UNITED STATES OF AMERICA Before the SECURITIES AND EXCHANGE COMMISSION Securities Act of 1933 Release No. 7425 / June 25, 1997 Securities Exchange Act of 1934 Release No. 38773 / June 25, 1997 Accounting and Auditing Enforcement Release No. 929 / June 25, 1997 Administrative Proceeding File No. 3-9340 In the Matter of NATIONAL PARTNERSHIP INVESTMENTS CORPORATION; NATIONAL PARTNERSHIP EQUITIES,: INC.; NATIONAL CORPORATE TAX CREDIT FUND; CENTURY HILLCRESTE APARTMENT INVESTORS, L.P.; ALAN I. CASDEN; CHARLES H. BOXENBAUM; and BRUCE E. NELSON, Respondents. ORDER INSTITUTING PROCEEDINGS PURSUANT TO SECTION 8A OF THE SECURITIES ACT OF 1933 AND SECTIONS 15(b)(4) AND 21C OF THE SECURITIES EXCHANGE ACT OF 1934, MAKING FINDINGS AND IMPOSING REMEDIAL SANCTIONS I. The Securities and Exchange Commission ("Commission") deems it appropriate and in the public interest that public administrative proceedings be, and hereby are, instituted pursuant to Section 8A of the Securities Act of 1933 ("Securities Act") and Sections 15(b)(4) and 21C of the Securities Exchange Act of 1934 ("Exchange Act") against National Partnership Investments Corporation ("NAPICO"); National Partnership Equities, Inc. ("NPEI"); National Corporate Tax Credit Fund (the "Corporate Fund"); Century HillCreste Apartment Investors, L.P. ("HillCreste"); Alan I. Casden; Charles H. Boxenbaum; and Bruce E. Nelson. NAPICO, NPEI, the Corporate Fund, HillCreste, Casden, Boxenbaum, and Nelson (collectively "Respondents") have submitted Offers of Settlement which the Commission has determined to accept. Solely for the purposes of these proceedings and any other proceedings brought by or on behalf of the Commission or in which the Commission is a party, Respondents, without admitting or denying any of the findings, except that Respondents admit the jurisdiction of the Commission over them and with respect to the matters set forth herein, consent to the issuance of this Order Instituting Proceedings Pursuant to Section 8A of the Securities Act of 1933 and Sections 15(b)(4) and 21C of the Securities Exchange Act of 1934, Making Findings and Imposing Remedial Sanctions. II. On the basis of this Order and Respondents' Offers of Settlement, the Commission makes the following findings:<(1)> A. RESPONDENTS 1. NAPICO is a California corporation, beneficially owned by Casden. In the past ten years, NAPICO has served as general partner in thirteen public and seven private partnerships, which have raised in the aggregate over $950,000,000 from approximately 38,000 individual investors and ninety-five corporate investors. Typically, these partnerships invest directly or indirectly in real estate projects. This proceeding concerns one public partnership (HillCreste) and one private corporate partnership (the Corporate Fund). 2. NPEI, a NAPICO subsidiary whose employees are also employees of NAPICO, is a broker-dealer registered with the Commission pursuant to Section 15(b) of the Exchange Act. At various times, NPEI has engaged in the solicitation of investments in NAPICO-sponsored funds and has entered into agreements with other broker-dealers to help effect those solicitations. For the Corporate Fund offering, NPEI entered into an agreement with another broker-dealer firm (the "co-placement agent"), which served as co-placement agent for the offering. NPEI and the other broker- dealer firm obtained all subscriptions to the Corporate Fund. 3. The Corporate Fund is a NAPICO-sponsored and controlled real estate limited partnership. From 1991 through 1993, the Corporate Fund offered and sold its limited partnership units in a private placement pursuant to the safe harbor provisions of Regulation D. The initial phase of that offering, which was subject to a provision in the Corporate Fund's private placement memorandum requiring a minimum total subscription of $5 million before escrow could be broken, occurred in June 1992. 4. HillCreste, a NAPICO-sponsored and controlled partnership, raised $72,580,000 in a public offering to acquire and operate a 315-unit apartment building in Los Angeles, California. Until 1996, HillCreste's apartment building was managed by Mayer Management, Inc., a California corporation beneficially owned by Casden. 5. Casden, 51, is Vice Chairman of the Board of Directors of NAPICO. He is also the 100% beneficial owner of NAPICO and Mayer Management, Inc. 6. Boxenbaum, 67, is Chairman of the Board of Directors and Chief Executive Officer of NAPICO. At all relevant times, he was a registered representative of NPEI. 7. Nelson, 46, is President and a Director of NAPICO. At all relevant times, he was a registered representative of NPEI. <(1)> The findings herein are made pursuant to Respondents' Offers of Settlement and are not binding on any other person or entity in this or any other proceeding. ======END OF PAGE 2====== B. THE CORPORATE FUND OFFERING In September 1991, the Corporate Fund commenced a private offering of its limited partnership units pursuant to the safe harbor provisions of Regulation D. The Corporate Fund was formed to invest in multifamily housing complexes that qualified for low-income housing federal income tax credits. Pursuant to the private placement memorandum, a minimum sale of five units, priced at $1 million each (if financed), was required to accomplish the offering's initial closing and to break escrow. Boxenbaum and Nelson, who held securities broker licenses, solicited investors for the Corporate Fund through NAPICO's broker-dealer subsidiary, NPEI. By early 1992, NPEI and the co-placement agent had not yet obtained subscriptions for the five units needed to accomplish the initial closing of the Corporate Fund. In June of 1992, a subscription was submitted by an Arizona building construction corporation (the "Construction Company"), which was, at that time, employed as a contractor on an apartment complex owned indirectly by another NAPICO-sponsored partnership. The Construction Company had insufficient assets to qualify as an investor under the terms stated in the Corporate Fund private placement memorandum and did not have the financial ability to pay for an investment in the Corporate Fund. Prior to the Construction Company's subscription to the Corporate Fund offering, NAPICO accelerated the release of a capital contribution and authorized the placement of a third-party mortgage on another apartment complex, the proceeds of which were distributed to an affiliate of the Construction Company. A portion of those proceeds were lent by the affiliate to the Construction Company, which used the money to partially fund its subscription to the Corporate Fund. The Construction Company subsequently repaid the loan from the affiliate with funds related to its work on another apartment complex owned indirectly by a NAPICO-sponsored partnership. As a condition to the initial closing of the Corporate Fund offering, NPEI was required to certify that all investors met the qualifications stated in the Corporate Fund private placement memorandum. NAPICO was also required to certify compliance with federal securities laws. Although they were aware of the release of the capital contribution and the third-party mortgage described in the previous paragraph and of information suggesting that the Construction Company was not a qualified investor, and without making or directing an investigation to confirm that the Construction Company was qualified as a Corporate Fund investor, Boxenbaum and Nelson signed the requisite certifications on behalf of NPEI and NAPICO. Thereafter, Nelson instructed the escrow bank to disburse the offering proceeds. Subsequent closings for the Corporate Fund occurred in January 1993 and September 1993, increasing gross proceeds from the offering to approx- imately $67,312,500. Casden, Boxenbaum and Nelson caused these closings to occur even though the offering documents distributed to potential investors subsequent to the initial closing contained no disclosure relating to the transactions described previously. ======END OF PAGE 3====== C. CENTURY HILLCRESTE HillCreste, a NAPICO-sponsored and controlled partnership, obtained $72,580,000 in a 1988 public offering to acquire and operate a 315-unit apartment building in Los Angeles, California. The HillCreste prospectus generally prohibited: 1) the commingling of HillCreste funds with those of any other entity; 2) loans from HillCreste to NAPICO or its affiliates; and 3) the use of HillCreste funds in any manner other than for the exclusive benefit of HillCreste. Mayer Management, a company beneficially owned by Casden, was the property manager for HillCreste, as well as a number of other properties. Mayer Management paid HillCreste's expenses out of its Master Disbursement Trust Account (the "MDTA"). In theory, the MDTA was to be run as an imprest (or zero-balance) account, against which a single check would be drawn to cover all expenses owed to a given vendor by the various properties managed by Mayer Management, with each such property reimbursing the MDTA its share of the expenses. Beginning in September 1991 and continuing at least through the second quarter of 1993, Mayer Management caused HillCreste to maintain material positive balances in the MDTA that over-funded HillCreste's share of the expenses to be paid from the MDTA and were used to pay the expenses of other rental properties that were managed by Mayer Management, including properties syndicated by entities affiliated with Casden or NAPICO. Hillcreste's Commission filings did not disclose that HillCreste was maintaining material positive balances in the MDTA that were used to pay the expenses of properties that were also managed by Mayer Management, including properties syndicated by entities affiliated with Casden or NAPICO, and that HillCreste had improperly recorded those positive balances as cash assets of HillCreste. D. LEGAL ANALYSIS 1. Violations of Section 10(b) and Rule 10b-9 in Connection with the Fund Offering Pursuant to Rule 10b-9, it is a violation of Section 10(b) of the Exchange Act to represent that a security is being sold as part of an all- or-nothing or part-or-nothing ("minimum-maximum") offering, unless all investors' funds will be promptly returned in the event that the designated amount of proceeds is not actually received by a specified date. The purpose of this rule is to ensure that those who invest in a venture under the condition that it will not go forward unless adequately capitalized are not at risk of losing their investment if that condition is not met. See generally Robbins, "All or None Offerings," 19 Rev. Sec. and Commod. Reg. 59 (1986). Rule 10b-9 also provides investors the protection of knowing "that unless [their] judgment to take the risk is shared by enough others to sell out the issue, [their] money will be returned." SEC v. Blinder, Robinson & Co., Inc., 542 F. Supp. 468, 476 (D. Colo. 1982), aff'd, Fed. Sec. L. Rep. (CCH) 99.491 (10th Cir. 1983), cert. denied, 105 S. Ct. 783 (1985). Accord, In re Gallagher & Co., Sec. Act Rel. No. 29244, 48 SEC ======END OF PAGE 4====== Doc. 1759 (May 29, 1991). As interpreted by the Commission, Rule 10b-9 requires that "all the securities required to be placed are sold in bona fide transactions." Exch. Act Rel. No. 11532 (July 11, 1975), Fed. Sec. L. Rep. (CCH) 22,730. That release further states that "non-bona fide sales" are sales "designed to create the appearance of a successful completion of the offering, such as purchases by the issuer through nominee accounts..." See Svalberg v. SEC, 876 F.2d 181, 183 (D.C. Cir. 1989); SEC v. Coven, 581 F.2d 1020, 1028 (2d Cir. 1978), cert. denied, 441 U.S. 928 (1979); SEC v. Electronics Warehouse, Inc., 689 F. Supp. 53 (D. Conn. 1988). Once the all-or-none or part-or-none representation has been made, it may not be circumvented by transactions primarily designed to create the appearance of a successful offering in order to avoid the refund feature of the offering. SEC v. Coven, 581 F.2d 1020 (2d Cir. 1978). By accepting a subscription from the Construction Company in the manner described previously, NAPICO and the Corporate Fund violated Section 10(b) of the Exchange Act and Rule 10b-9 thereunder. Casden, Boxenbaum and Nelson, each of whom was instrumental in causing escrow to be broken for the initial phase of the offering, knew or should have known that the final subscription did not come from a bona fide investor. Each was, therefore, a cause of the violations by NAPICO and the Corporate Fund of Section 10(b) and Rule 10b-9 thereunder. 2. Violations of Sections 17(a)(2) and (3) of the Securities Act in Connection with the Corporate Fund Sections 17(a)(2) and (3) of the Securities Act prohibit material misrepresentations and omissions in connection with the offer or sale of securities. NAPICO and the Corporate Fund violated these provisions when they failed to disclose, during the pendency of the Corporate Fund offering, that one subscription to the initial phase of the offering was not made by a qualified investor and, thus, the initial closing did not occur in compliance with the requirements of the Corporate Fund private placement memorandum. Casden, Boxenbaum and Nelson, each of whom was in a position to influence the content of Corporate Fund disclosure on this issue, knew or should have known that such disclosure was required. Each, therefore, caused the violations by NAPICO and the Corporate Fund of Sections 17(a)(2) and (3) of the Securities Act. 3. Violations of Section 15(c)(2) of the Exchange Act and Rule 15c2- 4 thereunder in Connection with the Corporate Fund Section 15(c)(2) of the Exchange Act and Rule 15c2-4 thereunder prohibit, with respect to an offering with a stated minimum investment to close, the disbursement of funds from escrow until that minimum investment has been obtained. These provisions are violated when a broker instructs the escrow bank to disburse the offering proceeds when the minimum stated investment has not been obtained. C.E. Carlson, Inc. v. SEC, 859 F.2d ======END OF PAGE 5====== 1429, 1436 (10th Cir. 1988). NPEI instructed the escrow bank to disburse the offering proceeds even though a non-qualified subscription was one of those used to meet the Corporate Fund's minimum investment requirement. Accordingly, NPEI violated Section 15(c)(2) and Rule 15c2-4 thereunder. 4. Violations of Sections 17(a)(2) and (3) of the Securities Act and Section 13(a) of the Exchange Act and Rules 13a-1, 13a-13 and 12b-20 thereunder in Connection with the HillCreste Periodic Reports A registrant violates Section 13(a) and Rules 13a-1 and 13a-13 when its annual or quarterly reports contain materially false or misleading information. Financial statements incorporated in Commission filings that do not comply with generally accepted accounting principles ("GAAP") are presumed to be misleading. Regulation S-X, Item 4-01(a). Additionally, Rule 12b-20 requires that a registrant's periodic reports contain all information necessary to ensure that the statements made in them are not materially misleading. False or misleading disclosure in Commission filings also violates Section 17(a)(2) and (3) of the Securities Act. The audited financial statements contained in HillCreste's Commission filings on Form 10-K and the unaudited financial statements contained in HillCreste's filings on Form 10-Q from 1991 through 1993 failed to comply with GAAP because they misclassified as cash assets funds which should have been recorded as related-party receivables as described above. GAAP requires financial statement disclosure of related party transactions. Statement of Financial Accounting Standards No. 57. See also Regulation S- K, Items 404(a) and (c). Regulation S-K, Item 303(a) requires that each registrant provide, in its annual reports on Form 10-K, management discussion and analysis of, among other things, "any known trends or any known demands, commitments, events or uncertainties that will result in or are reasonably likely to result in the registrant's liquidity increasing or decreasing in any material way." HillCreste violated the reporting provisions by failing to disclose in its Commission filings that the partnership's cash was used to pay the expenses of other properties that were managed by Mayer Management, including properties syndicated by entities affiliated with Casden or NAPICO. SEC v. Doug Frank Development Corp., SEC Lit. Rel. No. 7611 (Oct. 14, 1976); In the Matter of Franchard Corp., Sec. Act Rel. No. 33-4710 (July 31, 1964). Casden was in a position to influence the content of HillCreste's disclosure and knew or should have known that HillCreste's Commission filings were materially false and misleading, as described above. By permitting HillCreste to file such periodic reports, Casden caused HillCreste's violations of Sections 17(a)(2) and (3) of the Securities Act and Section 13(a) of the Exchange Act and Rules 13a-1, 13a-13 and 12b-20 thereunder. ======END OF PAGE 6====== 5. Violations of Sections 13(b)(2)(A) and (B) of the Exchange Act of 1934 Section 13(b)(2)(A) of the Exchange Act requires, in pertinent part, that issuers make and keep books, records and accounts which, in reasonable detail, accurately and fairly reflect the transactions of the issuer and dispositions of its assets. Section 13(b)(2)(B) of the Exchange Act requires, in pertinent part, that issuers devise and maintain a system of internal accounting controls sufficient to provide reasonable assurances that transactions are recorded as necessary to permit preparation of financial statements in conformity with GAAP and any other criteria applicable to such statements. HillCreste violated Section 13(b)(2)(A) of the Exchange Act by recording the excess funds in the MDTA as cash rather than as related party receivables. HillCreste also violated Section 13(b)(2)(B) of the Exchange Act by failing to adopt and maintain a system of internal controls reasonably designed to assure that its transactions would be accurately recorded and would allow the preparation of its financial statements in conformity with GAAP. Casden knew or should have known that HillCreste was recording excess funds deposited in the MDTA as cash when HillCreste should have been classifying those excess funds as related party receivables. Casden's failures to take sufficient steps to ensure that internal controls were adequate caused HillCreste's violations of these provisions. III. Based upon the foregoing, the Commission finds that: A. In connection with the Corporate Fund offering: NAPICO and the Corporate Fund violated Sections 17(a)(2) and (3) of the Securities Act and Section 10(b) of the Exchange Act and Rule 10b-9 thereunder; Casden, Boxenbaum, and Nelson caused NAPICO's and the Corporate Fund's violations of Sections 17(a)(2) and (3) of the Securities Act and Section 10(b) of the Exchange Act and Rule 10b-9 thereunder; and NPEI willfully <(2)> violated Section 15(c)(2) of the Exchange Act and Rule 15c2-4 thereunder; B. In connection with HillCreste's Forms 10-K and Forms 10-Q for the period September 30, 1991 through June 30, 1993: HillCreste violated Sections 17(a)(2) and (3) of the Securities Act, and Sections 13(a), 13(b)(2)(A) and (B) of the Exchange Act and Rules 13a-1, 13a-13 and 12b-20 thereunder; and Casden caused <(2)> "Willfully" as used in this Order means intentionally committing the act which constitutes the violation. There is no requirement that the actor also be aware that he is violating one of the Rules or the Acts. See Tager v. SEC, 344 F.2d 5, 8 (2d Cir. 1965). ======END OF PAGE 7====== HillCreste's violations of Sections 17(a)(2) and (3) of the Securities Act, and Sections 13(a), 13(b)(2)(A) and (B) of the Exchange Act and Rules 13a-1, 13a-13 and 12b-20 thereunder; and C. It is appropriate and in the public interest to impose the sanctions consented to in the Offers submitted by NAPICO, NPEI, the Corporate Fund, HillCreste, Casden, Boxenbaum and Nelson. Accordingly, IT IS HEREBY ORDERED that: A. NAPICO, the Corporate Fund, Boxenbaum and Nelson cease and desist from committing or causing any violations and any future violations of Sections 17(a)(2) and (3) of the Securities Act and Section 10(b) of the Exchange Act and Rule 10b-9 thereunder; and that NPEI cease and desist from committing or causing any violations and any future violations of Section 15(c)(2) of the Exchange Act and Rule 15c2-4 thereunder; B. HillCreste cease and desist from committing or causing any violations and any future violations of Sections 17(a)(2) and (3) of the Securities Act, and Sections 13(a), 13(b)(2)(A) and (B) of the Exchange Act and Rules 13a-1, 13a-13 and 12b-20 thereunder; C. Casden cease and desist from committing or causing any violations of, and committing or causing any future violations of, Sections 17(a)(2) and (3) of the Securities Act, Sections 13(a), 13(b)(2)(A) and (B) of the Exchange Act and Rules 13a-1, 13a-13 and 12b-20 thereunder, and Section 10(b) of the Exchange Act and Rule 10b-9 thereunder; D. NPEI shall comply with the following undertakings: 1. That within five (5) days of the date of this Order, NPEI shall employ an independent consultant with experience in broker-dealer compliance matters, and not unacceptable to the Commission's staff; 2. That within sixty (60) days of the date of this Order, NPEI shall cause the independent consultant: a. To complete a review of NPEI's compliance and supervisory policies, practices and procedures; b. To formulate policies, practices and procedures designed to prevent and detect possible violations of the federal securities laws involving the sale and distribution of securities by the firm and its registered representatives in connection with any offering with which NPEI is associated; c. To prepare a report which details the policies, procedures and practices specified in Section ======END OF PAGE 8====== III.D.2.b. above (the "Report"); and d. To deliver the Report to the President of NPEI and counsel for the Commission. 3. That within ten (10) days of NPEI's receipt of the Report: a. NPEI shall adopt, implement and maintain any and all policies, practices and procedures set forth in the Report; and b. NPEI shall submit an affidavit to counsel for the Commission setting forth the details of its adoption, implementation and maintenance of the policies, practices and procedures set forth in the Report. E. NPEI pay a civil monetary penalty, pursuant to Section 21B of the Exchange Act, in the amount of $100,000. Such payment shall be made within five business days of the date of this Order and shall be: (a) made by United States postal money order, certified check, bank cashier's check or bank money order; (b) made payable to the U.S Treasury; (c) hand-delivered to the Comptroller, Securities and Exchange Commission, 6432 General Green Way, Alexandria, VA 22312, and; (d) submitted under cover letter that identifies the Respondents in these proceedings, the file number of these proceedings and the Commission's ======END OF PAGE 9====== case number (HO-2768), a copy of which cover letter and money order or check will be sent to Gary N. Sundick, Associate Director, Division of Enforcement, SEC, 450 Fifth St., N.W., Mail Stop 8-1, Washington, D.C., 20549. By the Commission. Jonathan G. Katz Secretary ======END OF PAGE 10======