==========================================START OF PAGE 1====== UNITED STATES OF AMERICA Before the SECURITIES AND EXCHANGE COMMISSION SECURITIES EXCHANGE ACT OF 1934 Release No. 36773 / January 25, 1996 Administrative Proceeding File No. 3-8939 _________________________ : In the Matter of : ORDER INSTITUTING PUBLIC : ADMINISTRATIVE PROCEEDING The Robinson-Humphrey : PURSUANT TO SECTIONS Company, Inc : 15(b) and William L. Effinger, : AND 19(h) OF THE III, : SECURITIES : EXCHANGE ACT OF 1934, Respondents. : 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 Sections 15(b) and 19(h) of the Securities Exchange Act of 1934 ("Exchange Act") against The Robinson-Humphrey Company, Inc. ("Robinson-Humphrey") and William L. Effinger, III ("Effinger"). II. In anticipation of the institution of these proceedings, Robinson-Humphrey and Effinger have each submitted an Offer of Settlement, which Offers the Commission has determined to accept. Solely for the purpose of these proceedings and any other proceeding brought by or on behalf of the Commission, or in which the Commission is a party, Robinson-Humphrey and Effinger, by their respective Offers of Settlement, without admitting or denying the Commission's findings, except as to jurisdiction and with respect to Robinson-Humphrey the findings in paragraph III, A below and with respect to Effinger the findings in paragraph III, E below which are admitted, each consent to the entry of this Order Instituting Public Proceedings, Making Findings and Imposing Remedial Sanctions ("Order"). ==========================================START OF PAGE 2====== III. On the basis of this Order and the Offers of Settlement by Robinson-Humphrey and Effinger, the Commission finds -[1]- that: A. Robinson-Humphrey, a Delaware corporation, has been registered as a broker-dealer with the Commission pursuant to Section 15(b) of the Exchange Act (File No. 8-27190) since October 16, 1936. Robinson-Humphrey is a full service broker- dealer and employs approximately 300 registered representatives in approximately 25 retail branch offices located in the southeastern region of the United States. B. In 1982, the stock of Robinson-Humphrey was acquired by the American Express Company ("American Express"). Robinson- Humphrey was thereafter operated as a subsidiary of then Shearson/American Express, Inc. and thereafter Shearson Lehman Brothers, Inc. ("SLB"). After being acquired, pursuant to Article III, Section 27 of the National Association of Securities Dealers, Inc.'s Rules of Fair Practice, Robinson-Humphrey adopted SLB's supervisory policies and procedures as its own and was incorporated into the SLB administrative organization which provided record keeping, compliance and other administrative functions for Robinson-Humphrey. The Robinson-Humphrey retail branch offices were integrated into the SLB retail branch system. C. On July 30, 1993, American Express sold certain of its assets, including the stock of Robinson-Humphrey, to Smith Barney, Harris Upham & Co., which subsequently changed its name to Smith Barney Shearson and is now known as Smith Barney. D. After July 30, 1993, Robinson-Humphrey adopted Smith Barney's policies and procedures as its own, designated persons within Smith Barney to assume supervisory and compliance responsibilities with respect to Robinson-Humphrey branch offices and was integrated into the Smith Barney retail organization. E. At all times relevant to this proceeding, William L. Effinger, III ("Effinger"), a resident of Atlanta, GA, was employed as the branch manager of the Atlanta Financial Center ("AFC") branch of Robinson-Humphrey and was directly responsible for supervising the operation of that branch. -[1]-The findings herein are made pursuant to Robinson-Humphrey's and Effinger's respective Offers of Settlement and are not binding on any other person or entity named as a respondent in this or any other proceeding, unless independently consented to by such other person or entity. ==========================================START OF PAGE 3====== F. From at least January 1, 1988 through May 19, 1990, a registered representative employed at the Robinson-Humphrey AFC branch misappropriated over $2.4 million from customers of Robinson-Humphrey. The registered representative effected his scheme by, among other things, persuading his customers to write checks in connection with the purchase of securities to himself, to Robinson-Humphrey or SLB which he then converted and deposited into his personal checking accounts at various financial institutions. Additionally, the registered representative would have customers sign blank pieces of paper which the registered representative later completed with authorizations to issue checks and to wire funds which the registered representative later misappropriated for his own use and benefit. Further, using various pretexts, the registered representative obtained control over checks written to his customers and checks he persuaded his customers to write to third parties and then endorsed the checks for deposit directly into his own accounts, the accounts of his other customers at Robinson-Humphrey and the accounts of other individuals at financial institutions elsewhere. The registered representative pled guilty to securities fraud and, in February, 1991, was sentenced to forty- one months of incarceration. The registered representative also consented to the entry of a final judgment of permanent injunction against him which required him to disgorge $2,459,032.81. G. Section 17(a) of the Securities Act of 1933 ("Securities Act") prohibits, in the offer and sale of securities, by the use of the means and instruments of transportation and communication in interstate commerce, and by the use of the mails, directly and indirectly: (1) employing devices, schemes, and artifices to defraud; (2) obtaining money and property by means of untrue statements of material facts and omissions to state material facts necessary in order to make the statements made, not misleading; and (3) engaging in transactions, practices, and a course of business which operate and would operate as a fraud and deceit upon the purchasers of said securities. By engaging in the acts specified in Section III, F above, the registered representative wilfully violated Section 17(a) of the Securities Act. H. Section 10(b) of the Exchange Act and Rule 10b-5 thereunder prohibit, in connection with the purchase and sale of securities, by the use of the means and instrumentalities of interstate commerce and by the use of the mails, directly and indirectly: (1) employing devices, schemes and artifices to defraud; (2) making untrue statements of material facts 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; and (3) engaging in acts, practices, and a course of business which operate and would operate as a fraud and deceit upon persons. By engaging in the ==========================================START OF PAGE 4====== acts specified in Section III, F above, the registered representative wilfully violated Section 10(b) of the Exchange Act and Rule 10b-5 thereunder. I. Sections 15(b)(4) and 15(b)(6) of the Exchange Act authorize the Commission to sanction broker-dealers and their associated persons where the broker-dealer or associated person, respectively, fails reasonably to supervise, with a view to preventing violations of the provisions of the federal securities laws, another person subject to their supervision who commits such a violation. J. Robinson-Humphrey failed reasonably to supervise the registered representative with a view to preventing the violations of Section 17(a) of the Securities Act and Section 10(b) of the Exchange Act and Rule 10b-5 thereunder as described in Section III, F above. Specifically, Robinson-Humphrey failed reasonably to supervise the registered representative in that: 1. Robinson-Humphrey failed to have in place policies and procedures to delineate how those persons responsible for the supervision of branch managers would oversee the branch manager's compliance and supervisory functions; and 2. Robinson-Humphrey failed to have in place policies and procedures to determine if a branch manager, or his designee, were reasonably addressing problems or inquiries raised by regular reviews of employee and client accounts, branch examinations, and client inquiries and/or complaints and failed to have in place policies and procedures to ensure that its policies and procedures requiring written documentation of discussions with registered representatives concerning any such problems were reasonably implemented. K. Effinger failed reasonably to supervise the registered representative with a view to preventing the violations of Section 17(a) of the Securities Act and Section 10(b) of the Exchange Act and Rule 10b-5 thereunder as described in Section III, F above. Specifically, Effinger failed reasonably to supervise the registered representative in that: 1. Effinger failed reasonably to implement Robinson- Humphrey's policies and procedures in that he failed reasonably to ensure that employees to whom he delegated his responsibilities for conducting periodic reviews of customer and employee accounts, including financial management accounts, with a view toward detecting and preventing as far as reasonably practicable, misappropriation of client funds, in fact, implemented such policies and procedures; 2. Effinger failed reasonably to follow up on possible indications of wrongdoing he discovered in ==========================================START OF PAGE 5====== connection with the registered representative, including numerous checks between the registered representative and several of his customers which came to Effinger's attention; IV. In view of the foregoing, the Commission deems it appropriate and in the public interest to impose sanctions specified in the Offers submitted by Robinson-Humphrey and Effinger respectively. ==========================================START OF PAGE 6====== Accordingly, IT IS HEREBY ORDERED THAT: A. Robinson-Humphrey be, and hereby is, censured; B. Robinson-Humphrey shall comply with its representations and undertakings as follows: 1. Robinson-Humphrey represents that prior to the commencement of this proceeding, Robinson-Humphrey has supplemented and enhanced its policies and procedures to determine whether branch managers are effectively addressing problems and inquiries raised by regular reviews of customer and employee accounts, branch examinations and customer inquiries and/or complaints. Specifically, Robinson-Humphrey represents that it has supplemented its policies and procedures relative to the responsibility of supervisory personnel above the position of branch manager to make certain there is reasonable follow-up and a satisfactory resolution of supervisory issues brought to their attention by the Compliance Department and the General Counsel's Office of Smith Barney, including branch examination findings and problems regarding specific registered representatives. 2. Robinson-Humphrey undertakes to maintain these policies and procedures except as such policies and procedures may be modified from time to time to achieve their objectives and except as they may be inconsistent with, or superseded by, any new policies or procedures adopted in accordance with Section IV, B, 3 below. 3. Robinson-Humphrey undertakes as follows: (a) Robinson-Humphrey shall, at its sole expense, retain an Independent Consultant, not unacceptable to the Commission's staff. The Independent Consultant shall conduct a review of those Robinson-Humphrey policies and procedures which reasonably could have detected and prevented the types of violations of the federal securities laws described above. Included in the review shall be the policies and procedures relating to supervision of its registered representatives and the supervision of its Branch Managers in the performance of their supervisory responsibilities so as reasonably to detect and prevent, wherever possible, the types of violations of the federal securities laws which gave rise to this proceeding and which are described herein. The Independent Consultant's review and report shall include a review and assessment of the adequacy of any recent changes implemented by Smith Barney and Robinson- Humphrey in its policies and procedures to address the deficiencies described herein and any recommendations of the Independent Consultant to enhance or improve said policies and procedures reasonably designed to supervise the activity of Robinson-Humphrey employees, including the addition of policies and procedures not currently in existence. ==========================================START OF PAGE 7====== ==========================================START OF PAGE 8====== (b) Robinson-Humphrey further undertakes to cooperate fully with the Independent Consultant in this review, including making such non-privileged records available as the Independent Consultant may reasonably request; and by permitting and requiring Robinson-Humphrey's employees and agents to supply such non-privileged information as the Independent Consultant may reasonably request as necessary for the Consultant's review. (c) The Independent Consultant's recommendations shall be made in the form of a draft written report, within 60 days following such review described in Section IV, B, 3(a) above, that sets forth the Independent Consultant's recommendations, if any, based on such review as to Robinson-Humphrey's policies and procedures as described above. Robinson-Humphrey undertakes to provide a copy of the Independent Consultant's report to the Commission's staff within five days of receipt of the report from the Independent Consultant. (d) Within thirty (30) days of the receipt of the draft report submitted by the Independent Consultant, Robinson- Humphrey shall, in writing, advise the Independent Consultant of those recommendations that Robinson-Humphrey has determined not to accept because they are unduly burdensome. Regarding any recommendation Robinson-Humphrey believes is unduly burdensome, Robinson-Humphrey shall undertake to propose an alternative policy or procedure designed to achieve the same result. Robinson-Humphrey and the Independent Consultant shall then attempt in good faith to reach agreement on any policy or procedure as to which there is a dispute. Robinson-Humphrey will, however, abide by the determination of the Independent Consultant with regard thereto and adopt those recommendations reasonably designed to supervise the activity of Robinson- Humphrey employees as determined by the Independent Consultant. (e) The Independent Consultant shall complete the aforementioned reviews and submit a final written report thereon to Robinson-Humphrey and the Commission's staff within sixty (60) days following the date of the draft report. (f) Within thirty (30) days of receipt of the final report, Robinson-Humphrey shall file an affidavit with the Commission's staff stating that Robinson-Humphrey has put in place a system of policies and procedures reasonably designed to prevent and/or detect the violations of the securities laws which gave rise to this proceeding, or is in the process of so doing and providing a reasonable estimate, not to exceed thirty (30) additional days without the approval of the Commission's staff, as to when implementation shall be completed. C. Effinger be, and hereby is, censured; D. Effinger be and is hereby suspended from association in ==========================================START OF PAGE 9====== a supervisory or proprietary capacity with any broker, dealer, investment company, investment adviser or municipal securities dealer for a period of twelve (12) months. E. Effinger shall deliver an affidavit of compliance to the Atlanta District Office within ten (10) days following his period of suspension stating that he has complied with the terms of the suspension. By the Commission. Jonathan G. Katz Secretary