==========================================START OF PAGE 1====== UNITED STATES OF AMERICA BEFORE THE SECURITIES AND EXCHANGE COMMISSION SECURITIES ACT OF 1933 RELEASE NO. 7316 / July 26, 1996 SECURITIES EXCHANGE ACT OF 1934 RELEASE NO. 37485 / July 26, 1996 ADMINISTRATIVE PROCEEDING FILE NO. 3-9049 ------------------------------- : In the Matter of : : VICTOR L. KASHNER and : ORDER INSTITUTING PROCEEDINGS, : MAKING FINDINGS, IMPOSING KASHNER DAVIDSON : REMEDIAL SANCTIONS AND SECURITIES CORPORATION, : ISSUING CEASE-AND-DESIST : ORDER Respondents. : : ------------------------------ I. The Securities and Exchange Commission ("Commission") deems it appropriate and in the public interest that a public administrative proceeding be instituted pursuant to Section 8A of the Securities Act of 1933 ("Securities Act") and Sections 15(b) and 19(h) of the Securities Exchange Act of 1934 ("Exchange Act") against Victor L. Kashner ("Kashner") and Kashner Davidson Securities Corporation ("Kashner Davidson"). II. In anticipation of the institution of these proceedings, Kashner and Kashner Davidson have submitted Offers of Settlement (the "Offers"), which the Commission has determined to accept. Solely for the purpose of these proceedings and any other proceedings brought by or on behalf of the Commission or in which the Commission is a party, and without admitting or denying the Commission's findings contained herein except that they admit the jurisdiction of the Commission over them and over the subject matter of this proceeding, Kashner and Kashner Davidson consent to the issuance of this Order Instituting Proceedings, Making ==========================================START OF PAGE 2====== Findings and Imposing Remedial Sanctions and Issuing a Cease-and- Desist Order (the "Order"). III. FINDINGS On the basis of this Order and the Offers, the Commission makes the following findings: A. Respondents 1. Kashner Davidson is a broker-dealer registered with the Commission (File No. 8-14684). The firm, located in Sarasota, Florida, employs approximately 15 registered sales personnel and conducts a general securities business. 2. Kashner is the President and controlling person of Kashner Davidson. He has been a registered representative since 1959 and has been a principal of registered broker-dealers since 1970. During times relevant herein, Kashner directed Kashner Davidson's activities. B. Violative Conduct 1. At times relevant herein, Kashner permitted an unregistered individual who was a promoter of speculative medical technology companies (the "Promoter") to use office space and facilities, including telephone and facsimile machines, at Kashner Davidson. The Promoter maintained a securities brokerage account at Kashner Davidson, and Kashner served as the Promoter's registered representative at Kashner Davidson. 2. In May 1988, the Promoter delivered 600,000 shares of stock of Spectra Pharmaceuticals, Inc. ("Spectra"), a company engaged in research and marketing of ophthalmic products, to his securities brokerage account at Kashner Davidson. -[1]- Between May and October 1988, and at the Promoter's instructions, Kashner and others at Kashner Davidson offered and sold approximately 350,000 of these shares. In addition, Kashner and others at Kashner Davidson sold additional shares from Kashner Davidson's account. 3. During June and July 1988, the Promoter supplied Kashner with promotional materials that had been prepared under the Promoter's direction and caused these promotional materials to be distributed to thousands of prospective purchasers of Spectra securities. Kashner played a role in the distribution of these reports. For example, Kashner introduced the Promoter to a ---------FOOTNOTES---------- -[1]- Spectra filed for bankruptcy in 1990 and is no longer in business. ==========================================START OF PAGE 3====== writer, whom the Promoter paid to prepare a purportedly independent research report (the "Baker Report"). Kashner permitted his name to be placed at the end of a second report (the "Kashner Davidson Report"). Kashner also provided Kashner Davidson envelopes for the distribution of the Kashner Davidson Report. Kashner maintained the Baker Report and the Kashner Davidson Report in Kashner Davidson's due diligence file. 4. The Baker Report and the Kashner Davidson Report contained material misrepresentations and omissions. For example, the Baker Report contained misleading comparisons between Lacramore and Retin-A. Retin-A is a compound which is used to reduce skin wrinkles, and Lacramore was one of Spectra's principal proprietary products. Both reports falsely claimed that approval of Lacramore by the Food & Drug Administration ("FDA") was "imminent" or otherwise expected in the near future. In fact, clinical studies had been inconclusive and there was substantial doubt as to whether Lacramore would be approved by the FDA. In addition, the reports made unreasonably optimistic projections of Spectra's future revenue and earnings and the market for its products. 5. In October 1988, a company Kashner owned issued a newsletter with an article on Spectra that contained certain misleading statements. For example, the article falsely stated that Spectra was already marketing the over-the-counter version of Lacramore. 6. Kashner had access to periodic reports and disclosure documents filed by Spectra with the Commission, which contained information that was materially inconsistent with the representations in the reports described above. Kashner did not adequately evaluate the materiality of the information contained in the reports described above prior to recommending Spectra and did not disclose the contradictory information contained in Spectra's Commission filings while selling Spectra stock and while permitting other representatives at Kashner Davidson to sell Spectra stock. 7. As a result of this conduct, Kashner and Kashner Davidson, in the offer or sale of securities, obtained money or property by means of untrue statements of material facts and omissions to state material facts necessary in order to make the statements made not misleading, and engaged in acts, transactions and courses of business which operated as a fraud and deceit on the purchasers of securities. Accordingly, Kashner and Kashner Davidson willfully violated Sections 17(a)(2) and 17(a)(3) of the ==========================================START OF PAGE 4====== Securities Act. -[2]- IV. Based on the foregoing, the Commission deems it appropriate and in the public interest to impose the sanctions specified in the Offers of Settlement submitted by Victor Kashner and Kashner Davidson. Accordingly, IT IS HEREBY ORDERED that Kashner and Kashner Davidson cease and desist from committing or causing any violations, or any future violations of Sections 17(a)(2) and 17(a)(3) of the Securities Act; IT IS FURTHER ORDERED that Kashner be, and hereby is, suspended from association with any broker, dealer, municipal securities dealer, investment adviser or investment company for a period of three (3) months, commencing on the second Monday following issuance of this Order; IT IS FURTHER ORDERED that Kashner be, and hereby is, barred from acting in a supervisory capacity with any broker, dealer, municipal securities dealer, investment adviser or investment company, commencing on the second Monday following issuance of this Order, with a right to reapply after two years, but only if the disgorgement and prejudgment interest, required to be paid pursuant to Kashner and Kashner Davidson's first undertaking, as set forth below, has been paid. Such application to reapply is to be made to the appropriate self-regulatory organization or, where there is none, to the Commission; IT IS FURTHER ORDERED that Kashner and Kashner Davidson comply with the following undertakings: 1. Kashner and Kashner Davidson shall, jointly and severally, within ten (10) days of the entry of an appropriate Order by the United States District Court for the District of Massachusetts, pay into the registry of the Court the sum of $67,381.66, representing disgorgement of $33,821.72 in connection with the profits from sales of Spectra stock between June 23 and September 1988, plus prejudgment interest thereon in the sum of ---------FOOTNOTES---------- -[2]- As used in this Order, "willfully" means the intentional commission of an act which constitutes the violation. There is no requirement that the actor also be aware that he is violating the federal securities laws. See Tager v. SEC, 344 F.2d 5 (2d Cir. 1965). Moreover, violations of Sections 17(a)(2) and 17(a)(3) of the Securities Act do not require a finding of scienter. Aaron v. SEC, 446 U.S. 680 (1980). ==========================================START OF PAGE 5====== $33,559.94, with such monies to be combined with other monies presently held in the registry of the Court in the case captioned Securities and Exchange Commission v. Williams, No. 93-12789 (JLT) and distributed pursuant to a plan to be submitted by the Commission to the Court; 2. Kashner Davidson shall, on or before the second Monday following the issuance of this Order, transfer all supervisory responsibility from Victor L. Kashner to one or more principals acceptable to the Commission's staff, who shall take responsibility for Kashner Davidson's compliance with all applicable regulations of the Commission, the states and self- regulatory organizations and who will hold supervisory responsibility for the firm's conduct, including, but not limited to, supervisory responsibility over all trades executed by Kashner in the Kashner Davidson investment or market-making account; and 3. Kashner Davidson shall not permit any individual to use the firms's office space or facilities on a regular basis except in connection with work being performed for Kashner Davidson. IT IS FURTHER ORDERED that, within thirty (30) days after the expiration of the suspension, but not the supervisory bar, described above, Respondent Kashner shall provide the Boston District Office of the Commission with an affidavit setting forth with particularity the details of his compliance with the suspension and with Kashner Davidson's compliance with the requirement to pay disgorgement as set forth in paragraph (1) above. Respondent Kashner cannot, in any event, again act in a supervisory capacity until he delivers such affidavit. By the Commission. Jonathan G. Katz Secretary