Former Specialist Member Barred for Failure to Cooperate
Michael F. Stern of New Canaan, Conn., a former Exchange member and specialist, consented without admitting or denying guilt to findings that he failed to cooperate in an investigation by the NYSE Division of Enforcement.
- An NYSE hearing panel found that Stern failed to comply with a request by the Exchange that he appear and testify concerning allegations that he may have violated Exchange rules and federal securities laws in connection with his trading as specialist, for the dealer account of his firm, in various securities during the five-year period 1999-2003. This disciplinary proceeding is an outgrowth of the continuing investigation by the Exchange of individual responsibility for breaching the specialists' duty as agent to public customer orders, which was the focus of major enforcement actions taken earlier this year against NYSE specialist firms.
Former Member Disciplined for Acts Detrimental to the Interest or Welfare of the Exchange
After a contested hearing, Paul K. Grassi, Jr. of Manhasset, N.Y., a former Exchange member, had been found guilty by an NYSE hearing panel of engaging in acts detrimental to the interest or welfare of the Exchange. The panel had found that, in 2002, Grassi obtained a blank prescription form from a medical office located on Exchange premises when it was inadvertently attached to a legitimate prescription. Thereafter, Grassi completed and signed (or caused to be completed and signed) the blank prescription form and presented it to a pharmacy for the purpose of filling an additional prescription.
Moreover, the panel imposed a penalty of a censure, five-year plenary bar and an additional five-year bar from Exchange membership.
On appeal, the NYSE Board of Directors affirmed the hearing panel’s findings of guilt, but remanded the matter to the hearing panel, directing the panel to provide a detailed rationale for its penalty. On July 12, 2004, the hearing panel issued a supplemental decision on remand from the Board, providing an explanation of the precedents it applied and other factors that entered into its penalty determination.
After considering the panel’s supplemental decision on remand, the Board affirmed the hearing panel’s finding of guilt. With respect to the penalty, the Board modified the penalty imposed by the panel and determined that Grassi be censured and barred for a period of five years, and barred for an additional five years from membership, which bar, however, will run concurrently with the five-year plenary bar.
Grassi has advised the NYSE through counsel that he intends to request a review by the SEC of the NYSE decision in this matter.
Individual Disciplined for Engaging in Unauthorized Outside Business Activity and Other Violations
Richard L. Erb, II of Alexandria, Va., a former registered representative, consented without admitting or denying guilt to findings that he engaged in an unauthorized business activity and other violations.
- An NYSE hearing panel found that, in early 2002 and without the authorization of the firm, Erb engaged in an outside business activity involving a hotel venture. He visited a property in Ohio that the promoters of the venture were interested in purchasing and received payment from the venture in the amount of $3,000. Erb later solicited an investment of $125,000 from an incapacitated 81-year old customer that was to be placed in escrow for the purchase, by the venture, of the Ohio property. The transaction was effected without the prior knowledge or approval of Erb’s member firm employer or the customer’s sister, who had power of attorney for his affairs.
Individual Disciplined for Sales Practice Misconduct
Marshall Lewis Brass of West Palm Beach, Fla., a former registered representative, consented without admitting or denying guilt to findings that he engaged in sales practice misconduct in 11 customer accounts.
- An NYSE hearing panel found that, during 1998-2002, Brass exercised discretionary authority in the accounts of 11 customers without written authorization. Concerning one of these accounts, Brass also recommended unsuitable transactions in the account from 1999-2002 and shared in the account’s losses.
Individuals Disciplined for Misappropriation and Other Violations
Vince Earl Cunningham of Henderson, Nev., a former registered representative, was found guilty of misappropriating customer funds, among other violations.
- An NYSE hearing panel found that, in January 2003, Cunningham forged customer signatures on two letters of authorization that caused funds totaling $28,992 to be wired to third parties from the account of two customers. With respect to another customer, during August 2002-January 2003, Cunningham forged at least 11 letters of authorization to wire funds from the customer’s account to parties with whom the customer denied any affiliation and, thereafter, funds were wired from a third-party account to Cunningham’s bank account at another institution. He also backdated a discretionary trading authority for the customer.
- Cunningham failed to comply with a written request for on-the-record testimony concerning these matters.
After a contested hearing, Julio Martinez of Brooklyn, N.Y., a former non-registered employee of a member firm, was found guilty of misappropriating customer funds, among other violations.
- An NYSE hearing panel found that, during April-July 2002 and without authorization, Martinez changed the firm's records of the name and address of a customer to that of Martinez' close relative, the account’s assets (totaling approximately $156,000) were withdrawn and issued to the relative, and some of the funds were then transferred from the relative to Martinez.
Individual Barred for Failure to Cooperate
Paul Edward Maines of Mississauga, Ontario,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 Maines failed to comply with requests by the Exchange to appear and testify and to provide a written statement concerning allegations of egregious sales practice misconduct, including misappropriation of customer funds.
On December 17, 2003, the SEC approved a new governance structure for the NYSE. Under the new design, the NYSE Board of Directors is comprised solely of independent directors, except for the chief executive officer, with no affiliation with any regulated member firm. A new position of chief regulatory officer reports directly to the board of directors through a new regulatory oversight committee. As a result, NYSE Regulation is insulated from potential influence from NYSE members and member firms, operates separately from the business side and is independent in its decision-making.NYSE Regulation plays a critical role in monitoring and regulating the activities of its members, member firms and listed companies, as well as enforcing compliance with NYSE rules and federal securities laws. Nearly 400 of the largest securities firms in America are members of the New York Stock Exchange. These firms service 92 million customer accounts, or 90 percent of the total public customer accounts handled by broker-dealers, with total assets of over $3 trillion. They operate from 19,000 branch offices around the world and employ 146,000 registered personnel. Nearly 700 employees, or more than 40 percent of the Exchange’s staff, work for NYSE Regulation, which consists of four divisions: Market Surveillance, Member Firm Regulation and Enforcement and Listed Company Compliance.
