UNITED STATES OF AMERICA before the SECURITIES AND EXCHANGE COMMISSION Securities Exchange Act of 1934 Release No. 40467 / September 23, 1998 Investment Advisers Act of 1940 Release No. 1756 / September 23, 1998 Administrative Proceeding File No. 3-9717 : In the Matter of : : ORDER INSTITUTING PROCEEDINGS NICHOLAS C. BOGARD, : PURSUANT TO SECTION 15(b)(6) : OF THE SECURITIES : EXCHANGE ACT OF 1934, AND : SECTION 203(f) OF THE INVESTMENT : ADVISERS ACT OF 1940, MAKING : FINDINGS, AND IMPOSING REMEDIAL : SANCTIONS Respondent. : : I. The Commission deems it appropriate and in the public interest that proceedings be, and hereby are, instituted pursuant to Section 15(b)(6) of the Securities Exchange Act of 1934 ("Exchange Act"), and Section 203(f) of the Investment Advisers Act of 1940 ("Advisers Act") against Nicholas C. Bogard. II. In anticipation of the institution of these administrative proceedings, Bogard has submitted an Offer of Settlement that the Commission has determined to accept. Solely for the purposes of these proceedings and any other proceedings brought by or on behalf of the Commission or to which the Commission is a party, and prior to hearing and without admitting or denying the findings set forth herein, Bogard consents to the entry of this Order Instituting Proceedings Pursuant to Section 15(b)(6) of the Securities Exchange Act of 1934, and Sections 203(f) of the Investment Advisers Act of 1940, Making Findings and Imposing Remedial Sanctions ("Order"). The Commission has determined that it is appropriate and in the public interest to accept the Offer of Settlement from Bogard, and accordingly is issuing this Order. III. FACTS Based on the foregoing, the Commission finds that:[1] A.Respondent Nicholas C. Bogard, age 53, resides in Dover, Massachusetts. Bogard was the Director of Mutual Fund Sales at CS First Boston Investment Management Corporation ("CSFBIMC") from September 1992 until May 1994. CSFBIMC was registered with the Commission as an investment adviser pursuant to the Advisers Act at all relevant times and was an affiliate of CS First Boston ("First Boston"), a registered broker-dealer. B.Summary During the period from December 1993 until March 1994, CSFBIMC was the investment adviser for of The CS First Boston Offshore Cash Reserve Fund (the "Offshore Fund" or the "Fund"), which the firm marketed as a near money market fund and whose investment objective was to achieve the highest level of income consistent with preservation of capital and low volatility of net asset value. Bogard supervised, among others, the Fund's principal salesman, an employee of CSFBIMC (the "Salesman") who violated the antifraud provisions of the federal securities laws by distributing false and misleading marketing materials and knowingly misrepresenting, among other things, the size of the Fund, the number of investors in the Fund, and the content and composition of the Fund. The Salesman, without the authorization of First Boston, also told an investor that its investment in the Fund would be guaranteed by First Boston, when in fact it was not. Bogard failed reasonably to supervise with a view to preventing the Salesman's violations of the federal securities laws. C.The Formation Of The Offshore Fund During the Fall of 1993, CSFBIMC made plans to create, develop and market an unregistered offshore fund, eventually entitled the "CS First Boston Offshore Cash Reserve Fund," designed for sophisticated institutional investors. The CSFBIMC internal development team for the Fund consisted primarily of the Salesman and the Fund's portfolio manager (the "Portfolio Manager"). With input from, among others, the Salesman, the Portfolio Manager and Bogard, CSFBIMC prepared an offering circular, dated December 15, 1993, for the Offshore Fund. The initial offering circular (the first of three for the Fund) disclosed the following investment objective: "The Fund's investment objective is to seek a high level of current income, consistent with the preservation of capital and the maintenance of liquidity through investment principally in money market instruments and fixed income securities." The offering circular also represented that "the Fund will normally attempt to maintain a Net Asset Value per Share that when rounded to the nearest whole cent will equal $1.00." Contrary to the Fund's offering circular and investment policies, the portfolio manager invested most of the Fund's net assets in risky derivative securities. [2] D.The Salesman's Misrepresentations and Omissions In December 1993, as final plans for launching the Fund were being made, the Salesman solicited an outside investor (the "Investor") to invest in the Fund and provide some of the "seed capital" needed to get the Fund started. The Salesman told the Investor that First Boston would be contributing $100-150 million of its own money to the Fund and that there were other institutional clients already invested in the Fund. The Salesman also falsely told the Investor that First Boston would guarantee the Investor at least a 4% return through the end of January 1994 (a rate that was substantially higher than then-current domestic money market rates) and that the Investor's principal was not at risk because any losses sustained by the Fund would be covered by First Boston. Bogard neither authorized nor discovered these statements. The Investor invested $300 million in the Fund on January 4, 1994. Contrary to the Salesman's representations, there were no other non-First Boston affiliated investors in the Fund, and First Boston itself invested only $5 million in the Fund. The Salesman continued this deception throughout January and February 1994. To induce the Investor to keep its original $300 million in the Fund and to make additional investments, the Salesman told the Investor that it would receive an above-market interest rate through the end of February. The Salesman also falsely reiterated to the Investor on several occasions that First Boston would guarantee the Investor's investment in the Fund. By early February 1994, the Investor invested an additional $550 million in the Fund, bringing its total investment to $850 million. Prior to making the additional investment, the Investor requested, and the Salesman agreed, that the $550 million would be used to purchase short-term, money market securities, not SRNs. However, after the money was invested additional SRNs were purchased with the Investor's money. The Salesman also provided the Investor with false information to make it appear that there were other investors in the Fund. For example, on December 20, 1993 (prior to the Investor making its initial investment), the salesman misrepresented to the Investor that two other investors had already invested in the Fund. Similarly, on February 8, 1994, when the Investor's investment had increased to approximately $720 million (and the Fund's net assets were about $725 million), the Salesman told the Investor that the Fund was at $895-950 million. E.The Misleading Marketing Materials During December 1993 through February 1994, the Salesman distributed to the Investor and other clients certain marketing materials that misrepresented, among other things, the size of the Fund, the number of investors in the Fund, and the content and composition of the Fund. The misleading marketing materials included pie graphs, portfolio charts, correspondence and offering circulars. A portfolio chart, dated January 4, 1994, purportedly listing the investments in the Fund, was incomplete in that it included only approximately $305 million of the total $425 million of investments in the portfolio as of that date. The chart excluded $120 million of SRNs and did not reflect the leverage in the portfolio. The chart was also misleading because it miscalculated the weighted average maturity of the portfolio by understating the number of days to maturity for some of the SRNs. Also, on or about February 24, 1994, the Salesman sent the Investor and other CSFBIMC clients a copy of a revised offering circular and a cover letter falsely stating that "the fund is now at $920 million," when in fact the Fund had net assets of $855 million. Except for the offering circulars, none of the marketing materials were approved or reviewed by Bogard prior to distribution. F.Bogard's Failure to Supervise the Salesman Bogard failed reasonably to supervise the Salesman, a person subject to his supervision, with a view to preventing the Salesman's violations of the federal securities laws. Bogard received information from CSFBIMC employees alleging that the Salesman had previously misrepresented facts to clients and had improperly told a client that an investment was guaranteed. Bogard failed to adequately increase his supervision of the Salesman's activities to prevent distribution of false information to clients. In addition, First Boston's compliance department advised Bogard that the Salesman needed a Series 7 registration to sell the Fund, and that a Series 7 registered salesperson was supposed to accompany the Salesman on all sales calls until he received his registration. Bogard did not take adequate steps to ensure that the Salesman was either licensed or accompanied by a Series 7 sales person when engaged in sales activities for the Fund, nor did he sufficiently monitor the Salesman's activities to ensure that unlicensed sales activities did not occur. In fact, the Salesman made the numerous misrepresentations to the Investor without the oversight of registered Series 7 personnel or other adequate supervision. Finally, Bogard did not take sufficient steps to ensure that the Fund's marketing materials were reviewed for accuracy and approved by him prior to distribution. IV. OPINION Section 15(b)(6) of the Exchange Act and Section 203(f) of the Advisers Act authorize the Commission to impose sanctions on persons associated with a broker-dealer and an investment adviser, respectively, for failure reasonably to supervise, with a view toward preventing violations, any person who violates the federal securities laws, if that person is subject to the broker- dealer's or the adviser's supervision. Section 17(a) of the Securities Act makes it unlawful, in the offer or sale of securities, (1) to employ any device, scheme or artifice to defraud, or (2) to obtain money or property by means of any untrue statement of material fact or any omission to state a material fact necessary to make the statements made, in light of the circumstances in which they were made, not misleading, or (3) to engage in any transaction, practice, or course of business that operates as a fraud or deceit upon a purchaser. Section 10(b) of the Exchange Act and Rule 10b-5 thereunder make it unlawful to employ any device, scheme or artifice to defraud in connection with the purchase or sale of securities. Section 206(1) of the Advisers Act makes it unlawful for an investment adviser to employ any device, scheme or artifice to defraud any client or prospective client. Section 206(2) makes it unlawful for an investment adviser to engage in any transaction, practice, or course of business that operates as a fraud or deceit upon any client. The Salesman violated these provision by distributing materially false and misleading marketing materials relating to the Offshore Fund and knowingly misrepresenting, among other things, the size of the Fund, the number of investors in the Fund, and the content and composition of the Fund. He also told the Fund's sole outside investor that its investment in the Fund would be guaranteed by First Boston, when in fact it was not. As discussed above, Bogard failed reasonably to supervise the Salesman with a view to preventing the Salesman's violations of the federal securities laws. . **FOOTNOTES** [1]:The findings herein are made pursuant to Bogard's Offer of Settlement and are not binding on any other person or entity in this or any other proceeding. [2]:The Fund was largely invested in structured rate notes ("SRNs"). SRNs are over-the-counter securities, the terms of which are negotiated by the dealer (usually a bank or securities firm) and the purchaser. SRNs generally commit the dealer to provide a return linked to one or more desired interest rates, currencies or other assets. While the payment of principal and interest to the purchaser typically is guaranteed by the dealer, the amount of such payments can fluctuate, depending on the terms of the SRN. The second offering circular, dated January 24, 1994, disclosed that the Fund could invest in structured rate notes ("SRNs"), but failed to disclose the degree of risk to which the Fund was exposed as a result of the Fund's significant position in these securities V. FINDINGS Based on the above, the Commission finds that Bogard failed reasonably to supervise with view to preventing violations of Section 17(a) of the Securities Act, Section 10(b) of the Exchange Act and Rule 10b-5 thereunder, and Sections 206(1) and 206(2) of the Advisers Act. VI. ORDER Accordingly, IT IS HEREBY ORDERED that Bogard, A.be suspended from association with any broker or dealer or investment adviser for a period of three months, effective the second Monday following the entry of the Order; B.be suspended from association in a supervisory capacity with any broker or dealer or investment adviser for a period of six months, effective the second Monday following the entry of the Order; and C.pay a civil money penalty of $10,000 within ten (10) days of the entry of the Order, by U.S. Postal money order, certified check, bank cashier's check, or bank money order, made payable to the Securities and Exchange Commission and 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 cover of a letter that identifies the respondent and the name and file number of this proceeding. A copy of the cover letter and of the form of payment shall be simultaneously transmitted to Gregory S. Bruch, Securities and Exchange Commission, 450 Fifth St., N.W., Stop 7-3, Washington, DC 20549. By the Commission. _________________________ Jonathan G. Katz Secretary