UNITED STATES OF AMERICA
Before the
SECURITIES AND EXCHANGE COMMISSION
SECURITIES ACT OF 1933
Release No. 7294 / May 21, 1996
INVESTMENT COMPANY ACT OF 1940
Release No. 21966 / May 21, 1996
INTERNATIONAL SERIES
Release No. 983 / May 21, 1996
ADMINISTRATIVE PROCEEDING
File No. 3-9006
______________________________
:
In The Matter of : ORDER INSTITUTING PROCEEDINGS
: PURSUANT TO SECTION 8A OF THE
Voucher Investment Fund : SECURITIES ACT OF 1933 AND
RUSS-INVEST, : SECTION 9(f) OF THE INVESTMENT
: COMPANY ACT OF 1940, FINDINGS
Respondent. : AND CEASE-AND-DESIST ORDER
______________________________:
I.
The Securities and Exchange Commission ("Commission") deems
it appropriate and in the public interest that public
administrative proceedings be, and they hereby are, instituted
against Voucher Investment Fund RUSS-INVEST ("RUSS-INVEST")
pursuant to Section 8A of the Securities Act of 1933 and Section
9(f) of the Investment Company Act of 1940.
II.
In anticipation of the institution of these administrative
proceedings, RUSS-INVEST has submitted an Offer of Settlement
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 set forth
herein, except as to jurisdiction which RUSS-INVEST admits, RUSS-
INVEST consents to the entry of this Order Instituting
Proceedings pursuant to Section 8A of the Securities Act of 1933
and Section 9(f) of the Investment Company Act of 1940, Findings
and Cease-and-Desist Order ("Order").
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III.
On the basis of this Order and RUSS-INVEST's Offer of
Settlement, the Commission finds the following:
A. RUSS-INVEST
RUSS-INVEST is a Moscow-based investment company; it has not
registered its securities with the Commission and has not
registered with the Commission as an investment company. The
predecessor to RUSS-INVEST, MMM-INVEST, was founded in December
1992 and was licensed in January 1993 by the State Property
Committee of the Russian Federation as a voucher investment fund,
a type of entity created as part of Russia's privatization
process. In May 1995, MMM-INVEST changed its name to RUSS-INVEST
to eliminate the "MMM" designation and thereby distinguish itself
from JSC-MMM, a Russian joint stock company.
The business of RUSS-INVEST, and what its license permits,
is to sell its shares to investors in exchange for vouchers or
cash and to invest its shareholders' vouchers or funds in the
stock of Russian companies and Russian government securities.
RUSS-INVEST employs a fund manager and derives its income from
both stock dividends and the trading of its portfolio securities.
As of June 1995, RUSS-INVEST held shares of 26 Russian companies.
Between 10 and 16 percent of RUSS-INVEST's assets was invested in
Russian government securities; the remainder was invested in
shares of companies engaged in businesses such as oil extraction,
oil refinery, automobile production and ferrous metallurgy. As
of June 1995, RUSS-INVEST had a total of 102 million authorized
shares, of which it had issued less than half.
B. RUSS-INVEST'S CONDUCT
On June 8, 1995, a half-page advertisement placed by RUSS-
INVEST appeared in The New York Times, a publication with
circulation throughout the United States. The advertisement
identified RUSS-INVEST as Russia's largest voucher investment
fund and briefly described its history. According to the
advertisement, RUSS-INVEST's "carefully chosen investment
strategy [had] built up the Fund's resources in the form of
shares from privatised [sic] companies with a high degree of
liquidity." The advertisement contained the representation that
RUSS-INVEST's "investment portfolio liquid shares" had a market
value of $35 million.
The advertisement stated that readers could "call us for
additional information or send by fax your orders for buying and
selling shares of Russian private companies or Voucher Investment
Fund RUSS-INVEST" (emphasis added). It listed two telephone
numbers in Russia, one a fax line, for readers to use. The
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advertisement also stated that the "Fund Managers will be
available for direct contact in the USA during the
American-Russian Opportunity Congress . . . in Las Vegas and Los
Angeles from 11 to 17 June 1995," and supplied a California
telephone number for readers to use to obtain more information
about the conference. RUSS-INVEST's fund manager came to the
United States in June 1995 to attend the conference but did not
do so.
C. RUSS-INVEST'S VIOLATIONS
1. RUSS-INVEST MADE AN UNREGISTERED OFFER
TO SELL SECURITIES
Section 5(c) of the Securities Act of 1933 requires
generally that any public offer to buy or sell a security using
the United States mails or any other means or instrumentality of
interstate commerce be registered with the Commission. Under the
Securities Act, the term "offer" includes "every attempt or offer
to dispose of, or solicitation of an offer to buy, a security or
interest in a security, for value." Section 2(3) of the
Securities Act. RUSS-INVEST has not registered any securities
with the Commission, and the language of its June 8 advertisement
in The New York Times constitutes a public offering of
securities. See SEC v. Thomas D. Kienlen Corp., 755 F. Supp.
936, 940 (D. Or. 1991) (citing SEC v. Arvida Corp., 169 F. Supp.
211, 215 (S.D.N.Y. 1958)).
2. RUSS-INVEST ACTED AS AN
UNREGISTERED INVESTMENT COMPANY
Section 7(d) of the Investment Company Act of 1940
prohibits, among other things, an investment company organized or
otherwise created under the laws of a foreign country ("foreign
investment company") from using the United States mails or any
other means or instrumentality of interstate commerce to offer
for sale, sell, or deliver after sale any securities in
connection with a public offering. Upon application by a foreign
investment company, the Commission may, if it makes certain
findings, permit a foreign investment company to register as an
investment company and make a public offering of its securities.
No such application was made here.
RUSS-INVEST, as described in this Order and its
advertisement, falls within the definitions of an "investment
company" in Sections 3(a)(1) and (3) of the Investment Company
Act. RUSS-INVEST is an "issuer" that "is or holds itself out as
being engaged primarily . . . in the business of investing,
reinvesting or trading in securities," and "is engaged . . . in
the business of investing, reinvesting, owning, holding, or
trading in securities, and owns . . . investment securities
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having a value exceeding 40 per centum of the value of [its]
total assets (exclusive of Government securities and cash items)
on an unconsolidated basis." As stated above, an offering of
securities through an advertisement in The New York Times is a
public offering.
Based on the foregoing, the Commission finds that RUSS-
INVEST violated Section 5(c) of the Securities Act of 1933 and
Section 7(d) of the Investment Company Act of 1940.
IV.
In view of the foregoing, the Commission has determined it
is in the public interest to accept RUSS-INVEST's Offer of
Settlement. Accordingly, IT IS HEREBY ORDERED, pursuant to
Section 8A of the Securities Act of 1933 and Section 9(f) of the
Investment Company Act of 1940, that RUSS-INVEST cease and desist
from committing or causing any violation and any future violation
of Section 5(c) of the Securities Act of 1933 and Section 7(d) of
the Investment Company Act of 1940.
By the Commission.
________________________________
Jonathan G. Katz
Secretary