UNITED STATES OF AMERICA
SECURITIES AND EXCHANGE COMMISSION
SECURITIES ACT OF 1933
Release No. 7773 / November 17, 1999
SECURITIES EXCHANGE ACT OF 1934
Release No. 42146 / November 17, 1999
File No. 3-10098
PUBLIC ADMINISTRATIVE AND CEASE-AND-DESIST PROCEEDINGS INSTITUTED AGAINST KEVIN G. QUINN, FORMER HEAD OF PUBLIC FINANCE AT ALEX. BROWN AND SONS INCORPORATED
The Securities and Exchange Commission today instituted public administrative and cease-and-desist proceedings against Kevin G. Quinn, former head of the Public Finance Department at Alex. Brown and Sons Incorporated ("Alex. Brown"). The Order Instituting Proceedings charges Quinn with securities fraud in connection with a Commonwealth of Pennsylvania refunding bond offering in March 1994. Alex. Brown is a broker-dealer based in Baltimore, Maryland, and is the corporate predecessor to BT Alex. Brown Incorporated.
The Order Instituting Proceedings alleges that Alex. Brown was selected to sell approximately $378 million worth of U.S. Treasury securities to the Commonwealth in connection with an advance refunding bond offering. In order to obtain the business, Quinn agreed to give a substantial portion of Alex. Brown's revenues from the transaction to another securities firm which served as the Commonwealth's financial adviser for the refunding. Quinn understood that the other firm would do little or none of the work and take no risk on the sale of the Treasury securities. The Order Instituting Proceedings alleges that, in violation of his fiduciary duty, Quinn failed to fully and accurately disclose this arrangement to the Commonwealth. The Order also alleges that Quinn knew or recklessly disregarded that the Commonwealth had been given a materially misleading description of the arrangement by the other firm. The other firm sent the Commonwealth a letter which attributed the fee-splitting arrangement to the two firms' "inextricable integrated" efforts and "close professional cooperation." Quinn knew that the two firms were splitting fees because he had been told that Alex. Brown needed to do so in order to obtain the bond business. The letter also failed to reveal that Alex. Brown had agreed to give away more than half of its revenues to a firm that would perform little or no work and assume no risk on the sale of the escrow securities. The Order alleges that Quinn, in violation of his fiduciary duty, knowingly or recklessly failed to bring the material misstatements and omissions in the other firm's letter to the attention of the Commonwealth.
The Order Instituting Proceedings also alleges that Quinn agreed with the Pennsylvania Treasurer's office that Alex. Brown would sell the portfolio of U.S. Treasury securities to the Commonwealth at a markup of 4.5 basis points over the price Alex. Brown paid for the securities, but that Quinn instead instructed his staff to mark up the securities 45 basis points. The markup was thus ten times greater, and approximately $1.6 million more, than Alex. Brown had agreed to charge. When the Treasurer's staff became aware of the overcharge and challenged Quinn on the markup, he falsely insisted that Alex. Brown had only charged the agreed 4.5 basis points.
The Order alleges that Quinn willfully violated the antifraud provisions, specifically 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.
This proceeding has been instituted pursuant to Section 8A of the Securities Act and Sections 15(b) and 21C of the Securities Exchange Act. A hearing will be held before an Administrative Law Judge to determine whether the allegations are true, and if so, to determine what remedies and sanctions are appropriate and in the public interest.