Five Member Firms Disciplined
Merrill Lynch, Pierce, Fenner & Smith Incorporated Disciplined for Supervisory Deficiencies Relating to the Dissemination of Material Non-Public Information
Merrill Lynch, Pierce, Fenner Smith Incorporated of New York City, a member firm, consented without admitting or denying guilt to findings of supervisory deficiencies relating to its failure to prevent the premature dissemination by its employees of an analyst’s changes in ratings and/or earnings concerning a stock.
- An NYSE hearing panel found that, on July 11, 2002, after receiving approval for a ratings change but prior to the public release of the report by the firm, a senior analyst disclosed information (at a meeting and on a conference call) to clients of the firm to the effect that he was planning to downgrade his rating and/or lower his earnings estimates on the stock. The analyst’s research report was published after midnight on July 12, but after the meeting on the 11th, an institutional salesperson at the firm informed several clients that she believed the analyst was going to downgrade his ratings of the stock. The clients sold the stock prior to the release of the ratings change.
- The panel found that the firm failed to have and reasonably implement procedures of supervision and control to ensure compliance by its employees with federal securities laws, Exchange rules and firm policies and to provide a separate system of follow-up and review with respect to the dissemination of material non-public information as it relates to changes in pending research report ratings and/or earnings estimates. The hearing panel also found that the firm failed to adhere to the principles of good business practice by failing to prevent the misconduct that is the subject of this disciplinary proceeding.
[Related disciplinary proceedings have been initiated by the NYSE Division of Enforcement and are currently pending against the senior analyst as well as the institutional salesperson.]
The NYSE imposed a penalty of a censure and $625,000 fine. Merrill Lynch consented to the penalty.
The NYSE also acknowledges the extensive assistance provided by the SEC’s Division of Enforcement in Washington, D.C. in connection with this matter.
Edward D. Jones & Co., L.P. Disciplined for Employing Statutorily Disqualified Individuals and Related Supervisory Deficiencies
Edward D. Jones & Co., L.P. of St. Louis, Mo., a member firm, consented without admitting or denying guilt to findings relating to the firm’s employment of statutorily disqualified individuals and related supervisory deficiencies.
- An NYSE hearing panel found that the firm failed to have adequate systems and procedures in place to evaluate employees who were statutorily disqualified or potentially statutorily disqualified as a result of criminal convictions.The panel found that, as a result, the firm employed individuals between 1999-2002 whom it knew or should have known were subject to statutory disqualification based on the criminal history they disclosed on their employment applications.The hearing panel also found that the firm’s inadequate procedures also resulted in its failure to reasonably and promptly investigate employees who it should have reasonably known were potentially statutorily disqualified.
The NYSE imposed a penalty of a censure and $100,000 fine. Edward D. Jones & Co. consented to the penalty.
StockCross Financial Services, Inc. Disciplined for Supervisory, Operational, and Books-and-Records Deficiencies
StockCross Financial Services, Inc. of Boston, Mass., a member firm, consented without admitting or denying guilt to findings of supervisory, operational, and books-and-records deficiencies.
- An NYSE hearing panel found that, from approximately 2001 through 2002, the firm failed to provide reasonable supervision of its business activities on the trading floor, and failed to preserve certain books and records in connection with floor commission billing. The panel also found that during 2000 the firm failed to provide reasonable supervision of the hiring of new employees and employees’ compliance with continuing education requirements, and permitted registered persons with inactive registrations to perform duties and functions requiring registration.
The NYSE imposed a penalty of a censure, $30,000 fine and a requirement to comply with an undertaking to, among other things, retain an outside consultant to conduct a systems and procedures review in the areas of activity relating to the above violations. StockCross consented to the penalty.
Beller Securities Corporation and Randy S. Beller Disciplined for Books-and-Records Violations
After a contested hearing, Beller Securities Corporation of Dix Hills, N.Y., a member firm, and Randy S. Beller also of Dix Hills, an independent floor broker and sole proprietor of the firm, were found guilty of books-and-records violations.
- An NYSE hearing panel found that Beller and his firm failed to maintain required books and records.
The NYSE imposed a penalty on Beller and Beller Securities of a censure and joint fine of $30,000.
Armato Securities Corporation Disciplined for Books-and-Records, Net Capital and Operational Deficiencies
Armato Securities Corporation of Katonah, N.Y., a former member firm, consented without admitting or denying guilt to findings of books and records, net capital and operational deficiencies.
- An NYSE hearing panel found that, during the period June-August 2000, the firm failed to:
- maintain required commission billing records of one of its employees;
- maintain records of its error trades including the reason for such errors and an explanation of how such errors were cleared;
- maintain and/or preserve records of the date and time of receipt of an order;
- maintain records of one or more sell orders marked long or short; and
- document the review of personal brokerage accounts of one of its employees.
- The panel also found that the firm conducted business while failing to maintain the minimum required net capital and failed to file Forms 600TC with the Exchange during the period 2001 through 2002 and to submit payments totaling approximately $38,000 with the Forms.
The NYSE imposed a penalty of a censure, $15,000 fine and a requirement that all corporate debts owed by the firm to the Exchange be paid prior to any application for re-association with the Exchange by any of its current or former corporate officers. Armato Securities consented to the penalty.
14 Individuals Disciplined
Former Member Disciplined for On-Floor Trading and Books and Records, Operational and Supervisory Deficiencies
Matthew J. Murray, Jr. of New York City, a former Exchange member, consented without admitting or denying guilt to findings that, on two occasions, he violated rules relating to on-floor trading and to findings of books-and-records, operational and supervisory deficiencies.
- An NYSE hearing panel found that, on two occasions (Aug. 24 and Sept. 1, 2000), Murray initiated an order for his personal IRA from the Exchange floor that, after upstairs order room processing, was executed by an associated broker on the floor at Murray’s firm in violation of the rules against on-floor trading.The panel also found that in 2000 and 2001 Murray committed books-and-records violations by failing to record the time of the receipt of certain orders; failing to preserve proper records for some of his error trades; and, on five occasions, improperly processing a non-bona fide error through his error account.The hearing panel found that Murray also filed an inaccurate Focus Report for June 2001 and failed to make or maintain monthly net capital computations.
- The panel found that Murray failed to reasonably supervise the activities of his employees in 2000 and 2001 in that he failed to: have adequate written procedures for the review of his floor brokerage business; adequately supervise his Form 600TC filings for accuracy and completeness; obtain Exchange approval before allowing his employees to be dually employed and/or compensated; and to properly supervise his employees’ qualifications and registrations.
The NYSE imposed a penalty of a censure and $30,000 fine. Murray consented to the penalty.
Individual Disciplined for Sales Practice Misconduct and Other Violations
George Stanley Blake of Ellenwood, Ga., a former registered representative, consented without admitting or denying guilt to findings that he engaged in sales-practice misconduct in one customer’s account and failed to cooperate in an investigation by the NYSE Division of Enforcement.
- An NYSE hearing panel found that, in August 2000, Blake agreed to reimburse a customer for losses and shared in the losses of that customer.The panel also found that Blake failed to comply, timely, with the Exchange’s request to provide testimony.
The NYSE imposed a penalty of a censure and six-month bar. Blake consented to the penalty.
Individual Disciplined for Improper Post-Execution Allocation of Trades, Among Other Violations
Gary Duane Steiner of Seattle, Wash., a former registered representative, consented without admitting or denying guilt to findings relating to his improper post-execution allocation of trades.
- An NYSE hearing panel found that, during the period June-November 1999 with regard to orders entered by telephone to his firm’s block trading desk, Steiner caused late allocation of trades and routinely allocated trades to customer accounts only after the trades had been executed; improperly used delayed allocations to favor certain clients; improperly included orders for his own account among customer orders that he had bunched to make up block desk orders; and used his own discretion improperly to enter and/or allocate orders to customers.
The NYSE imposed a penalty of a censure and 18-month bar. Steiner consented to the penalty.
Individual Disciplined for Misconduct Relating to Unapproved Outside Investments
Jedd Dunas of Tiburon, Calif., a former registered representative, consented without admitting or denying guilt to findings that he recommended to customers investments in a private entity, unrelated to his member firm employer, and then facilitated the investments without his firm’s knowledge or approval.
- An NYSE hearing panel found that, during 2000, Dunas assisted at least four customers in making private investments, away from the firm, in certain of the same entities in which he had invested himself.The panel found that, while Dunas had received firm approval for his own investments, he facilitated the customers’ investments without the knowledge or approval of his member firm employer and contrary to representations he made to the firm.
The NYSE imposed a penalty of a censure and one-year bar. Dunas consented to the penalty.
Individual Disciplined for Attempting to Allocate IPO Shares to Family Account and Other Violations
Shawn R. Blankenship of Indian Trail, N.C., a registered representative at two member firms, consented without admitting or denying guilt to findings that he attempted to allocate IPO shares to a family member’s account, among other violations.
- An NYSE hearing panel found that, in Mar. 2001 while employed by one member firm, Blankenship attempted to allocate shares in an IPO to a family member’s account that was restricted from participating in the offering.The panel found that Blankenship caused the account designation, which identified the family member’s account as “employee-related,” to be disabled in order to allocate the shares.
- The panel also found that, between March-April 2002 while employed at a second member firm, Blankenship made misrepresentations to his employer concerning his access to his personal e-mail account from his computer at the firm.
The NYSE imposed a penalty of a censure and $10,000 fine. Blankenship consented to the penalty.
Individual Barred for Misappropriation and Failure to Cooperate
Mary Letitia Sheehan of Menlo Park, Calif., a former registered representative, consented without admitting or denying guilt to findings that she misappropriated customer funds and failed to cooperate in an investigation by the NYSE Division of Enforcement.
- An NYSE hearing panel found that, during the period 2000 to 2003, Sheehan altered certain letters of authorization received from three customers of her member firm employer, which were maintained on file at the firm, and caused 31 checks to be drawn from the customers’ accounts that were payable to Sheehan or to her outside business.The panel found that the funds paid to Sheehan’s outside business were ultimately given to Sheehan.The panel found that as a result, from 2000-2003, Sheehan misappropriated approximately $578,000 from the customers.
- The panel also found that Sheehan failed to comply with requests by the Exchange for information concerning matters that occurred prior to the termination of her status as an employee of a member firm.
The NYSE imposed a penalty of a censure and permanent bar. Sheehan consented to the penalty.
Individuals Disciplined for Failing to Disclose Criminal History and Other Violations
- An NYSE hearing panel found that Mayhand failed to disclose on an employment application submitted to her member firm employer a 2000 felony conviction on charges brought under the Michigan penal code, which conviction subjected her to a statutory disqualification.The panel also found that Mayhand failed to comply with written requests by the Exchange for information concerning matters that occurred prior to the termination of her status as a non-registered employee of a member firm.
- An NYSE hearing panel found that Hordern failed to disclose the following events to his member-firm employer: that he was arrested and pled no contest in 1996 to the charge of assault causing bodily injury, a class A misdemeanor; that he was arrested and charged in 1997 with driving while intoxicated, a class B misdemeanor; and that he was arrested and pled no contest in 2000 to a charge of aggravated assault with a deadly weapon, a second degree felony conviction subjecting Hordern to a statutory disqualification.
The NYSE imposed a penalty of a censure and 10-year bar, reduced from the stipulated sanction of a censure and 11-year bar. Hordern consented to the penalty.
Kathleen O’Dowd-Hoover of Sedona, AZ, a former non-registered employee of a member firm, was found guilty of failing to disclose her criminal history to her member-firm employer.
- An NYSE hearing panel found that O’Dowd-Hoover failed to disclose on an employment application submitted to her member firm employer a 1998 conviction to one count of theft, a felony, which conviction subjected her to a statutory disqualification.
The NYSE imposed a penalty on O’Dowd-Hoover of a censure and seven-year bar.
Luis A. Delacruz of North Bergen, N.J., a former non-registered employee of a member firm, consented without admitting or denying guilt to findings that he failed to disclose his criminal history to his member firm-employer.
- An NYSE hearing panel found that Delacruz failed to advise his member firm employer of his arrest and 1997 felony conviction for causing or attempting to cause bodily injury and his status as a statutorily disqualified individual. The panel also found that Delacruz submitted a Form U-4 containing false information.
The NYSE imposed a penalty of a censure and six-year bar. Delacruz consented to the penalty.
Individuals Barred for Failure to Cooperate
Robert Melo of Bradenton, Fla., a former registered representative, consented without admitting or denying guilt to a finding that he failed to cooperate in an investigation by the NYSE Division of Enforcement.
- An NYSE hearing panel found that Melo failed to comply with written requests by the Exchange to provide on-the-record testimony regarding allegations that he had removed funds from a customer’s account without authorization.
The NYSE imposed a penalty of a censure and permanent bar. Melo consented to the penalty.
Richard Anthony Zappala of Northfield, N.J., a former registered representative, was found guilty of failing to cooperate in an investigation by the NYSE Division of Enforcement.
- An NYSE hearing panel found that Zappala failed to comply with written requests by the Exchange for information concerning matters that occurred prior to the termination of his status as an employee of a member firm.
The NYSE imposed a penalty on Zappala of a censure and bar until he complies with the Exchange’s requests, to become a permanent bar if he does not comply within three months.
John F. Jernigan, Jr. of Denver, N.C., a former registered representative, was found guilty of failing to cooperate in an investigation by the NYSE Division of Enforcement.
- An NYSE hearing panel found that Jernigan failed to comply with or respond to Exchange requests that he submit a written explanation, and that he provide testimony, regarding certain matters that occurred prior to the termination of his employment with a member firm.
The NYSE imposed a penalty on Jernigan of a censure and bar until he complies with the Exchange’s requests.
