UNITED STATES OF AMERICA Before the SECURITIES AND EXCHANGE COMMISSION SECURITIES EXCHANGE ACT OF 1934 Release No. 37660 / September 9, 1996 ADMINISTRATIVE PROCEEDING File No. 3-9071 ------------------------------- : In the Matter of : ORDER INSTITUTING PROCEEDINGS, F. Otto Busot, : MAKING FINDINGS AND IMPOSING : SANCTIONS. Respondent. : : : ------------------------------- I. The Securities and Exchange Commission ("Commission") deems it appropriate and in the public interest that public proceedings be instituted pursuant to Sections 15(b) and 19(h) of the Securities Exchange Act of 1934 ("Exchange Act") against F. Otto Busot ("Busot"). In anticipation of the institution of these administrative proceedings, Busot has submitted an Offer of Settlement ("Offer") which the Commission has determined 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, Busot, by his Offer, without admitting or denying the Commission's findings as to him, except for those findings contained in Sections III.1, which are admitted by Busot, consents to the entry of this Order Instituting Proceedings, Making Findings and Imposing Sanctions ("Order"). II. Accordingly, IT IS ORDERED that proceedings pursuant to Sections 15(b) and 19(h) of the Exchange Act be, and hereby are, instituted. ==========================================START OF PAGE 2====== III. On the basis of this Order and the Offer submitted the Commission finds-[1]- that: A. Busot is a 55 year old resident of Coral Gables, Florida. He was the branch office manager of PaineWebber, Incorporated's ("PaineWebber") Miami, Florida office from 1984 until 1994. He is now a registered representative ("RR") in PaineWebber's Coral Gables, Florida office. B. From January 1989 until approximately February 1992, Busot was the supervisor of William Hampton ("Hampton"), a RR in PaineWebber's Miami, Florida office. C. Between June 28, 1991 until approximately February 1992, Hampton engaged in fraudulent sales practices. D. Hampton sold direct investments to customers for whom the investments were not suitable in light of their age, financial condition and conservative investment objectives. Many of Hampton's customers were retired or close to retirement and expressly informed him that they desired liquid, income-producing, low-risk investments. In several instances, Hampton concentrated all or most of these customers' investments in direct investments, which were not liquid and not suitable for investors with conservative investment objectives. Hampton also misrepresented to many of his customers the liquidity, risks, and benefits of purchasing direct investments. E. Hampton made unauthorized purchases of direct investments in several customers' accounts. F. Hampton misappropriated approximately $212,000 from at least six customer accounts by forging his customers' signatures on letters of authorization to effect the transfer of client funds to himself and bank accounts in which he held personal interests. G. As a result of the foregoing conduct, Hampton willfully violated Section 17(a) of the Securities Act of 1933 ("Securities Act") and Section 10(b) of the Exchange Act and Rule 10b-5 thereunder. ---------FOOTNOTES---------- -[1]- The findings herein are made pursuant to Busot's Offer and are not binding on any other person or entity named as a respondent in this or any other proceeding. ==========================================START OF PAGE 3====== H. Between June 28, 1991, and approximately February 1992, Busot failed reasonably to supervise Hampton within the meaning of Section 15(b)(4)(E) of the Exchange Act, with a view to preventing Hampton's violations of Section 17(a) of the Securities Act and Section 10(b) of the Exchange Act and Rule 10b-5 thereunder in that Busot: (1) failed to conduct an adequate inquiry into the suitability of certain direct investment sales; (2) failed to take reasonable measures to investigate clear signs of overconcentration in the accounts of Hampton's customers; and (3) failed to conduct an adequate review of letters of authorization relating to Hampton's customers. I. The heavy concentrations of direct investments in numerous customer accounts, and these customers' conservative investment objectives, were apparent from Hampton's customer records, which under PaineWebber procedures, Busot was required to review quarterly. Notwithstanding signs of excessive concentration of direct investments, Busot failed to conduct a reasonable inquiry into Hampton's sales of direct investments. Such an inquiry was particularly appropriate because, by the time of the violations described above, Busot had been informed of several customer complaints against Hampton relating to direct investments. Had Busot contacted Hampton's customers and discussed the suitability of direct investments in light of their conservative investment objectives, Busot could have learned that Hampton was misrepresenting the nature of direct investments to his customers. J. With regard to the letters of authorization that Hampton utilized to misappropriate funds from his customers, some bore signatures which were different from the signatures in PaineWebber's customer records. Moreover, many of the letters of authorization authorized the transfer of substantial amounts of money to accounts of other customers of Hampton, or to entities controlled by Hampton. Busot should have given these transfers special scrutiny. Such scrutiny would have uncovered Hampton's forgeries, and his unauthorized trading and misappropriation. IV. In view of the foregoing, the Commission deems it appropriate and in the public interest to impose the sanction specified in the Offer submitted by Busot. ==========================================START OF PAGE 4====== Accordingly, IT IS HEREBY ORDERED that: A. Busot be, and hereby is, suspended from association with any broker, dealer, investment company, investment adviser or municipal securities dealer, for a period of two months, effective on the second Monday following entry of this Order. Busot agrees to deliver an affidavit of compliance to the Securities and Exchange Commission, Midwest Regional Office, 500 West Madison Street, Suite 1400, Chicago, Illinois, 60661-2511, within ten (10) days following the suspension period stating that he has complied fully with the terms of the suspension; and B. Busot be, and hereby is, barred from acting in a supervisory capacity with any broker, dealer, investment company, investment adviser or municipal securities dealer, immediately following the period of his suspension from association; provided that after a period of four years Busot may make application to reapply to the appropriate self-regulatory organization, and where there is none, to the Commission; and C. Busot shall, within 15 days of the entry of this Order, pay a civil money penalty in the amount of $5,000, pursuant to Section 21B of the Exchange Act, to the United States Treasury. Such payment shall be: (A) made by United States postal money order, certified check, bank cashiers check or bank money order; (B) made payable to the United States Securities and Exchange Commission; (C) delivered to the Comptroller, Securities and Exchange Commission, 450 Fifth Street, N.W., Washington, D.C. 20549; and (D) submitted under cover letter that identifies the Respondent in these proceedings, the file number of these proceedings, a copy of which cover letter, money order, or check shall be sent to Jacqueline S. Jacobson, Senior Attorney, Securities and Exchange Commission, Midwest Regional Office, 500 West Madison Street, Suite 1400, Chicago, Illinois 60610-2511. By the Commission. Jonathan G. Katz Secretary