In the Matter of Capital Funds, Inc.

Austin and Erma Gatlin (the Gatlins) (defendants) were officers, directors, and principal stockholders of Capital Funds, Inc. (Capital) (defendant). Capital applied for registration as a broker-dealer. The Securities and Exchange Commission (SEC) (plaintiff) instituted administrative proceedings to determine whether Capital’s application should be denied or Capital should be permitted to withdraw the application and whether the Gatlins should be found to have caused any denial order. The hearing examiner found that Capital, aided and abetted by the Gatlins, had willfully violated the federal securities laws and recommended denial of the application. After reviewing the record, the SEC found: Capital was a registered broker-dealer in Oklahoma and qualified as a securities dealer in Arkansas; the Gatlins had a controlling interest in Peoples Loan and Investment Co., Inc. (Peoples); Capital shared Peoples’ Arkansas offices; Capital underwrote a public offering of Peoples stock purportedly limited to Arkansas residents; a Capital salesman sold Peoples stock to two Oklahoma residents; the salesman maintained that he subscribed for the shares himself and, after concluding he could not pay for them and speaking with Austin Gatlin, sold the shares to the Oklahoma residents; the salesman did not sign a subscription form, pay for the stock, or receive any stock certificates; an Oklahoma purchaser signed a subscription form, and the Oklahoma purchasers paid Peoples; the stock certificate purportedly issued to the salesman bore a higher number than the certificates issued to the nonresidents who purchased stock later; and Capital sold securities to a Missouri resident and purchased shares from a Texas resident and resold them to Oklahoma residents.