Vector Index Advisors, Inc. and Steven H. Adler

SECURITIES ACT OF 1933
Release No. 8034 / November 15, 2001

SECURITIES EXCHANGE ACT OF 1934
Release No. 45064 / November 15, 2001

INVESTMENT ADVISERS ACT OF 1940
Release No. 1996 / November 15, 2001

INVESTMENT COMPANY ACT OF 1940
Release No. 25268 / November 15, 2001

ADMINISTRATIVE PROCEEDING
File No. 3-10253

I.

On July 18, 2000, the Securities and Exchange Commission ("Commission") entered an Order Instituting Public Administrative and Cease-and-Desist Proceedings Pursuant to Section 8A of the Securities Act of 1933 ("Securities Act"), Sections 15(b)(6), 19(h), and 21C of the Securities Exchange Act of 1934 ("Exchange Act"), Sections 203(f) and 203(k) of the Investment Advisers Act of 1940 ("Advisers Act"), and Section 9(b) of the Investment Company Act of 1940 ("Investment Company Act") against Steven H. Adler and Vector Index Advisors, Inc.

II.

Respondent Steven H. Adler ("Adler" or "Respondent") has submitted an Offer of Settlement (the "Offer") for the purpose of resolving these proceedings, 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 to which the Commission is a party, and without admitting or denying the findings herein, except as to the Commission's jurisdiction over him and the subject matter of these proceedings, and the findings contained in Sections III. 1., III. 2. and III. 3., below, which are admitted, Respondent Adler consents to the entry of the findings, remedial sanctions and a cease-and-desist order, as set forth below.

III.

On the basis of this Order and Respondent Adler's Offer, the Commission finds that:

Respondent

1. Adler was the president, over 50% shareholder and a director of Vector Index Advisors, Inc. ("Vector"), an investment adviser registered with the Commission, and was also president and chairman of the board of the ASM Fund ("ASM"), an investment company registered with the Commission. From October 1994 through November 1996, and from August through October 1998, Adler was also a registered representative associated with broker-dealers registered with the Commission. Adler, 63 years old, is a resident of Tampa, Florida.

Other Relevant Entities

2. Vector, incorporated in Florida in 1990, was an investment adviser registered with the Commission since June 29, 1990. Vector's principal place of business was in Tampa, Florida. Commencing on February 1, 1991, Vector provided investment advisory services to ASM, a mutual fund with net assets under management of approximately $29 million. ASM terminated Vector as its investment adviser effective on or about February 23, 1999. Vector soon thereafter ceased operations and, on September 24, 1999, was administratively dissolved by the Florida Secretary of State for failure to file its annual report.

3. ASM, incorporated in Maryland on April 25, 1990, was an open-end diversified investment company registered with the Commission since June 29, 1990. ASM, an index fund, invested in the stocks of the Dow Jones Industrial Average ("DJIA"), and offered its shares for sale to the general public. ASM terminated Vector as its investment adviser effective February 23, 1999. Thereafter, ASM merged with a fund offered by another investment company, and began to obtain advisory services from that fund's adviser.

Background

4. From October 1994 through September 1998 (the "relevant period"), Adler offered and sold to 11 investors, who became Vector clients, securities managed under a purported Vector/ASM market-timing program (the "timing program"). Under the timing program, Adler would purportedly transfer the clients' funds between ASM, in the form of ASM mutual fund shares, and a money market fund. Adler told the clients that their funds would be placed in the money market fund when the DJIA declined, and would be reinvested in ASM when the DJIA rebounded. Through Adler's and Vectors' misrepresentations, they obtained $1,995,600 from investors.

5. During the relevant period, Adler solicited the clients by means of material misrepresentations and omissions. Adler told potential investors that he could generate high returns for them using the timing program. In fact, Adler never operated the timing program; instead, Adler and Vector misappropriated the clients' funds and used them to pay Vector's expenses and Adler's personal expenses.

6. During the relevant period, Adler prepared and sent letters on Vector and ASM stationery to the clients, confirming their purported investments in the timing program. Adler provided each client with calculations showing the initial net asset value of the ASM shares purportedly purchased for his or her timing program accounts. Adler knew that these valuations were false, as no investor funds were actually used to purchase ASM shares in connection with the purported timing program.

7. During the relevant period, Adler prepared and sent to the clients monthly account statements purportedly showing the growth of their investments in the timing program. The statements reflect purchases and sales of ASM shares purportedly made by Adler on behalf of the clients, and reflect purported increases in the value of their accounts, as well as the dates and amounts of deposits to and withdrawals from the accounts. These monthly statements were false, because Adler never used the clients' funds to purchase or sell ASM shares in the timing program.

8. Contrary to Adler's representations to the clients, and contrary to the information that he provided them in the update letters and account statements, Vector and Adler diverted $1,995,600 of client funds by using the funds, without the clients' authorization or knowledge, to pay Vector's business expenses and Adler's personal expenses.

9. In Forms ADV signed and filed by Adler on behalf of Vector with the Commission, Adler omitted to state material facts required to be stated on Part I, Item 17B of the Form ADV. Specifically, even though Vector, through Adler, purported to provide investment advice to the participants in the investment program, and received funds from them, Adler did not report the participants in the purported timing program as Vector clients as required in Part I, Item 17B on the Form ADV.

10. Vector, through Adler, did not maintain a true, accurate or current list or other record of all client accounts with respect to which it was vested with discretionary authority, and failed to maintain true, accurate or current written agreements relating to the purported timing program. Specifically, these records were not maintained for the clients who participated in the purported timing program.

11. Vector, through Adler, took improper action with client funds by failing to maintain those funds in bank accounts containing only those client funds, failing to notify its clients about the place and manner in which their funds were maintained, and failing to have client funds and securities verified by an independent public accountant at least once a year without prior notice to the investment adviser.

12. As a result of the conduct described above, Adler willfully violated Section 17(a) of the Securities Act, Section 10(b) of the Exchange Act and Rule 10b-5 thereunder, which prohibit fraudulent conduct in the offer and sale of securities and in connection with the purchase, offer, or sale of securities.

13. As a result of the conduct described above, Adler willfully aided and abetted and caused Vector's violations of Sections 206(1), 206(2) and 206(4) of the Advisers Act, which prohibit fraudulent conduct by an investment adviser, and Rule 206(4)-2 promulgated thereunder, which requires that an investment adviser maintain each client's funds in bank accounts containing only those client funds, notify its clients about the place and manner in which their funds are maintained, and have client funds and securities verified by an independent public accountant at least once a year without prior notice to the investment adviser.

14. As a result of the conduct described above, Adler willfully aided and abetted and caused Vector's violations of Section 204 of the Advisers Act, and Rules 204-2(a)(8) and 204-2(a)(10) promulgated thereunder, which require that investment advisers registered with the Commission maintain and preserve certain books and records. Rule 204-2(a)(8) promulgated thereunder requires that registered investment advisers "make and keep true, accurate and current . . . a list or other record of all accounts in which the investment adviser is vested with any discretionary power with respect to the funds, securities or transactions of any client." Rule 204-2(a)(10) requires that registered investment advisers "make and keep true, accurate and current . . . all written agreements . . . entered into by the investment adviser with any client or otherwise relating to the business of such investment adviser as such." Adler aided and abetted and caused Vector to fail to maintain a true, accurate or current list or other record of all client accounts with respect to which it was vested with discretionary authority, and failed to maintain true, accurate or current written agreements relating to the clients of the purported timing program.

15. As a result of the conduct described above, Adler willfully violated Section 207 of the Advisers Act which makes it "unlawful for any person willfully to make any untrue statement of a material fact in any registration application or report filed with the Commission . . . or willfully to omit to state in any such application or report any material fact which is required to be stated therein."

Disgorgement and Civil Penalties

16. Respondent has submitted a sworn Statement of Financial Condition, dated June 26, 2001, and other evidence and has asserted his financial inability to pay disgorgement plus prejudgment interest. The Commission has reviewed the sworn Statement of Financial Condition, dated June 26, 2001, and other evidence provided by Respondent and has determined that Respondent does not have the financial ability to pay disgorgement of $1,995,600 plus prejudgment interest.

17. Respondent has submitted a sworn Statement of Financial Condition, dated June 26, 2001, and other evidence and has asserted his financial inability to pay a civil penalty. The Commission has reviewed the sworn Statement of Financial Condition, dated June 26, 2001, and other evidence provided by Respondent and has determined that Respondent does not have the financial ability to pay a civil penalty.

IV.

In view of the foregoing, the Commission deems it appropriate, in the public interest, and for the protection of investors to impose the sanctions specified in Respondent Adler's Offer.

ACCORDINGLY, IT IS ORDERED that:

A. Pursuant to Section 8A of the Securities Act, Section 21C of the Exchange Act, and Section 203(k) of the Advisers Act, Respondent Adler shall cease and desist from committing or causing any violations and 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 204, 206(1), 206(2), 206(4) and 207 of the Advisers Act and Rules 204-2(a)(8), 204-2(a)(10) and 206(4)-2 promulgated thereunder;

B. Pursuant to Sections 15(b)(6) and 19(h) of the Exchange Act, Section 203(f) of the Advisers Act, and Section 9(b) of the Investment Company Act, Respondent Adler be, and hereby is barred from association with any broker, dealer, or investment adviser, and is prohibited from serving or acting as an employee, officer, director, member of an advisory board, investment adviser or depositor of, or principal underwriter for, a registered investment company or affiliated person of such investment adviser, depositor, or principal underwriter;

C. Respondent Adler is liable to pay disgorgement of $1,995,600, plus prejudgment interest, but payment of the disgorgement amount and prejudgment interest thereon is waived, based upon Respondent Adler's demonstrated financial inability to pay; and

D. If at any time following the entry of this Order the Division of Enforcement ("Division") obtains information indicating that Respondent Adler's representations to the Commission concerning his assets, income, liabilities or net worth were fraudulent, misleading, inaccurate or incomplete in any material respect as of the time such representations were made, the Division may, at its sole discretion and without prior notice to Respondent Adler, petition the Commission to enter an order requiring Respondent Adler to pay disgorgement, prejudgment and postjudgment interest thereon, a civil money penalty, and any additional remedies that the Commission would be authorized to impose in this proceeding if Respondent Adler's Offer of Settlement had not been accepted. In connection with any such petition, the only issues shall be whether the financial information provided by Respondent Adler was fraudulent, misleading, inaccurate or incomplete in any material respect as of the time such representations were made, the amount of civil penalties to be imposed and whether any additional remedies should be imposed. Respondent may not, by way of defense to any such petition, contest the amount of disgorgement or interest, the imposition of a civil money penalty, the findings in this Order or the Commission's authority to impose any additional remedies that were available in this proceeding.

By the Commission.

Jonathan G. Katz
Secretary