UNITED STATES OF AMERICA Before the SECURITIES AND EXCHANGE COMMISSION SECURITIES EXCHANGE ACT OF 1934 Release No. 38510 / April 15, 1997 SECURITIES ACT OF 1933 Release No. 7415 / April 15, 1997 INVESTMENT ADVISERS ACT OF 1940 Release No. 1629 / April 15, 1997 INVESTMENT COMPANY ACT OF 1940 Release No. 22617 / April 15, 1997 ADMINISTRATIVE PROCEEDING File No. 3-9297 ----------------------- : In the Matter of : ORDER INSTITUTING PROCEEDINGS, : MAKING FINDINGS, AND IMPOSING : REMEDIAL SANCTIONS AND ORDER TO : CEASE AND DESIST PURSUANT TO SECTIONS : 15(b)(6), 19(h)(3) AND 21C OF THE : SECURITIES EXCHANGE ACT OF 1934, Donald W. Spinks, : SECTION 8A OF THE SECURITIES ACT OF and : 1933, SECTIONS 203(e) and 203(f) OF CDS Financial Services: THE INVESTMENT ADVISERS ACT OF 1940 : AND SECTION 9(b) OF THE INVESTMENT : COMPANY ACT OF 1940 Respondents. : : ----------------------- I. The Securities and Exchange Commission ("Commission") deems it appropriate and in the public interest that public proceedings be, and hereby are, instituted pursuant to Sections 15(b)(6), 19(h)(3) and 21C of the Securities Exchange Act of 1934 ("Exchange Act"), Section 8A of the Securities Act of 1933 ("Securities Act"), Sections 203(e) and 203(f) of the Investment Advisers Act of 1940 ("Advisers Act") and Section 9(b) of the Investment Company Act of 1940 ("Investment Company Act") against Donald Spinks ("Spinks") and CDS Financial Services ("CDS"). In anticipation of the institution of these proceedings, Spinks and CDS have submitted an Offer of Settlement to the Commission, which the Commission has determined to accept. Solely for the purposes of this proceeding and any other proceeding brought by or on behalf of the Commission or in which ==========================================START OF PAGE 2====== the Commission is a party, prior to a hearing pursuant to the Commission's Rules of Practice, 17 C.F.R.  201.1 et seq., and, without admitting or denying the findings contained herein, except those contained in paragraphs II. A. and B., which are admitted, Spinks and CDS consent to the issuance of this Order Instituting Proceedings, Making Findings, and Imposing Remedial Sanctions and Order to Cease and Desist ("Order"), and to the entry of the findings and the Order set forth below. Accordingly, IT IS ORDERED that administrative proceedings pursuant to Sections 15(b)(6) and 19(h)(3) of the Exchange Act, Sections 203 (e) and 203 (f) of the Advisers Act and Section 9(b) of the Investment Company Act, and cease-and-desist proceedings pursuant to Section 8A of the Securities Act and Section 21C of the Exchange Act be, and hereby are, instituted against Donald W. Spinks and CDS Financial Services. II. On the basis of this Order and the Offer submitted by Spinks and CDS the Commission finds-[1]- that: A. Spinks is a resident of Mansfield, Texas, and was a registered representative associated with various broker-dealers registered with the Commission from 1990 until June 1995. From December 1990 through June 1995, Spinks was a registered representative employed by Dominion Capital Corporation ("Dominion"), a broker-dealer registered with the Commission, with offices in Texas. B. Since October 26, 1993, CDS Financial Services has been registered with the Commission as an Investment Adviser. Spinks was a partner and control person of CDS until February 1994, when CDS ceased operations. C. During the period from at least July 1992 until June 1995, Spinks willfully violated Section 17(a) of the Securities Act and Section 10(b) of the Exchange Act and Rule 10b-5 thereunder, as more fully described in paragraphs D., E., F. and G. below. D. Between July 1992 and June 1995, Spinks offered and sold to his customers various high-risk or speculative securities, including interests in limited partnerships, limited liability corporations ("LLCs"), and notes and debentures. Spinks sold these securities to customers without regard for ---------FOOTNOTES---------- -[1]- The findings herein are made pursuant to Donald W. Spinks' and CDS' Offer of Settlement and are not binding on any other person or entity named as a respondent in this or any other proceeding. ==========================================START OF PAGE 3====== their investment needs or objectives. In these offers and sales, Spinks misrepresented the risky, speculative nature of these investments to his customers. He also failed to consistently provide offering memoranda to customers, which would have disclosed these risks. Spinks also evaded the financial suitability requirements of the offerings by submitting false statements of net worth for customers who did not otherwise qualify to purchase these interests, without customers' knowledge. E. In many instances, Spinks made multiple sales of these high-risk, speculative securities to customers, causing high concentrations of risky, illiquid investments in these customers' portfolios. Several of Spinks' customers invested in excess of 50% of their net worth in a combination of interests in LLCs, notes, debentures and limited partnerships. F. Between February and April 1994, Spinks offered and sold customers limited partnership units in Options Trading Management Ltd. I (Options I), a limited partnership Spinks formed to trade options based upon a computer trading program. Spinks concealed significant trading losses for Options I trading by sending investors false quarterly reports which claimed that the trading was profitable. Spinks also failed to disclose that commissions paid to Dominion and himself during the period Options I operated totaled 66% of the aggregate investors' contribution. G. Between September and December 1994, Spinks offered and sold customers limited partnership units in Options Trading Management Ltd. II (Options II), a limited partnership formed by colleague of Spinks who was also a registered representative of Dominion. Options II paralleled Options I in all significant respects. Spinks solicited Options I investors who had been provided with the false Options I quarterly reports to invest in Options II, without disclosing that Options I had suffered a nearly complete loss of investors' contributions. H. Respondents Spinks and CDS have submitted sworn financial statements and other evidence and have asserted their financial inability to pay disgorgement plus prejudgment interest and civil penalties. The Commission has reviewed the sworn financial statements and other evidence provided by Respondents and has determined that Respondent Spinks does not have the financial ability to pay disgorgement of $374,356.00, with prejudgment interest thereon in the amount of $123,831.95, and civil penalties. III. ==========================================START OF PAGE 4====== In view of the foregoing, the Commission deems it appropriate and in the public interest to impose the sanctions that are set forth in the Offer submitted by Spinks and CDS. ==========================================START OF PAGE 5====== Accordingly, IT IS ORDERED that: A. Spinks be, and hereby is, barred from association with any broker, dealer, municipal securities dealer, investment adviser or investment company; and B. Spinks shall cease and desist from committing or causing any violations of, and any future violation of, Section 17(a) of the Securities Act, Section 10(b) of the Exchange Act and Rule 10b-5 thereunder; and C. The registration of CDS Financial Services as an investment adviser is hereby revoked; and D. Spinks shall pay disgorgement in the amount of $374,356.00, with prejudgment interest thereon in the amount of $123,831.95, but that payment of such amount be waived as to Spinks, and civil penalties shall not be imposed against Spinks, based upon Respondents' demonstrated financial inability to pay; and E. The Division of Enforcement may, at any time following the entry of this Order, petition the Commission to: (1) reopen this matter to consider whether Respondents provided inaccurate and incomplete financial information at the time such representations were made; (2) determine the amount of disgorgement, pre-judgement interest and civil penalty to be imposed; and (3) seek any additional remedies that the Commission would be authorized to impose in this proceeding if Respondents' offer of settlement had not been accepted. No other issues shall be considered in connection with this petition other than whether the financial information provided by Respondents was fraudulent, misleading, inaccurate or incomplete in any material respect, the amount of disgorgement, pre-judgment interest and civil penalty to be imposed and whether any additional remedies should be imposed. Respondents may not, by way of defense to any such petition, contest the findings in this Order or the Commission's authority to impose any additional remedies that were available in the original proceeding. By the Commission. Jonathan G. Katz Secretary