Bell Capital Management, Inc., Ronnie H. Bell, Thomas C. Comsudes, and Mark S. Palmer

Investment Advisers Act of 1940

Release No. 1813 / August 6, 1999

Administrative Proceeding

File No. 3-9755

In the Matter of BELL CAPITAL MANAGEMENT, INC., RONNIE H. BELL, THOMAS C. COMSUDES, AND MARK S. PALMER, Respondents.

ORDER MAKING FINDINGS, IMPOSING REMEDIAL SANCTIONS, AND IMPOSING CEASE-AND-DESIST ORDERS PURSUANT TO SECTIONS 203(e), 203(f), AND 203(k) OF THE INVESTMENT ADVISERS ACT OF 1940

I.

On September 30, 1998, the Securities and Exchange Commission ("Commission") deemed it appropriate and in the public interest that public administrative proceedings be instituted against Bell Capital Management, Inc. ("Bell Capital"), Ronnie H. Bell ("Bell"), Thomas C. Comsudes ("Comsudes"), and Mark S. Palmer ("Palmer") pursuant to Sections 203(e), 203(f), and 203(k) of the Investment Advisers Act of 1940 ("Advisers Act").

Following the institution of those administrative proceedings, Bell Capital, Bell, Comsudes, and Palmer submitted an Offer of Settlement ("Offer"), which the Commission has determined to accept. Solely for the purpose of these proceedings and any other proceeding brought by or on behalf of the Commission or in which the Commission is a party, Bell Capital, Bell, Comsudes, and Palmer consent to the entry of this Order Making Findings, Imposing Remedial Sanctions, and Imposing Cease-and-Desist Orders Pursuant to Sections 203(e), 203(f), and 203(k) of the Investment Advisers Act of 1940 ("Order") without admitting or denying the findings set forth herein, except those contained in Section II. A., below, as to the jurisdiction of the Commission over them and over the subject matter of these proceedings, which are admitted.

The Commission has determined that it is appropriate and in the public interest to accept Bell Capital's, Bell's, Comsudes', and Palmer's Offer and accordingly is issuing this Order.

II. Facts

On the basis of this Order and the Offer, the Commission finds the following:

A. At all times relevant to this proceeding, Bell Capital was a registered investment adviser headquartered in Atlanta, Georgia, Bell was its President and sole shareholder, and Comsudes and Palmer were its Vice Presidents; B. Between January 1, 1997, and May 31, 1998, Bell, Comsudes, and Palmer, acting on behalf of Bell Capital, prepared, published, circulated and distributed copies of a brochure that offered investment advisory services regarding securities in the form of three portfolios ("the Brochure"). The Brochure contained a discussion of the investment strategies of Bell Capital's portfolios known as the Flex Bond Portfolio ("Flex Bond"), the Flex 100 Portfolio ("Flex 100"), and the Flex 50 Portfolio ("Flex 50"); C. The Brochure included three pages showing the annual returns for 1981 through 1996 of the Flex Bond, Flex 100, and Flex 50. Some of the returns listed on those pages were based on actual performance and others were hypothetical in that they were calculated by "applying today's decision rules" to historical market data. The pages showing annual returns cross-referenced "page 4" of the last section of the Brochure "for an explanation of performance calculations." The only disclosure regarding which returns were hypothetical and which were actual actually appeared on an unnumbered page in the last section of the Brochure; D. Although Bell Capital disclosed in the Brochure that the annual returns for each portfolio, if shown net of advisory fees, would have been reduced by approximately 1.5 percentage points, the annual returns listed for the Flex Bond, Flex 50 and Flex 100 did not reflect the deduction of advisory fees incurred by clients. The pages showing the annual returns cross-referenced "page 4" of the last section of the Brochure "for an explanation of performance calculations." The only disclosure regarding the deduction of advisory fees appeared on an unnumbered page in the last section of the Brochure. E. The Brochure also included a comparison of the average annual return of the Flex 50 and the Flex 100 for a sixteen-year period to the average annual return of the S & P 500 Index for that same period. Although the brochure devoted two pages to listing the "Annual Returns" of the Flex 50 and Flex 100, and included a graphic summary of the S & P Index's performance, it did not specify the annual returns of the S & P 500 Index for that period. As a result, Bell Capital failed to disclose the effect of material market and economic conditions on its returns for 1995 and 1996. Bell Capital by not listing the annual returns of the S & P 500 Index also did not disclose that the returns of the Flex 50 and Flex 100 which were based on actual trading were lower than those of the S & P 500 Index for three out of four years and that its assertion that the portfolios outperformed the S & P 500 Index was based primarily on twelve years of hypothetical performance results; F. Between January 1997 and August 1997, Bell Capital did not maintain in a readily accessible form all the documents necessary to support the performance figures in the Brochure for the Flex Bond, the Flex 100, and the Flex 50 for the years 1981 through 1991; G. Bell Capital committed violations of and willfully violated Sections 206(1), 206(2) and 206(4) of the Advisers Act and Rule 206(4)-1(a)(5) thereunder by reason of the conduct alleged in paragraphs A through E above, and Bell, Comsudes, and Palmer caused and willfully aided and abetted such violations; and H. By reason of the conduct alleged in paragraph F above, Bell Capital committed violations of and willfully violated Section 204 of the Advisers Act and Rule 204-2(a)(16) thereunder by failing to make and keep true, accurate, and current copies of all accounts, books, internal working papers, and any other records or documents that were necessary to form the basis for or demonstrate the calculation of the performance or rate of return of any or all managed accounts or securities recommendations in an advertisement that it distributed to 10 or more persons not connected with the Firm.

III.

In view of the foregoing, it is in the public interest to impose the sanctions specified in the Offer. Accordingly it is hereby ordered that:

A. Bell Capital, Bell, Comsudes, and Palmer are censured; B. Bell Capital, pursuant to Section 203(k) of the Advisers Act will cease and desist from committing or causing any violation and any future violation of Sections 206(1), 206(2) and 206(4) of the Advisers Act and Rule 206(4)-1(a)(5) thereunder and that Bell, Comsudes and Palmer will cease and desist from committing or causing those violations. It is also ordered that Bell Capital, pursuant to Section 203(k) of the Advisers Act will cease and desist from committing or causing any violation and any future violation of Section 204 of the Advisers Act and Rule 204-2(a)(16) thereunder; C. Bell Capital shall, within ten (10) days of the entry of this Order, pay a civil money penalty in the amount of $15,000 to the United States Treasury. Bell, Comsudes, and Palmer shall, within ten (10) days of the entry of this Order, each pay a civil money penalty in the amount of $10,000 to the United States Treasury. Such payments shall be: (1) made by United States postal money order, certified check, bank cashier's check or bank money order; (2) made payable to the Securities and Exchange Commission; (3) hand-delivered or mailed to the Comptroller, Securities and Exchange Commission, Operations Center, 6432 General Green Way, Stop 0-3, Alexandria, VA 22312; and (4) submitted under cover letter that identifies Bell Capital, Bell, Comsudes, and Palmer as respondents in these proceedings, the file number of these proceedings, a copy of which cover letter and money order or check shall be sent to Richard P. Wessel, District Administrator, Securities and Exchange Commission, 3475 Lenox Road, Suite 1000, Atlanta, GA 30326; and D. Bell Capital will comply with its undertaking:

1. To retain, within thirty (30) days of the entry of this Order, the services of an independent consultant who is not unacceptable to the staff of the Commission. Such consultant shall be retained by Bell Capital and its compensation and expenses shall be borne exclusively by Bell Capital. Bell Capital undertakes to arrange for the consultant to review: (a) Bell Capital's method of calculating performance; (b) the adequacy and prominence of Bell Capital's disclosures regarding which advertised returns are hypothetical and which are based on actual trading; (c) the adequacy and prominence of Bell Capital's disclosures regarding its comparison of the performance of the Flex 50 and Flex 100 to the performance of the S & P 500; (d) Bell Capital's method of accounting for advisory and other fees in its calculation of its performance fees; and (e) Bell Capital's maintenance of books and records. The consultant shall conduct such review to determine whether Bell Capital has complied with this Order and shall make recommendations concerning Bell Capital's policies and procedures regarding advertising and the maintenance of books and records; 2. Bell Capital shall provide the staff of the Commission, no later than ten (10) days from the date of engagement, with a copy of an engagement letter detailing the scope of the consultant's responsibilities pursuant to sub-paragraph 1 above; 3. Bell Capital shall arrange for the consultant to make his or her conclusions and recommendations within ninety (90) days from the date of engagement in the form of a report which shall set forth in detail the nature and scope of the review conducted, as well as the conclusions and recommendations of the consultant. Bell Capital may apply to the staff of the Atlanta District Office of the Securities and Exchange Commission ("Atlanta District Office") for an extension for whatever time period it deems appropriate, but in no event shall the review be completed and the report submitted to Bell Capital more than one hundred twenty (120) days from the date of the Order. Bell Capital undertakes to cooperate fully with the consultant and undertakes to provide such person with access to its files, books, records, and personnel as reasonably requested for such person's review; 4. Bell Capital shall take all necessary and appropriate steps to adopt and to implement all recommendations of the consultant, provided, however, as to any of the consultant's recommendations that Bell Capital determines are unduly burdensome or impractical, Bell Capital may suggest an alternative procedure designed to obtain the same objective, submitted in writing to the consultant and to the staff of the Atlanta District Office. The consultant shall reasonably evaluate Bell Capital's alternative procedure and approve the alternative if it is not unreasonable. Bell Capital will abide by the consultant's determination with regard thereto and adopt those recommendations deemed appropriate by the consultant; 5. Bell Capital shall arrange for the consultant to return to Bell Capital no later than three hundred sixty (360) days after the date the special review report was issued to ensure that all recommendations have been implemented. Bell Capital undertakes to arrange for the consultant to provide the Atlanta District Office, no later than thirty (30) days from the date of such follow-up review, a written certification that the follow-up review has been completed and the recommendations have been implemented. For the period of engagement and for a period of two years from completion of the engagement, the consultant shall not enter into any employment, consultant, attorney-client, auditing or other professional relationship with Bell Capital or any of its present or former affiliates, directors, officers, employees or agents acting in their capacity as such. Any firm with which the consultant is affiliated, or of which he/she is a member, and any person engaged to assist the consultant in the performance of his duties under the Order shall not, without prior written consent of the Atlanta District Office, enter into any employment, consultant, attorney-client, auditing or other professional relationship with Bell Capital or any of its present or former affiliates, directors, officers, employees or agents acting in their capacity as such for the period of engagement and for a period of two years after the engagement; and 6. Bell Capital shall deliver a copy of the Order, together with a cover letter, in a form acceptable to the staff of the Commission, to each of its existing clients within thirty (30) days from the date of the Order. From the effective date of this Order until the expiration of six (6) months, Bell Capital shall provide a copy of the Order to all prospective investment advisory clients not less than forty-eight (48) hours prior to entering into any written or oral investment advisory contract (or no later than the time of entering into such contract, if the client has the right to terminate the contract without penalty within five (5) business days after entering into the contract). Bell Capital will obtain a signed acknowledgment of receipt from any client or prospective client to whom the Order is hand-delivered. Also, within thirty (30) days from the date of this Order, Bell Capital shall execute and deliver to the staff of the Atlanta District Office an affidavit that it has provided the Order to its existing clients in accordance with this Order's terms. The consultant shall oversee the delivery of the Order to verify that Bell Capital complies with the terms of this Order. Finally, within seven (7) months from the date of this Order, Bell Capital shall execute and deliver to the staff of the Atlanta District Office an affidavit that it has provided the copy of the Order to its prospective clients in accordance with this Order's terms.

By the Commission.
Jonathan G. Katz
Secretary