UNITED STATES OF AMERICA
|In the Matter of
DEWAYNE R. VONFELDT,
|ORDER INSTITUTING A PUBLIC
PROCEEDING PURSUANT TO
SECTIONS 15(b)(6), 15B(c)(4) AND
19(h) OF THE SECURITIES EXCHANGE ACT
OF 1934, MAKING FINDINGS, AND
IMPOSING REMEDIAL SANCTIONS
The Securities and Exchange Commission ("Commission") deems it appropriate and in the public interest that a public proceeding be, and hereby is, instituted pursuant to Sections 15(b)(6), 15B(c)(4) and 19(h) of the Securities Exchange Act of 1934 ("Exchange Act") against DeWayne R. VonFeldt ("VonFeldt").
In anticipation of the institution of this proceeding, VonFeldt has submitted an Offer of Settlement ("Offer"), which the Commission has determined to accept. Solely for the purpose of this proceeding, and any other proceedings brought by or on behalf of the Commission, or to which the Commission is a party, VonFeldt, without admitting or denying the findings contained in this Order Instituting a Public Proceeding Pursuant to Sections 15(b)(6), 15B(c)(4) and 19(h) of the Securities Exchange Act of 1934, Making Findings, and Imposing Remedial Sanctions ("Order"), except that VonFeldt admits that the Commission has jurisdiction over him and over the subject matter of this proceeding, consents to the entry of this Order and the imposition of the sanctions as set forth below.
The Commission has determined that it is appropriate and in the public interest to accept VonFeldt's Offer and accordingly is issuing this Order.
On the basis of this Order and the Offer, the Commission finds that: 1
VonFeldt, age 63, is a resident of Oklahoma City, Oklahoma. At all times from 1989 through 1993, VonFeldt was associated with Stifel, Nicolaus & Company, Inc. ("Stifel"), a registered broker-dealer and municipal securities dealer, as one of its executive vice presidents.
Stifel is a registered broker-dealer headquartered in St. Louis, Missouri.
Robert M. Cochran ("Cochran") is a former Stifel executive vice president who reported directly to VonFeldt.
VonFeldt was responsible for supervising all of Stifel's operations in Oklahoma ("the Oklahoma division"). The Oklahoma division included retail brokerage and trading operations and a separate office in Oklahoma City, Oklahoma, that acted as an underwriter and/or financial advisor to various municipal entities ("the Oklahoma public finance office"). VonFeldt directly supervised Cochran, the Stifel executive vice president in charge of the Oklahoma public finance office. Thus, VonFeldt was responsible for ensuring that Cochran complied with the federal securities laws.
From at least 1989 through 1993, Stifel, acting through or with the approval of Cochran, while serving as underwriter and/or financial adviser to various municipal entities, advised its clients regarding the investment of the proceeds of their municipal securities offerings. Stifel's municipal issuer clients looked to Cochran for advice and expertise regarding the investment of these moneys. Cochran arranged for Stifel to receive undisclosed payments from the third parties that sold or brokered the investments to Stifel's municipal issuer clients. These payments jeopardized the tax-exempt status of the bonds issued by Stifel's municipal issuer clients. These payments were a regular and increasingly important source of revenues to the Oklahoma public finance office, to the Oklahoma division and to Stifel. Moreover, because Stifel compensated VonFeldt and Cochran according to the profitability of the Oklahoma division and the Oklahoma public finance office, respectively, both VonFeldt and Cochran personally benefited from these payments.
By engaging in the above-described conduct, Cochran willfully violated Section 17(a) of the Securities Act of 1933 ("Securities Act"), Sections 10(b) and 15B(c)(1) of the Exchange Act and Rule 10b-5 thereunder, and Rule G-17 of the Municipal Securities Rulemaking Board ("MSRB").
VonFeldt was aware of the fees that Cochran arranged for Stifel to receive from third parties that sold or brokered investment agreements to Stifel's municipal issuer clients. Although VonFeldt would not negotiate such fees, the bankers responsible for negotiating the fees, including Cochran, always would inform VonFeldt of the fees Stifel was to receive. Thus, VonFeldt knew about the investment agreement fees that Cochran arranged for Stifel to receive and the conflicts of interest that those fees created between Stifel and its municipal issuer clients.
Despite the growing importance of investment agreement fees to Stifel's Oklahoma operations, VonFeldt never bothered to learn the details concerning these fees, such as the method used to calculate the amount of the fees or how the fees were divided between different parties. He did not know if there was any relationship between the amount of such fees and the arbitrage and rebate requirements of the Internal Revenue Code. According to VonFeldt, Cochran was the only person at Stifel who had the technical knowledge to be able to understand the compliance matters that would be involved in reinvestment transactions for Stifel's municipal issuer clients.
Cochran did not disclose these investment agreement fees to Stifel's municipal issuer clients. With respect to these investment agreement fees, VonFeldt's supervision of Cochran consisted merely of accepting Cochran's representation to VonFeldt that Cochran would orally disclose to the issuers the fact that Stifel was receiving a fee and that such oral disclosure was in accordance with standard industry practice. However, VonFeldt never attempted to verify that Cochran actually disclosed the fees to Stifel's municipal issuer clients. Moreover, Cochran was VonFeldt's sole source of understanding for what industry practice was concerning the disclosure of fees to issuers. VonFeldt never discussed what the standard industry practice was with respect to disclosure of such fees with any individuals other than Cochran.
On a 1992 refunding for the Sisters of Saint Mary's Health Care Obligated Group, Cochran informed VonFeldt that he caused $100,000 received by Stifel from the investment agreement provider to be improperly recorded in Stifel's accounting books and records as relating to a different transaction. VonFeldt took no action in response to this revelation.
VonFeldt also knew that Cochran improperly directed certain of Stifel's undisclosed investment agreement fees to a company owned by Cochran, which moneys Cochran ultimately forwarded to Stifel. Between October 1992 and April 1993, Cochran directed seven payments representing approximately $3.3 million of investment agreement fees due to Stifel into his company's bank account. VonFeldt took no action in response to this diversion of moneys. As a result, Stifel's accounting books and records failed to reflect properly those fee remittances on a timely basis.
VonFeldt failed reasonably to supervise Cochran. Specifically, VonFeldt was aware of: (i) the conflicts of interest between Stifel and its municipal issuer clients created by Cochran's arrangement for Stifel to receive payments from investment agreement providers and brokers; (ii) the large and frequent profits generated by these transactions; (iii) Cochran's use of his own company's account to collect some of the payments to Stifel; (iv) the lack of written documentation concerning these transactions; (v) Cochran's unverified representation to VonFeldt that he simply orally informed the firm's clients that Stifel would profit from these reinvestment transactions; and (vi) Cochran's falsification of Stifel's books and records. These situations, combined with the fact that Cochran personally benefited by the investment agreement fees pursuant to his employment contract with Stifel, constituted "red flags" which required VonFeldt to obtain all relevant facts concerning the receipt of these payments and to ensure that they were disclosed to the issuers and recorded in Stifel's books and records in compliance with the federal securities laws.
Based on the foregoing, the Commission finds that VonFeldt failed reasonably to supervise Cochran within the meaning of Section 15(b)(4)(E) of the Exchange Act, with a view to preventing the foregoing violations of Section 17(a) of the Securities Act, Sections 10(b) and 15B(c)(1) of the Exchange Act and Rule 10b-5 thereunder, and Rule G-17 of the MSRB.
In view of the foregoing, the Commission deems it appropriate and in the public interest to accept the Offer and impose the sanctions specified therein.
ACCORDINGLY, IT IS HEREBY ORDERED that:
A. VonFeldt be, and hereby is, censured;
B. VonFeldt be, and hereby is, suspended from association in a supervisory capacity with any with any broker, dealer or municipal securities dealer for a period of six months, effective on the second Monday following the entry of this Order;
C. VonFeldt pay a civil monetary penalty in the amount of $25,000, pursuant to Section 21B(a)(4) of the Exchange Act, to the United States Department of Treasury, within ten (10) days of the entry of the Order. Such payment shall be: (i) made by United States postal money order, certified check, bank cashier's check or bank money order; (ii) made payable to the Securities and Exchange Commission; (iii) hand-delivered or mailed to the Comptroller, Securities and Exchange Commission, Operations Center, 6432 General Green Way, Stop 0-3, Alexandria, VA 22312; and (iv) submitted under cover letter which identifies VonFeldt as a respondent in this proceeding and the file number of this proceeding, a copy of which cover letter and money order or check shall be sent to Paul Berger, Assistant Director, Division of Enforcement, U.S. Securities and Exchange Commission, 450 5th Street, N.W., Washington, D.C. 20549-0702; and
D. VonFeldt provide to the Commission, within three days after the end of the six-month suspension period described above, an affidavit that he has complied fully with the sanctions described in Section V.B above.
By the Commission.
Jonathan G. Katz
|1||The findings in this Order are made pursuant to VonFeldt's Offer and are not binding on any other person or entity in this or any other proceeding.|
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