INITIAL DECISION RELEASE NO. 119 ADMINISTRATIVE PROCEEDING FILE NO. 3-9042 UNITED STATES OF AMERICA Before the SECURITIES AND EXCHANGE COMMISSION Washington, D.C. __________________________ : In the Matter of : : INITIAL DECISION IMS/CPAs & ASSOCIATES, : January 12, 1998 VERNON T. HALL, : STANLEY E. HARGRAVE, and : JEROME B. VERNAZZA : _________________________:_ APPEARANCES: Sheila E. O Callaghan, Karen G. Kwong, and David B. Bayless for the Division of Enforcement, Securities and Exchange Commission Jane Katz Crist for IMS/CPAs & Associates, Vernon T. Hall, and Stanley E. Hargrave Sheldon M. Jaffe for Jerome B. Vernazza BEFORE: Brenda P. Murray, Chief Administrative Law Judge The Securities and Exchange Commission ("Commission") issued an Order Instituting Public Administrative and Cease and Desist Proceedings ( Order ) in this matter on July 11, 1996, pursuant to Section 8A of the Securities Act of 1933 ( Securities Act ), Section 21C of the Securities Exchange Act of 1934 ("Exchange Act"), and Sections 203(e), 203(f), and 203(k) of the Investment Advisers Act of 1940 ( Advisers Act ). I received Respondents Answer on October 2, 1996, and their Amended Answer on December 23, 1996. I held a hearing in Los Angeles, California, on December 2 through 4, 1996, at which the Division of Enforcement ( Division ) called four witnesses and introduced 40 exhibits, and the Respondents called six witnesses and introduced 36 exhibits.<(1)> I received the Division s Post-hearing Brief and Proposed Findings of Fact and Conclusions of Law on February 18, 1997. I received a Reply Brief <(1)> Tr. __ refers to the transcript of the hearing. Counsel s Exhibit No. 1 is a list of the Division s exhibits. Counsel s Exhibit No. 2 is a list of Respondents exhibits. I will refer to the exhibits as Div. Ex. __ or Rs. Ex. __. ======END OF PAGE 1====== from Respondents IMS/CPAs & Associates ( IMS ), Vernon T. Hall, and Stanley E. Hargrave on March 19, 1997, and a Reply Brief from Respondent Jerome B. Vernazza on the same date. I received an Amended Post-hearing Reply Brief from the Division on April 18, 1997. Issues Respondents are charged with willfully violating Section 17(a) of the Securities Act, and Section 10(b) of the Exchange Act and Rule 10b-5 thereunder. IMS and Mr. Vernazza are charged with willfully violating Sections 204, 206(1), and 206(2) of the Advisers Act and Rule 204-3 thereunder. All three individual Respondents are alleged to have willfully aided and abetted and caused IMS s violations of Sections 206(1) and 206(2) of the Advisers Act. Messrs. Hall and Hargrave are charged with willfully aiding and abetting and causing IMS s violations of Section 204 of the Advisers Act and Rule 204-3 thereunder. IMS and Messrs. Vernazza and Hargrave allegedly willfully violated Section 207 of the Advisers Act. The Division charges that Respondents engaged in a fraudulent scheme to discharge a debt by recommending that their clients invest in a fund which charged for services already being provided. Throughout the relevant time period, respondents repeatedly misrepresented to its clients, and in public filings, that they were not receiving any compensation for investment recommendations. Yet, respondents received over $75,000 by transferring their client s assets to a fund which paid respondents fees as a method of crediting their debt. (Division s Post-Hearing Brief at 1.) Findings of Fact My findings and conclusions are based on the record and hearing the witnesses testimony and observing their demeanor. I applied preponderance of the evidence as the applicable standard of proof. I have considered all proposed findings and conclusions and all contentions, and I accept those that are consistent with this decision. ======END OF PAGE 2====== Respondent IMS/CPAs & Associates In 1991 and 1992, the individual Respondents and Hall & Vernazza, CPAs ( Hall & Vernazza ), a California general partnership and CPA firm certified by the California Board of Accountancy, did business as IMS, a partnership which has been a registered investment adviser since July 7, 1988. (Tr. 193-94, 222, 309, 364, 381, 419; Rs. Exs. 134, 135.) The three individual Respondents were all control persons of IMS. Mr. Hall and Mr. Vernazza were partners and Mr. Hargrave was a principal.<(2)> (Amended Answer; Tr. 486.) Mr. Vernazza is a fifty percent owner of Hall & Vernazza, and Mr. Hall and Mr. Hargrave each own twenty-five percent. (Tr. 681.) In 1992, IMS had about 120 clients and managed about $35 million. (Tr. 195.) The individual Respondents had primary responsibility for certain clients, but the clients were all firm clients. (Tr. 196.) IMS signed an engagement letter each year with each client and it charged a set fee based on a percentage of assets or a negotiated amount. (Tr. 191, 209- 13, 310.) In August 1991, Hall & Vernazza formed the Tax-Planning Federal Cash Fund ( Tax Fund ) with World Money Managers ( WMM ), a California limited partnership and a registered investment company. (Tr. 72, 222.) Mr. Vernazza s recollection is that Mr. Coxon, WMM s general partner, formed the Tax Fund after he raised the idea of such a fund with Mr. Coxon.<(3)> (Tr. 503, 505-09.) The Tax Fund was the initial series of the Qualified Investor s Funds, Inc., a registered investment adviser, of which Mr. Coxon was president. (Rs. Ex. 103.) IMS and WMM paid the costs associated with starting the Tax Fund. (Tr. 789.) WMM was the investment adviser to the Permanent Portfolio Family of Funds ( PPFF ), a registered investment company. In 1992, the PPFF had between $300 to $400 million under management in four portfolios: the Permanent Portfolio, the Treasury Bill Portfolio, the Versatile Bond Portfolio, and the Aggressive Growth Portfolio. (Rs. Ex. 120 at 1; Tr. 161-62; 652.) Mr. Coxon, president of the PPFF, became president of the Tax Fund, and WMM and Hall & Vernazza were, respectively, the Tax Fund s investment adviser and sub- adviser.<(4)> (Order at 2; Respondents Amended Answer at 1; Rs. Exs. <(2)> Mr. Hargrave is not a CPA and the California Board of Accountancy requires that owners of CPA firms that are not CPAs be designated as principals not partners. (Tr. 364.) Mr. Hargrave testified he was an IMS partner; however, he signed IMS s investment adviser filings as a principal. (Tr. 364; Div. Ex. 13.) <(3)> WMM s limited partners are Terry Coxon, Terry Coxon, Inc., a California corporation wholly owned by Mr. Coxon, Allen Sergi, the Schwab Irrevocable Trust, the Schwab Corp., Robert Allen, and Permanent Portfolio Information, Inc. (Rs. Ex. 106 at 8.) <(4)> The Tax Fund s Prospectus refers to Hall & Vernazza as the sub-adviser on investment policy and other matters. (Rs. Ex. 104.ii.) ======END OF PAGE 3====== 104, 106.15.) IMS and WMM decided to close the Tax Fund in June 1992 because, as a no-load fund that invested in short-term U.S. securities, it was unattractive to investors due to the low interest rates at the time. (Tr. 78, 683-84.) The fund needed $13 or $14 million to break even and investments only reached $5.5 million.<(5)> (Tr. 683.) Mr. Vernazza estimated that IMS lost about $100,000 in connection with the Tax Fund because it was paying $4,000 a month to cover expenses. (Tr. 683-84.) WMM was not willing to pay the entire costs of closing the Tax Fund. Hall & Vernazza agreed to pay a portion of the closing cost because most Tax Fund investors were clients of IMS and it did not want them to suffer a loss in net asset value per share as a result of the closing. (Tr. 514, 807.) WMM agreed to lend Hall & Vernazza $60,000, its estimated share of the closing costs. (Tr. 78, 391-94; Respondents Amended Answer at 1.) On June 11, 1992, WMM issued a check to Hall & Vernazza for $60,000, which Mr. Vernazza immediately endorsed over to the Qualified Investor s Funds, Inc. (Div. Ex. 3; Tr. 229, 511-12.) On June 22, 1992, each of the individual Respondents signed as Hall & Vernazza general partners and individually guaranteed a promissory note to WMM for the $60,000 received on June 11. (Div. Ex. 2.) Respondents agreed that because Mr. Vernazza was primarily in charge of this particular thing, he was responsible for $30,000 and Mr. Hall and Mr. Hargrave were responsible for $15,000 each. (Tr. 224-25.) The note provided that principal and interest payable at the rate of $12,000 from July 1, 1992 to December 31, 1992, were payable in full on January 1, 1993, and that thereafter principal and interest were payable in $2,000 installments due on the first day of each month beginning on February 1, 1993, and continuing until July 1, 1995, when the entire unpaid principal and interest would be due and payable. (Div. Ex. 2.) On June 23, 1992, Mr. Vernazza, for Hall & Vernazza, entered into a shareholder servicing agreement ( service agreement ) with WMM whereby Hall & Vernazza agreed to provide administrative support services to investors in the four portfolios of the PPFF. (Rs. Ex. 120 at 2.) WMM represented that it would not terminate the service agreement while there was a balance due on the promissory note. (Div. Ex. 119.) Mr. Vernazza for Hall & Vernazza, and Mr. Coxon, for WMM, negotiated and signed the service agreement. (Rs. Ex. 120; Tr. 399.) The service agreement set Hall & Vernazza s fees based on time, effort, and complexity of services at an annual rate not to exceed a certain percentage ( the cap ) of the average net asset value of clients who had been invested in the Tax Fund and who invested in two PPFF portfolios - Treasury Bill and Versatile Bond - before June 30, 1995, and lower percentages of the average net asset value of other clients who invested in the Treasury Bill, Versatile Bond, and Aggressive Growth portfolios. (Rs. Ex. 120 at 8; Tr. 581-82.) <(5)> This figure is from Mr. Vernazza. Mr. Coxon thought the Tax Fund at its peak had between $6 or $7 million. (Tr. 83.) ======END OF PAGE 4====== From June 18, 1992,<(6)> through July 2, 1996, WMM appears to have spontaneously paid Hall & Vernazza $75,032.78 pursuant to the terms of the service agreement. (Div. Ex. 29; Tr. 126-33.) WMM s records show that it paid the following amounts: June 18, 1992 $ 1,287.54 Nov. 3, 1994 $1,774.41 April 6, 1993 9,534.00 Dec. 7, 1994 1,786.32 April 6, 1993 1,752.00 Dec. 21, 1994 1,806.52 April 6, 1993 1,774.00 March 1, 1995 1,701.08 April 29, 1993 1,738.00 March 1, 1995 1,508.45 June 3, 1993 1,695.00 June 2, 1995 1,782.45 Aug. 13, 1993 5,713.22 June 2, 1995 1,753.05 Sept. 1, 1993 2,225.33 June 2, 1995 1,738.04 Nov. 4, 1993 4,242.11 July 6, 1995 1,744.13 Dec. 3, 1993 1,910.47 Aug. 21, 1995 1,757.73 Dec. 3, 1993 1,852.47 Oct. 20, 1995 925.02 March 2, 1994 3,667.84 Oct. 20, 1995 928.54 April 4, 1994 1,740.12 Dec. 5, 1995 933.17 May 17, 1994 1,843.75 April 2, 1996 518.15 May 17, 1994 1,904.99 April 2, 1996 490.63 June 17, 1994 1,875.30 April 2, 1996 491.39 June 7, 1994 1,838.82 May 1, 1996 491.14 Aug. 4, 1994 1,781.31 May 1, 1996 491.69 Oct. 21, 1994 1,779.20 July 2, 1996 504.00 Oct. 21, 1994 1,751.40 Total $75,032.78 Hall & Vernazza did not send WMM invoices or documentation to support any of these payments. (Tr. 134, 413-14, 583-84, 589.) According to Mr. Vernazza, WMM always paid at the cap, the maximum allowable level under the service agreement, because (1) his initial billing ($60,000) was substantially greater than the amount allowed under the cap and he told WMM to carry the balance forward and (2) the value of the work he performed for the PPFF always exceeded the amount due under the cap. (Tr. 583-89, 656, 708.) From April 16, 1993, through November 30, 1996, Hall & Vernazza paid WMM a total of $69,653 for principal and interest on the note.<(7)> (Div. Ex. 30; Tr. 139-43.) Payments on the promissory note have not followed the prescribed schedule and, at times, have tracked WMM s payments under the service agreement. For example: <(6)> The record does not explain why this payment was made before the service agreement was signed. <(7)> WMM s records show that it received the following payments on the note: April 16, 1993, $12,000; May 13, 1993, $2,000; August 27, 1993, $6,000; November 12, 1993, $4,000; December 27, 1993, $4,000; March 28, 1994, $4,000; April 22, 1994, $2,000; June 27, 1994, $2,000; July 13, 1994, $14,653; July 21, 1994, $2,000; September 22, 1994, $2,000; October 31, 1994, $2,000; November 14, 1994, $2,000; December 14, 1994, $2,000; January 3, 1995, $2,000; March 15, 1995, $2,000; March 27, 1995, $2,000; and June 28, 1995, $2,000. (Div. Exs. 6, 30.) ======END OF PAGE 5====== Service Agmt. Payment Note Payment 4/11/93 $13,060.00 4/12/93 $12,000.00 5/04/93 $1,738.00 5/05/93 $2,000.00 6/09/93 $1,695.00 8/17/93 $5,713.22 8/25/93 $6,000.00 9/05/93 $2,225.23 11/05/93 $4,000.00 _________ _________ $24,431.45 $24,000.00 (Div. Exs. 7, 8.) On November 30, 1995, $4,609 was due and owing on the note, and an unpaid balance was outstanding in December 1996. (Div. Ex. 30; Tr. 723.) After Hall & Vernazza entered the service agreement, IMS recommended that its clients invest in the PPFF Versatile Bond Portfolio or Treasury Bill Portfolio. (Tr. 162, 173, 532, 555, 650, 652-53, 813.) Based on IMS s recommendation, by December 31, 1992, 18 IMS clients, who had been invested in the Tax Fund, had invested over $3.5 million in the PPFF, and additional IMS clients who had not been invested in the Tax Fund had invested over $1.5 million in the PPFF. (Div. Ex. 6.) On April 27 and June 3, 1993, WMM compensated Hall & Vernazza based on 17 PPFF investors who had been invested in the Tax Fund and one new PPFF investor.<(8)> (Div. Exs. 10B, 10C.) On September 14, 1992, IMS filed an amendment to its investment adviser form, Form ADV, in which it disclosed that (1) WMM and Hall & Vernazza had terminated their sub-advisory contract in connection with the Tax Fund as of June 30, 1992; (2) as of June 22, 1992, WMM had retained Hall & Vernazza as its shareholder servicing agent relative to the PPFF; (3) Hall & Vernazza provided certain advisory and administrative support services such as client tax planning concerns and questions about the portfolios including tax aspects of an investment in the portfolio ; and (4) WMM shall pay Hall & Vernazza for the time, effort and complexity of services at an annual rate no greater than 5/10 of 1% for Treasury Bill Portfolio Investors, 6/10 of 1% for Versatile Bond Portfolio Investors and 5/10 of 1% for Aggressive Growth Portfolio. The amendment deleted Mr. Vernazza as a control person of IMS and stated that Mr. Hall and Mr. <(8)> The April 27, 1993, check for $1,738.00 appears on Div. Ex. 7 as happening on May 4, 1993. The June 3, 1993, check for $1,695.00 appears on Div. Ex. 7 as happening on June 9, 1993. ======END OF PAGE 6====== Hargrave were partners in Hall & Vernazza. (Div. Ex. 13.) In this amendment to its ADV Form, IMS did not disclose that IMS (1) recommended securities to clients in which it directly or through a related person had a sales interest, Part I, Item 21; (2) recommended to clients that they buy investment products in which IMS or a related person had a financial interest, Part II, Item 9.D; and (3) or a related person received an economic benefit from a non-client in connection with giving advice to clients, Part II, Item 13.A. (Compare Rs. Ex. 149 with Div. Ex. 13.) IMS amended its registration Form ADV on or about March 30, 1993, and March 30, 1994, to indicate that it recommended to clients that they buy investment products in which IMS or a related person had a financial interest, but it did not disclose that IMS recommended securities in which it or a related person had a sales interest, and that it received an economic benefit from a non-client in connection with giving advice to clients. (Div. Exs. 14, 15.) After it entered the service agreement, IMS entered advisory contracts with clients and signed a standard form engagement letter that warranted that it did not and would not receive any commission or payment from, and had no financial interest in, any recommendation that it made. (Div. Exs. 27, 28.) Respondent Vernazza Mr. Vernazza, age 63, earned B.A. and M.A. degrees in economics from Stanford University and has been a CPA since 1961. Mr. Vernazza founded IMS and Hall & Vernazza. In addition, Jerome Ben Vernazza d/b/a IMS/CPAs & Associates has been a registered investment adviser since 1986. (Order at II D; Amended Answer.) Mr. Vernazza is a member of several professional organizations and holds the designation Accredited Personal Financial Specialist from the American Institute of Certified Public Accountants. His curriculum vitae contains a seven page list of teaching experience, speaking engagements, and publications, and describes Mr. Vernazza as an investment economist and registered investment adviser.<(9)> (Rs. Ex. 133.) In 1991-92, Mr. Vernazza operated from an office in Aptos, California. In 1992, Mr. Vernazza serviced about twenty IMS investment adviser clients. (Tr. 492.) At least four IMS clients who had been invested in the Tax Fund invested in the PPFF at Mr. Vernazza s recommendation. (Tr. 580.) Mr. Vernazza estimates that $1,350,000 of the $20 million he had under management was invested in the Versatile Bond Portfolio of the PPFF. (Tr. 738-39; Div. Ex. 6.) Mr. Hall and Mr. Hargrave shared the net profits of IMS s Riverside, California office equally, and they paid Mr. Vernazza under a special fee arrangement for certain IMS clients. (Tr. 217-18, 493-94.) Mr. Vernazza did not share the investment advisory fees he received for services to IMS clients with Mr. Hall or Mr. Hargrave. <(9)> Mr. Vernazza s curriculum vitae states that he was the managing partner of IMS and Hall & Vernazza from 1986 - 1993. ======END OF PAGE 7====== Mr. Vernazza negotiated and signed the service agreement with WMM on behalf of Hall & Vernazza. Messrs. Hall and Hargrave expected that Mr. Vernazza would perform the services which Hall & Vernazza agreed to perform under the service agreement. Mr. Vernazza deposited the sums he received from WMM pursuant to the service agreement in an account he maintained for IMS, his sole proprietorship in Aptos, California. (Tr. 592.) I reject as unsupported Mr. Vernazza s claims that (1) WMM paid Hall & Vernazza a total of $37,000, which was net $18,000 after expenses, pursuant to the service agreement, and (2) he distributed fifty percent of the net amount equally to Mr. Hargrave and Mr. Hall. (Tr. 741, 761.) I accept as accurate the summary prepared by WMM s bookkeeper which shows that WMM paid Mr. Vernazza $75,033 under the service agreement, and I credit the testimony of Mr. Hall and Mr. Hargrave that neither they nor the IMS office in Riverside, California received any of these funds. (Tr. 126-33; Div. Ex. 29.) Mr. Vernazza calculated that from June 1992 through 1993, he spent 465.9 hours on matters covered by the service agreement for which he would have earned $116,475 at his regular rate of $250 an hour, and that he spent an additional 155.5 hours for which he would have earned $15,550 at the lower rate of $100 an hour. (Rs. Ex. 141; Tr. 722.) Mr. Vernazza has always operated without any employees and he used the lower rate for activities that a secretary or assistant would perform - putting folders together, doing mailings, etc. (Tr. 722.) Mr. Vernazza s testimony is not credible on the issue of compensation and several other points. For example, there is no support for Mr. Vernazza s claim that he cannot find the records he kept of the work he performed under the service agreement in 1992 and 1993. (Tr. 759.) He made the fee calculation for the work he performed under the service agreement, set out above, in November 1994 in response to a Commission inquiry. The supporting documentation is insufficient and the hourly rate of $250 appears excessive in view of IMS s hourly rate of between $125 and $150. (Rs. Ex. 141; Tr. 214, 705-09.) Mr. Vernazza represented that he was the managing partner of IMS from 1991 until he withdrew as a partner sometime between August 1992 and January 1993. (Tr. 749, 755.) IMS s amended Form ADV, dated August 8, 1992, reported that Mr. Vernazza was no longer a partner as of June 1992; however, he continued to conduct business as an investment adviser under the name IMS in 1994, 1995, and 1996.<(10)> (Div. Exs. 13, 27A; Rs. Exs. 137, 138, 139.) According to Mr. Hall, Mr. Vernazza stopped being associated with IMS and with Hall & Vernazza in 1992. (Tr. 216-17.) Mr. <(10)> Mr. Vernazza claims that in 1992 he was involved with two investment advisers: (1) IMS/CPAs & Associates Riverside d/b/a Hall & Vernazza, and (2) IMS/CPA Aptos, a sole proprietorship with offices in San Rafael and Tucson, Arizona. (Tr. 679-80.) Mr. Vernazza also claims to have dissolved separate IMS partnerships he had with persons in Tucson and San Rafael in 1993. (Tr. 487-91.) However, in 1994, Mr. Vernazza used letterhead and checks that showed IMS/CPAs & Associates with offices in Aptos, San Rafael, Riverside, and Tucson. ======END OF PAGE 8====== Vernazza s curriculum vitae shows him as a managing partner of IMS from 1986 - 1993. (Rs. Ex. 133.) In December 1996, Mr. Vernazza represented that he was a self-employed investment adviser in Aptos, California, under the name IMS/CPA and Associates, and a partner in Hall & Vernazza whose only activity was as a servicing agent for WMM. (Tr. 479-80, 680-81, 755.) Based on conversations with Mr. Vernazza, Mr. Hargrave believed that Mr. Vernazza had submitted charges to WMM on behalf of Hall & Vernazza. (Tr. 413-15.) Mr. Vernazza testified that Hall & Vernazza received a $16,000 credit to the note because the cost of closing the Tax Fund was $34,000 rather than $60,000, but no one else mentioned this credit. (Tr. 653.) In May 1994 and May 1995, after he learned of the Commission s inquiry into these matters, Mr. Vernazza returned funds to eight clients which represented their pro rata refund of shareholders servicing fees, net of expenses, that [he] received from [WMM] during the previous year. (Rs. Exs. 137, 138.) Mr. Vernazza represented that he did not receive any shareholder servicing fees prior to 1993; however, WMM paid him $1,287.54 on June 18, 1992. (Rs. Ex. 137; Div. Ex. 29.) Mr. Vernazza did not amend his investment adviser registration to disclose the true nature of his relationship with WMM under the service agreement;<(11)> the annual adviser reports he filed for 1992 and 1993 state that Mr. Vernazza received no fees, commissions, or compensation from selling any of the investments recommended, and that the fees paid by WMM to Hall & Vernazza were for advisory and administrative support services to certain IMS investors in the PPFF; and the engagement letters Mr. Vernazza used with clients repeated these representations. (Div. Exs. 25, 26, 27.) <(11)> Just like IMS, Mr. Vernazza did not disclose that he (1) recommended securities in which it or a related person had a sales interest, Part I, Item 21, (2) had a financial interest in products that it recommended to clients, Part II, Item 9.D, or (3) received an economic benefit from a non-client in connection with giving advice to clients, Part II, Item 13.A. (Compare Rs. Ex. 149 with Div. Ex. 13.) ======END OF PAGE 9====== Respondent Hall Mr. Hall, a graduate of Woodbury University with a degree in accounting, is a CPA, a certified financial planner, a general partner and control person of IMS, and a founding partner in the firm of Hall & Vernazza. Mr. Hall had primary responsibility for ten to twenty IMS clients and two of those clients followed his recommendation and invested the amount they received when the Tax Fund closed into the PPFF. (Tr. 197, 348-49.) Both of these clients paid IMS investment advisory fees while they were invested in the PPFF. (Tr. 349.) Mr. Hall did not have any billable hours under the service agreement in 1992 or 1993. Mr. Hall acknowledges that Hall & Vernazza received compensation from WMM under the service agreement. He assumes the reason IMS s Riverside office has not received any part of those payments is because the promissory note has not been paid in full. (Tr. 786, 796-97, 819.) IMS s 1993 annual report filing included Mr. Hall s disclosure statement which he gave to clients and prospective clients that stated that Mr. Hall received no fees, commissions, or compensation from selling any of the investments recommended, and that the fees paid by WMM to Hall & Vernazza were for advisory and administrative support services to certain IMS investors in the PPFF. (Div. Exs. 17, 20.)<(12)> Respondent Hargrave Mr. Hargrave has a B.S. in business administration from Ft. Hays University in Hays, Kansas, and received a masters in financial planning from the College of Financial Planning in 1992. Mr. Hargrave has been a Certified Financial Planner since 1979. Mr. Hargrave has been a partner in IMS since its beginning in 1988. (Tr. 364.) Fewer than ten IMS clients that Mr. Hargrave serviced followed his recommendation and shifted some or all of their Tax Fund investments into the PPFF. (Tr. 172-73, 425.) Mr. Hargrave did not have any billable hours under the service agreement in 1992 or 1993, and IMS s Riverside office never received any part of the payments under the service agreement. (Tr. 413, 417-18.) Mr. Hargrave was responsible for preparing IMS s investment adviser registration amendments, annual reports, and disclosure statements. (Tr. 266-67, 300, 306-08, 444-51.) IMS s 1993 annual report filing included Mr. Hargrave s disclosure statement which he gave to clients and prospective clients that stated that Mr. Hargrave received no fees, commissions, or compensation from selling any of the investments recommended, and that the fees paid by WMM to Hall & Vernazza were for advisory and administrative support services to certain IMS investors in the PPFF. (Div. Exs. 18, 20.) <(12)> The record does not show that the Division moved premarked Division Exhibits 17 and 18 into evidence. I therefore now put into the record as Division Exhibits 17 and 18, the disclosure statements of Mr. Hall and Mr. Hargrave. ======END OF PAGE 10====== Findings of Law 1. 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 As relevant to this proceeding, these antifraud provisions taken together prohibit persons acting in interstate commerce or by use of the mail in connection with the offer, sale or purchase of a security or in the offering or rendering of investment advice from making untrue statements about material matters; from omitting to disclose material information; from employing any device, scheme or artifice to defraud; or from engaging in any transaction, practice, or course of business which operates as a fraud or deceit upon any client or prospective client. Sections 206(1) and 206(2) of the Advisers Act establish a fiduciary duty for investment advisers to act for the benefit of their clients. Transamerica Mortgage Advisors, Inc. v. Lewis, 444 U.S. 11, 17 (1979). IMS and the individual Respondents<(13)> willfully violated these antifraud provisions in the following ways: A. By representing in IMS s public filings with the Commission, in the disclosure statements that they gave to IMS clients and prospective clients, and in the engagement letters they entered with clients that they received no fees, commissions or compensation from any sponsor offering or selling any of the investments recommended when, under the service agreement, WMM, the investment adviser to a family of funds, paid IMS based on the assets that IMS s clients, and others, invested in those funds at IMS s recommendation.<(14)> B. Hall & Vernazza never submitted any invoices to WMM describing their efforts or showing the amount of time and effort expended pursuant to the service agreement. WMM consistently compensated IMS at the maximum amount allowed under the agreement. However, IMS represented in public filings with the Commission and in disclosure statements distributed to clients and prospective clients that: Hall & Vernazza provide certain advisory and administrative support services with respect to investors in any Permanent Portfolio Fund. . . . [WMM] shall pay Hall & Vernazza for the time, effort and complexity of services at an annual rate no greater than 5/10 of 1% for Treasury Bill Portfolio Investors, <(13)> Messrs. Hall and Hargrave are not charged with violating Sections 206(1) and 206(2) of the Advisers Act but they, and Mr. Vernazza, are charged with willfully aiding and abetting and causing IMS s violations of those sections. The Division charges that Mr. Vernazza defrauded his own clients and helped IMS defraud its advisory clients. (Division s Post-hearing Brief at 25 n.12.) <(14)> Mr. Vernazza signed the service agreement for Hall & Vernazza; however, as to the issues in this proceeding, Hall & Vernazza was IMS. ======END OF PAGE 11====== 6/10 of 1% for Versatile Bond Portfolio Investors and 5/10 of 1% for Aggressive Growth Portfolio. (Div. Ex. 13.) C. By failing to amend the investment adviser registrations on file with the Commission, and to amend IMS s form engagement letter and disclosure statements to reveal the true nature of IMS s business dealings with WMM. The Advisers Act reflects congressional recognition of the delicate fiduciary nature of an investment advisory relationship, and an attempt to eliminate, or at least expose, all conflicts of interest which might incline an investment adviser, consciously or unconsciously, to render advice which is not disinterested. SEC v. Capital Gains Research Bureau, Inc., 375 U.S. 180, 191-92 (1963). Respondents willfully failed to make adequate disclosure of the conflict that existed between the fiduciary duty they owed their clients and the compensation they would and did earn under the service agreement which was designed to reduce the $60,000 debt they owed to WMM. (Tr. 234-36, 698-701, 819.) The undisputed evidence is that Respondents never submitted any documentation as to the time, effort, and complexity of work performed under the service agreement, and they always received a percentage of the assets IMS clients invested in the PPFF at their recommendation. (Tr. 155-61.) I find a deliberate attempt to conceal the involvement of the investment adviser from the fact that almost all the letters, faxes, memoranda, and checks involved in the matters at issue are on IMS letterhead or bear the insignia of IMS, yet the promissory note and the service agreement designate Hall & Vernazza, CPAs, a California partnership, as the signatory and do not mention IMS.<(15)> (Div. Ex. 2; Rs. Ex. 120.) This finding is supported by the following significant persuasive evidence: Respondents entered the service agreement the day after they signed the promissory note with WMM; WMM did not need the service agreement with IMS because, before and after it entered the service agreement, Permanent Portfolio Information, Inc., a limited partner of WMM, was its exclusive servicing agent and was apparently doing an adequate job; and Mr. Coxon assured Mr. Vernazza that WMM would not terminate the service agreement while there was an outstanding balance owed on the promissory note. (Div. Ex. 4; Rs. Ex. 106.7; Tr. 105-08.)<(16)> High standards of truthfulness and disclosure must govern the propriety and legality of investment advisers efforts to induce others to purchase their services. Marketlines, Inc. v. SEC, 384 F.2d 264 (2d Cir. <(15)> Respondents disclosure statements do the same thing. At the hearing, Respondents, at times, distinguished the acts of IMS from the acts of Hall & Vernazza. (Tr. 381-82, 387-90, 399, 533- 40, 796-97.) <(16)> The record does not show that the Division moved premarked Division Exhibit 4 into evidence. I therefore now put into the record as Division Exhibit 4 a letter from Mr. Coxon to Mr. Vernazza dated June 22, 1992. ======END OF PAGE 12====== 1967). Respondents willfully and knowingly deceived clients and prospective clients by not disclosing the existence of the $60,000 note and that IMS received compensation when clients followed their advice and invested in the PPFF. The evidence is persuasive that IMS was compensated by way of the service agreement so that IMS could pay off the $60,000 note. Mr. Hall admitted knowing at the time the service agreement was entered that fees would be based on the amount of assets that clients invested in the PPFF. (Tr. 260-61.) It was in IMS s best interest to borrow the $60,000 to pay a share of the Tax Fund s closing costs so that the Fund s investors, most of whom were IMS clients, did not suffer a net asset value loss which would likely have prompted them to question IMS s investment advice. (Tr. 84, 807.) Failure by an investment adviser to disclose material facts is deemed to be fraud and deceit. Capital Gains, 375 U.S. at 200. The individual Respondents are all well educated, experienced investment advisers, who acknowledge that an investment adviser and associated persons owe a fiduciary duty to their clients. It is implausible that these three Respondents used Hall & Vernazza s name rather than IMS on documents, gave false and misleading descriptions of the service agreement and their compensation arrangements in disclosure documents, and failed to answer relevant questions on the adviser amendment forms without an intent to deceive investors and potential investors as to the existing conflict of interest. Courts have imposed on a fiduciary an affirmative duty of utmost good faith, and full and fair disclosure of all material facts, as well as an affirmative obligation to employ reasonable care to avoid misleading clients. Capital Gains, 375 U.S. at 194. The information Respondents failed to disclose was material because there is a substantial likelihood that a reasonable investor would consider it important in making an investment decision. Basic Inc. v. Levinson, 485 U.S. 224, 231-32 (1988); see also TSC Industries, Inc. v. Northway, Inc., 426 U.S. 438, 449 (1976) Respondents received double payment for the adviser services they provided IMS clients who invested in the PPFF. (Tr. 528-32.) Individual clients paid them by way of their annual investment adviser fee and WMM paid them under the service agreement.<(17)> For all these reasons, I find that the individual Respondents acted with scienter<(18)> because they knew or were reckless in not knowing <(17)> Mr. Vernazza refunded what he characterized as a pro rata share of the shareholder servicing fees to IMS clients who invested in the PPFF in May 1994, after he learned of the Commission s investigation. (Rs. Ex. 137; Tr. 743.) <(18)> Scienter is required for a violation of Section 17(a)(1) of the Securities Act, Section 10(b) of the Exchange Act and Rule 10b-5 thereunder, and Section 206(1) of the Advisers Act. It is not required for a violation of Sections 17(a)(2) and 17(a)(3) of the Securities Act and Section 206(2) of the Advisers Act. Aaron v. SEC, 446 U.S. 680 (1980); Steadman v. SEC, 603 F.2d 1126, 1134 (5th Cir. 1979); Capital Gains, 375 U.S. at 195. ======END OF PAGE 13====== that IMS failed to disclose material information to its clients and the investing public. Ernst & Ernst v. Hochfelder, 425 U.S. 185, 194 n.12 (1976); Hollinger v. Titan Capital Corp., 914 F.2d 1564, 1569-70 (9th Cir. 1990) (en banc). I find that Mr. Vernazza acted with scienter in committing the same violations as an individual registrant. I find further that that the individual Respondents willfully aided and abetted IMS s violations of Sections 206(1) and 206(2) of the Advisers Act in that: (1) IMS violated these antifraud provisions, (2) the individual Respondents knew or were reckless in not knowing that they were part of an overall activity that was improper, and (3) they provided substantial assistance in accomplishing the principal violations. Levine v. Diamanthuset, Inc., 950 F.2d 1478, 1483 (9th Cir. 1991); Jett v. Sunderman, 840 F.2d 1487, 1495 (9th Cir. 1988). 2. Violations by IMS and Mr. Vernazza of Section 204 of the Advisers Act and Rule 204-3 thereunder, and by Mr. Hall and Mr. Hargrave in aiding and abetting and causing IMS s violations of Section 204 and Rule 204- 3 thereunder Section 204 requires that investment advisers operating in interstate commerce keep records and disseminate reports to the public as the Commission may prescribe as necessary or appropriate in the public interest or for the protection of investors. Investment advisers are required to file a complete Form ADV with the Commission and to amend their registration promptly if information on the form becomes inaccurate. Rule 204-3 mandates that advisers annually give to their clients or prospective clients a written disclosure statement which contains, at a minimum, the information about the investment adviser and its business which is contained in Part II of Form ADV. IMS and Mr. Vernazza violated the statute and regulation as alleged because they did not provide the Commission, investors, and prospective investors with complete and accurate information. In addition, they did not provide information promptly. The service agreement was signed on June 23, 1992, and WMM made the first payment to Hall & Vernazza on June 18, 1992. IMS filed an amendment to its adviser registration form (Form ADV) on September 14, 1992, and Mr. Vernazza filed an amendment to his individual registration on September 2, 1992. (Div. Exs. 13, 22.) IMS filed a later amendment on or about March 30, 1993. By failing to answer certain question on the Form ADV, IMS did not disclose material information in these filings, and it provided false and misleading information as to the manner of compensation under the service agreement. See Marketlines, Inc., 384 F.2d 264. Similarly, Mr. Vernazza s September 1992 amendment to his individual investment adviser application did not make accurate disclosures and provided false and misleading information as to the manner of compensation under the service agreement. I find that Messrs. Hall and Hargrave aided and abetted IMS s violations because the three essential elements for an aiding and abetting violation are present: (1) a primary violation of Section 204 and Rule 204-3; (2) Respondents knew or were reckless in not knowing of those violations; and (3) they provided substantial assistance to the violators. Levine, 950 F.2d at 1483; Jett, 840 F.2d at 1495. ======END OF PAGE 14====== 3. Violations by IMS, Mr. Vernazza, and Mr. Hargrave of Section 207 of the Advisers Act Section 207 prohibits any person from willfully making any untrue statements of material fact in any application or report filed with the Commission or willfully omitting any material fact from such application or report. Based on the findings in this initial decision, I conclude that both investment advisers, IMS and Mr. Vernazza, and Mr. Hargrave, the IMS partner responsible for preparing and making IMS s required investment adviser filings, willfully violated Section 207. Public Interest Section 203(e) of the Advisers Act authorizes the Commission to censure, place limitations on the activities, functions, or operations of, or suspend for a period not exceeding twelve months, or revoke the registration of an investment adviser, where it is in the public interest to do so, and where the adviser has been found to have violated the securities statutes. Section 203(f) of the Advisers Act authorizes similar sanctions as to persons associated with an investment adviser. The Supreme Court has ruled that: Congress intended the Investment Advisers Act of 1940 to be construed like other securities legislation enacted for the purpose of avoiding frauds, not technically and restrictively, but flexibly to effectuate its remedial purposes. Capital Gains, 375 U.S. at 195. For the most part . . . the disciplinary provisions of the Advisers Act have always been modeled basically on those of the Exchange Act - sufficiently so that cases under the two statutes have been cited indiscriminately. 7 Louis Loss & Joel Seligman, Securities Regulation 3332 (3rd ed. 1991). The established criteria for determining what sanctions are appropriate in the public interest include deterrence and: the egregiousness of the defendant's actions, the isolated or recurrent nature of the infraction, the degree of scienter involved, the sincerity of the defendant's assurances against future violations, the defendant's recognition of the wrongful nature of his conduct, and the likelihood that the defendant's occupation will present opportunities for future violations. Steadman, 603 F.2d 1126, 1140 (5th Cir, 1979), aff d on other grounds, 450 U.S. 91 (1981); see also Richard C. Spangler, Inc., 46 S.E.C. 238, 254 n.67 (1976). The Division cites the Steadman criteria in recommending that the individual Respondents be suspended from association with any broker, dealer, investment adviser, and investment company for twelve months in order to protect the investing public from future harm. The Division claims that the fraudulent activities went on for over six years; it infers ======END OF PAGE 15====== scienter and a concerted effort by the three individuals to conceal because they made numerous Commission filings and client representations; and it contends that Respondents fail even now to recognize the wrongfulness of their acts. (Division s Post-hearing Brief at 31; Division s Amended Post- hearing Reply Brief at 12-13.) Respondents argue that the Division s recommendation is too severe even if the allegations are found to be true. Mr. Vernazza cites as mitigating considerations: (1) Respondents motivation was to avoid client losses; (2) at most Respondents disclosure was imperfect; (3) no clients lost their investments; (4) Mr. Vernazza refunded certain adviser fees to clients; (5) the Division s recommendation is inconsistent with Commission precedent in investment adviser cases; (6) Mr. Vernazza has an unblemished record in the securities business;<(19)> and (7) the Respondents did not conceal their activities and they should not be faulted for defending themselves from the allegations. (Reply Brief of Mr. Vernazza at 42-43) Respondents IMS, Mr. Hall, and Mr. Hargrave argue that the Division s proposed sanctions are unsuitable because the Respondents did not engage in egregious conduct, IMS s clients were not harmed, there was no great sham but only improper disclosure involving one agreement, Respondents believed their disclosure was adequate, and the Commission has not ordered suspensions in recent cases. (Reply Brief of IMS, Mr. Hall, and Mr. Hargrave at 42-49.) It is well settled that an investment adviser is a fiduciary in whom clients must be able to put their trust. Ahmed Mohamed Soliman, 59 SEC Docket 356, 362 (April 17, 1995); Joseph P. D Angelo, 46 S.E.C. 736, 737 (1976), aff d without opinion, 559 F.2d 1202 (2d Cir. 1977) (quoting with approval, Marketlines, Inc., 384 F.2d at 267). And that the securities industry is a field where opportunities for dishonesty recur constantly. See Archer v. SEC, 133 F.2d 795, 803 (8th Cir. 1943), cert. denied, 319 U.S. 767 (1943); Hughes v. SEC, 174 F.2d 969, 975 (D.C. Cir. 1949). In 1846, in a case where the petitioner acted in the dual capacity of investment adviser and broker and dealer, the Supreme Court stated: In this conflict of interest, the law wisely interposes. It acts not on the possibility, that, in some cases, the sense of that duty may prevail over the motives of self-interest, but it provides against the probability in many cases, and the danger in all cases, that the dictates of self-interest will exercise a predominant influence, and supersede that of duty. Hughes, 174 F.2d at 975 (quoting Michoud v. Girod, 4 How. 503, 554-55, 45 U.S. 503, 554-55 (1846)). I find it in the public interest to suspend the investment adviser registrations of IMS and Mr. Vernazza for six months, and to suspend Mr. Hall, Mr. Hargrave, and Mr. Vernazza from association with an investment <(19)> This is counsel s representation, I am unaware of any evidence in the record on the status of any of the Respondents. ======END OF PAGE 16====== adviser for the same period.<(20)> The evidence leaves no doubt that the Respondents willfully violated the antifraud provisions of the securities statutes in that they deliberately acted to hide from the Commission and the public their true business relationship with WMM. Respondents claimed to be independent and that their investment recommendations were totally objective, yet Respondents owed WMM $60,000, plus interest, and WMM, the investment adviser to the PPFF, was paying them a fee based on a percentage of assets that they had their clients invest in the PPFF. Respondents used these fees to pay off the $60,000 note, plus interest. The principal philosophy under the Advisers Act is disclosure, with the emphasis on the Form ADV and the requirement that clients be informed as to certain important information which includes possible conflicts of interest. 7 Loss & Seligman, Securities Regulation 3343 (3rd ed. 1991). Respondents actions were blatant because the conflict of interest was always clear and the individual Respondents, all highly educated individuals who appear to be prominent members of the investment adviser community based on their publications and teaching assignments, continued the illegal activities for several years. Each individual Respondent had a different degree of activity, yet each was knowledgeable of the events, each had access to the information, and any one of them could have halted the illegalities at any time. Even if the Respondents are correct that the activities occurred over four years, rather than six years as the Division claims, the time was significant. The record is inexplicable why these individual Respondents were so insensitive to the obvious legal requirements of disclosure. I reject most of what Respondents offer as mitigating circumstances. Respondents did not act out of altruistic motives in incurring the $60,000 debt because it was in their best interests to bear a portion of the cost of closing down the Tax Fund to stop the financial losses they were suffering<(21)> and to protect their professional reputations since they had recommended the Tax Fund to most of its investors. (Tr. 514.) The <(20)> The Commission has found that it has authority to issue an industry-wide or collateral bar in administrative proceedings instituted pursuant to Sections 15(b) and 19(h) of the Exchange Act. Meyer Blinder, 65 SEC Docket 1970 (Oct. 1, 1997.) Presumably it would also find comparable authority under Sections 203(e) and 203(f) of the Advisers Act. Assuming that is the case, I find that the public interest does not require application of an industry-wide bar to these Respondents because they do not meet the criteria set out in Meyer Blinder. See also David Disner, 63 SEC Docket 2246, 2257 (Feb. 4, 1997). This record does not show that the Respondents pose a threat to the investing public by their participation in all facets of the securities industry. Unlike Mr. Blinder, these Respondents have not been found guilty of criminal conduct, there is no evidence of prior securities law violations, they did not substantially enrich themselves by their activities, and they did not threaten judicial and regulatory officials who dealt with them. <(21)> They had lost $100,000 and were paying $4,000 a month. (Tr. 683-84.) ======END OF PAGE 17====== outcomes in the numerous proceedings cited by Respondents are unpersuasive because appropriate remedial action depends on the facts and circumstances of each particular case, and cannot be precisely determined by comparison with the actions taken in other cases. See Butz v. Glover Livestock Commission Co., 411 U.S. 182, 187 (1973); Hiller v. SEC, 429 F.2d 856, 858- 59 (2d Cir. 1970). Finally, there is absolutely no credible evidence to support Respondents claim that they relied on legal counsel for WMM and PPFF for their actions. Mr. Vernazza admitted he never retained Mr. Rolnick and knew that Mr. Rolnick was legal counsel for WMM and the PPFF. (Tr. 770.) The period of suspension is less than what the Division recommended because there is no evidence of prior illegal conduct and suspension for six months should be sufficient to bring about future compliance. Disgorgement Section 8A(e) of the Securities Act, Section 21C(e) of the Exchange Act, and Section 203(k)(5) of the Advisers Act authorize the entry of an order requiring an accounting and disgorgement in a cease and desist proceeding. The Division would require Respondents to disgorge $69,861.81, the amount that WMM paid them under the service agreement minus the amount Mr. Vernazza refunded to IMS clients, plus interest, so that Respondents do not keep the fruits of their fraud.<(22)> (Division s Amended Post-hearing Reply Brief at 12.) Respondents argue that disgorgement is improper for many reasons, most of which are inapplicable because of my factual findings. I reject Respondents argument that only the part of the $75,032.78 attributable to WMM s payments for investors who had been in the Tax Fund is subject to disgorgement. (Reply Brief of Respondents IMS, Mr. Hall, and Mr. Hargrave at 50.) The Findings of Law apply to Respondents activities in connection with all their advisory clients and all prospective advisory clients. Even though Mr. Vernazza received the payments and deposited them in his proprietary account, he was not the only one enriched from the improper activities since he paid almost all of the principal and interest owing on the note which each individual Respondent signed and guaranteed. I find therefore, that IMS and the individual Respondents should be required, jointly and severally, to disgorge $75,032.78, minus the amount Hall & Vernazza has refunded to clients. Rule 600 of the Commission s Rules of Practice specifies that prejudgment interest should begin on the first day of the month following each violation. 17 C.F.R.  201.600(a) (1997). It is impossible to make that calculation on this record; therefore, for that reason and because of the extended time since these events occurred, prejudgment interest shall be due from August 1, 1996, the first day of the month following Respondents receipt of the final payment which totaled $75,032.78. SEC v. First City Financial Corp., Ltd., 890 F.2d 1215, 1231 <(22)> Mr. Vernazza calculated that he refunded about $5,040.00. (Respondent Vernazza s Reply Brief at 41.) The Division states that Mr. Vernazza refunded $5,170.97. (Division s Amended Post- hearing Reply Brief at 12.) ======END OF PAGE 18====== (D.C. Cir. 1989) (Disgorgement primarily serves to prevent unjust enrichment. It need only be a reasonable approximation of profits causally connected to the violations.). Cease and Desist Section 8A(a) of the Securities Act, Section 21C(a) of the Exchange Act, and Section 203(k) of the Advisers Act authorize the entry of an order requiring a person found to have violated or to have caused violations of the securities statutes and rules thereunder to cease and desist from committing or causing such violations and any future violations. Entry of a cease and desist order is appropriate here where there is a high probability of future violations because Respondents have shown disdain, disinterest, and insensitivity to the investment adviser rules and regulations. Leo Glassman, 46 S.E.C. 209, 211-12 (1975). See also, Richard C. Spangler, Inc., 46 S.E.C. at 254 n.67 (Sanctions also serve to deter other persons from violating the securities laws.). Record Certification Pursuant to Rule 351(b) of the Commission's Rules of Practice, 17 C.F.R.  201.351(b) (1997), I certify that the record includes the items set forth in the revised record index issued by the Secretary of the Commission on June 17, 1997. Order Based on the findings and conclusions set forth above, I ORDER, pursuant to Section 8A of the Securities Act; Section 21C of the Exchange Act, and Section 203 of the Advisers Act that: 1. the investment adviser registrations of IMS/CPAs & Associates and Jerome Ben Vernazza d/b/a IMS/CPAs and Associates are suspended for six months; 2. Vernon T. Hall, Stanley E. Hargrave, and Jerome B. Vernazza are suspended from being associated with an investment adviser for six months; 3. IMS/CPAs & Associates, Vernon T. Hall, Stanley E. Hargrave, and Jerome B. Vernazza shall cease and desist from committing or causing any violations and any future violations of Section 17(a) of the Securities Act; Section 10(b) of the Exchange Act and Rule 10b-5 thereunder; and Sections 204 and 206 of the Advisers Act and Rule 204-3 thereunder; 4. IMS/CPAs & Associates, Stanley E. Hargrave, and Jerome B. Vernazza shall cease and desist from committing or causing any violations and any future violations of Section 207 of the Advisers Act; and 5. IMS/CPAs & Associates, Vernon T. Hall, Stanley E. Hargrave, and Jerome B. Vernazza, jointly and severally, shall disgorge $75,032.78, minus the amount Mr. Vernazza has refunded to clients, plus prejudgment interest from August 1, 1996, through the last day of the month preceding which payment is made at the rate of interest established under Section 6621(a)(2) of the Internal Revenue Code, 28 U.S.C.  6621(a)(2), compounded quarterly, pursuant to Rule 610 of the Commission s Rules of Practice. ======END OF PAGE 19====== Payment should be made on the first day after this decision becomes final. Such payment shall be: (i) made by United States postal money order, certified check, bank cashier s check, or bank money order; (ii) made payable to the Securities and Exchange Commission; (iii) delivered by hand or courier to the Office of the Secretary, Securities and Exchange Commission, 450 Fifth Street, NW, Washington, DC 20549; and (iv) submitted under cover letter which identifies IMS/CPAs & Associates, Vernon T. Hall, Stanley E. Hargrave, and Jerome B. Vernazza as Respondents in Administrative Proceeding File No. 3-9042; If and when IMS/CPAs & Associates, Vernon T. Hall, Stanley E. Hargrave and/or Jerome B. Vernazza pays any or all of the disgorgement amount and interest, the parties shall submit to the Office of Administrative Law Judges, within 60 days, a plan for the administration and distribution of those funds. This order shall become effective in accordance with and subject to the provisions of Rule 360 of the Commission's Rules of Practice, 17 C.F.R.  201.360 (1997). Pursuant to that rule, a petition for review of this initial decision may be filed within twenty-one days after service of the decision. It shall become the final decision of the Commission as to each party who has not filed a petition for review pursuant to Rule 360(d)(1) within twenty-one days after service of the initial decision upon such party, unless the Commission, pursuant to Rule 360(b)(1), determines on its own initiative to review this initial decision as to any party. If a party timely files a petition for review, or the Commission acts to review as to a party, the initial decision shall not become final as to that party. ______________________________ Brenda P. Murray Chief Administrative Law Judge ======END OF PAGE 20======