UNITED STATES OF AMERICA Before the SECURITIES AND EXCHANGE COMMISSION Securities Exchange Act of 1934 Release No. 37940 / November 12, 1996 Administrative Proceedings File No. 3-9185 ------------------------------ : ORDER INSTITUTING PUBLIC : ADMINISTRATIVE PROCEEDINGS In the Matter of : PURSUANT TO Fox-Pitt, Kelton, Inc. : SECTIONS 15(b) 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 public administrative proceedings be instituted pursuant to Sections 15(b) and 21C of the Securities Exchange Act of 1934 ("Exchange Act") against Fox-Pitt, Kelton, Inc. ("Fox-Pitt"), a broker- dealer registered with the Commission ("Respondent"). II. In anticipation of the institution of these administrative proceedings, Respondent has submitted an Offer of Settlement (the "Offer") which the Commission, after due consideration, has determined is in the public interest 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 findings contained in this Order Instituting Public Administrative Proceedings Pursuant to Sections 15(b) and 21C of the Securities Exchange Act of 1934, Making Findings and Imposing Remedial Sanctions ("Order"), Respondent consents to the entry of the Order and to the findings and remedial sanctions set forth below. III. Accordingly, IT IS ORDERED that public administrative proceedings pursuant to Sections 15(b) and 21C of the Exchange Act be, and hereby are, instituted. ==========================================START OF PAGE 2====== IV. On the basis of this Order and the Offer, the Commission finds that-[1]-: A. Fox-Pitt is a broker dealer located in New York, New York, registered with the Commission pursuant to Section 15(b) of the Exchange Act. B. In or about March 1995, a Fox-Pitt analyst received material, nonpublic information from an issuer during a conference call which the issuer held simultaneously with analysts from several broker-dealers. C. Several Fox-Pitt sales persons and a second analyst walked in and out of the office where the conference call was taking place, and heard or had communicated to them, material, nonpublic information. D. During the conference call, and prior to the issuer disseminating the information to the public, while in possession of material, nonpublic information: (i) Fox-Pitt sales persons traded on behalf of the firm's clients in the stock of the issuer; (ii) the second analyst traded in the stock of the issuer in a firm proprietary account over which he had discretionary control; (iii) one of the firm's senior employees traded in the stock of the issuer in his personal account and in a firm proprietary account over which he had discretionary control. E. Neither Fox-Pitt nor any of its employees were required under Fox-Pitt's compliance procedures to, and did not, take steps prior to the execution of the trades described in paragraph IV.D. above to determine whether the trades would be a possible misuse of material, non- public information. F. Between January 1987 and March 1995, Fox-Pitt did not have procedures to monitor communications between its research and trading departments. ---------FOOTNOTES---------- -[1]- The findings herein are made pursuant to Respondent's Offer of Settlement and are not binding on any other person or entity in this or any other proceeding. ==========================================START OF PAGE 3====== G. Between January 1987 and March 1995, Fox-Pitt did not have formal training for its employees concerning the proper use of material, nonpublic information. H. Between January 1987 and March 1995, Fox-Pitt did not have adequate written procedures concerning the maintenance of restricted and watch lists, and did not memorialize trading reviews or investigations of employee trading in stocks on these lists. I. Between January 1987 and March 1995, Fox-Pitt's written policies concerning the use of material, nonpublic information were inadequate and unclear. J. Consequently, from in or about January 1987 through in or about March 1995, Respondent willfully violated Section 15(f) of the Exchange Act by failing to have procedures and practices reasonably designed, in view of the nature of Fox-Pitt's business, to prevent the misuse of material, nonpublic information. V. In view of the foregoing, the Commission finds it is in the public interest to accept the sanctions specified in the Offer. A. Accordingly, IT IS ORDERED that effective immediately, Fox-Pitt cease and desist from committing or causing any violation and any future violation of Section 15(f) of the Exchange Act. B. IT IS FURTHER ORDERED that Fox-Pitt, within thirty days of the issuance of the Order, pay a civil money penalty in the amount of $50,000 by postal money order, certified check, bank cashier's check or bank money order, payable to the order of the "United States Securities and Exchange Commission." The payment shall be transmitted to the Comptroller, Securities and Exchange Commission, 450 Fifth Street, N.W., Washington, D.C. 20549, under cover of letter identifying the name and number of this administrative proceeding and the Respondent. A copy of the cover letter and payment shall be simultaneously transmitted to Carmen J. Lawrence, Esq., Regional Director, Securities and Exchange Commission, 7 World Trade Center, New York, New York 10048, Attn: Wendy Wishengrad, Esq. C. IT IS FURTHER ORDERED that Fox-Pitt: (1) Within thirty days of the issuance of this Order, to retain an Independent Consultant, not unacceptable to the Commission, at the Respondent's expense, to: (a) conduct a comprehensive review of the policies, ==========================================START OF PAGE 4====== procedures and practices maintained and implemented by the Respondent pursuant to Section 15(f) of the Exchange Act; (b) at the Respondent's expense, prepare a report ("Report") making recommendations as to how to improve the Respondent's existing policies, procedures and practices; and (c) one year after the delivery of the Report to the Commission's staff, review the Respondent's policies, procedures and practices and deliver a supplemental report analyzing the Respondent's adoption, implementation and maintenance of the policies, procedures and practices contained in the Report and the effectiveness of those policies, procedures and practices. The Independent Consultant's report and the supplemental report shall be filed with the Secretary of the Commission and become part of the record of this proceeding. The Independent Consultant may rely on the work of additional consultants or experts as it deems necessary in carrying out its responsibilities. (2) To provide the Commission's staff, within thirty days of the entry of this Order, with a copy of an engagement letter detailing the scope of the Independent Consultant's responsibilities pursuant to paragraph V.C.(1) above. The engagement letter shall require the Independent Consultant to complete the review and deliver the Report described in paragraph V.C.(1), above, to the Respondent and the Commission's staff within ninety days of the issuance of this Order. (3) To adopt, implement, and maintain the procedures and the system for applying those procedures recommended by the Independent Consultant in the Report within the period of time prescribed in paragraph V.C.(4), below, provided, however, that as to any recommendation of the Independent Consultant, Respondent may suggest an alternative procedure designed to achieve the same objective or purpose as that of the recommendation of the Independent Consultant. The Respondent shall set forth in an affidavit to be submitted pursuant to paragraph V.C.(4) of this Order such alternative procedure, and a description of how such alternative procedure achieves the same objective or purpose as the Independent Consultant's original recommendation. The Independent Consultant shall evaluate any alternative procedure proposed by the Respondent and make a determination as to whether the alternate procedure achieves the same objective and purpose as the Independent Consultant's original recommendation. The Respondent shall adopt those recommendations that the ==========================================START OF PAGE 5====== Independent Consultant shall ultimately determine as appropriate. (4) To, within six months after the issuance of the Independent Consultant's Report, submit to the Commission's staff an affidavit attesting to Fox-Pitt's implementation of the recommendations contained in the Report and setting forth the details of such implementation. By the Commission. Jonathan G. Katz Secretary