UNITED STATES OF AMERICA Before the SECURITIES AND EXCHANGE COMMISSION SECURITIES EXCHANGE ACT OF 1934 Release No. 37821 / October 15, 1996 ADMINISTRATIVE PROCEEDING File No. 3-9034 ----------------------------------- : In the Matter of Alfred M. Bauer : ORDER MAKING FINDINGS and J. Stephen Stout, : AND IMPOSING : REMEDIAL SANCTIONS Respondents. : ___________________________________: I. On June 28, 1996, the Securities and Exchange Commission ("Commission") deemed it appropriate and in the public interest to institute proceedings 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") with respect to Alfred M. Bauer ("Bauer") and J. Stephen Stout ("Stout"). In response to the institution of these proceedings, Bauer has submitted an Offer of Settlement ("Offer") 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 in which the Commission is a party, and without admitting or denying the allegations, findings of fact or conclusions of law contained herein, Bauer, by his Offer, consents to the issuance of this Order Making Findings and Imposing Remedial Sanctions. II. On the basis of this Order and the Offer submitted by the Bauer, the Commission makes the following findings:-[1]- 1. Bauer, age 58, is a resident of Fenton, Michigan, and was the resident manager of PaineWebber's Flint, ---------FOOTNOTES---------- -[1]- The findings herein are made pursuant to Bauer's Offer and are not binding on any other person or entity named as a respondent in this or any other proceeding. ==========================================START OF PAGE 2====== Michigan office from March 1990 until March 1994. Bauer is now a registered representative in the Flint office. 2. From March 1990 through December 1992, Bauer was the supervisor of J. Stephen Stout ("Stout") and two other registered representatives in PaineWebber's Flint office. As resident manager, Bauer received flat-rate compensation of $150 per month for each broker who he was assigned to supervise. 3. From at least June 28, 1991 through at least April 1992, Stout engaged in numerous fraudulent sales practices. Specifically: a. Stout recommended and sold certain securities, including securities purchased on margin, to customers for whom such investments were not suitable in light of their stated age, financial condition and conservative investment objectives; b. Stout prepared and delivered reports to at least one customer that materially overstated the value of the investments he sold to them. Based at least in part on these false valuations, the customer made subsequent purchases of securities; and c. Stout made unauthorized purchases of securities, including purchases on margin, in at least one customer's account. 4. As a result of the foregoing conduct, Stout willfully violated Section 17(a) of the Securities Act and Section 10(b) of the Exchange Act and Rule 10b-5 thereunder; and 5. From at least June 28, 1991 through approximately April 1992, Bauer failed reasonably to supervise Stout within the meaning of Section 15(b)(4)(E) of the Exchange Act, with a view to preventing Stout's violations of Section 17(a) of the Securities Act and Section 10(b) of the Exchange Act and Rule 10b-5 thereunder, in that Bauer: a. failed adequately to monitor outgoing mail to prevent Stout from sending out false valuations; b. signed and approved the mailing of at least one false account valuation without verifying its accuracy; and ==========================================START OF PAGE 3====== c. failed to conduct adequate quarterly portfolio reviews of Stout's customers, which would have alerted him to the unsuitability of certain investments in many of Stout's customers' accounts. III. Accordingly, IT IS HEREBY ORDERED that: 1. Commencing immediately, Bauer is suspended from association with any broker, dealer, investment adviser, investment company or municipal securities dealer for a period of 30 days; 2. Bauer shall deliver an affidavit of compliance to the Midwest Regional Office within ten (10) days following his period of suspension stating that he has complied with the terms of the suspension; 3. Bauer is barred from acting in a supervisory capacity with any broker, dealer, investment adviser, investment company or municipal securities dealer, effective immediately; provided that after one year Bauer may make application to reapply to the appropriate self-regulatory organization, or where there is none, to the Commission; and 4. Bauer shall, within ten days of the date of the Commission's Order, pay a civil penalty in the amount of $5,000 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) sent to the Comptroller, Securities and Exchange Commission, 450 5th Street, N.W., Washington D.C. 20549; and (4) submitted under cover letter which identifies Bauer as a Respondent in these proceedings and the Commission's case number, a copy of which cover letter and money order or check shall be sent to Adriane W. Burkland, Securities and Exchange Commission, Midwest Regional Office, 500 West Madison Street, Suite 1400, Chicago, Illinois, 60661- 2511. By the Commission. Jonathan G. Katz Secretary