UNITED STATES OF AMERICA Before the SECURITIES AND EXCHANGE COMMISSION INVESTMENT ADVISERS ACT OF 1940 Release No. 1766 / September 30, 1998 ADMINISTRATIVE PROCEEDING File No. 3-9457 : In the Matter of : : SCHUYLKILL CAPITAL :ORDER MAKING FINDINGS AND MANAGEMENT, LTD. :IMPOSING REMEDIAL SANCTIONS :AND CEASE AND DESIST ORDER and HOWARD A. TRAUGER : : Respondents : I. In this proceeding, instituted pursuant to Sections 203(e), 203(f) and 203(k) of the Investment Advisers Act of 1940 ("Advisers Act"), Respondents Schuylkill Capital Management, Ltd. ("SCM") and Howard A. Trauger ("Trauger"), have submitted an Offer of Settlement of Schuylkill Capital Management , Ltd., and Howard A. Trauger ("Offer") which the Securities and Exchange Commission ("Commission") has determined to accept.[1] 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 contained herein, SCM and Trauger, by their Offer, consent to the findings and the imposition of the sanctions and other relief contained in this Order Making Findings and Imposing Remedial Sanctions and Cease-and-Desist Order ("Order"). II. On the basis of this Order and the Offer submitted by SCM and Trauger, the Commission finds that: A. SCM, headquartered in Philadelphia Pennsylvania, has been registered with the Commission as an investment adviser pursuant to Section 203(c) of the Advisers Act since November 1990 (File No. 801-37926). B. Trauger is the co-owner, president and principal of SCM. C. In or about December 1993, SCM entered into an oral soft dollar arrangement with a broker dealer ("Broker").[2] Pursuant to the arrangement, SCM received $.50 in soft dollar credits for each $1.00 in brokerage commissions directed to the Broker. D. SCM used most of the soft dollar credits to pay for the cost of secretarial and telephone services furnished to SCM by the Broker. From December 1993 through August 1995, the Broker furnished SCM with approximately $32,946 of secretarial and telephone services in return for soft dollar credits. E. Trauger was at all times responsible for the day-to-day operations of SCM including overseeing all compliance matters. Beginning with the first Form ADV filed on October 29, 1990, Trauger prepared and signed all of SCM's Forms ADV and amendments filed with the Commission. F. Neither the existence nor the terms of the soft dollar arrangement were disclosed to SCM's clients in their advisory contracts or otherwise. Furthermore, SCM failed to amend its Form ADV after entering into the soft dollar arrangement with the Broker, and the arrangement was not disclosed in SCM's Form ADV in effect between December 1993 and August 1995, the period in which the arrangement was in effect. G. During the period in which the arrangement was in effect, SCM amended its Form ADV on two occasions: in January 1994 and in March 1995. H. Throughout the December 1993 to August 1995 time period, SCM's Form ADV reflected a "no" answer to Part II, Item 13A., which asks: "Does the applicant ... have any arrangement ... where it ... is paid cash by or receives some economic benefit (including commissions, equipment or non-research services) from a non-client in connection with giving advice to clients?" In view of SCM's arrangement with the Broker, this response was inaccurate. I. SCM also failed to disclose the soft dollar arrangement with the Broker in response to Item 12 of Part II of the Form ADV, which requires investment advisers to disclose the factors they employ in selecting brokers and determining the reasonableness of their commissions. J. Based on the foregoing, from in or about December 1993 through August 1995, SCM willfully violated Sections 204, 206(2) and 207 of the Advisers Act and Rule 204-1(b) thereunder. Trauger willfully aided and abetted and caused SCM's violations of Sections 204, 206(2) of the Advisers Act and Rule 204-1(b) thereunder and willfully violated Section 207 of the Advisers Act. III. On the basis of the foregoing, the Commission deems it appropriate and in the public interest to impose the sanctions and other relief specified in SCM's and Trauger's Offer of Settlement. Accordingly, IT IS HEREBY ORDERED that: A. SCM and Trauger, pursuant to Sections 203(e) and 203(f) of the Advisers Act, are censured. B. Pursuant to Section 203(k) of the Advisers Act, SCM and Trauger cease and desist from committing or causing any violations and any future violations of Sections 204, 206(2) and 207 of the Advisers Act and Rule 204-1(b) thereunder. C. SCM and Trauger, pursuant to Sections 203(e) and 203(f) of the Advisers Act, comply with their undertakings to perform and implement the following: a. Within 60 days of the entry of this Order, SCM will revise its procedures manual to include a section setting forth policies and procedures regarding soft dollar arrangements with broker dealers. b. SCM will hold a mandatory meeting with its employees to review policies and procedures including those relating to soft dollar arrangements. Attendance at the meeting will be recorded and a copy maintained in the files of SCM. D. Pursuant to Section 203(j) of the Advisers Act, SCM and Trauger pay disgorgement in the aggregate of $39,533 which amount includes $6,857 of prejudgment interest. Payment of disgorgement shall be made within 90 days of the entry of the Order. E. Both SCM and Trauger, pursuant to Section 203(i) of the Advisers Act, pay a civil penalty. SCM shall pay a civil penalty of $10,000 payable within 90 days of the entry of the Order. Trauger shall pay a civil penalty of $5,000 payable within 90 days of the entry of the Order. F. The payments required by paragraph III.E. of this Order shall be made within 90 days of the entry of the Order by: (A) United States postal money order, certified check, bank cashier's check or bank money order; (B) made payable to the Securities and Exchange Commission; (C) hand-delivered or mailed to the Comptroller, Securities and Exchange Commission, Operations Center, 6432 General Green Way, Stop 0-3, Alexandria, VA 22312; and (D) submitted under cover letter that identifies SCM and Trauger as Respondents in these proceedings, the file number of these proceedings, a copy of which cover letter and money order or check shall be sent to Ronald C. Long, District Administrator, Securities and Exchange Commission, Philadelphia District Office, 601 Walnut Street, Suite 1120 East, Philadelphia, PA 19106. G. The payments required by paragraph III.D. of the Order shall be made within 90 days of the entry of the Order by: A) United States postal money order, certified check, bank cashier's check, bank money order or checks; B) made payable to each of the 22 accounts listed in the December 4, 1997 "Schedule of Payments to Clients of Schuylkill Capital Management" ("Schedule"); C) the payment for each account shall total the amounts identified in the Schedule for such account; D) mailed to owner or custodian of the account: and E) a copy of such checks shall be sent to Ronald C. Long, District Administrator, Securities and Exchange Commission, Philadelphia District Office, 601 Walnut Street, Suite 1120 East, Philadelphia, Pennsylvania 19106. H. SCM and Trauger shall provide to the Commission, within 120 days of the entry of the Order, affidavits evidencing full compliance with the sanctions described in Sections III.C., III.D. and III.E. above. By the Commission. Jonathan G. Katz Secretary **FOOTNOTES** [1]:An Order Instituting Public Proceedings against SCM and Trauger was issued by the Commission on September 30, 1997. [2]:The term "soft dollars" generally refers to an arrangement whereby an investment adviser uses commission dollars generated by securities trades executed in client accounts to pay for research, brokerage, or other products or services.