PUBLIC INTEREST In view of the fraud and other willful violations which we have found, it is clear that the public interest requires the revocation of registrant's registration as a broker and dealer. An appropriate order will issue. By the Commission (Chairman Gadsby and Commissioners Orrick, Patterson, and Hastings), Commissioner Sargent being absent and not participating. IN THE MATTER OF OWENS & CO. File No. 8-6150. Promulgated March 25, 1959 (Securities Exchange Act of 1934-Sections 15 (b) and 15A) BROKER-DEALER REGISTRATION Grounds for Revocation Violation of Net Capital Rule Withdrawal from Registration Where registered broker-dealer failed to comply with net capital requirements in willful violation of Section 15 (c)(3) of Securities Exchange Act of 1934 and Rule 15c3-1 thereunder, and is permanently enjoined by Federal Court from further violation of net capital rule, held, under all the circumstances it is in the public interest to revoke broker-dealer registration and to deny request for withdrawal from registration. APPEARANCES: J. Wooten Pearce, of the Denver Regional Office of the Commission, for the Division of Trading and Exchanges. Robert W. Baker, for Owens & Co. and John Cuthbert Owens. FINDINGS AND OPINION OF THE COMMISSION These proceedings present the questions of whether to revoke the registration as a broker and dealer of Owens & Co. ("registrant”), under Section 15 (b) of the Securities Exchange Act of 1934 (“Act”), and whether, under Section 15A (b) (4) of the Act, John Cuthbert Owens, president, a director and controlling stockholder of registrant, is a cause of any order of revocation which might be entered.1 1 Section 15(b) of the Act provides in pertinent part that we shall revoke the registration of a broker or dealer if we find that such action is in the public interest and that such broker or dealer or any officer, director or controlling person of such broker or dealer is enjoined by any court of competent jurisdiction from engaging in any conduct or practice in connection with the purchase or sale of securities, or has willfully violated any provision of the Act, or of any rule or regulation thereunder. Under Section 15A (b)(4) of the Act, in the absence of our approval or direction, no broker or dealer may be admitted to or continued in membership in a national securities association if the broker or dealer or any partner, officer, director, or con38 S.E.C.-345916 The order for proceedings alleges that during the period from approximately December 31, 1957 to approximately January 21, 1958, registrant, aided and abetted by Owens, violated Section 15(c)(3) of the Act and Rule 15c3-1 (17 CFR 240.15c3-1) thereunder by trading in securities when its aggregate indebtedness exceeded 2,000 percent of its net capital,2 and that registrant is permanently enjoined from engaging in and continuing certain conduct and practices in connection with the purchase and sale of securities. On January 17, 1958, registrant filed a notice of withdrawal from registration as a broker and dealer, the effectiveness of which has been stayed by the institution of these proceedings as provided by Rule 15b-6 (17 CFR 240.15b-6) under the Act. After appropriate notice, a hearing was held before a hearing examiner. Respondents and our Division of Trading and Exchanges waived a recommended decision by the hearing examiner and filed proposed findings and conclusions. Our findings are based upon an independent review of the record. Registrant, a Colorado corporation, was organized in August 1957 and became registered with us as a broker and dealer on October 14, 1957. On December 31, 1957 and January 15, 1958, registrant's aggregate indebtedness to all other persons exceeded 2,000 per centum of its net capital computed as specified in Rule 15c3-1. Registrant had a deficiency of $3,301 in its required net capital on December 31, 1957, and on January 15, 1958 it had a deficiency of $5,148. Registrant used the mails in effecting overthe-counter transactions during this period, and we find that registrant, aided and abetted by Owens, who admittedly controlled registrant's operations, thereby willfully violated Section 15 (c) (3) of the Act and Rule 15c3-1 thereunder. We also find that registrant is permanently enjoined, by a decree of the United States District Court for the District of Colorado, entered on January 24, 1958 with registrant's consent upon a complaint filed by this Commission, from effecting securities transactions by the use of the mails or interstate facilities while its aggregate indebtedness exceeds 2,000 percent of its net capital, in violation of our net capital requirements. trolling or controlled person of such broker or dealer was a cause of any order of revocation which is in effect. The proceedings originally also presented the question whether to suspend or expel registrant from membership in the National Association of Securities Dealers, Inc. ("NASD"), pursuant to Section 15A (1) (2) of the Act. However, subsequent to the institution of the instant proceedings, the NASD in disciplinary proceedings before it itself expelled registrant from membership therein. 2 Section 15(c)(3) of the Act prohibits the use of the mails or interstate facilities by any broker or dealer in securities transactions otherwise than on a national securities exchange, in contravention of our rules prescribed thereunder providing safeguards with respect to the financial responsibility of brokers and dealers. Rule 15c3-1 provides, subject to certain exemptions not applicable here, that no broker or dealer shall permit his aggregate indebtedness to all persons to exceed 2,000 percent of his net capital computed as specified in the rule. Respondents admit that registrant violated the net capital rule and in fact was insolvent, but contend that as soon as Owens became aware of registrant's insolvency, he reported the situation to our Regional Office, and ceased to do business. Respondents further assert that Owens had a good record while working as a securities salesman for several years prior to organizing registrant, that the violations were due to his lack of management experience and his unfamiliarity with our rules, and that no complaints have been received from any customers of registrant, and it is urged that Owens should not be barred from continuing in the securities business as a salesman. We have considered the factors presented by respondents in the light of all the facts of the case. As we have found, within less than 3 months after its registration as a broker-dealer, registrant had a substantial deficiency in its required net capital. The requirement that a registered broker-dealer have 1 dollar of net capital consisting of cash or readily marketable securities for each $20 of liabilities is an important safeguard established for the protection of investors and non-compliance therewith cannot be viewed lightly. Registrant subjected its customers to undue financial risks by conducting its business while in violation of the net capital rule. Indeed, the record shows that at the time registrant ceased to do business, it was unable to deliver certain securities it had sold or to pay for certain securities it had purchased, and had open credit balances due to customers. Under all the circumstances, we conclude that it is in the public interest to revoke registrant's registration and deny its application for withdrawal. We also find that Owens is a cause of our order of revocation.* An appropriate order will issue. By the Commission (Chairman Gadsby and Commissioners Orrick, Patterson, and Hastings), Commissioner Sargent being absent and not participating. 3 The NASD found that registrant had engaged in business while insolvent and had misused customers' funds, and expelled registrant from membership and found Owens to be a cause of such expulsion. 4 Our order herein will not preclude Owens' employment by a registered broker-dealer in a supervised capacity upon an appropriate showing in proceedings pursuant to Section 15A (b) (4) of the Act. IN THE MATTER OF UNION ELECTRIC COMPANY File No. 68–175. Promulgated March 26, 1959 (Public Utility Holding Company Act of 1935-Section 12(e)) SOLICITATION OF PROXIES Declaration filed pursuant to Section 12(e) of the Public Utility Holding Company Act of 1935 and Rule 62 promulgated thereunder, with respect to proxy solicitation material proposed to be mailed by management of registered holding company which omitted various proposals submitted by stockholders, will be permitted to become effective, provided the proxy solicitation material is amended in certain respects, the Commission finding the omission of the stockholder proposals was consistent with the Commission's policies with respect to the solicitation of proxies as expressed in Regulation X-14 under the Securities Exchange Act of 1934. APPEARANCES: Robert J. Keefe and John A. Woodbridge, for Union Electric Company. J. Raymond Dyer, pro se and for Nancy Corinne Dyer. Solomon Freedman, Aaron Levy and Albert F. Phelan, for the Division of Corporate Regulation of the Commission. FINDINGS AND OPINION OF THE COMMISSION On February 9, 1959, we issued an order and notice regarding the solicitation of proxies by Union Electric Company ("Union"), a registered holding company, in connection with its annual meeting of stockholders for the year 1959. The order provided that no solicitation of proxies in connection with such meeting could be effected unless a declaration had been filed with us under Section 12(e) of the Public Utility Holding Company Act of 1935 ("Holding Company Act")2 and Rule 62 promulgated thereunder, and 1 Union Electric Company, Holding Company Act Release No. 13916. 2 Section 12(e) of the Holding Company Act provides: "It shall be unlawful for any person to solicit or to permit the use of his or its name to solicit, by use of the mails or any means or instrumentality of interstate commerce, or otherwise, any proxy, power of attorney, consent, or authorization regarding any security of a registered holding company or a subsidiary company thereof in contravention of such rules and regulations or orders as the Com921 38 S.E.C.-35-13962 |