Washington, D.C.

Rel. No. 40392 / September 2, 1998

Admin. Proc. File No. 3-8304

In the Matter of :



Grounds for Remedial Action

Offer and Sale of Securities Beyond Offering

Failure to Disclose Anticipated Compensation from
Sale of Securities

Registered representative offered and sold limited
partnership interests in private placement offering
beyond offering deadline and failed to disclose to
investors information regarding his anticipated
compensation for those sales. Held, it is in the
public interest to suspend the registered
representative from association with any broker or
dealer for one year and to order him to cease and
desist from committing or causing any violation or
future violation of Section 10(b) of the Securities
Exchange Act of 1934, Exchange Act Rule 10b-9, and
Sections 17(a)(2) and (3) of the Securities Act of


Mitchell A. Margo and Joe D. Jacobson, Green, Schaaf &
Margo, P.C., for Richard H. Morrow.

Charles V. Senatore, Mitchell E. Herr, Glenn A. Harris, and
Terence M. Tennant, for the Division of Enforcement.

Appeal filed: July 28, 1995
Briefing completed: January 11, 1996
Oral argument: April 25, 1997

The Division of Enforcement ("Division") appeals from the
decision of an administrative law judge in a proceeding against
Richard H. Morrow, a registered representative formerly
associated with Anchor National Financial Services, Inc.
("Anchor"), a registered broker-dealer. [1] The law judge
determined that Morrow offered and sold securities beyond the
deadline set forth in the offering document for raising the
required minimum offering proceeds, in violation of Section 10(b)
of the Securities Exchange Act of 1934 ("Exchange Act") and
Exchange Act Rule 10b-9. He further determined that Morrow
failed to disclose "properly" his anticipated compensation from
the sale of those securities, in violation of Section 17(a) of
the Securities Act of 1933 ("Securities Act"), Sections 10(b) and
15(c) of the Exchange Act, and Exchange Act Rules 10b-5 and
15c1-2. [2] The law judge ordered Morrow to cease and desist
from committing or causing any violation or future violation of
Sections 10(b) and 15(c) of the Exchange Act, Exchange Act Rules
10b-5, 10b-9, and 15c1-2, and Section 17(a) of the Securities
Act. He also suspended Morrow from association with any broker,
dealer, municipal securities dealer, investment company, or
investment adviser (a "collateral suspension") for sixty days.

In its appeal, the Division asks that we increase the
duration of Morrow's collateral suspension to one year. In
addition, on our own motion, we directed the parties to file
briefs addressing the following issues:

1) Whether the preponderance of the evidence supports the
law judge's conclusions that Morrow:

a) "was negligent in failing to ascertain whether
the offering deadline had, in fact, been
extended . . . ."

b) "negligently relied on verbal assurances that the
deadline was being extended."

c) "was acting in good faith."

2) What, if any, impact the answers to the above questions
have on the law judge's findings that Morrow violated
Sections 17(a)(1), (2), and (3) of the Securities Act,
and Sections 10(b) and 15(c) of the Exchange Act and
Rules 10b-5, 10b-9, and 15c1-2 thereunder.

We base our findings on an independent review of the record,
except with respect to those findings not challenged or raised on
our own motion on appeal.


This proceeding stems from Morrow's participation in a
private placement offering of limited partnership interests in
Park Florida Associates, Ltd. ("Park Florida"), a real estate
development project. The Park Florida offering was organized by
John Michael Pratt. Pratt served as principal of Keystone
Financial Holdings, Inc., which was Park Florida's general
partner. The Park Florida offering was a so-called "mini-max"
offering structured to raise a minimum of $600,000 and a maximum
of $800,000. In a mini-max offering, a specified minimum amount
of proceeds must be raised by a specified date. Proceeds from
the offering are to be placed in escrow. If the minimum is not
raised by that date, the offering expires and all funds already
placed in escrow must be returned to investors. If the minimum
proceeds are raised by the date set forth in the offering
circular, the offering may continue until a specified maximum
amount of proceeds has been raised or until the specified closing
date of the offering, whichever comes first.

The Private Placement Memorandum ("PPM") for the Park
Florida offering represented that the investors' funds would be
deposited in an escrow account and would be returned to the
investors if the $600,000 minimum was not raised by January 31,
1990. The subscription agreement reaffirmed that all investor
funds would be "promptly returned" if the $600,000 minimum was
not raised by January 31, 1990, unless "written permission is
granted to the General Partner by each Limited Partner to utilize
such funds."

In late summer 1989, Lawrence Kelner, a registered
representative associated with Anchor who had ties to Pratt,
suggested that Morrow consider selling interests in a real estate
limited partnership sponsored by the Highlands Group
("Highlands"), a corporation also controlled by Pratt.
Thereafter, Morrow asked Robert Weston, another Anchor registered
representative, [3] to review the Highlands offering. Morrow and
Weston subsequently traveled to Florida to meet with Pratt and
Kelner. Morrow ultimately sold interests in the Highlands
offering to three investors and invested in the offering himself.
Morrow testified that he received a "five or six percent"
commission on those sales.

During his involvement with the Highlands offering, Morrow
was told about the Park Florida offering. In or around November
1989, Pratt and Kelner discussed the Park Florida offering with
Morrow and Weston. Morrow and Weston each agreed to raise
approximately half of the anticipated offering proceeds. By
letter dated November 28, 1989, Kelner provided Morrow with five
numbered copies of the PPM for distribution to potential
investors. Morrow testified at the hearing that he had "skimmed
through [the PPM] briefly."

On January 10, 1990, Pratt and Weston called Morrow to
complain that Morrow had not yet sold any interests in Park
Florida. They informed Morrow that Weston had sold only about
$180,000 in Park Florida interests to date and that they "needed
[Morrow's] help."

Morrow testified that he subsequently asked Weston for a
copy of the marketing material that Weston had sent to his own
clients. On January 12, 1990, Morrow mailed to several clients
Weston's material describing the offering. In a cover
memorandum, Morrow stated that Weston's materials were "self
explanatory in nature" and that interested parties could call
Morrow or Weston to obtain "all the pertinent information" about
the offering. The cover memorandum also stated:

This is a small private placement and will not be
available much longer. (Mr. Weston has already
committed $400,000). Please call me as soon as
possible after you receive this to let me know if
you are interested.

Morrow testified before the law judge that he was aware of
the January 31 offering deadline when he began contacting his
clients, but he was "under the impression that [the deadline]
was, really, already extended at that point." He explained that
Weston and Pratt had told him that they "were applying" for an
extension and that the addendum needed to effectuate an extension
"was being filed." Weston likewise testified that Pratt and
Kelner had told him that they would obtain an extension of the
offering deadline and that he had passed this information on to

The Park Florida offering had raised only $187,000 by the
January 31, 1990 offering deadline, an amount far short of the
minimum proceeds required by the PPM. Because written consent to
extend the offering had not been obtained from all existing
investors on or before that date, the offering expired on
January 31, and all funds then committed should have been
returned promptly to investors. Instead, between
February 1, 1990 -- the day after the offering deadline -- and
March 6, 1990, Morrow sold interests in Park Florida to thirteen
clients, raising $400,000.

Investors in Park Florida were not asked until mid-March
1990 to sign an addendum to the PPM that purported, among other
things, to extend the offering deadline to April 15, 1990. The
cover letter accompanying the addendum stated, in relevant part:
"The required minimum equity has all been raised for the project,
though it's [sic] receipt was not in conformance with the time
table in the [PPM]. Thus, in order to be in conformance we are
enclosing a document for your signature . . . ." In a deposition
taken in a civil action stemming from the offering, Morrow
testified that, like Weston, he merely told his clients to
indicate on the document that they had waived their rights to a

Morrow instructed his clients to make their checks payable
to Park Florida, and he directed his secretary to send the checks
to Alcap Development Corporation, another firm owned by Pratt.
Although the PPM specified that the investors' funds were to be
maintained in an escrow account until after the offering's
completion, the designated escrow agent never received custody of
the funds. Pratt misappropriated the funds, causing investors to
suffer losses of approximately $575,000.


Rule 10b-9 requires that a mini-max offering must provide
that investor funds will be returned if the required minimum
proceeds are not raised by the stated offering deadline. Courts
and this Commission repeatedly have stressed the importance of
this requirement, which gives investors assurance that the
offering will go forward only if enough investors demonstrate by
their purchases that the risk associated with the offering is
worth taking and the price being paid for the securities is fair.
[4] As one court has observed, "Each investor is comforted by the
knowledge that unless his judgment to take the risk is shared by
enough others to sell out the issue, his money will be
returned." [5]

Morrow acknowledges that all of his sales in Park Florida in
fact occurred "after the selling cut-off date." He asserts,
however, that he made those sales "in the honest but mistaken
belief that the [offering deadline] had been extended and was no
longer effective."

We note initially that Morrow's testimony on his
understanding of the deadline's status is inconsistent. In
investigative testimony before our staff in March 1991, Morrow
told the Division of Enforcement that he had not known about the
offering deadline [6] and had learned of it only upon receiving
the addendum in late March 1990. At the hearing before the law
judge in June 1995, Morrow testified, variously, that he had
believed that the offering deadline was going to be extended and
that the deadline had been extended. [7] When reminded of his
earlier investigative testimony, Morrow claimed to have confused
"deadline" with "extension" and said that he had not known what
the extension date would be. All of this testimony is, in turn,
inconsistent with Morrow's statements in a 1993 deposition taken
in a related civil action. There, contrary to what he told our
staff, Morrow claimed that, after reviewing the PPM around
January 10, 1990, he knew that the offering was scheduled to
expire on January 31, 1990. Contrary to what he said before the
law judge, Morrow testified that he contacted Weston and that
Weston told him that a ninety-day extension of the offering
already had been approved. He claimed that he then called Pratt
to verify what Weston had told him and that Pratt informed him
that an extension of the offering had been obtained. We are
struck by Morrow's various claims about his awareness of the
offering deadline and the status, if any, of its extension. We
thus are not persuaded by Morrow's assertion that he thought the
deadline had been extended.

Morrow contends that he "had no scienter" because his
actions were "merely negligent." In support of his claim, Morrow
cites the law judge's statements that "Morrow negligently relied
on verbal assurances that the deadline was being extended" and
that "Morrow was acting in good faith" when he sold shares beyond
the offering deadline. However, Morrow ignores the fact that,
despite the above-mentioned statements, the law judge concluded
that Morrow "acted with the requisite scienter to establish
violations of Rule 10b-9" and that "the legal standards require
more than a good faith effort." More importantly, we cannot
conclude on this record that Morrow acted negligently or in good

As a securities professional, Morrow had a duty to
investigate the Park Florida offering before recommending the
investment to his clients. [8] That duty was particularly
important here because no broker-dealer was involved in the
offering and, accordingly, there was no due diligence file to
which Morrow could refer. [9] In choosing to sell interests in
Park Florida independently, Morrow thus became responsible for
conducting his own investigation into the offering. [10]

The record reflects that Morrow knew, as of January 10,
1990, that only about $180,000 had been invested in Park Florida
and that $600,000 was required to be raised by January 31, 1990.
Further, Morrow recognized that it would be "clearly impossible
for [him] to sell the shares by the January 31 deadline" and,
consequently, that an extension of the offering was needed. He
testified that Weston told him in mid-January 1990 that an
addendum was being prepared to extend the offering. Morrow also
had copies of both the PPM, which listed the offering deadline in
several places, and the subscription agreement, which made it
clear that any extension of the offering would require the
written consent of all existing investors.

In light of these facts, Morrow was reckless in failing to
investigate whether the offering had been validly extended before
selling any interests in Park Florida after January 31, 1990.
Morrow admits that he made no such investigation. Although he
had been told that an addendum to extend the offering was being
prepared, Morrow did not see a copy of the addendum, nor did he
request one. Further, he made no effort to ascertain whether
written consent to extend the offering had been obtained from
each existing investor. If we accept Morrow's testimony before
the law judge, Morrow had verbal assurances from Pratt that the
offering deadline would be, or perhaps had been, extended. As we
previously have stated, a salesman may not satisfy his duty to
investigate the securities he recommends by relying "blindly" on
information supplied by persons connected with the issuer. [11]
Morrow was reckless in accepting Pratt's assurances when an
extension required the consent of independent, third-party

Morrow claims that he also relied on Weston, a more
experienced securities professional, because he was "out of his
league" in the Park Florida offering and had little experience
with private limited partnership offerings. We recognize that
the law judge credited Morrow's testimony that he relied on
Weston's assurances that "an addendum making all of the
disclosures necessary for an extension was being filed" and that
"the January 31 deadline was no longer valid." [12] As we have
noted, however, Morrow did not request this purported addendum.
Nor did he obtain evidence that the existing investors had
consented to an extension. In light of Morrow's obligations, his
reliance on Weston was reckless. Morrow knew that Weston
anticipated receiving compensation for his sales in Park Florida
and, therefore, had an interest in the offering's outcome.
Relying on Weston's assurances about the viability of the
offering, without any inquiry into the basis for those
assurances, was at odds with Morrow's duty to investigate. [13]

Morrow's claims of inexperience are not borne out by the
record. Morrow admits that he was involved in other private
limited partnership offerings, including the Highlands offering
sponsored by Pratt just prior to Park Florida. Further, contrary
to assertions by Morrow's counsel at the hearing that Morrow "has
always relied on his broker-dealer and the legal department
within that broker-dealer to do the due diligence," it appears
that Morrow also participated in at least the Highlands offering
independently from his broker-dealer.

Morrow's recklessness in failing to determine that the
offering had been properly extended was compounded by the
January 12, 1990 memorandum that he sent to his clients with
Weston's materials. As discussed above, Rule 10b-9 is designed
to provide investors assurances that the minimum proceeds can be
raised, an indication that others in the market believe that the
terms and price of the offering are reasonable. Morrow's
memorandum stated that $400,000 in proceeds already had been
"committed" and that the offering would "not be available much
longer." He thereby gave his clients the impression that the
offering had had success in the market and further undercut the
protections that Rule 10b-9 was designed to provide.

For the reasons outlined above, we conclude that Morrow was
reckless in selling interests in Park Florida after the date
specified in the PPM without first determining whether a valid
extension of the offering had been approved. Morrow therefore
violated Section 10(b) of the Exchange Act and Rule 10b-9 in
connection with those sales.


As discussed above, the law judge determined that Morrow
failed to make proper disclosure of his anticipated compensation
from sales of Park Florida units. Securities Act Section
17(a)(2) prohibits the sale of securities by means of "any untrue
statement of a material fact or any omission to state a material
fact necessary in order to make the statements made, in the light
of the circumstances under which they were made, not misleading."
Securities Act Section 17(a)(3) prohibits a seller of securities
from "engag[ing] in any transaction, practice, or course of
business which operates or would operate as a fraud or deceit
upon the purchaser." Violation of these provisions does not
require a finding of scienter. [14]

As a securities professional, Morrow had an obligation to
disclose facts that he knew or were "reasonably
ascertainable." [15] When recommending securities to a
prospective investor, a securities professional must not only
avoid affirmative misstatements but also must disclose "material
adverse facts," including any self-interest that could influence
the salesman's recommendation. [16] Information is material if
there is a substantial likelihood that a reasonable investor
would consider it important to an investment decision. [17]

Morrow admits in this appeal, for the first time, that he
failed to make proper disclosure to his clients of his
anticipated compensation. He also concedes that "such failure
was a violation of the securities laws." Nonetheless, he seeks
to minimize his culpability by contending that he was acting in
good faith.

We disagree. Morrow knew a great deal about his expected
compensation arrangement. From the beginning of his involvement
in Park Florida, Morrow anticipated that he would receive
compensation based upon his total sales in the offering. In mid-
November 1989, shortly after Morrow and Weston agreed to
participate in the offering, Kelner directed to Morrow a copy of
a letter Kelner sent to Weston proposing that the general partner
pay each seller broker an "8% selling commission" and a "10% back
end equity kicker fee to be allocated between selling brokers on
a pro rata basis based on actual sales." The "equity kicker"
would entitle Morrow to a portion of the profit resulting from
the eventual sale of the property to be acquired by the Park
Florida partnership.

Morrow contends that Weston was still negotiating the
details of their compensation arrangement in early 1990, at the
time when Morrow made the bulk of his sales in Park Florida.
Weston, however, testified at the hearing that, at some point in
late 1989, he and Morrow both agreed to the fee arrangement
detailed in Kelner's letter. Morrow, moreover, testified at the
hearing that he had assumed his "fee" would equal 8% of his total
sales because that percentage was standard in the industry. He
further testified that he had anticipated receiving an equity
interest to be paid from the limited partners' share of the
appreciation on the partnership's property.

We further note that, in Morrow's testimony during the
staff's investigation, he claimed that he had not expected to
receive any commissions or fees for his sales in the offering but
only potential back-end appreciation. When confronted at the
hearing with his earlier investigative statement, Morrow
testified that he had realized that he would receive a fee but
believed that it would be paid by the general partner. He did
not give that explanation to the staff during the investigation.

Morrow's failure to explain to his customers the nature of
his anticipated compensation was exacerbated by the affirmative
disclosure in the PPM. The front page of the Park Florida PPM
stated in capitalized, bold print: "NO SELLING COMMISSIONS WILL
[18] While this language does not exclude the possibility that
compensation might be paid from some other source, the PPM did
not describe any other form of payment to be made for sales of
the offering, nor did the PPM suggest the possibility of an
"equity kicker." Rather, it contained only a vague description
of compensation to be paid by the general partner for
"consultative services from various professional and financial
consultants with respect to the design and composition of the
Project and the Partnership." This language did not alert
Morrow's clients to the fact that sales compensation or an equity
kicker would be paid.

Morrow contends that Weston had assured him that their
compensation arrangement would be consistent with the PPM's "no
commissions" legend because the fee would be paid by the general
partner, not the partnership. [19] On this record, we cannot
completely test Morrow's assertion that the general partner would
pay his "fee," because Morrow ultimately did not receive any
compensation due to Pratt's misappropriation of the partnership
funds. It appears unlikely, however, that any compensation owed
to Morrow would have been paid from the general partner's
contribution to the partnership. According to the PPM, the
general partner was to contribute only $1,000 to the partnership,
while the limited partners were to contribute between $600,000
and $800,000.

Even accepting arguendo that Morrow believed that the
general partner would pay his compensation, Morrow nonetheless
had an obligation to disclose that arrangement to his clients.
We recognize that at least some of Morrow's clients had surmised
that Morrow might be compensated in some fashion for selling the
Park Florida interests. [20] Even these clients, however, would
not know either the nature or the source of that compensation
unless Morrow disclosed that information to them. In our view,
it would be material for a prospective investor to know that a
salesman recommending a particular limited partnership was being
compensated by that partnership's general partner and thus that
the salesman's recommendation might not be wholly disinterested.

We are particularly troubled by Morrow's failure to disclose
to his clients -- potential limited partners in Park Florida --
that he expected to receive an equity kicker paid out of the
limited partners' share of the appreciation of the partnership
property. None of his clients suggested that they anticipated
that Morrow would receive any equity interest, and certainly not
one from their share of the partnership. Moreover, payment of an
equity kicker could have an effect on the ultimate profitability
of the clients' investment in the partnership.

As a securities professional, Morrow had an affirmative
obligation to inform his clients about that arrangement. His
failure to do so deprived his clients of the opportunity to
consider Morrow's own interest in the success of the Park Florida
offering in deciding whether to invest as a limited partner. We
conclude, therefore, that Morrow's nondisclosure of this material
information was in willful violation of Sections 17(a)(2) and (3)
of the Securities Act.


Morrow's conduct in the Park Florida offering demonstrates a
disturbing disregard for his obligations as a registered
representative. Instead of fully investigating the offering and
disclosing all material information about it to his clients, as
he was required to do, Morrow took shortcuts in order to raise
quickly his share of the offering proceeds. In so doing, he
placed his interest in completing the offering above the
interests of his clients. Such conduct is inconsistent with the
standards demanded of securities professionals and cannot be
countenanced. We also note that Morrow was not completely
forthright in his investigatory testimony and repeatedly has
attempted to minimize his responsibility for his actions.

The Division asks that we impose upon Morrow a one-year
collateral suspension. Morrow's violation of Rule 10b-9 is not
the type of conduct that "flows across" other securities
professions. With respect to Morrow's failure to disclose his
compensation arrangement, we have not sustained all the alleged
violations. [22] Therefore, based on the record before us, we do
not conclude that imposition of a collateral suspension on Morrow
is in the public interest.

Morrow asserts that "the evidence and the applicable law"
supports the law judge's conclusion that he should not be
suspended for more than sixty days. We agree with the Division,
however, that the seriousness of Morrow's misconduct necessitates
a longer suspension. Accordingly, we conclude that, under all
the circumstances, a one-year suspension from association with
any broker or dealer is appropriate in the public interest. We
further conclude that it is appropriate to order Morrow to cease
and desist from committing or causing any violation or future
violation of Section 10(b) of the Exchange Act, Rule 10b-9, and
Sections 17(a)(2) and (3) of the Securities Act.

An appropriate order will issue. [23]

By the Commission (Chairman LEVITT and Commissioners
JOHNSON, HUNT, and CAREY); Commissioner UNGER not participating.

Jonathan G.Katz


[1]: Morrow currently is associated with SunAmerica Securities,
Inc., a registered broker-dealer and successor to Anchor.
He has not appealed from the law judge's decision.

[2]: Section 15(c) of the Exchange Act and Exchange Act Rule
15c1-2 can be violated only by a broker-dealer or by any
person who aids and abets a broker-dealer's violation.
Morrow was charged as a primary violator of Section 15(c)
and Rule 15c1-2 and not charged as, or found by the law
judge to be, a broker-dealer or an aider and abetter. This
finding therefore is set aside.

[3]: Weston also was a registered investment adviser and
owned a
registered broker-dealer. Weston was named as a respondent
in these proceedings. Pursuant to his offer of settlement,
in which he did not admit or deny the allegations, Weston
was barred from association with any broker, dealer,
investment adviser, investment company or municipal
securities dealer, with the right to reapply after one year.
Robert Weston, Exchange Act Rel. No. 34738 (Sept. 28, 1994),
57 SEC Docket 1992. Our findings with respect to Weston are
solely for the purpose of this proceeding.

[4]: See, e.g., Gallagher & Co., 50 S.E.C. 557, 565 (1991)
(requirement is a "principal protection" for investors),
aff'd without opinion, 963 F.2d 385 (11th Cir.) (Table),
cert. denied, 506 U.S. 979 (1992); Svalberg v. SEC, 876 F.2d
181, 183 (D.C. Cir. 1989) ("all-or-nothing" underwritings
developed to provide investors somewhat greater security
with regard to risky offerings); C.E. Carlson, Inc. v. SEC,
859 F.2d 1429, 1434 (10th Cir. 1988) (potential return of
investor subscriptions in the event that the minimum number
of shares is not sold offers some protection to investors);
A.J. White & Co. v. SEC, 556 F.2d 619, 623 (1st Cir.), cert.
denied, 434 U.S. 969 (1977) (knowledge that minimum amount
has been sold may be very important to other investors since
inability of underwriter to raise minimum proceeds may
indicate that offering price is too high); Exchange Act Rel.
No. 11532 (July 11, 1975), 7 SEC Docket 403, 404
("[v]iolations of Rule 10b-9 . . . are serious breaches of
the duty owed by issuers, underwriters and broker-dealers to
the investing public").

[5]:SEC v. Blinder, Robinson & Co., Inc., 542 F. Supp. 468,
476 (D. Colo. 1982), aff'd, Fed. Sec. L. Rep. (CCH) 99,491
(10th Cir. Sept. 19, 1983).

[6]: Q: "Were you aware that the [PPM] listed a date of
January 31, 1990 as the cutoff?"

A: "No, sir, as I told you before, not at all. [Weston]
never told me that."

[7]: At the hearing, Morrow testified:

that as of January 12, 1990, he "was under the impression
that [the January 31 deadline] was, really, already
extended at that point" because "[Weston and Pratt]
told me they were getting an extension on it."

"I was aware of a deadline, but I was told that, that
deadline was not really effective any more. [Weston
and Pratt] were applying for an extension."

"I was told on January 12 that that addendum was being
filed, with -- with all the disclosures that were
necessary. [Weston] told me he was working on getting

"I was told in the beginning of January, the middle of
January, that [an addendum] was being prepared."

that, on January 31, 1990, "I believe, I thought, I was
under the impression that [the offering] was extended."

[8]: Hanly v. SEC, 415 F.2d 589, 595-96 (2d Cir. 1969).

[9]: See id. at 597 (degree of independent
investigation that is required will depend upon the

[10]: We note that, even if Morrow had had access to a
broker-dealer's due diligence file on the offering, that
fact alone would not have relieved Morrow of his duty to
investigate. See Donald T. Sheldon, 51 S.E.C. 59, 71
(1992), aff'd, 45 F.3d 1515 (11th Cir. 1995) (material
misstatements and omissions by registered representative are
not excused by representative's reliance on information from
his broker-dealer; representative has duty to have a
reasonable basis for his recommendations).

[11]: Hanly v. SEC, 415 F.2d at 597.

[12]: At the hearing, Morrow testified: "I didn't think
[Weston] would let me sell units in Park Florida in February
if, in fact, he didn't think he had the extension."

[13]: Cf. Sorrell v. SEC, 679 F.2d 1323, 1327 (9th Cir.
1982) (reliance on assurances from attorney and another broker
does not excuse broker's own lack of investigation); Feeney
v. SEC, 564 F.2d 260, 262 (8th Cir. 1977), cert. denied, 435
U.S. 969 (1978) (officers of broker-dealer cannot rely on
assurances from other officers that securities were exempt
from registration).

[14]:Aaron v. SEC, 446 U.S. 680, 696-97 (1980).

[15]:Hanly v. SEC, 415 F.2d 589, 597 (2d Cir. 1969).

[16]: E.g., Gilbert Zwetsch, 50 S.E.C. 816, 818 (1991)
(citations omitted).

[17]:See Basic v. Levinson, 485 U.S. 224, 230-31 (1988); TSC
Indus. v. Northway, Inc., 426 U.S. 438, 449 (1976).

[18]: The attorney who drafted the PPM testified that this
language was included so that the Park Florida offering
would "fit within the Florida private placement exemption
which . . . provides that no commissions can be paid . . .
by anyone to any person who is not a properly registered

[19]:Morrow states that Weston further told him that the
compensation was not inconsistent with the "no commissions"
legend because it would be in the form of a "fee," not a
"commission." He agreed at the hearing that the
compensation he was to be paid was a commission ("we get
paid for what we do") and stated that he "wishes it was
disclosed a lot better than it was."

[20]: Morrow states that he "believes" he told his clients
that his fee was to be paid by the general partner. Although one
Morrow client testified at the hearing that Morrow had
shared such information with him, three clients testified
that Morrow did not discuss the issue of his compensation
with them, and two others testified that Morrow told them
only that he would receive some unspecified form of

[21]:Cf. Steadman v. SEC, 603 F.2d 1126, 1130 (5th Cir.
1979), aff'd, 450 U.S. 91 (1981) (investment adviser failed
to disclose to customers that customer funds were deposited
in banks from which adviser had obtained loans and that
adviser might "keep unduly large amounts idle in" non-
interest bearing accounts, to customers' detriment); Chasins
v. Smith, Barney & Co., Inc., 438 F.2d 1167, 1171-72 (2d
Cir. 1970) (broker-dealer failed to disclose its market
making role in securities recommended to customer).

[22]:See Meyer Blinder, Exchange Act Rel. No. 39180 (Oct. 1,
1997), 65 SEC Docket 1970, 1981.

[23]:All of the contentions made by the parties have been
considered. Their arguments are rejected or sustained to
the extent that they are inconsistent or in accord with the
views expressed herein.

before the

Rel. No. 40392 / September 2, 1998

Admin. Proc. File No. 3-8304

In the Matter of :


On the basis of the Commission's opinion issued this day, it

ORDERED that Richard H. Morrow be, and he hereby is,
suspended from association with any broker or dealer for a period
of one year, to be served beginning the second Monday after the
date of this order; and it is further

ORDERED that Morrow cease and desist from committing or
causing any violation or future violation of Section 10(b) of the
Securities Exchange Act of 1934, Exchange Act Rule 10b-9, and
Sections 17(a)(2) and (3) of the Securities Act of 1933.

By the Commission.

Jonathan G. Katz

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