SEC.gov | Aubrey O'Connor, Rick Pierson, James Winter, Gregory Bowen and Kenneth Ward Lillian A. McEwen, Administrative Law Judge

SECURITIES ACT OF 1933
Release No. 7763 / October 27, 1999

SECURITIES EXCHANGE ACT OF 1934
Release No. 42063 / October 27, 1999

ADMINISTRATIVE PROCEEDING
File No. 3-9327


_______________________________
                               :
      In the Matter of         :
                               : ORDER MAKING FINDINGS
 Aubrey O'Connor, Rick Pierson : AND IMPOSING SANCTIONS
  James Winter, Gregory Bowen, : AND CEASE-AND-DESIST
        and Kenneth Ward,      : ORDER PURSUANT TO SECTION
                               : 8A OF THE SECURITIES ACT OF 1933
          Respondents.         : AND SECTIONS 15(b), 19(h) AND
                               : 21C OF THE SECURITIES EXCHANGE
                               : ACT OF 1934 AS TO GREGORY
______________________________ : BOWEN

In these proceedings instituted 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"), respondent Gregory Bowen ("Bowen") has submitted an Offer of Settlement ("Offer") that the Securities and Exchange Commission has determined to accept.¹

II.

Solely for the purpose of this proceeding, and any other proceedings brought by or on behalf of the Commission, or to which the Commission is a party, and without admitting or denying the findings contained herein, except as to the jurisdiction of the Commission over Bowen and the findings set forth in Section III, Paragraphs A and B, hereof, which are admitted, and prior to a hearing pursuant to the Commission's Rules of Practice, 17 C.F.R. § 201.100 et seq., Bowen consents to the entry of the findings set out below, and the imposition of remedial sanctions and issuance of a Cease-and-Desist Order.

III.

On the basis of the order instituting proceedings, and Bowen's Offer, the Commission finds as follows²:

GSC

A. The Commission's public files disclose that Government Securities Corporation ("GSC"), formerly known as Government Securities Corporation of Texas, was registered with the Commission as a broker-dealer, pursuant to Section 15(b) of the Exchange Act (File No. 8-36869), from July 25, 1987, until December 8, 1997, when its Form BD/W was deemed effective, and its registration as a broker-dealer was withdrawn.

RESPONDENT

B. Bowen was employed by GSC as a registered representative from May 1988 until July 1994.

BACKGROUND

C. From 1988 through 1994, GSC sold a variety of mortgage-backed derivative securities to public clients, such as municipalities and state educational institutions. The mortgage derivative securities sold by GSC included Interest-Only Strips ("IOs"), Inverse IOs, and Inverse Floaters. IOs and Inverse IOs are collateralized mortgage obligations ("CMOs") that receive only interest payments from an underlying pool of residential mortgages. IOs and Inverse IOs are highly sensitive to changes in interest rates and resulting mortgage prepayment speeds, and, accordingly, subject investors to significant risks, including market, prepayment and liquidity risks and loss of principal. Inverse Floaters are CMOs that have a guaranteed return of investment principal, but are highly sensitive to changes in interest rates and resulting mortgage prepayment speeds and, therefore, also subject investors to significant risks, including market, extension and liquidity risks.

VIOLATIONS OF THE ANTIFRAUD PROVISIONS BY BOWEN

D. From March 1989 through March 1994, Bowen willfully violated Section 17(a) of the Securities Act and Section 10(b) of the Exchange Act and Rule 10b-5 thereunder in that, in the offer or sale of securities, and in connection with the purchase and sale of securities, specifically, IOs, Inverse IOs and Inverse Floaters by use of the means or instrumentalities of interstate commerce or the mails, he, directly or indirectly, employed devices, schemes or artifices to defraud; obtained money or property by means of, or 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; and/or engaged in transactions, practices or courses of business which operated or would operate as a fraud or deceit upon the offeree, purchaser or seller.

E. To induce GSC public clients to purchase high-risk CMOs, Bowen made various misrepresentations and omissions to them, including the following:

1. misrepresenting the high-risk CMOs as suitable investments which were consistent with clients' objectives of safety of principal, liquidity, market stability, short duration and low risk;

2. referring to the high-risk CMOs as "Fannie Mae," "Freddie Mac," or "FNMA" securities, while omitting to disclose that the instruments were volatile CMO tranches;

3. misrepresenting the IOs and Inverse IOs as government guaranteed and that their principal was fully protected;

4. failing to disclose that the IOs and Inverse IOs carry an inherent risk of loss of principal and illiquidity;

5. failing to disclose that the market value and yield of the IOs and Inverse IOs are highly sensitive to changes in interest rates and prepayment speeds;

6. failing to disclose that the characteristics of the Inverse Floaters, including duration and yield, were highly sensitive to changes in interest rates;

7. failing to disclose that the Inverse Floaters were subject to extension risk of as much as 30 years.

F. Bowen provided GSC's public clients with documents, including Bloomberg yield flow tables, Trade Recaps, and Fixed Income Transaction Analyses, which misrepresented, or failed to fully disclose, the characteristics and risks of the IOs, Inverse IOs and Inverse Floaters.

VI.

In view of the foregoing, the Commission deems it appropriate in the public interest and for the protection of investors to impose the sanctions specified in the Offer Bowen submitted.

Accordingly, IT IS HEREBY ORDERED that:

Bowen, pursuant to Section 8A of the Securities Act and Section 21C of the Exchange Act, shall cease and desist from committing or causing any violations or future violations of Section 17(a) of the Securities Act, and Section 10(b) of the Exchange Act, and Rule 10b-5 thereunder;

Bowen be, and hereby is, barred from association with any broker or dealer, with a right to reapply for association after two years to the appropriate self-regulatory association, or if there is none, to the Commission;

Bowen shall, within 90 days of the entry of this Order, pay disgorgement in the amount of $33,664, with prejudgment interest of $31,258, and a civil penalty of $5,000, both to the United States Treasury and that these payments 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) hand-delivered or mailed to the Comptroller, Securities and Exchange Commission, Operations Center, 6432 General Green Way, Stop 0-3, Alexandria, VA 22312; and 4) submitted under a cover letter that identifies Bowen as a respondent in these proceedings and states the file number of these proceedings, a copy of which, along with the money orders or checks, shall be sent to Harold F. Degenhardt, District Administrator, Fort Worth District Office, Securities and Exchange Commission, 801 Cherry Street, 19th Floor, Ft. Worth, TX 76102.

By the Commission.

Jonathan G. Katz
Secretary

Footnotes

¹The order instituting these proceedings was issued on June 4, 1997.

²The findings herein are binding only on respondent, and not on any other person.