UNITED STATES OF AMERICA Before the SECURITIES AND EXCHANGE COMMISSION SECURITIES ACT OF 1933 Release No. 7482 / December 4, 1997 SECURITIES EXCHANGE ACT OF 1934 Release No. 39398 / December 4, 1997 ADMINISTRATIVE PROCEEDING File No. 3-9498 ________________________________ : ORDER INSTITUTING PUBLIC In the Matter of : ADMINISTRATIVE AND CEASE-AND- : DESIST PROCEEDING PURSUANT TO ARMSCOTT SECURITIES, LTD. : SECTION 8A OF THE SECURITIES : ACT OF 1933 AND SECTIONS 15(b), Respondent. : 15B, 19(h), 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 a public administrative and cease-and-desist proceeding pursuant to Section 8A of the Securities Act of 1933 ("Securities Act") and Sections 15(b), 15B, 19(h), and 21C of the Securities Exchange Act of 1934 ("Exchange Act"), be instituted against Armscott Securities, Ltd. ("Armscott"). II. In anticipation of the institution of this proceeding, Armscott has submitted an Offer of Settlement, which the Commission has determined to accept. 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 that Armscott admits the jurisdiction of the Commission over it and the subject matter of this proceeding, Armscott by its Offer of Settlement consents to the findings and the imposition of the sanctions contained in this Order Instituting Public Administrative and Cease-and-Desist Proceeding Pursuant to Section 8A of the Securities Act of 1933 and Sections 15(b), 15B, 19(h), and 21C of the Securities Exchange Act of 1934, Making Findings, and Imposing Remedial Sanctions ("Order"). Accordingly, IT IS ORDERED that a proceeding against Armscott be, and hereby is, instituted. III. On the basis of this Order, and the Offer of Settlement submitted by Armscott, the Commission finds <(1)> that: A. Armscott has been registered with the Commission as a broker- dealer from July 28, 1989, to the present (File No. 8-41439). Armscott is located in Los Angeles, California. B. From January 1995 through March 1997, Armscott sold certain government securities, specifically mortgage-backed securities issued or guaranteed by the Federal Home Loan Mortgage Corporation, the Federal National Mortgage Association, and the Government National Mortgage Association, to customers. C. From January 1995 through March 1997, in connection with the sale of these government securities, Armscott, in 14 trades, charged customers undisclosed, excessive markups. The total markups that Armscott charged customers in connection with these government securities transactions ranged between 1.42% and 3.50% (totalling $37,610), and generated excess profits totalling at least $24,515. D. From March 1995 through March 1996, Armscott sold Los Angeles, California Regional Airport Improvement Corporation Lease Revenue Facilities bonds to customers. In connection with the purchase and sale of these municipal securities, Armscott, in 5 trades which were executed near the securities' call dates, charged customers undisclosed, excessive markups which ranged between 1.87% and 3.50%. E. In September 1995, Armscott bought Los Angeles, California Regional Airport Improvement Corporation Lease Revenue Facilities bonds from a customer. In connection with the purchase of these municipal securities, Armscott charged its customer an undisclosed, excessive markdown of 3.29% (or $1,575), and generated excess profits totalling $137. F. Armscott failed to disclose to customers that it charged excessive markups and markdowns in connection with the transactions described in Paragraphs III.B. through E. above. G. Armscott willfully violated Section 17(a) of the Securities Act by, directly and indirectly, using the means and instruments of transportation or communication in interstate commerce and by use of the mails in the offer or sale of securities: (1) to employ devices, schemes, and artifices to defraud; (2) to obtain money and property by means of untrue statements of material fact and omissions to state material facts necessary in order to make the statements made, in the light of the <(1)> The findings herein are made pursuant to Armscott's Offer of Settlement and are not binding on any other person or entity named as a respondent in this or any other proceeding. ======END OF PAGE 2====== circumstances under which they were made, not misleading; and (3) to engage in transactions, practices, and a course of business which operated as a fraud or deceit upon purchasers of securities, as is more particularly described in Paragraphs III.B. through F. above. H. Armscott willfully violated Section 10(b) of the Exchange Act and Rule 10b-5 thereunder by, directly and indirectly, using the means and instrumentalities of interstate commerce and of the mails in connection with the purchase or sale of securities: (1) to employ devices, schemes, and artifices to defraud; (2) to make untrue statements of material facts and to omit 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 (3) to engage in acts, practices, and a course of business which operated as a fraud or deceit upon customers, as is more particularly described in Paragraphs III.B. through F. above. I. Armscott willfully violated Section 15(c)(1) of the Exchange Act and Rule 15c1-2 thereunder by making use of the mails and the means and instrumentalities of interstate commerce to effect transactions in, and to induce and to attempt to induce the purchase and sale of securities otherwise than on a national securities exchange of which Armscott was a member, by: (1) engaging in acts, practices, and a course of business which operated as a fraud or deceit upon Armscott's customers; and (2) making untrue statements of material fact and omitting 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, which statements or omissions were made with knowledge or reasonable grounds to believe that the statements or omissions were untrue or misleading, as is more particularly described in Paragraphs III.B. through F. above. J. Armscott willfully violated Section 15B(c)(1) of the Exchange Act and Rule G-17 of the Municipal Securities Rulemaking Board ("MSRB") by making use of the mails and the means and instrumentalities of interstate commerce to effect transactions in, and to induce and to attempt to induce the purchase and sale of, municipal securities in contravention of Rule G- 17 of the MSRB, as is more particularly described in Paragraphs III.D. through F. above. K. Armscott willfully violated Section 15B(c)(1) of the Exchange Act and Rule G-30 of the MSRB by making use of the mails and the means and instrumentalities of interstate commerce to effect transactions in, and to induce and to attempt to induce the purchase and sale of, municipal securities in contravention of Rule G-30 of the MSRB, as is more particularly described in Paragraphs III.D. through F. above. L. Armscott has submitted a financial statement and other evidence and has asserted its financial inability to pay a civil money penalty. The Commission has reviewed the financial statement and other evidence provided by Armscott and has determined that Armscott does not have the financial ability to pay a civil money penalty. ======END OF PAGE 3====== IV. On the basis of the foregoing, the Commission deems it appropriate to impose the sanctions specified in Armscott's Offer of Settlement. Accordingly, IT IS HEREBY ORDERED that: A. Pursuant to Section 8A of the Securities Act and Section 21C of the Exchange Act, Armscott shall cease and desist from committing or causing any violation and any future violation of Section 17(a) of the Securities Act, Sections 10(b), 15(c)(1), and 15B(c)(1) of the Exchange Act and Rules 10b-5 and 15c1-2 thereunder, and MSRB Rules G-17 and G-30; B. Armscott shall comply with its undertaking to file Form BDW to withdraw its registration as a broker-dealer within twenty-one (21) days from the entry of this Order; and C. Armscott shall, within twenty-one (21) days after entry of this order, pay disgorgement with prejudgment interest in the total amount of $7,016.41 to the United States Treasury. Such 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) 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 cover letter that identifies Armscott as a respondent in these proceedings, the file number of these proceedings, a copy of which cover letter and money order or check shall be sent to Elaine M. Cacheris, Regional Director, Securities and Exchange Commission, 5670 Wilshire Blvd., 11th Floor, Los Angeles, CA 90036. By the Commission. Jonathan G. Katz Secretary