Marion Bass, Official Settle SEC Fraud Case 96%

WASHINGTON - Marion Bass Securities Corp. and its compliance officer were censured and the firm agreed to pay $150,000 to settle allegations that it charged undisclosed excessive markups and markdowns on municipal and government securities, the Securities and Exchange Commission said yesterday.

Gerald Chandik, the firm's compliance officer since June 1991, settled the commission's charges that he failed to reasonably supervise employees of the brokerage firm. He allegedly drafted a policy that did not prevent excessive markups and markdowns of debt instruments and also failed to detect and prevent such transactions while monitoring traders, SEC officials said.

Neither the firm, based in Charlotte, N.C., nor Chandik admitted or denied the charges. The settlement is the culmination of a three-and-a-half-year-old case that drew a lot of attention from municipal securities lawyers because it involved markups and because the commission charged the compliance officer as well as the firm.

The SEC contended that from March 1991 through March 1994, Marion Bass sold 18 municipal securities issues to customers in 110 transactions at markups ranging from 4.07% to 7.9%. These markups, in addition to others "were excessive and bore no reasonable relationship to the prevailing market price for these securities," the SEC said.

The SEC charged the firm with negligence-based securities fraud. "At the time that Marion Bass executed the trades there had not been any commission holding that markups at this level were fraudulent," said Richard Murphy, assistant administrator in the SEC's district office in Atlanta. "But our position was that the industry was on notice at that time that this range of markups could be excessive and fraudulent."

The firm agreed to pay $100,000, representing ill-gotten gains and prejudgment interest, as well as a $50,000 civil penalty. The SEC imposed cease-and-desist orders on both the firm and Chandik.

Bob Brietz, the president of Marion Bass, said the firm is "satisfied with the outcome of the settlement." q