UNITED STATES OF AMERICA Before the SECURITIES AND EXCHANGE COMMISSION SECURITIES ACT OF 1933 Release No. 7294 / May 21, 1996 INVESTMENT COMPANY ACT OF 1940 Release No. 21966 / May 21, 1996 INTERNATIONAL SERIES Release No. 983 / May 21, 1996 ADMINISTRATIVE PROCEEDING File No. 3-9006 ______________________________ : In The Matter of : ORDER INSTITUTING PROCEEDINGS : PURSUANT TO SECTION 8A OF THE Voucher Investment Fund : SECURITIES ACT OF 1933 AND RUSS-INVEST, : SECTION 9(f) OF THE INVESTMENT : COMPANY ACT OF 1940, FINDINGS Respondent. : AND CEASE-AND-DESIST ORDER ______________________________: I. The Securities and Exchange Commission ("Commission") deems it appropriate and in the public interest that public administrative proceedings be, and they hereby are, instituted against Voucher Investment Fund RUSS-INVEST ("RUSS-INVEST") pursuant to Section 8A of the Securities Act of 1933 and Section 9(f) of the Investment Company Act of 1940. II. In anticipation of the institution of these administrative proceedings, RUSS-INVEST has submitted an Offer of Settlement which the Commission has determined to accept. Solely for the purpose of these proceedings 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 set forth herein, except as to jurisdiction which RUSS-INVEST admits, RUSS- INVEST consents to the entry of this Order Instituting Proceedings pursuant to Section 8A of the Securities Act of 1933 and Section 9(f) of the Investment Company Act of 1940, Findings and Cease-and-Desist Order ("Order"). ==========================================START OF PAGE 2====== III. On the basis of this Order and RUSS-INVEST's Offer of Settlement, the Commission finds the following: A. RUSS-INVEST RUSS-INVEST is a Moscow-based investment company; it has not registered its securities with the Commission and has not registered with the Commission as an investment company. The predecessor to RUSS-INVEST, MMM-INVEST, was founded in December 1992 and was licensed in January 1993 by the State Property Committee of the Russian Federation as a voucher investment fund, a type of entity created as part of Russia's privatization process. In May 1995, MMM-INVEST changed its name to RUSS-INVEST to eliminate the "MMM" designation and thereby distinguish itself from JSC-MMM, a Russian joint stock company. The business of RUSS-INVEST, and what its license permits, is to sell its shares to investors in exchange for vouchers or cash and to invest its shareholders' vouchers or funds in the stock of Russian companies and Russian government securities. RUSS-INVEST employs a fund manager and derives its income from both stock dividends and the trading of its portfolio securities. As of June 1995, RUSS-INVEST held shares of 26 Russian companies. Between 10 and 16 percent of RUSS-INVEST's assets was invested in Russian government securities; the remainder was invested in shares of companies engaged in businesses such as oil extraction, oil refinery, automobile production and ferrous metallurgy. As of June 1995, RUSS-INVEST had a total of 102 million authorized shares, of which it had issued less than half. B. RUSS-INVEST'S CONDUCT On June 8, 1995, a half-page advertisement placed by RUSS- INVEST appeared in The New York Times, a publication with circulation throughout the United States. The advertisement identified RUSS-INVEST as Russia's largest voucher investment fund and briefly described its history. According to the advertisement, RUSS-INVEST's "carefully chosen investment strategy [had] built up the Fund's resources in the form of shares from privatised [sic] companies with a high degree of liquidity." The advertisement contained the representation that RUSS-INVEST's "investment portfolio liquid shares" had a market value of $35 million. The advertisement stated that readers could "call us for additional information or send by fax your orders for buying and selling shares of Russian private companies or Voucher Investment Fund RUSS-INVEST" (emphasis added). It listed two telephone numbers in Russia, one a fax line, for readers to use. The ==========================================START OF PAGE 3====== advertisement also stated that the "Fund Managers will be available for direct contact in the USA during the American-Russian Opportunity Congress . . . in Las Vegas and Los Angeles from 11 to 17 June 1995," and supplied a California telephone number for readers to use to obtain more information about the conference. RUSS-INVEST's fund manager came to the United States in June 1995 to attend the conference but did not do so. C. RUSS-INVEST'S VIOLATIONS 1. RUSS-INVEST MADE AN UNREGISTERED OFFER TO SELL SECURITIES Section 5(c) of the Securities Act of 1933 requires generally that any public offer to buy or sell a security using the United States mails or any other means or instrumentality of interstate commerce be registered with the Commission. Under the Securities Act, the term "offer" includes "every attempt or offer to dispose of, or solicitation of an offer to buy, a security or interest in a security, for value." Section 2(3) of the Securities Act. RUSS-INVEST has not registered any securities with the Commission, and the language of its June 8 advertisement in The New York Times constitutes a public offering of securities. See SEC v. Thomas D. Kienlen Corp., 755 F. Supp. 936, 940 (D. Or. 1991) (citing SEC v. Arvida Corp., 169 F. Supp. 211, 215 (S.D.N.Y. 1958)). 2. RUSS-INVEST ACTED AS AN UNREGISTERED INVESTMENT COMPANY Section 7(d) of the Investment Company Act of 1940 prohibits, among other things, an investment company organized or otherwise created under the laws of a foreign country ("foreign investment company") from using the United States mails or any other means or instrumentality of interstate commerce to offer for sale, sell, or deliver after sale any securities in connection with a public offering. Upon application by a foreign investment company, the Commission may, if it makes certain findings, permit a foreign investment company to register as an investment company and make a public offering of its securities. No such application was made here. RUSS-INVEST, as described in this Order and its advertisement, falls within the definitions of an "investment company" in Sections 3(a)(1) and (3) of the Investment Company Act. RUSS-INVEST is an "issuer" that "is or holds itself out as being engaged primarily . . . in the business of investing, reinvesting or trading in securities," and "is engaged . . . in the business of investing, reinvesting, owning, holding, or trading in securities, and owns . . . investment securities ==========================================START OF PAGE 4====== having a value exceeding 40 per centum of the value of [its] total assets (exclusive of Government securities and cash items) on an unconsolidated basis." As stated above, an offering of securities through an advertisement in The New York Times is a public offering. Based on the foregoing, the Commission finds that RUSS- INVEST violated Section 5(c) of the Securities Act of 1933 and Section 7(d) of the Investment Company Act of 1940. IV. In view of the foregoing, the Commission has determined it is in the public interest to accept RUSS-INVEST's Offer of Settlement. Accordingly, IT IS HEREBY ORDERED, pursuant to Section 8A of the Securities Act of 1933 and Section 9(f) of the Investment Company Act of 1940, that RUSS-INVEST cease and desist from committing or causing any violation and any future violation of Section 5(c) of the Securities Act of 1933 and Section 7(d) of the Investment Company Act of 1940. By the Commission. ________________________________ Jonathan G. Katz Secretary