UNITED STATES OF AMERICA Before the SECURITIES AND EXCHANGE COMMISSION SECURITIES EXCHANGE ACT OF 1934 Release No. 38878 / July 28, 1997 INVESTMENT ADVISERS ACT OF 1940 Release No. 1645 / July 28, 1997 Administrative Proceedings File No. 3-9351 : In the Matter of : ORDER INSTITUTING PUBLIC : PROCEEDINGS, MAKING STUART GREGORY SMITH, CAPITAL : FINDINGS AND IMPOSING INVESTMENT MANAGERS, INC., and : REMEDIAL SANCTIONS CAPITAL FUND MANAGERS, INC. : : I. The Securities and Exchange Commission ("Commission") deems it appropriate and in the public interest that public administrative proceedings be and hereby are instituted pursuant to Section 15(b) of the Securities Exchange Act of 1934 ("Exchange Act"), and Section 203(f) of the Investment Advisers Act of 1940 ("Advisers Act") against Stuart Gregory Smith ("Smith"); pursuant to Section 15(b) of the Exchange Act against Capital Investment Managers, Inc. ("CIMI"); and pursuant to Section 203(e) of the Advisers Act against Capital Fund Managers, Inc. ("Capital Fund"). In anticipation of these proceedings, Smith, CIMI and Capital Fund have submitted an Offer of Settlement that the Commission has determined is appropriate and in the public interest to accept. Solely for the purpose of this proceeding and any other proceeding brought by or on behalf of the Commission or to which the Commission is a party, and without admitting or denying the factual statements and findings contained herein, except as to the Commission's finding of jurisdiction and the findings set forth in paragraphs II.A. through II.E. of this Order, which they admit, Smith, CIMI and Capital Fund consent to the entry of this Order instituting proceedings, making findings and imposing remedial sanctions. II. On the basis of this Order and the Offer of Settlement submitted by Smith, CIMI and Capital Fund, the Commission finds that: A. Smith, age 40, is the president and the chairman of the board of directors of CIMI and Capital Fund. Smith beneficially owned 12.5 percent of the outstanding common stock of Water Point Systems, Inc. ("Water Point") and served as a Water Point director from November 1992 until Water Point's bankruptcy filing in March 1995. B. CIMI (File No. 8-37222), a broker-dealer with its principal place of business in Fort Worth, Texas, has been registered with the Commission pursuant to Section 15 of the Exchange Act since February 12, 1987. CIMI conducted a general securities business on a fully-disclosed basis until December 24, 1994, when CIMI ceased operations. Smith, who has a 95 percent ownership interest in CIMI, filed a Form BDW for CIMI on December 19, 1994, which has not become effective. C. Capital Fund (File No. 801-27874), is an investment adviser with its principal place of business in Fort Worth, Texas. Capital Fund, which is owned by Smith, has been registered with the Commission pursuant to Section 203(a) of the Advisers Act since September 8, 1986. D. Smith has been permanently enjoined by judgement dated July 8, 1997, of the United States District Court for the Northern District of Texas, Fort Worth Division, in an action styled Securities and Exchange Commission v. Stuart Gregory Smith, et al., Civil Action No. 4:97-CV 545-A (N.D. Texas), from future violations of Section 17(a) of the Securities Act of 1933, and Section 10(b) of the Exchange Act and Rule 10b-5 promulgated thereunder and from aiding and abetting future violations of Sections 15(c)(1) and 17(a)(1) of the Exchange Act and Rules 15c1-2, 15c1-5 and 17a- 4 promulgated thereunder based upon his activities in connection with the offer, purchase and sale of Water Point securities and in the operation of CIMI's brokerage business. E. CIMI has been permanently enjoined by judgement dated July 8, 1997, of the United States District Court for the Northern District of Texas, Fort Worth Division, in an action styled Securities and Exchange Commission v. Stuart Gregory Smith, et. al., 4:97-CV 545-A (N.D. Texas) from future violations of Section 17(a) of the Securities Act of 1933, and Sections 10(b), 15(c)(1) and 17(a)(1) of the Exchange Act and Rules 10b-5, 15c1-2, 15c1-5, and 17a-4 promulgated thereunder based upon its activities in connection with the offer, purchase and sale of Water Point securities and in the operation of CIMI's brokerage business. F. Smith and CIMI consented, without admitting or denying the allegations of the Commission's Complaint, to the entry of the injunction. The Commission's Complaint in that action alleged, among other things, that from in or about July 1992 through December 1994, Smith purchased and exchanged Water Point securities for the accounts of certain CIMI customers without authorization. The Complaint alleged that Smith made material ======END OF PAGE 2====== misrepresentations or failed to disclose material facts about Water Point securities and that Smith forged, or caused to be forged, customer signatures to subscription agreements and exchange offering documents. The Complaint alleged that Smith failed to disclose to CIMI customers, in writing or otherwise, his common control of Water Point and CIMI. Finally, the Complaint alleged that Smith and CIMI failed to maintain and preserve brokerage records as required by the Exchange Act. III. Based upon the foregoing, the Commission deems it appropriate and in the public interest to accept the Offer of Settlement of Smith, CIMI and Capital Fund. Accordingly, IT IS ORDERED THAT: A. Respondent Smith be, and hereby is, barred from associating with any broker, dealer, or investment adviser; B. Respondent CIMI's registration as a broker-dealer is hereby revoked; and C. Respondent Capital Fund's registration as an investment adviser is hereby revoked. By the Commission. Jonathan G. Katz Secretary ======END OF PAGE 3======