SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
Date of Report (Date of earliest event reported): June 27, 1996
PMC International, Inc.
(Exact Name of registrant as specified in its charter)
Colorado 0-14937 84-0627374
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
555-17th Street, 14th Floor, Denver, CO 80202
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (303) 292-1177
(Former name or former address, if changed since last report.)
Item 5. Other Events.
On June 27, 1996, Portfolio Management Consultants, Inc.
("PMC"), a subsidiary of the Company, entered into a
settlement with the Securities and Exchange Commission
("SEC") concerning a previously announced SEC investigation.
The Company issued a press announcement regarding the
settlement, a copy of which is attached hereto as Exhibit A
and incorporated herein by reference. A reproduction of the
SEC order regarding the settlement is attached hereto as
Exhibit B and incorporated herein by reference.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act
of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned hereunto duly
authorized.
PMC International, Inc.
(Registrant)
Date: July 1, 1996 /s/ Kenneth S. Phillips
Kenneth S. Phillips
President and Chief Executive Officer
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EXHIBIT A
FOR IMMEDIATE RELEASE
Denver, Colorado, June 27, 1996 --- Portfolio Management
Consultants, Inc. ("PMC"), a wholly owned subsidiary of PMC
International, Inc. (NASDAQ Bulletin Board: PMCI), today
announced the settlement of a proceeding brought by the
Securities and Exchange Commission regarding previously
announced issues concerning PMC's former trading/disclosure
practices.
Under the terms of the settlement, PMC and its
President neither admitted nor denied various findings of
the SEC arising out of the nature and content of PMC's
disclosures of its former practice -- which PMC voluntarily
discontinued more than two years ago -- of executing a small
percentage of transactions with its wrap-fee clients on a
principal, rather than on an agency, basis. As part of the
settlement, the Company consented to certain findings and
orders of the SEC and agreed to refund its net trading
profits associated with such transactions, plus interest, to
its advisory clients.
David L. Andrus, PMC International Executive Vice
President, stated that "We are most pleased to have this
matter settled and behind us, and we can now concentrate on
the growth and expansion of our business." Mr. Andrus also
noted that the person who was CEO of PMC during the period
of principal trading is no longer affiliated with the
Company.
PMC is one of the pioneers in the creation and
development of "wrap-fee" accounts, in which PMC provides
comprehensive investment services to clients in exchange for
a fixed annual fee.
For additional information contact:
Dottie DeMark
Compliance Officer
303-292-1177
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EXHIBIT B
UNITED STATES OF AMERICA
Before The
SECURITIES AND EXCHANGE COMMISSION
Securities Act of 1933
Release No. 7308 / June 27, 1996
Securities Exchange Act of 1934
Release No. 37376 / June 27, 1996
Investment Advisers Act of 1940
Release No. 1568 / June 27, 1996
Administrative Proceeding
File No. 3-9033
__________________________________ ORDER INSTITUTING
: PUBLIC ADMINISTRATIVE
: PROCEEDINGS PURSUANT TO
: SECTION 8A OF THE
: SECURITIES ACT OF 1933,
In The Matter of : SECTIONS 15(b), 19(h)
: AND 21C OF THE SECURITIES
PORTFOLIO MANAGEMENT CONSULTANTS, : EXCHANGE ACT OF 1934 AND
INC. and : SECTIONS 203(e), 203(f)
KENNETH S. PHILLIPS, : AND 203(k), OF THE
: INVESTMENT ADVISERS ACT
Respondents. : OF 1940, MAKING FINDINGS
: IMPOSING REMEDIAL
: SANCTIONS AND PENALTIES
: AND CEASE-AND-DESIST
__________________________________: ORDER
I.
The Securities and Exchange Commission ("Commission") deems
it appropriate and in the public interest that public
proceedings be instituted pursuant to Section 8A of the
Securities Act of 1933 ("Securities Act"), Section 15 (b),
19 (h) and 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")
against Portfolio Management Consultants, Inc. and Kenneth
S. Phillips ("Respondents"). In anticipation of these
proceedings, Respondents have submitted Offers of
Settlement, which the Commission has determined to accept.
Solely for the purpose of these proceedings and any other
proceedings brought by or on behalf of the Commission or in
which the Commission is a party, prior to
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a hearing pursuant to the Commission's Rules of Practice 17 CFR 201.1
et seq., Respondents, by their Offers of Settlement, without
admitting or denying the Commission's findings except for
the facts contained in Section III.A. through III.G. below,
which are admitted, consent to the entry of this Order
Instituting Public Administrative Proceedings, Making
Findings, Imposing Remedial Sanctions and Penalties and
Cease and Desist Order ("Order").
II.
Accordingly, IT IS HEREBY ORDERED, that proceedings pursuant
to Section 8A of the Securities Act, Sections 15 (b), 19 (h)
and 21C of the Exchange Act and Sections 203 (e), 203 (f)
and 203 (k) of the Advisers Act be, and they hereby are,
instituted.
III.
On the basis of this Order and the Offers of Settlement
submitted by the Respondents, the Commission finds that:1
A. Portfolio Management Consultants, Inc. ("PMC") is a
Colorado corporation with its principal place of business in
Denver, Colorado. PMC is a wholly-owned subsidiary of PMC
International, Inc. ("PMCI"). PMCI's common stock is
registered with the Commission pursuant to Section 12 (g) of
the Exchange Act and is traded over the counter.
B. PMC first registered with the Commission as a broker-
dealer pursuant to Section 15 (b) of the Exchange Act on
February 20, 1987 and remained so registered during all
times relevant to this matter. PMC first registered with
the Commission as an investment adviser pursuant to Section
203 (c) of the Advisers Act on April 17, 1987 and remained
so registered during all times relevant to this matter.
C. At all times relevant to this proceeding, PMC was a
member of the National Association of Securities Dealers,
Inc. and was engaged primarily in the business of acting as
an investment adviser and rendering "investment supervisory
services." PMC has never acted as an underwriter or market
maker with respect to any security.
D. Marc N. Geman ("Geman") was Chairman of the Board and
__________
1 The findings herein are made pursuant to PMC's Offer of Settlement
and Phillips' Offer of Settlement and are not binding on any
other person or entity named as a respondent in this or any other
proceeding.
<PAGE>
Chief Executive Officer of PMC from in or about 1990 to
July 1995.
E. Kenneth S. Phillips ("Phillips") is a director and the
President of PMC, positions he has held since in or about
December 1985.
F. At all times relevant to this proceeding, PMC's primary
business activity consisted of sponsoring a comprehensive
"individualized managed accounts" service commonly referred
to as a wrap fee program ("Program"). PMC serviced
approximately 800 clients enrolled in the Program - with
over $200 million under management.2 PMC's clients each
paid a single all-inclusive fee equal to a percentage of the
respective client's assets invested, in return for full
participation in the Program. PMC represented to clients
that the wrap fee covered all brokerage, advisory and
custodial services performed by PMC, independent portfolio
managers ("Program Mangers") and other service providers
chosen by PMC to be affiliated with the Program. This
representation was consistent with the terms of the standard
PMC client service agreement which stated that all products
and services offered under the Program were provided in
consideration of the fixed wrap fee. PMC did not recommend
particular securities to a client. PMC only advised and
assisted clients in allocating assets among one or more of
the Program Managers selected by each client. Each Program
Manager had complete investment discretion with respect to
that portion of the client's funds for which it had
responsibility. PMC monitored portfolio and Program Manger
performance and periodically reported the results to
respective clients. PMC also functioned as a
nondiscretionary executing broker for the Program, executing
unsolicited transactions for its wrap fee clients upon
instructions from the Program Managers. In that regard, the
client service agreement stated, "[i]n effecting securities
transactions through PMC as broker-dealer, Client
acknowledges that PMC may, to the extent permitted by
applicable law, while acting as principal, execute purchase
or sale orders received from the Portfolio Manager. Client
expressly authorizes PMC to effect such transactions."
However, PMC did not maintain an inventory of securities and
did not buy or sell securities independent of its activities
as a Program broker-dealer.
__________
2 The clients of PMC referred to in this Order are those clients
with whom PMC had a contractual relationship as wrap fee sponsor.
PMC also provided certain services for clients with whom PMC had
no contractual relationship (the "non-privity" clients), such as
acting as an executing broker under the instructions of an
independent wrap fee sponsor and a portfolio manager selected by
the customer. This Order does not deal with PMC activities in
connection with non-privity clients.
<PAGE>
G. Geman and Phillips at all times relevant to this case
had separate areas of responsibility at PMC. Geman had
primary oversight of regulatory compliance, accounting,
finance, trading and operations. Phillips was responsible
for marketing services, portfolio manager relations,
performance measurement and research. In connection with
his oversight of trading operations, Geman conceived,
developed and implemented principal trading at PMC and
established the policies and procedures covering execution
of orders and reporting trades to clients and regulatory
agencies.
H. PMC assumed the duties and fiduciary responsibilities
of an investment adviser with respect to its wrap fee
clients upon their enrollment in the Program. An investment
adviser cannot secretly profit from the subject matter of
the fiduciary relationship. Further, a fiduciary in a
potentially conflicting position with a beneficiary must
refrain from putting its interests ahead of the
beneficiary's, absent informed consent. Disclosure of all
material facts is the basis for informed consent.
I. PMC also served as the executing broker-dealer for
substantially all orders written by Program Managers. As
discussed in Paragraph F. above, PMC was compensated in
advance for executing all client orders routed to the PMC
trading desk. When an agent acts on behalf of a principal
in a transaction, the agent has an affirmative duty to
exercise reasonable care to obtain for the principal the
most advantageous terms available under the circumstances.
In its role as the Program broker-dealer, PMC assumed the
responsibility of obtaining best execution for its clients.
In this regard, PMC made affirmative written representations
in its promotional materials and standard client service
agreement that PMC would endeavor to obtain, variously,
"best execution", "best price execution" and "best net
price" on each client's behalf.
J. Prior to October 1992, PMC effected all securities
transactions on behalf of its clients on an agency basis.
From on or about October 1, 1992 to on or about April 22,
1994, PMC effected 89,165 securities transactions, of which
8,264 were principal transactions. Principal transactions
were entered into, primarily with third market dealers,3 to
offset contemporaneous principal transactions with wrap fee
clients. The trades executed by PMC with its clients on a
principal basis originated as market orders from Program
Managers exercising exclusive discretionary trading
authority over PMC's wrap fee clients' portfolios. The
__________
3 The third market consists of market makers engaged in over-the-
counter trading of exchange-listed securities.
<PAGE>
personnel on PMC's trading desk had complete discretion to
execute such orders on either a principal or agency basis.
Orders executed for clients by PMC acting as principal were
routinely entered at the prevailing national best bid or
offer ("NBBO").4 In contemporaneous offsetting principal
trades, PMC sought better prices for its own account by
routing limit orders to third market dealers at prices more
favorable to PMC than NBBO prices. The majority of the
offsetting orders for PMC's account were filled by third
market dealers at the more favorable prices. In this
manner, PMC generated net trading profits in an amount to be
determined pursuant to the procedures set forth in Section
IV.A.2. of this Order.
K. PMC routinely executed orders with its wrap fee clients
at the NBBO. In contemporaneous offsetting transactions,
PMC's traders sought out, and in most instances obtained, a
superior price in the third market. PMC kept these gains
for itself, rather than giving its clients the benefit of
the more favorable execution. PMC's traders knew at the time
they traded with PMC's wrap fee clients at the NBBO that PMC
was reasonably likely to obtain execution in the third
market at prices inside the NBBO because they sought those
superior prices for themselves. Under the circumstances of
its arrangement with its clients, PMC had a duty, absent
meaningful disclosure and consent, to provide its clients
with the superior prices that were reasonably available. In
its failure to pass on the superior prices to its clients,
PMC breached its obligation of best execution.
L. With respect to orders which PMC executed acting as
principal, PMC only gave the client execution at the NBBO
and failed to seek out a better price for its clients, in
contravention of the written representations made to those
clients. Furthermore, PMC failed to disclose to clients
that the prices obtained for clients were not the most
favorable under the circumstances. In addition, PMC failed
to disclose that it was receiving, in addition to the wrap
fee, compensation in the form of profits generated from
principal trading.
__________
4 NBBO refers to the single highest bid price from among all bids
quoted by the various participants (stock exchange specialists
and third market dealers) in the Consolidated Quotation Service
and the single lowest offer price from among all offers quoted
by those participants.
<PAGE>
ANTIFRAUD VIOLATIONS
M. From at least October 1992 through at least April 1994,
PMC and Phillips willfully5 violated and Phillips willfully
aided and abetted and caused PMC's violations of Sections 17
(a) (2) and 17 (a) (3) of the Securities Act in that, in the
offer or sale of securities, by use of the means or
instruments of transportation or communication in interstate
commerce or by use of the mails, they directly or indirectly
obtained money or property by means of untrue statements of
material facts or by omissions to state material facts
necessary in order to make the statements made, in light of
the circumstances under which they were made, not
misleading, and engaged in transactions, practices or
courses of business which would and did operate as a fraud
or deceit upon the purchasers or sellers of such securities.
As part of and in furtherance of the aforesaid violations,
PMC and Phillips, among other things, engaged in the conduct
described in Paragraphs H. through L. above.
N. From at least October 1992 through at least April 1994,
PMC willfully violated and Phillips willfully aided and
abetted and caused violations of Section 206 (2) of the
Advisers Act in that, by use of the mails and other means or
instrumentalities of interstate commerce, PMC and Phillips,
directly or indirectly, engaged in transactions, practices
or courses of business which would and did operate as a
fraud or deceit upon clients and prospective clients. As
part of and in furtherance of the aforesaid violations, PMC
and Phillips, among other things, engaged in the conduct
described in Paragraphs H. through L. above.
BOOKS AND RECORDS VIOLATION
O. From at least March 1993 through at least December
1993, PMC, under Geman's direct supervision and control,
failed to make and keep a memorandum of every brokerage
order received showing the terms and conditions of the
order, the client account for which the order was entered,
the time of entry, the price at which executed and the time
of execution. Also, with respect to PMC's purchase and
sales of securities for its own account in trades with
clients, PMC failed to make and keep a memorandum showing
the price, the
__________
5 "Willfully" as used in this Order means intentionally committing
the act which constitutes the violation. There is no requirement
that the actor also be aware that he is violating the federal
securities laws. See Steadman v SEC. 603 F.2d 1126 (2d Cir.),
rev'd on other grounds, 450 U.S. 91 (1981); Arthur Lipper Corp.
v. SEC, 547 F.2d 171, 180 (2d Cir. 1976), cert. denied, 434 U.S.
1009 (1978); Tager v. SEC, 344 F.2d 5 (2d Cir. 1965).
<PAGE>
time of receipt, time of execution, the terms
and conditions of the order, and the client account for
which it was entered. Finally, PMC failed to give the
Commission timely notice of its failure to make and keep
current its books and records.6
P. By reason of the conduct described in Paragraph O.
above, PMC willfully violated Section 17 (a) (1) of the
Exchange Act and Rules 17a-3 (a) (6), 17a-3 (a) (7) and 17a-
11 thereunder.
IV.
In view of the foregoing, it is in the public interest to
impose the sanctions specified in the Offers of Settlement.
In determining to accept these Offers, the Commission
considered remedial acts undertaken by PMC and Phillips.
Accordingly, IT IS HEREBY ORDERED that:
A. Respondent PMC shall:
1. pay disgorgement and prejudgement interest thereon in
amounts and at the time to be determined pursuant to the
terms of Section IV.A.2. of this Order;
2. engage within thirty (30) days of the issuance of this
Order an independent accounting firm ("Accountant") not
unacceptable to Commission staff, which Accountant shall
within ninety (90) days of its engagement submit a Plan of
Administration and Distribution ("Plan") by hand delivery or
overnight mail to Daniel F. Shea, Regional Director,
Securities and Exchange Commission, 1801 California Street,
Suite 4800, Denver, Colorado 80202, with a copy to PMC,
setting forth the following: (A) the net trading profits
realized from principal trading by PMC, identified
separately by client, during the period October 1, 1992
through April 22, 1994, inclusive, (B) the amount of
prejudgement interest, computed in accordance with 17 C.F.R.
Section 201.600 (b), due each such client, (C) detailed procedures
and the related time line to be employed to locate all such
clients and distribute payments to them, (D) a proposed
cover letter of explanation from PMC to
__________
6 In March 1993, the National Association of Securities Dealers,Inc.
("NASD") insisted that PMC cease reporting principal transactions
on the Automated Confirmation Transaction Service ("ACT"). In
January 1994, the NASD reversed its position and permitted PMC
to resume ACT reporting. During the intervening nine months, PMC
did not generate or maintain order tickets refelecting the times
at which it entered or executed principal trades with clients.
<PAGE>
accompany the payments, and (E) procedures for making payment to
the United States Treasury of any amounts due clients or their
beneficiaries who cannot be located within a reasonable
period of time. The Accountant shall implement the Plan
commencing on the fourteenth day after the date of
submission of the Plan, unless the staff notifies the
Accountant in writing of its objection to the Plan. In the
event of a staff objection, the Accountant shall submit a
revised Plan within thirty (30) days of the date of the
objection, which revised plan shall be subject to all the
provisions of this subparagraph;
3. employ within thirty (30) days of the issuance of this
Order a compliance executive not unacceptable to Commission
staff, who shall report only to an independent committee of
the board of directors of PMC; and
4. pursuant to Section 8A of the Securities Act, Section
21C of the Exchange Act and Section 203 (k) of the Advisers
Act, cease and desist from committing or causing any
violations and any future violations of Sections 17 (a) (2)
and 17 (a) (3) of the Securities Act, Section 17 (a) (1) of
the Exchange Act, Rules 17a-3 (a) (6), 17a-3 (a) (7) and 17a-
11 under the Exchange Act and Section 206 (2) of the
Advisers Act.
B. Respondent Phillips shall:
1. be, and hereby is, censured;
2. within thirty (30) days of the date of this Order, pay
a civil money penalty in the aggregate of $25,000 to the
United States Treasury. Such payment shall be: (A) made by
United States postal money order, certified check, bank
cashier's check or bank money order; (B) made payable to the
Securities and Exchange Commission; (C) hand-delivered to
the Comptroller, Securities and Exchange Commission, 450 5th
Street, N.W., Washington, D.C. 20549; and (D) submitted
under cover letter which identifies Phillips as the
Respondent in these proceedings, the file number of these
proceedings and the Commission's case number, a copy of
which cover letter and money order or check shall be sent to
Daniel F. Shea, Regional Director, Securities and Exchange
Commission, 1801 California Street, Suite 4800, Denver,
Colorado 80202; and
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3. pursuant to Section 8A of the Securities Act and
Section 203 (k) of the Advisers Act, cease and desist from
committing or causing any violations and any future
violations of Section 17 (a) (2) and 17 (a) (3) of the
Securities Act and Section 206 (2) of the Advisers Act.
By the Commission.
/s/ Jonathan G. Katz
Jonathan G. Katz
Secretary
