UNITED STATES OF AMERICA Before the SECURITIES AND EXCHANGE COMMISSION SECURITIES ACT OF 1933 Release No. 7612 / November 23, 1998 SECURITIES EXCHANGE ACT OF 1934 Release No. 40699 / November 23, 1998 ADMINISTRATIVE PROCEEDING File No. 3-9781 : ORDER INSTITUTING PUBLIC ADMINIS- In the Matter of : TRATIVE PROCEEDINGS PURSUANT TO : SECTION 8A OF THE SECURITIES ACT OF Stephens Inc., : 1933 AND SECTIONS 15(b)(4), : 15B(c)(2) AND 21C OF THE SECURITIES : EXCHANGE ACT OF 1934, MAKING : FINDINGS, AND IMPOSING REMEDIAL Respondent. : SANCTIONS The Commission deems it appropriate and in the public interest to institute public administrative proceedings pur- suant to Section 8A of the Securities Act of 1933 ("Securities Act") [15 U.S.C. 77h-1] and Sections 15(b)(4), 15B(c)(2) and 21C of the Securities Exchange Act of 1934 ("Exchange Act") [15 U.S.C. 78o(b)(4), 78o-4(c)(2), 78s(h) and 78u-3] against Stephens Inc. ("Stephens" or "Respondent"). In anticipation of the institution of these proceedings, Stephens has submitted an Offer of Settlement ("Offer") to the Commission, which the Commission has determined to accept. Solely for the purpose of these proceedings, and any other proceeding brought by or on behalf of the Commission or in which the Commission is a party, Stephens, without admitting or denying the findings contained herein, except as to the jurisdiction of the Commission over Respondent and over the subject matter of these proceedings, which is admitted, consents to the entry of the findings, and the imposition of the remedial sanctions set forth below. The Commission finds[1] that: FACTS Respondent Stephens Inc. Stephens is an Arkansas corporation with its principal place of business in Little Rock, Arkansas. At all relevant times, Stephens was a broker-dealer and municipal securities dealer, and was registered with the Commission pursuant to Sections 15(b) and 15B(a) of the Exchange Act. Summary This matter involves undisclosed payments to three Florida public officials, and other improper practices in connection with Stephens' pursuit of municipal securities business between 1989 and 1995, including the failure to disclose to a Georgia issuer Stephens' receipt of a brokerage commission on a Guaranteed Investment Contract ("GIC") in 1993. William C. Bethea--a former senior vice-president of Stephens who served as head of its Public Finance Department from June 1991 until March 1994--authorized secret payments to one Florida public official, facilitated secret payments to another, and endorsed the conferral of an undisclosed favor on a third, all for the purpose of obtaining or retaining municipal securities business for Stephens.[2] In addition, Bethea, who from 1987 until 1991 served as a member of Stephens' Political Action Committee ("PAC") with authority to sign PAC checks: (1) enlisted third parties to serve as conduits for approximately $10,000 in Stephens campaign contributions between 1989 and 1992; and (2) created materially false and misleading books and records. In much of the aforementioned activity, Bethea was assisted by Preston C. Bynum, a former Stephens banker from its Little Rock office. In connection with the conferral of the undisclosed favor referenced above, Bethea was also assisted by a former Stephens vice-president from its Atlanta office who had supervisory responsibility over the Public Finance Department bankers in that office (the "Atlanta Supervisor"). Following Bethea's tenure as department head, the Atlanta Supervisor also took part in the secret compensation of a Florida state official as an inducement and reward for that official's support of Stephens' selection for certain state securities business. As a result of the misconduct of these former members of its Public Finance Department, Stephens is responsible for (1) defrauding three different issuers in six different offerings of municipal securities; (2) defrauding investors in those offerings; and (3) violating books and records provisions and the gifts and fair-dealing rules of the Municipal Securities Rulemaking Board ("MSRB"). Payments to Escambia County Utilities Authority ("ECUA")[3] Official Terry D. Busbee During 1992 and 1993, Bethea authorized, and assisted Bynum with, the payment of at least $18,000 to Terry D. Busbee, an elected public official of the ECUA, for the purpose of securing underwriting business for Stephens in two ECUA bond issuances: a $16 million offering used to finance the upgrade of a sewage treatment plant, that closed on October 29, 1992 ("Plant Upgrade issue"); and a $20 million offering used to acquire and upgrade the existing sanitation system, that closed on February 11, 1993 ("Sanitation issue"). On Thursday, July 30, 1992, after casting the deciding vote to select Stephens as senior managing underwriter for the ECUA's Plant Upgrade issue, Busbee demanded of Bynum that Stephens pay an associate in excess of $15,000 to (1) prevent the rescinding of Stephens' selection for the Plant Upgrade underwriting; and (2) ensure Stephens' selection as lead underwriter for the upcoming Sanitation issue. When informed by Bynum of this demand, Bethea agreed to it, despite knowing, having reason to know, or recklessly disregarding the fact that the payments to Busbee's associate were meant for Busbee. Shortly thereafter, Bethea learned from Bynum that the payments would, in fact, be funneled to Busbee. On September 29, 1992, Busbee again cast the deciding vote for Stephens' selection as lead underwriter, this time for the Sanitation issue. Thereafter, in November 1992 and September 1993, respectively, Bethea and Bynum caused Stephens to issue checks of $10,000 and $7,500 payable to an entity owned by Busbee's associate, in accordance with the payment arrangement Bethea had approved. Bethea caused the mischaracterization of these payments on Stephens' books and records as payments to Busbee's associate for consulting services; they, in fact, were payments to Busbee. Moreover, no such consulting services had been rendered by Busbee's associate. In order to conceal the payment scheme, Bethea caused the delay in the issuance of the second ($7,500) check until after the completion of a state grand jury investigation into the ECUA's underwriter selections. A further payment of $6,000 was disbursed in October 1993, at Bynum's request. In addition, Bynum gave Busbee $8,935.84 more in December 1993, by paying off certain loans on Busbee's behalf. At no time during the selection or offering process for the Plant Upgrade or Sanitation bonds was the payment arrangement with Busbee and the resulting conflicts of interest created thereby disclosed. Payments to Osceola County[4] Official Larry K. O'Dell By the Summer of 1992, a municipal securities business development consultant to Stephens (the "Consultant") had entered into a secret agreement with Larry K. O'Dell, then Director of Public Works for Osceola County, Florida, that if O'Dell would help Stephens obtain a selling group position for an upcoming bond issue of Osceola County, the Consultant would share his compensation from Stephens with O'Dell. The bond issue in question was the $150 million Osceola County, Florida, Transportation Improvement Bonds (Osceola Parkway Project), dated July 15, 1992 ("Parkway Bonds"). Also by the Summer of 1992, Bethea had agreed with the Consultant that, if Stephens were selected as a selling group member for the Parkway Bonds, Stephens would pay the Consultant one-half the Public Finance Department's net profits on that bond issue. Although Bethea lacked actual knowledge of the payment arrangement between the Consultant and O'Dell, he ignored indications that the Consultant would (and did) share his compensation with O'Dell in the approximate amount of $1,700. By July 1992, with O'Dell's help, Stephens was named a selling group member for the Parkway Bonds. The bond issue closed on August 6, 1992. By December 1992, Stephens' Public Finance Department had recorded net profits of $35,739.54 for the Parkway Bonds. At that time, in accordance with his agreement with the Consultant, Bethea caused Stephens to issue a check to the Consultant for $17,869.77--exactly half of $35,739.54--ostensibly for "special compensation" relating to "Florida transactions." In fact, this check was solely for the Parkway Bonds. Shortly thereafter, concerned that the arithmetical relationship between the $17,869.77 check and the amount of his department's profits from the Parkway Bonds might cause the uncovering of its connection to that bond issue, Bethea directed the voiding of the $17,869.77 check, and its replacement by another check, in a different amount, with different supporting documentation. The replacement check, for $17,800, was mischaracterized on Stephens' books and records at Bethea's direction as a "bonus" pursuant to the Consultant's contract with Stephens. At no time during the selling-group selection or offering process for the Parkway bonds was the payment arrangement with O'Dell and the resulting conflicts of interest created thereby disclosed. **FOOTNOTES** [1]: The findings herein are made pursuant to Respondent's Offer and are not binding on any other person or entity in these or any other proceedings. [2]: The Commission has filed separate enforcement actions related to some of the matters discussed herein. SEC v. Bynum, Civil Action No. 95-30024-RV (N.D. Fla.); Lit. Rel. No. 14387/January 23, 1995; SEC v. O'Dell, Civil Action No. 98-948-Civ-Orl-18A (M.D. Fla.); Lit. Rel. No. 15858/August 24, 1998. [3]: The ECUA is a local government body that was established by the Florida legislature in 1981, for the purpose of managing, financing and improving the water and sewer systems of Escambia County, Florida. At all relevant times, the ECUA was empowered to issue revenue bonds to finance the acquisition, construction and improvement of water, sewer, sanitation and (with certain limitations) natural gas systems within Escambia County and some adjacent areas. The ECUA had an elected board comprised of five members who served staggered four-year terms. [4]: Osceola County is a political subdivision of the State of Florida. Its governing body is the Osceola County Board of Commissioners. At all relevant times, the Osceola County Board of Commissioners consisted of five elected members, and was empowered to issue bonds and to select underwriters and selling group members in connection with such bond issuances. The authority to select selling group members was delegated to the Osceola County Manager. Conferral of Undisclosed Favor on Florida Housing Finance Agency ("FHFA")[5] Official W. Jay Ramsey In or about early March 1993, the Consultant assisted W. Jay Ramsey, an FHFA official, in obtaining a $90,000-per-year post with an architecture firm the Consultant represented, by giving Ramsey a favorable recommendation. Bethea learned of the Consultant's help with Ramsey's employment at the time it occurred. Shortly thereafter, the Atlanta Supervisor enlisted the Consultant to assist Stephens with its effort to be named remarketing agent for a $6 million remarketing issue of the FHFA that closed on August 19, 1993 ("Remarketing issue"), by advocating Stephens' selection to Ramsey. Bethea approved the hiring of the Consultant for this purpose. The Consultant then persuaded Ramsey to drop his prior opposition to Stephens' selection. In June 1993, Stephens was selected as remarketing agent for the Remarketing issue, with Ramsey's support. Following closing of the Remarketing issue, Bethea caused Stephens to issue a $10,000 check to the Consultant for his assistance in that issue. At Bethea's direction, however, false books and records were created at Stephens concerning the $10,000 payment, including an invoice mischaracterizing the payment as relating to other matters. Payments to FHFA Official W. Jay Ramsey In April 1994, the FHFA invited interested underwriting firms to seek positions on its Approved List of Senior Managing Underwriters (the "Senior Manager Rotation") by issuing a Request for Proposals (the "Rotation RFP"). The Senior Manager Rotation was a list specifying which firms were approved as lead (i.e., "senior managing") underwriters for FHFA bond issues; once the Senior Manager Rotation was established, underwriters for particular FHFA bond issues were selected from it. Stephens submitted a proposal in response to the Rotation RFP. At the time, it had been nearly three years since Stephens held a spot in the FHFA's Senior Manager Rotation. By June 1994, the selection process pursuant to the Rotation RFP was completed. Stephens was not among the sixteen firms ultimately selected; nor did Stephens make the FHFA's short list of firms invited for interviews. By November 1994, one of the sixteen firms indicated it would resign, causing an opening in the rotation. Also by November 1994, Ramsey, who served not only on the FHFA's board but also on its Professional Services Selection Committee, asked the Consultant for supplemental income of $1,500 per month. On November 21, 1994, in Tampa, Ramsey, the Consultant, and two Stephens bankers (one of whom was the Atlanta Supervisor), met. At that meeting, the three Stephens representatives asked Ramsey to help Stephens fill the opening in the FHFA's Senior Manager Rotation. Ramsey agreed to help. At or about the same time, the Consultant agreed to arrange for the $1,500 in supplemental monthly income. By December 5, 1994, the Atlanta Supervisor had enlisted the Consultant to assist with Stephens' naming as remarketing agent for certain FHFA securities offerings. The Consultant did so by, among other things, advocating Stephens' selection to Ramsey. On December 9, 1994--less than three weeks after the Tampa meeting--the FHFA's Professional Selection Committee and full board both met. Ramsey was present at both meetings. One item of business taken up at both meetings was Stephens' addition to the FHFA's Senior Manager Rotation. Both the Professional Selection Committee and the full board, including Ramsey, voted unanimously to take this action. By early January 1995, less than a month after Stephens' addition to the Senior Manager Rotation, the Consultant arranged to furnish Ramsey with his first $1,500 payment. This payment was made through a conduit, under cover of documentation falsely characterizing it as for consulting work. On February 3, 1995, just one week after Ramsey deposited the $1,500, the full board, including Ramsey, voted unanimously to select Stephens as remarketing agent for a $32 million FHFA remarketing issue--the same issue for which the Consultant had previously advocated Stephens' selection to Ramsey. Because the Consultant and Ramsey became aware of the Commission's investigation regarding this matter, no additional monthly payments were made to Ramsey. By mid-February 1995, the Consultant, with the assistance of the Atlanta Supervisor, entered into a contract with Stephens for consulting services. Although this contract purported to be for future services outside the municipal securities arena, the contract and all payments thereunder were in fact exclusively for the Consultant's assistance with FHFA matters, and principally for Stephens' addition to the Senior Manager Rotation. On October 13, 1995, the full board, including Ramsey, voted unanimously to select Stephens as remarketing agent for another FHFA issue: a $23 million remarketing that closed in December 1995. Subsequently, solely as a result of its inclusion in the Senior Manager Rotation, Stephens was named a co-manager for a $13.5 million FHFA bond issue dated March 1996. Neither during the selection of Stephens for any of the FHFA issues identified above, nor during the offering process, were the payment arrangement with Ramsey and the resulting conflicts of interest created thereby disclosed. Non-disclosure of GIC Commission to Cherokee County (Georgia) Water and Sewerage Authority ("Cherokee WSA")[6] In December 1993, Stephens served as sole underwriter for a $46 million refunding bond issue of the Cherokee WSA ("Cherokee WSA Refunding Bonds"). Contemporaneously with the closing of the bonds, and on the advice of Stephens, the Cherokee WSA entered into a GIC. The Cherokee WSA reasonably believed and understood at the time that Stephens' underwriting fees and sales commissions on the bonds were all the compensation Stephens would receive. It was never disclosed to the Cherokee WSA that Stephens received $75,482.28, which was a portion of the GIC broker's commission paid by the GIC provider. Books and Records Violations The payments to public officials and the consulting payments referenced above were accompanied and facilitated by false and misleading entries in the books and records of Stephens. The payments to the officials and payments to the Consultant were mischaracterized in check request forms and accounting records, and never designated as relating to the items of business for which they were paid. Numerous other instances of misbookings of payments and disbursements occurred at Stephens as well; these are described below. 1. Invoicing the ECUA for a Fishing Trip In 1992, Stephens invoiced the ECUA for "communications and regulatory expenses." Although never paid by ECUA, included within this invoice as a "regulatory" expense was $2,130.75 that Stephens paid toward a Stephens-sponsored golf and fishing outing for Busbee and others. By so characterizing this expense, the invoice was false and misleading. 2. Misbookings of Consultant Compensation relating to a Walton County, Florida Bond Issue In connection with a $17 million Florida Community Services Corporation of Walton County ("FCS-Walton")[7] bond issue closing in February 1992, for which Stephens served as sole underwriter (the "South Walton Bonds"), Stephens' books and records contained false and misleading entries. In particular, the Consultant's invoice for $35,000 in fees relating to the South Walton Bonds included an itemization of expenses that was fictional and that was created at Bethea's direction to make the invoice appear legitimate. In fact, the Consultant had incurred no such expenses. In addition, following closing of the South Walton Bonds, Bethea and the Consultant executed a misleading "contract" between Stephens and the Consultant. This contract was purportedly for consulting services to be performed over the ensuing nine months throughout the state of Florida, and provided for compensation of $9,500 per month plus $7,000 in "start-up expenses." In fact, the contract and all payments thereunder were exclusively for the Consultant's activities in connection with the South Walton Bonds. 3. Misbookings of Campaign Contribution Reimbursements Finally, in 1992, by or at the direction of Bethea, false books and records were created at Stephens concerning the reimbursement of campaign contributions. In particular, during the Summer of 1992, the Consultant, at Bethea's request, acted as a conduit for $700 in Stephens campaign contributions to ECUA candidates. At Bethea's direction, the Consultant invoiced Stephens for these contributions, as "expenses" relating to the Consultant's contract with Stephens. Bethea also directed the creation of materially misleading accounting records at Stephens mischaracterizing the true nature of these payments. Between 1989 and 1992, inclusive of the $700 in reimbursed ECUA campaign contributions referenced above, Bethea and Bynum enlisted Stephens employees and outside vendors to make approximately $10,000 in campaign contributions to state and local candidates in connection with Stephens' efforts to obtain municipal securities business. With respect to these contributions, Bethea and Bynum caused the reimbursement of the employees and outside vendors, and in some cases, the advancing of funds to them, for the contributions. Again, in some instances Stephens' books and records failed to accurately reflect the true nature of these payments. LEGAL ANALYSIS Violations of the Antifraud Provisions By virtue of the above-described conduct of Bethea, Bynum, the Atlanta Supervisor and the Consultant, Stephens is responsible for violating Section 17(a) of the Securities Act, and Section 10(b) of the Exchange Act and Rule 10b-5 thereun- der. Nondisclosure to Issuers The failure to disclose the arrangements with and pay- ments to Busbee, O'Dell and Ramsey constituted and operated as a scheme to defraud the issuers of the ECUA, Osceola County, and FHFA bonds. See First Fidelity Securities Group, Exchange Act Rel. No. 36694, 61 S.E.C. Docket 68 (Jan. 9, 1996) (un- derwriter defrauded issuers by paying undisclosed kickbacks to fiduciary for underwriting business). Moreover, as an underwriter of ECUA and FHFA securities, and as a selling group member for Osceola County securities, Stephens was a purchaser of securities from those issuers. Bethea, Bynum and the Atlanta Supervisor, knew and understood that Stephens, as a broker-dealer, had an obligation to deal fairly with the issuers. See Charles Hughes & Co. v. SEC, 139 F.2d 434, 437 (2d Cir. 1943), cert. denied, 321 U.S. 786 (1944); see also MSRB rule G-17.[8] The undisclosed arrangements with and payments to Busbee, O'Dell and Ramsey breached that duty. See, e.g., SEC v. Feminella, 947 F. Supp. 722, 732 (S.D.N.Y 1996) (kickback paid to agent of broker- dealer's customer should have been received by the customer, and not the agent). The ECUA, Osceola County and the FHFA were entitled to impartial advice from their respective officials, and in evaluating that advice were entitled "to judge for themselves what significance to attribute" to the payments their officials received. See Wilson v. Great American Industries, Inc., 855 F.2d 987, 994 (2d Cir. 1988). This is "not because such [arrangements] are always corrupt but because they are always corrupting." Mosser v. Darrow, 341 U.S. 267, 271 (1951).[9] Nondisclosure to Investors As underwriter on the ECUA and FHFA offerings, Stephens delivered the Official Statements for the offerings to investors, and had a duty to review the key representations in those Official Statements.[10] The Official Statements for the ECUA and FHFA offerings failed to disclose the payments to Busbee and Ramsey. Because the existence of these payments cast doubt on the integrity of the offering process for the respective bond issues, they were material to investors. In the Matter of Lazard Freres & Co. LLC., Exchange Act Rel. No. 39388/Dec. 3, 1997. Scienter Bethea, Bynum and the Atlanta Supervisor, acted with the requisite scienter.[11] This is evidenced by their efforts to keep hidden the arrangements with and payments to Busbee, O'Dell and Ramsey, including by making the payments through an indirect channel, and under the guise of false and misleading documentation. By virtue of their positions with Stephens, the mental states of Bethea, Bynum and the Atlanta Supervisor may be imputed to Stephens. Jurisdiction The arrangements for, and payments of the monies to public officials, violated the antifraud provisions because they "touch[ed]" on the ECUA's, Osceola County's and the FHFA's sale of the securities. Superintendent of Insurance of New York v. Bankers Life & Cas. Co., 404 U.S. 6, 12-13 (1971). The information withheld was material to the issuers' decision to select Stephens as underwriter and as selling group member, and the selection of underwriters and selling group members had a direct nexus with the issuers' sale, and in turn, the public's purchase of the issuers' securities. Violations of Section 15B(c)(1) of the Exchange Act and MSRB rules G-17 and G-20 As associated persons of a broker-dealer, Bethea, Bynum and the Atlanta Supervisor were bound by the MSRB rules.[12] By virtue of their above-described conduct in connection with the ECUA, Osceola County, and FHFA transactions, and by virtue of the failure to disclose the GIC commission in the Cherokee WSA transaction, Stephens is responsible for violating Section 15B(c)(1) of the Exchange Act and MSRB rules G-17 and G-20. MSRB rule G-17 The failure to disclose financial and other relationships between Stephens and fiduciaries of its issuer clients, and its issuer-client's GIC broker, created potential or actual conflicts of interest and violated MSRB rule G-17, a fair-dealing rule. See Lazard Freres & Co. LLC and Merrill Lynch, Pierce, Fenner & Smith Incorporated, Exchange Act Rel. No. 36419 (Oct. 26, 1995); SEC v. Ferber, Lit. Rel. No. 15193 (December 19, 1996); First Fidelity Securities Group, supra; SEC v. Busbee, Lit. Rel. Nos. 14387 (January 23, 1995) and 14508 (May 24, 1995)); SEC v. Rudi, Lit. Rel. Nos. 14421 (February 23, 1996) and 15202 (December 30, 1996). In addition, the use of third parties as conduits for campaign contributions made in connection with municipal securities business development efforts likewise violated rule G- 17. See In the Matter of FAIC Securities, Inc., Exchange Act Rel. No. 36937 (March 7, 1996) (imposing liability under Rule G- 17 where broker dealer, among other things, failed to disclose its non-compliance with state law regarding campaign contributions made in furtherance of municipal securities business development efforts). **FOOTNOTES** [5]: At all relevant times, the FHFA was a public body, established under Florida law, empowered, among other things, to issue revenue bonds to provide financing for mortgage loans to assist in alleviating the shortage in safe, sanitary, affordable housing for low-, middle- and moderate-income persons or families. The FHFA was headed by a nine-member board of directors. Eight of the nine members were appointed by the Governor and confirmed by the state senate; the ninth member, the Secretary of the Department of Community Affairs, was an ex- officio, voting member of the board. [6]: Cherokee WSA was at all relevant times a public body established under Georgia law and empowered, among other things, to operate, expand and improve sources of water supply, water utility and sewage treatment facilities both within and without the territorial boundaries of Cherokee County, Georgia. The Cherokee WSA was headed by a seven-member board, appointed by the grand jury of Cherokee County. The Cherokee WSA was empowered to issue bonds to finance the construction, operation, maintenance, expansion and improvement of facilities within its system, and to refinance prior bonds issued for such purposes. [7]: FCS-Walton was at all relevant times a non-profit corporation which provided central wastewater and water service through a regional utilities system for South Walton County, Florida. Subject to the sponsorship and approval of the five- member Walton County Board of Commissioners, FCS-Walton was authorized to issue bonds to finance, construct, operate and maintain the regional utilities system, and to refinance prior bonds issued for such purposes. [8]: MSRB rule G-17 provides: In the conduct of its municipal securities business, each broker, dealer, and municipal securities dealer shall deal fairly with all persons and shall not engage in any deceptive, dishonest, or unfair practice. [9]: Cf. United States v. Waymer, 55 F.3d 564, 572 (11th Cir. 1995), cert. denied, 517 U.S. 1119 (1996) (nondisclosure of kickback prevented renegotiation of contracts at better price); United States v. Rudi, 902 F. Supp. 452, 456-57 (S.D.N.Y. 1995); and First Fidelity Securities Group, supra, 61 S.E.C. Docket at 78. [10]: See Exchange Act Rule 15c2-12. As the Commission stated in proposing the Rule: By participating in an offering, an underwriter makes an implied recommendation about the securities . . . [T]his recommendation itself implies that the underwriter has a reasonable basis for belief in the truthfulness and completeness of the key representations made in any disclosure documents used in the offerings. Exchange Act Release No. 26100, 41 S.E.C. Docket 1402, 1411 (Sept. 22, 1988). [11]: See Sharp v. Coopers & Lybrand, 649 F.2d 175 (3d Cir. 1981), cert. denied, 455 U.S. 938 (1982); Rochez Bros., Inc. v. Rhoades, 527 F.2d 880, 884 (3d Cir. 1975). See also American Soc'y of Mech. Eng'rs, Inc. v. Hydrolevel Corp., 456 U.S. 556, 565-566 (1982). [12]: Section 15B(b) of the Exchange Act established the Municipal Securities Rulemaking Board ("MSRB") and empowered it to propose and adopt rules with respect to transactions in municipal securities by brokers, dealers and municipal securities dealers. Pursuant to Section 15B(c)(1), a broker dealer or municipal securities dealer is prohibited from using the mails or any instrumentality in interstate commerce to effect any transaction in, or to induce or attempt to induce the purchase or sale of, any municipal security in violation of any rule of the MSRB. As a municipal securities dealer, Stephens is subject to Section 15B(c)(1) of the Exchange Act and the MSRB rules. MSRB rule G-20 This rule prohibits municipal securities dealers from (1) giving any thing or service of value worth more than $100 per year; (2) directly or indirectly; (3) to a person other than an employee or partner of such dealer; (4) if such payment or service is in relation to the municipal securities activities of the employer of the recipient of the payment or service. MSRB rule G-20(a). The rule specifically provides that "employer" includes the principal for whom the recipient of the payment or service is acting as agent or representative. The rule is intended to prohibit commercial bribery and covers payments to issuer officials and fiduciaries. By approving and facilitating payments to Busbee, O'Dell and Ramsey, at times when Stephens was soliciting municipal securities business from these officials' principals, Bethea, Bynum and the Atlanta Supervisor "indirectly" gave Busbee, O'Dell and Ramsey "a thing or service of value . . . in excess of $100." Books and Records Violations Section 17(a)(1) of the Exchange Act requires brokerage firms to create and maintain books and records reflecting their operations and dealings as required by rules promulgated by the Commission. Rule 17a-3 specifies the books and records that brokerage firms must create pursuant to Section 17(a). The MSRB's books and records provisions parallel the Commis- sion's. MSRB rule G-8 is the provision requiring municipal securities dealers to make certain books and records con- cerning their municipal securities business. The rule requires that the information be recorded "clearly and accurately." MSRB rule G-8(b). The Commission has described the records maintained by broker-dealers as "the basic source documents and transaction records of a broker-dealer," and the "keystone of the surveillance of brokers and dealers by our staff and by the securities industry's self-regulatory bodies." Edward J. Mawod & Co., 46 S.E.C. 865, 873 n. 39 (1977) aff'd sub nom. Edward J. Mawod & Co. v. SEC, 591 F.2d 588, 594 (10th Cir. 1979). The conduct of Bethea, Bynum and the Atlanta Supervisor caused Stephens' books and records to be inaccurate and misleading concerning the following payments: (1) the payments to Busbee, O'Dell, Ramsey, and the Consultant on the South Walton, Remarketing and other FHFA transactions; (2) the "communication and regulatory expenses" invoice to ECUA; and (3) the reimbursement of political contributions. FINDINGS On the basis of this Order and the Offer, the Commission finds that Stephens willfully violated Sections 10(b), 15B(c)(1) and 17(a) of the Exchange Act and Rules 10b-5 and 17a-3 thereunder, Section 17(a) of the Securities Act and MSRB rules G-8, G-17 and G-20. OFFER OF SETTLEMENT Stephens has submitted an Offer of Settlement that the Commission has determined to accept.[13] In determining to accept the Offer, the Commission considered the remedial efforts promptly undertaken by Stephens and the cooperation Stephens afforded the Commission staff. In its Offer, Stephens consents, without admitting or denying, to the entry of this Order making findings as set forth above, and ordering Stephens to cease and desist from committing or causing any violation of and committing or causing any future violation of Sections 10(b), 15B(c)(1) and 17(a) of the Exchange Act and Rules 10b-5 and 17a-3 thereunder, Section 17(a) of the Securities Act and MSRB rules G-8, G-17 and G-20. ORDER In view of the foregoing, the Commission deems it appropriate and in the public interest to accept the Offer submitted by Stephens and impose the sanctions specified therein. Accordingly, IT IS HEREBY ORDERED: A. Stephens shall cease and desist from committing or causing any violation of and committing or causing any future violation of Sections 10(b), 15B(c)(1) and 17(a) of the Exchange Act and Rules 10b-5 and 17a-3 thereunder, and Section 17(a) of the Securities Act and MSRB rules G-8, G-17 and G-20; B. Stephens shall pay a civil penalty in the amount of $2.25 million pursuant to Section 21B of the Exchange Act. Payment shall be made within ten (10) days of the date of this order. Payment shall be made by wire transfer, to the United States Treasury. Documentation confirming the wire transfer shall be hand-delivered, telecopied or mailed to the Comptroller, Securities and Exchange Commission, Operations Center, 6342 General Green Way, Stop 0-3, Alexandria, VA 22312, under cover of letter identifying the name and number of this administrative proceeding and the Respondent. A copy of the cover letter and payment shall be simultaneously transmitted to J. Lee Buck, II, Branch Chief, Division of Enforcement, Securities and Exchange Commission, Stop 8-6, Washington, DC 20549; C. Stephens is directed to comply, within ten days of the date of this Order, with its undertaking to pay to the Cherokee WSA an aggregate of $111,019.19, representing the total of its profits plus prejudgment interest from the GIC transaction relating to the Cherokee WSA Refunding Bonds. Stephens' obligations to pay over its profits, plus interest, in the ECUA, FHFA and Osceola County offerings, shall be satisfied by the payments to those entities provided for in Stephens' settlement agreement with the Department of Justice; and D. Stephens shall retain within twenty (20) days of the date of this Order, at Stephens' expense, an Independent Consultant, not unacceptable to the Commission's staff, to conduct a review of, and to report and make recommendations as to, Stephens' supervisory and compliance policies and procedures applicable to the Public Finance Department, related to the types of conduct which gave rise to this proceeding and which are described in this Order. Stephens shall cooperate fully with the Independent Consultant in this review, including making such non-privileged information and documents available, as the Independent Consultant may reasonably request, and by permitting and requiring Stephens' employees and agents to supply such non-privileged information and documents as the Independent Consultant may reasonably request. The Independent Consultant shall provide a written report to Stephens and the Staff of the Commission within three (3) months of the date of this Order setting forth the Independent Consultant's recommendations. The Independent Consultant shall have the option to seek an extension of time by making a written request to the Commission staff. Stephens shall adopt all recommendations contained in the written report of the Independent Consultant; provided, however, that as to any recommendation that Stephens believes is unduly burdensome or impractical, Stephens may suggest an alternative policy or procedure designed to achieve the same objective, submitted in writing to the Independent Consultant and the Commission staff. Stephens and the Independent Consultant shall then attempt in good faith to reach agreement as to any policy or procedure as to which there is any dispute and the Independent Consultant shall reasonably evaluate any alternative policy or procedure proposed by Stephens. Stephens will abide by the Independent Consultant's determinations with regard thereto and adopt those recommendations deemed appropriate by the Independent Consultant. Within thirty (30) days of the receipt of the Independent Consultant's written report, Stephens shall submit an affidavit to the Commission staff stating that it has implemented the recommendations of the Independent Consultant. To ensure the independence of the Independent Consultant, Stephens (i) shall not have the authority to terminate the Independent Consultant without the prior written approval of the Commission staff; and (ii) shall compensate the Independent Consultant, and persons engaged to assist the Independent Consultant, for services rendered pursuant to this Order at their reasonable and customary rates. For the period of the engagement and for a period of two years from the completion of the engagement, the Independent Consultant shall not enter into any employment, consultant, attorney-client, auditing or other professional relationship with Stephens, or any of its present or former affiliates, directors, officers, employees, or agents acting in their capacity as such. Any firm with which the Independent Consultant is affiliated or of which he/she is a member, and any person engaged to assist the Independent Consultant in performance of his/her duties under this Order shall not, without prior written consent of the Commission staff, enter into any employment, consultant, attorney-client, auditing or other professional relationship with Stephens, or any of its present or former affiliates, directors, officers, employees, or agents acting in their capacity as such for the period of the engagement and for a period of two years after the engagement. **FOOTNOTES** [13]: In conjunction with the resolution of this matter, Stephens has entered into a separate civil settlement with the Department of Justice. As part of that settlement, Stephens has agreed to make payments to the ECUA, Osceola County and the FHFA in the aggregate amount of $886,672.16, and to forfeit to the Department of Justice revenues of its Public Finance Department in the amount of $2.25 million. Stephens has also undertaken pursuant to its Offer of Settlement to the Commission, to pay $111,019.19 to the Cherokee WSA. By the Commission. Jonathan G. Katz Secretary