facilitate the prompt delivery of materials and reduce

the number of purchase orders written and vouchers processed.

The OC assisted the Office of the Executive Director in working with

the staff of the Office of Management and Budget and the members and

staff of the congressional committees on appropriations, authorization,

finance, and ways and means to provide the SEC a 1995 spending level

of $301 million and 2,844 Full-Time Equivalents (FTEs), increases of $32

million and 171 FTE over 1994 levels.

86
Information Resources Management. The Office of Information

Technology (OIT) progressed in the development and enhancement of SEC

information resources. Operation of the Electronic Data Gathering, Analysis

and Retrieval (EDGAR) project continued, and a system upgrade in February

1994 resulted in additional functionality and significantly improved

response time for SEC staff. The staff completed its evaluation of the

significant test period (January 1 through June 3D, 1994). A report on the

findings was prepared and submitted to the Commission.

Continued emphasis was placed on improving OIT's responsiveness

to users' needs. The End User Advisory Committee, consisting of senior

representatives from each of the program divisions, reviewed the

development of the agency's strategic automation plan, external data

service funding requirements, and other automation issues. A greater

emphasis on quality assurance and system design functions within OIT

helped ensure that developed systems met the specifications of the system

design.

The agency's disaster recovery plan was expanded to provide the

agency with automation backup capabilities for its Local Area Network

(LAN) in the event of a disaster at either of its computer facilities-the

main Operations Center in Alexandria, Virginia or the Headquarters

building in Washington, D.C. Initial backup capability for the SEC

mainframe was put in place in January 1994.

Development continued on the Large Trader and the Market Risk

Assessment systems, as mandated by the Market Reform Act of 1990. Once

completed these systems will monitor the activity of large traders in the

markets and enable the SEC to monitor the financial condition of brokerdealer parent firms and minimize the market risks associated with brokerdealer / affiliate relationships. Phased development of the systems will

continue through 1996.

Administrative and Personnel Management. The Office of Administra tive

and Personnel Management (OAPM) provided a wide range of personnel

and office support functions, including recruitment and staffing, position

management and classification, employee compensation and benefits,

training, performance management, employee recognition, labor relations,

counseling, disciplinary actions, personnel security and suitability,

personnel action processing, and maintenance of official employee records.

The support activities include procurement and contracting, space

acquisition, lease administration, facilities management, property

management, desktop publishing, printing, publications, and mail services.

The SEC's personnel activity was designated as a "reinvention lab"

and registered with the NPR. Internal focus groups were established to

assess staffing, recruitment, and performance management processes, and

flexiplace options. The focus group on alternate work schedules and

flexiplace considered various alternatives to expand the agency's policies

on these issues, in an effort to assist staff in balancing work and family

demands. The focus group on performance management evaluated

implementation of how the agency's current performance appraisal system

87
was being implemented and explored a variety of alternative systems.

Recommendations from these groups are pending final management

decision.

As part of Chairman Arthur Levitt's diversity initiative, OAPM and

EEO established an internal affirmative recruitment task force. This group

focused on increasing recruitment activities aimed at underrepresented

minority groups and providing information on diverse recruitment sources

to managers throughout the agency. The SEC's recruitment program

continued to emphasize active participation in job fairs, on-campus

recruitment interviews at law schools, and the use of available hiring

programs and authorities. As a result, approximately 40 percent of the

employees hired in 1994 were minorities.

OAPM coordinated the agency's response to Executive Order 12861,

calling for agencies to eliminate one-half of Executive Branch internal

regulations within three years. As a result, approximately 11 percent of

the page count of internal policy documents was eliminated through

revisions or deletions. Plans were initiated to overhaul the Personnel

Operating Policies and Procedures Manual within the next two years. This

would include simplifying the numbering system (which was based on

the now defunct Federal Personnel Manual) and reducing the total number

of pages.

The OAPM began initial testing of the new automated Personnel

Resource System (PRS). Phase I of PRS is expected to be operational during

the second quarter of fiscal year 1995. When fully implemented, PRS will

enable the on-line review and processing of requests for personnel actions.

During 1994, 1,405 employees attended a total of 2,784 training events

lasting one day or longer. Twenty-six employees graduated from the SEC's

Upward Mobility Program, a two-year career development program

initiated in June 1992. This program enables competitively selected clerical

and administrative employees to move into para-professional and

professional positions via "bridge positions." In other initiatives, the

policy framework for Executive, Management, and Supervisory

Development training was developed and mandatory training courses to

strengthen supervisory and management ski11s were identified.

The agency administered 15 leases for an approximate total of 773,442

square feet of office and related space. Also, a new property accountability

system utilizing bar-coding was implemented. All field and headquarters

offices were inventoried using the new system.

Printing operations were enhanced through the installation ofaXerox

DocuTech, a high speed publishing and finishing system. The new system

improved timeliness of service, while reducing staffing requirements.

Also, plans and equipment purchases were finalized for a new copy center,

largely for litigation support. Due, in part, to agency initiatives to

disseminate documents through the agency's LAN and through FedWorld,

printing production decreased from 71 million pages to 60 million. The

OAPM successfully accomplished the transition from franked to metered

88
mail as mandated by the U.S. Postal Service. Mail service was improved

by expanding hours to process emergency mail, particularly time-sensitive

litigation documents.

The agency awarded contracts and purchase orders in excess of $35

million during 1994. Plans were initiated in the development of electronic

commerce (EC) designed to streamline procurement in compliance with

efforts to reinvent government. OAPM is working with the Treasury

Department and the Small Agency Council's Information Resource

Management Committee to develop a pilot project that would provide an

EC vehicle for the SEC and other small agencies. The current plan is to

establish EC connectivity through the Treasury Department.

Public Reference. The Commission maintains public reference rooms

in its Washington, D.C., New York, and Chicago offices. In a continuing

interest to better serve the public, the procedures in the headquarters

public reference room were enhanced to expedite identification, location,

and retrieval of documents and microfiche. The public reference room

is responsible for making copies of company filings, and Commission

rules, orders, studies, reports, and speeches available to the public.

During 1994, the staff provided assistance to 42,099 visitors to the

headquarters public reference room, answered 5,560 requests for

documents, processed 582 requests for certifications of filings and records,

and responded to 100,812 telephone inquiries. A total of 48,368 electronic

filings, received via the Commission's EDGAR system, were available for

requestors. In addition, the public reference staff received and filed over

500,000 paper documents and 505,479 microfiche records to the existing

library of publicly available information.

Consumer Affairs. In 1994, the agency enhanced its commitment to

the protection of consumers. Initiatives to improve public awareness and

to educate investors included:

town meetings and focus groups for individual investors;

telephone consumer surveys on mutual funds;

publication of informational and educational brochures for

investors;

the establishment of a toll-free information line to provide callers

with access to general information about the SEC;

the dissemination of investor-related information via an electronic

bulletin board; and

the creation of a Consumer Affairs Advisory Committee through

which the SEC can receive information to assist the agency to better

address the needs of the investors.

The Commission received 38,702 complaints and inquiries during

1994, an increase of approximately 11 percent over the prior year. The

staff also responded to 2,742 letters concerning public reference matters.

Of the 38,702 complaints and inquiries, 42 percent were complaints and

58 percent were inquiries. Approximately 40 percent of the complaints

received involved broker-dealers, while the remainder involved issuers,

mutual funds, banks, transfer agents, clearing agents, investment advisers,

and various financial and non-financial matters.

89

•

•

•

•

•

•
More than 2,500 complaints were referred to the SEC operating

divisions, self-regulatory organizations, or other regulatory entities for

review and/or action. This represents an 80 percent increase over last

year.

90
Endnotes

'Diotsionof Enforcement Warns of Fraud in the Sale of Unregistered Securities of

Telecommunications Technology Ventures, Press Release 94-105 (Sept. 16, 1994).

2SEC v. Parkersburg Wireless Limited Liability Company, Litigation Release No.

14085 (May 16, 1994),56 SEC Docket 2278.

3SEC v. Knoxville, LLC, Litigation Release No. 14155 (July 12, 1994), 57 SEC

Docket 441.

4SEC v. Continental Wireless Cable Television, Inc., Litigation Release No. 14118

(June 7, 1994),56 SEC Docket 2778.

5SEC v. Comcoa Ltd., Litigation Release No. 14080 (May 10, 1994), 56 SEC

Docket 2156.

6SEC v. Transamerica Wireless Systems, Inc., Litigation Release No. 14218 (Sept.

2, 1994),57 SEC Docket 1601.

"So-Called "Prime" Bank and Similar Financial Instruments, Information for

Investors Bulletin No. 11-1-1(Oct. 1993).

"Diuision of Enforcement Warns of Possible Prime Bank Fraud in Connection with

Banka Bohemia Securities, Press Release No. 94-14 (Mar. 11, 1994).

9SEC v. John D. Lauer, Litigation Release No. 14143 (June 30, 1994),57 SEC

Docket 111.

lOSECv. Northstar Investors Trust, Litigation Release No. 13887 (Nov. 23,1993),

55 SEC Docket 1697.

11 SEC v. North Pacific Investments, Inc., Litigation Release No. 14011 (Mar. 16,

1994), SEC Docket 893.

12SEC v. Cross Financial Services, Inc., Litigation Release No. 14135 (June 24,

1994),57 SEC Docket 103.

13SEC v. Prime One Partners, Corp., Litigation Release No. 14114 (June 6, 1994),

56 SEC Docket 2772.

14SEC v. European Kings Club, Litigation Release No. 13871 (Nov. IS, 1993),55

SEC Docket 1552.

15SEC v. William E. Cooper, Litigation Release No. 14090 (May 18, 1994),56 SEC

Docket 2283.

16SEC v. American Business Securities, Inc., Litigation Release No. 14171 (July 25,

1994),57 SEC Docket 727.

17SEC v. Norman L. Brooks, Litigation Release No. 14048 (Apr. 11,1994),56 SEC

Docket 1366.

18Inthe Matter of Comptronix Corporation, Exchange Act Release No. 33829 (Mar.

29, 1994),56 SEC Docket 1038.

19SEC v. Stanley Lepelstat, Litigation Release No. 14222 (Sept. 8, 1994),57 SEC

Docket 1604.

2°In the Matter of Accuhealth, Inc., Exchange Act Release No. 34646 (Sept. 8,

1994),57 SEC Docket 1502.

21Inthe Matter of William Makadok, CPA, Exchange Act Release No. 34645 (Sept.

8, 1994),57 SEC Docket 1551.

22SEC v. PNF Industries, lnc., Litigation Release No. 14257 (Sept. 27, 1994),57

SEC Docket 2112.

91
23Inthe Matter of Martin Halpern, CPA, Exchange Act Release No. 34727 (Sept.

27, 1994),57 SEC Docket 1948.

24SECv. C.W.Earl Johnson, Litigation Release No. 13943 {Jan. 25, 1994),55 SEC

Docket 3077.

25SECv. Jere L. Bradwell, Litigation Release No. 13933 {Jan. 13, 1994),56 SEC

Docket 2790.

26Inthe Matter of Stuart G. Lasher, CPA, Exchange Act Release No. 33465 (Jan.

13, 1994),55 SEC Docket 2716.

27SECv. Transmark USA, Inc., Litigation Release No. 14124 {June 13, 1994),56

SEC Docket 2916.

28Inthe Matter of Donald F. Withers, CPA, Exchange Act Release No. 34537 (Aug.

17, 1994),57 SEC Docket 1101.

29Inthe Matter of Harry D. Sweeney, CPA, Exchange Act Release No. 33930 (Apr.

20, 1994),56 SEC Docket 1522.

30Inthe Matter of Edward Jan Smith, CPA, Exchange Act Release No. 33963 (Apr.

26, 1994),56 SEC Docket 1696.

31SECv. Richard F. Adler, Litigation Release No. 14198 (Aug. 18, 1994),57 SEC

Docket 1195.

32SEC v. Eugene Dines, Litigation Release No. 13900 (Dec. 10, 1993),55 SEC

Docket 1972.

:J3SECv. Jonathan Mayhew, Litigation Release No. 14189 (Aug. 9, 1994) 57 SEC

Docket 1061.

34SECv. Julia Peck Mobley, Litigation Release No. 14123 (June 13,1994),56 SEC

Docket 2915.

35SECv. U.S. Environmental, Inc., Litigation Release No. 14233 (Sept. 13,1994),

57 SEC Docket 1758.

36Inthe Matter of J. Peek Garlington, Jr., Exchange Act Release No. 34656 (Sept.

13, 1994),57 SEC Docket 1629.

37SECv. Gary S. Williky, Litigation Release No. 14280 (Sept. 30,1994),57 SEC

Docket 2272.

38SECv. Robert L. Shull, Litigation Release No. 14213 (Aug. 31, 1994),57 SEC

Docket 1447.

39SECv. Curtis Ivey, Litigation Release No. 14042 (Apr. 5,1994),56 SEC Docket

1262.

40Inthe Matter of Stanley Berk, Exchange Act Release No. 33932 (Apr. 20,1994),

56 SEC Docket 1524.

41In the Matter of The Chicago Corporation, Exchange Act Release No. 33777 (Mar.

17, 1994), 56 SEC Docket 818.

42Inthe Matter of Cantor Fitzgerald & Co. Exchange Act Release No. 33776 (Mar.

17, 1994),56 SEC Docket 812.

43Inthe Matter of Goldman, Sachs & Co., Exchange Act Release No. 33576 (Feb.

3, 1994), 55 SEC Docket 3208.

44In the Matter of Merrill Lynch, Pierce, Fenner & Smith, lnc., Exchange Act

Release No. 33367 (Dec. 22, 1993),55 SEC Docket 2281.

45Inthe Matter of George FM. Lee, Exchange Act Release No. 34658 (Sept. 13,

1994),57 SEC Docket 1534.

46Inthe Matter of Colonial Management Associates, Inc., Investment Advisers Act

Release No. 1419 (June 15, 1994),56 SEC Docket 2850.

92
47SECv. Thomas Frank Bandyk, Litigation Release No. 14113 (June 6, 1994),56

SEC Docket 277l.

48Inthe Matter of James M. Coyne, [r., Exchange Act Release No. 34587 (Aug. 24,

1994),57 SEC Docket 1234.

49Inthe Matter of Synovus Securities, Inc., Investment Advisers Act Release No.

1423 (July 5, 1994), 57 SEC Docket 138.

50Inthe Matter of Richard T. Taylor, Exchange Act Release No. 34315 (July 5,

1994),57 SEC Docket 143.

51In the Matter of Strong/Corneliuson Capital Management, Inc., Investment

Advisers Act Release No. 1425 (July 12, 1994),57 SEC Docket 1451.

52SECv. Donna Tumminia, Litigation Release No. 14217 (Sept. I, 1994),57 SEC

Docket 1451.

53Inthe Matter of Joan Conan, Investment Advisers Act Release No. 1446 (Sept.

30, 1994),57 SEC Docket 2239.

54SECv. Centurion Growth Fund, Inc., Litigation Release No. 14052 (Apr. 14,

1994),56 SEC Docket 1370.

55Inthe Matter of Seaboard Investment Advisers, lnc., Investment Advisers Act

Release No. 1388 (Oct. 22, 1993),55 SEC Docket 916.

56Inthe Matter of Terence Patrick Mulrooney, Investment Company Act Release

No. 20615 (Oct. 13, 1994),57 SEC Docket 2320.

57Inthe Matter ofMelvin L. Hirsch, Investment Company Act Release No. 20335

(June 3, 1994),56 SEC Docket 2750.

58Exchange Act Release No. 33761 (Mar. 15, 1994),59 FR 13275 (Mar. 21, 1994).

At the same time these rule amendments were proposed, the Commission

authorized the Division of Market Regulation to issue a no-action letter that

authorizes broker-dealers to use the theoretical pricing model to determine

haircuts. Letter from Brandon Becker, Director, Division of Market Regulation to

Mary 1.Bender, The Chicago Board Options Exchange and Timothy Hinkas, The

Options Clearing Corporation (Mar. 15, 1994).

59Group of Thirty, Derivatives: Practices and Principles (July 1993).

60Statement of the Securities and Exchange Commission, Commodity Futures

Trading Commission and the Securities and Investments Board (Mar. 15, 1994).

61Technical Committee of laSCO, Operational and Financial Risk Management

Control Mechanisms for Over-the-Counter Derivatives Activities of Regulated Securities

Firms (July 1994).

62Exchange Act Release No. 34140 (June I, 1994),59 FR 29393 (June 7, 1994).

63Exchange Act Release No. 34541 (Aug. 17, 1994),59 FR43603 (Aug. 24, 1994).

64Exchange Act Release No. 33137 (Nov. 3,1993),58 FR 60324 (Nov. 15,1993).

65Letter regarding Distributions of Certain French Securities, Exchange Act

Release No. 34176 (June 7,1994),59 FR 31274 (June 17, 1994.)

66Exchange Act Release No. 33862 (Apr. 4, 1994),59 FR 17125 (Apr. II, 1994).

67Bear,Steams & Co. Inc. (pub. avail. Aug. 29, 1994).

68BearSteams and Bear Steams Securities Corp. (pub. avail. July 7, 1994).

69Shearson Lehman Brothers Inc. (pub. avail. Mar. 25, 1993); Prudential

Securities Inc. (pub. avail. Oct. 11, 1994).

7°Chubb Securities Corp. (pub. avail. Nov. 24, 1993).

7JExchange Act Release No. 33608 (Feb. 17, 1994),59 FR 7917 (Feb. 22, 1994).

72Exchange Act Release No. 33924 (Apr. 19, 1994),59 FR 21681 (Apr. 26,1994).

93
73Exchange Act Release No. 33743 (Mar. 9, 1994),59 FR 12767 (Mar. 17,1994).

74Exchange Act Release No. 33761 (Mar. IS, 1994),59 FR 13275 (Mar. 21, 1994).

75Exchange Act Release No. 33702 (Mar. 2, 1994), 59 FR 10984 (Mar. 9, 1994).

76Exchange Act Release No. 34616 (Aug. 31,1994),59 FR46314 (Sept. 7, 1994).

77Exchange Act Release Nos. 27445 and 29185 (Nov. 16, 1989 and May 9, 1991),

54 FR 48703 and 56 FR 22490 (Nov. 24, 1989 and May IS, 1991).

78Exchange Act Release No. 35124 (Feb. 20, 1994),59 FR 66702 (Dec. 28, 1994).

79'fheDivision of Market Regulation and the Division of Enforcement, Securities

and Exchange Commission, The Large Finn Project: A Review of Hiring, Retention and

Supervisory Practices (May 1994).

BONationalAssociation of Securities Dealers, Inc., New York Stock Exchange,

Inc., North American Securities Administrators Association, Inc., U.S. Securities

and Exchange Commission, Staff Report on the Joint Regulatory Penny Stock

Examination Sweep (June 1994). 8117 C.F.R. 9 240.17f-l (1993).

82Exchange Act Release No. 34493 (Aug. 5, 1994),59 FR 41531 (Aug. 12,1994).

83Exchange Act Release No. 34078 (May 18, 1994),59 FR 27082 (May 25,1994).

84Exchange Act Release Nos. 33992 (May 2,1994),59 FR 23907 (May 9, 1994)

(NYSE); 33993 (May 2, 1994),59 FR 23902 (May 9, 1994) (AMEX); 33991 (May 2,

1994),59 FR 23904 (May 9,1994) (BSE, CHX, PSE, and PHLX).

85Exchange Act Release No. 34151 (June 3, 1994),59 FR 29843 (June 9, 1994).

86Exchange Act Release No. 34277 (June 29, 1994),59 FR 34885 (July 7,1994).

87£xchange Act Release No. 34279 (June 29,1994),59 FR 34883 (July 7, 1994).

88Exchange Act Release No. 34280 (June 29, 1994),59 FR 34880 (July 7, 1994).

89Exchange Act Release No. 34533 (Aug. IS, 1994),59 FR43147 (Aug. 22,1994).

90Exchange Act Release No. 33734 (Mar. 8, 1994),59 FR 11815 (Mar. 14, 1994).

"Exchange Act Release No. 33348 (Dec. 15,1993),58 FR 68183 (Dec. 23, 1993).

92Exchange Act Release No. 33233 (Nov. 22, 1993),58 FR 63195 (Nov. 30,1993).

93Letterfrom James c. Yong, Vice President and Assistant Secretary, ICC, to

Jonathan G. Katz, Secretary, Commission (Mar. 24, 1994).

94Exchange Act Release Nos. 34166 (June 6, 1994),59 FR 30066 and 34199 (June

10, 1994),59 FR 31660 (June 20,1994).

95Exchange Act Release No. 33984 (May 2, 1994),59 FR 24491 (May II, 1994).

96ExchangeAct Release No. 34512 (Aug. to, 1994),59 FR4232D (Aug. 17, 1994).

97£xchange Act Release No. 33868 (Apr. 7, 1994),59 FR 17621 (Apr. 13,1994).

98Exchange Act Release No. 33869 (Apr. 7,1994),59 FR 17632 (Apr. 13,1994).

99Employment Discrimination: How Registered Representatives Farein Discrimination

Disputes (GAO/HEHS 94-17, Mar. 1994).

lOOLetterfrom Deborah Masucci, Vice-President, Arbi tration, NASD, to Brandon

Becker, Director, Division of Market Regulation, SEC, dated September 30,1994.

lOlExchange Act Release No. 33939 (Apr. 20, 1994),59 FR 22032 (Apr. 28, 1994).

l02Exchange Act Release No. 34348 (July II, 1994),59 FR 36242 (July 15, 1994).

I03Letterto Registrants from Carolyn B. Lewis, Assistant Director, Division of

Investment Management (Feb. 25,1994).

I04Memorandum from Division of Investment Management to Chairman

Levitt regarding Mutual Funds and Derivative Instruments (Sept. 26, 1994).

94
105See Testimony of Arthur Levitt, Chairman, U.S. Securities and Exchange

Commission, Concerning Issues Affecting the Mutual Fund Industry, before the

Subcommittee on Telecommunications and Finance, Committee on Energy and

Commerce, U.S. House of Representatives (Sept. 27, 1994).

l06Investment Company Act Release No. 19959 (Dec. 17, 1993),55 SEC Docket

2220.

107Investment Company Act Release No. 19955 (Dec. 15, 1993),55 SEC Docket

2027.

l08Investment Company Act Release No. 20313 (May 24, 1994),56 SEC Docket

2480.

l09Securities Act Release No. 7084 (Aug. 17, 1994), 57 SEC Docket 1084;

Investment Company Act Release No. 20487 (Aug. 17, 1994),57 SEC Docket 1084.

l1°Investment Advisers Act Release No. 1401 (Jan. 13, 1994),55 SEC Docket

2760 (proposal); Investment Adviser Act Release No. 1411 (April 19, 1994),56 SEC

Docket 1605 (adoption).

111Investment Advisers Act Release No. 1406 (Mar. 16, 1994),56 SEC Docket

858.

112Investment Company Act Release No. 20486 (Aug. 17, 1994), 55 SEC Docket

1075.

113Investment Company Act Release No. 19957 (Dec. 16,1993),55 SEC Docket

2045 (proposal); Investment Company Act Release No. 20614 (Oct. 13, 1994),57

SEC Docket 2305 (adoption).

114Investment Company Act Release No. 20472 (Aug. 11, 1994), 57 SEC Docket

882.

l15E.g., Keynote Series Account (File No. 33-19836); Diversified Investors

Variable Funds (File No. 33-73734).

116Investment Company Act Release Nos. 18778 (June 12, 1992),51 SEC Docket

1128 (Notice and Temporary Order) and 20338 (June 7,1994),56 SEC Docket 2408

(Permanent Order).

"Tnvestment Company Act Release Nos. 19967 (Dec. 20, 1993),55 SEC Docket

2083 (Notice and Temporary Order) and 20337 (June 7,1994),56 SEC Docket 2407

(Permanent Order).

118Investment Company Act Release Nos. 20236 (April 20, 1994), 56 SEC

Docket 1461 (Notice) and 20305 (May 17, 1994),56 SEC Docket 1968 (Order).

119InvestmentCompany Act Release Nos. 20503 (Aug. 25, 1994), 57SEC Docket

1227 (Notice) and 20564 (Sept. 20, 1994),57 SEC Docket 1644 (Order).

120Brown& Wood (pub. avail. Feb. 24, 1994).

121MerrillLynch Money Markets Inc. (pub. avail. Jan. 14, 1994).

122NorthAmerican Security Trust (pub. avail. Aug. 5, 1994).

123Alexander Hamilton Funds (pub. avail. July 20, 1994).

124Kleinwort Benson Investment Management Limited (pub. avail. Dec. 5,

1993).

125MurrayJohnstone Holdings Limited (pub. avail. Oct. 7, 1994).

126TheEquitable Life Assurance Society of the United States, Investment Company

Act Release Nos. 20568 (Sept. 22, 1994) (Notice) and 20637 (Oct. 19, 1994) (Order).

95
127NationalHome Life Assurance Company, et al., Investment Company Act

Release Nos. 20357 (June 14, 1994) (Notice) and 20402 (July 13, 1994) (Order); The

Variable Annuity Life Insurance Company, et al., Investment Company Act Release

Nos. 20345 (June 8, 1994) (Notice) and 20387 (July 7, 1994) (Order).

128WMLife Insurance Company and Empire Life Insurance Company (pub.

avail. Jan. 19, 1994).

129SecuritiesAct Release No. 7049 (Mar. 9, 1994t 56 SEC Docket 596.

130ExchangeAct Release No. 34961 (Nov. 10, 1994),57 SEC Docket 2993.

131ExchangeAct Release No. 33742 (Mar. 9, 1994),56 SEC Docket 648.

132SecuritiesAct Release No. 7053 (Apr. 19, 1994),56 SEC Docket 1414.

133SecuritiesAct Release No. 7053 (Apr. 19, 1994),56 SEC Docket 1414.

134SecuritiesAct Release No. 7026 (Nov. 3, 1993),55 SEC Docket 969.

135SecuritiesAct Release No. 7054 (Apr. 19, 1994),56 SEC Docket 1428.

136SecuritiesAct Release No. 7056 (Apr. 19, 1994),56 SEC Docket 1439.

137SecuritiesAct Release No. 7055 (Apr. 19, 1994), 56 SEC Docket 1432.

138SecuritiesAct Release No. 7025 (Nov. 3, 1993),55 SEC Docket 964.

139SecuritiesAct Release No. 7053 (Apr. 19, 1994),56 SEC Docket 1414.

140SecuritiesAct Release No. 7101 (Oct. 18,1994),57 SEC Docket 2292.

141ExchangeAct Release No. 34922 (Nov. 1, 1994),57 SEC Docket 2800.

142SecuritiesAct Release No. 7086 (Aug. 31, 1994),57 SEC Docket 1320.

143ExchangeAct Release No. 34514 (Aug. 10, 1994),57 SEC Docket 932.

144ExchangeAct Release No. 34513 (Aug. 10, 1994),57 SEC Docket 931.

14SExchangeAct Release No. 34681 (Sept. 16, 1994),57 SEC Docket 1780.

146SecuritiesAct Release No. 7113 (Sept. 1, 1994),57 SEC Docket 1333.

147ExchangeAct Release No. 33768 (Mar. 16, 1994), 56 SEC Docket 807.

148SecuritiesAct Release No. 7072 (July 8, 1994),57 SEC Docket 239.

149SecuritiesAct Release No. 7073 (July 8, 1994),57 SEC Docket 243.

150SecuritiesAct Release No. 7074 (July 8, 1994),57 SEC Docket 245.

151StaffAccounting Bulletin No. 93 (Nov. 4, 1993),55 SEC Docket 1110.

152Statement of Financial Accounting Standards No. 119, "Disclosure about

Derivative Financial Instruments and Fair Value of Financial Instruments" (Oct.

1994).

153Statement of Financial Accounting Standards No. 118, "Accounting by

Creditors for Impairment of a Loan-Income Recognition and Disclosures" (Oct.

1994).

154Proposed Statement of Financial Accounting Standards, "Accounting for

Stock-based Compensation" (June 30, 1993).

155Lettersdated January 10, 1994 from Arthur Levitt, Chairman, U.S. Securities

and Exchange Commission, addressed to Senators Boren, Daschle, Durenburger,

Levin, and Simpson.

156140Congo Rec. 55032 (daily ed. May 3, 1994). 157140Congo Rec. S5039 (daily ed. May 3, 1994).

158S.2525, 103d Cong., 2d Sess. (994).

159S.1976, 103d Cong., 2d Sess. (1994), and H.R. 417, 103d Cong., 1st Sess.

(1993).

96
16O'festimony of Arthur Levitt, Chairman, U.s. Securities and Exchange

Commission, Concerning Derivative Financial Instruments, Before the

Subcommittee on Telecommunications and Finance of the House Committee on

Energy and Commerce (May 25,1994).

161Id.

162EITFIssue 94-3, Accounting for Restructuring Charges.

163SeeIn the Public Interest-A Special Report by the Public Oversight Board (Mar.

5, 1993) and Strengthening the Professionalism of the Independent Auditor-Report to

the Public Oversight Board from the Advisory Panel on Auditor Independence (Sept. 13,

1994).

164Statement of Position 93-7, "Reporting on Advertising Costs" (Dec. 29,

1993).

165Statement of Position 93-6, "Employers' Accounting for Employee Stock

Ownership Plans" (Nov. 22, 1993).

166Proposed Audit and Accounting Guide, "Audits of Brokers and Dealers in

Securities" (Aug. 16, 1994).

167Proposed Statement of Position, "Disclosure of Certain Significant Risks and

Uncertainties and Financial Flexibility" (Mar. 31, 1993).

168DraftStatement of Principles, Earnings Per Share (Oct. 1993).

169Exposure Draft E48, Financial Instruments (Jan. 1994).

17°DraftStatement of Principles, Intangible Assets (Jan. 1994).

l7lDraft Statement of Principles, Reporting Financial Information by Segment

(Sept. 1994).

172Exposure Draft E49, Income Taxes (Oct. 1994).

J73ReleaseNo. 33-7054 (Apr. 19, 1994).

174ReleaseNo. 33-7056 (Apr. 19, 1994).

175114S.Ct. 1439 (994).

176114S.Ct. 1215 (994) (granting certiorari in Alloyd Co. v. Gustafson, No. 92-

2514, 1993 WL 616681 (7th Cir. June 11, 1993». 17716 F.3d 520 (2d Cir.), petition for cert. filed, 63 U.S.L.W. 3325 (U.S. Oct. 7, 1994)

(No. 94-645).

178111S.Ct. 2773 (991).

179Cooperativade Ahorro y Credito Aguada v. Kidder, Peabody & Co., 993 F.2d 269

(lst Cir. 1993), petition for cert. filed, 62 U.S.L.W. 3299 (U.S. Oct. 12, 1993) (No. 93-

564); Axel Johnson, Inc. v. Arthur Andersen & Co., 6 F.3d 78 (2d Cir. 1993); Cooke v.

Manufactured Homes, Inc., 998 F.2d 1256 (4th Cir. 1993); Berning v. A.G. Edwards &

Sons, Inc., 990 F.2d 272 (7th Cir. 1993); Gray v. First Winthrop Corp., 989 F.2d 1564

(9th Cir. 1993); Anixter v. Home-Stake Production Co., 977 F.2d 1533 OOth Cir. 1992),

cert. denied sub nom. Cross v. Thorner, 113 S.Ct. 1842 (1993); Henderson v. ScientificAtlanta, Inc., 971 F.2d 1567 (11th Cir. 1992), cert. denied, 114 S. Ct. 95 (993).

180MorganStanley & Co. v. Pacific Mutual Life Insurance Co., 114 S.Ct. 1827 (994)

(affirming Pacific Mutual Life Insurance Co. v. First RepublicBank Corp., 997 F.2d 39

(5th Cir. 1993».

181Plautv. Spendthrift Farm, Inc., 1 F.3d 1487 (6th Cir. 1993), cert. granted, 114

S.Ct. 2161 (U.S. 1994).

182114S.Ct. 1215 (994) (granting certiorari in Alloyd Co. v. Gustafson, No. 92-

2514, 1993 WL 616681 (7th Cir. June 11, 1993».

97
18327F.3d 808 (2d Cir.), ceri, denied, 63 U.S.L.W. 3181 rus, Oct. 31, 1994) (No.

94-433).

184973F.2d 51 (2d Cir. 1992), cert. denied, 113 S.Ct. 2992 (1993).

18519F.3d 66 (2d Cir.), cert. denied, 115 5.0.54 (1994).

18616F.3d 520 (2d Cir.),petition for cert. filed, 63 U.S.L.W. 3325 (U.S. Oct. 7, 1994)

(No. 94-645).

18729F.3d 689 (D.C Cir. 1994).

18837F.3d 30 (2d Cir. 1994).

18918F.3d 1281 (5th Cir.), cert. denied, 63 U.s.L.W. 3290 rus. Oct. 11, 1994) (No.

94-105).

19031F.3d 1056 (11th Cir. 1994).

191Libra Investments v. SEC, 94-832A (E.D. Va.): Hodge v. SEC, 93 Civ. 5573 (LLS)

(S.D.N.Y.); Verdiramo u. SEC, 94 Civ. 44 (D.N.J.);Iohnson v. SEC, M18304 (S.D.N.Y.);

Badger v. SEC, 93-C-1149G (D. Utah); Grundman v. SEC, 393-MC-374 (D. Conn.):

Grundman v. SEC, 393-MC-372 (D. Conn.): Bernard & Co. v. SEC, H-94-Q60 (S.D.

Tex.); Fenster u. SEC, 93-2-2106 (D. Colo.): Diamond Entertainment v. SEC, 94-CV79B (D. Utah).

192LaBarca v. SEC, 94-1917 (CBA) (E.D.N.Y.); Boss v. SEC, 94-C-22J (D. Utah);

Weeks v. SEC, 94-C-56S (D. Utah).

193Purcellv. SEC, CV94-3562-1H (CD. Cal.).

194Greerv. SEC, M18-304 (S.D.N.Y.); Bradley v. SEC, M-28 (S.D.N.Y.); Beatty v.

SEC, 94-NC-015T (D. Utah).

19517CF.R. 201.2(d).

1965ECv. David L. Kagel, et al., Civil Action No. 93-0855-ER (CD. CaL).

197heckoskyand Aldrich v. SEC, 23 F.3d 452 (D.C. Cir. 1994).

198annaand Dentinger v. SEC, 1994 WL 315877 (N.D. Cal. Feb. 8, 1994).

199ECv.Kaufman, 835 F. Supp. 157 (S.DN.Y. 1993), appeal pending,SECv. Price

Waterhouse, No. 94-6045 (2d Cir.): SEC v. Morelli, No. 3874 (S.D.N.Y.);SECv. Littler,

No. 88-C-619 (D. Utah); SEC v. Grosby, No. 1P921411 (S.D. Ind.); SEC v. Atchison,

No. 91-6785 SVW (CD. Cal. August 29,1994).

200nre Salomon Brothers Treasury Litigation, 9 F.3d 230 (2d Cir. 1993).

201Durkin v. U.S. District Court for the Southern District of California, No. 94-70479

(9th Cir.) (filed Oct. 28, 1994).

202FrankJ. Custable, Ir., et al., 51 S.E.C 855 (1993).

203VandenJ. Catli, 51 S.E.C. 1057 (1994).

204TimoleonNicholaou, 51 S.E.C. 1215 (1994).

205partnershipExchange Securities Company, et al., 51 S.E.C. 1198 (1994).

206CSWCredit, Inc. and Central and Southwest Corporation, 51 S.E.C. 984 (1994).

207ExchangeAct Release No. 33163 (Nov. 5, 1993),55 SEC Docket 1128.

208TheSEC's total funding request was $306 million, including $8.6 million if

the investment adviser legislation was enacted. The investment adviser legislation,

however, was not enacted. The $297.4 million includes $74.9 million in

appropriations, $30.5 million in a carry-over of unobligated prior year budget

authority, and $192 million in estimated current year offsetting fee collections.

209Inre Rose's Stores, Inc., Case No. 93-0l365-5-ATS (Bankr. E.D. N.C) and In

re Merry-Co-Round Enterprises, Inc., Case No. 94-5016150 (Bankr. D. Md.),

210Inre Envirodyne Industries, et al., Case Nos. 93 B 310, 93 B 312 through Nos.

93 B 316, 93 B 318, 93 B 319 (Bankr. N.D. m.i

98
211Inre MEl Industries, Inc., Case Nos. 4-93-3170 through 4-93-3178 (Bankr. D.

Minn.).

212Inre National Convenience Stores, Inc., Case No. 91-49816-H2-11 (Bankr. S.D.

Tex.). See 59th Annual Report at 72 (1993).

213SeeIn re National Convenience Stores, Inc., B.R. (Bankr. S.D. Tex.)

214Inre MEl Industries, lnc., Case Nos. 4-93-3170 through 4-93-3178 (Bankr. D.

Minn.).

215InrePhar-Mor, Inc., Case Nos. 92-41599 through 92-41614 (Bank. N.D. Ohio).

216Seee.g., , In reMaster Mortgage Investment Fund, Inc., 59th Annual Report at 72

(1992) (objection to confirmation of reorganization plan); In re Prime Motor Inn.In

re Servico Corp., In re The Washington Corp. and In re Lomas Financial Corp., 58th

Annual report at 77 (1992) (objection to confirmation of reorganization plan); In re

Amdura Corp. and In re Banyan Corp., 57th Annual Report at 82 (1991) (objection to

confirmation of reorganization plan); In re Southmark Corp. and In re SIS Corp., 56th

Annual Report at 91 (1990) (objection to confirmation of reorganization plan); In

re Custom Laboratories, Inc.,53rd Annual Report at 74 (1987) (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 (1987) (objection to confirmation of

reorganization plan).

217Inre Amdura Corporation, u«, No. 91 N 1521 (D. Colo.). See 57th Annual

Report at 81 (1991).

218SeeIn re American Reserve Corp., 840 F.2d 487 (7th Cir, 1988); In re The Charter

CO.,876 F.2d 866 (11th Cir. 1989), petition for ceri. dismissed, 110 S.Ct. 3232 (1990);

and Reid v. White Motor Corp., 886 F.2d 1462 (6th Cir. 1989), cert. denied, 110 S.Ct

1809 (1990). See also In re Chateaugay Corp., 104 B.R. 626 (S.D.N.Y. 1989); and In re

Zenith Laboratories, Inc., 104 B.R. 659 (D.N.]. 1989).Cf. In re Mortgage & Realty Trust,

125 B.R. 575 (Bankr. CD. Cal. 1991).

219Inre First City Bancorporation of Texas, Case No. 392-39474-HCA-11 (Bankr.

S.D. Tex.).

22°Inre NVF Company, Case No. 93-1020(P]W) (Bankr. D. Del.).

221SeeLitigation Release No. 13891, Dec. 2, 1993.

222Inre Enuiropaci, Inc., Case No. 93-10038-BKC-A]C (Bankr. S.D. Fla.), In re

Penn Pacific Corporation, Case No. 94-Q0230-C (Bankr. N.D. Okla.), In re Phar-Mor,

lnc., Case No. 92-41599 through 92-41614 (Bankr. N.D. Ohio) and In re Interlogic

Trace, Inc., Case No. 94-521272-C (Bankr. W.D. Tex.).

mIn re Penn Pacific Corporation, Case No. 94-OO230-e (Bankr. N.D. Okla.) and

In re Phar-Mor, Inc., Case No. 92-41599 through 92-41614 (Bankr. N.D. Ohio).

224Inre Enuiropaci, Inc., Case No. 93-10038-BKC-A]C (Bankr. S.D. Fla.).

99

101
Table 1

ENFORCEMENT CASES INITIATED BY THE COMMISSION

DURING FISCAL YEAR 1994 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 more than one category.

The number of defendants and respondents is noted parenthetically.)

Program Area In Which a

Civil ActIon or Administrative

Proceeding Was Initiated

Securities Offer1ngCases

(a) Non-regulated Entity

(b) Regulated Entity

Total Securities Offer1ngCases

Issuer Rnancial Statement

and Reporting Cases

(a) Issuer Financial

Disclosure

(b) Issuer Reporting Other

Total Issuer financial Statement

and Reporting Cases

Broker-dealer Cases

(a) FraudAgainst Customer

(b) Fallureto Supervise

(c) Govemment Securities

(d) Books & Records

(e) Other

Total Broker-dealer Cases

Other Regulated Entity Cases

(a) Investment Advisers

(b) Investment Companies

(c) Transfer Agent

Total Other Regulated Entity Cases

Insider Trading Cases

Contempt Proceedings

Market Manipulation Cases

Delinquent filings

(a) Issuer Reporting

(b) Forms 3/415

Total Delinquent Filings Cases

Fraud Agalnst Regulated Entities

Corporate Control Cases

Miscellaneous Disclosure!

Reporting

GRAND TOTAl

Civil

ACIlonsjJ

58 (247)

23 ( 73)

81 (320)

31 (102)

o ( 0)

31 (102)

19 ( 27)

o ( 0)

1 ( 3)

o ( 0)

2 ( 8)

22 ( 38)

6 ( 11)

3( 7)

5 ( 8)

14 ( 26)

28 ( 68)

33 ( 89)

10 ( 49)

3 ( 3)

1( 1)

4 ( 4)

6 ( 13)

o ( 0)

o ( 0)

229 (709)

Administrative

Proceedings

18 ( 30)

37 ( 58)

55 ( 88)

67 (103)

4 ( 4)

71 (107)

38 ( 53)

8 ( 15)

8 ( 10)

9 ( 18)

8 ( 12)

71 (108)

27 ( 41)

5 ( 8)

o ( 0)

32 ( 49)

7 ( 10)

o ( 0)

21 ( 39)

o ( 0)

5 ( 8)

5( 8)

1 ( 1)

3 ( 6)

2 ( 2)

268 (418)

%of

Total

Total Cases

76 ( 277)

60 ( 131)

136 (408) 28%

98 ( 205)

4 ( 4)

102 (209) 20%

57 ( 80)

8 ( 15)

9 ( 13)

9 ( 18)

10 ( 20)

93 ( 146) 19%

33 ( 52)

8 ( 15)

5 ( 8)

46 ( 75) 9%

35 (78) 7%

33 (89) 7%

31 (88) 6%

3 ( 3)

6 ( 9)

9 (12) 2%

7 ( 14) 1%

3 ( 6) .5%

2 ( 2) .5%

497 (1,127) 100%

jJ This category Includes Injunctive aCllons and civil and criminal contempt proceedings.

102
Table 2

FISCAL 1994 ENFORCEMENT CASES

LISTED BY PROGRAM AREA

Name of Case Release No. pate Filed

I Broker-dealer: Books & Records

In the Matter of Willoughby Farr 34-33034 10108/93

In the Matter of Michael Alan Pettis 34-33254 11/29/93

In the Matter of Merrill Lynch Pierce 34-33367 12/22/93

Fenner & Smith, Inc., et al.

In the Matter of Daniela' Diaz 34-33905 04/14/94

In the Matter of Robert P. Gillings 34-33997 05/03/94

In the Matter of Colonial Management 34-34214 06/15/94

Assoc. Inc.

In the Matter of Michael L. Vanechanos 34-34413 07/21/94

In the Matter of Burnett Grey 34-34750 09/29/94

& co., Inc., et al.

In the Matter of Padden & Co., Inc., et al. 34-34751 09/29/94

Broker-dealer: Failure to Supervise

In the Matter of Cameron F. Evans 34-33078 10/20/93

In the Matter of Patricia A. Johnson 34-33104 10/26/93

In the Matter of Roger V. Patterson 34-33109 10/27/93

In the Matter of David D. Grayson, et a/. 34-33298 12/08/93

In the Matter of Consolidated Investment 34-33733 03/08/94

Services, et st.

In the Matter of George F.M. Lee 34-34658 09/13/94

In the Matter of Robert Earl Hillard 34-34758 09/30/94

In the Matter of Gregory Mumtaz Hasho 34-34757 09/30/94

Broker-dealer: Fraud Against Customer

SEC v. Prudential Securities, Inc. LR-13840 10/21/93

In the Matter of Prudential Securities Inc. 34-33082 10/21/93

In the Matter of Kevin C. Sullivan 34-33110 10/27/93

SEC v. Carmen w: Elio, et al. LR-13859 11/04/93

In the Matter of John E. Arnold 34-33159 11/05/93

In the Matter of Roger J. Lange & Co., Inc. 34-33160 11/05/93

SEC v. Ronald A. Cohen LR-13870 11110/93

SEC v. Michael Herbert Novick. LR-13879 11/18/93

In the Matter of Paul Sharkey 34-33339 12/15/93

In the Matter of Joseph Bonanno 34-33337 12/15/93

In the Matter of John Bivona 34-33338 12/15/93

In the Matter of Phillip T. Huss 34-33406 12/30/93

103

~
Name of Case

In the Matter of Michael H. Weiss

In the Matter of Jay H. Meadows

SEC v. Bede F. Howard

In the Matter of Ilene J. Albert

In the Matter of Chatfield Dean & Co., Inc., et al

SEC v. Theodore A. McCormick

In the Matter of Daniel Dunphy

In the Matter of Stratton Oakmont Inc., et al.

In the Matter of Shloma A. Sela

In the Matter of Theodore A. McCormick

In the Matter of John L. Morgan, et al.

SEC v. Charles R. Crowell

In the Matter of Neeraj Bery

In the Matter of Michael W. Asimos

In the Matter of Robert A. Magnan, et al.

SEC v. San Marino Securities, Inc., et al.

SEC v. Thomas Frank Bandyk

SEC v. Robert A. Hartnagel

In the Matter of Timothy R. Heinan

SEC v. Robert L. Stormes

In the Matter of Robert A. Hartnagel

In the Matter of John M. Culbertson

SEC v. Julio De Jesus Montero, Jr.

In the Matter of Robert L. Stormes

In the Matter of Robert A. Foster

In the Matter of Julio De Jesus Montero, Jr.

SEC v. Thomas Anthony Piteo, et al.

SEC v. James M. Coyne, Jr.

In the Matter of Joseph Mastroianni

In the Matter of James M. Coyne, Jr.

SEC v. George F. Tully

SEC v. Michael D. Beck

In the Matter of McCarley & Associates, Inc.

In the Matter of Thomas Anthony Pneo

In the Matter of Robert F. Doviak, II

In the Matter of Aurelio Leo Martinez

In the Matter of Roy Phillip La Bolle, Jr.

SEC v. Peggy Jean Homuth

In the Matter of Richard E. Shannon, et al.

SEC v. David Jeffrey Rice

In the Matter of Peggy Jean Homuth

SEC v. Kenneth L. Weinberg, et al.

SEC v. Laurence M. Brown

In the Matter of Warren M. Sands

In the Matter of David Jeffrey Rice

104

Release No.

34-33439

34-33450

LR-13940

34-33545

34-33572

LR-14012

34-33744

34-33778

34-33789

34-33863

34-33891

LR-14068

34-33996

34-33994

33-7062

LR-14100

LR-14113

LR-14132

34-34173

LR-14157

34-34285

34-34292

LR-14151

34-34350

34-34408

34-34497

LR-14192

LR-14196

34-34551

34-34587

LR-14208

LR-14203

34-34624

34-34649

34-34657

34-34672

34-34683

LR-14245

34-34715

LR-14265

34-34748

LR-14273

LR-14271

34-34777

34-34754

Pate EilEtd

01/06/94

01/11/94

01/19194

01/31/94

02/02194

03/01/94

03/09194

03/17/94

03/21/94

04/05/94

04/11/94

04/18/94

05/03194

05/03/94

05/19194

OS/20194

05/31194

06/02194

06/07/94

06/08194

06/30194

07/01/94

07/05194

07/12194

07/20/94

08/08194

08/09194

08/12/94

08/19/94

08/24/94

08/24/94

08/24/94

09/01/94

09/12/94

09/13194

09/14/94

09119/94

09/21/94

09/26/94

09/28/94

09/29/94

09/30/94

09/30/94

09/30/94

09/30/94
il Name of Case Release No, Date Filed

Broker-dealer: Government Securities

1 SEC v. Federated Alliance Group, Inc., et ai, LR-13868 11/12193 i

i In the Matter of Thomas F. Murphy 34-33402 12129/93

In the Matter of Goldman Sachs & Co, 34-33576 02103/94 1

In the Matter of Cantor Fitzgerald & Co. 34-33776 03/17/94

I

In the Matter of The Chicago Corporation 34-33777 03/17/94

In the Matter of Richard T. Taylor 34-34315 07/05/94

In the Matter of Synovus Securities, tnc., et sl. 34-34313 07/05194

1 In the Matter of Paul W Mozer 34-34373 07/14/94

In the Matter of John A. Genett;, et sl. 34-34468 08/01/94

Broker-dealer: Other

In the Matter of Steve Telsey, et ai, 34-33276 12102193

In the Matter of Antonio Salvatore Yunez 34-33378 12123193

In the Matter of Bernhard F, Manko, et ai, 34-34030 05/10/94

In the Matter of San Marino Securities, et al. 34-34208 06/14/94

In the Matter of Richard J. Puccio 34-34590 08/24/94

In the Matter of Timothy Mobley 34-34593 08/25/94

SEC v, Donna Tumminia, et ai, LR-14217 09/01/94

SEC v, Premier Capital Corp" et ai, LR-14230 09/06/94

SEC v, Ted Harold Westerfield LR-14254 09/27/94

In the Matter of Corporate Securities

Group, tnc., et ai, 34-34737 09/28/94

Corporate Control

In the Matter of Freeman Securities Co" tnc., et st. 34-34319 07/06/94

In the Matter of Bernard C. Sherman, et al. 34-34378 07114/94

In the Matter of Mark W McLaughlin 34-34689 09/20194

Contempt-Civil

SEC v. Lynn R. Oyler LR-13874 11/10/93

SEC v. Donald D. Bader, et al. NONE 12121/93

SEC V. Lewis, D'Amato, Brisbois & Bisgard NONE 12122/93

SEC v. Jack. D'Uva, et al. NONE 02122194

SEC v. U.S. Equities Inc., et ai, NONE 02122194

SEC v. Transwestem Oil & Gas, Inc. et al. LR-14045 03/02194

SEC v. Michael Gartner LR-14005 03114/94

SEC v. Robert C. Rosen NONE 03/30/94

SEC V. Jean Claude LeRoyer, et al. NONE 04/08/94

SEC v. Tom R. Warren, et al. LR-14062 04/20194

SEC v. Osborne Stem & co., et al. NONE 05/17/94

-~
Name of Case Release No. pate Filed

SEC v. William E. Cooper, et al. LR-14127 06110194

SEC v. G. Alfred Roensch NONE 06/13194

SEC v. Frank J. Custable NONE 07/05194

SEC v. Michelle A. Gerstner LR-14179 07/12194

SEC v. U.S. Equities tnc., et al. NONE 07/15194

SEC v. Marada Global Corp. LR-14243 07117194

SEC v. FN. Wolf, et al. NONE 07/19194

SEC v. Harold Michael Senna LR-14311 07/21194

SEC v. Harry Hone NONE 07/29194

SEC v. Kenneth Senffrer NONE 08/02194

SEC v. R. William Bradford LR-14183 08/02194

SEC v. Cross Financial Services, tnc., et al. LR-14182 08/03194

SEC v. C. Daniel McClain LR-14292 08/19194

SEC v. Robin McPherson NONE 08/22194

SEC v. Key West Wireless Partners, et al. LR-14291 09/01194

SEC v. Sam J. Recife, et al LR-14226 09/02194

SEC v. Joseph Polichemi, et al. NONE 09/02194

SEC v. Lyle Neal NONE 09/07194

SEC v. Thomas J. Wescott NONE 09/07194

SEC v. Clifton Capital Investors, L.P. NONE 09/13194

SEC v. Gerard A. Spartaro NONE 09/20194

SEC v. Barnes Fund International Inc. NONE 09/20194

SEC v. McCarley & Associates, Inc. LR-14290 09/27/94

Delinquent Filings: Forms 3/4/5

SEC v. Clyde W Engle LR-13827 10/07/93

In the Matter of Clyde W Engle, et al. 34-33029 10/07/93

In the Matter of Societe Des Tuyaux Bonna 34-33044 10/14193

In the Matter of Dwight C. Lundeli 34-33861 04/05/94

In the Matter of Luis E. Dtibon, Jr. 34-33917 04/19/94

In the Matter of Charles S. Liberis 34-34108 OS/25/94

Delinquent Filings: Issuer Reporting

SEC v. Medizone International Inc. LR-13876 11/16/93

SEC v. Visual Equities, Inc. LR-13893 12103193

SEC v. Sound Money Investors, Inc. LR-14253 09/26/94

Fraud Against Regulated Entities

SEC v. Come rica Bank, et al. LR-13910 12117193

SEC v. Michael W Rehtorik, et al. LR-13975 02117194

In the Matter of Kenneth L. Anderson 34-33704 03/03194

SEC v. Kenneth L. Anderson LR-14001 03/10194

SEC v. Jerry J. Fraschilla, et al. LR-14073 05/05194

SEC v. James F. Donohue LR-14094 OS/20/94

SEC v. Seth Fireman, et al. LR-14188 08/09/94

106
Name of Case Release No. pate Filed

Insider Trading

j SEC v. John Richard Tait LR-13822 10/04/93

:1

SEC v. Carla D. Rueff, et al. LR-13847 10/25/93

SEC v. Sherman N. Baker LR-13850 10/27/93

t In the Matter of James D. Hutchinson IA-1390 11/04/93

1

SEC v. Peter Cheung LR-13878 11/17/93

In the Matter of Martin B. Sioate 34-33227 11/22/93

SEC v. Miran P. Sarkissian, et al. LR-13886 11/23/93

SEC v. Eugene Dines, et al. LR-13900 12/10/93

I SEC v. Howard S. Hoover, Jr. LR-13936 01/10/94

J In the Matter of Stanley P. Patrick 34-33449 01/11/94

SEC v. Donald J. Bainton, et al. LR-13949 01/26/94 I SEC v. Thomas J. Blair, IV LR-13956 02/03/94

I SEC v. Robert Howard, et al. LR-13965 02/10/94

SEC v. Daniel J. Grundman LR-13986 03/01/94

SEC v. Edwin Karger, et al. LR-13991 03/03/94 !j SEC v. Lawrence Sanoff, et al. LR-13996 03/09/94

J In the Matter of Patricia Barclay Chandler 34-34578 04/20/94

In the Matter of Howard F. Rubin 34-33964 04/26/94

SEC v. Oded Aboodi LR-14082 05/12/94

SEC v. Carlos Roman, et al. LR-14089 05/17/94

SEC v. David K. Galey, et al. LR-14107 05/31/94

SEC v. Richard L. Joutras LR-14117 05/31/94

SEC v. Philip Sheridan, et al. LR-14111 06/02/94

SEC v. Gary Howard Felsher LR-14115 06/06/94

SEC v. Julia Peck Mobley, et al. LR-14123 06/13/94

In the Matter of Vietor Teicher, et al 34-34236 06/20/94

SEC v. Louis J. Williams LR-14205 07/21/94

SEC v. Jonathan Mayhew LR-14189 08/08/94

In the Matter of Stephen J. Timyan, et al. 34-34517 08/11/94

SEC v. Richard F. Adler, et al. LR-14198 08/18/94

SEC v. Francis T. Lombardi, Sr., et al. LR-14211 08/29/94

SEC v. John T. Dunlop LR-14214 08/30/94

SEC v. Joseph F. Hamilton LR-14220 09/06/94

SEC v. Jose Antonio Feliu Roviralta LR-14232 09/13/94

SEC v. Ralph L. Cotton, et al. LR-14261 09/27/94

Investment Adviser

SEC v. H. David Grace, et al. LR-13835 10/15/93

SEC v. Gary A. Smith LR-13849 10/20/93

In the Matter of Kemper Rnancial Services, Inc. IA-1387 10/20/93

In the Matter of Seaboard

Investment Advisers Inc., et al. IA-1388 10/22/93

SEC v. Kenneth Puckett LR-13872 10/27/93

In the Matter of Demarche Associates Inc., et al IA-1392 11/23/93

107

"
Name of Case Release No. Date Filed

In the Matter of Michael L. Smirlock IA-1393 11/29/93

In the Matter of Michael D. Wozniak IA-1397 01/04/94

In the Matter of H.I. Glass & Co. IA-1398 01/05/94

In the Matter of Gofen & Glassberg, Inc. IA-1400 01/11/94

SEC v. Homer W Forster, et al. LR-13937 01/13/94

In the Matter of Robert Germani IA-1402 02107/94

In the Matter of Carona & Hodges

Management Inc., et al. IA-1403 02108/94

In The Matter of Mutual Fund Advisor, Inc., et al IA-1408 04/05/94

In the Matter of Don Kenneth Hanks, Jr. IA-1409 04/06/94

In the Matter of Fairport Asset Management

Corp., et al. IA-1415 05/16/94

In the Matter of Frank Michael Oliver IA-1417 06/06/94

In the Matter of Stellar Management Inc., et al. IA-1416 06/06/94

In the Matter of Gail G. Griseuk IA-1418 06/07/94

In the Matter of StrongiCorneliuson CapJtal IA-1425 07/12/94

Management, Inc., et al.

In the Matter of Charles E. Gaecke IA-1426 07/20/94

In the Matter of David C. Pulzone IA-1429 07/29/94

In the Matter of David J. Towner IA-1434 08/10/94

In the Matter of Piper Capital Management Inc. IA-1435 08/11/94

In the Matter of Channing H. Lushbough IA-1438 08/31/94

In the Matter of Wall Street Money IA-1440 09/14/94

Management Group, Inc. et al.

In the Matter of James Robert Voigtsberger, et al. IA-1441 09/19/94

SEC v. Robert J. Kuss, et al. LR-14248 09/21/94

In the Matter of Peter T. Jones IA-1443 09/27/94

In the Matter of Campbell M. W & co., Lid., et al. IA-1442 09/27/94

In the Matter of Howard M. Borris And Co., tnc., et al. IA-1444 09/28/94

SEC v. Hugh P. Gee, et al. LR-14276 09/28/94

In the Matter of Joan Conan IA-1446 09/30/94

Investment Company

In the Matter of William P. Hartl, et al. MER 504 11/08/93

SEC v. American Mortgage Fund, Inc., et al. LR-14015 02/17/94

SEC v. Centurion Growth Fund, Inc. LR-14052 04/12/94

In the Matter of Melvin L. Hirsch MER 593 06/03/94

In the Matter of Henry Fong IC-20490 08/19/94

In the Matter of Mark W Groshans, et al. IC-20496 08/24/94

SEC v. Boca Raton Capital Corp. LR-14294 09/06/94

In the Matter of John W Paparella IC-20561 09/19/94

108
I Name of Case Release No. Date Filed

l Issuer Financial Disclosure 1

j In the Matter of Joseph F. Murphy, CPA AAER 496 10/05193 t

t

In the Matter of Gordon K. Goldman, CPA AAER 497 10/06/93

In the Matter of Keith Bjelajac, CPA AAER 501 10/21/93

-i SEC v. TV Communications Network, inc., et al. AAER503 11/01/93 ,/

i In the Matter of Star Technologies, Inc. AAER 505 11/15193 ,/

In the Matter of Genetics Institute, Inc. AAER 508 11/24193 , J

In the Matter of Arthur J. Dellinger, Jt., CPA, et al. AAER 511 12/07/93

In the Matter of Janice France, et al. AAER 509 12/07/93

SEC v. Leonard S. Sands, et al. LR-13903 12/13/93 , SEC v. Bali Jewelry ua, et et. AAER 512 12/14/93 j In the Matter of Theodore Hofmann, CPA AAER 513 01/04/94

, In the Matter of Richard J. Gallagher AAER 514 01/05/94

.j In the Matter of Beatrice A. Brown AAER 515 01/06/94

1

In the Matter of Bank of Boston Corp. AAER 519 01/11/94 v

In the Matter of Stuart G. Lasher, CPA, et et. AAER 518 01/13/94

J SEC v. Jere L Bradwell, et sl. AAER 517 01/13/94

I In the Matter of Westwood One tnc., et al. AAER 521 01/19/94

, SEC v, Frank Paliotta AAER 526 01/24/94 . SEC v. C. W Earl Johnson, et et. AAER522 01/25194

In the Matter of Drillstar International Corp. 34-33560 02/01194 \ .

In the Matter of Drillstar International Corp. AAER523 02/01194 .

In the Matter of Jonathan Farbman 34-33559 02/01194

In the Matter of Reliance Group Holdings, lnc., et al. MER 529 02/17194

In the Matter of John J. Mohally MER 528 02/18/94

In the Matter of Monty Lamirato, CPA MER 531 02/23/94

In the Matter of HYTK Industries Inc. MER 530 02/23/94

In the Matter of Scott L Jenson, CPA AAER 534 03/01194

In the Matter of Demiller, Denny, Ward & co., et al. MER 535 03/09/94/

In the Matter of MMI Medical, Inc. MER 537 03/10/94/

SEC v. Dixie National Corp., et st. MER 536 03/10194 v

In the Matter of Michael V. Barnes, CPA AAER539 03/11/94

In the Matter of Michael V. Barnes AAER538 03/11/94

In the Matter of Comtronix Corp. AAER 543 03/29194 ,.-

SEC v. William Hebding, et st. AAER544 03/29194

SEC v. Fidelity Medical, lnc., et al. MER 546 04/05/94 v

In the Matter of George Craig Stayner, CPA AAER547 04/06/94

In the Matter of William J. Hebding, CPA AAER 548 04/12/94

In the Matter of Harry D. Sweeney, CPA, et al. AAER550 04/20/94

In the Matter of Daniel L Gotthilf, CPA AAER 551 04/21194

In the Matter of Alan Kappel, CPA AAER 552 04/22/94

In the Matter of Edward Jan Smith, CPA, et al. AAER554 04/26/94

In the Matter of John Rider, CPA AAER 555 04/29/94

In the Matter of The Travelers Corp., et al. AAER556 05/03/94' .

In the Matter of Barbara Knapp AAER 558 05/05/94

In the Matter of Thomas M. Egan 34-34020 05/06/94

1(\0

'"
Name of Case

v' In the Matter of UDC Homes lnc., et al.

/ In the Matter of Salant Corp., et al.

\ In the Matter of America West Airlines, Inc.

In the Matter of Charles G. Shook, CPA

./ SEC v. One Financial USA tnc., et al.

In the Matter of Barry H. Silverstain, CPA, et al.

, 'SEC v. Transmark USA, tnc., et al.

, In the Matter of Todman & Co.

/ SEC v. Pollution Research and Control Corp., et al.

SEC v. Dr. Ronald A. Fisher

SEC v. National Medical Enterprises, Inc.

In the Matter of George M. Sologuren, CPA

In the Matter of Donald E. Huss, CPA, et st.

In the Matter of Huntway Partners, L.P.

SEC v. Richard Capaldo

./ SEC v. Seahawk Deep Ocean

Technology, lnc., et al.

In the Matter of Charles F. Marini

In the Matter of Donald F. Withers, CPA

In the Matter of Robert C. Sanford

SEC v. Atratech, Inc., et al.

SEC v. Irwin Mautner, et al.

SEC v. Jack C. Benun

In the Matter of Concord Camera Corp.

In the Matter of Alan S. Goldstein, et al.

In the Matter of Alan S. Goldstein, CPA

SEC v. Stanley Lepelstat, et et.

In the Matter of William Makadok, CPA

In the Matter of Accuhealth Inc., et al.

In the Matter of Larry Lavercombe

SEC v. Marvin E. Basson

SEC v. Charles H. Chugerman

In the Matter of Alvin Lipoff, CPA

In the Matter of Glenn N. Deans, CPA

In the Matter of Meris Laboratories, Inc., et al.

SEC v. PNF Industries, lnc., et al.

In the Matter of Martin Halpem, CPA

In the Matter of Russell L. Frignoca, et al.

SEC v. Sani- Tech Industries, tnc., et al.

SEC v. Jon P. Fries, et al.

In the Matter of Jeffrey R. Pearlman, CPA

In the Matter of Fletcher Neal Anderson, et al.

SEC v. Douglas C. Hansen

In the Matter of Louis Fox, CPA

SEC v. Loma Anttila

SEC v. Telematics International tnc., et al.

In the Matter of John C. Kaczmarek

In the Matter of Jacob Schwartz, CPA

110

Release No.

AAER560

AAER 561

AAER562

AAER564

AAER565

AAER567

AAER 568

AAER570

AAER 571

AAER 557

AAER573

AAER575

AAER576

AAER 578

AAER579

LR-14191

AAER 581

AAER 582

AAER583

LR-14201

AAER584

LR-14216

34-34623

AAER587

AAER586

AAER 591

AAER588

AAER589

AAER594

AAER595

AAER596

AAER597

AAER 599

AAER598

AAER 602

AAER 601

AAER 603

AAER 600

AAER 604

AAER 607

AAER 605

AAER 610

AAER 606

LR-14368

AAER 615

34-34747

AAER 608

Date Filed

05/11/94

05/12/94

05/12194

OS/23/94

05/31/94

06/09194

06/13194

06/22/94

06/28/94

06/30/94

07/12194

07/19/94

07/21/94

07/25/94

07/27/94

08/10/94

08/12194

08117/94

08/18194

08/22/94

08/30/94

09/01/94

09/01/94

09/06/94

09/06/94

09/08/94

09/08/94

09/08/94

09/20/94

09/21194

09/22194

09/23/94

09/26/94

09/26/94

09/27194

09/27/94

09/27/94

09/27/94

09/28/94

09/28194

09/28194

09/28194

09/28/94

09/28/94

09/29/94

09/29/94

09/29/94
Name of Case Release No. Date Filed

In the Matter of Francis J. O'Reilly, CPA AAER 613 09/30/94

In the Matter of Ciro, Inc. AAER 612 09/30/94

SEC v. Linda A Hodge, et al. AAER 611 09/30/94

SEC v. AB.E. Industrial Holdings, lnc., et et. LR-14284 09/30/94

SEC v. J. Patrick Kerich AAER 620 09/30/94

In the Matter of Raymond Stankey, CPA AAER 614 09/30/94

Issuer Reporting: Other

In the Matter of Joel Zbar 34-33201 11/16/93

In the Matter of Eileen Mahoney AAER 510 12107/93

In the Matter of Shared Medical Systems Corp. 34-33632 02117/94

In the Matter of Robert Kielty 34-33807 03/24/94

Market Manipulation

SEC v. Biltmore Securities Inc., et al. LR-13860 10/04/93

In the Matter of Salvatore A Lanza 34-33136 11/03/93

In the Matter of Benjamin G. Sprecher 34-33224 11/19/93

SEC v. Jonnie R. Williams, et al. LR-13915 12/27/93

SEC v. Anthony J. Beshara NONE 01/11/94

In the Matter of John J. Cox 34-33577 02103/94

In the Matter of Anthony J. Beshara 34-33578 02103/94

In the Matter of Meyer Blinder 34-33699 03/02194

In the Matter of Louis S. Foti 34-33715 03/04/94

SEC v. Curtis Ivey, et al. LR-14042 04/05/94

In the Matter of Edward A Accomando 34-33885 04/08/94

In the Matter of Stanley Berk 34-33932 04/20/94

SEC v. Howard Ray, et al. LR-14072 04/25/94

In the Matter of Frederick Galiardo, et al. 34-34072 05/17/94

In the Matter of Jeffrey R. Cooper 34-34164 06/06/94

In the Matter of Arthur J. Porcari 34-34171 06/07/94

In the Matter of Mark Bogosian, et al. 34-34191 06/09/94

In the Matter of Jay M. Vermonty 34-34275 06/29/94

In the Matter of John L. Toscani, Jr. 34-34380 07/14/94

SEC v. Robert L. Shull, et al. LR-14213 08/31/94

In the Matter of J. Peek Garlington, Jr. 34-34656 09/13/94

SEC v. U.S. Environmental, tno., et al. LR-14233A 09/22/94

SEC v. Dimples Group, Inc., et al. LR-14277 09/29/94

In the Matter of Richard D. Chema 34-34768 09/30/94

In the Matter of Carole L. Haynes 34-34772 09/30/94

SEC v. Gary S. WiJliky, et al. LR-14280 09/30/94

SEC v. Royal American Management, Inc., et al. LR-14281 09/30/94

In the Matter of L. Lawton Rogers 34-34773 09/30/94

In the Matter of Adrian C. Havill 34-34770 09/30/94

111
Name of Case Release No. pate Filed

In the Matter of Sharon M. Graham, et al. 34-34771 09/30/94

In the Matter of E. Ronald Lara, et al. 34-34769 09/30194

Miscellaneous Disclosure/Reporting

In the Matter of Suzanne L. COok 34-33633 02117194

In the Matter of Seattle-First National Bank 34-34293 07/01194

Offering Violations (By Non-Regulated Entities)

SEC v. Kinlaw Securities COrp., et al. LR-13817 10/01193

SEC v. Donald Peter Wubs, et al. LR-13864 10/04193

SEC v. Future Communications tnc., et al. LR-13830 10/04193

SEC v. James L. AI/brandt LR-13862 11/03193

SEC v. European Kings Club, et al. LR-13871 11/15193

SEC v. Not1hstar Investors Trust, et af. LR-13887 11/22193

SEC v. Aqua Technologies tnc; et al. LR-13890 12101/93

SEC v. Calvin C. McCants, Jr., et al. LR-13911 12/21193

SEC v. Junction Financial cotp., et al. LR-13916 12/28193

SEC v. Wayne F. Axelrod, et al. LR-13934 01/10/94

In the Matter of Richard L. Paul AAER524 02/01194

In the Matter of Richard R. Swann AAER 525 02/01/94

SEC v. Melvin A. Palmer LR-13957 02/03194

SEC v. Paul N. Mobley, Jr., et al. LR-13972 02/17194

SEC v. Banner Fund International, et al. LR-13976 02/24/94

SEC v. The Twenty Plus Investment Club, et al. LR-13983 02/28/94

In the Matter of Neal Kent Lekwa &

Associates lnc., et al. 33-7045 03/01194

SEC v. Shore Line Financial Corp., et al. LR-13989 03/03/94

SEC v. Mat1in Christen LR-13990 03/03194

SEC v. Vintage Group tnc., et sl. LR-13994 03/07194

SEC v. Not1h Pacific Investments tnc., et al. LR-14011 03/09/94

SEC v. Blackford Energy Co., et al. LR-14007 03/11194

SEC v. Shimon Gibori, et al. LR-14025 03/23/94

SEC v. Blythe Olin Selden, et al. LR-14066 04/21/94

In the Matter of Brewster B. GallUp AAER557 05/03/94

SEC v. Comeoa Ltd., et al. LR-14080 05/05/94

SEC v. Creative Income Systems, et al. LR-14074 05/05/94

SEC v. Continental Wireless Cable

Television Inc., et et. LR-14118 05111194

SEC v. William E. Cooper, et el. LR-14197 05/13194

SEC v. Parkersburg Wireless Ltd. Liability CO., et al. LR-14085 05/16194

In the Matter of Barry Pomerantz, et al. 33-7061 05/17194

SEC v. Prime One Pattners Corp., et al. LR-14114 OS/20194

SEC v. cencom Systems tnc., et af. LR-14110 06/02194

In the Matter of JRG Trust Corp. 34-34152 06/03194 I In the Matter of Marilyn Wheeler 34-34174 06/07194 I

I

In the Matter of Cecil L. Minges, et al. 34-34175 06/07194 I

/'

112 f

t .

~
Name of Case Release No pate Filed

In the Matter of David L. Kagel 34-34186 06/09/94

SEC v. Matthew E. Klenovic, et. al. LR-14128 06/15/94

SEC v. Frank J. Custable, Jr., et al. LR-14131 06/20/94

SEC v. John D. Lauer, et al. LR-14143 06/21/94

SEC v. New Way Group, et al. LR-14136 06/22194

SEC v. Cross Financial Setvices, tnc., et a/. LR-14135 06/23/94

In the Matter of Grady A. Sanders, et al. 34-34274 06/29/94

SEC v. Bushmills Investments, et al. LR-14146 07/06/94

SEC v. Generation Capital Associates, et al. LR-14160 07/12/94

SEC v. John A. Genetti, et al. LR-14164 07/14/94

In the Matter of Kinesis, Inc. 34-34377 07/14/94

SEC v. Joseph C. Palmisano LR-14158 07/14194

In the Matter of Raymond Lozeau, et al. 33-7076 07/19/94

SEC v. George Jennings Coates, et al. LR-14169 07/22/94

In the Matter of Pearce Systems International, Inc. 33-7078 07/25/94

SEC v. Steven R. Jakubowski LR-14361 07/26/94

SEC v. TransAmerica Wireless Systems, Inc., et al. LR-14218 08/02194

SEC v. Michael w: Pompey, et al. LR-14180 08/03/94

SEC v. Microwave Cable T.V. Partners I, L.P., et al. LR-14181 08/04/94

SEC v. Harold Glantz, et al. LR-14186 08/08/94

SEC v. Shreveport Wireless

Cable TV Partnership, et al. LR-14195 08/16/94

SEC v. Key West Wireless Partners, et al. LR-14204 08/16/94

SEC v. Life Partners, lnc., et at LR-14209 08/25/94

In the Matter of Refco Capital Corp. 33-7087 08/31/94

SEC v. Richard C. Huitt LR-14229 09/09/94

SEC v. Southern California Securities, tnc., et al. LR-14242 09/14/94

In the Matter of William R. Bradford 33-7092 09/14/94

SEC v. William F. Heaton, III, et at LR-14241 09/19/94

SEC v. John A. Hickey, et al. LR-14296 09/19/94

SEC v. Ethanol Resources, Inc., et al. LR-14269 09/20/94

SEC v. Sidney Levine LR-14279 09/20/94

SEC v. Rand Instrument Corp., et al. LR-14289 09/23/94

SEC v. Morris D. English, Jr. LR-14258 09/26/94

SEC v. Michael J. Randy, et al. LR-14270 09/27/94

In the Matter of David H. Lieberman, et al. 33-7097 09/28/94

SEC v. John R. Sabatino, et al. LR-14264 09/28/94

SEC v. Jules J. Pigliacampi, et al. LR-14272 09/30/94

SEC v. Robert J. McNulty, et et. LR-14274 09/30194

In the Matter of Harvest Intemational

of America, tnc., et al. 33-7099 09/30/94

SEC v. Kenneth Mitchell Wiggins, .lr., et al. LR-14285 09/30/94

Offering VIolatIons (By Regulated EntitIes)

SEC v. Merritt Bradt, et at LR-13832 10/05/93

In the Matter of Benjamin C. Powell 34-33033 10/08193

SEC v. Primer SChill & Associates, et al. LR-13836 10/13/93

11~
Name of Case

In the Matter of Hollis Lamar Smith

In the Matter of Paul C. Kettler

SEC v. Churchill Securities Inc.

In the Matter of Ladenburg Thalmann & co., Inc.

In the Matter of David A. King, et al.

In the Matter of Martin W. May

In the Matter of Leonard C. Donner

In the Matter of James A. Sehn, et al

In the Matter of Guillermo P. Tolosa

SEC v. John Martin Gaines, et al.

In the Matter of David M. Beckman

In the Matter of Fred Filipovic, et al.

SEC v. Merlin & Assoc. Ltd., ef al.

SEC v. Ultra International Corp., et al.

In the Matter of John C. Worman

SEC v. Steve N. Olpin, et al.

In the Matter of James L. Cox

In the Matter of Alan D. Libman

In the Matter of Steven N. Olpin, et al.

SEC v. Michael W. Rehtorik, et al.

In the Matter of Robert Weston, et al.

SEC v. Campbell & Associates Inc., et al.

SEC v. Independence Asset Management, et al.

SEC v. Midwest Advisory Services, Inc., et al.

SEC v. Vision Communications Inc., et al.

In the Matter of Merritt Bradt

SEC v. Norman L. Brooks, et al.

In the Matter of James W. Cathey, Jr.

In the Matter of Kevin D. Ward

SEC v. Medical Financial Services, et al.

In the Matter of Graystone Nash, Inc., et al.

In the Matter of Primer SChill &

Associates, Inc., et al.

In the Matter of Meredith K.M. Smith

In the Matter of Jack Nicholes D'Uva, et al.

In the Matter of Michael Gartner

In the Matter of Alfred F. Gerriets, II

SEC v. Quarter Calf, Inc., et al.

In the Matter of Thorn, Alvis, Welch Inc., et al.

SEC v. Knoxvilfe, LLC, et al.

SEC v. American Business Securities, Inc., et al.

In the Matter of Stephen James Murphy

In the Matter of Richard D. Otto

In the Matter of George R. Speckman

In the Matter of Herbert L. Grosby

In the Matter of Michael J. Doherty, Jr.

In the Matter of John S. Davidson, Jr.

114

Release No.

34-33079

34-33105

LR-13853

34-33146

34-33167

34-33186

34-33230

34-33228

34-33231

LR-13889

34-33243

33-7033

LR-13892

LR-13894

34-33336

LR-13959

34-33544

34-33580

34-33612

LR-13975

34-33719

LR-14002

LR-14006

LR-14022

LR-14026

34-33832

LR-14055

34-33898

34-33906

NONE

34-33947

IA-1413

34-34069

34-34074

34-34095

34-34098

LR-14099

34-34248

LR-14155

LR-14171

IA-1428

34-34415

34-34411

34-34412

34-34499

34-34498

Date Filed

10/20193

10/26193

11/01/93

11/04193

11/09/93

11/12193

11/22/93

11/22/93

11/22/93

11/24/93

11/24193

11/26193

11/29193

12017193

12/15193

01/14194

01/31194

02/04194

02/10194

02/17194

03/07194

03/07/94

03/14/94

03/18194

03/24/94

03/30/94

04/05/94

04/12194

04/14/94

04/20194

04/21194

05/03194

05/16194

05118194

OS/23194

OS/23194

OS/24194

06/23194

07/11194

07/21194

07/21194

07/21194

07/21194

07/21194

08/08194

08/08/94
Name of Case

In the Matter of ABC Portfolio Development

Group, Inc.

In the Matter of Kevin N. Voss

In the Matter of Clarence J. Bannowsky

SEC v. Olsen Laboratories, Inc., et al.

SEC v. Philip Black

SEC v. Weyman B. Sinyard, et al.

SEC v. Kevin C. Samson, et al.

In the Matter of Gregory L. Amico, et al.

In the Matter of Henry Alton Sorrow

SEC v. Continental Investment Services, Inc.

Transfer Agent

In the Matter of Libetty Transfer Co., et al.

In the Matter of Atlas Stock Transfer Corp., et al.

In the Matter of Trans National Transfer Inc., et al.

In the Matter of Karen C. Lacey

In the Matter of Sharon M. Alfonso, et al.

Release No.

33-7080

34-34610

34-34609

LR-14215

LR-14333

LR-14259

LR-14256

33-7096

33-7098

LR-14282

34-33223

34-33948

34-34239

34-34650

34-34739

Date Filed

08/09/94

08/29/94

08/29/94

09/01/94

09/16/94

09/26/94

09/27/94

09/27/94

09/29/94

09/29/94

11/19/93

04/21/94

06/21/94

09/12/94

09/28/94

115
Table 3

INVESTIGATIONS OF POSSIBLE VIOLATIONS OF THE ACTS

ADMINISTERED BY THE COMMISSION

Pending as of October 1, 1993 1,413

Opened in Fiscal Year 1994 560

Total 1,973

Closed in Fiscal Year 1994 547

Pending as of September 30, 1994 1,426

Formal Orders of Investigation

Issued in Fiscal Year 1994 281

Table 4

ADMINISTRATIVE PROCEEDINGS INSTITUTED

DURING FISCAL YEAR ENDING SEPTEMBER 30, 1994

Broker-dealer Proceedings , 138

Investment Adviser, Investment Company and Transfer Agent Proceedings 55

Stop Order Proceedings 22

Rule 2(e) Proceedings 34

Suspensions of Trading in Securities in Fiscal Year 1994 1

116
Fiscal Year

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

Iable b

INJUNCTIVE ACTIONS

Actions Initiated

143

163

144

125

140

186

171

156

172

196

Defendants Named

385

488

373

401

422

557

503

487

571

620

117
Right to Financial Privacy

Section 21(h) of the Securities Exchange Actof 1934 [15U.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 2I(h)(2)] or the provisions of the Right to Financial Privacy Act

of 1978 [12 U.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 fiscal year, the Commission made no applications for judicial orders

pursuant to Section 2I(h)(2). 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) 9

Section 1105 (Administrative Subpoenas) 501

Section 1107 (Judicial Subpoenas) 51

118
Table 6

TYPES OF PROCEEDINGS

ADMINISTRATIVE PROCEEDINGS

Persons Subject to, Acts Constituting, and

Basis for, Enforcement Action

Any person

Violation of the federal securities laws

Broker-dealer, municipal s seurities dealer,

government securities dealer, transfer

agent, investment adviser or associated

person

Willful violation of secuntles laws or rules,

aiding or abetting such Violation, failure

reasonably to supervise others; willful

misstatement or ormssion In filing with the

Commission, conviction of or injunction

against certaIn cnmes or conduct.

Registered securities association

Violation of or inability to comply with the

Exchange Act, rules thereunder, or its own

rules; unjustified failure to enforce compliance

with the foregoing or with rules of the

Municipal Securities Rulemaking Board by a

member or person associated with a member.

Sanction

Cease-and-desist order, which may also

require a person to comply or take steps to

effect compliance with federal securities laws,

accounting and drsqorqernent of illegal profits.

(Securities Act, Section 8A, Exchange Act,

Section 21C(a), Investment Company Act,

Section 9(f), Investment Advisers Act, Section

203(k)).

Censure or limitation on actrvmas, revocation,

suspension or denial of registration; bar or

suspension from association (Exchange Act,

Sections 15(b)(4)-(6), 15B(c)(2)-(5),

15(C)(c)(1 )-(2), 17A(c)(3)-(4), Investment

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 disgorgement of Illegal profits

Penalties are subject to other limitations

depending on the nature of the violation.

(Exchange Act, Section 21B, Investment

Company Act, Section 9; Investment Advisers

Act, Section 203).

Temporary cease-and-desist order, which

may, in appropriate cases, be issued ex parte.

(Exchange Act, Section 21C).

Suspension or revocation of registration;

censure or limitation of activities, functions, or

operations (Exchange Act, Section 19(h)(1)).

119
Member of registered securities

association, or associated person

Entry of Commission order against person

pursuantto Exchange Act, Section 15(b),

willful VIolation of securities laws or rules

thereunder or rules of Municipal Securibes

Rulemakmg Board, effecting transacbon for

other person with reason to believe that

person was commitbng violations of secunbes

laws.

National securities eXchange

Violation of or mability to comply with

Exchange 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 Exchange Act, Section 15(b);

willful violation of secunties laws or rules

thereunder, effecting transaction for other

person With reason to beheve that person was

committing violanon of securibes laws.

Registered clearing agency

Violation of or inability to comply with

Exchange Act, rules thereunder, or its own

rules, failure to enforce compliance with its

own rules by participants.

Participant in registered clearing agency

Entry of Commission order against parncipant

pursuantto Exchange Act, Secbon 15(b)(4);

Willful vlolanon of clearing agency rules,

effecbng transaction for other person With

reason to beheve that person was committing

viclanons of secunties laws.

Securities information processor

Violation of or inablhty to comply with

provisions of Exchange Act or rules

thereunder.

120

Suspension or expulsion from the associanon,

bar or suspension from association with

member of association (Exchange Act,

Section 19(h)(2)-(3»).

Suspension or revocation of registration;

censure or limitation of actiVIties, functions, or

operations (Exchange Act, Section 19(h)(1»

Suspension or expulsion from exchange; bar

or suspension from association with member

(Exchange Act, Section 19(h)(2)-(3»

Suspension or revocabon of registrabon;

censure or hmitation of activities, functions, or

operabons (Exchange Act, Section 19(h)(1».

Suspension or expulsion from clearing agency

(Exchange Act, Secbon 19(h)(2»

Censure or limitation of activibes; suspension

or revocation of registration (Exchange Act,

Secbon 11A(b)(6».
Any person

Willful violation of Securities Act, Exchange

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 Exchange 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 appointed.

Securities Act registration statement

Statement materially Inaccurate or incomplete.

Person subject to Sections 12, 13, 14 or

15(d) of the Exchange 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 Exchange Act

Noncompliance by issuer with Exchange Act

or rules thereunder.

Public interest requires trading suspension

Registered investment company

Failure to file Investment Company Act

registration statement or required report; filing

materially Incomplete or misleading statement

or report.

Company has not attained $100,000 net worth

90 days after Securities Act registration

statement became effective.

Temporary or permanent prohibition against

serving In certain capacities with registered

Investment company (Investment Company

Act, Section 9(b»

Removal from office or censure (Exchange

Act, Section 19(h)(4)).

Bar or suspension from being or becoming

associated with a broker-dealer (51PA,

Section 14(b)).

Stop order refusing to permit or suspending

effectiveness (Securities Act, Section 8(d))

Order directing compliance or steps effecting

compliance (Exchange Act, Section 15(c)(4)).

Denial, suspension of effective date,

suspension or revocation of registration

(Exchange Act, Section 120))

Summary suspension of over-the-counter or

exchange trading (Exchange Act, Section

12(k)).

Suspension or revocation of registration

(Investment Company Act, Section 8(e))

Stop order under Securities Act, suspension

or revocation of registration (Investment

Company Act, Section 14(a))

121
Attorney, accountant, or other professional

or expert

Lack of requisite qualifications to represent

others; lacking Incharacter or integrity,

unethical or improper professional conduct;

willful violation of seeurines laws or rules, or

aiding and abetting such violation.

Attorney suspended or disbarred by court;

expert's license revoked or suspended;

conviction of a felony or of a misdemeanor

Involving moral turpitude.

Secunties VIolation in Commission-instituted

action, finding of securities violation by

Comrmssion in administrative proceedings.

Member or employee of Municipal

Securities Rulemaking Board

Willful VIolation of Exchange Act, rules

thereunder, or rules of the Board, abuse of

authority.

Permanent or temporary denial of pnvilege of

appeanng or practicing before the Commission

(17CFR Section 201.2(e)(1))

Automatic suspension from appearance or

practice before the Oornrnission (17 CFR

Section 201.2(e)(2)).

Temporary suspension from practicing before

the Commission, censure; permanent or

temporary disqualification from practicing

before the Commission (17 CFR Section

201 2(e)(3)).

Censure or removal from office (Exchange

Act, Section 158(c)(8)).

CIVIL 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 secunnss laws, rules or

orders thereunder (inclUding rules of a

registered self-regulatory organization).

Noncompliance with provisions of the laws,

rules, or regUlations under Securities Act,

Exchange Act, or Holding Company Act,

orders issued by Commission, rules of a

registered self-regulatory organization, or

undertaking in a registration statement.

122

Sanction

Injunction against acts or practices

constituting violations (plus other eqUitable

relief under court's general equity powers)

(Securities Act, Section 20(b); Exchange Act,

Section 21 (d); Holding Company Act, Section

18(e); Investment Company Act, Section

42(d); Investment Advisers Act, Section

209(d); Trust Indenture Act, Section 321).

Writ of mandamus, injunction, or order

directing compliance (Securities Act, Section

20(c); Exchange Act, Section 21 (e); Holding

Company Act, Section 18(f)).
Vlolabng 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 offenng);

aiding and abetting or directly or indirectly

controlling the person who engages in such

trading

Violabng Securibes Act Secbon 17{a){ 1) or

Exchange Act section 10{b), when conduct

demonstrates substanbal unfitness to serve as

an officer or director.

Issuer subject to Section 12 or 15{d) of the

Exchange Act; officer, director, employee

or agent of issuer; stockholder acting on

behalf of issuer

Payment to foreign offictal, 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 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

EXchange Act, rules or orders thereunder, or

rules of the exchange or association.

Registered clearing agency

Failure to enforce compliance by its

participants with its own rules.

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.

Penalbes are subject to other limitations

dependent on nature of violation. (Securibes

Act, Section 20{d); Exchange Act, Section

21{d) (3), Investment Company Act, Section

42{e); Investment Advisers Act, Section

209{e)).

Maximum civil penalty: three times profit

gained or loss avoided as a result of

transaction (Exchange Act, Secbon 21A{a)-

(b»

Prohibmon from acting as an officer or director

of any public company. (Securibes Act,

Section 20{e); Exchange Act, Section

21 (d){2)).

Maximum civil penalty $10,000 (Exchange

Act, Secbon 32{c)).

Order directing discharge of obligations and

other appropriate relief (SIPA, Section 11(b)

Writ of mandamus, mjuncnon or order directing

such exchange or association to enforce

compliance (Exchange Act, Section 21(e))

Writ of mandamus, injunction or order directing

cleanng agency to enforce compliance

{Exchange Act, Section 21(e)).

123
Issuer subject to Section 15(d) of 1934 Act

Failure to file required informabon, documents

or reports

Registered investment company

Name of company or of security ISSUed by It

decepbve or misleading.

Officer, director, member of advisory

board, adviser, depositor, or underwriter of

investment company

Engage In act or practice constitubng breach

of fiduciary duty involving personal

misconduct

Forfeiture of $1 00 per day (Exchange Act,

Section 32(b»

Injunction against use of name (Investment

Company Act, Secbon 35(d»

Injuncbon aqamstactmq in certain capacmas

for investment company and other appropriate

relief (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 securities laws or rules

thereunder; willful misstatement in any

document required to be filed by securities

laws or rules; willful misstatement in any

document required to be filed by selfregulatory organization in connection with an

application for membership or association with

member.

Issuer subject to Section 12 or 15(d) ofthe

Exchange 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

pollbcal office for purposes of seeking the use

of Influence in order to assist issuer in

obtaining or retaining business for or with, or

dlrecbng business to, any person.

124

Sanction

Maximum psnaluss: $1,000,000 fine and ten

years imprisonment for individuals, $2,500,000

fine for non-natural persons (Exchange Act,

Sections 21(d), 32(a}}; $10,000 fine and five

years imprisonment (or $200,000 if a public

utility holding company for violations of the

Holding Company Act) (Securities Act,

Sections 20(b), 24; Investment Company Act,

Sections 42(e), 49; Investment Advisers Act,

Sections 209(e}, 217; Trust Indenture Act,

Sections 321, 325; Holding Company Act,

Sections 18(f), 29).

Issuer $2,000,000; officer, director,

employee, agent or stockholder $1 00,000

and five years imprisonment (Issuer may not

pay fine for others) (Exchange Act, Section

32(c)).

-

-
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 (Securities Act). The offer and sale of unregistered securities

deprives investors of all the protections afforded by the Securities Act,

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,

by telephone, and sometimes by personal solicitation. The following

foreign corporations and other foreign entities comprise the Foreign

Restricted List.

1. Aguacate Consolidated Mines, Incorporated (Costa Rica)

2. Alan MacTavish, Ltd. (England)

3. Allegheny Mining and Exploration Company, Ltd. (Canada)

4. Allied Fund for Capital Appreciation (AFCA, 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)

125
29.

30.

3l.

32.

33.

34.

35.

36.

37.

38.

39.

40.

4l.

42.

43.

44.

45.

46.

47.

48.

49.

50.

51.

52.

53.

54.

55.

56.

57.

58.

59.

60.

6l.

62.

63.

64.

65.

66.

67.

68.

69.

70.

7l.

72.

73.

74.

75.

76.

77.

78.

126

Claravella Corporation (Costa Rica)

Compressed Air Corporation, Limited (Bahamas)

Continental and Southern Industries, S.A. (panama)

Crossroads Corporation, S.A. (Panama)

Darien Exploration Company, S.A. (Panama)

Derkglen, Ltd. (England)

De Veers Consolidated Mining Corporation, S.A. (Panama)

Doncannon Spirits, Ltd. (Bahamas)

Durman, Ltd., formerly known as Bankers International

Investment Corporation (Bahamas)

Empresia Minera Caudalosa de-Panama, S.A. (Panama)

Ethel Copper Mines, Ltd. (Canada)

Euroforeign Banking Corporation, Ltd. (Panama)

Finansbanker a/ s (Denmark)

First Liberty Fund, Ltd. (Bahamas)

General Mining S.A. (Canada)

Global Explorations, Inc. (Panama)

Global Insurance Company, Limited (British West Indies)

Globus Anlage-Vermittlungsgesell-schaft MBH (Germany)

Golden Age Mines, Ltd. (Canada)

Hebilla Mining Corporation (Costa Rica)

Hemisphere Land Corporation Limited (Bahamas)

Henry Ost & Son, Ltd. (England)

Hotelera Playa Flamingo, S.A.

Intercontinental Technologies Corp. (Canada)

International Communications Corporation (British West Indies)

International Monetary Exchange (Panama)

International Trade Development of Costa Rica, S.A.

Ironco Mining & Smelting Company, Ltd. (Canada)

James G. Allan & Sons (Scotland)

Iojoba Oil & Seed Industries, S.A. (Costa Rica)

Jupiter Explorations, Ltd. (Canada)

Kenilworth Mines, Ltd. (Canada)

Klondike Yukon Mining Company (Canada)

KoKanee Moly Mines, Ltd. (Canada)

Land Sales Corporation (Canada)

Los Dos Hermanos, S.A. (Spain)

Lynbar Mining Corp. Ltd. (Canada)

Massive Energy Ltd. (Canada)

Mercantile Bank and Trust & Co., Ltd. (Cayman Island)

~ultireaIProperties,Inc.(Canada)

J.P. Morgan & Company, Ltd., of London, England (not

to be confused with J.P. Morgan &Co., Incorporated, New York)

Norart Minerals Limited (Canada)

Normandie Trust Company, S.A. (Panama)

Northern Survey (Canada)

Northern Trust Company, S.A. (Switzerland)

Northland Minerals, Ltd. (Canada)

Obsco Corporation, Ltd. (Canada)

Pacific Northwest Developments, Ltd. (Canada)

Pan-Alaska Resources, S.A. (Panama)

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, 5.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)

127
Self-Regulatory Organizations: Expenses, Pre-Tax Income, and Balance

Sheet Structure

In 1993, the total revenues of all self-regulatory organizations (SROs)

with marketplace jurisdiction rose approximately $130.0 million, an increase

of approximately 13% from 1992. The New York Stock Exchange (NYSE),

the National Association of Securities Dealers (NASD), the American Stock

Exchange (AMEX), and the Chicago Board Options Exchange (CBOE)

accounted for 85% of total SRO revenues, up from 84% in 1992. Revenues

were earned primarily from listing or issuer fees, trading, and market data

fees. For example:

the NYSE reported total revenue of $445.0 million, an increase of

6% from 1992, of which 40% consisted of listing fees, 20% consisted

of trading fees, and 14% consisted of market data fees;

the NASD reported total revenue of $332.1 million, an increase of

25% from 1992, of which 21% consisted of issuer fees and 34%

consisted of trading and market data fees; and

the AMEX reported total revenue of $131.0 million, an increase

of 14% from 1992, of which 12% consisted of listing fees.

The remaining SROs reported increases in revenues as follows:

the Boston Stock Exchange (BSE) reported a $466,180 increase, or

3%, to $14.1 million;

the CBOE reported a $10.6 million increase, or 15%, to $81.0

million;

the Chicago Stock Exchange (CHX)l reported a $3.6 million increase,

or 5%, to $77.4 million;

the Cincinnati Stock Exchange (CSE) reported a $1.4 million increase,

or 31%, to $6.0 million;

the Pacific Stock Exchange (PSE) reported a $1.6 million increase,

or 4%, to $43.5 million; and

the Philadelphia Stock Exchange (PHLX) reported a $1.2 million

increase, or 3%, to $38.8 million.

The CSE experienced the largest percentage increase in total revenues,

31%, while the NASD reported the largest dollar volume increase in total

revenues, $67.9 million.

The total expenses of all marketplace SROs were $996.0 million in

1993, an increase of $81.6 million, or 9%, over 1992. The NASD incurred

the largest dollar volume increase in expenses, $51.6 million (23%). The

remaining eight SROs incurred the following increases in expenses:

the AMEX incurred a $7.9 million increase, or 7%;

the BSE incurred a $278,000 increase, or 2%;

the CBOE incurred a $9.0 million increase, or 13%;

the CHX incurred a $4.9 million increase, or 7%;

the CSE incurred a $202,000 increase, or 5%;

"I'he CHX adopted its current name in 1993. Previously, it was known as the

Midwest Stock Exchange.

128

•

•

•

•

•

•

•

•

•

•

•

•

•

•
the NYSE incurred a $5.3 million increase, or 2%;

the PHLX incurred a $505,000 increase, or 1%; and

the PSE incurred a $1.9 million increase, or 5%.

Despite an increase in aggregate expenses, aggregate pre-tax income

of the marketplace SROs rose in 1993 to $173.0 million, an increase of $48.4

million, or 39%, from the $124.6 million reported in 1992. The NYSE

experienced the largest dollar volume increase in pre-tax income, $21.3

million, while the PHLX and the AMEX reported percentage increases in

pre-tax income of 321% each. The CSE also showed a large percentage

increase in pre-tax income, 187%. No SRO reported a pre-tax loss in 1993.

The total assets of all marketplace SROs amounted to approximately

$2.1 billion in 1993, an increase of $256 million, or 14%, over 1992. The

NYSE showed the largest dollar volume increase in total assets, $108.6

million (18%); the CSE, however, reported the largest percentage increase

in total assets, 51% ($1.9 million). The NASD and CHX also reported large

increases in total assets, equalling $82.9 million, or 28%, and $40.9 million,

or 7%, respectively. The AMEX and the PHLX reported increases of $13.6

million, or 13%, and $9.8 million, or 12%, respectively. The PSE reported

a decrease of $1.3 million, or 3%, while the remainder of the SROs reported

increases or decreases in total assets of less than 1%.

In 1993, the total liabilities of marketplace SROs increased $141.2

million, or 13%, over 1992 levels. The NYSE showed the greatest dollar

volume increase in liabilities, $54.7 million (17%), while the NASD reported

the greatest percentage increase, 45% ($34.4 million). Increases in liabilities

also were reported by the CHX ($39.9 million or 7%), the PHLX ($8.4

million or 14%), the AMEX ($6.8 million or 30%), and the CSE ($685,000

or 34%). The PSE reported the largest decline in liabilities, $2.3 million,

or 12%. Declines in liabilities also were reported by the BSE ($659,000

or 5%) and CBOE ($588,000 or 2%).

The aggregate net worth of the marketplace SROs rose $115.2 million

in 1993 to $832.5 million, an increase of 16% over 1992. The CSE incurred

the largest percentage increase in net worth, 70% ($1.2 million), while the

largest dollar volume increase in net worth was reported by the NYSE,

$53.9 million (19%). The NASD also reported a substantial increase in

net worth of $48.6 million, or 22%. The other marketplace SROs also

experienced positive growth in net worth with the AMEX reporting an

increase of $6.8 million, or 8%; the PHLX reporting an increase of $1.4

million, or 6%; the CHX reporting an increase of $1.0 million, or 5%; the

PSE reporting an increase of $956,000, or 5%; the BSE reporting an increase

of $645,000, or 13%; and the CBOE reporting an increase of $574,000, or

1%.

Clearing agency results have been presented in two charts by their

respective types: depositories and clearing corporations. Aggregate

service revenues for both types of clearing agencies was up $18 million

in calendar year 1993. Interest income increased 12%, or $7 million. Other

income decreased $3 million, resulting in a total revenue increase of

$24 million, or 4%. All clearing agencies adjust fee structure and refunds

129

•

•

•
of fees to provide participants with attractively priced services, and to

meet expenses and provide the amount of earnings which they desire to

retain.

All service revenues at depositories totaled $313 million, an increase

of 4% over 1992. This included a $4.5 million decrease by the Participants

Trust Company and a $15.7 million increase at The Depository Trust

Company (DTC). Total depository pre-tax income was down $981,000,

or 14%. While all depositories reported lower pre-tax earnings, all had

pre-tax gains for 1993.

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 Midwest Securities Trust Company

had an increase of 247,000 eligible issues at year-end, bringing their total

eligible issues to 1.18 million. DTC had 1.15 million eligible issues, an

increase of 13% over 1992. In general, eligibility for all types of securities

increased. At the end of 1993, the total value of securities in the depository

system reached $7.6 trillion, of which DTC alone held over $7.5 trillion,

including almost $3.6 trillion in certificates held by others as DTC's agent.

More than 70% of the shares of all NYSE, 57% of NASDAQ, and 50% of

AMEX listed U.s. companies were in the depository system at the end

of 1993. In addition, more than 95% of the principal amount of all

outstanding municipal bonds were in the depository system.

Service revenue of clearing corporations increased to $171 million,

or 4% over 1992. As a group, the clearing corporations recorded a net

decrease in pre-tax income of over $2 million, or 17% over 1992. The

National Securities Clearing Corporation's pre-tax income was down 66%

to $2.3 million. The Midwest Clearing Corporation reported a pre-tax

loss of $952,000 compared to the 1992 loss of almost $1.6 million, an

improvement of 40%. The Boston Stock Exchange Clearing Corporation's

1993 result was a pre-tax gain of $774,000 versus a loss of $308,000 for

1992.

The Pacific Clearing Corporation (PCO had a 1993 pre-tax gain of

$2.7 million, an increase of 13% over 1992. In April 1987, the PSE announced

the closure of the clearance and depository functions not essential to PSE's

trading operations. An orderly transition of participant activities to other

clearing agencies occurred with most of the securities held by the Pacific

Securities Depository Trust Company transferred to DTC. The PSE

established a reserve for potential claims and losses relating to custody

and trade processing services. An initial reserve for potential claims was

established and increased in subsequent years. Payments against the

reserve were $23,000 in 1993 and $96,000 in 1992. The remaining reserve

was $355,000 as of the end of 1993. In 1993, PCC had income of $91,000

from discontinued operations included in "Other Revenue" and a reduction

of reserve for potential losses as a negative expense included in "All Other

Expenses." The shareholders' equity of PCC was almost $4.7 million at

130
the end of 1993, an increase of SI % over 1992. The parent corporation,

PSE, which guarantees the liabilities of PCC, reported members' equity

of $21.4 million at the end of 1993.

The aggregate shareholders' equity of all clearing corporations and

depositories rose 9%, to $112 million in 1993. Participant clearing fund

contributions, which provide protection to the clearing agencies in the

event of a participant default, increased by $270 million, or 11%, to almost

$2.7 billion.

1~1
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Table 9

SELF-REGULATORY ORGAN IZA TIONS-DEPOSITORIES

1993 REVENUES and EXPENSES 11

($ in Thousands)

Midwest Philadelphia

Depository secunnes PartIcipants Depository

Trust Trust Trust Trust

Company Company Company Company

12/31/93 12/31/93 12/31/93 12/31/93 Total

Bezenues

Depository Services $251,882 $29,205 $22,117 $10,008 $313,212

Interest 45,369 1,629 12,062 678 59,738

1. Other 3,122 468 3,590

..: Total Revenues 2/ 297,251 33,956 34,179 11,154 376,540

- Expenses

Employee Costs $172,155 13,785 10,207 6,210 202,357

Data Processing and

CommunicatIons Costs 34,280 3,634 6,947 460 45,322

Occupancy Costs 46,174 3,495 7,045 442 57,156

Contracted Services Cost 1,312 1,312

Costs of Discontinued

Operations

All Other Expenses $ 44,442 11,230 5,344 3,534 64,549

Total Expenses $297,051 33,456 29,543 10,646 370,697

Excess of Revenues

Over Expenses 31 $200 $500 $4,636 $508 $5,844

Shareholders' Equity $19,380 $5,104 $17,993 $3,292 $45,769

Participanfs Fund $666,280 $7,110 $273,876 $780 $948,046

1/ Although efforts have been made to make the presentatIons comparable, any smgle revenue or expense category may not

be completely comparable between any two clearing agencies because of (i) the varying classification methods employed

by the clearing agencies in reporting operating results and (i1) the grouping methods employed by the SEC's staff due to

these varying classification methods. Individual amounts are shown to the nearest thousand. Totals are the rounded result

of the underlying amounts and may not be the arithmetic sums of the parts.

21 Revenues are net of refunds which have the effect of reducing a clearing agency's base fee rates.

31 This is the result of operations and before the effect of income taxes, which may significantly impact a clearing agency's

net income.

1::1:4

"
Certificate Immobilization

Book-entry deliveries continued to outdistance physical deliveries in

the settlement of securities transactions among depository participants

of the Depository Trust Company (DTC). This tendency is illustrated in

Table 10, CERTIFICATE IMMOBlLIZA nON 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 1993, the ratio was over

eight times the 1983 ratio of 2.8 book-entry deliveries rendered for every

certificate withdrawn.

Table 10

CERTIFICATE IMMOBILIZATION TRENDS

Depository Trust Company

(Including Bearer Certificates)

1993 1991 1989 1987 1985 1983

Book-entry Deliveries

at DTe (in thousands) 98,300 73,200 68,800 73.800 53,600 48,500

Total of All Certificates

Withdrawn (in thousands) 4,140 6,314 7,700 12,300 11,300 17.600

BOOk-entry Deliveries per

Certificates Withdrawn 23.7 11.6 8.9 6.0 4.7 2.8

135
Exemptions

Section 12(h) Exemptions

Section 12(h) of the Exchange Act authorizes the Commission to grant

a complete or partial exemption from the registration provisions of Section

12(g) or from the disclosure or insider reporting/trading provisions of

the Exchange Act where such exemption is consistent with the public

interest and the protection of investors. Three applications were pending

at the beginning of 1994, and four applications were filed during the year.

Of these applications, three were granted.

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. An important exemption is that contained in subparagraph

(b), which provides an exemption for certain foreign issuers that furnish

to the Commission on a current basis the material specified in the rule.

Such material includes that information material to an investment decision

which the issuer has: (1) made or is required to make public pursuant

to the law of the country in which it is incorporated or organized; (2) filed

or is required to file with a stock exchange on which its securities are

traded and which was made public by such exchange; or (3) distributed

or is required to distribute to its security holders. 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 998

foreign issuers.

1~6
Corporate Reorganizations

During 1994, the SEC entered its appearance in 25 reorga nizatron

cases filed under Chapter 11 of the Bankruptcy Code involving COmpdl1leS

with aggregated stated assets of about $6.1 billion and about 530,000 public

investors. Counting these new cases, the SEC was a party in a total of

180 Chapter 11 cases during the year. In these cases, the srated assets

totalled approximately $83 billion and involved over one mi. lion public

investors. During 1994, 19 cases were concluded through ccnfirmation

of a plan of reorganization, dismissal, or liquidation, leaving 161 cases

in which the SEC was a party at year-end.

Table 11

REORGANIZATION PROCEEDINGS UNDER CHAPTER 11

OF THE BANKRUPTCY CODE IN WHICH

THE SEC ENTERED APPEARANCE

FY

Debtor District Opened

Action Auto Stores EA MI 1990

ADI Electronics ED NY 1987

AlA Industries, Inc. E.D. PA 1984

Aileen, Inc. SD NY 1994

AI Copeland Enterprises, Inc WD TX 1991

Alexander's Inc. S.D NY 1992

Allegheny International, Inc. W.O. PA 1988

Alliant Computer Systems Corp. E.D. MA 1992

A.M. International IncAI 11 D. DE 1993

Amdura Corporation D. CO 1990

American West Airlines, Inc D. AZ 1991

Anglo Energy, Inc. SD NY 1988

Appletree Markets, Inc. SO TX 1992

Banyan Corp. S.D NY 1991

Barton Industries Inc. WD. OK 1991

Bay Financial Corp., et al. D MA 1990

B-E Holdings, Inc. E.D. WI 1994

Beker Industries Corp SO. NY 1986

Bonneville Pacific Corporation D. UT 1992

Branch Industries, Inc. S.D. NY 1985

Camera Enterprises, Inc., et al D. MA 1989

Cambridge Biotech Corp. OM 1994

Carter Hawley Hale Stores Inc. CD CA 1991

Cascade International Inc. SD FL 1992

The Centennial Group, Inc. C.D CA 1993

CityWide Securities Corp.4J S.D. NY 1985

Chyron Corporation E.D. NY 1991

Coated Sales, Inc. S.D. NY 1988

FY

Closed

1994

1994
n

138

Table 11 continued

REORGANIZATION PROCEEDINGS UNDER CHAPTER 11

OF THE BANKRUPTCY CODE IN WHICH

THE SEC ENTERED APPEARANCE

F.Y. F.Y.

Debtor District Opened Closed

Coliege Bound, Inc. S.D. FL 1993

Columbia Gas System, Inc. D. DE 1991

Commonwealth Equity Trust E.D. CA 1994

Conston Corporation E.D. PA 1990

Continental Information Systems S.D. NY 1989

CPT Corp. D. MN 1991

Crazy Eddie, lnc., et al. S.D. NY 1989

Crompton Co., Inc. S.D. NY 1985

Dakota Minerals, Inc. D. WY 1986

Damson Oil Co. S.D. TX 1991

Dest Corp. N.D. CA 1989

Diversified Industries, Inc. E.D. MI 1993

Domain Technology, Inc.3! N.D. CA 1989 1994

Drexel Burnham Lambert Group, Ltd. S.D. NY 1990

Eagle Clothes, Inc. S.D. NY 1989

Eagle-Pitcher Industries, Inc. S.D. OH 1991

Eastern Air Lines, Inc., et al. S.D. NY 1989

E.L. Fitzgerai d4J N.D. FL 1993

EI Paso Electric Co.2J W.O. TX 1992 1994

EL Paso Refinery Limited Partnership2J W.O. TX 1993 1994

Endevco, Inc.j/ E.D. TX 1993 1994

Enterprise Technologies, Inc. S.D. TX 1984

Enviropact, Inc. S.D. FL. 1994

Equestrian Ctrs of Amer., Inc.3J C.D. CA 1985 1994

Everex Systems, Inc. N.C. CA 1993

Fairfield Communities Inc.1! E.D. AR 1991 1994

F & C International, Inc. S.D. OH 1993

Fed. Depart./Allied Stores et al. S.D. OH 1990

Financial News NetVlork, Inc. S.D. NY 1991

First City Bancorporation of Texas N.D. TX 1994

First Republicbank Corp. N.D. TX 1989

Future Communications, Inc. W.O. OH 1994

Forum Group Inc. et al.l/ N.D. TX 1991 1994

Gantos, Inc. et. al. W.O. MI 1994

General Technologies Group E.D. NY 1990

Gulf USA Corporation, et al. D. 10 1994

Hal, Inc. D. HI 1994

Hannover Corporation of America4J MD. LA 1993

Harry Schrieber4J D. CO 1993

Heallhcare International, Inc. W.O. TX 1992

-
Table 11 continued

REORGANIZATION PROCEEDINGS UNDER CHAPTER 11

OF THE BANKRUPTCY CODE IN WHICH

THE SEC ENTERED APPEARANCE

F.Y. F.Y.

Debtor District Opened Closed

Hellonetlcs, Inc. C.D. CA 1986

Hexcel Corporatl on N.D. CA 1994

Hills Department Stores S.D. NY 1991

I.M.T., Inc.ll D. MD 1992 1994

Inflight Services, Inc. S.D. NY 1987

Infotechnology Inc. S.D. NY 1991

Insilco Corp.ll W.O. TX 1991 1994

Integra-A Hotel and Restaurant Co. D. CO 1993

Integrated Resources, Inc. S.D. NY 1990

Intelogic Trace, Inc. W.O. TX 1994

Inter. American Homes, Inc., et al. D. NJ 1990

International Trading, Inc. N.D. GA 1994

Jamesway Corporation S.D. NY 1993

JWP, Inc. S.D. NY 1994

Kaiser Steel Corp. D. CO 1987

King of Video, Inc. D. NV 1989

Koger Properties, Inc.ll M.D. FL 1992 1994

Kurzweil Music Systems Inc. D. MA 1990

Laventhol & Horwath S.D. NY 1991

Leslie Fay Companies, Inc. S.D. NY 1993

Library Bureau Inc. N.D. NY 1993

Lomas Financial Corp. S.D. NY 1990

Lone Star Industries, Inc. S.D. NY 1991

MacGregor Sporting Goods, Inc. D. NJ 1989

Mallard Coach Co. W.O. IL 1993

Marathon Office Supply, Inc. C.D. CA 1988

Marcade Group Inc. S.D. NY 1993

Master Mortgage Investment Fund, Inc.ll W.O. MO 1993 1994

Martech USA, Inc. D. AK 1994

Maxi care Health Plus Inc.1J C.D. CA 1989

McLean Industries, Inc. S.D. NY 1987

MCorp (MCorp Financial, Inc.

& MCorp Management) S.D. TX 1989

McCroy Corp. S.D. NY 1992

McCrory Parent Corp. S.D. NY 1992

Media Vision Technology, Inc. N.D. CA 1994

MEl Diversified, Inc. D. DE 1994

Meridian Reserve, Inc. W.O. OK 1989

Merry-Go-Round Enterprises, Inc. D. MD 1994

Midland Capital Corp. S.D. NY 1986

Midwest Communications Corp. E.D. KY 1991

139

-
Table 11 continued

REORGANIZATION PROCEEDINGS UNDER CHAPTER 11

OF THE BANKRUPTCY CODE IN WHICH

THE SEC ENTERED APPEARANCE

F.Y. F.Y.

Debtor District Opened Closed

Monarch Capitol Corp. D. MA 1991

National Financial Realty Trust S.D. IN 1990

National Gypsum Company N.D. rx 1991

NBllnc.1f D. CO 1991 1994

New Valley Corp. S.D. NY 1994

Newmark & lewis S.D. NY 1991

Nutri Bevco, Inc. S.D. NY 1988

NVF Company D. DE 1994

Occidental Development Fund 1114/ C.D. CA 1989

Occidental Development Fund IV4/ C.D. CA 1989

OCCidental Development Fund V4/ C.D. CA 1989

Oliver's Stores E.D. NY 1987

OlR Development Fund lP C.D. CA 1989

OlR Development Fund" lP C.D. CA 1989

PanAm Corporation S.D. NY 1991

Penn Pacific E.D. OK 1994

Phar-Mor, Inc. N.D. OH 1994

Premier Benefit Capitol trusts/ M.D. Fl 1993

Premium Sales Corporation4/ MD. Fl 1993

Public Service Co. of New Hampshire D. NH 1988

OMax Technology Group, Inc. S.D. OH 1989

OT&T, Inc. E.D. NY 1987

Oublx Graphic Systems11 N.D. CA 1987

Ramtek Corporation N.D. CA 1989

Rax Restaurants Inc.11 S.D. OH 1993 1994

Refinemet International, Inc 11 C.D. CA 1988 1994

Reserve Rent-a-Car D. OH 1993

ReSidential Resources Mortgage

Investment Corporation D. AZ 1989

Resorts International, Inc. et al.11 D. NJ 1990 1994

Revco D.S. Inc.4/ N.D. OH 1988

R.H. Macy & Co. Corp. S.D. NY 1992

Rose's Stores, Inc. E.D. NC 1994

Rymer Foods, Inc. N.D. II 1993

Sahlen & Associates S.D. NY 1989

Sam S. Brown Jr.4/ W.D. GA 1993

Saratoga Standardbreds, Inc. N.D. NY 1990

Schepps Food Stores, Inc. S.D. rx 1992

Seatrain Lines, Inc. S.D. NY 1981

Sharon Steel Corp. W.D. PA 1987

SIS Corporation N.D. OH 1989

140

-
Table 11 continued

REORGANIZATION PROCEEDINGS UNDER CHAPTER 11

OF THE BANKRUPTCY CODE IN WHICH

THE SEC ENTERED APPEARANCE

F.Y. F.Y.

Debtor District Opened Closed

Sorg Incorporated, et al. S.D. NY 1989

Southland Corporation N.D. TX 1991

Spencer Cos., Inc. D. MA 1987

Spring Meadows Assoctatess/ C.D. CA 1988

Standard Oil and Exploration of

Delaware, Inc. W.D. MI 1991

Statewide Bancorp. D. NJ 1991

Sterli ng Opti cal Corp. S.D. NY 1992

Swanton Corp. S D. NY 1985

Systems for Health Care, Inc. N D. IL 1988

Telstar Satellite Corp. of America!! C.D. CA 1989

TGX Corp.1J W.D. LA 1990 1994

The Centennial Group, Inc. C.D. CA 1992

The Circle K D. Al 1990

The First Connecticut Small

Business Investments Company D. CT 1991

The Group, Inc. D. NV 1990

The Lionel Corp. S.D. NY 1991

The Regina Co. D. NJ 1989

Tidwell Industries, Inc. N.D. AL 1986

Todd Shipyards Corp. D. NJ 1988

Towle Manufact./Rosemar Silver S.D. NY 1990

Traweek Investment Fund No. 22, Ltd.!! C.D. CA 1988

Traweek Investment Fund No. 21, Ltd. C.D. CA 1988

Trump Taj Mahal Funding, Inc. D. NJ 1991

TSL Holdings, Inc. S.D. CA 1993

USA Classic Inc. S.D. NY 1994

Value Merchants E.D. WI 1994

Washington Bancorporation1J D. DC 1990 1994

Wedgestone Financial D. MA 1991

Wedtech Corp. S.D. NY 1987

Westworld Community Healthcare, Inc. C.D. CA 1987

Wheeling-Pittsburgh Steel Corp. W.O. PA 1985

lale Corporation, Inc. N.D. TX 1992

lenox, Inc. D. NH 1993

141

-
Table 11 continued

REORGANIZATION PROCEEDINGS UNDER CHAPTER 11

OF THE BANKRUPTCY CODE IN WHICH

THE SEC ENTERED APPEARANCE

Debtor

Total Cases Opened (FY 1994)

Total Cases Closed (FY 1994)

District

FoYo

Opened

25

FoYo

Closed

19

142

11 Plan of reorganization confirmed.

21 Debtor liquidated under Chapter 7.

31 Chapter 11 case dismissed.

41 Debtor's securities not registered under Section 12(g) of the Exchange Act.

-
The Securities Industry

Revenues, Expenses, and Selected Balance Sheet Items

Broker-dealers that are registered with the Commission earned a pretax profit of $13.0 billion in calendar year 1993. This was $3.9 billion more

than the previous year, and a record for the third year in a row. Brokerdealers had a pre-tax return on equity capital of 26.6%, which is above

the historical average.

Declining interest rates and a bull market in equities (wi th interest

rates low and price-earnings (P-E) ratios high by historical standards) were

the main factors behind this profitability. Low interest rates encouraged

corporations, municipalities, and indi viduals with callable debtto refinance,

while high P-E ratios made equity financing attractive. The result was

record issuance of corporate debt and equities, with underwriting revenues

rising $3.0 billion to a new high of $11.3 billion.

Securities firms were very successful trading for their own accounts

in 1993. Gains from trading and investments of $25.4 billion were up $35

billion from last year's level and reached a new high. Record trading

volume in U.S. Government securities, corporate debt securities, and

NASDAQ stock boosted trading gains to record levels. Trading gains also

were buoyed by a modest increase in the prices of securities held in

inventory.

The agency business was exceptionally profitable in 1993. With

interest rates low, many individuals sought higher returns by moving

funds out of bank deposits and into securities, especially mutual funds.

Revenues from retailing mutual funds rose $1.7 billion to $7.7 billion, a

new record. Transactions in exchange-listed securities were at their

highest level since 1987, contributing to $19.9 billion in securities

commissions, a $3.7 billion increase from the previous year. Margin

interest increased by $600 million to $3.2 billion, as the record volume

of margin debt outstanding overwhelmed decliriing interest rates.

IIAll other revenues," which are dominated by interest income from

securities purchased under agreements to resell and fees from handling

private placements, mergers, and acquisitions, increased by $5.3 billion

in 1993. Volume in each of these businesses grew substantially in 1993.

Merger and acquisition activity was up after several years of declining

or stagnant volume. The value of new private placements rose 60% while

the value of reverse repurchase agreements outstanding increased by 25%.

Expenses rose 17% to $95.3 billion in 1993. Employee compensation,

the largest expense item, increased by $7.0 billion (22%). Total assets rose

by $260 billion to $1,240 billion. Equity capital increased by $9.8 billion

to $53.7 billion.

143
Table 12 


UNCONSOLIDATED FINANCIAL INFORMATION FOR BROKER-DEALERS 


iges - 1993 

($ in Millions) 

BeYeoues 

Securities Commissions 

Gains (Losses) in Tmdingand 

investment Accounts 

Prolts (Losses) from Underwriting 

and Selling Groups 

Margln Interest 

Revenues from Sale of lnvesbnent 

Company Shares 

All Mher Revenues 

~olai Revenues 

Eapenses

Registered Represenmlves' 

Com~ensalion(Part ti Oniv) 21 

Other ~mployee ~ompensatiii 

and Benefits 

Compensation to Pamers and 

Votino Stockholder Mficen 

rnmmlssions and Cienrnnce Paid 

to Other Broken 

Interest Expenses 

ReoulatON .~.--~~~, Fees ~ and Exoenses 7~ ~~~ 

Ail Other Expenses 2/ 

Total Expenses 

Pre-tax Income 

Pre-taxprofit Margin -
 Pre-tax Return on Equity 

TO~I Assets 

Liabilities 

(a) Unsubordinaled Libiiities 

(b) Subordinaled Liabilities 

(c) Total Liibiiilies 

hership Equity 

Number of Firm 

Figures rmy not add due to rounding. 

revised 

p =preliminary 

r.= .~ ~~-

3,W.B 

29.822.5 

573.7 

16,847.8 

$ 2,822.9 

3.7 

7.7 

5652,1770 

600,440.7 

15,354.7 

615,795.4 

$ 36,381.5 

2.959.4 

28,093.1 

5M.3 

16,018.6 

$ 790.1 

1.1 

2.2 

$657,226 5 

607,803.0 

15,090.8 

622,893.8 

$ 34,332.7 

3,200.5 

27.51 1.8 

577.1 

18,027.9 

$ 8.655.9 

10.2 

23.6 

$767,716.3 

732,290.2 

16,347.1 

748.637.3 

$ 39,079.1 

3,722.1 4,869.8 

24,576.3 26,620.5 

6392 629.9 

20.459.0 24.091.4 

$ 9,116.6 S 12.999.1 

10.1 12.0 

22.0 26.6 1 

$978,635 0 $ 1,239,976.5 

916,5453 

18,155.8 

1.160.408.4 

25,829.7 1 

934.701.1 1,186,2383 ; 

$ 43.933.9 $ 53,738.4 

11 Calendar, rather than fiscal, year data is reported in this able. I 21 Registered representatives' compensatior for firms that neither carry nor clear is included in "other expenses" 

as this expense item is not reported separately on Part IIAof the FOCUS Report 

I 

Source: FOCUS Report 
Table 13

UNCONSOLIDATED ANNUAL REVENUES AND EXPENSES FOR BROKER-DEALERS

DOING A PUBLIC BUSINESS

1989 1993 11

($ in Millions)

1989 1900 1991 1992' 1993P

Bmrures

Secunties Commissions $13,012.7 $11,659.7 $13,7108 $15,499.7 s 18,9495

Gams (losses) In Trading and

Investment Accounts 15,048.6 14,869.5 21,371.7 20,7907 23,906.9

Profits (losses) from Underwriting

and Selling Groups 4,536.4 3,728.0 6,591 4 8,202.8 11,1440

Margin Interest 3,813.3 3,1588 2,7324 2,651 7 3,1661

Revenues from Sale of Investment

Company Shares 3,037.8 3,241.6 4,176.2 5,851.9 7,535.9

All Other Revenues 35,189.4 32,5780 33,746.8 34,745.5 39,913.8

Total Revenues $74,638.3 $69,235.6 $82,329.3 $87,742.2 $104,616.0

Expe.nse.s

Registered Representatives'

Compensation (Part II only) 21 $ 8,962.7 $ 8,245.3 $ 9,900.6 $11,791.1 $ 14,325 6

Other Employee Compensation

and Benefits 12,191.4 12,2092 14,066.5 16,601 4 20,355.1

Compensation to Partners and

Voting Stockholder Officers 2,090.0 1,983.5 2,376.4 2,695.5 3,2803

Commissions and Clearance Paid

to Other Brokers 2,867.9 2,796.2 3,003.2 3,500.0 4,554.9

Interest Expenses 29,3546 27,630.6 27,088.1 24,235.8 26,1300

Regulatory Fees and Expenses 516.0 509.4 511.2 580.0 573.0

All Other Expenses 21 16,348.5 15,580.4 17,457.5 19,777.9 23,310.8

Total Expenses $72,331.0 $68,954.4 $74,4034 $79,181.7 $ 92,529.6

Income and Profitability

Pre-tax Income $ 2,307.3 $ 281.2 s 7,925.9 $ 8,560.5 $ 12,086.4

Pre-tax Profit Margin 3.1 0.4 96 98 11 6

Pre-tax Return on Equity 6.8 09 233 22.2 26.5

Number of Firms 5,746 5,424 5,115 5,091 5,131

Figures may not add due to rounding.

r revised

p preliminary

11 Calendar, rather than fiscal, year data is reported in thiS table.

21 Registered representatives' compensation 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

14S

-

=

=
Table 14 


UNCONSOLiDATED BALANCE SHEET FOR BROKER-DEALERS 


DOING A PUBLIC BUSINESS 


YEAR-END, 1989 - 1993 11 


($ in Millions) 


Brsets 

Cash 

Receivables fmm Omer 

Brokerdealers 

Receivables fmm Customers 

Receivables fmm Non~usbiners 

Long Positions in Securiiles 

and CommOdlties 

Secwities and Investmeas 

nat Readily Maketable 

Securities Purchased Under Agreements 

to Resell (Part II only) U 

Exchange Membership 

Mher Assets 21 

Total Asseb 

Bank Loans Payable 

Payables to omer Broker-dealers 

Payablesto Non-customers 

Payablesto Customers 

Short Positions in Secufnies 

and Commodities 

Securities Sold Unda Repurchase 

Agreements (Part IionM 21 328.382.8 320.773.3 385.655.1 500.714.1 €47.468.8 

EyQ CapiQl 

Number of firm 

Figures may not aW due to munding. 


r = revised 


p =preliminary 


1/ Calendar, ram fwcal,year data Is reported In MIS Qble. 


U ResaleagreementsandrepurchaseaOreemenbforfirmmat nehher wry nor clearare included In "olher 


assets" and 'omer mn-subordinated liabililes," respectively, as these #ems are not reported separafely on 

Part IIA of the FOCUS RepPn 

Source: FOCUS Report 
Carrying and Clearing Firms

Data for carrying and clearing firms that do a public business is

presented here to allow for more detail. Reporting requirements for firms

that neither carry nor clear are less detailed. Data aggregation of these

two types of firms results in a 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 81 percent of the securities industry's

total revenues in calendar year 1993.

Brokerage activity accounted for about 24 cents of each revenue dollar

in 1993, about the same as the level in 1992. Securities commissions were

the most important component, producing 16 cents of each dollar of

revenue. Margin interest generated about four cents of each dollar of

revenue, while revenues from mutual fund sales accounted for about five

cents.

The dealer side produced 65 cents of each dollar of revenue in 1993,

the same as that in 1992. Twenty-four cents came from trading and

investments, a decrease from 25 cents in 1992. Twelve cents came from

underwriting, up from ten cents in 1992. Twenty-nine cents came from

other securities-related revenues, identical to that in 1992. This revenue

item is comprised primarily of interest income from securities purchased

under agreements to resell and fees from handling private placements,

mergers, and acquisitions.

Expenses accounted for 89 cents of each revenue dollar in 1993,

resulting in a pre-tax profit margin of eleven cents per revenue dollar,

about two cents higher than that in 1992. Employee-related expensescompensation received by registered representatives, partners and other

employees-was the most important expense item, accounting for 36 cents

of each revenue dollar in 1993 compared to 35 cents in 1992. Interest

.consurned 29 cents of each revenue dollar in 1993, compared to 32 cents

in 1992.

Total assets of broker-dealers carrying and clearing customer accounts

were $1.18 trillion at year-end 1993, a 26% increase from 1992. The

distribution of assets remained fairly constant over the course of the year,

with most major asset categories increasing at about the same rate as total

assets.

Total liabilities also increased by about 26% to $1.14 trillion in 1993.

Owners' equity rose 20% from $35.2 billion in 1992 to $42.4 billion in 1993.

147
Table 15


SECURITIES INDUSTRY DOLLAR IN 

FOR CARRYlNGlCLEARlNG FIRM

Sources of Revenue 

Comnrlrriow & 

clearance (3.0%)

Canmudcarions (3.0%) 

Fi~rmayM~aloosCd~sOmnd'O


i-bfm. minO.* ki-tw utmsr rmmv=or dsar -ntisrtrl=dl~ 
 ,:

SOUWE FOWS REPORTS 
Table 16

UNCONSOLIDATED REVENUES AND EXPENSES FOR

CARRYING/CLEARING BROKER-DEALERS 11

($ in Millions)

1992' 1993P

Percent Percent Percent

of Total of Total Change

Dollars Revenues Dollars Revenues 1992-1993

Securities Commissions $11,466.3 15.2% $13,781.4 15.7% 20.2%

Gains (losses) in Trading and

Invesbnent Accounts 18,813.6 25.0 21,128.5 24.1 12.3

Profits (Losses) from Underwriting

and Selling Groups 7,749.2 10.3 10,434.4 11.9 34.7

Margin Interest 2,651.7 3.5 3,166.1 3.6 19.4

Revenues from Sale of Investment

Company Shares 3,591.7 4.8 4,532.0 5.2 26.2

Miscellaneous Fees 3,358.4 4.5 4,087.3 4.7 21.7

Revenues from Research 22.5 0.0 24.7 0.0 9.8

Other Securibes Related Revenues 22,004.7 292 25,708.6 29.3 16.8

Commodities Revenues 1,872.0 2.5 1,238.9 1.4 -33.8

All Other Revenues 3,735.9 5.0 3,664.2 4.2 -1.9

Total Revenues $75,266.1 100.0% $87,766.1 100.0% 16.6%

Expenses

Registered Representatives'

Compensation (Part II only) 21 $11,791.1 15.7% $14,325.6 16.3% 21.5%

Other Employee Compensation and Benefits 13,046.7 17.3 15,674.8 17.9 20.1

Compensation to Partners and

Voting Stockholder Officers 1,679.4 22 2,015.5 2.3 20.0

Commissions and Clearance Paid

to Other Brokers 2,1412 2.8 3,657.2 4.2 70.8

Communications 2,461.1 3.3 2,671.6 3.0 86

Occupancy and Equipment Costs 3,277.4 4.4 3,397.6 3.9 3.7

Data Processing Costs 930.6 1.2 1,180.8 1.3 26.9

Interest Expenses 24,039.9 31.9 25,761.4 29.4 7.2

Regulatory Fees and Expenses 493.6 0.7 470.5 0.5 -4.7

Losses In Error Accounts and Bad Debts 432.4 0.6 309.0 0.4 -28.5

All Other Expenses 21 7,838.9 10.4 9,364.2 10.7 19.5

Total Expenses $68,132.4 90.5% $77,828.2 88.7% 14.2%

Income and Profitability

Pre-tax Income $7,133.7 9.5% $9,937.9 11.3% 39.3%

Pre-tax Profll Margin 9.5 11.3

Pre-tax Retum on Equity 21.4 25.6

Number of Arms 873 823

Figures may not add due to rounding.

r revised

p preliminary

11 Calendar, rather than fiscal, year data is reported in thiS table.

Note: Includes information for firms doing a public business that carry customer accounts or clear secunties transactions.

Source: FOCUS Report

149

~

=

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-- 

Table 17 


UNCONSOLIDATED BALANCE SHEET FOR CARRYING/CLEARING 


BROKER-DEALERS U 


($ In Millions) 

bssefs 


Cash 

Receivables from Mher Brokerdealers 

(a) Securltles Failed to Deliver 

(b) Securities Bormwed 

(c) omer 

Receivablesfmrn Customers 

Receivables from Non-cudomen 

Long Positions In Securities and Cornmanties 

(a) hnkmAcceptances. Certnlcahs 


of DeposfiandCommerclal Paper 


(b) U.S. and Wian Government Obllgatlons 

(c) Stdeand Municipal Gwemment OMipaions 

(d) CowrateObllpations 

(e) SbcXs and Wmts 

(0Options 


(PI m1traQe 


(h) Mher SecuMes 

(i) Spot CommodHies 

Securnles and investments Not Realy MarkeMle 

Securltles Purckd Un&r Agreements 

to Resell (Part I1Only) U 

Exchange Membership 

Mher Assets U 

Total Assets 

Bank Loam Payable 

PayablestoOther BmkerMers 

(a) Securffles Failedto Receive 

(b) Secumes Loaned 

(c) omw 

Payables to Non-customers 

Payables to Cuslomers 

Short Positions in SecurHles and Cornmmties 

Securities Sold Under Repurchase 

Agreemenb (Part IIOnly) 21 

Mher Non-subordinated Uabities U 

Subordinated Uabilitis 

Liibiimes 

EquityCapital 

Number of Flnns 

Figures my not aW due lo rounding. 

r = revlsed 

p = preliminary 

Yw-end 1992' Ywnd 19938 

PerceM Percent 

Of Tctd 09Kint 

~oiiars ~ssets Dollars As* lh%3 

873 823 

I/ Calendar,ralhdmer Wn fiscal, year data is reported in thls table. 

Note: Includes InWon for flms doing a public business that carry customeracwunb or dearsecurffles bansactions 

Source: FOCUS Report 
Securities Traded on Exchanges

Market Value and Volume

The market value of equity and option transacti .ms (trading in stocks,

options, warrants, and rights) on registered exchanges totaled $2.7 trillion

in 1993. Of this total, approximately $2.6 trillion, or 96%, represented

the market value of transactions in stocks, rights and warrants; and $118

billion, or 4%, was options transactions (including exercises of options

on listed stocks).

The value of equity and option transactions on the New York Stock

Exchange (NYSE) was $2.3 trillion, up 29.5% from the previous year. The

market value of such transactions on the American Stock Exchange (Arnex)

increased 20.8% to $82.7 billion and 14.6% to $368.1 billion on all other

exchanges. The volume of trading in stocks (excluding rights and warrants)

on all registered exchanges totaled 82.8 billion shares, a 26.5% increase

from the previous year, with 83.0% of the total accounted for by trading

on the NYSE.

The volume of options contracts traded (excluding exercised contracts)

was 232.6 million contracts in 1993, 15.2% greater than in 1992. The market

value of these contracts increased 4.2% to $75.2 billion. The volume of

contracts executed on the Chicago Board Options Exchange increased

15.7% to 140.6 million. Option trading on the Amex, Philadelphia Stock

Exchanges, and Pacific Stock Exchange rose 13.2%, 12.0%, and 25.2%,

respecti vely.

151
NASDAQ (Share Volume and Dollar Volume)

NASDAQ share volume and dollar value information has been reported

on a daily basis since November I, 1971. At the end of 1993, there were

5,393 issues in the NASDAQ system, as compared to 4,764 a year earlier

and 3,050 at the end of 1980.

Share volume for 1993 was 66.5 billion, as compared to 48.5 billion

in 1992 and 6.7 billion in 1980. This trading volume encompasses the

numberof shares bought and sold by market makers plus their net inventory

changes. The dollar volume of shares traded in the NASDAQ system was

$1.35 trillion during 1993, as compared to $890.8 billion in 1992 and $68.7

billion in 1980.

Share and Dollar Volume by Exchanges

Share volume on all registered stock exchanges totaled 82.8 billion,

an increase of 26.4% from the previous year. The New York Stock Exchange

accounted for 83% of the 1993 share volume; the American Stock Exchange,

6%; the Chicago Stock Exchange, 5%; and the Pacific Stock Exchange, 3%.

The dollar value of stocks, rights, and warrants traded was $2.6

trillion, 28.4% higher than the previous year. Trading on the New York

Stock Exchange contributed 87% of the total. The Chicago Stock Exchange

and Pacific Stock Exchange contributed 4% and 2%, respectively. The

American Stock Exchange accounted f::-r 2% of dollar volume.

152
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Table 20

SHARE VOLUME BY EXCHANGES 11

(In Percentage)

Total Share

Volume

Year (in Thousands) NYSE AMEX CHIC PSE PHLX BSE CSE Others 21

1945 769,018 65.87 21.31 1.77 2.98 1.06 0.66 0.05 6.30

1950 893,320 76.32 13.54 2.16 3.11 0.97 0.65 0.09 3.16

1955 1,321,401 68.85 19.19 2.09 3.08 0.85 0.48 0.05 5.41

1960 1,441,120 68.47 2227 220 3.11 0.88 0.38 0.04 2.65

1961 2,142,523 64.99 25.58 2.22 3.41 0.79 0.30 0.04 2.67

1962 1,711,945 71.31 20.11 2.34 2.95 0.87 0.31 0.04 2.07

1963 1,880,793 72.93 18.83 2.32 2.82 0.83 029 0.04 1.94

1964 2,118,326 72.81 19.42 2.43 2.65 0.93 029 0.03 1.44

1965 2,671,012 69.90 22.53 2.63 2.33 0.81 026 0.05 1.49

1966 3,313,899 69.38 22.84 2.56 2.68 0.86 0.40 0.05 1.23

1967 4,646,553 64.40 28.41 2.35 2.46 0.87 0.43 0.02 1.06

1968 5,407,923 61.98 29.74 2.63 2.64 0.89 0.78 0.01 1.33

1969 5,134,856 63.16 27.61 2.84 3.47 122 0.51 0.00 1.19

1970 4,834,887 7128 19.03 3.16 3.68 1.63 0.51 0.02 0.69

1971 6,172,668 71.34 1842 3.52 3.72 1.91 0.43 0.03 0.63

1972 6,518,132 70.47 1822 3.71 4.13 2.21 0.59 0.03 0.64

1973 5,899,678 74.92 1375 4.09 3.68 2.19 0.71 0.04 0.62

1974 4,950,842 78.47 1028 4.40 3.48 1.82 0.86 0.05 0.64

1975 6,376,094 80.99 8.97 3.97 3.26 1.54 0.85 0.13 0.29

1976 7,129,132 80.05 9.35 3.87 3.93 1.42 0.78 0.44 0.16

1977 7,124,640 79.71 9.56 3.96 3.72 1.49 0.66 0.64 0.26

1978 9,630,065 79.53 10.65 3.56 3.84 1.49 0.60 0.16 0.17

1979 10,960,424 79.88 10.85 3.30 327 1.64 0.55 0.28 023

1980 15,587,986 79.94 10.78 3.84 280 1.54 0.57 0.32 021

1981 15,969,186 80.68 9.32 4.60 287 1.55 0.51 0.37 0.10

1982 22,491,935 8122 6.96 5.09 3.62 2.18 0.48 0.38 007

1983 30,316,014 80.37 7.45 5.48 3.56 220 065 0.19 0.10

1984 30,548,014 82.54 526 6.03 3.31 1.79 0.85 0.18 0.04

1985 37,187,567 81.52 5.78 6.12 3.66 1.47 1.27 0.15 0.03

1986 48,580,524 81.12 628 5.73 3.68 1.53 1.33 0.30 0.02

1987 64,082,996 83.09 5.57 5.19 3.23 1.30 1.28 0.30 0.04

1988 52,665,654 83.74 4.95 526 3.03 129 1.32 0.39 0.02

1989 54,416,790 81.33 6.02 5.44 3.34 1.80 1.64 0.41 0.02

1900 53,746,087 81.86 623 4.68 3.16 1.82 1.71 0.53 0.01

1991r 58,290,641 82.01 5.52 4.66 3.59 1.60 1.77 0.86 0.01

1992r 65,705,037 81.34 5.74 4.62 3.19 1.72 1.57 1.83 0.01

1993 83,056,237 82.90 5.53 4.57 2.81 1.55 1.47 1.17 0.00

r=revised

11 Share volume for exchanges Includes stocks, rights and wanants; calendar. rather than fiscal, year data is freported in this table.

21 Includes all exchanges not listed Individually.

Source: SEC Form R-31

155
Table 21

DOLLAR VOLUME BY EXCHANGES 11

(In Percentage)

Total Dollar

Volume

Year ($ In Thousands) NYSE AMEX CHIC PSE PHLX BSE CSE Others 21

1945 $ 16,284,552 82.75 10.81 2.00 1.78 0.96 1.16 0.06 0.48

1950 21,808,284 85.91 6.85 2.35 2.19 1.03 1.12 0.11 0.44

1955 38,039,107 86.31 6.98 2.44 1.90 1.03 0.78 0.09 0.47

1960 45,309,825 83.80 9.35 2.72 1.94 1.03 0.60 0.07 0.49

1961 64,071,623 82.43 10.71 2.75 1.99 1.03 0.49 0.07 0.53

1962 54,855,293 86.32 6.81 2.75 2.00 1.05 0.46 0.07 0.54

1963 64,437,900 85.19 7.51 2.72 2.39 1.06 0.41 0.06 0.66

1964 72,461,584 83.49 8.45 3.15 2.48 1.14 0.42 0.06 0.81

1965 89,549,093 81.78 9.91 3.44 2.43 1.12 0.42 0.08 0.82

1966 123,697,737 79.77 11.84 3.14 2.84 1.10 0.56 0.07 0.68

1967 162,189,211 77.29 14.48 3.08 2.79 1.13 0.66 0.03 0.54

1968 197,116,367 73.55 17.99 3.12 2.65 1.13 1.04 0.01 0.51

1969 176,389,759 73.48 17.59 3.39 3.12 1.43 0.67 0.01 0.31

1970 131,707,946 78.44 11.11 3.76 3.81 1.99 0.67 0.03 0.19

1971 186,375,130 79.07 9.98 4.00 3.79 2.29 0.58 0.05 0.24

1972 205,956,263 77.77 10.37 4.29 3.94 2.56 0.75 0.05 0.27

1973 178,863,622 82.07 6.06 4.54 3.55 2.45 1.00 0.06 0.27

1974 118,828,270 83.63 4.40 4.90 350 2.03 1.24 0.06 0.24

1975 157,256,676 85.20 3.67 4.64 3.26 1.73 1.19 0.17 0.14

1976 195,224,812 84.35 3.88 4.76 3.83 1.69 0.94 0.53 0.02

1977 187,393,084 83.96 4.60 4.79 3.53 162 0.74 0.75 0.01

1978 251,618,179 83.67 6.13 4.16 3.64 1.62 0.61 0.17 0.00

1979 300,475,510 83.72 6.94 3.83 2.78 1.80 0.56 0.35 0.02

1980 476,500,688 83.53 7.33 4.33 2.27 1.61 0.52 0.40 0.01

1981 491,017,139 84.74 5.41 5.04 2.32 1.60 0.49 0.40 0.00

1982 603,094,266 85.32 3.27 5.83 3.05 1.59 0.51 0.43 0.00

1983 958,304,168 85.13 3.32 6.28 2.86 1.55 0.66 0.16 0.04

1984 951.318,448 85.61 2.26 6.57 2.93 1.58 0.85 0.19 0.00

1985 1,200,127,848 85.25 2.23 6.59 3.06 1.49 1.20 0.18 0.00

1986 1,707,117,112 85.02 2.56 6.00 3.00 1.57 1.44 0.41 0.00

1987 2,286,902,788 86.79 2.32 5.32 2.53 1.35 1.33 0.35 0.00

1988 1,587,950,769 86.81 1.96 5.46 2.62 1.33 1.34 0.49 0.00

1989 1,847,766,971 85.49 2.35 5.46 2.84 1.77 1.56 0.54 0.00

1990 1,616,798,075 86.15 2.33 4.58 2.77 1.79 1.63 0.74 0.00

1991r 1,778,154,074 8620 2.31 4.34 3.05 1.54 1.72 0.83 0.Q1

1992r 2,032,684,135 86.47 2.07 4.28 2.87 1.70 1.52 1.09 0.00

1993 2,610,504,390 8721 2.08 4.10 2.38 1.52 1.35 1.37 0.00

r=revised

11 Dollarvolume for exchanges includes stocks, rights and warrants; calendar, ratherthan fiscal, year data Is reported Inthis

table.

2/ InclUdesall exchanges not listed individually.

Source: SECForm R-31

156
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VALUE OF STOCKS LISTED ON EXCHANGES

($ in Billions)

NewYorl< American Exclusively

As of Stock Stock On Other

Dec 31 Exchange Exchange Exchanges Total

1938 $ 47.5 $ 10.8 $ ..... $ 58.3

1940 46.5 10.1 56.6

1941 41.9 8.6 50.5

1942 35.8 7.4 43.2

1943 47.6 9.9 57.5

1944 55.5 11.2 66.7

1945 73.8 14.4 88.2

1946 68.6 13.2 81.8

1947 68.3 12.1 80.4

1948 67.0 11.9 3.0 81.9

1949 76.3 12.2 3.1 91.6

1950 93.8 13.9 3.3 111.0

1951 109.5 16.5 3.2 129.2

1952 120.5 16.9 3.1 140.5

1953 117.3 15.3 2.8 135.4

1954 169.1 22.1 3.6 194.8

1955 207.7 27.1 4.0 238.8

1956 219.2 31.0 3.6 254.0

1957 195.6 25.5 3.1 224.2

1958 276.7 31.7 4.3 312.7

1959 307.7 25.4 4.2 337.3

1960 307.0 242 4.1 335.3

1961 387.8 33.0 5.3 426.1

1962 345.8 24.4 4.0 374.2

1963 411.3 26.1 4.3 441.7

1964 474.3 28.2 4.3 506.8

1965 537.5 30.9 4.7 573.1

1966 482.5 27.9 4.0 514.4

1967 605.8 43.0 3.9 652.7

1968 692.3 612 6.0 759.5

1969 629.5 47.7 5.4 682.6

1970 636.4 39.5 4.8 680.7

1971 741.8 49.1 4.7 795.6

1972 871.5 55.6 5.6 932.7

1973 721.0 38.7 4.1 763.8

1974 511.1 23.3 2.9 537.3

1975 685.1 29.3 4.3 718.7

1976 858.3 36.0 42 898.5

1977 776.7 37.6 42 818.5

1978 822.7 39.2 2.9 864.8

1979 960.6 57.8 3.9 1,022.3

1980 1,242.8 103.5 2.9 1,349.2

1981 1,143.8 89.4 5.0 1,2382

1982 1,305.4 77.6 6.8 1,389.7

1983 1,5222 80.1 6.6 1,608.8

1984 1,529.5 52.0 5.8 1,587.3

1985 1,882.7 63.2 5.9 1,951.8

1986 2,128.5 70.3 6.5 2,205.3

1987 2,132.2 67.0 5.9 2,205.1

1988 2,366.1 84.1 4.9 2,455.1

1989 2,903.5 100.9 4.6 3,009.0

1900 2,692.1 69.9 3.9 2,765.9

1991 3,547.5 90.3 4.3 3,642.1

1992 3,877.9 86.4 5.9 3,970.2

1993 4,314.9 98.1 72 4,4202

Source: SEC Form 1392

158
Table 24

APPROPRIATED FUNDS vs FEES' COLLECTED

$ Millions

260.3

94

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93

92

91 r

90

89

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50

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400

150

350

300

100

250

450

* Excludes disgorgements from fraud actions.

[/ FY1991 appropriated funding has been adjusted to exclude

offsetting collections not in appropriated estimates.

159

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