UNITED STATES OF AMERICA Before the SECURITIES AND EXCHANGE COMMISSION SECURITIES EXCHANGE ACT OF 1934 Release No. 39102 / September 22, 1997 INVESTMENT ADVISERS ACT OF 1940 Release No. 1668 / September 22, 1997 ADMINISTRATIVE PROCEEDINGS File No. 3-9422 : In the Matter of : ORDER INSTITUTING : PUBLIC PROCEEDINGS, GARY L. HAMBY : MAKING FINDINGS AND and : IMPOSING REMEDIAL GARY B. ROSS : SANCTIONS : : I. The Securities and Exchange Commission ("Commission") deems it appropriate and in the public interest that public proceedings be instituted (a) pursuant to Section 203(f) of the Investment Advisers Act of 1940 ("Advisers Act") against Respondent Gary L. Hamby ("Hamby") and (b) pursuant to Section 203(f) of the Advisers Act and Section 15(b) of the Securities Exchange Act of 1934 ("Exchange Act") against Respondent Gary B. Ross ("Ross"). In anticipation of the institution of these proceedings, Hamby has submitted an Offer of Settlement ("Hamby Offer") which the Commission has determined to accept. Solely for the purpose of these proceedings and any other proceedings brought by or on behalf of the Commission or in which the Commission is a party, and without admitting or denying the findings contained in this Order, except as to jurisdiction and the facts set forth in Paragraphs II(A)(1) and II(A)(2) below, which he admits, Hamby consents to the entry of this Order and the imposition of sanctions as set forth below. In anticipation of the institution of these proceedings, Ross has submitted an Offer of Settlement ("Ross Offer") which the Commission has determined to accept. Solely for the purpose of these proceedings and any other proceedings brought by or on behalf of the Commission or in which the Commission is a party, and without admitting or denying the findings contained in this Order, except as to jurisdiction and the facts set forth in Paragraphs II.B.1. and II.B.2. below, which he admits, Ross consents to the entry of this Order and the imposition of sanctions as set forth below. ======END OF PAGE 1====== ACCORDINGLY, IT IS ORDERED THAT proceedings pursuant to Section 203(f) of the Advisers Act and Section 15(b) of the Exchange Act be, and hereby are, instituted. II. A. On the basis of this Order and the Offer submitted by Hamby, the Commission finds that<(1)>: 1. From April 1990 through March 1992, Hamby was president and an associated person of International Market Strategies, Inc. ("IMS I"), an investment adviser. From March 1992 through August 1996, Hamby was president and an associated person of International Market Strategies II, Inc. ("IMS II"), a registered investment adviser. 2. On September 11, 1997, Hamby was permanently enjoined by consent in the United States District Court for the Eastern District of Missouri from violating Section 17(a) of the Securities Act of 1933 ("Securities Act"), Section 10(b) of the Securities Exchange Act of 1934 ("Exchange Act"), Rule 10b-5 thereunder, and Section 207 of the Advisers Act and from aiding and abetting violations of Sections 203(a), 204, 205(a)(1), 206(1), 206(2) and 206(4) of the Advisers Act and Rules 204-2(a), 206(4)-1(a)(5) and 206(4)-2 thereunder. (SEC v. Gary L. Hamby, et al., 4:96-CV-1721-SNL). 3. From April 1990 through December 1991, Hamby and others solicited clients for IMS I. Hamby told prospective clients both orally and through written brochures that IMS I was a money management firm that used sophisticated strategies to invest client funds. Hamby also told prospective investors that IMS I used discretionary authority to implement its investment strategy and that that strategy exposed only a small percentage of a client's funds to risk of loss. Although IMS I held itself out to the public as an investment adviser, it did not register with the Commission as an investment adviser. 4. Each IMS I client signed a contract with IMS I that, among other things, specified the percentage of the client's money that IMS I was permitted to place at risk of loss and specified that IMS I was entitled to monthly performance fees for managing the account equal to a percentage of the profit made in the account during the month. Hamby was aware that several IMS I clients were unsophisticated investors with limited income and net worth, and that the majority did not have accounts of more than $500,000 or a net worth of more than $1 million. 5. From January 1991 through December 1991, Hamby and others solicited clients for an investment partnership that was purportedly a general partnership managed by IMS I (the "IMS Partnership"). Hamby represented to prospective investors that the IMS Partnership would invest <(1)> The findings herein are made pursuant to the Offer of Settlement submitted by Hamby and are not binding on any other persons or entities in this or any other proceeding. ======END OF PAGE 2====== the combined funds of its partners in its own brokerage account and that the partners would share proportionately in the profit or loss experienced by the IMS Partnership account. Hamby also represented that an investment in the IMS Partnership was a secure investment with little risk. Hamby and others raised at least $430,000 for the IMS Partnership. 6. In fact, the IMS Partnership never had its own brokerage account. Instead, Hamby and others commingled the IMS Partnership funds with funds belonging to IMS I, thereby failing to segregate, mark to identify and hold in safekeeping funds and securities over which they had custody. Hamby and others then invested only a portion of the IMS Partnership funds in risky investments and spent the remainder on various business and personal expenses. To conceal what had been done with the IMS Partnership funds, from at least June 1991 through at least December 1991, Hamby and others provided partners with account statements that falsely showed that all of their partnership funds had been invested and that their investment was making a profit. 7. Contrary to what Hamby represented to IMS I clients, the investment strategy employed by IMS I exposed significant amounts of the clients' funds to risk of loss, vastly exceeding the risk tolerance levels specified in the client contracts. Moreover, IMS I periodically deducted management fees from the IMS I clients' accounts which frequently exceeded the monthly fee percentage set out in the IMS I clients' contracts. By December 1991, all IMS I clients had sustained significant losses in their accounts, with most losing between 75% and 100% of their investment. Hamby and others took steps to prevent these clients from learning of the losses by, among other things, failing to provide clients with timely and accurate account statements. In about January 1992, Hamby and others informed certain clients of the losses and agreed to repay those clients with funds expected to be earned from the operation their new business, IMS II. 8. IMS II registered with the Commission as an investment adviser in March 1992 by filing a Form ADV. Hamby signed the Form ADV on behalf of IMS II. The Form ADV contained several material misrepresentations and omissions concerning Hamby's and other officers' background and experience. Among the misleading statements and omissions in the Form ADV were the following: (a) failure to note that IMS I had existed and that the three officers of IMS II had worked at and managed IMS I; (b) falsely stating that IMS II's three officers had not failed in business; and (c) falsely stating that one of the three officers of IMS II had received a bachelor of arts degree. Although IMS II was registered with the Commission as an investment adviser, it failed to make certain required records, including, (a) a journal or journals, including cash receipts and disbursements, records, and other records of original entry forming the basis of entries in any ledger; (b) general and auxiliary ledgers (or other comparable records) reflecting asset, liability, reserve, capital, income and expense accounts; (c) cancelled checks and cash reconciliations of IMS II; and (d) trial balances and financial statements relating to IMS II's business. 9. From April 1992 through January 1994, Hamby and others solicited clients for IMS II. Hamby told prospective clients that the investment ======END OF PAGE 3====== strategy to be employed by IMS II had been tested and found to be successful without also disclosing that IMS I had employed the same investment strategy and that it had lost nearly all of its clients' funds. Hamby also published, circulated or distributed advertisements to the public which contained untrue statements of material fact and which were false and misleading in that they, among other things, misrepresented the background and experience of IMS II's officers and the prior success of the investment strategy to be employed by IMS II. 10. From March 1992 through January 1994, Hamby and others sold shares of stock in IMS II through a private placement. Hamby told prospective purchasers of IMS II stock that the proceeds from the sale would be pooled together and the combined funds invested in the securities markets. To induce prospective stock purchasers to buy IMS II shares, Hamby told them, among other things, that the investment strategy employed by IMS II had been validated in prior years and that it had produced meaningful returns on investment without also disclosing that IMS I had employed the same strategy unsuccessfully. Hamby and others raised approximately $175,000 from the sale of IMS II stock. 11. Contrary to the representations made by Hamby, none of the proceeds from the sale of IMS II stock were invested in the securities markets. Instead, the proceeds were spent by Hamby and others on various personal and business expenses, including payments to certain IMS I clients who had lost money. 12. In January 1993, an investor provided Hamby with a check for approximately $13,000 for the purchase of United States Treasury Bills maturing in eighteen months. Hamby represented to the investor that he would purchase and hold the securities for the investor. Contrary to his representations, Hamby purchased those securities in the name of IMS II in an account controlled by IMS II. Hamby then margined the Treasury Bills for approximately $13,000, deposited that amount into the IMS II checking account and spent the funds. Approximately four months later, to satisfy a margin call, Hamby sold the Treasury Bills on the open market. To conceal what he had done with the investor's funds, Hamby told the investor that, when the Treasury Bills became due in June 1994, the proceeds were used to purchase new eighteen month Treasury Bills. 13. As a result of the above activity, Hamby willfully violated Sections 17(a)(1), 17(a)(2) and 17(a)(3) of the Securities Act in that Hamby, in the offer or sale of securities, by the use of the means or instruments of transportation or communication in interstate commerce or by the use of the mails, directly or indirectly: employed devices, schemes or artifices to defraud; obtained money or property by means of untrue statements of material facts or omitted to state material facts necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading; or engaged in transactions, practices or courses of business which operated as a fraud or deceit upon purchasers or prospective purchasers. As a part of such conduct, Hamby made misrepresentations and omissions concerning, among other things, (a) the risks of the investment strategy employed by IMS I and the amount of ======END OF PAGE 4====== management fees taken by IMS I; (b) the value of the IMS I clients' accounts; (c) the separate brokerage account for the IMS Partnership, the uses to which funds invested in the IMS Partnership would be put and the performance of funds invested in the IMS Partnership; (d) the prior testing and success of the investment strategy to be employed by IMS II and the experience and background of IMS II's management; (e) the uses to which the proceeds from the sale of shares of IMS II would be put; and (f) what he would do with the funds provided by the investor for the purchase of United States Treasury Bills. 14. As a result of the above activity, Hamby willfully violated Section 10(b) of the Exchange Act, including Rule 10b-5 promulgated thereunder in that Hamby, in connection with the purchase or sale of securities, by the use of the means or instrumentalities of interstate commerce, or of the mails, directly or indirectly: employed devices, schemes or artifices to defraud; made untrue statements of material facts or omitted to state material facts necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading; or engaged in acts, practices or courses of business which operated as a fraud or deceit in connection with the purchase or sale of securities. As a part of such conduct, Hamby made misrepresentations and omissions concerning, among other things, (a) the risks of the investment strategy employed by IMS I and the amount of management fees taken by IMS I; (b) the value of the IMS I clients' accounts; (c) the separate brokerage account for the IMS Partnership, the uses to which funds invested in the IMS Partnership would be put and the performance of funds invested in the IMS Partnership; (d) the prior testing and success of the investment strategy to be employed by IMS II and the experience and background of IMS II's management; (e) the uses to which the proceeds from the sale of shares of IMS II would be put; and (f) what he would do with the funds provided by the investor for the purchase of United States Treasury Bills. 15. As a result of the above activity, Hamby willfully violated Section 207 of the Advisers Act in that he made untrue statements of material facts in a registration application filed with the Commission under Section 203 of the Advisers Act and willfully omitted to state in such application material facts required to be stated therein. Among the untrue statements of material facts and the omissions of required material facts in the Form ADV were the following: (a) failure to note that IMS I had existed and that the three officers of IMS II had worked at and managed IMS I; (b) falsely stating that IMS II's three officers had not failed in business; and (c) falsely stating that one of the three officers of IMS II had received a bachelor of arts degree. 16. As a result of the above activity, IMS I and IMS II willfully violated, and Hamby willfully aided and abetted violations of, Sections 206(1) and 206(2) of the Advisers Act in that IMS I and IMS II, by the use of the means and instrumentalities of interstate commerce and by use of the mails, directly and indirectly, employed devices, schemes, or artifices to defraud clients and prospective clients and engaged in transactions, practices, and courses of business which operated as a fraud or deceit upon ======END OF PAGE 5====== clients and prospective clients. As a part of such conduct, Hamby made misrepresentations and omissions concerning, among other things, (a) the risks of the investment strategy employed by IMS I and the amount of management fees taken by IMS I; (b) the value of the IMS I clients' accounts; (c) the separate brokerage account for the IMS Partnership, the uses to which funds invested in the IMS Partnership would be put and the performance of funds invested in the IMS Partnership; (d) the prior testing and success of the investment strategy to be employed by IMS II and the experience and background of IMS II's management; (e) the uses to which the proceeds from the sale of shares of IMS II would be put; and (f) what he would do with the funds provided by the investor for the purchase of United States Treasury Bills. 17. As a result of the above activity, IMS I and IMS II willfully violated, and Hamby willfully aided and abetted violations of, Section 206(4) of the Advisers Act and Rules 206(4)-1(a)(5) and 206(4)-2 thereunder in that IMS I and IMS II, by the use of the means and instrumentalities of interstate commerce and by use of the mails, directly and indirectly, engaged in acts, practices or courses of business which were fraudulent, deceptive or manipulative. As a part of such conduct, (a) IMS I and IMS II, directly or indirectly, published, circulated or distributed advertisements which contained untrue statements of material fact and which were false and misleading and (b) IMS I and IMS II, investment advisers who had custody or possession of funds or securities in which clients had beneficial interests, failed to segregate, mark to identify and hold in safekeeping such funds or securities. 18. As a result of the above activity, IMS I willfully violated, and Hamby willfully aided and abetted violations of, Section 203(a) of the Advisers Act in that IMS I, an investment adviser that made use of the mails and the instrumentalities of interstate commerce in connection with its business as an investment adviser, failed to register with the Commission as an investment adviser despite holding itself out to the public, in sales brochures and otherwise, as an investment adviser which charged fees for its advisory services. 19. As a result of the above activity, IMS II willfully violated, and Hamby willfully aided and abetted violations of, Section 204 of the Advisers Act and Rule 204-2(a) thereunder in that IMS II, an investment adviser that made use of the mails and the instrumentalities of interstate commerce in connection with its business as an investment adviser, failed to make such records as the Commission, by rule, has prescribed as necessary and appropriate in the public interest and for the protection of investors, including the following records: (a) a journal or journals, including cash receipts and disbursements, records, and other records of original entry forming the basis of entries in any ledger; (b) general and auxiliary ledgers (or other comparable records) reflecting asset, liability, reserve, capital, income and expense accounts; (c) cancelled checks and cash reconciliations of IMS II; and (d) trial balances and financial statements relating to IMS II's business. ======END OF PAGE 6====== 20. As a result of the above activity, IMS I willfully violated, and Hamby willfully aided and abetted violations of, Section 205(a)(1) of the Advisers Act in that IMS I made use of the mails and the instrumentalities of interstate commerce, directly or indirectly, to enter into, extend and renew investment advisory contracts that provided for compensation to IMS I on the basis of a share of capital gains upon, or capital appreciation of, the funds or any portion of the funds of its clients. B. On the basis of this Order and the Offer submitted by Ross, the Commission finds that<(2)>: 1. From 1986 through February 1993, Ross was a registered representative with several broker-dealers registered with the Commission pursuant to Section 15(b) of the Exchange Act. From April 1990 through September 1990, Ross was a sales agent and an associated person of IMS I, an investment adviser. From September 1990 through March 1992, Ross was vice president of sales and an associated person of IMS I. From March 1992 through August 1994, Ross was vice president of sales and an associated person of IMS II, a registered investment adviser. 2. On September 11, 1997, Ross was permanently enjoined by consent in the United States District Court for the Eastern District of Missouri from violating Section 17(a) of the Securities Act, Section 10(b) of the Exchange Act and Rule 10b-5 thereunder, and from aiding and abetting violations of Sections 203(a), 204, 205(a)(1), 206(1), 206(2), 206(4) and 207 of the Advisers Act and Rules 204-2(a), 206(4)-1(a)(5) and 206(4)-2 thereunder. (SEC v. Gary L. Hamby, et al., 4:96-CV-1721-SNL). 3. From April 1990 through December 1991, Ross and others solicited clients for IMS I. Ross told prospective clients both orally and through written brochures that IMS I was a money management firm that used sophisticated strategies to invest client funds. Ross also told prospective investors that IMS I used discretionary authority to implement its investment strategy and that that strategy exposed only a small percentage of a client's funds to risk of loss. Although IMS I held itself out to the public as an investment adviser, it did not register with the Commission as an investment adviser. 4. Each IMS I client signed a contract with IMS I that, among other things, specified the percentage of the client's money that IMS I was permitted to place at risk of loss and specified that IMS I was entitled to monthly performance fees for managing the account equal to a percentage of the profit made in the account during the month. Ross was aware that several IMS I clients were unsophisticated investors with limited income and net worth, and that the majority did not have accounts of more than $500,000 or a net worth of more than $1 million. <(2)> The findings herein are made pursuant to the Offer of Settlement submitted by Ross and are not binding on any other persons or entities in this or any other proceeding. ======END OF PAGE 7====== 5. From January 1991 through December 1991, Ross and others solicited clients for an investment partnership that was purportedly a general partnership managed by IMS I (the "IMS Partnership"). Ross represented to prospective investors that the IMS Partnership would invest the combined funds of its partners in its own brokerage account and that the partners would share proportionately in the profit or loss experienced by the IMS Partnership account. Ross also represented that an investment in the IMS Partnership was a secure investment with little risk. Ross and others raised at least $430,000 for the IMS Partnership. 6. In fact, the IMS Partnership never had its own brokerage account. Instead, Ross and others commingled the IMS Partnership funds with funds belonging to IMS I, thereby failing to segregate, mark to identify and hold in safekeeping funds and securities over which they had custody. Ross and others then invested only a portion of the IMS Partnership funds in risky investments and spent the remainder on various business and personal expenses. To conceal what had been done with the IMS Partnership funds, from at least June 1991 through at least December 1991, Ross and others provided partners with account statements that falsely showed that all of their partnership funds had been invested and that their investment was making a profit. 7. Contrary to what Ross represented to IMS I clients, the investment strategy employed by IMS I exposed significant amounts of the clients' funds to risk of loss, vastly exceeding the risk tolerance levels specified in the client contracts. Moreover, IMS I periodically deducted management fees from the IMS I clients' accounts which frequently exceeded the monthly fee percentage set out in the IMS I clients' contracts. By December 1991, all IMS I clients had sustained significant losses in their accounts, with most losing between 75% and 100% of their investment. Ross and others took steps to prevent these clients from learning of the losses by, among other things, failing to provide clients with timely and accurate account statements. In about January 1992, Ross and others informed certain clients of the losses and agreed to repay those clients with funds expected to be earned from the operation their new business, IMS II. 8. IMS II registered with the Commission as an investment adviser in March 1992 by filing a Form ADV. The Form ADV contained several material misrepresentations and omissions concerning Ross's and other officers' background and experience. Among the misleading statements and omissions in the Form ADV were the following: (a) failure to note that IMS I had existed and that the three officers of IMS II had worked at and managed IMS I; (b) falsely stating that IMS II's three officers had not failed in business; and (c) falsely stating that one of the three officers of IMS II had received a bachelor of arts degree. Although IMS II was registered with the Commission as an investment adviser, it failed to make certain required records, including, (a) a journal or journals, including cash receipts and disbursements, records, and other records of original entry forming the basis of entries in any ledger; (b) general and auxiliary ledgers (or other comparable records) reflecting asset, liability, reserve, capital, income and expense accounts; (c) cancelled checks and cash ======END OF PAGE 8====== reconciliations of IMS II; and (d) trial balances and financial statements relating to IMS II's business. 9. From April 1992 through January 1994, Ross and others solicited clients for IMS II. Ross told prospective clients that the investment strategy to be employed by IMS II had been tested and found to be successful without also disclosing that IMS I had employed the same investment strategy and that it had lost nearly all of its clients' funds. Ross also published, circulated or distributed advertisements to the public which contained untrue statements of material fact and which were false and misleading in that they, among other things, misrepresented the background and experience of IMS II's officers and the prior success of the investment strategy to be employed by IMS II. 10. From March 1992 through January 1994, Ross and others sold shares of stock in IMS II through a private placement. Ross told prospective purchasers of IMS II stock that the proceeds from the sale would be pooled together and the combined funds invested in the securities markets. To induce prospective stock purchasers to buy IMS II shares, Ross told them, among other things, that the investment strategy employed by IMS II had been validated in prior years and that it had produced meaningful returns on investment without also disclosing that IMS I had employed the same strategy unsuccessfully. Ross and others raised approximately $175,000 from the sale of IMS II stock. 11. Contrary to the representations made by Ross, none of the proceeds from the sale of IMS II stock were invested in the securities markets. Instead, the proceeds were spent by Ross and others on various personal and business expenses, including payments to certain IMS I clients who had lost money. 12. In January 1993, an investor provided Ross with a check for approximately $13,000 for the purchase of United States Treasury Bills maturing in eighteen months. Ross represented to the investor that he would purchase and hold the securities for the investor. Contrary to his representations, Ross purchased those securities in the name of IMS II in an account controlled by IMS II. Ross then margined the Treasury Bills for approximately $13,000, deposited that amount into the IMS II checking account and spent the funds. Approximately four months later, to satisfy a margin call, Ross sold the Treasury Bills on the open market. To conceal what he had done with the investor's funds, Ross told the investor that, when the Treasury Bills became due in June 1994, the proceeds were used to purchase new eighteen month Treasury Bills. 13. As a result of the above activity, Ross willfully violated Sections 17(a)(1), 17(a)(2) and 17(a)(3) of the Securities Act in that Ross, in the offer or sale of securities, by the use of the means or instruments of transportation or communication in interstate commerce or by the use of the mails, directly or indirectly: employed devices, schemes or artifices to defraud; obtained money or property by means of untrue statements of material facts or omitted to state material facts necessary in order to make the statements made, in the light of the circumstances ======END OF PAGE 9====== under which they were made, not misleading; or engaged in transactions, practices or courses of business which operated as a fraud or deceit upon purchasers or prospective purchasers. As a part of such conduct, Ross made misrepresentations and omissions concerning, among other things, (a) the risks of the investment strategy employed by IMS I and the amount of management fees taken by IMS I; (b) the value of the IMS I clients' accounts; (c) the separate brokerage account for the IMS Partnership, the uses to which funds invested in the IMS Partnership would be put and the performance of funds invested in the IMS Partnership; (d) the prior testing and success of the investment strategy to be employed by IMS II and the experience and background of IMS II's management; (e) the uses to which the proceeds from the sale of shares of IMS II would be put; and (f) what he would do with the funds provided by the investor for the purchase of United States Treasury Bills. 14. As a result of the above activity, Ross willfully violated Section 10(b) of the Exchange Act, including Rule 10b-5 promulgated thereunder in that Ross, in connection with the purchase or sale of securities, by the use of the means or instrumentalities of interstate commerce, or of the mails, directly or indirectly: employed devices, schemes or artifices to defraud; made untrue statements of material facts or omitted to state material facts necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading; or engaged in acts, practices or courses of business which operated as a fraud or deceit in connection with the purchase or sale of securities. As a part of such conduct, Ross made misrepresentations and omissions concerning, among other things, (a) the risks of the investment strategy employed by IMS I and the amount of management fees taken by IMS I; (b) the value of the IMS I clients' accounts; (c) the separate brokerage account for the IMS Partnership, the uses to which funds invested in the IMS Partnership would be put and the performance of funds invested in the IMS Partnership; (d) the prior testing and success of the investment strategy to be employed by IMS II and the experience and background of IMS II's management; (e) the uses to which the proceeds from the sale of shares of IMS II would be put; and (f) what he would do with the funds provided by the investor for the purchase of United States Treasury Bills. 15. As a result of the above activity, IMS I and IMS II willfully violated, and Ross willfully aided and abetted violations of, Sections 206(1) and 206(2) of the Advisers Act in that IMS I and IMS II, by the use of the means and instrumentalities of interstate commerce and by use of the mails, directly and indirectly, employed devices, schemes, or artifices to defraud clients and prospective clients and engaged in transactions, practices, and courses of business which operated as a fraud or deceit upon clients and prospective clients. As a part of such conduct, Ross made misrepresentations and omissions concerning, among other things, (a) the risks of the investment strategy employed by IMS I and the amount of management fees taken by IMS I; (b) the value of the IMS I clients' accounts; (c) the separate brokerage account for the IMS Partnership, the uses to which funds invested in the IMS Partnership would be put and the performance of funds invested in the IMS Partnership; (d) the prior testing and success of the investment strategy to be employed by IMS II and the ======END OF PAGE 10====== experience and background of IMS II's management; (e) the uses to which the proceeds from the sale of shares of IMS II would be put; and (f) what he would do with the funds provided by the investor for the purchase of United States Treasury Bills. 16. As a result of the above activity, IMS I and IMS II willfully violated, and Ross willfully aided and abetted violations of, Section 206(4) of the Advisers Act and Rules 206(4)-1(a)(5) and 206(4)-2 thereunder in that IMS I and IMS II, by the use of the means and instrumentalities of interstate commerce and by use of the mails, directly and indirectly, engaged in acts, practices or courses of business which were fraudulent, deceptive or manipulative. As a part of such conduct, (a) IMS I and IMS II, directly or indirectly, published, circulated or distributed advertisements which contained untrue statements of material fact and which were false and misleading and (b) IMS I and IMS II, investment advisers who had custody or possession of funds or securities in which clients had beneficial interests, failed to segregate, mark to identify and hold in safekeeping such funds or securities. 17. As a result of the above activity, IMS I willfully violated, and Ross willfully aided and abetted violations of, Section 203(a) of the Advisers Act in that IMS I, an investment adviser that made use of the mails and the instrumentalities of interstate commerce in connection with its business as an investment adviser, failed to register with the Commission as an investment adviser despite holding itself out to the public, in sales brochures and otherwise, as an investment adviser which charged fees for its advisory services. 18. As a result of the above activity, IMS II willfully violated, and Ross willfully aided and abetted violations of, Section 204 of the Advisers Act and Rule 204-2(a) thereunder in that IMS II, an investment adviser that made use of the mails and the instrumentalities of interstate commerce in connection with its business as an investment adviser, failed to make such records as the Commission, by rule, has prescribed as necessary and appropriate in the public interest and for the protection of investors, including the following records: (a) a journal or journals, including cash receipts and disbursements, records, and other records of original entry forming the basis of entries in any ledger; (b) general and auxiliary ledgers (or other comparable records) reflecting asset, liability, reserve, capital, income and expense accounts; (c) cancelled checks and cash reconciliations of IMS II; and (d) trial balances and financial statements relating to IMS II's business. 19. As a result of the above activity, IMS I willfully violated, and Ross willfully aided and abetted violations of, Section 205(a)(1) of the Advisers Act in that IMS I made use of the mails and the instrumentalities of interstate commerce, directly or indirectly, to enter into, extend and renew investment advisory contracts that provided for compensation to IMS I on the basis of a share of capital gains upon, or capital appreciation of, the funds or any portion of the funds of its clients. ======END OF PAGE 11====== 20. As a result of the above activity, IMS II willfully violated, and Ross willfully aided and abetted violations of, Section 207 of the Advisers Act in that IMS II made untrue statements of material facts in a registration application filed with the Commission under Section 203 of the Advisers Act and willfully omitted to state in such application material facts required to be stated therein. Among the untrue statements of material facts and the omissions of required material facts in the Form ADV were the following: (a) failure to note that IMS I had existed and that the three officers of IMS II had worked at and managed IMS I; (b) falsely stating that IMS II's three officers had not failed in business; and (c) falsely stating that one of the three officers of IMS II had received a bachelor of arts degree. III. In view of the foregoing, the Commission finds that it is in the public interest to impose the sanctions specified in the Hamby Offer and the Ross Offer. ACCORDINGLY, IT IS ORDERED THAT: A. That Gary L. Hamby be, and hereby is, barred from association with any broker, dealer, municipal securities dealer, investment company or investment adviser; and B. That Gary B. Ross be, and hereby is, barred from association with any broker, dealer, municipal securities dealer, investment company or investment adviser. By the Commission. Jonathan G. Katz Secretary ======END OF PAGE 12======