UNITED STATES OF AMERICA
|In the Matter of
AMERICORP SECURITIES, INC., and
|ORDER MAKING FINDINGS,
IMPOSING REMEDIAL SANCTIONS
AND ISSUING A
In connection with a previously instituted public administrative proceeding and cease-and-desist proceeding pursuant to Section 8A of the Securities Act of 1933 ("Securities Act") and Sections 15(b), 19(h) and 21C of the Securities Exchange Act of 1934 ("Exchange Act"), Americorp Securities Inc. ("Americorp") and Drew Edgar Schaefer ("Schaefer") have submitted Offers of Settlement which the Commission has determined is in the public interest
to accept.1 Solely for the purpose of these proceedings, and any other proceedings brought by or on behalf of the Commission or in which the Commission is a party, and without admitting or denying the findings contained in this Order Making Findings, Imposing Remedial Sanctions and Issuing a Cease-and-Desist Order ("Order"), except the findings contained in paragraphs II(1) and II(3) which are admitted, Americorp and Schaefer consent to the findings and remedial sanctions set forth below and to the issuance of a cease-and-desist order.
On the basis of the Order Instituting Proceedings and the Offers of Settlement submitted by each Respondent, the Commission finds that:
1. Americorp, which previously maintained an office in New York, New York, has been registered as a broker-dealer pursuant to Section 15(b) of the Securities Exchange Act of 1934 ("Exchange Act") since May 14, 1992.
2. PHC, Inc. ("PHC") is a Delaware corporation which was organized in 1976 to treat substance abuse. On March 3, 1994, PHC conducted an initial public offering ("IPO") of 1,437,500 units for $5.00 each. Each unit consisted of one share of common stock and one warrant. PHC's securities are registered with the Commission pursuant to Section 12(g) of the Exchange Act.
3. Schaefer, age 38, has been the Chief Executive Officer and Chairman of the Board of Americorp since its inception in May 1992. Americorp Financial Services, Inc. f/k/a Fidelity Capital Group, a holding company of which Schaefer owns virtually 100 percent of the voting stock, owns Americorp. Schaefer was responsible for supervising all operations of Americorp during the period from February 1994 through April 1994. Schaefer has been a Registered Representative since October 1983 and a General Securities Principal since September 1992.Violations of Section 10(b) of the Exchange Act and Rule 10b-6 Thereunder2
4. Americorp underwrote the IPO of PHC on a firm commitment basis.
5. Americorp and Schaefer placed 273,000 PHC units, approximately 19 percent of the units offered in the IPO, with three of Schaefer's retail customers (the "Nominee Purchasers"), as part of a prearranged plan whereby the three customers agreed to sell most of their units back to Americorp immediately upon the commencement of aftermarket trading in PHC securities.
6. Prior to the effective date of PHC's IPO, Americorp's registered representatives ("RRs"), under the direction of Schaefer, solicited indications of interest for the PHC IPO. Also prior to the effective date of the IPO, the Americorp RRs, under the direction of Schaefer, solicited and accepted aftermarket purchase orders for PHC securities from numerous retail customers. Americorp's RRs prepared order tickets for many of these presolicited aftermarket orders and turned many of them in to Americorp's trading department prior to PHC's IPO becoming effective.
7. The PHC IPO went effective on March 3, 1994. The IPO was oversubscribed and all of the units offered were immediately distributed.
8. Americorp's RRs prepared order tickets for the remaining presolicited aftermarket orders and turned them in to Americorp's trading department in batches, under the direction of Schaefer, after the IPO went effective on March 3, 1994 and while the RRs were soliciting additional orders for PHC securities during the aftermarket.
9. Within approximately two minutes of the time at which the IPO distribution was purportedly complete, Americorp, under the direction of Schaefer, purchased for its account approximately 16 percent of the publicly trading PHC units from the Nominee Purchasers. This stock was then resold to Americorp's retail customers during the afternoon of March 3, 1994 and the morning of March 4, 1994. These retail customers included both customers who had been pre-solicited and also customers whose purchases were newly solicited during aftermarket trading.
10. Because the Nominee Purchasers did not act independently of Americorp and were not bona fide purchasers, the IPO did not actually close as Americorp had claimed. Instead, the distribution was not completed until all of PHC's securities, including all of the approximately 19 percent sold to the Nominee Purchasers and repurchased by Americorp, reached the hands of bona fide purchasers on March 4, 1994.
11. During the course of the activity described in paragraphs II.1 through II.10 above, and while the distribution was ongoing, Americorp, under the direction of Schaefer, bid for or purchased, and induced others to purchase, PHC units by executing purchases of PHC units from other retail customers and from other broker-dealers.
12. During the course of the activity described in paragraphs II.1 through II.10 above, and while the distribution was ongoing, Americorp, under the direction of Schaefer, bid for or purchased, and induced others to purchase, PHC units by posting bid and asked prices for PHC units on the NASDAQ interdealer system.
13. During the course of the activity described in paragraphs II.1 through II.10 Americorp, under the direction of Schaefer, used the means and the instrumentalities of interstate commerce.
14. Based on the foregoing, Americorp and Schaefer willfully violated Section 10(b) of the Exchange Act and Rule 10b-6 promulgated thereunder. Americorp, under the direction of Schaefer, acted as an underwriter or prospective underwriter in a particular distribution of securities, or as an issuer or other person on whose behalf such a distribution was being made, or as a broker, dealer, or other person who had agreed to participate or was participating in such a distribution, or as an "affiliated purchaser" as that term is defined in paragraph (c)(6) of Rule 10b-6, directly or indirectly, by the use of any means or instrumentality of interstate commerce, or of the mails, or of any facility of any national securities exchange, either alone or with one or more other persons, bid for or purchased for accounts in which it had a beneficial interest, a security which was the subject of a distribution, or a security of the same class and series, or any right to purchase any such security, or attempted to induce persons to purchase such security or right, prior to completing its participation in the distribution.Violations of the Antifraud Provisions
15. During the afternoon of March 3, 1994, after the IPO was declared effective, Americorp began making a market in PHC securities and entering quotations for PHC securities on the NASDAQ market. Additionally, Americorp, under the direction of Schaefer, solicited and accepted aftermarket purchase orders for PHC securities from retail customers.
16. Also on the afternoon of March 3, 1994, Schaefer instructed the RRs of Americorp to delay giving the trading department the order tickets both for the presolicited orders for PHC securities which had been solicited and accepted prior to March 3, 1994 and for the orders solicited during the aftermarket on March 3, 1994. During the afternoon, the price of PHC securities continued to rise. After delaying the execution of these orders, Americorp's RRs, under the direction of Schaefer, then turned in the orders to Americorp's trading department for execution in two large batches just before the market closed for the first day of aftermarket trading.
17. During the afternoon of March 3, 1994, Americorp, under the direction of Schaefer, made no attempt to promptly execute either the presolicited purchase orders it had solicited and accepted for PHC securities prior to March 3, 1994 or the purchase orders it had solicited and accepted during the aftermarket trading of March 3, 1994. Rather, Americorp waited until near the end of the trading day on March 3, 1994, when the price of PHC securities was at its highest, to execute the majority of customer orders. At that time, Americorp split the PHC units which Americorp had previously acquired from the Nominee Purchasers and from other customers into their components of common stock and warrants. Americorp used the common stock to fill many of the retail customer orders at the highest price of the day, thereby profiting by approximately $750,000 from the transactions.
18. During the course of the conduct described in paragraphs II.15 to II.17, Americorp, under the direction of Schaefer, used the means or instruments of transportation or communication in interstate commerce and used the mails.
19. As a result of the conduct described in paragraphs II.15 to II.18, Americorp and Schaefer violated their duty of best execution to seek to obtain the most favorable terms reasonably available under the circumstances for their customers' orders. Americorp, under the direction of Schaefer, unreasonably delayed execution of individual customer orders notwithstanding the fact that Americorp was obligated, and had the ability, to execute customer orders from its inventory of PHC securities or to route its customer orders to another market maker for execution at the best available price. Consequently, Americorp's customers paid a higher price to Americorp for PHC securities than was otherwise reasonably available under the circumstances, and Americorp profited at its customers' expense.
20. Based on the conduct described in paragraphs II.15 to II.19, Americorp and Schaefer willfully violated Section 17(a) of the Securities Act in that, in the offer or sale of securities, by the use of the means or instruments of transportation or communication in interstate commerce or by the use of the mails, directly or indirectly, they employed devices, schemes or artifices to defraud; obtained money or property by means of untrue statements of material facts or omitted to state material facts necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading; or engaged in transactions, practices or courses of business which operated or would operate as a fraud or deceit upon the purchaser.
21. Based on the conduct described in paragraphs II.15 to II.19, Americorp and Schaefer willfully violated Section 10(b) of the Exchange Act and Rule 10b-5 thereunder in that, directly or indirectly, by use of the means or instrumentalities of interstate commerce, or of the mails, in connection with the purchase or sale of securities, they employed devices, schemes or artifices to defraud; made untrue statements of material facts or omitted to state material facts necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading; or engaged in acts, practices or courses of business which operated or would operate as a fraud or deceit.
22. Based on the conduct described in paragraphs II.15 to II.19, Americorp willfully violated, and Schaefer willfully aided and abetted and caused Americorp's violations of, Sections 10(b) and 15(c) of the Exchange Act, and Rules 10b-3 and 15c1-2 thereunder, in that Americorp made use of the mails or other means or instrumentalities of interstate commerce to effect transactions in, or to induce or attempt to induce the purchase or sale of, securities otherwise than on a national securities exchange of which it is a member by means of manipulative, deceptive, or other fraudulent devices or contrivances, engaged in acts, practices or courses of business which operated or would operate as a fraud upon any person, and made untrue statements of material fact and omitted to state material facts necessary in order to make the statements made, in light of the circumstances under which they were made, not misleading, which statements or omissions were made with knowledge or reasonable grounds to believe that they were untrue or misleading.Violations of the Books and Records Provisions
23. Americorp failed to make and keep current a memorandum of each purchase and sale of securities for its account showing the price, and to the extent feasible, the time of execution; and, in addition, where such purchase or sale was with a customer other than a broker or dealer, a memorandum of each order received, showing the time of receipt, the terms and conditions of the order, and the account in which it was entered. For example, Americorp failed to make a memorandum of each purchase order received from customers for PHC securities showing the time of receipt. Based on the conduct described in this paragraph, Americorp willfully violated Section 17(a) of the Exchange Act and Rule 17a-3(a)(6) promulgated thereunder.Schaefer's Financial Condition
24. Schaefer has submitted sworn financial statements and other evidence and has asserted his financial inability to pay more than $200,000 in disgorgement or a civil penalty. The Commission has reviewed the financial statements and other evidence provided by Schaefer and, provided that Schaefer has submitted true, accurate and complete statements of his financial condition, including his assets, liabilities, income and expenses, has determined that Schaefer does not have the financial ability to pay more than $200,000 in disgorgement or a civil penalty.III.
In view of the foregoing, the Commission finds that it is in the public interest to impose the sanctions specified in the Offers of Settlement.
Accordingly, it is ORDERED, effective immediately, that
(1) Americorp cease and desist from committing or causing any violation and any future violation of Section 17(a) of the Securities Act and Sections 10(b), 15(c) and 17(a) of the Exchange Act and Rules 10b-3, 10b-5, 15c1-2, 17a-3(a)(6) thereunder and Regulation M;
(2) Americorp's registration as a broker-dealer is revoked;
(3) Schaefer cease and desist from committing or causing any violation and any future violation of Section 17(a) of the Securities Act and Sections 10(b) and 15(c) of the Exchange Act and Rules 10b-3, 10b-5 and 15c1-2 thereunder and Regulation M;
(4) Schaefer be, and hereby is, barred from association with any broker or dealer, with the right to reapply for association after three years to the appropriate self-regulatory organization, or if there is none, to the Commission;
(5) Schaefer pay disgorgement in the amount of $750,000 plus prejudgment interest, dating to the date of the Order Instituting Proceedings, provided, however, that the payment of $550,000 of disgorgement by Schaefer is waived based upon Schaefer's demonstrated inability to pay more than $200,000 in disgorgement. Within thirty (30) days of the entry of this Order, Schaefer shall pay $200,000 in disgorgement to the United States Treasury. Payment shall be (1) made by United States postal money order, certified check, bank cashier's check or bank money order; (2) made payable to the Securities and Exchange Commission; (3) delivered to the Comptroller, Securities and Exchange Commission, Mail Stop 0-3, Operations Center, 6432 General Green Way, Alexandria, Virginia 22312; and (4) submitted under cover of letter identifying the name and number of this administrative proceeding and the Respondent, and specifying that the payment is disgorgement. A copy of the cover letter and payment shall be simultaneously sent to Leslie Kazon, Assistant Regional Director, Securities and Exchange Commission, 7 World Trade Center, New York, New York 10048. The disgorgement paid will be utilized for payment to persons eligible to receive such funds pursuant to a plan of distribution, which shall be submitted by the Division of Enforcement within 60 days from the date of the payment by Schaefer. In the event that all or any portion of these funds remain after adjudication of any claims and disbursements of any funds, the remainder shall be disbursed to the United States Treasury. In no event shall any portion of these funds be returned to Schaefer or his agents, successors, or assigns.
(6) The Division of Enforcement may, at any time following the entry of this Order, petition the Commission to: (a) reopen this matter to consider whether Schaefer provided accurate and complete financial information at the time such representations were made; (b) determine the amount of disgorgement to be paid and the civil penalty to be imposed; and (c) seek any additional remedies that the Commission would be authorized to impose in this proceeding if Schaefer's offer of settlement had not been accepted. No other issues shall be considered in connection with this petition other than whether the financial information provided by Schaefer was fraudulent, misleading, inaccurate or incomplete in any material respect, the amount of disgorgement to be paid and the civil penalty to be imposed and whether any additional remedies should be imposed. Schaefer may not, by way of defense to any such petition, contest the allegations of the Order or the findings contained therein or the Commission's authority to impose any additional remedies that were available in the original proceeding.
By the Commission.
Jonathan G. Katz
|1||The Order Instituting Proceedings in this matter was entered on August 18, 1997.|
|2||On December 20, 1996, the Commission announced the adoption of Regulation M, which contains trading practice rules which replace Rule 10b-6 and various other rules. Exchange Act Release No. 38067 (December 20, 1996). Like Rule 10b-6, Regulation M continues to prohibit the solicitation of aftermarket orders before an underwriter completes its participation in a distribution. In addition, Regulation M does not change the definition of what constitutes a distribution for purposes of the trading practice rules.|
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