UNITED STATES OF AMERICA Before the SECURITIES AND EXCHANGE COMMISSION SECURITIES ACT OF 1933 Release No. 7522 / April 6, 1998 SECURITIES EXCHANGE ACT OF 1934 Release No. 39827 / April 6, 1998 ADMINISTRATIVE PROCEEDING File No. 3-9364 _______________________________ : In the Matter of : : WILLIAM P. CARROLL, : ORDER MAKING FINDINGS AND : IMPOSING REMEDIAL SANCTIONS : AND A CEASE-AND-DESIST ORDER Respondent. : AGAINST WILLIAM P. CARROLL : ______________________________: 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 William P. Carroll ("Carroll") has submitted an Offer of Settlement ("Offer") which the Securities and Exchange Commission has determined to accept.[1] II. 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, Carroll, without admitting or denying the findings contained herein, except admitting the jurisdiction of the Commission over him and over the subject matter of these proceedings and admitting the criminal conviction set forth in Section III. D. below, consents to the entry of the findings and the imposition of the remedial sanctions and cease-and-desist order set forth below. III. On the basis of the Order Instituting Proceedings against Carroll, and the Offer submitted by Carroll, the Commission finds that: A. Respondent Carroll was a registered representative of Spelman & Co., Inc. ("Spelman") from November 1989 until April 1995. B. Relevant Entity Spelman, a California corporation with principal offices located in San Diego, California, is a broker-dealer registered with the Commission pursuant to Section 15(b) of the Exchange Act. C. Carroll's Fraudulent Conduct 1. In or around January 1990, Margaret H. opened an account through Carroll at Spelman. On or about April 25, 1994, Carroll recommended to Margaret H. that she invest $35,000 in American Home Loan Company ("American Home Loan") stock. Carroll said the investment would be safe, would fit Margaret H.'s income and growth investment objectives, and would pay 10% per year. Margaret H. agreed to the transaction, and as instructed by Carroll, gave Carroll a $35,000 check. 2. Carroll did not invest Margaret H.'s $35,000 in American Home Loan. Rather, Carroll misappropriated the money and used it for his own purposes. 3. Between December 1993 and September 1994, Carroll misappropriated funds from three other brokerage customers: Eileen H., Ted S. and Gary D., who gave Carroll a total of $91,121.49 to invest in securities. 4. Carroll did not invest any of the funds he received from Eileen H., Ted S. or Gary D. Rather, Carroll used the money for his own purposes, and then engaged in a cover- up of his fraudulent activity. D. The Criminal Conviction 1. On June 24, 1996, Carroll pleaded guilty in New York State Supreme Court to one count of grand larceny in the third degree. People of the State of New York v. William P. Carroll, Index No. 2443-95 (N.Y. Sup. Ct. 1996). 2. In his allocution, Carroll admitted that (i) on or about April 25, 1994, he stole $35,000 from Margaret H., one of his customers, (ii) he stole the money by telling Margaret H. that he would invest it in American Home Loan stock, (iii) he never invested the money in American Home Loan stock, (iv) he used the money for his own purposes, and (v) Margaret H. did not authorize Carroll to use the money for his own purposes. 3. On September 5, 1996, Carroll was sentenced to two-and- a-third to seven years incarceration at a New York State correctional facility. E. Legal Analysis - Violations of Section 17(a) of the Securities Act and Section 10(b) of the Exchange Act and Rule 10b-5 Section 17(a) of the Securities Act prohibits fraud in the offer or sale of securities. Section 10(b) of the Exchange Act and Rule 10b-5 proscribes fraud in connection with the purchase and sale of securities. These antifraud provisions prohibit, inter alia, the misrepresentation of, or misleading omission of, material facts in the offer, purchase or sale of securities. See Superintendent of Ins. of the State of N.Y. v. Bankers Life and Cas. Co., 404 U.S. 6, 10 (1971). Information is material if there is a substantial likelihood that its disclosure would be viewed by a reasonable investor as having significantly altered the total mix of information available. Basic Inc. v. Levinson, 485 U.S. 224, 231-32 (1988). To violate Section 17(a)(1) of the Securities Act and Section 10(b) of the Exchange Act and Rule 10b-5 one must act with scienter; violations of Sections 17(a)(2) and (3) of the Securities Act do not require scienter. Aaron v. SEC, 446 U.S. 686, 691 (1980); Ernst & Ernst v. Hochfelder, 425 U.S. 185 (1976). When a broker makes statements to customers that are intended to persuade the customers to purchase securities, the "in connection with" element of Section 10(b) of the Exchange Act and Rule 10b-5, and the "in the offer or sale" element of Section 17(a) of the Securities Act, are satisfied. SEC v. Hasho, 784 F. Supp. 1059, 1106 (S.D.N.Y. 1992); United States v. Naftalin, 441 U.S. 768, 773 (1979) (interpreting the statutory terms "in the offer or sale" of Section 17(a) of the Securities Act as analogous to the "in connection with" language of Section 10(b) of the Exchange Act). These antifraud provisions apply to purchases and sales of, as well as to contracts to purchase, securities, whether or not such contracts are consummated. Butterworth v. Integrated Resources Equity Corp., 680 F. Supp. 784, 785-86 (E.D. Va. 1988). Moreover, post-sale conduct by the broker designed to avoid detection of his fraud meets the nexus requirement because such conduct is considered part of the overall scheme to defraud. SEC v. Holschuh, 694 F.2d 130, 143-44 (7th Cir. 1982) (citing Hoglund V. Covington County Bank, [1977- 78 Transfer Binder] Fed. Sec. L. Rep. (CCH)  96,003 (M.D. Ala. 1977)). The Commission has determined that Carroll willfully violated Section 17(a) of the Securities Act, and Section 10(b) of the Exchange Act and Rule 10b-5, by misappropriating the money that he obtained by knowingly or recklessly misrepresenting to Margaret H., Eileen H., Ted S. and Gary D. that he would use their money to purchase securities, when, in fact, he did not, and by covering up his fraudulent conduct. Carroll's misrepresentations and omissions were clearly material. The reasonable investor would consider it important that his broker planned to misappropriate his or her funds. F. Findings By reason of the foregoing, the Commission finds that Carroll willfully violated Section 17(a) of the Securities Act, and Section 10(b) of the Exchange Act and Rule 10b-5. The Commission also finds that, after pleading guilty, Carroll was convicted of one count of grand larceny. Carroll has submitted sworn financial statements and other evidence and has asserted his financial inability to pay disgorgement plus prejudgment interest. The Commission has reviewed the sworn financial statements and other evidence provided by Carroll and has determined that Carroll does not have the financial ability to pay disgorgement of $126,121.49, plus prejudgment interest. **FOOTNOTES** [1]: The Order Instituting Public Administrative and Cease-and-Desist Proceedings Pursuant to Section 8A of the Securities Act and Sections 15(b), 19(h) and 21C of the Exchange Act, and Notice of Hearing ("Order Instituting Proceedings") was issued by the Commission on August 18, 1997. IV. Based on the foregoing, the Commission deems it appropriate and in the public interest to accept Carroll's Offer. Accordingly, IT IS HEREBY ORDERED, effective immediately, that Carroll: 1. pursuant to Sections 15(b) and 19(h) of the Exchange Act, be, and hereby is, barred from association with any broker, dealer, investment company, investment adviser or municipal securities dealer; 2. pursuant to Section 8A of the Securities Act and Section 21C of the Exchange Act, cease and desist from committing or causing any violation and any future violation of Section 17(a) of the Securities Act, and Section 10(b) of the Exchange Act and Rule 10b-5; and 3. pursuant to Section 8A of the Securities Act, and Sections 21B and 21C of the Exchange Act, shall pay disgorgement of $126,121.49 plus prejudgment interest, but that payment of such amount be waived based upon Carroll's demonstrated inability to pay. IT IS HEREBY FURTHER ORDERED that the Division of Enforcement may, at any time following the entry of this Order, petition the Commission to: (1) reopen this matter to consider whether Carroll provided accurate and complete financial information at the time such representations were made; and (2) seek any additional remedies that the Commission would be authorized to impose in this proceeding if Carroll's Offer had not been accepted. No other issues shall be considered in connection with this petition other than whether the financial information provided by Carroll was fraudulent, misleading, inaccurate or incomplete in any material respect, and whether any additional remedies should be imposed. Carroll may not, by way of defense to such petition, contest the findings in this Order or the Commission's authority to impose any additional remedies that were available in the original proceeding. By the Commission. Jonathan G. Katz Secretary SERVICE LIST Rule 141 of the Commission's Rules of Practice provides that the Secretary, or another duly authorized officer of the Commission, shall serve a copy of an order imposing sanctions on each person named in the order as a party and their legal agent. The attached Order Making Findings And Imposing Remedial Sanctions and A Cease-And-Desist Order Against William P. Carroll has been sent to the following parties and other persons entitled to notice: Hon. G. Marvin Bober Administrative Law Judge Securities and Exchange Commission 450 5th Street, N.W. Mail Stop 11-6 Washington, D.C. 20549 Alma M. Angotti, Esq. Division of Enforcement Securities and Exchange Commission 450 5th Street, N.W. Mail Stop 4-8B Washington, D.C. 20549 Ghillaine A. Reid, Esq. Division of Enforcement Northeast Regional Office Securities and Exchange Commission 7 World Trade Center, 13th Floor New York, NY 10048 Jeremiah B. McKenna, Esq. Suite 701 60 Bay Street Staten Island, NY 10301-2514 William P. Carroll c/o Queensboro Correctional Facility 47-04 Van Dam Street Long Island City, NY 11101