Robertson Stephens, Inc.
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In the Matter of ROBERTSON STEPHENS, INC. Respondent. |
PROPOSED PLAN OF DISTRIBUTION
On January 9, 2003, the Commission issued an Order in this proceeding in which it found that Respondent Robertson Stephens, Inc. ("RSI") willfully violated Sections 15(c) and 17(a) of the Securities Exchange Act of 1934 ("Exchange Act"), and Rules 15c1-2(b), 17a-4(b)(4), and 17a-4(j) thereunder. Pursuant to the Order, on January 14, 2003, RSI paid $5 million to the Commission's Comptroller. The monies are presently being held in a non-interest bearing account at the United States Treasury ("the Fund").
Background
In the Order, the Commission found that RSI and certain senior executives of the firm had formed a series of investment limited partnerships referred to collectively as the "Bayview" partnerships. An entity controlled by RSI was the general partner of each of the limited partnerships. Two of the limited partnerships, Bayview 99 I and II, were formed to invest in a portfolio of companies that was chosen by an investment committee consisting of senior RSI executives. Another limited partnership, Bayview Corvis, also formed in 1999, invested solely in the securities of Corvis Corporation ("Corvis"), a telecommunications and Internet equipmentcompany that, at the time of the Bayview investment, was privately-held.
The Commission further found that in December 1999, Bayview 99 I and II and Bayview Corvis purchased approximately $5 million worth of Corvis stock. A senior equity analyst at RSI ("the Research Analyst") personally invested in two of the three partnerships. At the time of the initial public offering of Corvis stock, in June 2000, the Corvis stock owned by the Bayview partnerships became subject to lockup agreements that prohibited the partnerships from selling the stock until January 24, 2001.
On January 16, 2001, with Corvis common stock trading at $23 per share, the Research Analyst issued an industry report that discussed several companies and included a "buy" recommendation on Corvis.
One week later, on January 23, 2001, with the Corvis lockup period due to expire on the following day, January 24, 2001, the Bayview investment committee met to discuss the Corvis stock holdings. During the meeting, the Research Analyst spoke by telephone to the investment committee regarding Corvis. Although the Research Analyst spoke enthusiastically about the company to the investment committee, when a committee member asked the Research Analyst whether he would buy Corvis "at this price," the Research Analyst replied, "I wouldn't buy at this price." Corvis had closed the previous day at $24.50 per share. The Research Analyst told the committee that he "would buy [Corvis stock] at 12 to 14 [dollars per share]."
After learning the Research Analyst's view that the stock was overpriced, the investment committee voted unanimously to sell all of the Corvis shares held by Bayview 99 I and II. Bayview Corvis investors were offered the option of receiving a pro rata distribution of their Corvis shares or having the Corvis stock sold for them.
On the following day, January 24, 2001, prior to the opening of the market, Bayview 99 I and II sold 59,604 shares, for a net profit of $1,164,662. In addition, many of the partners in Bayview Corvis, including the Research Analyst, sold their Corvis stock. RSI executed the stock sales for Bayview 99 I and II and for the partners of Bayview Corvis who chose to sell their holdings. RSI sold the Corvis stock in several transactions at different prices, but paid each of the sellers an average sale price of $25.609 per share.
After the close of the market on January 25, 2001, Corvis reported a fourth quarter loss of $89.7 million. On the same day, RSI published a research report that reiterated the buy rating on Corvis.
The Commission's order found that the Research Analyst's statements regarding Corvis during the January 23, 2001 investment committee meeting - that he would not buy Corvis stock at the market price, but would buy it if it was trading at $12 to $14 per share - were inconsistent with the buy rating on Corvis included in the January 16, 2001 research report, which had been issued when Corvis stock was trading at about $23 per share. In addition, the sales of Corvis stock on January 24, 2001 by the two Bayview partnerships, the Research Analyst, and all but one of the senior RSI executives who attended the investment committee meeting, were inconsistent with the Corvis rating included in RSI's January 16, 2001 research report. During this period, RSI did not issue any report that accurately reflected the Research Analyst's actual views regarding the price at which he would recommend that Corvis be bought.
The Commission order also found that RSI's January 26, 2001 research report on Corvis also was materially misleading because the report included a buy recommendation on Corvis that directly contradicted the Research Analyst's statements to the investment committee made only three days earlier.
The Commission order found that RSI willfully violated Section 15(c)(1) and Rule 15c1-2(b) thereunder by issuing the materially misleading "buy" ratings on Corvis in research reports published on January 16, 2001 and on January 26, 2001.
Administrator
Laurence Storch, Esquire is appointed as the Administrator under this Plan of Distribution, with the powers and duties set forth below.
Administrator's Powers and Responsibilities
The Administrator may retain attorneys, accountants, and other persons to assist in carrying out this Plan of Distribution. The Administrator shall, at such times as he deems appropriate, submit bills for the Administrator's own services (at rates not to exceed $275 per hour) and the services of persons the Administrator retains, plus expenses, to the Commission for approval before payment.
The Administrator shall, as provided below, take reasonable and appropriate steps to distribute the Fund according to the following claims procedure. Where the Administrator deems necessary, after consultation with the Commission Staff, the Administrator may modify this procedure to effectuate the general purposes of this Plan.
The Administrator shall give the Commission staff at least ten (10) days' notice of all applications to the Commission that the Administrator submits under this Plan, and shall regularly report to the Commission's staff on the status of activities in carrying out this Plan.
The Administrator and the Administrator's designees, agents and assistants shall not be liable to any person for their actions hereunder, except on a finding of misfeasance, gross negligence, or reckless disregard of duty.
Definitions and Procedures
I. Notice to Potential Claimants
In order to assist the Administrator in contacting potential claimants, the Commission staff shall provide to the Administrator information that it has obtained regarding persons that purchased Corvis common stock from RSI during the relevant periods. Within forty-five (45) days after the date on which the Commission approves the Plan of Distribution and appoints the Administrator, the Administrator shall send each purchaser a written notice identifying Corvis common stock as the security in issue, specifying the relevant periods, describing the claims process and, in particular, the requirements for the Affidavit verifying proof of loss (as provided for in part III, below, and supporting documentation, the deadline and procedure for filing claims, and such other information as the Administrator deems appropriate. The Administrator shall determine the deadline for filing claims, which shall be between sixty (60) and ninety (90) days following the mailing date of the notice required above.
II. Eligible Purchasers
In order to be eligible to receive payments pursuant to this Distribution Plan, a person must have:
A. (1) purchased shares of the Corvis common stock that were sold by RSI, on behalf of the three Bayview partnerships (Bayview 99 I, Bayview 99 II, or Bayview Corvis), during the pre-market trading session on January 24, 2001; or
(2) been a customer of RSI and purchased Corvis common stock from or through RSI during the period from January 16, 2001 through January 26, 2001; and
B. such purchaser must have incurred a net loss on the Corvis common stock that they purchased from RSI.
A broker-dealer or other person executing a purchase of Corvis common stock for a customer in a "riskless" principal transaction, as defined in NASD Rule 4632(d), is not eligible to receive payments pursuant to this Plan.
III. Procedure for Verifying Proof of Net Loss
In order to be eligible to receive a payment under the Distribution Plan, a purchaser must have incurred a net loss on the Corvis common stock purchases in question. In order to establish eligibility to recover under this plan, each purchaser shall be required to execute a sworn affidavit attesting, at a minimum, to the following:
A. the total number of shares of Corvis stock that the purchaser bought from RSI either between January 16 and January 26, 2001 or during the pre-market session on January 24, 2001, or both ("the relevant periods");
B. the date(s) of the purchase(s);
C. the price(s) at which such shares were purchased;
D. the date(s) on which such shares were sold or that the shares currently are held by the purchaser;
E. the price(s) at which such shares were sold; and
F. that the purchaser incurred a net loss on the Corvis stock purchased from or through RSI during the relevant periods.
Each purchaser shall attach to the affidavit, copies of account statements, trade confirmations, or such other documentation as the Administrator deems appropriate to corroborate the attestations specified in part III, A-F, above. In addition, the Administrator may require the purchasers to attest, in the Affidavit described above, to such other information as the Administrator may require in order to assist him in carrying out his responsibilities under this Plan.
IV. Amounts Recoverable
An eligible purchaser shall be eligible to receive:
A. if the purchaser incurred a net loss by selling the Corvis stock for less than $13 per share, the difference between the amount the purchaser paid for the Corvis stock and $13 per share; or
B. if the purchaser sold the Corvis stock for more than $13 per share, the purchaser's net loss;
and, if sufficient funds are available, prejudgment interest on such amounts through January 9, 2003, calculated at a rate not to exceed the federal funds rate as established by the Federal Reserve of the United States (see http://www.federalreserve.gov/fomc/fundsrate.htm).
V. Claims Review Procedures
The Administrator or the Administrator's designee shall review each claim and determine the amount (if any) to be paid. The Administrator shall deny any claim that would result in a distribution under $25. Where the Administrator denies a claim, the Administrator shall so notify the claimant, and shall advise the claimant that he or she has fifteen (15) days to request reconsideration and provide any additional documentation for the claim. The Administrator's determination denying or fixing the amount of any claim shall be final.
After determining the amount of each claim, the Administrator shall set aside a portion of the Fund to pay unpaid taxes assessed or likely to be assessed against the Fund, if any, and to pay fees and expenses incurred or likely to be incurred in carrying out this Plan (the "Reserves").
In the event that the Administrator, after calculating the amount of each claim and the Reserves, determines that insufficient funds are available to compensate each purchaser to the full extent specified in part IV, above, the Administrator may, after consultation with the Commission staff,propose to the Commission an alternative method for equitably distributing the funds to eligible purchasers. In devising such an alternative plan, the Administrator may take into account whether a purchaser was a retail or institutional customer of RSI.
VI. Commission Approval of Proposed Distribution
Prior to making any payments, the Administrator shall prepare and submit a written report and application to the Commission that:
A. identifies by name each Eligible Purchaser that the Administrator recommends should receive a payment and the amount that each is to receive;
B. specifying the amount, if any, set aside for the Reserves (including the Administrator's actual and projected fees and expenses);
C. specifying the amounts, if any, that must be paid in federal, state, and local taxes on the Fund; and
D. seeks the Commission's approval to make the recommended payments to Eligible Purchasers and to pay the Administrator's fees and expenses.
VII. Distribution of the Fund
Within thirty (30) days after the Commission authorizes the Administrator to make the payments described in part VI, above, the Administrator shall pay all outstanding taxes accrued or assessed against the Fund and, as soon thereafter as is practicable, make payments to the Eligible Purchasers.
If the Fund has a surplus after all distributions to claimants have been made and taxes, fees, and expenses paid, and after receiving any tax refunds, the Administrator shall, if practicable in light of the amount of any surplus, propose that such remaining monies shall be paid in accordance with a plan of residual distribution to be proposed by the Administrator afterconsultation with Commission staff and approved by the Commission. If the Administrator determines, and the Commission staff concurs, that no residual distribution is feasible, then the Administrator shall distribute the balance remaining in the Fund (including any distribution checks that remain undeposited for more than six months) to the United States Treasury.
VIII. Final Report of Administrator
Upon completion of his duties specified herein, the Administrator shall file with the Commission a report describing the Administrator's activities and the distribution made under this Plan.