SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.

SECURITIES EXCHANGE ACT OF 1934
Rel. No. 48590 / October 2, 2003

INVESTMENT COMPANY ACT OF 1940
Rel. No. 26202 / October 2, 2003

Admin. Proc. File No. 3-9615

In the Matter of THE ROCKIES FUND, INC., STEPHEN G. CALANDRELLA, CHARLES M. POWELL, CLIFFORD C. THYGESEN, and JOHN C. POWER

OPINION OF THE COMMISSION

INVESTMENT COMPANY PROCEEDING

CEASE-AND-DESIST PROCEEDING

Grounds for Remedial Action

Fraud in Connection with Reporting Requirements

Violating, Aiding and Abetting, and Causing Violations of Reporting Requirements

Manipulation through Matched Orders and Wash Sales

Improper Acceptance of Compensation by Agent of an Investment Company

Investment company and its directors violated antifraud provisions of the Exchange Act by filing periodic reports containing material misstatements; investment company violated provisions of the Exchange Act and directors aided and abetted and were a cause of reporting violations by filing reports not in compliance with GAAP and containing material misstatements; director of investment company and another individual violated antifraud provisions of the Exchange Act by manipulating the price of securities through matched orders and prearranged trades; and director violated Investment Company Act Section 57(k)(1) and Exchange Act antifraud provisions by improper acceptance of compensation. Held, it is in the public interest that: (1) director be barred in all capacities from association with an investment company; (2) independent directors be barred from associating with an investment company for three years;(3) Respondents cease and desist from committing or being a cause of any violations or future violations of the provisions that they are held to have violated or to have aided and abetted; (4) director be ordered to pay a civil money penalty of $500,000; and (5) independent directors each be ordered to pay a civil money penalty of $160,000.

APPEARANCES:

Edward J. Meehan, Roberto Iraola, Louis D. Greenstein, and David E. Carney, of Skadden, Arps, Slate, Meagher & Flom, LLP, for The Rockies Fund, Inc., Stephen G. Calandrella, Charles M. Powell, and Clifford C. Thygesen.

David A. Zisser, of Isaacson, Rosenbaum, Woods & Levy, P.C.

Robert M. Fusfeld and Julie K. Lutz, for the Division of Enforcement.

Appeal filed: March 30, 2001

Last brief received: August 10, 2001

Oral argument: September 24, 2003

I.

The Rockies Fund, Inc. ("Rockies Fund" or "Fund"), a closed-end investment company, Stephen G. Calandrella, president and director of the Rockies Fund, Charles M. Powell and Clifford C. Thygesen, independent directors of the Rockies Fund, (the four together, the "Rockies Respondents"), as well as John C. Power (J. Power), president of Redwood MicroCap Fund, Inc. ("Redwood"), a closed-end investment company not charged in this proceeding, appeal from the decision of an administrative law judge. The law judge found that the Rockies Respondents violated Section 10(b) of the Securities Exchange Act of 1934 1/ and Rule 10b-5 thereunder 2/ by making untrue statements of material facts in the Rockies Fund's annual and quarterly reports. The law judge also found that the Rockies Fund violated, and Respondents Calandrella, Powell, and Thygesen "aided and abetted and caused" the Fund's violations of Section 13(a) of the Exchange Act, 3/ and Rules 12b-20, 13a-1, and 13a-13 4/ by filing reports that contained untrue statements of material facts and that did not comply with Generally Accepted Accounting Principles ("GAAP") and Regulation S-X. 5/ The law judge further found that Respondents Calandrella and J. Power violated Section 10(b) of the Exchange Act and Rule 10b-5 by manipulating the market for Premier Concepts, Inc. ("Premier") common stock, a stock held in the Fund's investment portfolio, through engaging in matched orders and wash sales. Additionally, the law judge found that Respondent Calandrella violated Section 57(k)(1) of the Investment Company Act, 6/ and Exchange Act Section 10(b) and Rule 10b-5 thereunder by causing the Rockies Fund to purchase shares of Premier stock to settle a legal claim threatened against Calandrella personally without disclosing the settlement to the independent board members of the Rockies Fund.

The law judge ordered all Respondents to cease and desist from further violations of Exchange Act Section 10(b) and Exchange Act Rule 10b-5. The law judge ordered the Rockies Fund to cease and desist from committing or causing, and Calandrella, Thygesen, and Powell to cease and desist from aiding and abetting or causing, any further violations of Exchange Act Section 13(a) and Exchange Act Rules 12b-20, 13a-1, and 13a-13. The law judge ordered Calandrella to cease and desist from further violations of Investment Company Act Section 57(k)(1). The law judge further ordered Calandrella to pay a civil money penalty of $500,000 and Thygesen and Powell each to pay a civil money penalty of $160,000. Additionally, the law judge permanently barred Calandrella and, for a period of three years barred Thygesen and Powell, from associating with or acting as an affiliated person of an investment company.

All Respondents challenge the law judge's findings of violations and contend that the sanctions imposed are excessive. We base our findings on an independent review of the record, except with respect to those findings not challenged on appeal.

II.

Respondents

The Rockies Fund, incorporated in 1983, is a closed-end investment company which elected to be treated as a business development company ("BDC") under the Investment Company Act. 7/ In fulfilling its function as a BDC, the Rockies Fund invested primarily in new, developing, and often struggling companies, and provided capital as well as management expertise with the goal of achieving capital appreciation from those companies. The Fund's directors, Respondents Calandrella, Thygesen, and Powell, all had been friends and business associates for many years prior to theperiod at issue and had been investors in, or directors of, various of each others' business entities.

Respondent Calandrella has been the president and a director of the Rockies Fund since February 1991 and has been the chief executive officer and treasurer of the Fund since January 1994. In addition, Calandrella was, during the events at issue, the principal buyer and one of the largest holders of Rockies Fund stock. As of March 1995, Calandrella owned 31.2% of the Fund's outstanding common stock. Calandrella and entities with which he was affiliated also made substantial loans to the Fund. At the hearing, Calandrella could not state with certainty the amount of such loans, but he believed the loans totaled "less than several hundred thousand dollars."

Respondent J. Power is a longtime friend and associate of Calandrella. He was president of Redwood, a closed-end investment company that became involved in the events at issue.

The Formation of Premier Concepts, Inc.

This proceeding concerns the Rockies Fund's holdings of Premier securities. In 1993, Respondent J. Power, his brother Mark Power, and Raymond Stanz formed Mirage Concepts, Inc., a private company that operated three faux jewelry stores in Arizona and San Francisco. J. Power and Mark Power each owned 25% of Mirage; Stanz owned 50%. When J. Power and Stanz learned that American Fashion Jewels, Inc., a nationwide chain of faux jewelry stores operating under the name "Impostors," had declared bankruptcy in May 1993, they became interested in expanding Mirage by purchasing the assets of the bankrupt entity.

Initially, they planned that Redwood, J. Power's company, would purchase Impostors. However, realizing that the acquisition cost of Impostors would be in the range of $1 million, J. Power invited Calandrella to participate in the transaction. Calandrella recommended that, given the steep capital investment required, the appropriate vehicle with which to acquire Impostors would be a company he controlled, Premier. 8/ Calandrella, J. Power, and Stanz agreed to this plan.

Calandrella signed a Commitment Letter for Funding of Debtors'Joint Plan of Reorganization of Impostors dated January 4, 1994. The bankruptcy court approved Premier's acquisition of Impostors, and Impostors' Amended Plan of Reorganization (the "Amended Plan") became effective on March 3, 1994. Among other things, the Amended Plan required Premier to have assets of $1 million in cash or cash equivalents.

In order to raise this $1 million, Premier conducted a private offering of Premier stock and warrants (the "1994 Private Placement"). The offering of 500,000 units, consisting of two shares of common stock and one Class C warrant exercisable to purchase one additional share of common stock at $2.00 per share, occurred in February 1994. The Premier Board of Directors resolution authorizing the private offering specified that the shares and warrants were "'restricted securities' under the Securities Act of 1933, as amended, and certificates evidencing same should bear the Company's customary restrictive legend." As indicated in the private offering's January 1994 Commitment Letter and February 1994 Investment Term Sheet, Premier intended to register the shares as soon as was practicable and to qualify for trading on the Nasdaq stock market. 9/ Calandrella was optimistic that Premier would raise the capital necessary to achieve these results and that the newly acquired Impostors stores, then operating at a loss, would be profitable. The Rockies Fund, Redwood, and Mirage, among others, invested in the 1994 Private Placement. Shortly after the 1994 Private Placement was conducted, Premier acquired the Mirage stores.

Premier's financial condition did not improve and did not show the profitability anticipated by Calandrella. In 1994, Premier operated at a loss, additional capital was needed to execute its business plan, and auditors expressed a going concern qualification in the company's year-end audit. Sissel Greenberg, a subsequent president of Premier, testified that, in 1995, Premier's financial condition improved, but the company still was operating at a loss and needed capital to fund the business.

Management of Premier

At the time of the Impostors acquisition through August 1994, Stanz, serving as chief operating officer of Premier, and J. Power, having no formal title, operated the former Impostors stores. Sometime around April or May 1994, hostility arose between Calandrella and J. Power. The record is not clear as to the precise details, but, in essence, Calandrella was unhappy with the manner in which J. Power was running Premier. Calandrella recruited Greenberg to serve as president of Premier, a move which angered both J. Powerand Stanz. J. Power and Stanz questioned Greenberg's competency in making retail and merchandising decisions in the jewelry business, an industry Stanz knew well. The discord resulted in Stanz leaving Premier in August 1994 and threatening legal action against Calandrella.

* * * * *

With this background, we can now examine the specific charges against Respondents.

III.

A.

The manipulation charges against Calandrella and J. Power center on trading in the stock of Premier between June 10 and October 21, 1994. Thirteen sets of trades of Premier are at issue with respect to these charges. Most of these trades occurred between accounts at Hanifen Imhoff, the single market maker for Premier, and accounts at McDermid St. Lawrence Chisholm Ltd. ("McDermid"), a broker-dealer in Vancouver, Canada.

A portion of the trades at issue relates to the disposition of 200,000 Premier shares originally purchased in the 1994 Private Placement by Ranald Butchard, a registered representative of McDermid and a friend and business associate of both Calandrella and J. Power. These shares represented a substantial portion of Premier's outstanding shares. According to Butchard, he understood at the time of his investment that Premier was applying for and would acquire a Nasdaq listing. When he learned that a Nasdaq listing was not imminent, Butchard asked both Calandrella and J. Power if they would purchase his shares or if they knew of other potential buyers. Calandrella and J. Power agreed to find buyers for his shares. J. Power testified that he did not want his friend to lose money on his investment.

Butchard sold 180,000 of his Premier shares in several blocks to Hanifen at or near the bid price. Within a short time after Butchard sold each block, the same number of shares would be purchased (in smaller blocks) at or near the ask price. In turn, some of those purchasers sold their shares. All of those involved in these transactions were friends, relatives, business

associates, or business entities of Calandrella, J. Power, or Butchard. 10/

Calandrella and J. Power recommended Premier stock, and at times, recommended a "limit order price," to many of the purchasers. 11/ Calandrella and J. Power knew that these purchasers, in essence, were buying the shares Butchard was selling. Calandrellamonitored the trading of Premier and would discuss trades with which he was unfamiliar with J. Power or with Hanifen.

Calandrella recommended Premier purchases to Nathan Katz, a longtime business associate, and to Arthur Nacht, a friend of many years. Calandrella admits that he loaned money to Katz for some of Katz's Premier purchases. Katz purchased Premier shares on three occasions, June 15, June 30, and August 19, 1994, each in close proximity to sales made by Butchard. Calandrella acknowledges that he knew he was recommending stock to Katz that Butchard was selling and that "certainly it was possible" he recommended the price to Katz. As for Nacht's purchase, Calandrella often gave investment advice to Nacht and had limited authorization to trade in one of Nacht's brokerage accounts. Nacht bought on August 30, 1994, through his account at Cohig & Associates, Inc. ("Cohig"), Premier shares that Butchard sold on August 23.

Other purchases of Butchard's shares were arranged by J. Power. In two instances, companies J. Power controlled purchased Premier shares. Power Curve, a private company owned by J. Power, purchased shares of Premier on June 15, 1994, sold by Butchard on June 10, and Redwood purchased shares on June 23, 1994, sold by Butchard that same day. J. Power acknowledged that the companies were essentially purchasing the Premier shares Butchard had sold to Hanifen.

In addition, J. Power influenced the purchase of Premier stock by his brother, Brian Power, and by a friend and business associate, Allen Williams, the owner of Neon Rainbow. Brian Power purchased Premier shares on June 17, 1994, that Butchard had sold that day. Brian Power testified that his investments, including the number of shares to purchase and the price, were often made upon the advice of J. Power. J. Power recommended that Williams purchase 10,000 shares of Premier and believed he recommended a limit order price.

Butchard appears to have arranged certain trades with his customers and family. The 50,000 shares of Premier that Butchard sold on June 21, 1994, were purchased the next day by two of Butchard's customers and his brother, Brad Butchard, at $1.01 per share. On June 29, Brad Butchard and one of the customers sold 37,000 of the shares they had purchased to three others, including a company owned by Butchard, for $1.25 per share. Butchard argued variously that his company repurchased the shares from his brother for tax reasons or possibly because his company was where he had the funds to purchase the shares. In addition, J. Crone and Butchard's mother each bought 1,000 shares at $1.25 per share.

Another series of trades at issue during the relevant time period were made by J. Power, his brother Brian, and entities they controlled. The trades again involved the sale of Premier shares to, and the purchase of Premier shares from, either Hanifen orMcDermid. Calandrella does not appear to have been involved in these transactions. 12/

J. Power claims that he arranged these trades to take advantage of the more lenient Canadian settlement rules which allowed more time for settling trades. He claims that this longer settlement period allowed him and his brother to get cash temporarily when needed for business or other purposes. Brian Power testified that his brother recommended the number of Premier shares to purchase, and he assumed that his brother also recommended the sale price for the Premier shares he sold, though he could not directly recall. These trades, assertedly for the purpose of generating credit and needed cash, occurred at a high cost. Brian Power acknowledged that he bought Premier stock 5 times and sold it 4 times during the relevant period. Due to the rising price of Premier and the commissions on these transactions, Brian Power spent almost $28,000 more on the purchases than he received from the sales.

B.

Exchange Act Section 10(b) and Exchange Act Rule 10b-5 thereunder generally make it unlawful for any person to engage in any act, practice, or course of business which operates or would operate as a fraud or deceit upon any person. Manipulation ofthe market for a security traded in the over-the-counter market is encompassed within the proscriptions of Rule 10b-5. 13/

Manipulation includes the use of matched orders 14/ and wash sales 15/ that create a false or misleading appearance of active trading, or that otherwise create a false or misleading appearance with respect to the market for a particular security. 16/ For purposes of Rule 10b-5, it is not necessary to show a specific manipulative purpose in inducing others to trade as is required under Section 9; a showing that Respondents engaged in fraud or deceit as to the nature of the market for the security issufficient. 17/ It is not relevant whether investors sustained losses as a result of the manipulative activity. 18/

In order to establish that the manipulative conduct at issue constitutes a violation of Exchange Act Section 10(b) and Rule 10b-5, we must find that J. Power and Calandrella acted with scienter, defined as "a mental state embracing intent to deceive, manipulate, or defraud." 19/ A finding that Respondents acted recklessly can satisfy the scienter requirement. 20/ The courts have defined recklessness in this context as "'an extreme departure from the standards of ordinary care, and which presents a danger of misleading buyers or sellers that is either known to thedefendant or is so obvious that the actor must have been aware of it.'" 21/

Virtually all of the transactions involving the trading of the Butchard shares were matched orders in that they were entered with the knowledge that orders of substantially the same amount, at substantially the same time, would be entered. J. Power admitted that he and Calandella agreed to help Butchard find purchasers because "Mr. Butchard would have lost money." Moreover, the coincidence of timing and size of the trades, and the fact that the trades were virtually all made by friends and family members of Butchard, J. Power, and Calandrella, make apparent that the various different sales and purchases were matched with each other. 22/

It is equally apparent that the second group of trades were wash sales. They occurred among J. Power and various entities controlled by him either through his ownership or through familial relationships, and thus involved no change in beneficial ownership. Indeed, J. Power said that the trades were arranged for the purpose of temporarily generating cash for him and his brother during the extended Canadian settlement period, rather than for long-term disposition of the securities.

In arranging these matched orders and wash sales, respondents Calandrella and J. Power engaged in fraud as to the nature of the market for Premier securities. As we have previously stated:

Proof of a manipulation almost always depends on inferences drawn from a mass of factual detail. Findings must be gleaned from patterns of behavior, from apparent irregularities, and from trading data. When all of these are considered together, they can emerge as ingredientsin a manipulative scheme designed to tamper with free market forces. 23/

The hallmarks of a manipulation include the appearance of market activity in an otherwise thinly traded security as well as a rapid surge in prices despite the absence of any known prospects for the issuer or favorable development affecting it. 24/ But for the trades at issue, Premier was an extremely thinly traded security, reflecting low investor interest. Respondents' conduct falsely created the appearance of active interest in Premier and caused the bid price to increase.

During the course of this trading, the bid price for Premier rose from $1.00 per share to $2.25. Premier was operating at a loss throughout 1994. The company issued no press releases and engaged in no other promotional efforts that might have affected the price. Respondents' trading alone appears to account for the steep increase in the price of Premier stock. At the cessation of the alleged period of price manipulation, the bid price of Premier declined rapidly.

Although it is not necessary to establish a specific manipulative intent under Rule 10b-5, the conclusion that Respondents' conduct was designed to create a false appearance of activity and to move the price of Premier upwards is inescapable. All of the trading was done with Premier's market makers Hanifen and McDermid on a principal basis. If, as Respondents claim, the Butchard trades were effected to help a friend dispose of unwanted securities without losing money, they could have been handled privately to avoid transaction costs. 25/ The only conceivable reason for the trades to have been placed in the public market was to ensure that the trades would be reported in order to create an appearance of market activity and to cause the market maker's bids to rise in response to the increased customer interest.

Calandrella claims that he did not participate in the trading at issue. This claim is belied by the record evidence. Four sets of trades of the Premier shares involved Katz, a business associate and friend of Calandrella, and Nacht, a longtime friend of Calandrella. Calandrella recommended these purchases of Premier, at particular times, at suggested prices. In fact, Calandrella placed one order of Premier on behalf of Nacht.

Calandrella also claims that his relationship with J. Power during this period was so strained that the two could not have cooperated in orchestrating any manipulative scheme. The record does not support such a claim. The alleged strain between J. Powers and Calandrella centered on the management of Premier. It is perfectly plausible that the two could have disagreed on management matters but still cooperated in arranging the trades at issue. Calandrella testified that he monitored trading in Premier and discussed with J. Power any trades of which he was unaware. Moreover, the pattern of trading is highly suggestive of coordination between Calandrella and J. Power in June and in August 1994.

J. Power argues that he participated innocently in the wash sales with no intent to increase the price of Premier. As noted above, it is not necessary to establish a specific manipulative intent with respect to claims under Rule 10b-5. 26/ However, J. Power's "innocent" explanation that the sales provided needed quick cash is highly suspect given the amount of money lost in transaction costs. Moreover, a need for quick cash does not explain why the price of Premier rose with each transaction. J. Power's trades cannot be viewed in isolation. As we have said before, investors should be able to assume that the prices of securities are reflective of actual market conditions and not a result of manipulation. The fact that, despite poor financial prospects, the price of Premier rose steadily upward while J. Power was involved in recommending Premier trades at suggested prices creates an unmistakable pattern of manipulative activity.

Calandrella and J. Power manufactured a pattern of trading that deceived market participants about the nature of the market for and the price of Premier stock. We therefore find, that Calandrella and J. Power, acting with scienter, manipulated the market for Premier securities in willful violation of Exchange Act Section 10(b) and Rule 10b-5.

IV.

Also at issue in this proceeding are allegedly fraudulent misrepresentations in the Rockies Fund's quarterly and annual reports concerning: (1) the classification of the Premier shares; (2) the valuation of the Premier shares; and (3) theownership of certain Premier shares. Exchange Act Section 10(b) and Rule 10b-5 thereunder make it unlawful for any person, in connection with the purchase or sale of a security, "[t]o make any untrue statement of a material fact or to omit to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading." 27/ A misstatement or omission is material if there is a substantial likelihood that a reasonable investor would consider the misstated or omitted information to be important in making an investment decision. 28/ Moreover, in order to find a violation of these provisions, we must find that alleged misrepresentations and omissions were knowing or at least reckless. 29/

A. Classification of Premier Shares

The Rockies Respondents were charged with making fraudulent statements concerning the classification of Premier stock. In 1994, the Fund's June and September Forms 10-Q and its Form 10-K stated that all of its holdings of Premium were unrestricted stock. This representation was repeated in the first two Forms 10-Q filed by the Fund in 1995. It is undisputed that these representations were false; in fact, all but 750 of the Premier shares held by the Fund were restricted. 30/

We find the misclassification of the Premier shares in the periodic reports to be material. Correct classification of securities can have a material impact on financial statements. 31/ In addition to having an impact on the value of the securities, misclassification can affect the validity of financial statements bymaking a portfolio appear more liquid by presenting shares as freely saleable when, in fact, they are

not. 32/ Where, as here, the number of shares incorrectly classified is material to the Fund's total assets, 33/ the misclassification is material.

The Rockies Respondents do not contend that they were unaware, when the misrepresentations were made, that the vast majority of Premier shares were in fact restricted. Rather, they claim that the misclassification was merely the result of a clerical error and not an attempt to deceive investors. The record does not support such a contention.

Calandrella, Thygesen, and Powell were each involved in the drafting and filing of the Fund's Forms 10-Q and Form 10-K which contained the misrepresentations regarding the restricted status of the Premier shares. Calandrella presented the information contained in the filings to the independent directors, Thygesen and Powell, and signed the Forms 10-Q and Form 10-K the Fund filed with the Commission. Both Thygesen and Powell reviewed all of the periodic reports and signed the Form 10-K.

It is implausible that, absent an extreme departure from standards of ordinary care, a "clerical error" of this magnitude could occur not just once, but in six different periodic filings. The Premier shares were the Fund's single largest asset and constituted a significant portion of the portfolio. Moreover, in connection with the valuation of Premier securities in each of the periodic reports for which Premier securities were mistakenly classified as unrestricted, the values given in the financial statements were described as the "quoted market price" or "quoted market value." Restricted stock, however, because it cannot be traded in the public market, does not have a "quoted market price;" such a term only makes sense in reference to unrestricted stock. 34/

Calandrella, Thygesen, and Powell all admit that they were intimately involved in the valuation process; they could not have been unaware that Premier was being valued at market prices as if the shares were unrestricted. Calandrella stated in hisinvestigative testimony that he believed at least some of the restricted shares could be treated as unrestricted because they had demand registration rights. 35/ Thygesen testified at the hearing that, because he thought the Premier securities had demand registration rights, he viewed Premier securities as "hybrids" that could be valued as though they were unrestricted. He does not, however, provide any basis for thie erroneous conclusion. We believe this evidence demonstrates a reckless indifference to whether the Premier securities were correctly classified. 36/

Accordingly, we find that the Rockies Respondents willfully violated Exchange Act Section 10 and Rule 10b-5 thereunder by recklessly misrepresenting the classification of Premier's securities in the Fund's Forms 10-Q and 10-K from June 1994 through September 1995.

B. Value of Premier Shares

The Rockies Respondents are charged with making material misstatements in the Fund's quarterly and annual reports from June 30, 1994, through December 31, 1995, in that the valuations of restricted Premier securities held by the Fund were not in compliance with policies disclosed by the Fund and were materially overstated. The Fund's 1983 prospectus ("the prospectus") set forth the procedures by which the Fund was required to value its securities. The prospectus provided that securities would be valued at either market value or in good faith at fair value. 37/ The prospectus defined "fair value" as the amount the Fund could expect to realize from the current sale of the securities. 38/

The prospectus then described four methods for the valuation of the Fund's security portfolios and ranked them in order of preference. The most favored method, the "public market method," used the "bid" price for those securities traded on a stock exchange. 39/ The Fund's Board was to value restricted shares at a discount from the market price for unrestricted shares of the same issuer and class. 40/

The prospectus noted that it was "highly probable" that the securities of many of the portfolio companies would not have a public market. In that event, their valuation was to be based on the "private market method." This method valued the stock on the basis of actual or proposed third-party transactions. The third method, the "appraisal method," was to be used when there were no third-party transactions in the securities, and directed the Board to value shares by an appraisal that considered events that occurred since the purchase of the stock. Finally, if no other method was feasible, the prospectus directed the Board to value the shares at their cost to the Fund. These valuation procedures described in the prospectus were the only procedures disclosed to the investing public.

The Fund did not follow these procedures. As noted above, all of the the periodic reports at issue stated that Premier was valued at the "quoted market price" or "quoted market value." According to the prospectus, where a market price was identified for unrestricted securities, restricted securities for the same issuer should have been valued at a discount from this price.

Even the determination of this "quoted market price" followed no logical pattern. Although the prospectus makes clear that market price is to be determined at the bid, the reported prices for Premier were sometimes the highest bid, and sometimes a price between the bid and the ask. 41/ For example, in the June 30, 1994 Form 10-Q, the $1.50 valuation was higher than the highest bid for that day, $1.375. The Fund's valuation for Premier in its September 30, 1994 Form 10-Q and December 31, 1994 Form 10-K equaled the highest bid for unrestricted Premier shares. The first two quarters of 1995 reported a value that is the median between the bid and the ask. The third quarter and annual reports for that year (the two reports that correctly classify Premier shares as restricted) reported a value between the bid and ask but lower than the median price. 42/

The Board also does not appear to have followed any of the alternate procedures articulated in the prospectus for securities with no public market. For example, the June 30, 1994 valuation of $1.50 does not reflect actual or proposed third party transactions, since on the same day Katz had purchased Premier shares for $1.25 as part of the manipulative scheme. Any accurate appraisal valuation of the Premier shares would have to have taken into account "events occurring since the purchase of the stock." No event indicating improved performance or prospects for Premier had occurred since the Fund's acquisition of the shares. As discussed earlier in connection with the manipulation charges, Premier operated at a loss throughout

1994. 43/ Similarly, the June 30, 1994 reported value does not reflect the cost to the Fund of the Premier securities, since all the Premier shares owned by the Fund as of that date had been purchased at $1.00 a share. In fact, the periodic reports through June 30, 1995 consistently report values above Premier's cost.

There is no contemporaneous evidence in the record showing how Respondents arrived at the Premier valuations. 44/ The only explanations available are those given in Respondents' testimony and pleadings. These materials assert variously that the Board met every quarter either in person or by telephone to discuss the valuations (Calandrella's testimony), that perhaps they did not meet every quarter (testimony of Calandrella and Powell), that the Board "sometimes" considered factors such as the restricted status of shares (Powell's testimony), that they never considered the restricted status as significant because of the illiquidity of the market for unrestricted shares (Rockies Respondents' pleadings on appeal), that the Board "fair valued" Premier by looking at Premier's operating results (testimony of Calandrella and Powell; Rockies Respondents' pleadings on appeal), and that the Board did not "fair value" Premier because once Calandrella showed the Board a "market price" for Premier, that was the "end of the discussion" (Thygesen's testimony). The Board adopted Calandrella's recommended valuations consistently (Thygesen's testimony). Moreover, after the misclassification of Premier securities was corrected, there was no change in the valuation procedures (Powell's testimony).

We find that this record establishes that the Board adopted Calandrella's proffered market price for Premier with little or no attention paid to the basis for Calandrella's recommendations. Thelack of contemporaneous records showing any discussion among the Board members of the fair value of Premier together with the characterization of the Premier value as the quoted market price and testimony indicating that Premier was valued at the market price all strongly support this conclusion. 45/ The inconsistency among the recollections of Calandrella, Powell, Thygesen, and the theories in the Rockies Respondents' pleadings further suggest post-hoc efforts to rationalize what was in reality a cursory and inconsistent valuation process.

The valuation of Premier at the market price resulted in the Premier valuations being materially overstated. The Board's valuation policy disclosed in the prospectus, as well as Accounting Series Release ("ASR") 113, require that restricted securities be valued at a discount from the market price for unrestricted securities. 46/ The prospectus defines the valuation of market price for unrestricted securities as the bid price. We find that, pursuant to the Fund's disclosed valuation policies, the Premier shares should have been valued, at a minimum, at a discount from the bid price. We further find that the discount should have been substantially below the bid price.

ASR-113 cautions that there is "no automatic formula" by which to value restricted securities. However, ASR-118, 47/ in providing further guidance, states:

The directors should take into consideration all indications of value available to them in determining the "fair value" assigned to a particular security. The information so considered together with, to the extent practicable, judgment factors considered by the board of directors in reaching its decisions should be documented in the minutes of the directors' meeting and the supporting data retained for the inspection of the company's independent accountant.

Consideration of factors such as the poor financial condition of Premier and the uncertainty of the company's survival should have informed the Board's valuation process. Moreover, in many instances, Premier was valued at prices substantially higher than the Fund's own recent acquisition costs, even though no new developments justified appreciation in that value. These factors should have caused the Board to question the validity of the market prices it was using as an indicator of the value of Premier. 48/

The valuation of Premier, a substantial holding of the Fund, was important information for potential investors in the Fund. By overvaluing its Premier holdings, the Rockies Respondents distorted the actual performance of the Fund. We reject the Rockies Respondents' contention that the misrepresen-tations were not material because no actual harm to investors occurred. The record evidence does not establish that any harm occurred to investors, but we need not show actual reliance by and harm to investors to find a material misrepresentation. 49/ Accordingly, we find that the overvaluation of Premier restricted shares was material.

We find that the Rockies Respondents' conduct evidenced a reckless disregard for the accuracy of the valuations of Premier reported in the Fund's periodic reports. We have already found that Respondents showed a reckless disregard for the correct classification of Premier stock, and the classification has a significant impact on the proper valuation method. Moreover, as discussed above, the entire valuation process appears to have been haphazard, following no consistent methodology. 50/

The Rockies Respondents contend that, because the Premier stock was so illiquid, it was reasonable to value the restricted and unrestricted shares similarly. However, ASR-118 indicates that, where a market for a security is thinly traded, market quotes are not "readily available" for purposes of valuation, and should not be used. Moreover, the testimony at the hearing of the Fund's auditor, Carroll Wallace, and the Rockies Respondents' expert witness, Clarence Hein, a CPA and managing partner of Hein & Associates, LLP, does not advance the Rockies Respondents' cause. Neither Wallace nor Hein reviewed written documentation supporting the Fund's arrival at its Premier valuations. Wallace relied on conversations he claims to have had with Calandrella about what the Board considered, but as we have seen, Calandrella's version of events differs from that of his fellow Board members. 51/ Hein merely reviewed the Fund's Forms 10-Q and 10-K as well as Calandrella's investigative testimony in determining that valuations at the unrestricted share bid price or between the unrestricted bid and ask prices were reasonable. 52/

Thus we find that the Rockies Respondents' valuations of Premier securities, which significantly overstated the Fund's value and performance, were material misrepresentations made with scienter in willful violation of Exchange Act Section 10(b) and Rule 10b-5.

C. Ownership of Premier Shares Acquired in the 1995 Private Placement

In the Form 10-Q filed by the Fund for the quarter ended September 30, 1995, the Fund reported ownership of 200,000 shares of Premier offered as part of a private placement. The purchase was not authorized by Premier's Board of Directors until November 15, 1995, and the Fund did not pay for or sign a written contract for the shares until December, 1995. 53/ The Division alleges thatclaiming ownership of the shares in September 1995 was a fraudulent misrepresentation for which the Fund and Calandrella are liable.

The Fund and Calandrella claim that it was proper to include the 200,000 shares as assets in the 1995 third quarter Form 10-Q because the Fund had a valid oral agreement with Premier to purchase the shares as early as September, 1995. They point to a document entitled Investment Term Sheet/Redwood MicroCap Fund, Inc. ("Investment Term Sheet"). 54/ This document sets forth an agreement between Redwood and Premier for Redwood to purchase one million Premier shares of an anticipated private placement at a price of $.25 per share. 55/ The agreement makes reference to "other investors."

Both J. Power and Neuman testified that J. Power negotiated this agreement on behalf of a group of investors which included the Rockies Fund. The Subscription Agreement for the 200,000 shares signed by Calandrella on behalf of the Fund on December 19, 1995 states that it is made pursuant to the Investment Term Sheet "dated as of September 30, 1995" and that, by executing the Subscription Agreement, the Fund "shall be deemed to be a party to the [Investment Term Sheet] as an associate of Redwood. . . ."

The Fund made payment for the shares by a check dated December 14, 1995. The stock certificate for the 200,000 shares was dated January 22, 1996.

ASR-113 provides guidance concerning when an investment company may claim ownership of restricted securities in its portfolio. 56/ ASR-113 states that an investment company maymake such a claim once it has an enforceable right to demand the securities from the seller. The release further provides that, on the date the investment company and the seller orally agree to the purchase price and amount of securities, "there would not seem to be any enforceable right of the investment company to demand the securities," since in most states there is no enforceable right absent a valid written agreement.

The Fund and Calandrella argued below that, in 1995, Colorado law 57/ provided that an agreement for the sale of securities is enforceable only when, "[t]here is some writing signed by the party against whom enforcement is sought . . . sufficient to indicate that a contract has been made for a sale of a stated quantity of described securities at a defined or stated price," or, for an oral agreement, if such a writing is received within a reasonable time thereafter by the party against whom the enforcement is sought. 58/ The implication of their argument is that their purported oral agreement meets the requirements of this statute, presumably because the written agreement signed by the Fund in December was received within a reasonable time after the oral agreement.

We do not need to reach the issue whether, under Colorado law, a two-month lapse meets the "reasonable time thereafter" standard, because the Respondents' argument fails for another reason. Although the Investment Term Sheet specifies a purchase price and an aggregate amount of one million shares to be purchased by the group of investors, and although both J. Power and Neuman testified that the Fund was understood to be part of that group as early as September 1995, there is no evidence in the record that an oral agreement was made on the Fund's behalf in September to purchase a specific amount of the Premier private placement shares. To thecontrary, Neuman testified that the list identifying the investors and the amounts to be purchased by each "probably" did not exist at the time the Investment Term Sheet was circulated and signed. Neuman stated that in situations where Redwood and the Fund and other parties identified investment opportunities such as the Premier purchase, it "was a matter of routine practice" to get an agreement on behalf of the group circulated and signed and to develop later the specific amount of the total that each of the participants would buy. This testimony compels the conclusion that as of September 30, 1995, the date on the front of the Term Investment Sheet, there was no agreement, oral or otherwise, as to the specific portion of the one million Premier shares to be purchased by the Fund.

ASR-113 and the Colorado law cited by the Fund and Calandrella are both unambiguous that, in the limited circumstances in which an oral agreement might be deemed enforceable by a party, it must be specific as to both price and amount. The Respondents' purported oral agreement does not meet this test. ASR-113 is clear that, if there is no enforceable agreement to purchase securities in place, an investment company may not claim ownership of such securities. Accordingly, we conclude that the statement in the Fund's Form 10-Q for the quarter ending September 30, 1995 that it owned the 200,000 Premier shares from the December private placement was false.

The misstatement was material. The reported value of 200,000 shares, $175,000, was 46% of the Fund's total Premier holdings of $377,781 and 11% of the Fund's total reported investments in securities of $1,583,430.

Calandrella acted with scienter in stating in the Form 10-Q for the quarter ending September 30, 1995 that the Fund owned the 200,000 shares as of that date. Calandrella personally participated in the transactions to purchase the Premier shares, and knew that no agreement had been reached as of September 30, 1995, as to the specific amount of securities that the Fund would purchase from the one million share private placement. His participation in preparing and signing the September 1995 Form 10-Q containing the misstatement was, at a minimum, reckless. Accordingly, we find that the Fund and Calandrella willfully violated Exchange Act Section 10(b) and Rule 10b-5.

V.

The Rockies Fund is charged with violating, and Calandrella, Powell, and Thygesen are charged with aiding and abetting and causing, the Fund's violations of Exchange Act Section 13(a) 59/and Rules 12b-20, 13a-1, and 13a-13 thereunder 60/ in the filing ofthe Fund's quarterly and annual reports at issue here. Exchange Act Section 13(a) and Exchange Act Rules 13a-1 and

13a-13 require issuers to file quarterly and annual reports. The obligation to file these reports includes an obligation that the filings be accurate. 61/ The rules require that the reports comply with Regulation S-X, 62/ which in turn requires that financial statements be prepared in conformity with GAAP. Rule 12b-20 requires an issuer to provide any additional information in the reports necessary in order to make the reports not misleading.

Based on our findings above that the Fund's Form 10-K and Form 10-Q filings contained materially false and misleading information about its Premier holdings, and that the valuations in the financial statements were not in accordance with GAAP, we find that the Fund violated Exchange Act Section 13(a) and Rules 12b-20, 13a-1 and 13a-13. We further find that Calandrella, Powell, and Thygesen willfully aided and abetted these violations based on our findings above with respect to their scienter. 63/ Because we find Calandrella, Thygesen, and Powell aided and abetted the violations, they were necessarily a cause of the violations. 64/

VI.

The final violation, charged against Calandrella, involves the Fund's purchase of 85,000 Premier shares from Stanz, the former chief operating officer of Premier. The law judge found that Calandrella willfully violated Investment Company Act Section 57(k)(1) by accepting compensation for the Fund's purchase of Premier securities and that Calandrella violated Exchange Act Section 10(b) and Rule 10b-5 thereunder by failing to disclose this compensation to the Fund's independent directors. On behalf of the Fund, he entered into an agreement to pay Stanz $85,000 for 85,000 Premier shares in return for Stanz's agreement to forgo a potential legal claim against Calandrella and Premier, without disclosing the facts to the independent members of the Fund's Board or any other independent representative of the Fund.

Stanz had several grievances against Calandrella. Stanz objected to Calandrella's having made Greenberg chief executive officer of Premier. Stanz did not think Greenberg was performing competently. In addition, Stanz claimed that Calandrella, at the time of the Impostors acquisition, had misrepresented the condition of Silver State Casinos, Premier's precursor, by failing to disclose information about the company's liabilities which prevented Premier from acquiring a Nasdaq listing.

As a result of these disputes, Stanz requested, among other things, that Premier repurchase his 85,000 shares. In an August 1994 letter, Calandrella told Stanz that Premier was unable to repurchase Stanz's outstanding shares at that time, but that "certain members of the 'Rockies' group have an interest in acquiring additional shares of Premier at an agreeable price." On October 4, 1994, Stanz wrote Neuman threatening legal action against Premier and Calandrella. On October 13, 1994, Stanz, the Rockies Fund, Premier, Redwood, and J. Power entered into a settlement agreement that provided, among other things, that the Fund would buy from Stanz 85,000 65/ restricted Premier shares for $85,000, 66/ and that the parties would sign a Mutual General Release (attached tothe October 13 agreement as Exhibit C). 67/ The Mutual General Release, signed by the parties on October 24, 1994, released all of the parties from liability to each other from actions arising out of, among other things, Premier's acquisition of Impostors and Premier's purchase of Mirage. Calandrella signed the settlement agreement and the release on behalf of the Fund. He did not consult Powell or Thygesen regarding the transaction.

Investment Company Act Section 57(k)(1) 68/ makes it unlawful for any person associated with a BDC, other than a broker or underwriter, "to accept from any source any compensation (other than a regular salary or wages from the business development company) for the purchase or sale of any property to or for such business development company." Calandrella used Fund assets to reach a settlement with Stanz concerning Stanz's claims against Calandrella. The release from liability was a form of compensation to Calandrella; it benefitted Calandrella by ensuring that he would not be held liable to Stanz in the event Stanz sued Calandrella. Accordingly, we conclude that Calandrella willfully violated Investment Company Act Section 57(k)(1).

To find that Calandrella violated Exchange Act Section 10(b) and Rule 10b-5, we must find that Calandrella's failure to disclose the existence of his compensation to Thygesen and Powell was material. The essence of the information Calandrella failed to disclose was that he had a conflict of interest in entering into this transaction on behalf of the Fund. The independent members of the Fund's Board stand in the place of the investors in the Fund, and a reasonable investor would want to know that an investment decision was made on behalf of the Fund by someone with a self-interest in such decision. Accordingly, we find that Calandrella's failure to disclose his compensation was material. 69/

Calandrella contends that an agreement to purchase Stanz's shares had been made prior to his dispute with Stanz. He also argues that the purchase was a good investment for the Fund. These arguments are beside the point. The issues are whether Calandrella received compensation for the purchase and whether the Fund's Board was properly informed of the benefit to Calandrella from the Fund's purchase.

In addition, Calandrella contends that the settlement was not a form of compensation, because Calandrella was not truly threatened by litigation -- since Stanz's legal claims were without merit. We disagree. Neither we nor Calandrella can know the outcome of litigation that did not take place. However, by getting Stanz to release him from liability, Calandrella avoided the risk that he might lose any such litigation. The avoidance of that risk had value to Calandrella. 70/

Accordingly, we find that Calandrella received compensation for the Fund's purchase of Stanz's 85,000 shares of Premier in willful violation of Section 57(k)(1) of the Investment Company Act and that he failed to disclose the compensation to the independent members of the Board in willful violation of the antifraud provisions of the Exchange Act.

VII.

Respondents make a variety of evidentiary and procedural arguments. For the reasons set forth below, we conclude that their arguments have no merit.

Evidentiary Issues

Respondents contend that the law judge improperly admitted hearsay evidence proffered by the Division in the form of transcripts of investigative interviews of Nathan Katz, by Commission staff members, and of Ranald Butchard, conducted by staff from the British Columbia Securities Commission. 71/ We have held repeatedly that hearsay is admissible in administrative proceedings and may even constitute the sole basis for findings of fact. 72/ We apply a multi-factor test to evaluate the probative value, reliability and fairness of its use, including: the possible bias of the declarant; the type of hearsay at issue; whether the statements are signed and sworn to; whether the statements are contradicted by direct testimony; whether the declarant was available to testify; and whether the hearsay is corroborated. 73/

The testimony at issue meets a number of these factors, and we therefore find it was properly admitted. Katz's testimony was sworn and Butchard's compelled pursuant to a summons. The hearsay is corroborated by the testimony of Calandrella and J. Power. 74/ In addition, Butchard and Katz, both residing outside of the United States, were unavailable to testify at the hearing.

Respondents argue that they should have been permitted to supplement the record with an affidavit or interview of Butchard "placing in context" the statements he made in his investigative interview. The law judge denied the introduction of such an affidavit, questioning the reliability of recollections about statements Butchard made over two years ago. We find nothing improper in this determination.

Respondents further contend that they were denied the opportunity to depose a former Commission staff member, James Nearen, to determine whether the charges brought against Calandrella were the result of Nearen's personal grudge. To dispute this claim of staff bias, the Division introduced an affidavit of Daniel F. Shea, Regional Director of the Central Regional Office, dated June 30, 1998, declaring that Nearen had no involvement whatsoever in either the examination or subsequent enforcement investigation of this matter. Given this affidavit, we find that any purported biasof Nearen would not be relevant to the issue of the fairness of this proceeding. 75/

Respondents claim that the law judge incorrectly discounted the direct testimony of several witnesses. 76/ Credibility determinations by a law judge are entitled to great weight and can be overcome only where they are inconsistent with the weight of the record evidence. 77/ Here, the law judge's conclusions are supported by the record as a whole. We see no basis to disagree with them.

Estoppel

Respondents argue that, because the Division took an inconsistent position in the related proceeding against the Fund's auditor, Carroll Wallace, the Division is estopped from asserting manipulation charges here. Respondents claim that the Division argued in the Wallace proceeding that Calandrella and J. Power were not cooperating during the time of their alleged manipulation and that, therefore, the Division cannot argue that they in fact cooperated for the purposes of proving manipulation in this proceeding. Respondents point to a four-page portion of the Wallace transcript in which the Division suggests that J. Power and Calandrella, because they were not getting along, did not own a control block of Premier stock. The argument that there was such a contol block was important to Wallace, because, Wallace alleged, it meant that the valuation of the stock could include a "control premium."

In order for a governmental entity to be estopped from arguing a particular position, the position, "(1) . . .must be clearly inconsistent with the earlier position; (2) the facts at issue should be the same in both cases; and (3) the party to be estopped must have convinced the first court to adopt its position." 78/ None of these factors has been established here.

The Division did not argue inconsistent positions or file inconsistent pleadings in these two proceedings. The cited questioning of Calandrella by the Division was solely for the purpose of challenging testimony by Calandrella on direct examination that Calandrella had a control block of Premier. Although many facts at issue here were part of the record in the Wallace matter, manipulation of Premier stock was not at issue, and no evidence concerning manipulation was adduced at the hearing. Moreover, the Commission, in its opinion in Wallace, did not take a position on the issue of control or on whether Calandrella and J. Power were cooperating for the purposes of proving manipulation. Therefore, we find that the Division did not make an argument or take a position that estops it from pursuing manipulation charges in this proceeding.

Respondents argue that the law judge improperly denied their introduction of evidence concerning communications they had with Commission staff members in connection with a Spring 1994 audit of the Fund. Respondents claim these documents show that the staff never raised concerns about the Fund's valuation of its portfolio holdings as part of the examination. Even if the examination staff did not find improprieties in the Fund's valuation procedures, the Commission would not be estopped from instituting proceedings against the Fund and its directors for violations regarding the valuations. We have held that, "'A regulatory authority's failure to take early action neither operates as an estoppel against later action nor cures a violation.'" 79/

VIII.

Respondents argue that the sanctions imposed by the law judge are excessive and unjustified, and more severe than those imposed in similar cases.

We have consistently held that "the appropriate remedial action depends on the facts and circumstances of each particular case, and cannot be precisely determined by comparison with action taken inother cases." 80/ Instead, in order to determine appropriate sanctions, we consider factors such as: the egregiousness of the violations, the isolated or recurrent nature of the violations, the degree of scienter involved, the sincerity of respondents' assurances against future violations, respondents' recognition of the wrongful nature of their conduct, and respondents' opportunity to commit future violations. In determining whether to issue cease-and-desist orders, we also consider whether the violation is recent, the degree of harm to investors or the marketplace resulting from the violation, and the remedial function to be served by the cease-and-desist order in the context of any other sanctions being sought in the same proceedings. 81/

Respondents' conduct in this case was egregious. The Rockies Respondents engaged in serious misconduct when they made material misstatements in periodic reports. Similarly, Calandrella and J. Power engaged in serious misconduct when they manipulated the price of Premier. Respondents have not made assurances against future violations. Moreover, Respondents' occupations present opportunities for future violations.

We reject Respondents' contention that their reliance on the opinions of the Fund's independent auditor and legal counsel should mitigate the sanctions imposed against them. We see no reason that the auditor's review of the Fund's reports should mitigate our view of Respondents' culpability. Given the recklessness with which the relevant Forms 10-Q and 10-K were prepared by Respondents, they can take no comfort now that the Fund's auditor failed to spot their mistakes. As for the Fund's reliance on counsel, Respondents proffered no evidence that they asked for any advice or received a legal opinion about the propriety of particular actions. 82/ Accordingly we find that it is in the public interest to bar Calandrella from associating with or acting as an affiliated person of an investment company and to bar Thygesen and Powell fromassociating with or acting as an affiliated person of an investment company, with the right to reapply in three years. We further find it is in the public interest to order that all of Respondents cease-and desist from committing or causing violations of the statutes they were found to have violated or to have aided and abetted.

We further believe that the public interest warrants a substantial civil money penalty against Calandrella, Thygesen, and Powell. 83/ Respondents argue that the amount of the civil penalty is excessive and that the violations do not warrant third-tier penalties. Investment Company Act Section 9(d) 84/ authorizes the Commission to impose a civil money penalty when such penalty is in the public interest. Once a public interest determination is made, Section 9(d)(2) 85/ establishes a three-tier system for assessing the amount of the penalty to be imposed. The first tier provides for a maximum of $5,000 for each act or omission. The second tier provides for a maximum of $50,000 for each act or omission if the conduct involved fraud, deceit, manipulation, or deliberate or reckless disregard of a regulatory requirement. The third tier provides for a maximum of $100,000 for each act or omission if the conduct (a) involved fraud, deceit, manipulation, or deliberate or reckless disregard of a regulatory requirement and (b) resulted in, or created a significant risk of, substantial loss to others or resulted in substantial pecuniary gain to the person who committed the act or omission.

As set forth in this opinion, we find that Calandrella, Thygesen, and Powell's conduct involved fraud, deceit, manipulation, and a deliberate or reckless disregard of the antifraud provisions of the securities laws, and the conduct created a significant risk of loss to others. The law judge imposed a civil penalty of $500,000 on Calandrella ($50,000 for each misstated filing and $100,000 for manipulation) and a penalty of $160,000 each on Thygesen and Powell ($20,000 for each misstated filing). We agree with the law judge's determination to impose third tier penalties for the violations in which each Respondent was involved.

An appropriate order will issue. 86/

By the Commission (Chairman DONALDSON and Commissioner GLASSMAN and ATKINS); Commissioners GOLDSCMID and CAMPOS, not participating.

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.

SECURITIES EXCHANGE ACT OF 1934
Rel. No. 48590 / October 2, 2003

INVESTMENT COMPANY ACT OF 1940
Rel. No. 26202 / October 2, 2003

Admin. Proc. File No. 3-9615

In the Matter of THE ROCKIES FUND, INC., STEPHEN G. CALANDRELLA, CHARLES M. POWELL, CLIFFORD C. THYGESEN, and JOHN C. POWER and TERESSA L. CAWLEY

ORDER IMPOSING SANCTIONS

On the basis of the Commission's opinion issued this day, it is

ORDERED that Stephen G. Calandrella be, and he hereby is, barred from serving or acting as an employee, office, director, member of an advisory board, investment adviser or depositor of, or principal underwriter for, a registered investment company or affiliated person of such investment adviser, depositor, or principal underwriter; and it is further

ORDERED that Charles M. Powell and Clifford C. Thygesen are barred from serving or acting as an employee, officer, director, member of an advisory board, investment adviser or depositor of, or principal underwriter for, a registered investment company or affiliated person of such investment adviser, depositor, or principal underwriter, subject to a right to reapply after three years; and it is further

ORDERED that The Rockies Fund, Inc. cease and desist from committing or being a cause of any violations or future violations of Sections 10(b) and 13(a) of the Securities Exchange Act of 1934 and Rules 10b-5, 12b-20, 13a-1, and 13a-13; and it is further

ORDERED that Stephen G. Calandrella cease and desist from committing or being a cause of any violations or future violations of Section 10(b) of the Exchange Act and Rule 10b-5, and of Section 57(k)(1) of the Investment Company Act of 1940; and from being a cause of any violations or future violations of Section 13(a) of the Exchange Act and Rules 12b-20, 13a-1, and 13a-13; and it is further

ORDERED that Charles M. Powell and Clifford C. Thygesen cease and desist from committing or being a cause of any violations orfuture violations of Section 10(b) of the Exchange Act and Rule 10b-5; and from being a cause of any violations or future violations of Section 13(a) of the Exchange Act and Rules 12b-20, 13a-1, and 13a-13; and it is further

ORDERED that John C. Power shall cease and desist from committing or being a cause of any violations or future violations of Section 10(b) of the Exchange Act and Rule 10b-5; and it is further

ORDERED that Stephen G. Calandrella is assessed a civil money penalty of $500,000; and it is further

ORDERED that Charles M. Powell and Clifford C. Thygesen each are assessed a civil penalty of $160,000.

Respondents payments of civil money penalties shall be: (i) made by United States postal money order, certified check, bank cashier's check, or bank money order; (ii) made payable to the Securities and Exchange Commission; (iii) mailed or delivered by hand to the Office of Financial Management, Securities and Exchange Commission, 6432 General Green Way, Alexandria, VA 22312 within thirty days of the date of this order; and (iv) submitted under cover letter which identifies Respondents in this proceeding, and the file number of this proceeding. A copy of this cover letter and check shall be sent to Robert M. Fusfeld, Counsel for the Division of Enforcement, Securities and Exchange Commission, Central Regional Office, 1801 California Street, Suite 4800, Denver, Colorado 80202-2648.

By the Commission.

Endnotes

1 / 15 U.S.C. § 78j(b).

2 / 17 C.F.R. § 240.10b-5.

3 / 15 U.S.C. § 78m(a).

4 / 17 C.F.R. §§ 240.12b-20, 240.13a-1, and 240.13a-3.

5 / 17 C.F.R. § 210.

6 / 15 U.S.C. § 80a-56(k)(1).

7 / 15 U.S.C. § 80a-2(a)(48). The Rockies Fund withdrew this election in December 1999.

8 / When the discussions concerning the acquisition of Impostors began, Premier was named Silver State Casinos, Inc. The company changed its name to Premier Concepts, Inc. on February 21, 1994.

Silver State Casinos, Inc. had operated real estate and gaming businesses. Before acquiring Impostors, the company abandoned these activities. Thus, after March 1994, Premier was involved solely in the retail jewelry business.

9 / The record indicates that Premier sought information about acquiring a listing on The Nasdaq SmallCap Market in late 1993. At that time, the Nasdaq SmallCap Market required total stockholder equity of $2 million. Premier finally met the requirements to obtain a listing on Nasdaq in April 1997.

10 / The trades occurred as follows:

Date	Customer	Acct At	Buy/Sell	# of Shares	Price
6/10	R. Butchard	McDermid	S	50,000	1.100
6/15	N. Katz	Hanifen	B	25,000	1.125
6/15	Power Curve	McDermid	B	25,000	1.125
6/17	R. Butchard	McDermid	S	25,000	1.000
6/17	Huebner	Hanifen	B	8,000	1.000
6/17	Brian Power	Hanifen	B	7,000	1.03125
6/17	Neon Rainbow	McDermid	B	10,000	1.03125
6/21	R. Butchard	McDermid	S	50,000	1.000
6/22	Barr	McDermid	B	1,000	1.010
6/22	K. Phillips	McDermid	B	19,000	1.010
6/22	B. Butchard	McDermid	B	30,000	1.010
6/29	B. Butchard	McDermid	S	20,000	1.250
6/29	K. Phillips	McDermid	S	17,000	1.250
6/29	Gecko Holdings	McDermid	B	35,000	1.250
6/29	J. Crone	McDermid	B	1,000	1.250
6/29	M. Butchard	McDermid	B	1,000	1.250
6/23	B. Butchard	McDermid	S	25,000	1.040
6/23	Redwood	Hanifen	B	25,000	1.050
6/28	R. Butchard	McDermid	S	10,000	1.250
6/30	N. Katz	Hanifen	B	10,000	1.250
8/9	R. Butchard	McDermid	S	10,000	1.500
8/19	N. Katz	Hanifen	B	10,500	1.53125
8/23	R. Butchard	McDermid	S	10,000	1.750
8/30	A. Nacht	Cohig	B	10,000	1.78125

There is no evidence, and the Division does not argue, that the June 17 trade of Richard Huebner, a compliance officer at Hanifen, was part of the manipulative scheme.

11 / The record does not make clear if the orders were actually placed as limit orders.

12 / The trades occurred as follows:

Date	Customer	Acct At	Buy/ Sell	Buyer/ Seller	# of Shares	Price
7/6	B. Power	Hanifen	S	Hanifen	5,000	1.4375
7/8	Power Curve	McDermid	S	Hanifen	14,000	1.5000
7/8	J. Power	Hanifen	B	Hanifen	19,000	1.5150
7/25	J. Power	Hanifen	S	McDermid	17,000	1.5000
7/25	Power Curve	McDermid	B	McDermid	17,000	1.5000
8/17	Power Curve	McDermid	S	Hanifen	14,000	1.7500
8/17	B. Power	Hanifen	B	Hanifen	14,000	1.7500
8/25	B. Power	Hanifen	S	McDermid	14,500	1.7500
8/25	J. Power	McDermid	B	McDermid	14,500	1.7500
9/19	B. Power	Hanifen	S	Hanifen	1,500	1.87500
9/19	Power Curve	McDermid	B	Hanifen	1,500	2.00000
10/21	J. Power	McDermid	S	Hanifen	4,250	2.50000
10/21	J. Power IRA	YDSA	B	Hanifen	2,500	2.56250
10/21	A. Power	Hanifen	B	Hanifen	1,750	2.50000

13 / See Swartwood, Hesse, Inc., 50 S.E.C. 1301, 1307 n. 14 (1992) (and cases cited therein). Specifically, the manipulative conduct proscribed by Section 9 of the Exchange Act, 15 U.S.C. § 78i, pertaining to securities registered on a national securities exchange, is deemed to be prohibited by Section 10 and Rule 10b-5 thereunder. Id.

14 / Edward J. Mawod & Co., 46 S.E.C. 865, 869 (1977), aff'd 591 F.2d 588 (10th Cir. 1979) (defining matched order as "one placed with the knowledge that an offsetting order on the other side has already been or is about to be placed"). See also Exchange Act Section 9 (describing a matched order as the entering of an order for the purchase of a security with the knowledge that an order of substantially the same size, at substantially the same time, and at substantially the same price, for the purchase of such security, has been or will be entered by or for the same or different parties).

15 / Ernst & Ernst v. Hochfelder, 425 U.S. 185, 205 n. 25 (1976) (defining wash sales as "transactions involving no change in beneficial ownership"). Similarly, Exchange Act Section 9 prohibits, for the purpose of creating a false or misleading appearance of active trading in a security or of the market for a security, any person from effecting a transaction in such a security which involves no change in the beneficial ownership thereof.

16 / Exchange Act Section 9(a)(1).

17 / See United States v. Charnay, 537 F.2d 341, 350 (9th Cir. 1976). J. Power's contention that the Division must prove a manipulative purpose to increase the price of Premier to find a violation under Section 10(b) and Rule 10b-5 is incorrect.

Junius Peake, Respondents' expert witness, asserted that market manipulation is evidenced when: (1) one or more insiders promote the sale of their own securities to public investors at overvalued prices or when insiders sell their securities at higher prices unrelated to those obtained in the open market; and (2) such promotion is accompanied by written or oral communications. Because these factors were not present here, Peake concluded that no manipulation occurred.

There is nothing in the relevant case law to support Peake's narrow definition of manipulation. In fact, on cross examination, Peake stated that he was not a lawyer and was not "responding to the legal definition of insider trading." He demonstrated a lack of familiarity with several landmark Commission cases addressing manipulation and disagreed with the statutory definition of wash sales in Exchange Act Section 9. He offered no facts to substantiate his conclusions. As a whole, his testimony was unpersuasive.

18 / Mawod, 46 S.E.C. at 871 ("The evil sought to be remedied is not victimization but deception. When investors and prospective investors see activity, they are entitled to assume that it is real activity.").

19 / Hochfelder, 425 U.S. at 193 n.12.

20 / SEC. v. U.S. Envtl., Inc., 155 F.3d 107 (2d Cir. 1998) (finding allegation of reckless participation in a market manipulation sufficient to state a claim of violation of 10(b)).

21 / Sunstrand Corp. v. Sun Chemical Corp., 553 F.2d 1033, 1045 (7th Cir. 1977) (quoting Franke v. Midwestern Okla. Dev. Auth., 428 F. Supp. 719, 725 (W.D. Okl. 1976)). SEC v. Ogle, 2000 WL 45260, at *7 (N.D.Ill. 2000) cited by Respondents for the proposition that "[r]ecklessness is not sufficient to state a market manipulation claim; unintentional false representations are not actionable," is inconsistent with this longstanding Seventh Circuit precedent.

22 / Peake conceded that the trades at issue here were matched orders although he used the term "crossed order," but did not concede that they were part of a manipulative scheme. We agree with his factual analysis, but disagree with the legal conclusion based on these facts.

23 /Pagel, Inc., 48 S.E.C. 223, 226 (1985), aff'd 803 F.2d 942 (8th Cir. 1986).

24 / Castle Sec. Corp., 53 S.E.C. 406, 410 (1998); Dlugash v. SEC, 373 F.2d 107, 109 (2d Cir. 1967) (finding that "rapidly rising prices in absence of any demand are well-known symptoms of" manipulation).

Cf. Swartwood,50 S.E.C. at 1307 (finding manipulation even though hallmarks of a classic manipulation were absent).

25 / Butchard claims that he sold the stock to his customer accounts at McDermid through Hanifen because Neuman, Premier's counsel, had advised him that he had to sell the shares in a market sale to eliminate the restriction. Neuman was not questioned on this point.

26 / See supra note 17.

27 / 17 C.F.R. § 240.10b-5.

28 / See Basic Inc. v. Levinson, 485 U.S. 224, 231 (1988) (citing TSC Indus., Inc. v. Northway, Inc., 426 U.S. 438, 449 (1976)).

29 / See discussion of requisite mental state, supra notes 19-21 and accompanying text.

30 / The Fund's Form 10-Q for the period ending September 30, 1995 correctly classified the Fund's Premier holdings as restricted in the Schedule of Investments portion of the Form 10-Q, but in another section of the Form, the Notes to the Financial Statements, the Rockies Respondents continued to describe the Premier shares as unrestricted. The Form 10-K for the year ended December 31, 1995 finally classified the Premier shares correctly as restricted throughout the Form.

31 / See Financial Accounting Standards Board Concept Doc. No. 2 ¶ 128(c) (1980).

32 / Respondents contend that the misclassification of the Premier shares was not material since the market price of Premier reported in the Fund's Forms 10-Q and 10-K incorporated an "illiquidity discount." We discuss the impact of the misclassification on valuation infra. Respondents ignore the impact on the financial statements of falsely informing investors that shares are freely tradeable.

33 / The Premier holdings at issue constituted between 10 and 40% of the Fund's portfolio for each periodic report.

34 / See Restricted Securities, Accounting Series Rel. No. 113, at 4 (Oct. 21, 1969) ("ASR-113").

35 / Demand registration rights typically obligate an issuer to file a registration statement with the Commission and to use its best efforts to have the statement declared effective. See Kers & Co. v. ATC Communications Group, Inc., 9 F. Supp. 2d 1267, 1269 (D. Kan. 1998).

36 / We note that the Forms 10-Q and 10-K that were filed after the misclassification error was corrected describe the reported value of Premier securities as the "quoted market price." We believe this reflects continued indifference to the distinction between restricted and unrestricted securities.

37 / This language is drawn from the statutory definition of value in Investment Company Act Section 2(a)(41), 15 U.S.C. § 80a-2(a)(41).

38 / This language is drawn from Accounting for Investment Securities by Registered Investment Companies, Accounting Series Rel. No. 118 ("ASR-118"). The AICPA Audit and Accounting Guide: Audits of Investment Companies, (hereinafter"AAG"), is the source for GAAP regarding investment companies. The AAG references ASR-113 and ASR-118 as GAAP for valuation of securities for which market quotations are not readily available. AAG § 2.33.

39 / The prospectus did not specify whether the bid to be used consists of a high, low, mean, closing, or some other possible bid price for the security to be valued. However, a Valuation Policy adopted by the Board clarified that the lowest bid price should be used.

40 / This language is also consistent with ASR-113, which notes that the restriction on sale in the public market makes restricted securities less valuable than their unrestricted counterparts and also that the price of unrestricted securities reflects the cost to the issuer of registration. ASR-113 concludes that "[c]onsequently, the valuation of restricted securities at the market quotations for unrestricted securities of the same class would, except for the most unusual situations, be improper."

41 / All of the reports provided value based on the last trading day of the reporting period.

	Low Bid	High Bid	Reported Value	Ask
6/30/94	1.250	1.375	1.500	1.750
9/30/94	1.875		1.875	2.375
12/30/94	2.000	2.250	2.250	2.750
3/31/95	1.000		1.500	2.000
6/30/95	1.000		1.500	2.000
9/29/95	.250	.750	.875	1.250
12/29/95	.250	.375	.630	1.625

42 / ASR-118 provides that, in determining market price, an issuer can elect to use either the bid, or some calculation between the bid and the ask, as long as the methodology is consistent.

43 / This trend continued throughout 1995, as well.

44 / The only contemporaneous evidence in the record regarding the Fund's valuation of portfolio securities are the Rockies Fund Board's Consent Resolutions in which the Board "ratified, adopted and approved" the portfolio valuations, provided by Calandrella, to be included in the quarterly and annual filings. The Consent Resolutions contained an "Exhibit A" which listed each portfolio security and provided one or two sentences stating the security's value, often explaining the value as the "quoted market price." The Consent Resolutions did not reference the valuation policies. Moreover, neither the Consent Resolutions nor the Board Minutes reveal any discussions the independent directors may have had with Calandrella regarding the valuations he presented. The law judge credited the testimony of a Commission examiner who said that during a March 1994 examination Calandrella stated that the Board generally approved the valuations he submitted to them with very little discussion.

45 / This conclusion holds true even after the misclassification of Premier as unrestricted was corrected, and the term "quoted market price" was not used in the Forms 10-Q and 10-K, since the only record evidence suggests that there was no change in valuation methodology at this point.

46 / ASR-113 states that "extraordinary circumstances" may provide an exception to this requirement. Respondents argue that Premier's thinly traded market constituted such an extraordinary circumstance. We disagree. Many companies have thinly traded markets, especially in the over-the-counter market.

47 / ASR-118 at 5.

48 / Robert F. Lynch, 46 S.E.C. 5 (1975) (finding the valuation of restricted securities at the price of free trading securities to be fraudulent). Moreover, even the market price for Premier was artificially inflated for much of the period at issue due to Calandrella's manipulative conduct. Thygessen and Powell, who were not charged with liability for the manipulation, bear no responsibility for the extent to which Premier was overvalued due to that scheme. As discussed in the text, however, Premier was substantially overvalued even assuming the market prices were valid.

49 / Graham v. SEC, 222 F.3d 994, 1001 n.15 (D.C. Cir. 2000); Schellenbach v. SEC, 989 F.2d 907, 913 (7th Cir. 1993); SEC v. Blavin, 760 F.2d 706, 711 (6th Cir. 1985).

50 / We note, furthermore, that Calandrella knew that the market price for Premier that he submitted to his fellow Board members was an artificial price because of the manipulative scheme engaged in by Calandrella and J. Power.

51 / We recently disciplined Wallace pursuant to our Rule of Practice 102(e), 17 C.F.R. § 201.102(e), finding that he recklessly violated Generally Accepted Auditing Standards in his 1994 and 1995 audits of the Fund. Carroll A. Wallace, Exchange Act Rel. No. 48372 (Aug. 20, 2003), __ SEC Docket ___.

52 / Because we do not find the testimony of Wallace and Hein to be particularly useful, we need not address the Rockies Respondents' contention that the law judge improperly discounted Hein's testimony because he has a disciplinary history and because he was associated with Premier as its auditor.

53 / Whether ownership of other blocks of Premier shares was reported properly was at issue in the initial proceeding. The law judge's conclusions about the ownership of these otherblocks are no longer contested.

54 / Although J. Power's signature on behalf of Redwood is dated November 11, 1995, the printed date on the first page of the agreement is September 30, 1995.

55 / Although this was the price the Fund paid for its shares, the Fund's reported value of its Premier shares for the third quarter of 1995 was $0.875. Thus, the effect of the purchase was to transform a $50,000 cash asset (the total purchase price of the 200,000 shares) to a $175,000 securities asset (the total reported value of those shares).

56 / ASR-118 provides further guidance for unrestricted securities purchased or sold other than through a broker-dealer, stating that the date an investment company obtains an enforceable right to demand securities is "difficult to determine" and suggesting that, in instances where a question may arise about the propriety of an ownership claim, an investment companyshould obtain a legal opinion to be made available to the company's independent accountant. The Rockies Fund did not secure such an opinion.

57 / Colo. Rev. Stat. § 4-8-319, repealed by Laws 1996, S.B. 96-132 § 2, effective July 1, 1996.

58 / Thus, arguably, an oral agreement meeting the requirements of then-existing Colo. Rev. Stat. § 4-8-319 would fall within the narrow exception contemplated by ASR-113 for oral agreements to purchase securities sanctioned under state law. On appeal, the Fund and Calandrella argue that the law judge erred by ignoring the testimony of J. Power and Neuman that an oral agreement existed. The law judge did, in fact, find that no oral agreement existed on the grounds that the only evidence to support it was Calandrella's "self-serving" testimony.

59 / 15 U.S.C. § 78m(a).

60 / 17 C.F.R. §§ 240.12b-20, 240.13a-1, and 240.13a-3.

61 / See SEC v. IMC Int'l Inc., 384 F. Supp. 889, 893 (N.D. Tex. 1974), aff'd, 505 F.2d 733 (5th Cir. 1974) (Table, No. 74-1170).

62 / 17 C.F.R. § 210.

63 / Liability for aiding and abetting a violation requires that a principal committed a primary violation, that the aider and abettor provided substantial assistance to the primary violator, and that the aider and abettor rendered such assistance knowingly or recklessly. See Graham v. SEC, 222 F.3d 994, 1000 (D.C. 2000). Thygesen and Powell were not charged with aiding and abetting the misstatements concerning the ownership of the 200,000 shares of Premier in the September 30, 1995 Form 10-Q; our finding that they aided and abetted Premier's violations does not encompass that particular misstatement.

64 / Sharon M. Graham, 53 S.E.C. 1072, 1085 n.35 (1998), aff'd, 222 F.3d 994 (D.C. Cir. 2000).

65 / Stanz's 85,000 shares were derived from: (1) half of the 35,000 (17,500) shares Mirage had acquired in the 1994 Private Placement (which Stanz received as half owner of Mirage); and (2) half of the 135,000 (67,500) shares Premier had agreed to pay Mirage to acquire Mirage. Because Premier ultimately paid only 100,000 Premier shares to acquire Mirage, Stanz had merely 50,000 shares to sell. Power Curve and Calandrella gave a total of 17,500 shares to the Fund to make up the difference.

66 / The Fund made payment for the shares by checks dated October 4, 1994, and December 19, 1994.

67 / The settlement agreement was signed by Calandrella, for the Rockies Fund and for himself individually, by Greenberg, for Premier, by J. Power, for Redwood and for himself individually, and by Stanz, for himself.

68 / 15 U.S.C. § 80a-56(k)(1).

69 / Cf. Goldberg v. Meridor, 567 F.2d 209, 219 (2d Cir. 1977) (finding that the complaint sufficiently stated a Section 10(b) claim where a member of management did not disclose a conflict of interest in a corporate decision); Monetta Financial Services, Inc., Securities Exchange Act Rel. No. 48001 (June 9, 2003), 80 SEC Docket 1437, 1448, appeal pending, No. 03-3073 (7th Cir.) (explaining that where a conflict of interest exists which could compromise the judgment of an independent director, the conflict initially should be disclosed and approved by theother independent directors).

70 / Calandrella insists that the execution of the release was at the behest of Stanz, who initially requested the release, and Neuman, who recommended releases as a general practice. Calandrella argues that Neuman's knowledge of the agreement, and Neuman's obligation to "look out for the Fund's interests" satisfied the need for independent review of the transaction. Section 57(k)(1) prohibits the receipt of compensation regardless of whether counsel or anyone else independently reviewed the transaction for which compensation was received. For purposes of the Rule 10b-5 violation, the issue is disclosure to the Fund's independent board members. Nothing in the record suggests that Calandrella had a basis for believing that Neuman, or anyone else, told Thygesen and Powell about the litigation release Calandrella received in exchange for the Fund's purchase of the shares.

71 / This interview was conducted pursuant to a Memorandum of Understanding between the Commission and the British Columbia Securities Commission.

72 / Harry Gliksman, Exchange Act Rel. No. 41628 (Dec. 20, 1999), 71 SEC Docket 892, 901, aff'd, 24 Fed. Appx. 702 (9th Cir. 2001).

73 / Charles D. Tom, 50 S.E.C. 1142, 1145 (1992).

74 / Respondents argue that Katz's transcript is not reliable because of the animus which existed between Calandrella and Katz. Calandrella, however, corroborated all of the significant relevant statements made by Katz.

75 / We also reject Respondents' contention that they were wrongly denied the introduction of evidence regarding how other BDCs value their portolio holdings. The practice of other BDCs is not helpful in addressing the issue of the accuracy of Respondents' valuations. See Newton v. Merrill, Lynch, Pierce, Fenner & Smith, Inc., 135 F.3d 266, 274 (3d Cir. 1998) (finding that universal industry practices may be fraudulent).

76 / Respondents also complain that the law judge did not weigh the evidence in the record correctly, that she placed too much importance on the deposition transcripts of Katz and Butchard, and that she did not adequately articulate how she evaluated all of this evidence to arrive at her legal conclusions. We conduct a de novo review of the record and make our own findings of fact. Keith Springer, Exchange Act Rel. No. 45944 (May 16, 2002), 77 SEC Docket 2087, 2089 n.4; Kenneth C. Krull, 53 S.E.C. 1101, 1109 (1998), aff'd, 248 F.3d 907 (9th Cir. 2001).

77 / Keith Springer, Exchange Act Rel. No. 45439 (Feb. 13, 2002), 76 SEC Docket 2726, 2734-35.

78 / United States v. Hook, 195 F.3d 299, 306 (7th Cir. 1999), citation omitted.

79 / William H. Gerhauser, Sr., 53 S.E.C. 933, 940 (1998) (quoting Variable Inv. Corp., 46 S.E.C. 1352, 1354 n. 6 (1978)).

80 / Patricia H. Smith, 52 S.E.C. 346, 348 (1995). See also Butz v. Glover Livestock Comm'n Co., 411 U.S. 182, 187 (1973).

81 / KPMG Peat Marwick LLP, Exchange Act Rel. No. 43862 (Jan. 19, 2001), 74 SEC Docket 384, 436, reh'g denied, Exchange Act Rel. No. 44050 (Mar. 8, 2001), 74 SEC Docket 1351, petition denied, 289 F.3d 109 (D.C. Cir. 2002).

82 / A valid defense of reliance on counsel must be predicated on a showing of the four elements: (i) a request for advice on the legality of a proposed action; (ii) full disclosure of the relevant facts; (iii) receipt of advice that the action to be taken will be legal, and (iv) reliance in good faith on counsel's advice. SEC v. Savoy Indus., Inc., 665 F.2d 1310, 1314 n. 28 (D.C. Cir. 1981). Respondents failed to prove any of these elements.

83 / The Division did not seek a civil money penalty against the Fund.

84 / 15 U.S.C. § 80a-9(d).

85 / 15 U.S.C. § 80a-9(d)(2).

86 / We have considered all of the parties' contentions. We have rejected or sustained them to the extent that they are inconsistent or in accord with the views expressed in this opinion.

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