SECURITIES AND EXCHANGE COMMISSION
In the Matter of
OPINION OF THE COMMISSION
INVESTMENT ADVISER PROCEEDING
Grounds for Remedial Action
Registered representative of broker-dealer; principal of investment adviser and registered representative of broker-dealer; and registered investment adviser charged with committing fraud in omitting to disclose material facts concerning the availability of breakpoint discounts. Held, proceeding dismissed because record does not support finding of liability.
Michael K. Wolensky and David J. Gellen, of Kutak Rock LLP, for Michael Flanagan, Ronald Kindschi, and Spectrum Administration, Inc.
William P. Hicks, William A. Rees, and William S. Dixon, for the Division of Enforcement.
Appeal filed: February 18, 2000
Last brief received: May 31, 2000
Oral argument: July 10, 2003
Michael A. Flanagan and Ronald O. Kindschi, registered representatives with FSC Securities Corporation ("FSC"), a registered broker-dealer; Spectrum Administration, Inc. ("Spectrum Administration"), a registered investment adviser with which Kindschi was associated; and the Division of Enforcement (the "Division") each appeal from the decision of an administrative law judge. The law judge found that Flanagan and Kindschi willfully violated Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934, and Exchange Act Rule 10b-5. The law judge also found that Spectrum Administration violated Sections 206(1) and (2) of the Investment Advisers Act of 1940, and that Kindschi, in his role as an associated person of Spectrum Administration, aided and abetted Spectrum Administration's violations.
The law judge suspended Flanagan from association with any broker or dealer for four months, and ordered him to pay a civil money penalty of $10,000 and to disgorge $12,469 plus prejudgment interest from September 1, 1994. The law judge suspended Kindschi from association with any broker, dealer, or investment adviser for three months, and ordered him to pay a civil money penalty of $7,500, and to disgorge $3,762 plus prejudgment interest from July 1, 1993. The law judge also censured Spectrum Administration. Finally, the law judge imposed cease-and-desist orders on Flanagan, Kindschi, and Spectrum Administration. The Respondents contest their liability and the sanctions imposed; the Division requests that we increase the sanctions.
The Order Instituting Proceedings charged the Respondents with committing fraud by steering certain customers to purchase Class B shares in various mutual funds without disclosing all material facts regarding the costs associated with those purchases.
Cases involving breakpoints and the sale of Class B mutual fund shares involve important issues, and the Commission will continue to pursue cases on appropriate facts. * We have conducted a de novo review of the record before us in this case, however, and find that the evidence does not support a finding of liability on the charges before us on appeal. We accordingly dismiss this proceeding.
An appropriate order will issue.
By the Commission (Chairman DONALDSON and Commissioners GLASSMAN, GOLDSCHMID, ATKINS, and CAMPOS).
Jonathan G. Katz
In the Matter of
ORDER DISMISSING PROCEEDING
On the basis of the Commission's opinion issued this day, it is
ORDERED that this proceeding be, and it hereby is, dismissed.
By the Commission.
Jonathan G. Katz
|*||See, e.g., Prudential Secs., Inc., Exchange Act Rel. No. 48149 (July 10, 2003), __ SEC Docket ____ (settled order); Russell C. Turek, Exchange Act Rel. No. 45459 (Feb. 20, 2002), 76 SEC Docket 2823 (same); see also Wendell D. Belden, Exchange Act Rel. No. 47859 (May 14, 2003), 80 SEC Docket 699 (sustaining NASD disciplinary action).|
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