UNITED STATES OF AMERICA Before the SECURITIES AND EXCHANGE COMMISSION SECURITIES EXCHANGE ACT OF 1934 Release No. 39130 / September 25, 1997 ADMINISTRATIVE PROCEEDING File No. 3-9436 ³ ORDER INSTITUTING In the Matter of ³ PUBLIC PROCEEDINGS, ³ MAKING FINDINGS AND DAVID M. CARMICHAEL, ³ IMPOSING REMEDIAL ANTHONY KOHL and ³ SANCTIONS CHRIS ADAMS, ³ ³ Respondents. ³ ³ 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 19(h) of the Securities Exchange Act of 1934 (Exchange Act) against David M. Carmichael (Carmichael), Anthony Kohl (Kohl) and Chris Adams (Adams). In anticipation of the institution of these administrative proceedings, Carmichael, Kohl and Adams have submitted Offers of Settlement (Offers) 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 findings, except as to jurisdiction and the facts set forth in Paragraph III.A. which Carmichael admits, Paragraph III.B. which Kohl admits, Paragraph III.C. which Adams admits, and Paragraph III.AC. below, which all Respondents admit, Carmichael, Kohl and Adams consent to the entry of this Order, its findings and the imposition of sanctions as set forth below. II. ACCORDINGLY, IT IS ORDERED THAT proceedings pursuant to Sections 15(b) and 19(h) of the Exchange Act be, and they hereby are, instituted. III. On the basis of this Order and the Offers submitted by Carmichael, Kohl and Adams, the Commission finds that:<(1)> A. Carmichael, age 56, resides in Westerville, Ohio. Carmichael was treasurer and secretary of Dublin Securities, Inc. (Dublin) from 1986 to 1990. In 1990 Carmichael became executive vice president and remained secretary of Dublin, and he held these positions until 1992. B. Kohl, age 39, resides in Powell, Ohio. Kohl was assistant comptroller of Dublin in 1989 and became treasurer and comptroller of Dublin in late 1990. C. Adams, age 38, resides in Columbus, Ohio. Adams was employed by Dublin as a broker and was promoted to senior broker in August 1990 and assistant vice president in January 1991. D. Dublin was a broker-dealer based in Worthington, Ohio which claimed to do business solely within Ohio. Dublin was licensed to sell securities as a broker-dealer by the State of Ohio, but was never registered with the Commission. E. In September 1989 Dublin offered and sold approximately 500,000 units of McCoy Avionics, Inc. (McCoy). Each McCoy unit had a price of $1 and consisted of one share of McCoy common stock (McCoy stock), for a total of 500,000 shares, and four attached warrants (McCoy warrants) to purchase additional shares at a price of $1 per share, for a total of 2 million McCoy warrants. F. McCoy is a company engaged in the design, manufacture and marketing of avionics products. For the year ending December 31, 1989, McCoy had a net loss of approximately $377,000. McCoy stock is not and has not been registered with the Commission, and is not and has not been traded on a national exchange, or authorized for quotation on an automated quotation system sponsored by a registered securities association. G. In May 1991 Dublin offered and sold approximately 500,000 units of Dewey's Candy Company (Dewey's). Each unit had a price of $1 and consisted of one share of Dewey's common stock (Dewey's stock), for a total of 500,000 shares, and five attached warrants (Dewey's warrants) to purchase additional shares at a price of $1 per share, for a total of 2.5 million Dewey's warrants. H. Dewey's is a company engaged in the business of manufacturing and selling various types of peanut, cashew and pecan brittle. For the three months ending March 31, 1991 Dewey's had total income of $63,348. Dewey's <(1)> The findings herein are made pursuant to Respondents' Offers of Settlement and are not binding on any other person or entity in this or any other proceeding. ======END OF PAGE 2====== stock is not and has not been registered with the Commission, and is not and has not been traded on a national exchange, or authorized for quotation on an automated quotation system sponsored by a registered securities association. I. Dublin arranged sales of McCoy and Dewey's securities to individuals commonly known as "insiders." Carmichael and Kohl were insiders who purchased both McCoy and Dewey's units. Adams was an insider who purchased Dewey's units. After the sale of units to insiders was complete, Dublin acquired an inventory of McCoy and Dewey's units from the insiders at prearranged arbitrary prices of approximately $1 per share of common stock and from approximately $.05 to $.30 per warrant. The sale of McCoy and Dewey's units to Dublin guaranteed the insiders a profit of approximately 75% of their initial investments in the units. After acquiring units from the insiders, Dublin set the initial price of both McCoy and Dewey's common stock for sale to the public at an arbitrary and artificially high level of approximately $3 per share of common stock. Dublin, through its sales force, then used high pressure sales techniques to sell McCoy and Dewey's common stock to the public. J. During the period from approximately September 1989 through October 1992, Carmichael and Kohl participated in a scheme to defraud investors in the common stock of McCoy and Dewey's by arranging the purchase of McCoy and Dewey's units by insiders, including Carmichael and Kohl, arranging the resale of these units to Dublin to facilitate the sale of McCoy and Dewey's stock for sale to public investors at artificially inflated prices which were unrelated to the free market forces of supply and demand, and by participating in the distribution of unregistered securities. K. During the period from approximately September 1989 through October 1992, Carmichael and Kohl caused Dublin to freely use its customers' free credit balances, created when customers sold shares of McCoy and Dewey's, without notifying customers. In addition, Carmichael and Kohl placed customer funds into the firm's general checking account. During this period Carmichael and Kohl personally approved the use of Dublin customer funds for, among other things, the payment of Dublin's operating expenses and the payment of the personal expenses of its president, including legal fees, credit card bills, and gambling debts. L. During the period from approximately September 1989 through October 1992, Carmichael and Kohl failed to cause Dublin to maintain a special reserve account for the benefit of its customers separate from any other bank account of Dublin. M. During the period from approximately May 1991 through October 1992, Adams participated in a scheme to defraud investors in the common stock of Dewey's by purchasing Dewey's units from Dublin as an insider and reselling these units to Dublin for sale to public investors at artificially inflated prices. N. During the period from approximately May 1991 through October ======END OF PAGE 3====== 1992, Adams sold Dewey's stock to public investors without disclosing, among other things, the material facts that the prices at which Dublin sold Dewey's stock to the public were arbitrarily set and did not reflect the free forces of supply and demand and that Dublin dominated and controlled the market for Dewey's stock. O. During the period from approximately May 1991 through October 1992, Adams sold Dewey's stock to Dublin customers without disclosing to such customers the existence of the control Dublin Management, Inc. (Dublin Management), Dublin's parent company, exercised over Dublin and Dewey's and the existence of Dublin's participation and financial interest in the Dewey's distribution. P. During the period from approximately May 1991 through October 1992, Adams made representations to Dublin customers that Dewey's stock was being offered to such customers "at the market" or at a price related to the market, without knowledge or reasonable grounds to believe that a market for Dewey's stock existed other than that created and controlled by Dublin. Q. From approximately September 1989 through October 1992, Carmichael and Kohl willfully violated Sections 5(a) and 5(c) of the Securities Act of 1933 (Securities Act) in that they, directly or indirectly, made use of the means or instruments of transportation or communication in interstate commerce or of the mails to offer to buy or offer to sell, or to sell through the use or medium of a prospectus or otherwise, or carried or caused to be carried through the mails or in interstate commerce, by the means or instruments of transportation, for the purpose of sale or for delivery after sale, securities, namely, McCoy and Dewey's stock, for which no registration statement was in effect or filed with the Commission. R. From approximately September 1989 through October 1992, Carmichael and Kohl willfully violated Section 17(a) of the Securities Act in that they, in the offer or sale of securities, specifically, McCoy and Dewey's stock, warrants, and units, by the use of the means or instruments of transportation or communication in interstate commerce or by the use of the mails, directly or indirectly employed devices, schemes or artifices to defraud; obtained money or property by means of untrue statements of material fact or omitted 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; or engaged in transactions, practices or courses of business which would or did operate as a fraud or deceit upon purchasers or prospective purchasers of such securities. As a part of this conduct, Carmichael and Kohl: (1) arranged the purchase of McCoy and Dewey's units by Dublin insiders; (2) sold their units, and arranged the sale of units by others to Dublin, for sale to public investors at artificially inflated prices which were unrelated to the free market forces of supply and demand; and (3) participated in the distribution of unregistered securities. S. From approximately September 1989 through October 1992, Carmichael and Kohl willfully violated Section 10(b) of the Exchange Act ======END OF PAGE 4====== and Rule 10b-5 thereunder in that they, in connection with the purchase or sale of the securities, specifically, McCoy and Dewey's stock, warrants, and units, by the use of the means or instrumentalities of interstate commerce or of the mails, directly or indirectly, employed devices, schemes or artifices to defraud; made untrue statements of material fact or omitted 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; or engaged in acts, practices, or courses of business which would or did operate as a fraud or deceit upon the purchasers of the securities, as described in Paragraph II.R. above. T. From approximately September 1989 through October 1992, Carmichael and Kohl willfully aided and abetted violations of Section 15(c)(3) of the Exchange Act and Rule 15c3-2 thereunder by Dublin in that, in connection with Dublin's use of the mails or the means or instrumentalities of interstate commerce to effect transactions in, or to induce or attempt to induce the purchase or sale of securities, namely McCoy and Dewey's stock, they directed and approved the use by Dublin of funds arising out of free credit balances carried for the account of customers in connection with the operation of the business of Dublin when Dublin did not have established adequate procedures pursuant to which each customer for whom a free credit balance was carried would be given or sent, together with or as part of the customer's statement of account, whenever sent but not less frequently than once every three months, a written statement informing such customer of the amount due to the customer by Dublin on the date of such statement, and containing a written notice that (a) such funds were not segregated and might be used in the operation of the business of Dublin and (b) such funds were payable on the demand of the customer. U. From approximately September 1989 through October 1992, Carmichael and Kohl willfully aided and abetted violations of Section 15(c)(3) of the Exchange Act and Rule 15c3-3 thereunder by Dublin in that, in connection with Dublin's use of the mails or the means or instrumentalities of interstate commerce to effect transactions in, or to induce or attempt to induce the purchase or sale of securities, namely McCoy and Dewey's stock, they failed to ensure that Dublin maintained with a bank or banks at all times when deposits were required a "Special Reserve Bank Account for the Exclusive Benefit of Customers" ("Reserve Bank Account"), separate from any other bank account of Dublin, and that Dublin at all times maintained in such Reserve Bank Account, through deposits made therein, cash and/or qualified securities in amounts computed in accordance with a formula created by the Commission. V. From approximately May 1991 through October 1992, Adams willfully violated Section 17(a) of the Securities Act in that he, in the offer or sale of securities, specifically, Dewey's stock, warrants, and units, by the use of the means or instruments of transportation or communication in interstate commerce or by the use of the mails, directly or indirectly employed devices, schemes or artifices to defraud; obtained money or property by means of untrue statements of material fact or omitted to state material facts necessary in order to make the statements made, in the light ======END OF PAGE 5====== of the circumstances under which they were made, not misleading; or engaged in transactions, practices or courses of business which would or did operate as a fraud or deceit upon purchasers or prospective purchasers of such securities. As part of such conduct, Adams: (1) purchased Dewey's units from Dublin as an insider; (2) resold Dewey's units to Dublin for sale to public investors at artificially inflated prices; (3) sold Dewey's stock to public investors without disclosing that the prices at which Dublin sold Dewey's stock to the public were arbitrarily set and did not reflect the free forces of supply and demand and that Dublin dominated and controlled the market for Dewey's stock; (4) sold Dewey's stock to public investors without disclosing to such customers the existence of the control Dublin Management exercised over Dublin and Dewey's and the existence of Dublin's participation and financial interest in the Dewey's distribution; and (5) made representations to Dublin customers that Dewey's stock was being offered to such customers "at the market" or at a price related to the market, without knowledge or reasonable grounds to believe that a market for Dewey's stock existed other than that created and controlled by Dublin. W. From approximately May 1991 through October 1992, Adams willfully violated Section 10(b) of the Exchange Act and Rule 10b-5 promulgated thereunder in that he, in connection with the purchase or sale of securities, specifically, Dewey's stock, warrants, and units, by the use of the means or instrumentalities of interstate commerce or of the mails, directly or indirectly, employed devices, schemes or artifices to defraud; made untrue statements of material fact or omitted 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; or engaged in acts, practices, or courses of business which would or did operate as a fraud or deceit upon the purchasers of the securities, as described in Paragraph II.V. above. X. From approximately May 1991 through October 1992, Adams willfully aided and abetted Dublin's violations of Section 10(b) of the Exchange Act and Rule 10b-5 promulgated thereunder in that he, in connection with the purchase or sale of securities, specifically, Dewey's stock, warrants, and units, by the use of the means or instrumentalities of interstate commerce or of the mails, directly or indirectly, participated in Dublin's distribution of Dewey's securities, in which Dublin employed devices, schemes or artifices to defraud; made untrue statements of material fact or omitted 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; or engaged in acts, practices or courses of business which would or did operate as a fraud or deceit. Y. From approximately May 1991 through October 1992, Adams willfully aided and abetted Dublin's violations of Section 15(c) of the Exchange Act and Rule 15c1-2 promulgated thereunder in that he, by the use of the mails or of the means or instrumentalities of interstate commerce, participated in Dublin's scheme to effect transactions in or induce or attempt to induce the purchase or sale of securities, specifically, Dewey's stock, warrants, and units, by means of manipulative, deceptive or other fraudulent devices ======END OF PAGE 6====== or contrivances, including acts, practices or courses of business which would or did operate as a fraud or deceit, or made untrue statements of material facts or omissions 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 they were untrue or misleading. Z. From approximately May 1991 through October 1992, Adams willfully aided and abetted Dublin's violations of Section 15(c) and Rule 15c1-5 promulgated thereunder in that he, by the use of the mails or of the means or instrumentalities of interstate commerce, participated in Dublin's scheme to effect transactions in or induce or attempt to induce the purchase or sale of securities, specifically, Dewey's stock, by means of manipulative, deceptive, or other fraudulent devices or contrivances, including acts designed to effect with or for the account of a customer, transactions in, or to induce the purchase or sale by customers of Dewey's stock, without disclosing to such customers the existence of the control Dublin Management exercised over Dublin and Dewey's. AA. From approximately May 1991 through October 1992, Adams willfully aided and abetted Dublin's violations of Section 15(c) and Rule 15c1-6 promulgated thereunder in that he, by the use of the mails or of the means or instrumentalities of interstate commerce, participated in Dublin's scheme to effect transactions in or induce or attempt to induce the purchase or sale of securities, specifically, Dewey's stock, by means of manipulative, deceptive, or other fraudulent devices or contrivances, including acts designed to effect with or for the account of a customer, transactions in, or to induce the purchase or sale by such customers of Dewey's stock, in the primary or secondary distribution of which Dublin was participating or was otherwise financially interested, without disclosing to such customers the existence of Dublin's participation or financial interest in the Dewey's distribution. AB. From approximately May 1991 through October 1992, Adams willfully aided and abetted Dublin's violations of Section 15(c) and Rule 15c1-8 promulgated thereunder in that he, by the use of the mails or of the means or instrumentalities of interstate commerce, participated in Dublin's scheme to effect transactions in or induce or attempt to induce the purchase or sale of securities, specifically, Dewey's stock, by means of manipulative, deceptive, or other fraudulent devices or contrivances, including representations made to customers by Dublin that Dewey's stock was being offered to such customers "at the market" or at a price related to the market, which representations were made without knowledge or reasonable grounds to believe that a market for Dewey's stock existed other than that made, created, or controlled by Dublin, or by any person for whom Dublin was acting or with whom Dublin was associated in such distributions, or by any person controlled by, or controlling or under common control with Dublin. AC. On September 23, 1997, the United States District Court for the Southern District of Ohio, in the case of Securities and Exchange ======END OF PAGE 7====== Commission v. David M. Carmichael et al. (Civil Action No. C-2-96-1296), entered a Final Judgment and Order of Permanent Injunction by consent against Carmichael, Kohl and Adams which enjoins Carmichael and Kohl from future violations of Sections 5(a) and 5(c) of the Securities Act, and Carmichael, Kohl and Adams from future violations of Section 17(a) of the Securities Act, and Section 10(b) of the Exchange Act and Rule 10b-5 thereunder. IV. In view of the foregoing, it is in the public interest to impose sanctions specified in the Offers of Settlement. ======END OF PAGE 8====== Accordingly, IT IS ORDERED that: A. Carmichael, Kohl and Adams be, and hereby are, barred from association with any broker, dealer, municipal securities dealer, investment adviser or investment company; and B. Carmichael, Kohl and Adams be, and hereby are, barred from participating in any offering of penny stock. By the Commission. Jonathan G. Katz Secretary ======END OF PAGE 9======