UNITED STATES OF AMERICA before the SECURITIES AND EXCHANGE COMMISSION SECURITIES ACT OF 1933 Release No. 7635 / January 27, 1999 SECURITIES EXCHANGE ACT OF 1934 Release No. 40984 / January 27, 1999 ADMINISTRATIVE PROCEEDING File No. 3-9819 : : ORDER INSTITUTING PUBLIC In the Matter of : ADMINISTRATIVE PROCEEDINGS PURSUANT : TO SECTION 8A OF THE : SECURITIES ACT OF RANDALL W. NELSON, : 1933 AND SECTIONS 15(b)(6) AND : 19(h) OF THE SECURITIES EXCHANGE : ACT OF 1934, MAKING FINDINGS AND IMPOSING Respondent. : REMEDIAL SANCTIONS AND A CEASE-AND- : DESIST ORDER : I. The Securities and Exchange Commission ("Commission") deems it appropriate and in the public interest that a public administrative proceeding be, and hereby is, instituted pursuant to Section 8A of the Securities Act of 1933 ("Securities Act") and Sections 15(b)(6) and 19(h) of the Securities Exchange Act of 1934 ("Exchange Act"), against Randall W. Nelson ("Nelson"). II. In anticipation of the institution of this proceeding, Nelson has submitted an Offer of Settlement ("Offer"), which the Commission has determined to accept. Solely for the purpose of this proceeding, and any other proceedings brought by or on behalf of the Commission, or to which the Commission is a party, Nelson, without admitting or denying the findings contained in this Order Instituting Public Administrative Proceedings Pursuant to Section 8A of the Securities Act of 1933 and Sections 15(b)(6) and 19(h) of the Securities Exchange Act of 1934, Making Findings and Imposing Remedial Sanctions and a Cease-and-Desist Order ("Order"), except that Nelson admits that the Commission has jurisdiction over him and over the subject matter of this proceeding, consents to the entry of the findings and the imposition of the remedial sanctions set forth herein. III. On the basis of this Order and the Offer, the Commission finds that:[1] A. RESPONDENT Nelson is a resident of Tulsa, Oklahoma. From April 1991 until April 1993, Nelson was associated with Stifel, Nicolaus & Company, Inc. ("Stifel"), employed in its Oklahoma Public Finance Office in Oklahoma City. B. OTHER RELEVANT ENTITIES 1. Stifel is a broker-dealer and municipal securities dealer registered with the Commission and headquartered in St. Louis, Missouri. On August 3, 1995, the Commission filed a settled civil injunctive action against Stifel. The Commission’s complaint against Stifel included allegations concerning Stifel’s restructuring of the Grand River Dam Authority’s debt service fund, as described below. Without admitting or denying the allegations in the complaint, Stifel consented to the entry of a final judgment which enjoined Stifel from violating certain provisions of the federal securities laws, and ordered Stifel to disgorge certain unjust gains plus prejudgment interest thereon, and to pay a civil monetary penalty. See SEC v. Stifel, Nicolaus & Co., Inc., Lit. Rel. No. 14587 (Aug. 3, 1995). 2. The Grand River Dam Authority ("GRDA") is a conservation and reclamation district and an agency of the state of Oklahoma. The directors of the GRDA are appointed by the Governor of Oklahoma, with the advice and consent of the Oklahoma Senate. The GRDA provides electrical service to a defined area in Oklahoma. The GRDA has a limited staff, and relies substantially on outside professionals in issuing municipal securities and related financial matters. C. THE GRDA RETAINS STIFEL AND NELSON TO RESTRUCTURE THE DEBT SERVICE FUND For several years prior to joining Stifel, Nelson was a trust department officer at an Oklahoma commercial bank which served as the trustee for certain GRDA bond issues. As a result, Nelson developed a relationship of trust and confidence with the GRDA and its staff. After joining Stifel's Oklahoma Public Finance Office in April 1991, Nelson approached the GRDA and proposed that the GRDA restructure a debt service fund associated with a previous bond issue. Nelson told the GRDA that he believed that Stifel could obtain for the GRDA a higher yield on the moneys in its debt service fund than it was then receiving, plus a one time, up- front cash payment of at least $1 million. In June 1991, based upon Nelson's proposal, the GRDA hired Stifel to act as its financial adviser in restructuring the debt service fund for a total fee of $75,000. Acting as financial adviser, Nelson proposed an investment contract for the GRDA's debt service fund. The investment contract, as proposed by Nelson, provided for an interest rate of seven percent. The winning bidder would be the bidder willing to make the largest up-front payment to the GRDA in excess of $1 million, in addition to paying the requested rate of interest. D. STIFEL RECEIVES A BROKERAGE FEE THAT IS NOT DISCLOSED TO THE GRDA Nelson and James Pannone ("Pannone"), another member of Stifel’s Oklahoma Public Finance Office, contacted a then vice president (the "Vice President") at Pacific Matrix Financial Group, Inc. ("Pacific Matrix"), an investment contract broker, and requested that he solicit bids for the investment contract. Nelson and Pannone demanded, and the Vice President agreed, that Stifel would receive ninety percent of whatever brokerage fee was paid by the winning provider. Steven Strauss ("Strauss"), a then managing director of Sakura Global Capital, Inc. ("Sakura"), told Nelson, Pannone and the Vice President that Sakura was willing to pay the seven percent interest rate requested in the bid solicitation, plus an up-front payment in the amount of $1.4 million, which was the largest up-front payment offered by any of the bidders. Nelson, Pannone, the Vice President and Strauss agreed that Sakura would pay, from the amount of its gross bid, the sum of $283,500 directly to Stifel, as well as the sum of $31,500 to Pacific Matrix. After discussions within the Oklahoma Public Finance Office, Nelson told the GRDA that Sakura’s bid included an up- front payment in the amount of $1.085 million and failed to disclose that the figure was net of the $283,500 Sakura paid to Stifel and the $31,500 Sakura paid to Pacific Matrix. About one week after the closing of the GRDA transaction, a member of Stifel’s compliance department asked Nelson if Stifel’s payment from Sakura had been disclosed to the GRDA. Because Nelson had not disclosed to the GRDA the payment from Sakura, Nelson wrote a letter to the GRDA advising the GRDA that Stifel would receive a payment from Sakura. Nelson gave the letter to his supervisor who acknowledged that the payment had not been disclosed. Nelson’s supervisor told Nelson he would take care of the matter. Nelson’s supervisor never sent the letter to the GRDA. E. NELSON CAUSED STIFEL’S VIOLATIONS OF SECTION 17(a)(2) AND (3) OF THE SECURITIES ACT As the financial adviser to the GRDA, Stifel had a duty to disclose conflicts of interest. Receiving a payment from Sakura was a conflict of interest which should have been disclosed to the GRDA at the time the potential conflict arose. Stifel violated Section 17(a)(2) and (3) of the Securities Act by not disclosing to the GRDA the payment it received from Sakura. By failing to disclose the conflict of interest to the GRDA, Nelson willfully aided and abetted and caused Stifel’s violations of Section 17(a)(2) and (3) of the Securities Act. IV. FINDINGS From April 1991 until April 1993, Nelson was associated with Stifel, Nicolaus & Company, Inc., a broker-dealer and municipal securities dealer registered with the Commission. Based on the foregoing, the Commission finds that Nelson willfully aided and abetted and caused Stifel's violations of Section 17(a)(2) and (3) of the Securities Act. V. ORDER In view of the foregoing, the Commission deems it appropriate and in the public interest to accept the Offer and impose the sanctions specified therein. ACCORDINGLY, IT IS HEREBY ORDERED that: A. Nelson, pursuant to Section 8A of the Securities Act, cease and desist from committing or causing any violation and any future violation of Section 17(a)(2) and (3) of the Securities Act; B. Nelson pay a civil monetary penalty in the amount of $20,000, pursuant to Section 21B of the Exchange Act, to the United States Department of Treasury, within ten days after the entry of this Order. Payment 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) hand-delivered or mailed to the Comptroller, Securities and Exchange Commission, Operations Center, 6432 General Green Way, Stop 0-3, Alexandria, VA 22312; and (iv) submitted under cover letter which identifies Nelson as the Respondent in this proceeding and the file number of this proceeding, a copy of which cover letter and money order or check shall be sent to Kevin J. Harnisch, Senior Counsel, Division of Enforcement, Securities and Exchange Commission, 450 Fifth Street, N.W., Stop 7-2, Washington, D.C. 20549; C. Nelson be, and hereby is, suspended from association with any broker or dealer for one month, effective on the third day following the entry of this Order; and D. Nelson provide to the Commission, within three days after the end of the one-month suspension period described above, an affidavit that he has complied fully with the sanctions described in Section V.C above. By the Commission. Jonathan G. Katz Secretary **FOOTNOTES** [1]: The findings in this Order are made pursuant to Nelson’s Offer and are not binding on any other person or entity in this or any other proceeding.