UNITED STATES OF AMERICA Before the SECURITIES AND EXCHANGE COMMISSION SECURITIES EXCHANGE ACT OF 1934 Release No. 39046 / September 10, 1997 INVESTMENT ADVISERS ACT OF 1940 Release No. 1661 / September 10, 1997 ADMINISTRATIVE PROCEEDING File No. 3-9401 : In the Matter of : ORDER INSTITUTING : CEASE-AND-DESIST AND : PUBLIC PROCEEDINGS, CAROL A. HAMBY : MAKING FINDINGS AND and : IMPOSING REMEDIAL DAVID W. STEPANEK : SANCTIONS : : I. The Securities and Exchange Commission ("Commission") deems it appropriate and in the public interest that cease-and-desist and public proceedings be instituted (a) pursuant to Sections 203(f) and 203(k) of the Investment Advisers Act of 1940 ("Advisers Act") against Respondent Carol A. Hamby ("Hamby") and (b) pursuant to Sections 203(f) and 203(k) of the Advisers Act and Section 15(b) of the Securities Exchange Act of 1934 ("Exchange Act") against Respondent David W. Stepanek ("Stepanek"). In anticipation of the institution of these proceedings, Hamby has submitted an Offer of Settlement ("Hamby 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 findings contained in this Order, except as to jurisdiction and the facts set forth in Paragraph II.A.1. below, which she admits, Hamby consents to the entry of this Order and the imposition of sanctions as set forth below. In anticipation of the institution of these proceedings, Stepanek has submitted an Offer of Settlement ("Stepanek 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 findings contained in this Order, except as to jurisdiction and the facts set forth in Paragraph II.B.1. below, which he admits, Stepanek consents to the entry of this Order and the imposition of sanctions as set forth below. ======END OF PAGE 1====== ACCORDINGLY, IT IS ORDERED THAT proceedings pursuant to Section 203(f) and 203(k) of the Advisers Act and Section 15(b) of the Exchange Act be, and hereby are, instituted. II.<(1)> A. On the basis of this Order and the Offer submitted by Hamby, the Commission finds that: 1. From April 1990 through November 1991, Hamby was an employee and an associated person of International Market Strategies, Inc. ("IMS I"), an investment adviser. From December 1991 through September 1994, Hamby was an associated person of International Market Strategies II, Inc. ("IMS II"), a registered investment adviser. 2. From April 1990 through September 1994, IMS I and IMS II, and persons associated with them, misappropriated client funds and defrauded clients and prospective clients in connection with their businesses as investment advisers. Specifically, although IMS I held itself out to the public as an investment adviser, it failed to register with the Commission as such; took management fees to which it was not entitled; commingled client funds over which it had custody with its own funds; published, circulated and distributed advertisements to the public which contained material misrepresentations and omissions; falsely represented to clients that all of the funds provided to IMS I for investment had been invested in the securities markets; and misled clients as to the value of their invested funds. IMS II filed a false and misleading Form ADV with the Commission; failed to make certain required records; commingled client funds over which it had custody with its own funds; published, circulated and distributed advertisements to the public which contained material misrepresentations and omissions; falsely represented to clients that all of the funds provided to IMS II for investment had been invested in the securities markets; and misled clients as to the value of their invested funds. 3. As a result of the above activity, IMS I and IMS II willfully violated, and Hamby caused and willfully aided and abetted violations of, Sections 206(1) and 206(2) of the Advisers Act in that IMS I and IMS II, by the use of the means and instrumentalities of interstate commerce and by use of the mails, directly and indirectly, employed devices, schemes, or artifices to defraud clients and prospective clients and engaged in transactions, practices, and courses of business which operated as a fraud or deceit upon clients and prospective clients. As a part of her conduct, Hamby, among other things, (a) reviewed and edited advertisements, brochures and other written materials about IMS I and IMS II which <(1)> The findings herein are made pursuant to the Offers of Settlement submitted by Hamby and Stepanek, and are not binding on any other persons or entities in this or any other proceeding. ======END OF PAGE 2====== contained material misrepresentations and omissions, including misrepresentations about her own background and experience, (b) assisted in the preparation and review of materially misleading client account statements, (c) assisted in the preparation and review of client documents which, among other things, falsely represented that all of a client's funds would be or had been invested in the securities markets and (d) maintained the banking and financial records of IMS I and IMS II, including, among other things, making deposits of funds into bank accounts, reconciling bank statements and writing checks. 4. As a result of the above activity, IMS I and IMS II willfully violated, and Hamby caused and willfully aided and abetted violations of, Section 206(4) of the Advisers Act and Rules 206(4)-1(a)(5) and 206(4)-2 thereunder in that IMS I and IMS II, by the use of the means and instrumentalities of interstate commerce and by use of the mails, directly and indirectly, engaged in acts, practices or courses of business which were fraudulent, deceptive or manipulative. As a part of her conduct, Hamby, among other things, (a) assisted IMS I and IMS II in the publication, circulation or distribution to the public of advertisements which contained untrue statements of material fact and which were false and misleading and (b) assisted IMS I and IMS II, investment advisers who had custody or possession of funds or securities in which clients had beneficial interests, in their failure to segregate, mark to identify and hold in safekeeping such funds or securities. 5. Hamby has submitted a sworn financial statement and other evidence and has asserted her financial inability to pay disgorgement plus prejudgment interest. The Commission has reviewed the sworn financial statement and other evidence provided by Hamby and has determined that she does not have the financial ability to pay disgorgement of $65,000.00 plus prejudgment interest. B. On the basis of this Order and the Offer submitted by Stepanek, the Commission finds that: 1. From November 1989 through December 1991, Stepanek was a registered representative with several broker-dealers registered with the Commission pursuant to Section 15(b) of the Exchange Act. From March 1991 through December 1991, Stepanek was Director of Trading and an associated person of IMS I, an investment adviser. From December 1991 through May 1993, Stepanek was Director of Trading and an associated person of IMS II, a registered investment adviser. 2. From April 1990 through September 1994, IMS I and IMS II, and persons associated with them, misappropriated client funds and defrauded clients and prospective clients in connection with their businesses as investment advisers. Specifically, although IMS I held itself out to the public as an investment adviser, it failed to register with the Commission as such, took management fees to which it was not entitled, commingled client funds over which it had custody with its own funds, provided prospective clients with written materials which contained material ======END OF PAGE 3====== misrepresentations and omissions, falsely represented to clients that all of the funds provided to IMS I for investment had been invested in the securities markets and misled clients as to the value of their invested funds. IMS II filed a false and misleading Form ADV with the Commission, failed to make certain required records, commingled client funds over which it had custody with its own funds, provided prospective clients with written materials which contained material misrepresentations and omissions, falsely represented to clients that all of the funds provided to IMS II for investment had been invested in the securities markets and misled clients as to the value of their invested funds. 3. As a result of the above activity, IMS I and IMS II willfully violated, and Stepanek caused and willfully aided and abetted violations of, Sections 206(1) and 206(2) of the Advisers Act in that IMS I and IMS II, by the use of the means and instrumentalities of interstate commerce and by use of the mails, directly and indirectly, employed devices, schemes, or artifices to defraud clients and prospective clients and engaged in transactions, practices, and courses of business which operated as a fraud or deceit upon clients and prospective clients. As a part of his conduct, Stepanek, among other things, (a) reviewed and edited brochures and other written materials about IMS I and IMS II which contained material misrepresentations and omissions, including misrepresentations about his own background and experience, (b) assisted in the preparation and review of materially misleading client account statements, (c) managed the client trading records of IMS I and IMS II and (d) maintained the banking records of IMS I and IMS II, including co- signing checks. 4. As a result of the above activity, IMS I and IMS II willfully violated, and Stepanek caused and willfully aided and abetted violations of, Section 206(4) of the Advisers Act and Rules 206(4)-1(a)(5) and 206(4)- 2 thereunder in that IMS I and IMS II, by the use of the means and instrumentalities of interstate commerce and by use of the mails, directly and indirectly, engaged in acts, practices or courses of business which were fraudulent, deceptive or manipulative. As a part of his conduct, Stepanek, among other things, (a) assisted IMS I and IMS II in the publication, circulation or distribution of advertisements which contained untrue statements of material fact and which were false and misleading and (b) assisted IMS I and IMS II, investment advisers who had custody or possession of funds or securities in which clients had beneficial interests, in their failure to segregate, mark to identify and hold in safekeeping such funds or securities. 5. Stepanek has submitted a sworn financial statement and other evidence and has asserted his financial inability to pay disgorgement plus prejudgment interest. The Commission has reviewed the sworn financial statement and other evidence provided by Stepanek and has determined that he does not have the financial ability to pay disgorgement of $42,000.00 plus prejudgment interest. III. ======END OF PAGE 4====== In view of the foregoing, the Commission finds that it is in the public interest to impose the sanctions specified in the Hamby Offer and the Stepanek Offer. ACCORDINGLY, IT IS ORDERED THAT: A. As to Carol A. Hamby: 1. That Carol A. Hamby be barred from association with any broker, dealer, municipal securities dealer, investment company or investment adviser. 2. Pursuant to Section 203(k) of the Advisers Act, that Carol A. Hamby cease and desist from committing or causing any violation, and any future violation, of Sections 206(1), 206(2) and 206(4) of the Advisers Act and Rules 206(4)-1(a)(5) and 206(4)-2 thereunder. 3. Pursuant to Section 203(j) of the Advisers Act, that Carol A. Hamby shall pay disgorgement of $65,000.00 plus prejudgment interest, but that payment of such amount be waived based upon Hamby's demonstrated financial inability to pay. 4. 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 Hamby provided accurate and complete financial information at the time such representations were made; (2) determine the amount of disgorgement and prejudgment interest to order; and (3) seek any additional remedies that the Commission would be authorized to impose in this proceeding if Hamby's Offer had not been accepted. No other issues shall be considered in connection with this petition other than whether the financial information provided by Hamby was fraudulent, misleading, inaccurate or incomplete in any material respect, the amount of disgorgement and prejudgment interest to order and whether any additional remedies should be imposed. Hamby 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. B. As to David W. Stepanek, 1. That David W. Stepanek be barred from association with any broker, dealer, municipal securities dealer, investment company or investment adviser. 2. Pursuant to Section 203(k) of the Advisers Act, that David W. Stepanek cease and desist from committing or causing any violation, and any future violation, of Sections 206(1), 206(2) and 206(4) of the Advisers Act and Rules 206(4)-1(a)(5) and 206(4)-2 thereunder. 3. Pursuant to Section 203(j) of the Advisers Act, that David W. Stepanek shall pay disgorgement of $42,000.00 plus prejudgment interest, ======END OF PAGE 5====== but that payment of such amount be waived based upon Stepanek's demonstrated financial inability to pay. 4. That the Division may, at any time following the entry of this Order, petition the Commission to: (1) reopen this matter to consider whether Stepanek provided accurate and complete financial information at the time such representations were made; (2) determine the amount of disgorgement and prejudgment interest to order; and (3) seek any additional remedies that the Commission would be authorized to impose in this proceeding if Stepanek's Offer had not been accepted. No other issues shall be considered in connection with this petition other than whether the financial information provided by Stepanek was fraudulent, misleading, inaccurate or incomplete in any material respect, the amount of disgorgement and prejudgment interest to order and whether any additional remedies should be imposed. Stepanek may not, by way of defense to any such petition, contest the ======END OF PAGE 6====== 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 ======END OF PAGE 7======