UNITED STATES OF AMERICA Before the SECURITIES AND EXCHANGE COMMISSION INVESTMENT ADVISERS ACT OF 1940 Release No. 1798 / April 22, 1999 ADMINISTRATIVE PROCEEDING File No. 3-9881 : In the Matter of : ORDER INSTITUTING PUBLIC : PROCEEDINGS, MAKING WREN HAROLD HART, : FINDINGS AND IMPOSING : REMEDIAL SANCTIONS Respondent. : : I. The Securities and Exchange Commission ("Commission") deems it appropriate and in the public interest that public administrative proceedings be, and hereby are, instituted pursuant to Sections 203(f) of the Investment Advisers Act of 1940 ("Advisers Act") against Wren Harold Hart ("Hart"). II. In anticipation of the institution of these administrative proceedings, Hart has submitted an Offer of Settlement ("Offer") to the Commission, 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 to which the Commission is a party, and without admitting or denying the findings contained herein, except with respect to paragraph III.A. below, which is admitted, Hart 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 imposition of the remedial sanctions and penalties set forth below. III. The Commission finds the following:[1] BACKGROUND A. Hart, age 76, is a resident of Weatherford, Texas. Hart, individually and doing business as Financial Management Services ("FMS"), was a registered investment adviser with the Commission (File No. 801-12648) from 1977 to 1997. Hart’s son- in-law was the only other employee of FMS, and was subject to Hart’s supervision. On May 27, 1997, Hart filed a Form ADV-T with the Commission representing that as of the date of filing, the assets under his management were less than $25 million. As a result, Hart was no longer required to be registered with the Commission. On July 8, 1997, Hart’s investment adviser registration was effectively withdrawn with the Commission. Further, in December 1997, Hart’s investment adviser registration was withdrawn with the State of Texas. B. Between January 1994 and October 1997, FMS managed the assets of approximately 50 clients totaling approximately $6.8 million. FMS charged an annual management fee of up to one percent on assets valued at up to $50,000 and half of a percent on assets exceeding this amount. UNDERLYING VIOLATIVE CONDUCT C. As set forth in paragraphs D, E, and F, herein, from approximately October 1993 through October 1997, Hart’s son-in- law willfully violated Section 17(a) of the Securities Act of 1933 ("Securities Act") and Section 10(b) of the Securities Exchange Act of 1934 ("Exchange Act") and Rule 10b-5 thereunder, and willfully aided and abetted violations of Sections 206(l), 206(2) and 204 of the Advisers Act and Rules 204-2(a) (3), (7) and (9), thereunder. D. In four separate transactions between October 1993 and November 1996, Hart’s son-in-law misappropriated a total of $155,000 from two FMS clients. In October 1993, the son-in-law fraudulently induced a client to give him a blank check in the amount of $65,000 based on his misrepresentation that he would invest the funds in a mutual fund. Instead, the son-in-law deposited the check into a personal account. In January 1995, the son-in-law also withdrew $20,000 from the same FMS client without the client’s authority. In June and August 1996, the son-in-law fraudulently caused a brokerage firm to issue two checks to another FMS client in the amounts of $50,000 and $20,000, respectively. The son-in-law forged the client’s signature on each check and deposited them into a personal checking account. E. From in or about the first quarter of 1994 through October 1997, Hart’s son-in-law made false and misleading statements to clients regarding the values of their investments. During this period, the son-in-law provided clients with FMS account statements, usually quarterly, that materially overstated the values of their FMS accounts. Over 30 clients received FMS account statements which collectively overstated the values in their accounts by approximately $807,000. In addition, the son- in-law provided certain clients with altered mutual fund company statements which contained false account values. The overstatements caused FMS to receive excess management fees and caused the performance figures in the clients’ accounts to be materially overstated. [2] F. As a result of the son-in-law’s misconduct, FMS failed to make and keep true, accurate and current books and records required to be maintained by investment advisers. Specifically, as a result of the son-in-law’s misconduct, FMS did not keep a memorandum of each order to purchase or sell shares in mutual funds, FMS failed to keep mutual fund statements for certain client accounts, and FMS did not maintain the required mutual fund documents for some clients that permitted trading on their behalf. HART’S FAILURE REASONABLY TO SUPERVISE G. During the period set forth above, Hart failed reasonably to supervise, within the meaning of Section 203(e)(6) of the Advisers Act, his son-in-law with a view toward preventing violations of Section 17(a) of the Securities Act and Section 10(b) of the Exchange Act and Rule 10b-5 thereunder, and aiding and abetting violations of Sections 206(l), 206(2) and 204 of the Advisers Act and Rules 204-2(a) (3), (7) and (9), thereunder. As the registered investment adviser, Hart was responsible for supervising his son-in-law. H. Hart received several complaints from FMS clients regarding the son-in-law’s activities. For example, in November 1996, an FMS client complained to Hart that the son-in-law had misappropriated a total of $85,000 from his FMS account. Moreover, during 1996 and 1997, certain clients complained to Hart concerning the inflated values on their FMS account statements. Despite receiving these complaints, Hart conducted no meaningful follow-up with respect to the activities of his son-in-law. Hart failed to compare or reconcile the FMS account statements with the underlying brokerage account statements for each FMS client to determine if the value of their accounts had also been overstated. Hart also failed to conduct any review or make inquiries to determine if his son-in-law had misappropriated funds from any other FMS clients. Moreover, Hart continued to allow his son-in-law to prepare false and misleading FMS account statements and to have access to client funds. **FOOTNOTES** [1]: The findings herein are made pursuant to the Offer of Settlement submitted by Hart and are not binding on any other person or entity named as a respondent in this or any other proceeding. [2]: Since the Commission staff began its investigation into this matter, Hart has paid FMS clients approximately $540,000 as compensation for the overstatements. Hart has also paid approximately $135,000 to the clients whose funds were misappropriated by Hart’s son-in-law. IV. In view of the foregoing, the Commission deems it appropriate and in the public interest to impose the sanctions and penalties specified by Hart in his Offer. Accordingly, IT IS ORDERED THAT: A. Hart is suspended from association with any investment adviser for a period of three months effective the second Monday following the entry of this Order. B. Hart is suspended from acting in any supervisory or proprietary capacity with any investment adviser for a period of nine months immediately following the period of his suspension from association. Hart shall provide to the Commission, within 10 days after the end of the nine month suspension period, an affidavit that he has complied with the terms of the suspensions. C. Hart shall, within 10 days of the entry of this Order, pay a civil money penalty in the amount of $10,000 to the United States Treasury. 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 U.S. 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 which identifies Hart as a Respondent in these proceedings, the file number of these proceedings, a copy of which cover letter and money order or check shall be sent to Harold F. Degenhardt, District Administrator, Securities and Exchange Commission, 801 Cherry Street, 19th Floor, Fort Worth, Texas 76102. By the Commission. Jonathan G. Katz Secretary