U.S. Securities & Exchange Commission
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U.S. Securities and Exchange Commission

before the

Securities Act of 1933
Release No. 7619 / December 23, 1998

Securities Exchange Act of 1934
Release No. 40830 / December 23, 1998

Investment Advisers Act of 1940
Release No. 1778 / December 23, 1998

Administrative Proceeding
File No. 3-9716

In the Matter of

KEITH E. WALSH, Respondents.




Sean P. Brennan has submitted an Offer of Settlement for the purpose of disposing of the issues raised by this proceeding. Solely for the purposes of these proceedings and any other proceedings brought by or on behalf of the Commission or to which the Commission is a party, and prior to hearing and without admitting or denying the findings set forth herein, Brennan consents to the entry of this Order Making Findings, Imposing Remedial Sanctions and Cease-and-Desist Order ("Order"). The Commission has determined that it is appropriate and in the public interest to accept the Offer of Settlement from Brennan, and accordingly is issuing this Order.



Based on the foregoing, the Commission finds that: 1

A. Respondent

Sean P. Brennan, age 37, resides in Merrimackport, Massachusetts. During the relevant time, Brennan was the Vice President of Sales and Marketing for the Investment Management Group of CS First Boston Investment Management Corporation ("CSFBIMC") 2 . CSFBIMC was registered with the Commission as an investment adviser pursuant to the Investment Advisers Act of 1940 ("Advisers Act") at all relevant times and was an affiliate of CS First Boston ("First Boston"), a registered broker-dealer. CSFBIMC was the investment adviser for The CS First Boston Offshore Cash Reserve Fund (the "Offshore Fund" or the "Fund"). Brennan was responsible for, among other things, selling the Fund to institutional investors.

B. The Formation of the Fund

During the fall of 1993, CSFBIMC made plans to create, develop and market an unregistered offshore fund, eventually called the "CS First Boston Offshore Cash Reserve Fund," designed for sophisticated institutional investors. Unlike a traditional money market fund subject to Rule 2a-7 under the Investment Company Act of 1940, the original concept of the Fund was to be an offshore, near money market fund with an enhanced yield, which would be obtained by investing in instruments with a longer weighted average maturity than the 90-day weighted average maturity required for Rule 2a-7 money market funds. CSFBIMC’s internal plan was to have the Fund’s securities portfolio consist of approximately 70% money market instruments and 30% securities with an average duration of approximately two years, with most of the longer-term portion of the portfolio invested in structured rate notes ("SRNs"), 3 which can be, and in this case were, volatile derivative securities.

During the period from September 1993 to December 1993, Brennan and others had numerous meetings to discuss various issues concerning the Fund, including its portfolio composition, marketing requirements, and general administration. With input from Brennan and others, CSFBIMC prepared an offering circular, dated December 15, 1993 (the "Offering Circular"), for the Fund.

The Offering Circular disclosed the following investment objective: "The Fund’s investment objective is to seek a high level of current income, consistent with the preservation of capital and the maintenance of liquidity through investment principally in money market instruments and fixed income securities." The Offering Circular also represented that "the Fund will normally attempt to maintain a Net Asset Value per Share that when rounded to the nearest whole cent will equal $1.00." The Offering Circular did not disclose that the Fund would be investing primarily in SRNs or the risk that such investment would entail.

C. Brennan’s Misrepresentations Concerning the Fund

In mid-December 1993, as final plans for launching the Fund were being made, Brennan asked one of CSFBIMC’s clients (the "Investor") to invest in the Fund and provide some of the "seed capital" needed to get the Fund started. Brennan told the Investor that First Boston would be contributing $150 million of its own money to the Fund and that, when that money was combined with the money that was going to be invested by other institutional investors, the Fund would total approximately $1 billion.

Brennan also told the Investor that First Boston would guarantee the Investor at least a 4% return through the end of January 1994 (a rate that was substantially higher than then-current domestic money market rates) and that the Investor’s principal was not at risk because any losses sustained by the Fund would be covered by First Boston.

The Investor invested $300 million in the Fund on January 4, 1994. Contrary to Brennan's representations, there were no other non-First Boston affiliated investors in the Fund, and First Boston itself invested only $5 million in the Fund, through CS First Boston Hong Kong. Later that day, the Investor called Brennan to find out what the size of the Fund was. Brennan told the Investor that it was $500 million. In fact, the net assets were $305 million.

Brennan made similar misrepresentations to the Investor throughout January and February 1994. Brennan told the Investor that it would receive an above-market interest rate through the end of February and that CSFBIMC would waive its management fees during that time. Brennan also falsely reiterated to the Investor on several occasions that First Boston would guarantee the Investor’s investment in the Fund.

By mid-February 1994, the Investor invested an additional $550 million in the Fund, bringing its total investment to $850 million. Prior to making the additional investment, the Investor requested, and Brennan agreed, that the $550 million would be used to purchase short-term, money market securities, not SRNs. However, after the money was invested, Brennan made insufficient effort to ensure that this was done. Contrary to Brennan’s representations, the Fund’s portfolio manager purchased additional SRNs with the Investor’s money.

D. Misleading Marketing Materials

During December 1993 through February 1994, Brennan distributed to the Investor and other clients, certain marketing materials that misrepresented, among other things, the size of the Fund, the number of investors in the Fund, and the content and composition of the Fund. Brennan distributed a portfolio chart prepared by the Fund’s portfolio manager, dated January 4, 1994 which purportedly listed the investments in the Fund but excluded $120 million of SRNs and did not reflect the leverage in the portfolio. The chart was also misleading because it miscalculated the weighted average maturity of the portfolio by understating the number of days to maturity for some of the SRNs. On or about February 24, 1994, Brennan sent the Investor and other CSFBIMC clients a copy of a revised offering circular and misrepresented in the cover letter that "the fund is now at $920 million" when in fact the Fund had net assets of $855 million.

E. Losses in the Fund

On February 4, 1994, after approximately three years of generally declining rates, the Federal Reserve increased the Fed Funds rate from 3% to 3.25%. This action by the Federal Reserve caused a general climb in United States and world interest rates during February 1994, and those increases caused a decline in the value of the Fund’s portfolio, with some of the SRNs on the verge of becoming non-accruing by February 24. By March 2, 1994 the portfolio was valued at an NAV of $.9727, or a net loss of approximately $24 million.



Section 17(a) of the Securities Act makes it unlawful, in the offer or sale of securities, (1) to employ any device, scheme or artifice to defraud, or (2) to obtain money or property by means of any untrue statement of material fact or any omission to state a material fact necessary to make the statements made, in light of the circumstances under which they were made, not misleading, or (3) to engage in any transaction, practice, or course of business that operates as a fraud or deceit upon a purchaser. Section 10(b) of the Exchange Act and Rule 10b-5 thereunder make it unlawful to employ any device, scheme or artifice to defraud in connection with the purchase or sale of securities.

Section 206(1) of the Advisers Act makes it unlawful for an investment adviser to employ any device, scheme or artifice to defraud any client or prospective client. Section 206(2) makes it unlawful for an investment adviser to engage in any transaction, practice, or course of business that operates as a fraud or deceit upon any client.

As discussed above, Brennan made material misrepresentations to the Investor and other potential investors about the Fund and distributed false and misleading marketing marterials. Based on these facts, Brennan willfully violated the antifraud provisions of the Securities Act and the Securities Exchange Act, and he caused and willfully aided and abetted CSFBIMC’s violations of the antifraud provisions of the Advisers Act.



Based on the above, the Commission finds that Brennan willfully violated Section 17(a) of the Securities Act, Section 10(b) of the Exchange Act and Rule 10b-5 thereunder, and willfully aided and abetted violations of Sections 206(1) and 206(2) of the Advisers Act.



Accordingly, IT IS HEREBY ORDERED that:

A. Brennan is barred from association with any broker, dealer, investment adviser or investment company with the right to reapply for association after five (5) years to the appropriate self-regulatory organization, or if there is none, to the Commission;

B. Brennan cease and desist from committing or causing any violations of, and committing or causing any future violations of, Section 17(a) of the Securities Act, Section 10(b) of the Exchange Act and Rule 10b-5 thereunder, and Sections 206(1) and 206(2) of the Advisers Act; and

C. Brennan pay a civil money penalty of $50,000 within thirty (30) days of the entry of the Order, by U.S. Postal money order, certified check, bank cashier's check, or bank money order, made payable to the Securities and Exchange Commission and the payment shall be hand-delivered or mailed to the Comptroller, Securities and Exchange Commission, Operations Center, 6432 General Green Way, Stop 0-3, Alexandria, VA 22312, under cover of a letter that identifies the respondent and the name and file number of this proceeding. A copy of the cover letter and of the form of payment shall be simultaneously transmitted to Gregory S. Bruch, Assistant Director, Securities and Exchange Commission, 450 Fifth St., N.W., Mail-Stop 7-3, Washington, D.C. 20549.

By the Commission.

Jonathan G. Katz




The findings herein are made pursuant to Brennanís Offer of Settlement and are not binding on any other person or entity in this or any other proceeding.


CSFBIMC was a respondent in a related proceeding, In the Matter of C.S. First Boston Investment Management Corp, Admin. Proc. No. 3-9715. Nicholas C. Bogard, Brennanís supervisor was the respondent in another related proceeding, In the Matter of Nicholas C. Bogard, Admin. Proc. No. 3- 9717.


SRNs are over-the-counter securities, the terms of which are negotiated by the dealer (usually a bank or securities firm) and the purchaser. SRNs generally commit the dealer to provide a return linked to one or more desired interest rates, currencies or other assets. While the payment of principal and interest to the purchaser typically is guaranteed by the dealer, the amount of such payments can fluctuate, depending on the terms of the SRN.