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Member Firm Disciplined for Supervisory Deficiencies and Other Violations Relating to Research Reports, E-Mail Communications and Other Business Activities of the Firm
The Seidler Companies Incorporated of Los Angeles, Calif., a member firm, consented without admitting or denying guilt to findings of supervisory deficiencies and other violations relating to research reports, e-mail communications and other business activities of the firm.
- An NYSE hearing panel found that, during the period from approximately 2001 to 2003, the firm failed to establish and maintain appropriate procedures for supervision and control, including a separate system of follow-up and review, with respect to the business activities of its research analysts including the review and approval of research reports and newsletters by a supervisory analyst, the activities of producing branch office managers who handled their own customer accounts, and review of internal and external e-mail communications. The firm issued research reports and newsletters without supervisory analyst approval; provided subject companies with draft research reports containing the research summary, rating and price target; failed to preserve and maintain e-mail communications in the required format and for the required retention period; and failed to designate a qualified, registered and approved person to review e-mail communications.
The NYSE imposed a penalty of a censure and $150,000 fine. The Seidler Companies consented to the penalty.
Specialist Firm and Firm Official Disciplined for Market Maintenance Deficiencies and Other Violations
Susquehanna Specialists, Inc. of Bala Cynwyd, Pa., a member firm conducting business as a specialist, and Thomas A. Caterina of Holmdel, N.J., an Exchange member and specialist, were found guilty of failing to maintain a fair and orderly market in the common stock of Bay View Capital Corp., among other violations.
- An NYSE hearing panel found that, on Feb. 22, 2001, Caterina failed to make an adequate effort to attract contra-side interest in the stock when he widened the quote to 4.00 - 5.61 and executed a transaction 53 seconds later for 74,600 shares, 74,200 of which where for his dealer account at a price of 4.50. He also failed to: effectively execute commission orders entrusted to him; obtain floor official approval for the transaction, at a price that was one point and approximately 18% below the previous sale; and obtain floor official approval for electing a stop order to sell 2,000 shares.
- As a result of Caterina's conduct, the hearing panel found that the firm was guilty of the same violations.
The NYSE imposed the following penalties: on Caterina, a censure and $40,000 fine; and on Susquehanna, a censure and $25,000 fine. On appeal, the NYSE Board of Directors affirmed the hearing panel decisions in all respects.
Member Firm Disciplined for Net Capital and Related Violations
Standard & Poor's Securities, Inc. of New York City, a member firm, consented without admitting or denying guilt to findings of net capital and related violations.
- An NYSE hearing panel found that, during certain times in 2003, the firm failed to properly compute its net capital and conducted its securities business while failing to maintain its net capital at the required level. As a result, the firm's FOCUS report dated Jan. 31, 2003 was incorrect. On various occasions during February-March 2003, the firm also submitted to the Exchange inaccurate account type indicators.
The NYSE imposed a penalty of a censure and $50,000 fine. Standard & Poor's consented to the penalty.
Specialist Firm Disciplined for Supervisory Deficiencies and Other Violations Relating to the Exchange Allocation Policy and Procedures
Firm Official also Disciplined
Spear, Leeds & Kellogg Specialists LLC of New York City, a member firm conducting business as a specialist, and Howard Eisen of Livingston, N.J., a former managing director of the corporate relations department of the firm, consented without admitting or denying guilt to findings relating to the NYSE allocation policy and procedures, which govern the process by which securities are allocated to Exchange specialists.
- An NYSE hearing panel found that, in April 2002, the firm failed to have adequate systems and procedures in place reasonably designed to ensure compliance with the allocation policy and procedures. In this regard, the firm - through Howard Eisen - had contact with a company, which was about to list its shares on the Exchange, during a period in the application process when it was impermissible to do so and also failed to disclose to the Exchange all contacts with the company six months prior to the time that allocation applications were solicited, resulting in the submission to the Exchange by the firm of an allocation application that contained a misstatement.
The NYSE imposed the following penalties: on the firm, a censure and $50,000 fine; and, on Eisen, a censure and $30,000 fine. The firm and Eisen consented to the penalties, respectively.
Listed Block Trader Disciplined for Artificially Influencing the Price of NYSE-Listed Stock
Brian Rigney of Hoboken, N.J., a listed block trader at a member firm, consented without admitting or denying guilt to findings that he caused transactions to be effected that had the effect of artificially influencing the price of the common stock of NYSE-listed AES Corporation.
- An NYSE hearing panel found that on April 4, 2002, the managing director in charge of the firm's block trading desk (David Memmott of New York City) approved the facilitation by the firm of a customer's sale of approximately 4.8 million shares of the stock at $9 per share, which price was approximately five cents above the prevailing market. Subsequent to the customer facilitation, as the price of the stock began to decline, Rigney bought the stock at a limit price of $9 per share. The multiple orders that Rigney entered via the SuperDOT system with limit prices of $9 per share had the effect of artificially influencing the price of the stock.
- Moreover, one of the orders entered by Rigney was a market order that was executed at $9.03, on a plus tick, which price was higher than the price at which the block was acquired by the firm that day.
- The Exchange previously completed disciplinary action against Memmott who, on consent, was suspended for six weeks and fined $100,000, among other remedies. (See hearing panel decision 04-63, dated Aug. 4, 2004.).
As to Rigney, the NYSE imposed a penalty of a censure and $75,000 fine. Rigney consented to the penalty.
Individual Disciplined for Engaging in Sales Practice Misconduct
Bruce D. Reid of Edmonds, Wash., a former registered representative, consented without admitting or denying guilt to findings that he engaged in sales practice misconduct in the account of an elderly customer.
- An NYSE hearing panel found that during 2001, Reid effected margin transactions in the account of an 83-year old customer that were unsuitable in view of the customer's investment experience, investment objectives, financial resources and age. Reid also recommended purchases that resulted in the over-concentration of one security in the customer's account ranging from 52% to 98% of the total value of the account. In addition, despite the fact that the customer had not authorized the use of margin, he effected four margin purchases in the account. The improper transactions effected by Reid, which occurred during a general market decline, substantially contributed to a loss, including interest, for the period Jan. 1, 2001 through Feb. 28, 2002 of $159,000 or 69% of the value of the account.
The NYSE imposed a penalty of a censure and six-month bar. Reid consented to the penalty.
Individual Disciplined for Engaging in Unapproved Outside Business and Other Violations
Lee I. Fishman of Montville, N.J., a former registered representative, consented without admitting or denying guilt to findings that he engaged in an outside business without approval, among other violations.
- An NYSE hearing panel found that, at various times during 1999 and 2000, Fishman engaged in an undisclosed outside business for which he was compensated, without the knowledge or consent of the firm. Fishman caused several firm customers to invest in an outside private placement, an Internet service provider, in which he had a financial interest. In addition, Fishman failed to submit certain facsimile correspondence pertaining to the outside private placement to the firm for supervisory review, and made one or more misstatements on firm compliance forms regarding the outside activity.
The NYSE imposed a penalty of a censure and eight-month bar. Fishman consented to the penalty.
Individuals Disciplined for Misappropriation and Other Violations
Jeffrey Scott Lafferty of Red Bank, N.J., a former registered representative, was found guilty of misappropriating customer funds, among other violations.
- An NYSE hearing panel found that, during April-July 2000, Lafferty: misappropriated customer funds; breached his fiduciary duty by effecting an unauthorized transfer of customer funds between customer accounts; submitted, or caused to be submitted, forged letters of authorization to his firm to transfer funds between customer accounts; issued correspondence to a customer that was not reviewed or approved by a supervisor of his firm; reimbursed a customer for losses; and made material misstatements to the Exchange, among other violations.
The NYSE imposed a penalty on Lafferty of a censure and permanent bar.
Shawn Dwight Davis of Clayton, N.C., a former registered representative, consented without admitting or denying guilt to findings that he misappropriated customer funds, exercised discretion without written authorization and failed to cooperate in an investigation by the NYSE Division of Enforcement.
- An NYSE hearing panel found that, during the period 2001-2003, Davis misappropriated funds totaling approximately $210,458 from two customers of the firm. Davis persuaded the customers to write checks from their personal bank accounts payable to him by telling them that if they did so they could reduce their commissions for purchasing securities. He then used, for himself, the funds he received from the customers.
- Davis also effected trades in the customers' accounts without their written authorization and failed to comply with written requests by the Exchange to provide information and to appear and testify concerning allegations of improper handling of customer funds while at the firm.
The NYSE imposed a penalty of a censure and permanent bar. Davis consented to the penalty.
Individual Disciplined for Books and Records Violations
Donna Jackson Killough of Los Angeles, Cal., a former registered representative, consented without admitting or denying guilt to findings of books and records violations.
- An NYSE hearing panel found that, during Dec. 1, 2000-Oct. 31, 2001, on at least 19 occasions, Killough (who was involved in a pre-divorce dispute with her husband) transferred funds from her husband's individual securities account at her firm to their joint securities account at the same firm without his knowledge or authorization. To effect the transfers, Killough copied a letter of authorization that her husband had previously signed, and each time altered the date and the amount.
The NYSE imposed a penalty of a censure and five-month bar. Killough consented to the penalty.
Individuals Disciplined for Failure to Cooperate
Paul M. Minutello of Cranberry Township, Pa., 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 Minutello failed to comply with written requests by the Exchange for information concerning allegations, reported by a member firm on a Form U-5, of forgery and possible misappropriation.
The NYSE imposed a penalty on Minutello of a censure and bar until he complies, which will become a permanent bar if Minutello fails to comply within three months.
Omar Shahin of Lancaster, Cal., 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 Shahin failed to comply with written requests for documents and information and testimony concerning allegations, reported by the firm on Form U-5, of misappropriation of customer funds, among other allegations.
The NYSE imposed a penalty of a censure and bar until he complies, which will become a permanent bar if Shahin fails to comply within three months.
Charles C. Tunis of Rehoboth, Del., 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 Tunis failed to comply with the Exchange's written requests for information concerning allegations, reported by the firm on an amended Form U-5, of sales practice misconduct.
The NYSE imposed a penalty on Tunis of a censure and bar until he complies with the Exchange's requests.
Arthur Isaac Campbell of Palm Harbor, Fla., 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 Campbell failed to comply with the Exchange's written requests that he appear and testify concerning allegations, reported by the firm on a Form U-5, of sales practice misconduct.
The NYSE imposed a penalty on Campbell of a censure and bar until he complies with the Exchange's requests.
Summary of Court of Appeals Decision
On Sept. 22, 2004, the Court of Appeals for the Second Circuit issued a summary order in the matter of Anthony Adonnino and Thomas Cannizzaro (No. 03-41111) in which the Court affirmed an order of the Securities and Exchange Commission sustaining the Exchange's determinations (NYSE hearing panel decisions 02-13 and 02-14 and SEC Rel. 34-48618).
By way of background, in related cases and following contested hearings, Adonnino of Brooklyn, N.Y., a former Exchange member and formal principal of AFC Partners, LLC, and Cannizzaro of New Rochelle, N.Y., a floor broker and a former employee of the firm, were found guilty of illegal on-Floor trading, among other violations.
Adonnino was censured, suspended for 18 months and fined $200,000; Cannizzaro was censured and suspended for six months. Following the appeal to the Board, which affirmed the hearing panel's decision in all respects, Adonnino and Cannizzaro filed an appeal with the SEC, which upheld the Exchange's findings and the sanctions imposed.
With regard to the respondents' arguments that a misstatement charge (based on their denials of a profit sharing arrangement while they were testifying before the Exchange) was improper, the Court, in affirming the SEC order, stated that, “…these arguments are unavailing. While Adonnino and Cannizzaro should certainly have been given latitude to establish their defense, this latitude cannot be construed as broad enough to encompass making material misstatements in testimony to the NYSE.” (See Court order, at page 4.)
About NYSE Regulation: The New York Stock Exchange is the designated examining authority for the major securities firms in the United States, including the almost 250 member firms that deal with the public and account for more than 85 percent of the public customer accounts carried by broker-dealers. These firms service 93 million customer accounts, operate from more than 21,000 branch offices around the world and employ approximately 157,000 registered personnel. The NYSE is committed to strong and effective regulation of its members and member firms to protect investors, the health of the financial system, and the integrity of the capital-formation process. While self-regulation in the U.S. securities industry begins with the broker-dealer, the NYSE plays a critical role by maintaining an extensive system for monitoring and regulating the activities of its membership. The Securities and Exchange Commission oversees these activities.
NYSE Regulation consists of three divisions: Member Firm Regulation, responsible for the financial, operational and sales-practice regulation of member organizations; Market Surveillance, responsible for surveillance of all trading activities on the floor of the Exchange and in NYSE-listed securities by member firms; and Enforcement, which investigates and prosecutes violators of NYSE rules and federal securities laws. There are approximately 560 people in NYSE Regulation, representing approximately one-third of the Exchange's staff.
