UNITED STATES OF AMERICA before the SECURITIES AND EXCHANGE COMMISSION INVESTMENT ADVISERS ACT OF 1940 Rel. No. 1672 / September 26, 1997 ADMINISTRATIVE PROCEEDING File No. 3-9443 ------------------------------ In the Matter of : ORDER INSTITUTING PUBLIC : PROCEEDINGS PURSUANT TO CONSOLIDATED FINANCIAL : SECTIONS 203(e),(f) AND ADVISORS, INC. f/k/a PUBLIC : (k) OF THE INVESTMENT EMPLOYEES FINANCIAL : ADVISERS ACT OF 1940, ADVISORS, INC. and THOMAS : MAKING FINDINGS AND LEROY BROWN, Respondents : IMPOSING REMEDIAL ------------------------------ SANCTIONS ORDER INSTITUTING PUBLIC PROCEEDINGS PURSUANT TO SECTIONS 203(e), (f) AND (k) OF THE INVESTMENT ADVISERS ACT OF 1940, MAKING FINDINGS AND IMPOSING REMEDIAL SANCTIONS I. The Securities and Exchange Commission (the "Commission") deems it appropriate and in the public interest that public administrative and cease-and-desist proceedings be instituted against Consolidated Financial Advisers, Inc. ("Consolidated") and Thomas LeRoy Brown ("Brown") (collectively, "Respondents"), pursuant to Sections 203(e), (f) and (k) of the Investment Advisers Act of 1940 ("Advisers Act"). In anticipation of the institution of these proceedings, the Respondents have submitted an Offer of Settlement (the "Offer") which the Commission has determined to accept. Solely for the purpose of these proceedings 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 any of the findings contained herein, except as to the jurisdiction of the Commission over them and over the subject matter of these proceedings, which is admitted, Respondents consent to the entry of this Order Instituting Public Proceedings, Making Findings and Imposing Remedial Sanctions (the "Order") by the Commission, and to the entry of the findings and the imposition of the remedial sanctions set forth below. II. On the basis of this Order and Respondents' Offer, the Commission finds that: A. Consolidated, formerly known as Public Employees Financial Advisors, Inc., has been registered with the Commission as an investment adviser pursuant to Section 203(a) of the Advisers Act since February 1995. B. Brown, a resident of Brighton, Colorado, was the President, CEO and, during the time of the events at issue, the majority owner of Consolidated. C. On or about April 25, 1995, Consolidated distributed an advertisement that contained material misrepresentations regarding the historical performance of Consolidated's investment services, in willful violation of Section 206(4) of the Advisers Act and Rule 206(4)- 1(a)(5) thereunder, and Brown willfully aided and abetted such violations. The advertisement contained material misrepresentations in that it: 1. overstated the performance results obtained for advisory clients; 2. represented a third party's performance as Consolidated's own; and 3. failed to disclose: a. the effect of material market or economic conditions on the results portrayed; b. the deduction of advisory fees, brokerage commissions, and other expenses that a client would have paid; c. whether and to what extent the results portrayed included the reinvestment of dividends and other earnings; and d. the basis on which two client accounts were selected for advertising performance results and the material effect of the selection on the results portrayed. D. From about April 1995 to about January 1996, Consolidated failed to maintain a copy of the advertisement and keep all records necessary to form the basis for performance information in the advertisement, in willful violation of Section 204 of the Advisers Act and Rules 204- 2(a)(11) and 204-2(a)(16), and Brown willfully aided and abetted such violations. ======END OF PAGE 2====== III. On the basis of the foregoing, the Commission finds that Consolidated willfully violated Sections 204 and 206(4) of the Advisers Act and Rules 204-2(a)(11), 204-2(a)(16) and 206(4)-1(a)(5) thereunder and that Brown willfully aided and abetted such violations. The Commission deems it appropriate and in the public interest to impose the sanctions and cease- and-desist order specified in the Offer submitted by Respondents, and to order Respondents to comply with their undertakings contained in the Offer. ACCORDINGLY, IT IS HEREBY ORDERED THAT: A. Consolidated and Brown be censured. B. Consolidated and Brown cease and desist from committing or causing any violation and any future violation of Sections 204 and 206(4) of the Advisers Act and Rule 204-2(a)(11), 204-2(a)(16) and 206(4)-1(a)(5) thereunder. C. Consolidated and Brown shall, within ten (10) days of the entry of this Order, together pay a civil money penalty in the amount of $10,000 to the United States Treasury. Such payment shall be: (A) made by United States postal money order, certified check, bank cashier's check or bank money order; (B) made payable to the Securities and Exchange Commission; (C) hand-delivered or mailed to the Comptroller, Securities and Exchange Commission, Operations Center, 6432 General Green Way, Stop 0-3, Alexandria, VA 22312; and (D) submitted under cover letter that identifies Consolidated and Brown as Respondents in these proceedings, the file number of these proceedings, a copy of which cover letter and money order or check shall be sent to Donald M. Hoerl, Associate Regional Director, Central Regional Office, 1801 California St., Suite 4800, Denver, CO 80202. D. Respondents comply with the undertakings in their Offer of Settlement. Respondents undertake to retain within thirty (30) days of the date of the Order to be entered in this proceeding, at Respondents' expense, an Independent Consultant ("Consultant") familiar with the Advisers Act and not unacceptable to the Commission's staff, to conduct a review of all advertisements and of all books and records made and maintained or required to be made and maintained under the Advisers Act. Respondents shall, for a period of two (2) years from the entry of the Order in this proceeding, require that the Consultant: 1. Monitor the Respondents' compliance with the advertising and books and records provisions of the Advisers Act and make recommendations designed to correct any non-compliance; 2. Report to the Commission's staff, in writing, within sixty (60) days of the issuance of the Order, Respondents' compliance with the advertising and books and records provisions of the Advisers Act and the consultant's recommendations for corrective action; and ======END OF PAGE 3====== 3. Make written reports of Respondents' compliance and corrective action taken to effect compliance in any previously deficient area, every 180 days from the issuance of the Order. The Respondents undertake to adopt and implement each recommendation of the Consultant within sixty (60) days of receipt of each such recommendation. Respondents shall maintain, in a separately identified file, all recommendations of the Consultant made within two years from the entry of the Order. Respondent Brown undertakes that, if at any time within two (2) years from the entry of the Order to be entered in this proceeding, Brown is affiliated with an investment adviser (as a control person, owner of more than 10 percent of a class of equity shares, officer, director, partner, a member of the investment adviser's investment committee, or an individual who determines general investment advice) other than PEFA, or Brown individually registers as an investment adviser, he will 1) notify the Commission staff; 2) retain at his expense, within sixty (60) days of his association or registration, a Consultant as described above; 3) require the Consultant to perform the duties outlined above; and 4) comply with his undertakings until the expiration of two (2) years from the entry of the Order. E. Consolidated and Brown shall mail a copy of the Order, together with a cover letter in a form not unacceptable to the staff of the Commission, to all of its current clients by registered or certified mail, return receipt requested, within thirty (30) days from the date of the Order. Consolidated and Brown shall also disclose to all prospective clients the material terms of the Order for a period of ten (10) years from the date of the Order, with delivery as required by Rule 206(4)-4 of the Advisers Act. By the Commission. Jonathan G. Katz Secretary ======END OF PAGE 4======