UNITED STATES OF AMERICA Before the SECURITIES AND EXCHANGE COMMISSION SECURITIES EXCHANGE ACT OF 1934 Release No. 40183 / July 9, 1998 ADMINISTRATIVE PROCEEDING File No. 3-9647 : In the Matter of :ORDER INSTITUTING PROCEEDINGS, :MAKING FINDINGS AND IMPOSING :REMEDIAL SANCTIONS Susan L. Henry : : 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) and 19(h) of the Securities Exchange Act of 1934 ("Exchange Act) against Susan L. Henry ("Henry"). In anticipation of the institution of these proceedings, Henry has submitted an Offer of Settlement ("Offer") 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 Practice, 17 C.F.R. 201.100 et seq., and, without admitting or denying the findings contained herein, except those contained in Section II, and the jurisdiction of the Commission over her in this matter, which are admitted, Henry consents to the issuance of this Order Instituting Proceedings, Making Findings, and Imposing Remedial Sanctions ("Order"), and to the entry of the findings and the Order set forth below. II. On the basis of this Order and the Offer submitted by Henry, the Commission finds that: Henry is a resident of Austin, Texas. From June 18, 1985 through May 30, 1996 Henry was the president, owner and general securities principal of Bluebonnet Securities, Inc. ("Bluebonnet" or "the firm") (File No. 8-34073), a broker-dealer registered with the Commission. III. A.From at least November 1993 through May 1995, two registered representatives associated with Bluebonnet willfully violated Sections 5(a), 5(c) and 17(a) of the Securities Act of 1933 ("Securities Act") and Section 10(b) of the Exchange Act and Rule 10b-5 thereunder while engaged in the offer and sale of an unregistered, high-risk, speculative security called a trust participation. B.During the time period set forth above, these representatives sold trust participations to their customers without regard for their investment needs or objectives. In these offers and sales, they misrepresented the high-risk, speculative nature of this investment to their customers and failed to consistently provide offering memoranda, which would have disclosed the risk. Further, these representatives evaded the financial suitability requirements of the offering by submitting false statements of net worth for customers who did not otherwise qualify to purchase this security. In many instances, contrary to their customers' investment objectives, they recommended multiple purchases of this security, and other high-risk securities, which caused an over concentration of high-risk, speculative securities in their customers' accounts. C.The representatives' submission of false statements of net worth contributed to over 35 non-accredited investors purchasing the securities described in paragraph B above in an unregistered offering, which relied upon an exemption from registration pursuant to Rule 506 of Regulation D. Furthermore, no other exemption from registration was applicable. IV. From 1985 through May 30, 1996, Henry had sole responsibility for Bluebonnet's compliance and supervisory functions, including the responsibility for establishing adequate procedures for the detection of sales practice abuses, such as the type described in Paragraphs III.B. and C. above. Furthermore, Henry had direct supervisory responsibility over all employees with respect to compliance matters, including the two representatives discussed in Paragraphs III. B. and C. above. Henry failed reasonably to supervise the two registered representatives, who were subject to her supervision, within the meaning of Section 15(b)(6) of the Exchange Act, with a view toward preventing the violations described in Paragraphs III.B. and C., by failing to establish adequate written supervisory procedures which would have detected and prevented their fraudulent sales practices and by ignoring "red flags" that indicated they were engaged in abusive sales practices. 1.Bluebonnet's written supervisory procedures failed to provide for: a periodic review of customer files maintained by either the registered representatives or by the firm; the inspection of its branch offices; or for the daily review and approval of securities transactions. 2.Henry assumed responsibility for performing periodic reviews of the customer files maintained by the firm. On those occasions when Henry found discrepancies between various documents concerning customers' net worth, she failed to conduct any effective follow-up investigation. A review of the customers' files maintained by the registered representatives or customer inquiries would have revealed that these customers' net worth figures had been inflated. 3.Henry also assumed responsibility of reviewing and approving daily securities transactions, which included trust participations subscription documents that contained falsified customer financial information. By falsifying the customers' net worth on these documents, the two registered representatives supervised by Henry qualified non-accredited investors as accredited investors. There were significant "red flags" within these documents to place Henry on notice that the two registered representatives were possibly engaged in violations of the federal securities laws. For example, on at least 13 customers' statement of net worth, one representative added a fictitious asset called "secured trust" or "secured funds." The other registered representative advised a number of his customers to submit a letter advising the issuer of their accredited status to conceal the fact that they were not financially qualified to purchase the security. Henry was alerted to, but ignored, these clear patterns of sales practice abuses. V. 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 Henry. Accordingly, IT IS ORDERED that: A.Henry be, and hereby is, suspended from association with any broker, dealer, municipal securities dealer, investment adviser or investment company for a period of 12 months, effective on the second Monday following the entry of this Order. B.Henry be, and hereby is, barred from association with any broker, dealer, municipal securities dealer, investment adviser or investment company in a supervisory and a proprietary capacity with the right to reapply for association after three years to the appropriate self-regulatory organization, or if there is none, to the Commission; C.Henry shall pay a civil money penalty in the amount of $5,000 to the United States Treasury, by paying $2,500 within 30 days from the entry of this Order, and $2,500 within three months from the entry of this Order. Such payment shall be: (A) made by United States postal money order, certified check, bank cashier's check or bank money order; (B) made payable to the Securities and Exchange Commission; (C) hand-delivered or mailed to the Comptroller, Securities and Exchange Commission, Operations Center, 6432 General Green Way, Stop 0-3, Alexandria, VA 22312; and (D) submitted under cover letter that identifies Henry as a Respondent in these proceedings, and the file number of these proceedings, a copy of which cover letter and money order or check shall be sent to Harold F. Degenhardt, the District Administrator of the Fort Worth District Office, Securities and Exchange Commission, 801 Cherry Street, Suite 1900, Fort Worth Texas 76102. D.Henry shall provide to the Commission, within 30 days after the end of the 12 month suspension period described above, an affidavit that she has complied fully with the sanctions described in Section V.A. above. IT IS FURTHER ORDERED that the Division of Enforcement ("Division") may, at any time following the entry of this Order, petition the Commission to: (1) reopen this matter to consider whether Henry provided inaccurate and incomplete financial information at the time such representations were made; (2) determine the amount of the civil penalty to be imposed; and (3) seek any additional remedies that the Commission would be authorized to impose in this proceeding if Henry's 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 Henry was fraudulent, misleading, inaccurate or incomplete in any material respect, the amount of the civil penalty to be imposed and whether any additional remedies should be imposed. Henry 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 SERVICE LIST Rule 141 of the Commission's Rules of Practice provides that the Secretary of the Commission, or another duly authorized officer of the Commission, shall serve a copy the order instituting proceedings on each person named as a party in the Order and their legal agent. The attached Order Instituting Proceedings Making Findings and Imposing Remedial Sanctions has been sent to the following parties and other parties entitled to notice: ----------------------------------------------------------------- Honorable Brenda P. Murray Chief Administrative Law Judge Securities and Exchange Commission 450 Fifth St., N.W., STOP: 11- 6 Washington, DC 20549 Jon Batterman Securities and Exchange Commission Division of Enforcement 450 Fifth Street, N.W., STOP: 8-9 Washington, DC 20549 Harold F. Degenhardt District Administrator Securities and Exchange Commission 801 Cherry St., 19th Floor Fort Worth, TX 76102 Dan R. Waller, Esq. 2290 One Galleria Tower 13355 Noel Road -- LB 75 Dallas, TX 75240-6857 Counsel for Respondent Susan L. Henry 11511 Saddle Mountain Tr. Austin, TX 78739 Respondent