UNITED STATES OF AMERICA
SECURITIES AND EXCHANGE COMMISSION
SECURITIES ACT OF 1933
Release No. 7763 / October 27, 1999
SECURITIES EXCHANGE ACT OF 1934
Release No. 42063 / October 27, 1999
ADMINISTRATIVE PROCEEDING
File No. 3-9327
_______________________________
:
In the Matter of :
: ORDER MAKING FINDINGS
Aubrey O'Connor, Rick Pierson : AND IMPOSING SANCTIONS
James Winter, Gregory Bowen, : AND CEASE-AND-DESIST
and Kenneth Ward, : ORDER PURSUANT TO SECTION
: 8A OF THE SECURITIES ACT OF 1933
Respondents. : AND SECTIONS 15(b), 19(h) AND
: 21C OF THE SECURITIES EXCHANGE
: ACT OF 1934 AS TO GREGORY
______________________________ : BOWEN
I.
In these proceedings instituted pursuant to Section 8A of the Securities Act
of 1933 ("Securities Act") and Sections 15(b), 19(h) and 21C of the
Securities Exchange Act of 1934 ("Exchange Act"), respondent Gregory
Bowen ("Bowen") has submitted an Offer of Settlement
("Offer") that the Securities and Exchange Commission has determined
to accept.1
II.
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, and
without admitting or denying the findings contained herein, except as to the
jurisdiction of the Commission over Bowen and the findings set forth in Section
III, Paragraphs A and B, hereof, which are admitted, and prior to a hearing
pursuant to the Commission's Rules of Practice, 17 C.F.R. ยง
201.100 et seq., Bowen consents to the entry of the findings set out
below, and the imposition of remedial sanctions and issuance of a
Cease-and-Desist Order.
III.
On the basis of the order instituting proceedings, and Bowen's Offer, the
Commission finds as follows2:
GSC
A. The Commission's public files disclose that Government Securities
Corporation ("GSC"), formerly known as Government Securities
Corporation of Texas, was registered with the Commission as a broker-dealer,
pursuant to Section 15(b) of the Exchange Act (File No. 8-36869), from July 25,
1987, until December 8, 1997, when its Form BD/W was deemed effective, and its
registration as a broker-dealer was withdrawn.
RESPONDENT
B. Bowen was employed by GSC as a registered representative from May 1988
until July 1994.
BACKGROUND
C. From 1988 through 1994, GSC sold a variety of mortgage-backed derivative
securities to public clients, such as municipalities and state educational
institutions. The mortgage derivative securities sold by GSC included
Interest-Only Strips ("IOs"), Inverse IOs, and Inverse Floaters. IOs
and Inverse IOs are collateralized mortgage obligations ("CMOs") that
receive only interest payments from an underlying pool of residential mortgages.
IOs and Inverse IOs are highly sensitive to changes in interest rates and
resulting mortgage prepayment speeds, and, accordingly, subject investors to
significant risks, including market, prepayment and liquidity risks and loss of
principal. Inverse Floaters are CMOs that have a guaranteed return of investment
principal, but are highly sensitive to changes in interest rates and resulting
mortgage prepayment speeds and, therefore, also subject investors to significant
risks, including market, extension and liquidity risks.
VIOLATIONS OF THE ANTIFRAUD PROVISIONS BY BOWEN
D. From March 1989 through March 1994, Bowen willfully violated Section 17(a)
of the Securities Act and Section 10(b) of the Exchange Act and Rule 10b-5
thereunder in that, in the offer or sale of securities, and in connection with
the purchase and sale of securities, specifically, IOs, Inverse IOs and Inverse
Floaters by use of the means or instrumentalities of interstate commerce or the
mails, he, directly or indirectly, employed devices, schemes or artifices to
defraud; obtained money or property by means of, or made, untrue statements of
material facts or omitted to state material facts necessary in order to make the
statements made, in the light of the circumstances under which they were made,
not misleading; and/or engaged in transactions, practices or courses of business
which operated or would operate as a fraud or deceit upon the offeree, purchaser
or seller.
E. To induce GSC public clients to purchase high-risk CMOs, Bowen made
various misrepresentations and omissions to them, including the following:
1. misrepresenting the high-risk CMOs as suitable investments which were
consistent with clients' objectives of safety of principal, liquidity, market
stability, short duration and low risk;
2. referring to the high-risk CMOs as "Fannie Mae," "Freddie
Mac," or "FNMA" securities, while omitting to disclose that the
instruments were volatile CMO tranches;
3. misrepresenting the IOs and Inverse IOs as government guaranteed and that
their principal was fully protected;
4. failing to disclose that the IOs and Inverse IOs carry an inherent risk of
loss of principal and illiquidity;
5. failing to disclose that the market value and yield of the IOs and Inverse
IOs are highly sensitive to changes in interest rates and prepayment speeds;
6. failing to disclose that the characteristics of the Inverse Floaters,
including duration and yield, were highly sensitive to changes in interest
rates;
7. failing to disclose that the Inverse Floaters were subject to extension
risk of as much as 30 years.
F. Bowen provided GSC's public clients with documents, including Bloomberg
yield flow tables, Trade Recaps, and Fixed Income Transaction Analyses, which
misrepresented, or failed to fully disclose, the characteristics and risks of
the IOs, Inverse IOs and Inverse Floaters.
VI.
In view of the foregoing, the Commission deems it appropriate in the public
interest and for the protection of investors to impose the sanctions specified
in the Offer Bowen submitted.
Accordingly, IT IS HEREBY ORDERED that:
Bowen, pursuant to Section 8A of the Securities Act and Section 21C of the
Exchange Act, shall cease and desist from committing or causing any violations
or future violations of Section 17(a) of the Securities Act, and Section 10(b)
of the Exchange Act, and Rule 10b-5 thereunder;
Bowen be, and hereby is, barred from association with any broker or dealer,
with a right to reapply for association after two years to the appropriate
self-regulatory association, or if there is none, to the Commission;
Bowen shall, within 90 days of the entry of this Order, pay disgorgement in
the amount of $33,664, with prejudgment interest of $31,258, and a civil penalty
of $5,000, both to the United States Treasury and that these payments shall be:
1) made by United States postal money order, certified check, bank cashier's
check or bank money order; 2) made payable to the Securities and Exchange
Commission; 3) hand-delivered or mailed to the Comptroller, Securities and
Exchange Commission, Operations Center, 6432 General Green Way, Stop 0-3,
Alexandria, VA 22312; and 4) submitted under a cover letter that identifies
Bowen as a respondent in these proceedings and states the file number of these
proceedings, a copy of which, along with the money orders or checks, shall be
sent to Harold F. Degenhardt, District Administrator, Fort Worth District
Office, Securities and Exchange Commission, 801 Cherry Street, 19th Floor, Ft.
Worth, TX 76102.
By the Commission.
Jonathan G. Katz
Secretary
Footnotes
1 The order instituting
these proceedings was issued on June 4, 1997.
2 The findings herein are
binding only on respondent, and not on any other person.
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