SECURITIES AND EXCHANGE COMMISSION Washington, D.C. SECURITIES EXCHANGE ACT OF 1934 Rel. No. 40392 / September 2, 1998 Admin. Proc. File No. 3-8304 : In the Matter of : : RICHARD H. MORROW : : : OPINION OF THE COMMISSION BROKER-DEALER PROCEEDING Grounds for Remedial Action Offer and Sale of Securities Beyond Offering Deadline Failure to Disclose Anticipated Compensation from Sale of Securities Registered representative offered and sold limited partnership interests in private placement offering beyond offering deadline and failed to disclose to investors information regarding his anticipated compensation for those sales. Held, it is in the public interest to suspend the registered representative from association with any broker or dealer for one year and to order him to cease and desist from committing or causing any violation or future violation of Section 10(b) of the Securities Exchange Act of 1934, Exchange Act Rule 10b-9, and Sections 17(a)(2) and (3) of the Securities Act of 1933. APPEARANCES: Mitchell A. Margo and Joe D. Jacobson, Green, Schaaf & Margo, P.C., for Richard H. Morrow. Charles V. Senatore, Mitchell E. Herr, Glenn A. Harris, and Terence M. Tennant, for the Division of Enforcement. Appeal filed: July 28, 1995 Briefing completed: January 11, 1996 Oral argument: April 25, 1997 I. The Division of Enforcement ("Division") appeals from the decision of an administrative law judge in a proceeding against Richard H. Morrow, a registered representative formerly associated with Anchor National Financial Services, Inc. ("Anchor"), a registered broker-dealer. [1] The law judge determined that Morrow offered and sold securities beyond the deadline set forth in the offering document for raising the required minimum offering proceeds, in violation of Section 10(b) of the Securities Exchange Act of 1934 ("Exchange Act") and Exchange Act Rule 10b-9. He further determined that Morrow failed to disclose "properly" his anticipated compensation from the sale of those securities, in violation of Section 17(a) of the Securities Act of 1933 ("Securities Act"), Sections 10(b) and 15(c) of the Exchange Act, and Exchange Act Rules 10b-5 and 15c1-2. [2] The law judge ordered Morrow to cease and desist from committing or causing any violation or future violation of Sections 10(b) and 15(c) of the Exchange Act, Exchange Act Rules 10b-5, 10b-9, and 15c1-2, and Section 17(a) of the Securities Act. He also suspended Morrow from association with any broker, dealer, municipal securities dealer, investment company, or investment adviser (a "collateral suspension") for sixty days. In its appeal, the Division asks that we increase the duration of Morrow's collateral suspension to one year. In addition, on our own motion, we directed the parties to file briefs addressing the following issues: 1) Whether the preponderance of the evidence supports the law judge's conclusions that Morrow: a) "was negligent in failing to ascertain whether the offering deadline had, in fact, been extended . . . ." b) "negligently relied on verbal assurances that the deadline was being extended." c) "was acting in good faith." 2) What, if any, impact the answers to the above questions have on the law judge's findings that Morrow violated Sections 17(a)(1), (2), and (3) of the Securities Act, and Sections 10(b) and 15(c) of the Exchange Act and Rules 10b-5, 10b-9, and 15c1-2 thereunder. We base our findings on an independent review of the record, except with respect to those findings not challenged or raised on our own motion on appeal. II. This proceeding stems from Morrow's participation in a private placement offering of limited partnership interests in Park Florida Associates, Ltd. ("Park Florida"), a real estate development project. The Park Florida offering was organized by John Michael Pratt. Pratt served as principal of Keystone Financial Holdings, Inc., which was Park Florida's general partner. The Park Florida offering was a so-called "mini-max" offering structured to raise a minimum of $600,000 and a maximum of $800,000. In a mini-max offering, a specified minimum amount of proceeds must be raised by a specified date. Proceeds from the offering are to be placed in escrow. If the minimum is not raised by that date, the offering expires and all funds already placed in escrow must be returned to investors. If the minimum proceeds are raised by the date set forth in the offering circular, the offering may continue until a specified maximum amount of proceeds has been raised or until the specified closing date of the offering, whichever comes first. The Private Placement Memorandum ("PPM") for the Park Florida offering represented that the investors' funds would be deposited in an escrow account and would be returned to the investors if the $600,000 minimum was not raised by January 31, 1990. The subscription agreement reaffirmed that all investor funds would be "promptly returned" if the $600,000 minimum was not raised by January 31, 1990, unless "written permission is granted to the General Partner by each Limited Partner to utilize such funds." In late summer 1989, Lawrence Kelner, a registered representative associated with Anchor who had ties to Pratt, suggested that Morrow consider selling interests in a real estate limited partnership sponsored by the Highlands Group ("Highlands"), a corporation also controlled by Pratt. Thereafter, Morrow asked Robert Weston, another Anchor registered representative, [3] to review the Highlands offering. Morrow and Weston subsequently traveled to Florida to meet with Pratt and Kelner. Morrow ultimately sold interests in the Highlands offering to three investors and invested in the offering himself. Morrow testified that he received a "five or six percent" commission on those sales. During his involvement with the Highlands offering, Morrow was told about the Park Florida offering. In or around November 1989, Pratt and Kelner discussed the Park Florida offering with Morrow and Weston. Morrow and Weston each agreed to raise approximately half of the anticipated offering proceeds. By letter dated November 28, 1989, Kelner provided Morrow with five numbered copies of the PPM for distribution to potential investors. Morrow testified at the hearing that he had "skimmed through [the PPM] briefly." On January 10, 1990, Pratt and Weston called Morrow to complain that Morrow had not yet sold any interests in Park Florida. They informed Morrow that Weston had sold only about $180,000 in Park Florida interests to date and that they "needed [Morrow's] help." Morrow testified that he subsequently asked Weston for a copy of the marketing material that Weston had sent to his own clients. On January 12, 1990, Morrow mailed to several clients Weston's material describing the offering. In a cover memorandum, Morrow stated that Weston's materials were "self explanatory in nature" and that interested parties could call Morrow or Weston to obtain "all the pertinent information" about the offering. The cover memorandum also stated: This is a small private placement and will not be available much longer. (Mr. Weston has already committed $400,000). Please call me as soon as possible after you receive this to let me know if you are interested. Morrow testified before the law judge that he was aware of the January 31 offering deadline when he began contacting his clients, but he was "under the impression that [the deadline] was, really, already extended at that point." He explained that Weston and Pratt had told him that they "were applying" for an extension and that the addendum needed to effectuate an extension "was being filed." Weston likewise testified that Pratt and Kelner had told him that they would obtain an extension of the offering deadline and that he had passed this information on to Morrow. The Park Florida offering had raised only $187,000 by the January 31, 1990 offering deadline, an amount far short of the minimum proceeds required by the PPM. Because written consent to extend the offering had not been obtained from all existing investors on or before that date, the offering expired on January 31, and all funds then committed should have been returned promptly to investors. Instead, between February 1, 1990 -- the day after the offering deadline -- and March 6, 1990, Morrow sold interests in Park Florida to thirteen clients, raising $400,000. Investors in Park Florida were not asked until mid-March 1990 to sign an addendum to the PPM that purported, among other things, to extend the offering deadline to April 15, 1990. The cover letter accompanying the addendum stated, in relevant part: "The required minimum equity has all been raised for the project, though it's [sic] receipt was not in conformance with the time table in the [PPM]. Thus, in order to be in conformance we are enclosing a document for your signature . . . ." In a deposition taken in a civil action stemming from the offering, Morrow testified that, like Weston, he merely told his clients to indicate on the document that they had waived their rights to a refund. Morrow instructed his clients to make their checks payable to Park Florida, and he directed his secretary to send the checks to Alcap Development Corporation, another firm owned by Pratt. Although the PPM specified that the investors' funds were to be maintained in an escrow account until after the offering's completion, the designated escrow agent never received custody of the funds. Pratt misappropriated the funds, causing investors to suffer losses of approximately $575,000. III. Rule 10b-9 requires that a mini-max offering must provide that investor funds will be returned if the required minimum proceeds are not raised by the stated offering deadline. Courts and this Commission repeatedly have stressed the importance of this requirement, which gives investors assurance that the offering will go forward only if enough investors demonstrate by their purchases that the risk associated with the offering is worth taking and the price being paid for the securities is fair. [4] As one court has observed, "Each investor is comforted by the knowledge that unless his judgment to take the risk is shared by enough others to sell out the issue, his money will be returned." [5] Morrow acknowledges that all of his sales in Park Florida in fact occurred "after the selling cut-off date." He asserts, however, that he made those sales "in the honest but mistaken belief that the [offering deadline] had been extended and was no longer effective." We note initially that Morrow's testimony on his understanding of the deadline's status is inconsistent. In investigative testimony before our staff in March 1991, Morrow told the Division of Enforcement that he had not known about the offering deadline [6] and had learned of it only upon receiving the addendum in late March 1990. At the hearing before the law judge in June 1995, Morrow testified, variously, that he had believed that the offering deadline was going to be extended and that the deadline had been extended. [7] When reminded of his earlier investigative testimony, Morrow claimed to have confused "deadline" with "extension" and said that he had not known what the extension date would be. All of this testimony is, in turn, inconsistent with Morrow's statements in a 1993 deposition taken in a related civil action. There, contrary to what he told our staff, Morrow claimed that, after reviewing the PPM around January 10, 1990, he knew that the offering was scheduled to expire on January 31, 1990. Contrary to what he said before the law judge, Morrow testified that he contacted Weston and that Weston told him that a ninety-day extension of the offering already had been approved. He claimed that he then called Pratt to verify what Weston had told him and that Pratt informed him that an extension of the offering had been obtained. We are struck by Morrow's various claims about his awareness of the offering deadline and the status, if any, of its extension. We thus are not persuaded by Morrow's assertion that he thought the deadline had been extended. Morrow contends that he "had no scienter" because his actions were "merely negligent." In support of his claim, Morrow cites the law judge's statements that "Morrow negligently relied on verbal assurances that the deadline was being extended" and that "Morrow was acting in good faith" when he sold shares beyond the offering deadline. However, Morrow ignores the fact that, despite the above-mentioned statements, the law judge concluded that Morrow "acted with the requisite scienter to establish violations of Rule 10b-9" and that "the legal standards require more than a good faith effort." More importantly, we cannot conclude on this record that Morrow acted negligently or in good faith. As a securities professional, Morrow had a duty to investigate the Park Florida offering before recommending the investment to his clients. [8] That duty was particularly important here because no broker-dealer was involved in the offering and, accordingly, there was no due diligence file to which Morrow could refer. [9] In choosing to sell interests in Park Florida independently, Morrow thus became responsible for conducting his own investigation into the offering. [10] The record reflects that Morrow knew, as of January 10, 1990, that only about $180,000 had been invested in Park Florida and that $600,000 was required to be raised by January 31, 1990. Further, Morrow recognized that it would be "clearly impossible for [him] to sell the shares by the January 31 deadline" and, consequently, that an extension of the offering was needed. He testified that Weston told him in mid-January 1990 that an addendum was being prepared to extend the offering. Morrow also had copies of both the PPM, which listed the offering deadline in several places, and the subscription agreement, which made it clear that any extension of the offering would require the written consent of all existing investors. In light of these facts, Morrow was reckless in failing to investigate whether the offering had been validly extended before selling any interests in Park Florida after January 31, 1990. Morrow admits that he made no such investigation. Although he had been told that an addendum to extend the offering was being prepared, Morrow did not see a copy of the addendum, nor did he request one. Further, he made no effort to ascertain whether written consent to extend the offering had been obtained from each existing investor. If we accept Morrow's testimony before the law judge, Morrow had verbal assurances from Pratt that the offering deadline would be, or perhaps had been, extended. As we previously have stated, a salesman may not satisfy his duty to investigate the securities he recommends by relying "blindly" on information supplied by persons connected with the issuer. [11] Morrow was reckless in accepting Pratt's assurances when an extension required the consent of independent, third-party investors. Morrow claims that he also relied on Weston, a more experienced securities professional, because he was "out of his league" in the Park Florida offering and had little experience with private limited partnership offerings. We recognize that the law judge credited Morrow's testimony that he relied on Weston's assurances that "an addendum making all of the disclosures necessary for an extension was being filed" and that "the January 31 deadline was no longer valid." [12] As we have noted, however, Morrow did not request this purported addendum. Nor did he obtain evidence that the existing investors had consented to an extension. In light of Morrow's obligations, his reliance on Weston was reckless. Morrow knew that Weston anticipated receiving compensation for his sales in Park Florida and, therefore, had an interest in the offering's outcome. Relying on Weston's assurances about the viability of the offering, without any inquiry into the basis for those assurances, was at odds with Morrow's duty to investigate. [13] Morrow's claims of inexperience are not borne out by the record. Morrow admits that he was involved in other private limited partnership offerings, including the Highlands offering sponsored by Pratt just prior to Park Florida. Further, contrary to assertions by Morrow's counsel at the hearing that Morrow "has always relied on his broker-dealer and the legal department within that broker-dealer to do the due diligence," it appears that Morrow also participated in at least the Highlands offering independently from his broker-dealer. Morrow's recklessness in failing to determine that the offering had been properly extended was compounded by the January 12, 1990 memorandum that he sent to his clients with Weston's materials. As discussed above, Rule 10b-9 is designed to provide investors assurances that the minimum proceeds can be raised, an indication that others in the market believe that the terms and price of the offering are reasonable. Morrow's memorandum stated that $400,000 in proceeds already had been "committed" and that the offering would "not be available much longer." He thereby gave his clients the impression that the offering had had success in the market and further undercut the protections that Rule 10b-9 was designed to provide. For the reasons outlined above, we conclude that Morrow was reckless in selling interests in Park Florida after the date specified in the PPM without first determining whether a valid extension of the offering had been approved. Morrow therefore violated Section 10(b) of the Exchange Act and Rule 10b-9 in connection with those sales. IV. As discussed above, the law judge determined that Morrow failed to make proper disclosure of his anticipated compensation from sales of Park Florida units. Securities Act Section 17(a)(2) prohibits the sale of securities by means of "any untrue statement of a material fact or any omission to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading." Securities Act Section 17(a)(3) prohibits a seller of securities from "engag[ing] in any transaction, practice, or course of business which operates or would operate as a fraud or deceit upon the purchaser." Violation of these provisions does not require a finding of scienter. [14] As a securities professional, Morrow had an obligation to disclose facts that he knew or were "reasonably ascertainable." [15] When recommending securities to a prospective investor, a securities professional must not only avoid affirmative misstatements but also must disclose "material adverse facts," including any self-interest that could influence the salesman's recommendation. [16] Information is material if there is a substantial likelihood that a reasonable investor would consider it important to an investment decision. [17] Morrow admits in this appeal, for the first time, that he failed to make proper disclosure to his clients of his anticipated compensation. He also concedes that "such failure was a violation of the securities laws." Nonetheless, he seeks to minimize his culpability by contending that he was acting in good faith. We disagree. Morrow knew a great deal about his expected compensation arrangement. From the beginning of his involvement in Park Florida, Morrow anticipated that he would receive compensation based upon his total sales in the offering. In mid- November 1989, shortly after Morrow and Weston agreed to participate in the offering, Kelner directed to Morrow a copy of a letter Kelner sent to Weston proposing that the general partner pay each seller broker an "8% selling commission" and a "10% back end equity kicker fee to be allocated between selling brokers on a pro rata basis based on actual sales." The "equity kicker" would entitle Morrow to a portion of the profit resulting from the eventual sale of the property to be acquired by the Park Florida partnership. Morrow contends that Weston was still negotiating the details of their compensation arrangement in early 1990, at the time when Morrow made the bulk of his sales in Park Florida. Weston, however, testified at the hearing that, at some point in late 1989, he and Morrow both agreed to the fee arrangement detailed in Kelner's letter. Morrow, moreover, testified at the hearing that he had assumed his "fee" would equal 8% of his total sales because that percentage was standard in the industry. He further testified that he had anticipated receiving an equity interest to be paid from the limited partners' share of the appreciation on the partnership's property. We further note that, in Morrow's testimony during the staff's investigation, he claimed that he had not expected to receive any commissions or fees for his sales in the offering but only potential back-end appreciation. When confronted at the hearing with his earlier investigative statement, Morrow testified that he had realized that he would receive a fee but believed that it would be paid by the general partner. He did not give that explanation to the staff during the investigation. Morrow's failure to explain to his customers the nature of his anticipated compensation was exacerbated by the affirmative disclosure in the PPM. The front page of the Park Florida PPM stated in capitalized, bold print: "NO SELLING COMMISSIONS WILL BE PAID BY THE PARTNERSHIP IN CONNECTION WITH THE SALE OF UNITS." [18] While this language does not exclude the possibility that compensation might be paid from some other source, the PPM did not describe any other form of payment to be made for sales of the offering, nor did the PPM suggest the possibility of an "equity kicker." Rather, it contained only a vague description of compensation to be paid by the general partner for "consultative services from various professional and financial consultants with respect to the design and composition of the Project and the Partnership." This language did not alert Morrow's clients to the fact that sales compensation or an equity kicker would be paid. Morrow contends that Weston had assured him that their compensation arrangement would be consistent with the PPM's "no commissions" legend because the fee would be paid by the general partner, not the partnership. [19] On this record, we cannot completely test Morrow's assertion that the general partner would pay his "fee," because Morrow ultimately did not receive any compensation due to Pratt's misappropriation of the partnership funds. It appears unlikely, however, that any compensation owed to Morrow would have been paid from the general partner's contribution to the partnership. According to the PPM, the general partner was to contribute only $1,000 to the partnership, while the limited partners were to contribute between $600,000 and $800,000. Even accepting arguendo that Morrow believed that the general partner would pay his compensation, Morrow nonetheless had an obligation to disclose that arrangement to his clients. We recognize that at least some of Morrow's clients had surmised that Morrow might be compensated in some fashion for selling the Park Florida interests. [20] Even these clients, however, would not know either the nature or the source of that compensation unless Morrow disclosed that information to them. In our view, it would be material for a prospective investor to know that a salesman recommending a particular limited partnership was being compensated by that partnership's general partner and thus that the salesman's recommendation might not be wholly disinterested. [21] We are particularly troubled by Morrow's failure to disclose to his clients -- potential limited partners in Park Florida -- that he expected to receive an equity kicker paid out of the limited partners' share of the appreciation of the partnership property. None of his clients suggested that they anticipated that Morrow would receive any equity interest, and certainly not one from their share of the partnership. Moreover, payment of an equity kicker could have an effect on the ultimate profitability of the clients' investment in the partnership. As a securities professional, Morrow had an affirmative obligation to inform his clients about that arrangement. His failure to do so deprived his clients of the opportunity to consider Morrow's own interest in the success of the Park Florida offering in deciding whether to invest as a limited partner. We conclude, therefore, that Morrow's nondisclosure of this material information was in willful violation of Sections 17(a)(2) and (3) of the Securities Act. V. Morrow's conduct in the Park Florida offering demonstrates a disturbing disregard for his obligations as a registered representative. Instead of fully investigating the offering and disclosing all material information about it to his clients, as he was required to do, Morrow took shortcuts in order to raise quickly his share of the offering proceeds. In so doing, he placed his interest in completing the offering above the interests of his clients. Such conduct is inconsistent with the standards demanded of securities professionals and cannot be countenanced. We also note that Morrow was not completely forthright in his investigatory testimony and repeatedly has attempted to minimize his responsibility for his actions. The Division asks that we impose upon Morrow a one-year collateral suspension. Morrow's violation of Rule 10b-9 is not the type of conduct that "flows across" other securities professions. With respect to Morrow's failure to disclose his compensation arrangement, we have not sustained all the alleged violations. [22] Therefore, based on the record before us, we do not conclude that imposition of a collateral suspension on Morrow is in the public interest. Morrow asserts that "the evidence and the applicable law" supports the law judge's conclusion that he should not be suspended for more than sixty days. We agree with the Division, however, that the seriousness of Morrow's misconduct necessitates a longer suspension. Accordingly, we conclude that, under all the circumstances, a one-year suspension from association with any broker or dealer is appropriate in the public interest. We further conclude that it is appropriate to order Morrow to cease and desist from committing or causing any violation or future violation of Section 10(b) of the Exchange Act, Rule 10b-9, and Sections 17(a)(2) and (3) of the Securities Act. An appropriate order will issue. [23] By the Commission (Chairman LEVITT and Commissioners JOHNSON, HUNT, and CAREY); Commissioner UNGER not participating. Jonathan G.Katz Secretary **FOOTNOTES** [1]: Morrow currently is associated with SunAmerica Securities, Inc., a registered broker-dealer and successor to Anchor. He has not appealed from the law judge's decision. [2]: Section 15(c) of the Exchange Act and Exchange Act Rule 15c1-2 can be violated only by a broker-dealer or by any person who aids and abets a broker-dealer's violation. Morrow was charged as a primary violator of Section 15(c) and Rule 15c1-2 and not charged as, or found by the law judge to be, a broker-dealer or an aider and abetter. This finding therefore is set aside. [3]: Weston also was a registered investment adviser and owned a registered broker-dealer. Weston was named as a respondent in these proceedings. Pursuant to his offer of settlement, in which he did not admit or deny the allegations, Weston was barred from association with any broker, dealer, investment adviser, investment company or municipal securities dealer, with the right to reapply after one year. Robert Weston, Exchange Act Rel. No. 34738 (Sept. 28, 1994), 57 SEC Docket 1992. Our findings with respect to Weston are solely for the purpose of this proceeding. [4]: See, e.g., Gallagher & Co., 50 S.E.C. 557, 565 (1991) (requirement is a "principal protection" for investors), aff'd without opinion, 963 F.2d 385 (11th Cir.) (Table), cert. denied, 506 U.S. 979 (1992); Svalberg v. SEC, 876 F.2d 181, 183 (D.C. Cir. 1989) ("all-or-nothing" underwritings developed to provide investors somewhat greater security with regard to risky offerings); C.E. Carlson, Inc. v. SEC, 859 F.2d 1429, 1434 (10th Cir. 1988) (potential return of investor subscriptions in the event that the minimum number of shares is not sold offers some protection to investors); A.J. White & Co. v. SEC, 556 F.2d 619, 623 (1st Cir.), cert. denied, 434 U.S. 969 (1977) (knowledge that minimum amount has been sold may be very important to other investors since inability of underwriter to raise minimum proceeds may indicate that offering price is too high); Exchange Act Rel. No. 11532 (July 11, 1975), 7 SEC Docket 403, 404 ("[v]iolations of Rule 10b-9 . . . are serious breaches of the duty owed by issuers, underwriters and broker-dealers to the investing public"). [5]:SEC v. Blinder, Robinson & Co., Inc., 542 F. Supp. 468, 476 (D. Colo. 1982), aff'd, Fed. Sec. L. Rep. (CCH)  99,491 (10th Cir. Sept. 19, 1983). [6]: Q: "Were you aware that the [PPM] listed a date of January 31, 1990 as the cutoff?" A: "No, sir, as I told you before, not at all. [Weston] never told me that." [7]: At the hearing, Morrow testified:  that as of January 12, 1990, he "was under the impression that [the January 31 deadline] was, really, already extended at that point" because "[Weston and Pratt] told me they were getting an extension on it."  "I was aware of a deadline, but I was told that, that deadline was not really effective any more. [Weston and Pratt] were applying for an extension."  "I was told on January 12 that that addendum was being filed, with -- with all the disclosures that were necessary. [Weston] told me he was working on getting that."  "I was told in the beginning of January, the middle of January, that [an addendum] was being prepared."  that, on January 31, 1990, "I believe, I thought, I was under the impression that [the offering] was extended." [8]: Hanly v. SEC, 415 F.2d 589, 595-96 (2d Cir. 1969). [9]: See id. at 597 (degree of independent investigation that is required will depend upon the circumstances). [10]: We note that, even if Morrow had had access to a broker-dealer's due diligence file on the offering, that fact alone would not have relieved Morrow of his duty to investigate. See Donald T. Sheldon, 51 S.E.C. 59, 71 (1992), aff'd, 45 F.3d 1515 (11th Cir. 1995) (material misstatements and omissions by registered representative are not excused by representative's reliance on information from his broker-dealer; representative has duty to have a reasonable basis for his recommendations). [11]: Hanly v. SEC, 415 F.2d at 597. [12]: At the hearing, Morrow testified: "I didn't think [Weston] would let me sell units in Park Florida in February if, in fact, he didn't think he had the extension." [13]: Cf. Sorrell v. SEC, 679 F.2d 1323, 1327 (9th Cir. 1982) (reliance on assurances from attorney and another broker does not excuse broker's own lack of investigation); Feeney v. SEC, 564 F.2d 260, 262 (8th Cir. 1977), cert. denied, 435 U.S. 969 (1978) (officers of broker-dealer cannot rely on assurances from other officers that securities were exempt from registration). [14]:Aaron v. SEC, 446 U.S. 680, 696-97 (1980). [15]:Hanly v. SEC, 415 F.2d 589, 597 (2d Cir. 1969). [16]: E.g., Gilbert Zwetsch, 50 S.E.C. 816, 818 (1991) (citations omitted). [17]:See Basic v. Levinson, 485 U.S. 224, 230-31 (1988); TSC Indus. v. Northway, Inc., 426 U.S. 438, 449 (1976). [18]: The attorney who drafted the PPM testified that this language was included so that the Park Florida offering would "fit within the Florida private placement exemption which . . . provides that no commissions can be paid . . . by anyone to any person who is not a properly registered dealer." [19]:Morrow states that Weston further told him that the compensation was not inconsistent with the "no commissions" legend because it would be in the form of a "fee," not a "commission." He agreed at the hearing that the compensation he was to be paid was a commission ("we get paid for what we do") and stated that he "wishes it was disclosed a lot better than it was." [20]: Morrow states that he "believes" he told his clients that his fee was to be paid by the general partner. Although one Morrow client testified at the hearing that Morrow had shared such information with him, three clients testified that Morrow did not discuss the issue of his compensation with them, and two others testified that Morrow told them only that he would receive some unspecified form of compensation. [21]:Cf. Steadman v. SEC, 603 F.2d 1126, 1130 (5th Cir. 1979), aff'd, 450 U.S. 91 (1981) (investment adviser failed to disclose to customers that customer funds were deposited in banks from which adviser had obtained loans and that adviser might "keep unduly large amounts idle in" non- interest bearing accounts, to customers' detriment); Chasins v. Smith, Barney & Co., Inc., 438 F.2d 1167, 1171-72 (2d Cir. 1970) (broker-dealer failed to disclose its market making role in securities recommended to customer). [22]:See Meyer Blinder, Exchange Act Rel. No. 39180 (Oct. 1, 1997), 65 SEC Docket 1970, 1981. [23]:All of the contentions made by the parties have been considered. Their arguments are rejected or sustained to the extent that they are inconsistent or in accord with the views expressed herein. UNITED STATES OF AMERICA before the SECURITIES AND EXCHANGE COMMISSION SECURITIES EXCHANGE ACT OF 1934 Rel. No. 40392 / September 2, 1998 Admin. Proc. File No. 3-8304 : In the Matter of : : RICHARD H. MORROW : : : CORRECTED ORDER IMPOSING REMEDIAL SANCTIONS On the basis of the Commission's opinion issued this day, it is ORDERED that Richard H. Morrow be, and he hereby is, suspended from association with any broker or dealer for a period of one year, to be served beginning the second Monday after the date of this order; and it is further ORDERED that Morrow cease and desist from committing or causing any violation or future violation of Section 10(b) of the Securities Exchange Act of 1934, Exchange Act Rule 10b-9, and Sections 17(a)(2) and (3) of the Securities Act of 1933. By the Commission. Jonathan G. Katz Secretary