UNITED STATES OF AMERICA Before the SECURITIES AND EXCHANGE COMMISSION SECURITIES EXCHANGE ACT OF 1934 Release No. 37737 / September 27, 1996 SECURITIES ACT OF 1933 Release No. 7340 / September 27, 1996 INVESTMENT ADVISERS ACT OF 1940 Release No. 1583 / September 27, 1996 INVESTMENT COMPANY ACT OF 1940 Release No. 22254 / September 27, 1996 ADMINISTRATIVE PROCEEDING File No. 3-9106 ---------------------- : In the Matter of : ORDER INSTITUTING PROCEEDINGS, : MAKING FINDINGS, AND IMPOSING : REMEDIAL SANCTIONS AND ORDER TO : CEASE AND DESIST PURSUANT TO SECTIONS : 15(b)(6), 19(h)(3) AND 21C OF THE : SECURITIES EXCHANGE ACT OF 1934, Gerald Johnson, : SECTION 8A OF THE SECURITIES ACT OF : 1933, SECTION 203(f) OF THE : INVESTMENT ADVISERS ACT OF 1940 AND : SECTION 9(b) OF THE INVESTMENT : COMPANY ACT OF 1940 Respondent : : ----------------------- I. The Securities and Exchange Commission ("Commission") deems it appropriate and in the public interest that public proceedings be, and hereby are, instituted pursuant to Sections 15(b)(6) and 19(h)(3) and 21C of the Securities Exchange Act of 1934 ("Exchange Act"), Section 8A of the Securities Act of 1933 ("Securities Act"), Section 203(f) of the Investment Advisers Act of 1940 ("Advisers Act") and Section 9(b) of the Investment Company Act of 1940 ("Investment Company Act") against Gerald Johnson ("Johnson"). In anticipation of the institution of these proceedings, Johnson has submitted an Offer of Settlement to the Commission, which the Commission has determined to accept. Solely for the purposes of this proceeding and any other proceeding brought by or on behalf of the Commission or in which the Commission is a party, prior to a hearing pursuant to the Commission's Rules of ==========================================START OF PAGE 2====== Practice, 17 C.F.R.  201.1 et seq., and, without admitting or denying the findings contained herein, except those contained in paragraphs II. A. and B., which are admitted, Johnson consents to the issuance of this Order Instituting Proceedings, Making Findings, and Imposing Remedial Sanctions and Order to Cease and Desist ("Order"), and to the entry of the findings and the Order set forth below. Accordingly, IT IS ORDERED that Administrative Proceedings pursuant to Sections 15(b)(6) and 19(h)(3) of the Exchange Act, Section 203 (f) of the Advisers Act and Section 9(b) of the Investment Company Act, and Cease and Desist Proceedings pursuant to Section 8A of the Securities Act and Section 21C of the Exchange Act be, and hereby are, instituted against Gerald Johnson. II. On the basis of this Order and the Offer submitted by Johnson, the Commission finds that-[1]-: A. Johnson is a resident of Aledo, Texas, and was a registered representative associated with various broker-dealers registered with the Commission from 1983 until June 1995. From July 1992 through June 1995, Johnson was a registered representative employed by Dominion Capital Corporation, a broker-dealer registered with the Commission, with offices in Texas. B. Since October 26, 1993, CDS Financial Services has been registered with the Commission as an Investment Adviser. Johnson was a partner and control person of CDS until February 1994. C. During the period from at least July 1992 until June 1995, Johnson willfully violated Section 17(a) of the Securities Act and Section 10(b) of the Exchange Act and Rule 10b-5 thereunder, as more fully described in paragraphs D and E below. D. Between July 1992 and June 1995, Johnson offered and sold to his customers interests in various high-risk or speculative securities, including limited partnerships, limited liability corporations ("llcs"), notes and debentures. Johnson sold these interests to customers without regard for their investment needs or objectives. In these offers and sales, Johnson misrepresented the high-risk, speculative nature of these investments to his customers; he also failed to consistently provide offering memoranda to customers, which would have ---------FOOTNOTES---------- -[1]- The findings herein are made pursuant to Gerald Johnson's Offer of Settlement and are not binding on any other person or entity named as a respondent in this or any other proceeding. ==========================================START OF PAGE 3====== disclosed the risk. Johnson also, without customers' knowledge, evaded the financial suitability requirements of the offerings by submitting false statements of net worth for customers who did not otherwise qualify to purchase these interests. E. In many instances, Johnson made multiple sales of these high-risk, speculative securities to customers, causing high concentrations of risky, illiquid investments in these customers' portfolios. Several of Johnson's customers invested in excess of 50% of their net worth in a combination of interests in llcs, notes, debentures and limited partnerships. F. Respondent has submitted a sworn financial statement and other evidence and has asserted his financial inability to pay disgorgement plus prejudgment interest and civil penalties. The Commission has reviewed the sworn financial statement and other evidence provided by Respondent and has determined that Respondent does not have the financial ability to pay disgorgement of $52,250.00, with prejudgment interest thereon in the amount of $10,961.45, and civil penalties. III. In view of the foregoing, the Commission deems it appropriate and in the public interest to impose the sanctions that are set forth in the Offer submitted by Johnson. Accordingly, IT IS ORDERED that: A. Johnson be, and hereby is, barred from association with any broker, dealer, municipal securities dealer, investment adviser or investment company; and B. Johnson shall cease and desist from committing or causing any violations of, and any future violation of, Section 17(a) of the Securities Act, Section 10(b) of the Exchange Act and Rule 10b-5 thereunder; and C. Johnson shall pay disgorgement of the amount of $52,250.00, with prejudgment interest thereon in the amount of $10,961.45, but that payment of such amount be waived, and civil penalties not imposed, based upon Respondent's demonstrated financial inability to pay; and D. The Division of Enforcement may, at any time following the entry of this Order, petition the Commission to: (1) reopen this matter to consider whether Respondent provided inaccurate and incomplete financial information at the time such representations were made; (2) determine the amount of disgorgement, pre-judgement interest and civil penalty to be imposed; and (3) seek any additional remedies that the Commission would be authorized to impose in this proceeding if Respondent's ==========================================START OF PAGE 4====== offer of settlement had not been accepted. No other issues shall be considered in connection with this petition other than whether the financial information provided by Respondent was fraudulent, misleading, inaccurate or incomplete in any material respect, the amount of disgorgement, pre-judgment interest and civil penalty to be imposed and whether any additional remedies should be imposed. Respondent may not, by way of defense to any such petition, contest the findings in this Order or the Commission's authority to impose any additional remedies that were available in the original proceeding. By the Commission. Jonathan G. Katz Secretary