UNITED STATES OF AMERICA Before the SECURITIES AND EXCHANGE COMMISSION Securities Act of 1933 Release No. 7298 / May 24, 1996 Securities Exchange Act of 1934 Release No. 37246 / May 24, 1996 Administrative Proceeding File No. 3-9012 ________________________________ : In the Matter of : ORDER INSTITUTING PUBLIC : ADMINISTRATIVE PROCEEDINGS, CHURCHILL SECURITIES, INC. and : MAKING FINDINGS AND IMPOSING GERALD P. HIRSCH : REMEDIAL SANCTIONS : ________________________________: I. The Securities and Exchange Commission ("Commission") deems it appropriate and in the public interest that public administrative proceedings, pursuant to Sections 15(b) and 19(h) of the Securities Exchange Act of 1934 ("Exchange Act"), be instituted to determine whether Churchill Securities, Inc. ("Churchill Securities") and Gerald P. Hirsch ("Hirsch") have been enjoined from violating certain provisions of the Securities Act of 1933 ("Securities Act") and Exchange Act, and, if so, what remedial sanctions, if any, are appropriate in the public interest as to each of them. II. In anticipation of the institution of these public administrative proceedings, Churchill Securities and Hirsch have submitted Offers of Settlement ("Offers") which the Commission has determined to accept. Solely for the purpose of these proceedings, and any other proceeding brought by or on behalf of the Commission or in which the Commission is a party, and without admitting or denying the findings contained in this Order Instituting Public Administrative Proceeding, Making Findings and Imposing Remedial Sanctions ("Order"), except as to the entry of the permanent injunctions set forth in Section IV.C., below, which they admit, Churchill Securities and Hirsch consent to the institution of public administrative proceedings, the findings and the remedial sanctions set forth below. ==========================================START OF PAGE 2====== III. Accordingly, IT IS ORDERED that public administrative proceedings pursuant to Sections 15(b) and 19(h) of the Exchange Act be, and hereby are, instituted against Churchill Securities and Hirsch. IV. On the basis of this Order and their Offers, the Commission finds -[1]- that: A. Churchill Securities, a New York corporation with its principal office located in Suffern, New York, has been registered with the Commission as a broker-dealer, pursuant to Section 15(b) of the Exchange Act, since 1982 and is a member of the National Association of Securities Dealers, Inc. B. From 1982 to the present, Hirsch, 56 years old, has been the President and controlling person of Churchill Securities. C. On April 16, 1996, Churchill Securities and Hirsch were enjoined, on consent, by the United States District Court for the Southern District of New York, from future violations of Sections 5(a), 5(c) and 17(a) of the Securities Act of 1933 ("Securities Act") and Section 10(b) of the Exchange Act and Rule 10b-5 thereunder. SEC v. Churchill Securities, Inc., Churchill Mortgage Investment Corp. and Gerald P. Hirsch, 93 Civ. 7486 (CBM) (S.D.N.Y. 1995). D. The Complaint in the above action alleged, among other things, that: 1. From approximately June 1987 to approximately November 1993, Churchill Securities and Hirsch participated in a distribution of unregistered securities in the form of fractional interests in mortgages ("mortgage participations") by offering and selling at least 1030 such mortgage participations to ---------FOOTNOTES---------- -[1]- The findings herein are made pursuant to Churchill Securities's and Hirsch's Offers of Settlement and are not binding on any other person or entity named as a respondent in this or any other proceeding. ==========================================START OF PAGE 3====== at least 520 investors in numerous states through a public distribution, raising approximately $15,000,000, in violation of Sections 5(a) and 5(c) of the Securities Act. 2. In connection with the offers and sales of mortgage participations, Churchill Securities and Hirsch misrepresented material facts to investors and prospective investors in violation of Section 17(a) of the Securities Act and Section 10(b) of the Exchange Act and Rule 10b-5 thereunder by stating that: 1) the mortgages in which investors would be assigned fractional interests paid interest at an annual rate of 8 percent, when, in fact, the average weighted interest rate of the mortgages in which investors were assigned fractional interests was approximately 15 percent; 2) an investment in mortgage participations was low risk, when, in fact, certain of the mortgages in which investors were assigned interests were high risk mortgages; and 3) the investors' fractional interests would be recorded on behalf of the investors with the appropriate public property records office, when, in fact, certain of the investors' interests were not recorded, or recorded after substantial delays. In addition, Churchill Securities and Hirsch violated Section 17(a) of the Securities Act and Section 10(b) of the Exchange Act and Rule 10b-5 thereunder by failing to disclose to investors and prospective investors that certain investors had been assigned interests in a mortgage that had been discharged, and in mortgages upon which foreclosure proceedings had commenced. V. In view of the foregoing, the Commission finds that it is in the public interest to impose the sanctions specified in the Offers. Accordingly, it is ORDERED that: A. Hirsch: 1. effective on the second Monday following the date of entry of this Order, be, and hereby is, suspended from association with any broker, dealer, investment adviser, investment company or municipal securities dealer for a period of twelve (12) months; and ==========================================START OF PAGE 4====== 2. shall deliver an affidavit of compliance to the staff of the Northeast Regional Office of the Commission within 10 days following his period of suspension stating that he has complied with the terms of his suspension. B. Churchill Securities: 1. be, and hereby is, censured; and 2. shall comply with the following undertakings: a. That Churchill Securities undertake to retain an independent consultant ("Consultant"), not unacceptable to the staff of the Northeast Regional Office of the Commission ("NERO"), at Churchill Securities' expense, to conduct a review of Churchill Securities' policies, practices and procedures related to: (i) the offer and sale of securities in violation of Section 5 of the Securities Act; and (ii) fraud in connection with the offer, purchase or sale of securities; b. That Churchill Securities undertake to require the Consultant, at Churchill Securities' expense, to prepare a report ("Report") evaluating the policies, practices and procedures of Churchill Securities with respect to items V.B.2.a.i. and ii. above, and making recommendations as to Churchill Securities' policies, practices and procedures as described in paragraph V.B.2.a. above and to submit the Report in the manner described in paragraph V.B.2.e. below; c. That Churchill Securities undertake to provide to the staff of the NERO, within thirty (30) days of the entry of the Order, a copy of an engagement letter detailing the scope of the Consultant's responsibilities pursuant to paragraphs V.B.2.a. and V.D.2.b. above; d. That Churchill Securities undertake to adopt, implement and maintain all policies, practices, and procedures recommended by the Consultant in the Report within the period of time prescribed in paragraph V.B.2.e. below; provided, however, that as to any recommendation of the Consultant which Churchill Securities determines is, in whole or in part, unduly burdensome, Churchill Securities may suggest an alternative procedure designed to ==========================================START OF PAGE 5====== achieve the same objective or purpose as that of the recommendation of the Consultant. The Consultant shall evaluate the alternative procedure proposed by Churchill Securities and Churchill Securities will abide by the Consultant's determination with regard thereto and adopt those recommendations which the Consultant shall ultimately determine are appropriate; e. That Churchill Securities undertake to require the Consultant to complete the review and deliver the Report described in paragraph V.B.2.b. above to Churchill Securities and to the staff of the NERO within ninety (90) days of the issuance of the Order ("deadline"). Churchill Securities may apply to the staff of the NERO for an extension for whatever time period it deems appropriate, but in no event shall the deadline exceed one hundred thirty-five (135) days from the date of the Commission's Order. Churchill Securities shall, within six months after the delivery of the Report described in paragraph V.B.2.b. above, submit to the staff of the NERO an affidavit attesting to its implementation of the recommendations contained in the Report or such alternate recommendations as the Consultant deems appropriate and setting forth the details of its implementation; and f. That Churchill Securities undertake to require the Consultant to review and deliver a memorandum to Churchill Securities and the staff of the NERO one year after the delivery of the Report, analyzing Churchill Securities adoption, implementation and maintenance of the policies, practices and procedures contained in the Consultant's Report and the effectiveness of those policies, practices and procedures. By the Commission. Jonathan G. Katz Secretary