UNITED STATES OF AMERICA Before the SECURITIES AND EXCHANGE COMMISSION Securities Act of 1933 Release No. 7668 / April 19, 1999 Securities Exchange Act of 1934 Release No. 41308 / April 19, 1999 Administrative Proceeding File No. 3-9875 ______________________________ ORDER INSTITUTING CEASE- : AND-DESIST AND ADMINISTRATIVE In the Matter of : PROCEEDINGS PURSUANT TO : SECTION 8A OF THE William Lowe, : SECURITIES ACT OF 1933 : AND SECTIONS 15(b), 19(h), Respondent. : AND 21C OF THE SECURITIES : EXCHANGE ACT OF 1934, : MAKING FINDINGS, AND IMPOSING ______________________________: REMEDIAL SANCTIONS I. The Securities and Exchange Commission ("Commission") deems it appropriate and in the public interest that cease-and- desist and administrative proceedings pursuant to Section 8A of the Securities Act of 1933 ("Securities Act") and Sections 15(b), 19(h), and 21C of the Securities Exchange Act of 1934 ("Exchange Act") be instituted against respondent William Lowe ("Lowe"). II. In anticipation of the institution of these proceedings, Lowe has submitted an Offer of Settlement ("Offer"), which the Commission has determined is in the public interest to accept. Solely for the purpose of this proceeding, and any other proceeding brought by or on behalf of the Commission or in which the Commission is a party, and without admitting or denying the findings set forth herein, except as to paragraph III.A.1 below, which Lowe admits, and the jurisdiction of the Commission over him and over the matters set forth in this Order Instituting Cease-and-Desist and Administrative Proceedings Pursuant to Section 8A of the Securities Act of 1933 and Sections 15(b), 19(h) and 21C of the Securities Exchange Act of 1934, Making Findings, and Imposing Remedial Sanctions ("Order"), which Lowe also admits, Lowe consents to the entry of the findings and the imposition of the sanctions set forth below. Accordingly, IT IS ORDERED that cease-and-desist and administrative proceedings pursuant to Section 8A of the Securities Act and Sections 15(b), 19(h) and 21C of the Exchange Act be, and hereby are, instituted. III. On the basis of this Order and Lowe's Offer, the Commission makes the following findings: A. THE RESPONDENT Lowe, age 67, was associated with Grady & Hatch & Co., Inc. ("Grady & Hatch") as a trader from August 1988 through May 1997. Grady & Hatch, which is located in New York City, has been registered with the Commission as a broker-dealer pursuant to Section 15(b) of the Exchange Act from June 1983 until the present. Lowe currently is unemployed. B. SUMMARY From May 5 through at least July 20, 1993, by participating in a scheme to manipulate the price of RMS Titanic stock, Lowe violated the antifraud provisions of the Securities Act and the Exchange Act. During this period, Lowe and others manipulated the price of the stock from $5.00 to $11.50 on minimal trading volume or public interest. Lowe (a) set the initial price based solely upon the directions of a major shareholder and promoter of RMS Titanic; (b) raised the price of RMS Titanic stock without any market basis for doing so; and (c) effected trades with the understanding that other participants in the scheme would protect him from risk of loss by buying any long position or covering any short position Lowe held. Throughout this period, RMS Titanic reported no significant corporate developments that would have justified the rise in its stock price. C. THE SCHEME TO MANIPULATE RMS TITANIC SECURITIES 1. From May 5 through June 4, 1993, Grady & Hatch was the sole market-maker in RMS Titanic stock. At the direction of a major shareholder and promoter of RMS Titanic, and without conducting any independent determination as to whether the price was appropriate, Lowe set the initial market price of RMS Titanic stock at $5.00 per share. Lowe then increased the bid price for RMS Titanic stock thirteen times in four weeks, gradually raising the bid price from $5.00 to $8.50. Of the retail sales volume during this period, 96% came from accounts controlled by the major shareholder and promoter of RMS Titanic. Neither the public market demand nor RMS Titanic's corporate developments justified Lowe's increasing the price. 2. From June 4 through July 20, 1993, other broker-dealers became market-makers in RMS Titanic stock. Lowe increased his bid price from $8.50 to $11.50, creating the appearance of increased market demand. From June 4 through July 20, 1993, Lowe was the high bidder or one of the high bidders on thirty-one of the thirty-two days, and was the sole high bidder on thirteen of the days. The bid price for RMS Titanic stock remained above $8.00 per share until July 20, 1993. 3. On several days during the manipulation period, Lowe held large long positions in RMS Titanic stock that far exceeded his authorized trading limit. He accumulated these positions with the understanding that other participants in the scheme would protect him from any substantial losses. Throughout the course of the manipulation scheme, the other participants in the scheme purchased RMS Titanic stock themselves and compensated brokers to generate the demand necessary to protect Lowe and enable him to set and maintain an artificially high price for the stock. 4. Grady & Hatch realized $23,000 in trading profits from Lowe's trading of RMS Titanic stock. Of this amount, Lowe received $17,250. D. LEGAL ANALYSIS Lowe Violated Section 17(a) of the Securities Act, and Section 10(b) of the Exchange Act and Rule 10b-5 Thereunder by Engaging in a Scheme to Manipulate the Securities of RMS Titanic 1. Sections 9(a)(1) and 9(a)(2) of the Exchange Act expressly prohibit the manipulation of securities traded on a national exchange. The manipulative activities proscribed by Sections 9(a)(1) and 9(a)(2) of the Exchange Act violate Section 17(a) of the Securities Act, and Section 10(b) of the Exchange Act and Rule 10b-5 thereunder, when conducted with respect to an over-the-counter security. See SEC v. Sayegh, 906 F. Supp. 939, 946 (S.D.N.Y. 1995) (manipulative conduct in connection with the purchase and sale of an over-the-counter security violates Section 10(b) of the Exchange Act and Rule 10b-5 thereunder), aff'd 101 F.3d 685 (2d Cir. 1996). 2. Where, as here, the basis for liability rests on Section 17(a) of the Securities Act and Section 10(b) of the Exchange Act, to establish a violation it is sufficient to demonstrate that the defendant engaged in a course of business that operated as a fraud or deceit on investors in the marketplace. United States v. Charney, 537 F.2d 341, 350-51 (9th Cir. 1976), cert. denied, 429 U.S. 1000 (1976). 3. Lowe's manipulative conduct included setting the initial price for RMS Titanic stock based solely upon the directions of a major stockholder and promoter in RMS Titanic. The failure to price a stock based upon an independent determination of a company's merits constitutes a manipulative practice. See In re Gotham Sec. Corp., 46 SEC 34 (Nov. 5, 1976) ("the submission or publication of a quotation at a price which does not bear a reasonable relationship to the nature and scope of the issuer's business or its financial status or experience" may constitute a manipulative device). 4. Lowe raised the price of RMS Titanic stock without any market basis for doing so. He also effected a series of purchase and sale transactions in RMS Titanic stock, with the understanding that other participants in the scheme would protect him from risk of loss by buying any long positions or covering any short positions Lowe held. Lowe never disclosed this understanding to his retail customers. The failure of a market- maker to disclose that it is acting based upon a guarantee against loss is a fraudulent practice. See In re Gotham Sec. Corp., 46 SEC 34 (Nov. 5, 1976) (market-maker participated in fraudulent scheme by, among other things, failing to disclose guaranteed profit arrangement); In re Saunder, Stivers & Co., Exchange Act Release No. 10341, 1973 SEC Lexis 837 (Aug. 14, 1973) (broker-dealer's failure to disclose that it was guaranteed against loss by a director of the issuer constitutes evidence of manipulation). Moreover, when the market is manipulated by raising or depressing the price, any subsequent conduct to stabilize the artificial price violates Section 10(b) and Rule 10b-5 of the Exchange Act. See SEC v. Lorin, 877 F. Supp 192, 196-97 (S.D.N.Y. 1995), vacated in part on other grounds, 76 F.3d 458 (1996). 5. As a result of the foregoing, Lowe violated Section 17(a) of the Securities Act, and Section 10(b) of the Exchange Act and Rule 10b-5 thereunder by engaging in a scheme to manipulate the price of RMS Titanic securities. IV. Based on the foregoing, the Commission finds that Lowe willfully violated Section 17(a) of the Securities Act, and Section 10(b) of the Exchange Act and Rule 10b-5 thereunder. V. In view of the foregoing, the Commission deems it appropriate and in the public interest to accept Lowe's Offer and to impose the sanctions which are set forth in his Offer. Accordingly, IT IS HEREBY ORDERED that: A. Effective immediately, Lowe shall cease and desist from committing or causing any violation, and from committing or causing any future violation of Section 17(a) of the Securities Act, and Section 10(b) of the Exchange Act and Rule 10b-5 thereunder; B. Pursuant to Section 21B of the Exchange Act, Lowe shall pay disgorgement of $17,250 plus $8,686.97 in prejudgment interest thereon, for a total of $25,936.97, with payment to be made to the United States Treasury ("Treasury") in the manner described in Paragraph V.C below; C. Pursuant to Section 21B of the Exchange Act, Lowe shall pay a civil money penalty of $5,000. Lowe's payment obligations are due as follows: (1) $10,312.32, plus postjudgment interest thereon at the Internal Revenue Service underpayment rate which is published quarterly, shall be due within six months after of the entry of this Order; (2) $10,312.32, plus postjudgment interest thereon at the Internal Revenue Service underpayment rate which is published quarterly, shall be due within twelve months after of the entry of this Order; and (3) $10,312.32, plus postjudgment interest thereon at the Internal Revenue Service underpayment rate which is published quarterly, shall be due within eighteen months thereafter. Such payment shall be made to the Treasury by postal money order, certified check, bank cashier's check or bank money order, payable to the order of the United States Securities and Exchange Commission. The payments shall be hand-delivered or mailed to the Comptroller, Securities and Exchange Commission, Operations Center, 6432 General Green Way, Stop 0-3, Alexandria, VA 22312, under the cover of letter identifying the name and administrative proceeding file number of this proceeding. A copy of the cover letter and payment shall be simultaneously transmitted to Carmen J. Lawrence, Esq., Regional Director, Securities and Exchange Commission, 7 World Trade Center, New York, N.Y. 10048, Attn: Theresa M. Ward, Esq.; D. Effective immediately, Lowe be, and hereby is, barred from association with any broker, dealer, investment adviser, investment company or municipal securities dealer; By the Commission. Jonathan G. Katz Secretary