Company Name: Butcher & Singer Inc.
Public Availability Date: 05-13-1988
INQUIRY LETTER 1Butcher & Singer Inc.
P.O. Box 957
Philadelphia, Pennsylvania 19105
October 26, 1987 Mary E.T. Beach, Esquire
Associate Director
Division of Corporate Finance
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, DC 20549 Re: Request for Determination Pursuant to Rule
505(b)(iii)(C) Dear Ms. Beach: In accordance with our telephone conversation on Friday, I am submitting this
request for a determination by the Commission, pursuant to Rule 505(b)(iii)(C)
under the Securities Act of 1933, as amended (the "Act"), that issuers for whom
Butcher & Singer Inc. ("B&S") acts as underwriter (within the meaning of Rule
505(b)(iii)(B)) will not be disqualified from the exemption provided by Rule
505. Commission's Order On January 13, 1987, the Commission issued an order, pursuant to Section 15(b)
of the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
suspending B&S for a period of 30 days from engaging in market-making
transactions as principal in over-the-counter equity securities. The Commission
found that B&S violated Sections 5(a) and 5(c) of the Act and 15c2-11 of the
Exchange Act by failing to properly supervise one of its traders in making a
market in the common stock of I.G.E., Inc. The trader, an officer of B&S, was
suspended from association with any broker or dealer for a period of 30 days. B&S and the trader timely appealed the Commission's order to the United States
Court of Appeals for the Third Circuit, and on October 15, 1987, the Court
issued its decision affirming the Commission's order. The Commission's order
will become effective on November 5, 1987. Rule 505 and ULOE Disqualifications Rule 505 provides an exemption from the registration requirements of the Act for
limited offers and sales of securities not exceeding $5,000,000. Paragraph (B)(iii)
of the Rule provides that no exemption under the Rule is available for the
securities of any issuer described in Rule 252(c), (d), (e) or (f) of Regulation
A (a so-called "bad-boy" disqualification). Rule 252(d) includes, inter alia, any issuer if the underwriter, or any partner,
director or officer of such underwriter, is subject to an order of the
Commission entered pursuant to Section 15(b) of the Exchange Act. Consequently, Rule 505 would not be available to any issuer using B&S as an
underwriter during the effectiveness of the Commission's order. In addition, while Rule 506 of Regulation D would continue to be available to
issuers using B&S as an underwriter because Rule 506 does not contain any
"bad-boy" disqualification, the Uniform Limited Offering Exemption ("ULOE")
adopted by a limited number of states includes a "bad-boy" disqualification in
the portion of the ULOE coordinating with Rule 506 offerings. Pennsylvania is an
example. Pennsylvania's version of ULOE is not available for an offering
complying with Rule 506 if the issuer is subject to the disqualification
provisions of Rule 252(c), (d), (e) or (f) of Regulation A. (Section
204.010(b)(iii) of Pennsylvania's Blue Sky Regulations, Vol. 2 CCH Blue Sky Law
Reports 48,452A.) The unavailability of Rules 505 generally and 506 in Pennsylvania (B&S's home
state) and other key states to issuers using B&S as an underwriter in a
Regulation D offering effectively precludes B&S from private placement
activities during the effectiveness of the Commission's order. Request for Relief B&S requests relief on the following grounds: 1. The sanction imposed upon B&S pursuant to the Commission's order was narrowly
drawn to relate directly and solely to the area of B&S's business in which the
infraction occurred. The violations found by the Commission related solely to
B&S's equity over-the-counter market-making activities. We do not believe there
was any intention to suspend B&S's activities in unrelated areas. Our belief is
confirmed by recent discussions we have had with members of the Commission staff
in Philadelphia to resolve certain technical questions of implementation and
scope of the Commission's order. In such discussions, when we raised the
problems resulting from the Rule 505 disqualification, the staff stated that
they would not oppose a request for a waiver. 2. The effect of the Rule 505 disqualification provisions would also have the
effect of lengthening the effective period of the Commission's order. Thus,
while it is relatively easy to cease over-the-counter market-making activities
for a 30-day period and re-enter the market on the 31st day, this is not the
case with private placements. Not only would B&S be forced to cease making
offers and sales in Regulation D offerings as of the effective date of the
Commission's order (in itself a potential hardship on B&S's issuer-clients not
present in market-making activities) but issuer's who plan to commence a private
placement during the effectiveness of the Commission's order (even though the
offering period might extend for several months) would be forced to find another
placement agent. B&S would thus be effectively prevented from acting as
placement agent on certain transactions for a considerably longer period than 30
days. We believe this is inconsistent with the purpose of the narrowly drawn
sanction imposed by the Commission. Because of the impending effectiveness of the Commission's order, we appreciate
your willingness to give prompt attention to our request. If you need any
additional information, please do not hesitate to call me at (215) 985-5064. Very truly yours, Howard B. Scherer
General Counsel HBS/ldl INQUIRY LETTER 2Butcher & Singer Inc. P.O. Box 957 Philadelphia, Pennsylvania 19105 November 02, 1987 Mary E.T. Beach, Esquire
Associate Director
Division of Corporate Finance
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549 Re: Request for Determination Pursuant to Rule
505(b)(iii)(C) Dear Ms. Beach: This will confirm and amplify my statements to you on the telephone Friday. The oil and gas partnership offering which Butcher & Singer proposes to sell
during the period of the suspension imposed by the Commission's order is the
Corinthian/Chadwick 1987 Development Drilling Program. For marketing purposes,
there are technically two Programs with different Unit sizes and leveraging
characteristics, but they participate in the same wells and are part of one
integrated offering for purposes of Regulation D. Butcher & Singer has been offering private oil and gas partnership investments
every year since 1972, and the terms of the current offering are consistent with
past practices, except for changes required by applicable federal tax law. As we discussed, if you deem it more appropriate to limit the waiver requested
in my letter of October 26, 1987, to the Corinthian/Chadwick offering, this
would be acceptable to Butcher & Singer, and we would modify our request for a
waiver accordingly. We also discussed certain aspects of the Commission's order of January 13, 1987,
imposing the 30-day suspension on certain market-making activities of Butcher &
Singer. The actions for which Butcher & Singer was sanctioned commenced in
August, 1977 (failure to supervise a trader's decision to commence making a
market in a security without adequate investigation). The market making
activities continued through June, 1981. Butcher & Singer strengthened its policy with respect to limitation of
market-making activities in 1981. Such policy was most recently amended in 1985.
A copy of the present policy is attached to this letter. Butcher & Singer has also taken the following steps in the last several years to
strengthen its general compliance program: 1. The compliance staff has been significantly increased. 2. The position of inside general counsel (reporting directly to the president)
has been established. 3. A standing compliance committee has been established which meets monthly to
review the quality of compliance generally. 4. A standing operations committee has been established to review operations
generally and refer to the compliance committee any compliance problems which
come to the attention of the operations committee. 5. A capital committee has been established to review the firm's net capital and
compliance with the SEC's and the NYSE's net capital rules and regulations. In the past ten years, Butcher & Singer has not been subject to any order of the
Commission or any self-regulatory organization or any court, enjoining or
suspending it from engaging in any aspect of the securities business. If you need any additional information, please call me at the above number. Very truly yours, Howard B. Scherer
General Counsel HBS:cb FEDERAL EXPRESS INQUIRY LETTER 3Butcher and Company P.O. Box 957 Philadelphia, Pennsylvania 19105 November 09, 1987 Mary E.T. Beach, Esquire
Associate Director
Division of Corporate Finance
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549 RE: Request for Determination Pursuant
to Rule 505(b)(iii)(C) Dear Ms. Beach: This will serve to supplement my letters to you dated October 26, 1987 and
November 2, 1987 as requested by Mr. John Reynolds. As discussed in my November 2 letter, request for a waiver of the provisions of
the Rule 505 disqualification is specifically limited to the Corinthian/Chadwick
1987 Development Drilling Program. The Corinthian /Chadwick 1987 Development
Drilling Program may be offered either pursuant to Rule 505 or Rule 506 of
Regulation D. Butcher Industries, Inc., an affiliate of Butcher & Singer Inc., is the general
partner of the Corinthian/Chadwick program. The drilling companies designated in
the program have based their business plans for the year upon the expectation of
receiving funds from the Corinthian/Chadwick program. We have had prior dealings
with all of these companies. In my letter of November 2, 1987, I outlined several steps we have taken since
the infractions occurred in the I.G.E., Inc. matter to prevent such actions from
happening again. It is our firm's belief that these procedures will prevent a
recurrence of the problem which led to the sanctions. If you need any further information please call me at (215) 985-5064. Very truly yours, Howard B. Scherer
General Counsel HBS:lb cc: John Reynolds, Esq. STAFF REPLY LETTERNovember 19, 1987 Howard B. Scherer, Esq.
General Counsel
Butcher & Singer Inc.
P.O. Box 957
Philadelphia, Pennsylvania 19105 Re: Butcher & Singer Inc. ("B&S") Dear Mr. Scherer: This is in response to your letters dated October 26, 1987, and November 2 and
9, 1987 requesting relief pursuant to Rule 505(b)(2)(iii)(C) of Regulation D
under the Securities Act of 1933 (the "Act") from the disqualification of the
issuers of the proposed Corinthian/Chadwick 1987 Development Drilling Program
offering. As more fully described in your letters, we understand the facts to be as
follows. On January 13, 1987, the Commission issued an order under Section 15(b)
of the Securities Exchange Act of 1934 (the "Exchange Act") suspending B&S, a
registered broker-dealer, for a period of 30 days from engaging in market-making
transactions as principal in over-the-counter equity securities. The Commission
found that B&S had violated Sections 5(a) and 5(c) of the Act and Rule 15c2-11
under the Exchange Act by failing to properly supervise one of its traders in
making a market in common stock of I.G.E., Inc. The trader, an officer of B&S,
was suspended from association with any broker-dealer for a period of 30 days.
On October 15, 1987, the United States Court of Appeals for the Third Circuit
affirmed the Commission's order, which became effective on November 5, 1987. B&S has offered private oil and gas partnership interests every year since 1972
and the terms of the proposed Corinthian/Chadwick offering are consistent with
past practices. Butcher Industries Inc., an affiliate of B&S, would be the
general partner of the issuers and B&S would act as an underwriter in connection
with the sale of partnership interests. In support of your request, you state that the market-making activity for which
B&S was sanctioned commenced in August, 1977 and continued through June, 1981.
Since that time, B&S has strengthened its compliance and supervisory procedures
and expanded its compliance department. You believe that these procedures would
prevent a recurrence of the conduct which led to the subject violation. You further state that in the past ten years B&S has not been subject to any
order of the Commission or any self-regulatory organization or any court,
enjoining or suspending it from engaging in any aspect of the securities
business. We understand that B&S and the B&S officer who was involved in the sanctioned
conduct are in compliance with the Commission's order and that the registered
representative who was involved in the activity is no longer employed by B&S. Based on the above, the Division, pursuant to delegated authority, has
determined that a showing of good cause has been made pursuant to Rule
505(b)(2)(iii)(C). Accordingly, the application for relief from the
disqualifying provisions of Regulation D is hereby granted. Sincerely, Richard K. Wulff, Chief
Office of Small Business Policy
|
