On August 3, 2000, the SEC censured Dawson-Giammalva Capital Management for engaging in improper soft dollar arrangements. In a soft dollar arrangement, an investment adviser directs a client's brokerage to a particular broker-dealer that, in return, provides the adviser with research services and products. This use of "soft" dollars to pay for research is permissible under Section 28(e) of the Securities Exchange Act of 1934, provided the adviser meets the conditions of that provisions and follows SEC guidelines.

The SEC found that the adviser used soft dollars to pay for business travel not related to research. The adviser failed to separate travel expenses related to research and those unrelated to research.

The SEC also found that the adviser's disclosure in its Form ADV about its referral arrangements with broker-dealers was inadequate. The disclosure failed to state that the adviser would direct brokerage to those broker-dealers that referred clients to the adviser.

The adviser also was found to have not kept accurate records of its soft dollar payments. The SEC noted that the adviser failed to record how it allocated payments for mixed-use products (i.e., products that the adviser could use for both research and non-research purposes).

Besides being censured, the adviser and certain of its personnel were fined $120,000 and ordered to reimburse clients in an amount that exceeded $1 million.