UNITED STATES OF AMERICA Before the SECURITIES AND EXCHANGE COMMISSION Investment Company Act of 1940 Release No. 22535 / February 28, 1997 Admin. Proc. File No. 3-8934 ----------------------------------------- : : In the Matter of : ORDER ACCEPTING : OFFER OF SETTLEMENT, : MAKING FINDINGS, AND ANTHONY J. NEGUS, : IMPOSING SANCTIONS : AND CEASE-AND-DESIST : ORDER Respondent. : _________________________________________: I. On January 22, 1996, The Commission instituted public proceedings pursuant to Sections 9(b) and (f) of the Investment Company Act of 1940 ("I.C.A."), Section 8A of the Securities Act of 1933 ("Securities Act"), and Sections 15(b) and 21C of the Securities Exchange Act of 1934, to determine whether Respondent Anthony J. Negus ("Respondent") violated Section 34(b) of the Investment Company Act and Section 17(a) of the Securities Act, or aided and abetted violations of Sections 13(a)(3) and 34(b) of the I.C.A. and Rule 22c-1 thereunder. Pursuant to Rule 240 of the Rules of Practice of the Commission, Respondent has submitted an Offer of Settlement ("Offer") in connection with the Order for Proceedings in the above-captioned matter, whereby Respondent admits the jurisdiction of the Commission with respect to the Respondent and the matters set forth in the Order for Proceedings and consents to the entry of this Order Accepting Offer of Settlement, Making Findings and Imposing Sanctions. Solely for the purposes of this proceeding and any other proceeding brought by or on behalf of the Commission or in which the Commission is a party, prior to a hearing pursuant to the Commission's Rules of Practice, 17 C.F.R.  201.1 et seq., and, unless specifically admitted, without admitting or denying the matters set forth in the Order for Proceedings and this Order Accepting Offer of Settlement, Making Findings and Imposing Sanctions; and Cease-and-Desist Order (the "Order"), Respondent consents to the issuance of this Order. ==========================================START OF PAGE 2====== II. FINDINGS AND CONCLUSIONS The Commission finds that: A. Background 1. Concourse Funds, Inc. ("Concourse Fund" or the "Fund"), was registered as a non-diversified, open-end management investment company pursuant to a registration statement filed with the Commission on or about August 23, 1991. The Fund was registered under the Investment Company Act, but its securities were not registered under the Securities Act of 1933. 2. Concourse Capital Holding Company, Inc. (the "Holding Company"), at all relevant times, was jointly owned by Respondent and another individual. The subsidiaries of the Holding Company included Concourse Capital Corporation, a registered broker- dealer, and Concourse Capital Asset Management, Inc., the investment adviser to the Fund. 3. Concourse Capital Corporation ("CCC") was registered with the Commission as a broker-dealer in 1986. On November 23, 1992, CCC filed an amended Form BD changing its name to Northridge Capital Corporation. CCC was the exclusive distributor of the Fund's shares. 4. Concourse Capital Asset Management, Inc. ("Concourse Adviser" or the "Adviser"), the investment adviser to the Fund, filed a Form ADV to register with the Commission on or about June 28, 1991. 5. On November 15, 1994, the Commission issued an Order which, among other things, revoked the Adviser's registration as an investment adviser. -[1]- 6. Respondent was the executive vice-president, secretary, and a director of the Fund, a principal of Concourse Adviser, and President of the affiliated broker-dealer, CCC. 7. The Fund's registration statement described the Fund's fundamental investment policies which could not be changed without the approval of a majority of its shareholders. Those policies provided that: (1) the Fund would not invest more than 10% of its assets in restricted securities or other illiquid assets, and any such restricted securities or illiquid assets ---------FOOTNOTES---------- -[1]- Order Instituting Public Administrative Proceedings, Making Findings and Imposing Sanctions in the Matter of Concourse Capital Asset Management, Inc. et al., Admin. Pro. File No. 3-8551. ==========================================START OF PAGE 3====== would be priced at fair value as determined in good faith by the board of directors; (2) as to 50% of its assets, the Fund would not purchase securities of any one issuer if, immediately after such purchase, more than 5% of the Fund's assets would be invested in the securities of that issuer; and (3) as to the other 50% of its assets, the Fund would not invest more than 25% of its total assets in the securities of any one issuer. 8. The registration statement imposed other restrictions on the Fund's investments. According to the registration statement, the Fund could invest up to 50% of its assets in the insurance industry, but could not generally concentrate its investments in any one industry. The Fund could not invest more than 80% of its assets in debt securities, and it was required to limit the purchase of lower-rated debt securities to those having an established retail secondary market. 9. The Fund was prohibited from entering into exchange transactions unless the securities to be exchanged for Fund shares were readily marketable, complied with the investment policies of the Fund, and had values that were readily ascertainable. 10. No shareholder approval to change any of the Fund's investment policies was ever sought or obtained. B. Fund Investments 11. While it was in existence, the Fund made at least three investments that deviated from the Fund's fundamental investment policies and the other restrictions specified in its registration statement. These investments were in the form of "exchange transactions" in which the Fund issued its shares in return for promissory notes. The Fund valued those notes at their full face value despite their illiquid nature and the uncertain financial condition of the issuers. 12. Except for two nominal cash infusions, the foregoing exchange transactions constituted all of the transactions executed by the Fund during its approximately three and one half months of operation. 13. From the time of its first exchange transaction in September, 1991, the Fund contravened its fundamental policy that as to 50% of its assets, it would not invest more than 25% of its assets in the securities of one issuer. 14. In addition, those notes were restricted and illiquid securities with market values that could not be readily ascertained. Each of the three notes constituted more than 10% of the Fund's assets at the time that it was received into the Fund. By acquiring each note, therefore, the Fund violated its ==========================================START OF PAGE 4====== fundamental policy of not investing more than 10% of its assets in restricted securities or other illiquid assets. 15. As one of the Fund's two officers and as a director of the Fund, Respondent was familiar with the Fund's registration statement and the investment policies contained therein. Moreover, as an officer of both the Fund and the Adviser, Respondent had an obligation to see to it that the Fund engaged only in transactions that complied with its stated investment policies and restrictions. C. Improper Valuation Of Fund Shares 16. The Fund valued the corporate notes in its portfolio at their full face value for exchange purposes. Under the circumstances described above, such valuations caused the Fund to materially overstate the true value of its assets. 17. The Fund sold and redeemed its shares based on incorrect net asset values. After the first promissory note was exchanged for Fund shares, the net asset value of the Fund was never calculated properly. 18. The Fund's board of directors played no part in valuing any of the securities received into the Fund despite the requirements of the Investment Company Act and the Fund's registration statement that the board make good faith determinations of the current value of all restricted securities. The board was not advised of the Fund's investments in such securities. D. Fund Filings 19. Respondent caused the Fund to file several documents with the Commission that contained untrue statements of material fact and omitted to state material facts relating to, among other things, the composition of the Fund's board of directors, the nature and value of the assets in the Fund, the method of valuing those assets, and the net asset value of the Fund's shares. 20. Material misstatements were made in at least four separate filings with the Commission, including: a. A Form N-1A registration statement filed on August 23, 1991; b. A Form D notice of sale of securities pursuant to Regulation D under the Securities Act, filed on September 17, 1991; c. A Form N-SAR semi-annual report, filed on December 2, 1991; and ==========================================START OF PAGE 5====== d. A semi-annual report to shareholders, filed on December 10, 1991. 21. It is appropriate to issue a cease and desist order against Respondent in light of the these findings and the violations of law described below. E. Violations Of Law 22. In engaging in the conduct described above, Respondent: a. willfully-[2]- violated Section 34(b) of the Investment Company Act; and b. aided and abetted violations of Section 13(a)(3) of the Investment Company Act and Rule 22c-1(a) thereunder. III. RESPONDENT'S OFFER OF SETTLEMENT Respondent has submitted an Offer of Settlement in which he consents to the Commission's issuance of this Order making findings as set forth above; suspending Respondent from association with any broker, dealer, investment adviser, investment company or municipal securities dealer for a period of ninety (90) days; and Ordering Respondent to cease and desist from committing or causing any violation or any future violation of Sections 34(b) and 13(a)(3) of the Investment Company Act and Rule 22c-1(a) thereunder. IV. ORDER Based on the foregoing, the Commission deems it appropriate and in the public interest to accept the Offer of Settlement of Anthony J. Negus. Accordingly, IT IS ORDERED that Respondent: (1) be, and he hereby is, suspended from association with any broker, dealer, investment adviser, investment company or municipal securities dealer for a period of ---------FOOTNOTES---------- -[2]- "Willfully" as used in this Order means intentionally committing the act which constitutes the violation. See Tager v. SEC, 344 F.2d 5 (2d Cir. 1965). ==========================================START OF PAGE 6====== ninety (90) days effective thirty (30) days from the issuance of this Order; and ==========================================START OF PAGE 7====== (2) shall, effective immediately, cease and desist from committing or causing any violation or any future violation of Sections 34(b) and 13(a)(3) of the Investment Company Act and Rule 22c-1(a) thereunder. By the Commission. Jonathan G. Katz Secretary