Russell W. Stein, Ford D. Albritton, Jr.,and Dover and Associates, Inc.

SECURITIES EXCHANGE ACT OF 1934
Rel. No. 47504 / March 14, 2003

INVESTMENT ADVISERS ACT OF 1940
Rel. No. 2114 / March 14, 2003

Admin. Proc. File No. 3-9309

ORDER DISMISSING PROCEEDING IN PART AND IMPOSING REMEDIAL SANCTIONS

On the basis of the Commission's opinion issued this day, it is

ORDERED that the proceedings against Russell W. Stein for violation of the antifraud provisions of the Investment Advisers Act of 1940, and against Ford D. Albritton, Jr. and Dover and Associates, Inc. for aiding and abetting Stein's alleged violation, be, and they hereby are, dismissed; and it is further

ORDERED that Russell W. Stein shall cease and desist from committing or causing any violations or any future violations of Section 204 of the Investment Advisers Act of 1940 and Rule

204-1(b) thereunder and Section 207 of the Investment Advisers Act; and it is further

ORDERED that Russell W. Stein be, and hereby is, suspended from associating with any investment adviser and from associating with any investment company for twelve months, effective as of the opening of business on March 31, 2003; and it is further

ORDERED that Russell W. Stein be, and hereby is, assessed a civil penalty of $30,000.

By the Commission.

Jonathan G. Katz
Secretary

Footnotes

² Another investment management company, Eagle Management Trust, also hired Albritton. His affiliation with that firm is not at issue here.

³ The latter check was marked "football."

⁴ The record also briefly mentions that Stein executed a revolving note as a co-borrower in late 1994 for a $150,000 line of credit for a telephone company of which Albritton, Stein's son, and a third party were owners. The record does not disclose whether the line of credit was accessed at any time. None of the litigants make arguments based on the existence of the line of credit.

⁵ Section 206 is thus distinguished from the antifraud provisions of the Securities Act of 1933, 15 U.S.C. § 77q; and the Securities Exchange Act of 1934, 15 U.S.C. § 78j, which proscribe fraud by any "person."

⁶ Section 202(11) defines an "investment adviser," in pertinent part, as

[A]ny person who, for compensation, engages in the business of advising others . . . as to the value of securities or as to the advisability of investing in, purchasing, or selling securities, or who, for compensation and as part of a regular business, issues or promulgates analyses or reports concerning securities . . . .

Section 202(17) defines a "person associated with an investment adviser" as

[A]ny partner, officer or director of such investment adviser (or any person performing similar functions), or any person, directly or indirectly controlling or controlled by such investment adviser, including any employee of such investment adviser . . . .

⁷ See, e.g. §§ 203(e) and (f) of the Act.

⁸ Accordingly, the charges against Albritton and Dover as aiders and abettors of Stein also must be dismissed.

⁹ Item 13.A of Part II of Form ADV asks:

Does the applicant or a related person have any arrangements, oral or in writing, where it:

A. Is paid cash by or receives some economic benefit (including commissions, equipment or non-research services) from a non-client in connection with giving advice to clients?

¹⁰ Graham v. SEC, 222 F.3d 994, 1000 (D.C. Cir. 2000); Donald T. Sheldon, 51 S.E.C. 59, 66 (1992), aff'd, 45 F.3d 1515 (11th Cir. 1995).

¹¹ The Division contends that this continuing conflict of interest created an ongoing requirement for Merrill Lynch to disclose the economic benefits Stein received in its Forms ADV for fiscal years 1992-1995.

¹² The Division also alleged that Stein benefitted because Albritton performed no, or at least minimal, work pursuant to the contract with ACF, and that the job was really a gift from Stein to Albritton. The law judge made findings suggesting that Albritton did not do much for ACF while employed by it, and the record supports these findings. However, there is nothing in the record supporting the conclusion that ACF's hiring of Albritton was intended as a sham, or that Stein knew the extent of Albritton's performance for ACF. The law judge made no conclusions concerning this "gift" theory, and the Division does not press that theory on appeal.

¹³ The record includes evidence of this specific amount; Albritton's testimony suggests that there may have been other payments.

¹⁴ The Division claims on appeal that the arrangement concerning the sky box was that Stein gained access to the box because Albritton was able to pay for the box using the money ACF paid Albritton. The Division cites no record evidence supporting this version of the sky box arrangement. In fact, the record suggests that Stein would have preferred to purchase the right to the sky box outright, rather than participate in the sharing arrangement to which Albritton agreed.

¹⁵ TSC Industries v. Northway, Inc., 426 U.S. 438, 445, 449 (1976). See also Valicenti Advisory Services, Inc., Initial Decision Rel. No. 111 (July 2, 1997), 64 SEC Docket 2363, aff'd, Valicenti Advisory Services, Inc. v. SEC, 198 F.3d 62 (2d Cir. 1999), cert. denied, 530 U.S. 1276 (2000) (applying TSC Industries "materiality" standard to Advisers Act case).

¹⁶ 375 U.S. 180 (1963).

¹⁷ Id. at 282-83.

¹⁸ Investment Trusts and Investment Companies, Report of the Securities and Exchange Commission, Pursuant to Section 30 of the Public Utility Holding Company Act of 1935, on Investment Counsel, Investment Management, Investment Supervisory, and Investment Advisory Services, H.R. Doc. No. 477, 76th Cong., 2d Sess. 1 (1939) ("SEC Report").

¹⁹ 375 U.S. at 187 (citing SEC Report at 28).

²⁰ Id. at 194.

²¹ Jacob Wonsover, Securities Exchange Act Rel. No. 41123 (March 1, 1999), 69 SEC Docket 694, petition for review denied, Wonsover v. SEC, 205 F.3d 408 (D.C. Cir. 2000).

²² "Wilfully" in this context means intentionally committing the act that constitutes the violation. There is no requirement that the actor be aware that he is violating federal securities laws. See Wonsover v. SEC, 205 F.3d at 414. See also Steadman v. SEC, 603 F.2d 1126, 1135 (5th Cir. 1979), aff'd on other grounds, 450 U.S. 91 (1981); and Arthur Lipper Corp. v. SEC, 547 F.2d 171, 180 (2d Cir. 1976).

²³ KPMG Peat Marwick LLP, Exchange Act Release No. 43862 (Jan. 19, 2001), 74 SEC Docket 384, 436 motion for reconsideration denied, Exchange Act Release No. 44050 (Mar. 8, 2001), 74 SEC Docket 1351, petition denied, 289 F.3d 109 (D.C. Cir. 2002). See also Joseph J. Barbato, 53 S.E.C. 1259, 1281 n.31; Donald T. Sheldon, 51 S.E.C. 59, 86 (1992), aff'd, 45 F.3d 1515 (11th Cir. 1995).

²⁴ 15 U.S.C. § 78u-2(b) and 15 U.S.C. § 80b-3(i)(2). "Reckless disregard" has been defined as "an extreme departure from the standards of ordinary care . . . ." Bruce E. Straughn, Securities Exchange Act Rel. No. 45939, 77 SEC Docket 1933, 1936 (May 15, 2002), quoting S.E.C. v. Steadman, 967 F.2d 636, 641-42 (D.C. Cir. 1992).

²⁵ 15 U.S.C. § 78u-2(c) and 15 U.S.C. § 80b-3(i)(3).

²⁶ 15 U.S.C. 80b-3(k). That provision authorizes the Commission to issue a cease-and-desist order against any person who was a cause of a violation of the Advisers Act, or any rule or regulation thereunder, due to an act or omission the person knew or should have known would contribute to such violation. We have held that the "knew or should have known" language constitutes a negligence standard. KPMG, 74 SEC Docket at 421 (discussing identical language in both Section 203(k) and Exchange Act Section 21C of the Exchange Act). Stein's failure to alert Merrill Lynch to his potential conflict of interest was a cause of Merrill Lynch's failure to meet its disclosure obligations under the Advisers Act. We found above that Stein's conduct was not merely negligent, but that it showed at a minimum a reckless disregard for a regulatory requirement.

²⁷ Id. at 429-436.

²⁸ Id.

²⁹ Id. Respondents in KPMG argued before the D.C. Circuit that this language created an improper presumption that could be applied in an arbitrary and capricious manner to ignore evidence running counter to a finding of "some risk." KPMG, LLP v. SEC, 289 F.3d 109 at 124 (D.C. Cir. 2002). Respondents misconstrued our holding. Our decision was based on the unremarkable proposition that a respondent's past violation is a sufficiently valid predictor of a future one to permit us to draw an inference of some risk of future violation. This conclusion was based on the Commission's experience in enforcing the securities laws and was intended to give both the Division and respondents guidance as to the type of showing the Division needs to make to warrant cease-and-desist relief.

³⁰ Id. at 430.

³¹ The D.C. Circuit, in affirming our imposition of a cease-and-desist order in KPMG, stated that our order denying reconsideration of our original KPMG order "suggests that [the Commission] may no longer consider, as [the Commission made clear in its original order] that any one of [the Commission's] findings of a violation, standing alone, would suffice" under this "some risk" standard to enter a cease-and-desist order. 109 F.3d at 125. In the court's view, language in the reconsideration order (discussing all factors justifying the cease-and-desist order) "suggested" that in the reconsideration order we modified our original order and adopted a "serious-risk-of future violation" standard that might not be satisfied by a finding of only one past violation. Id. We did not. The discussion in the reconsideration order was intended to reaffirm, and not depart from, language in the original order concerning factors we consider in the exercise of our broad sanctioning discretion.

³² In KPMG, for example, we held first that the facts of the case gave rise to not merely some risk of future violations but to a serious risk. That risk, combined with several other aggravating factors, underscored the necessity for a cease-and-desist order. To be clear, however, the finding of a "serious risk" was not required to warrant relief. A lesser degree of risk -- "some risk" -- and a different mix of other sanctioning factors, may well be sufficient to warrant relief.

³³ The only factor here that might militate against a cease-and-desist order is that the conduct at issue is eight to ten years old. This factor is outweighed by the serious, continuing nature of the violations and Stein's apparent lack of understanding of the nature of the conflict requiring disclosure.

³⁴ Appellants filed a Motion To Adduce Additional Evidence ("Motion") challenging the credibility of a witness in the hearing below, Bernard Vonderhaar, an official with one of the investment advisers (AmeriTrust) recommended in the AIM program with whom Stein purportedly attempted to obtain employment for Albritton. At the hearing, Vonderhaar testified that, at a meeting that allegedly occurred among Stein, Albritton and him, Stein stated: "I want you to meet your new partner [Albritton] . . . You are going to write [Albritton] a check for 40% of your commission . . ." The Division argued to the law judge that this testimony showed that Stein was demanding a "'kickback' -- through Albritton -- for recommending AmeriTrust to his Merrill Lynch institutional clients." These allegations are not part of the Order Instituting Proceedings and they are not addressed in the Initial Decision. The Division raises the argument again on appeal, and this argument prompted the Appellants' Motion. The argument is outside the scope of the Order Instituting Proceedings, and is rejected for that reason. Appellants' Motion is therefore moot.

³⁵ We have considered all of the contentions advanced by the parties. We have rejected or sustained them to the extent that they are inconsistent or in accord with the views expressed in this opinion.