UNITED STATES OF AMERICA Before the SECURITIES AND EXCHANGE COMMISSION SECURITIES EXCHANGE ACT OF 1934 Release No. 39136 / September 26, 1997 INVESTMENT ADVISERS ACT OF 1940 Release No. 1671 / September 26, 1997 ADMINISTRATIVE PROCEEDING File No. 3-9442 ORDER INSTITUTING ADMINISTRATIVE PROCEEDINGS PURSUANT TO In the Matter of : SECTIONS 15(b)(6) and 19(h) OF : THE SECURITIES EXCHANGE ACT OF : 1934 AND SECTIONS 203(e) AND : 203(f) OF THE INVESTMENT : ADVISERS ACT OF 1940, : MAKING FINDINGS AND VIRGIL DEAN DAMHOF : IMPOSING REMEDIAL SANCTIONS I. The Commission deems it appropriate and in the public interest that public administrative proceedings be instituted pursuant to Sections 15(b)(6) and 19(h) of the Securities Exchange Act of 1934 (Exchange Act) and Sections 203(e) and 203(f) of the Investment Advisers Act of 1940 (Advisers Act), against Virgil Dean Damhof (Damhof). In anticipation of the institution of these administrative proceedings, the Respondent has submitted an Offer of Settlement, which the Commission has determined to accept. Solely for the purpose of this proceeding and any other proceeding brought by or on behalf of the Commission, or to which the Commission is a party, and without admitting or denying the findings herein, except as to jurisdiction and the findings contained in Sections III.1. and III.11. herein, which are admitted, the Respondent consents to the entry of this Order Instituting Administrative Proceedings Pursuant to Sections 15(b)(6) and 19(h) of the Securities Exchange Act of 1934 and Sections 203(e) and 203(f) of the Investment Advisers Act of 1940, Making Findings and Imposing Remedial Sanctions. II. Accordingly, it is ordered that administrative proceedings pursuant to Sections 15(b)(6) and 19(h) of the Exchange Act and Sections 203(e) and 203(f) of the Advisers Act be, and hereby are, instituted. III. On the basis of this Order and the Offer of Settlement submitted by the Respondent, the Commission makes the following findings: 1. Damhof, 39, has been an investment adviser registered with the Commission from May 1994 to the present and conducts his advisory business under the name Bankers Network. Damhof was also associated with various broker-dealers between August 1984 and January 1996. 2. From at least December 1995 through June 1996, Damhof offered and sold promissory notes in two Florida corporations to his advisory clients. As part of his conduct, Damhof made misrepresentations of material facts and omitted to state material facts to his advisory clients regarding, among other things, the status of a cease and desist order issued against one of the corporations, Damhof's falsification of some of the advisory clients' offering questionnaires, and the risks involved in investing in the securities. 3. During the period from at least December 1995 through June 1996, Damhof willfully violated Section 17(a) of the Securities Act of 1933 in that he, in the offer or sale of securities, 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. As part of this conduct, Damhof engaged in the activities described in paragraph III.2. above. 4. During the period from at least December 1995 through June 1996, Damhof willfully violated Section 10(b) of the Exchange Act and Rule l0b-5 thereunder in that he, in connection with the purchase or sale of securities, namely promissory notes, 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. As part of this conduct, Damhof engaged in the activities described in paragraph III.2. above. 5. During the period from at least December 1995 through June 1996, Damhof willfully violated Sections 206(1) and 206(2) of the Advisers Act by, directly or indirectly employing devices, schemes, or artifices to defraud clients or prospective clients; or engaging in transactions, practices or courses of business which operated as a fraud or deceit upon ======END OF PAGE 2====== clients or prospective clients. As part of this conduct, Damhof engaged in the activities described in paragraph III.2. above. 6. During the period from at least December 1995 through June 1996, Damhof, while acting as a broker, willfully violated Section 15(a) of the Exchange Act by making use of the means or instruments of transportation or communication in interstate commerce or of the mails to effect transactions in, or to induce or attempt to induce purchases and sales of securities in the form of the promissory notes described in paragraph III.2., without being registered as a broker with the Commission. 7. During the period from at least May 1994 through June 1996, Damhof, while making use of the mails or of the means or instrumentalities of interstate commerce in connection with his business as an investment adviser, willfully violated Section 204 of the Advisers Act and Rules 204- 2(a)(1), (2) and (6) thereunder by failing to make and keep for prescribed periods, in accordance with Rule 204-2 of the Advisers Act, true, accurate, and current the following books and records relating to his investment advisory business: a. a journal or journals, including cash receipts and disbursements records, or any other records of original entry forming the basis of entries in any ledger; b. general or auxiliary ledgers (or other comparable records) reflecting asset, liability, reserve, capital, income and expense accounts; and c. trial balances, financial statements, and internal audit working papers. 8. During the period from at least May 1994 through June 1996, Damhof, while acting as a registered investment adviser pursuant to Section 203(c) of the Advisers Act, and making use of the mails or of the means or instrumentalities of interstate commerce in connection with his business as an investment adviser, willfully violated Section 204 of the Advisers Act and Rules 204-3(c) promulgated thereunder by failing to annually deliver or offer in writing to deliver upon written request to each of his advisory clients, a written disclosure statement which was either a copy of a Form ADV, Part II in compliance with Rule 204-1(b) promulgated under the Advisers Act or a written document containing at least the information then so required by Part II of Form ADV. 9. During the period from at least May 1994 through June 1996, Damhof, while acting as a registered investment adviser with the Commission, willfully violated Section 206(4) of the Advisers Act and Rule 206(4)-4 promulgated thereunder by utilizing the mails or other means or instrumentalities of interstate commerce, directly or indirectly, or engaging in acts, practices or courses of business which were fraudulent, deceptive, or manipulative by failing to disclose to clients or prospective clients, all material facts with respect to a legal or disciplinary event which was material to an evaluation of Damhof's integrity or ability to ======END OF PAGE 3====== meet contractual commitments to clients. Specifically, Damhof failed to disclose to clients that: a. On January 14, 1986, the National Futures Association (NFA) entered into a settlement agreement with Damhof whereby Damhof was directed to cease and desist from further violations of certain books and records provisions and ordered not to apply for registration with or act as a principal of certain futures related entities for a period of one year; and b. On May 3, 1989, the NFA entered into a separate settlement agreement with Damhof whereby Damhof was fined $1000, directed to cease and desist from certain books and records and advertising violations and ordered not to apply for registration with or act as a principal of certain futures related entities for a period of five years. 10. During the period from at least May 1994 through June 1996, while acting as an investment adviser, Damhof willfully violated Section 207 of the Advisers Act by making untrue statements of material fact in a registration application filed with the Commission under Section 203 of the Advisers Act, or omitting to state in such application material facts which were required to be stated therein. As part of this conduct, Damhof failed to disclose to the Commission the activities described in paragraph III.9.a. and III.9.b. above. 11. On September 19, 1997, the United States District Court for the District of Minnesota, in the case of Securities and Exchange Commission v. Virgil Dean Damhof (CV-97-2045), entered a Final Judgment of Permanent Injunction against Damhof, enjoining him from future violations of the provisions of the federal securities laws cited in paragraphs III.3. through III.10. above. The Court also ordered that Damhof pay disgorgement of $48,278.18, plus prejudgment interest, as payment for Damhof's ill- gotten gains. However, the Court waived payment of disgorgement and prejudgment interest, and did not impose a civil penalty, based on Damhof's demonstrated inability to pay. IV. In view of the foregoing, it is in the public interest to impose the sanction specified in the Offer of Settlement. Accordingly, IT IS ORDERED: 1. That Damhof's investment adviser registration is revoked; and 2. That Damhof is barred from association with any broker, dealer, investment company, investment adviser or municipal securities dealer. ======END OF PAGE 4====== By the Commission. Jonathan G. Katz Secretary ======END OF PAGE 5======