UNITED STATES OF AMERICA Before the SECURITIES AND EXCHANGE COMMISSION SECURITIES ACT OF 1933 Release No. 7560 / July 31, 1998 SECURITIES EXCHANGE ACT OF 1934 Release No. 40292 / July 31, 1998 INVESTMENT ADVISERS ACT OF 1940 Release No. 1739 / July 31, 1998 INVESTMENT COMPANY ACT OF 1940 Release No. 23368 / July 31, 1998 ADMINISTRATIVE PROCEEDING File No. 3-9664 : In the Matter of :ORDER INSTITUTING PUBLIC :ADMINISTRATIVE AND PRIME ADVISORS, INC.; :CEASE-AND-DESIST PROCEEDING, NORMAN ZADEH; and :MAKING FINDINGS, IMPOSING JEFFREY GOODSTEIN, :REMEDIAL SANCTIONS, AND :ORDERING RESPONDENTS TO Respondents. :CEASE AND DESIST : I. The Securities and Exchange Commission ("Commission") deems it appropriate and in the public interest that a combined public administrative and cease-and-desist proceeding pursuant to Section 8A of the Securities Act of 1933 ("Securities Act"), Sections 15(b), 19(h) and 21C of the Securities Exchange Act of 1934 ("Exchange Act"), Sections 203(e), 203(f), and 203(k) of the Investment Advisers Act of 1940 ("Advisers Act"), and Section 9(f) of the Investment Company Act of 1940 ("Investment Company Act") be, and hereby is, instituted against Respondents Prime Advisors, Inc., Norman Zadeh, and Jeffrey Goodstein (collectively, the "Respondents"). II. In anticipation of the institution of this proceeding, the Respondents have each submitted an Offer of Settlement ("Offer"), which the Commission has determined to accept. Solely for the purpose of this proceeding and any other proceeding brought by or on behalf of the Commission or to which the Commission is a party, and prior to a hearing pursuant to the Commission's Rules of Practice, 17 C.F.R. 201.100 et seq., and without admitting or denying any findings contained herein, except that Respondents each admit the jurisdiction of the Commission over them and over the subject matter of this proceeding, the Respondents consent to the issuance of this Order Instituting Public Administrative and Cease-and-Desist Proceeding, Making Findings, Imposing Remedial Sanctions and Ordering Respondents to Cease and Desist ("Order") containing the findings set forth in Section III. below and imposing sanctions as set forth in Section IV. below. III. On the basis of this Order and the Offers submitted by the Respondents, the Commission finds that: A.RESPONDENTS 1.Prime Advisors, Inc. ("PAI"), a Virginia corporation, is an investment adviser which has been registered with the Commission since April 1997 (File No. 801-54189). PAI serves as general partner to at least six private investment, i.e. hedge fund, limited partnerships (collectively, "the PAI partnerships"). Since 1991, PAI has served as investment adviser to the PAI partnerships by providing investment advice and services in exchange for compensation. PAI is equally co-owned by Norman Zadeh and Jeffrey Goodstein, its sole officers and directors. 2.Norman Zadeh ("Zadeh"), age 47, is an investment adviser who has been registered with the Commission since October 1989 (File No. 801-35475). Zadeh's business consists primarily of managing individual accounts. Zadeh, who resides in Beverly Hills, California, holds a Ph.D. in mathematics and is a co-owner of PAI. He is a registered representative associated with American Eastern Securities, Inc. and Wharton Equity Corporation ("Wharton"), both registered broker-dealers, and currently holds Series 3, 7, 63 and 65 licenses. From 1983 to at least 1994, Zadeh administered two nationwide investment contests, Money Manager Verified Ratings and U.S. Investing Championship. 3.Jeffrey Goodstein ("Goodstein"), age 41, resides in Richmond, Virginia. Goodstein, an inactive member of the Virginia bar, previously owned two formerly registered investment advisers, Allied Capital Management, Inc. and Old Dominion Management Co., and owns an active corporation, HF Administration, Inc. Goodstein, a co-owner of PAI, is a registered representative with Wharton, and currently holds Series 3, 7, 63 and 65 licenses. - 1 - B.THE PAI PARTNERSHIPS From September 1991 through at least March 1996 ("the relevant period"), PAI, Zadeh and Goodstein raised at least $159 million from approximately 400 investors nationwide through the offer and sale of interests in the six PAI partnerships: (1) Prime Advisors, L.P.; (2) Resnick Partners, L.P.; (3) Prime Advisor (PAS), L.P.; (4) Retirement Moses, L.P.; (5) Ultima Partners, L.P.; and (6) Aggressive Prime Advisors, L.P. Investor funds were pooled together by partnership and used to generate profits through investing in and trading equity securities, commodities and shares of mutual funds. C.VIOLATIVE CONDUCT 1.Securities and Investment Company Registration Violations: Sections 5(a) and 5(c) of the Securities Act and Section 7(a) of the Investment Company Act During the relevant period, PAI served as general partner and investment adviser to the six PAI partnerships. Its owners, Zadeh and Goodstein, channelled advisory clients to PAI and the partnerships through their respective registered advisory firms, Norman Zadeh (owned by Zadeh), and Old Dominion Management Co. and Allied Capital Management, Inc. (both owned by Goodstein), and through a newsletter (described below). Most of Zadeh's clients were initially attracted by two investment ratings contests, which Zadeh sponsored and advertised in various financial publications. From approximately 1983 to 1992, the published results for the contests listed contestants and their ranking, along with a phone number. From approximately 1993 to 1994, a toll-free number was listed with the published results. Upon being telephoned by persons and entities seeking information about the contests and their participants, Zadeh, on behalf of PAI, would solicit an investment in the PAI partnerships and record the callers' personal information on a mailing list that ultimately grew to approximately 11,000 names. Persons and entities on the mailing list were mailed a newsletter which, beginning in 1991, among other things, recommended an investment in the PAI partnerships. On occasion, Zadeh referred callers who wanted information regarding the PAI partnerships to Goodstein, who answered the callers' questions and mailed the appropriate prospectuses to interested callers. Through these telephone and newsletter contacts, PAI, through Zadeh and Goodstein, generally solicited investors in the offer and sale of interests in the PAI partnerships. At the time of such solicitations, no registration statement had been filed or was in effect for the PAI partnership interests, which are securities in the form of investment contracts. No exemption from registration was available for such interests. Thus, PAI willfully violated Sections 5(a) and 5(c) of the Securities Act. Zadeh and Goodstein, as the owners of and primary actors on behalf of PAI, caused such violations through their general solicitation efforts. In addition, because Zadeh and Goodstein directly offered and sold unregistered securities, they willfully violated Sections 5(a) and 5(c) of the Securities Act. None of the PAI partnerships was registered with the Commission as an investment company. The PAI partnerships (through their general partner, PAI, and through PAI's only directors, Zadeh and Goodstein) are issuers that have primarily engaged since 1991 in investing, reinvesting, or trading in securities, including equity securities and mutual fund shares. This conduct caused each PAI partnership to fall within the definition of investment company under Section 3(a)(1)(A). Because PAI, through Zadeh and Goodstein, publicly offered the partnerships' securities to investors, the PAI partnerships did not qualify for the exclusion under Section 3(c)(1) of the Investment Company Act. By offering and selling their interests without first having registered with the Commission as investment companies, the PAI partnerships willfully violated Section 7(a) of the Investment Company Act. PAI, the partnerships' general partner, and Zadeh and Goodstein, PAI's sole officers and directors, ran the day-to-day operations of the PAI partnerships. Thus, they had actual knowledge that the PAI partnerships were engaged primarily in the business of investing and reinvesting in, and trading securities, but were not registered with the Commission as investment companies. By controlling and operating the PAI partnerships, which they knew were not registered with the Commission, PAI, Zadeh and Goodstein provided substantial assistance to the operation of six unregistered investment companies. Accordingly, PAI, Zadeh and Goodstein willfully aided and abetted and caused the PAI partnerships' violations of Section 7(a) of the Investment Company Act. 2.Failure to Make and Keep Required Books and Records: Section 204 of the Advisers Act and the Rules Thereunder From September 1991 through at least July 1993, Zadeh, while making use of the mails and telephone in connection with his business as an investment adviser, failed to make and keep general and auxiliary ledgers, as required by Rule 204-2(a)(2) of the Advisers Act. Section 204 of the Advisers Act requires every investment adviser who makes use of the mails or of any means or instrumentality of interstate commerce in connection with its business as an investment adviser to make and keep such records and disseminate such reports as prescribed by the Commission. By failing to make and keep true, accurate, and current general and auxiliary ledgers, Zadeh willfully violated Section 204 of the Advisers Act and Rule 204-2(a)(2)thereunder. IV. Based on the foregoing, the Commission deems it appropriate and in the public interest to impose the sanctions set forth in the Offers submitted by Respondents. Accordingly, IT IS HEREBY ORDERED that: A.Pursuant to Sections 15(b) and 19(h) of the Exchange Act and Sections 203(e) and 203(f) of the Advisers Act, PAI, Zadeh, and Goodstein are censured; B.Pursuant to Section 8A of the Securities Act, Section 21C of the Exchange Act, Section 203(k) of the Advisers Act, and Section 9(f) of the Investment Company Act, PAI cease and desist from committing or causing violations and any future violation of Sections 5(a) and 5(c) of the Securities Act and from causing violations and any future violation of Section 7(a) of the Investment Company Act; C.Pursuant to Section 8A of the Securities Act, Section 21C of the Exchange Act, Section 203(k) of the Advisers Act, and Section 9(f) of the Investment Company Act, Zadeh cease and desist from committing or causing violations and any future violation of Sections 5(a) and 5(c) of the Securities Act, Section 204 of the Advisers Act and Rule 204-2(a)(2) thereunder, and from causing violations and any future violation of Section 7(a) of the Investment Company Act; and D.Pursuant to Section 8A of the Securities Act, Section 21C of the Exchange Act, Section 203(k) of the Advisers Act, and Section 9(f) of the Investment Company Act, Goodstein cease and desist from committing or causing violations and any future violation of Sections 5(a) and 5(c) of the Securities Act, and from causing violations and any future violation of Section 7(a) of the Investment Company Act; E.Pursuant to Section 21B of the Exchange Act, Section 203(i) of the Advisers Act, and Section 9(d) of the Investment Company Act, PAI, Zadeh, and Goodstein shall, within ten (10) business days after the entry of the Order, pay civil money penalties in the respective amounts of $137,500, $165,000, and $27,500, 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) sent by certified mail to the Comptroller, Securities and Exchange Commission, Operations Center, 6432 General Green Way, Stop 0-3, Alexandria, Virginia, 22312; and (d) submitted under cover letter which identifies PAI, Zadeh, and Goodstein as respondents in this proceeding, the file number of this proceeding, a copy of which cover letter and money order or check shall be sent to Ronald E. Wood, Pacific Regional Office, Securities and Exchange Commission, 5670 Wilshire Boulevard, 11th Floor, Los Angeles, California, 90036. By the Commission. Jonathan G. Katz Secretary