Morgan Stanley & Co. Incorporated Disciplined for Deficiencies in the Firm's Technological, Operational, Compliance and Supervisory Systems and Procedures.
Morgan Stanley & Co. Incorporated of New York City, a member firm, consented without admitting or denying guilt to findings relating to deficiencies in reporting program trading, audit trail data and off-Exchange transactions; firm block positioning activities; executing index arbitrage transactions; entering and canceling market-on-close and limit-on-close orders; and supervising and controlling the business activities of the firm.
- An NYSE hearing panel found that, between 1999-2002, the firm failed to adequately supervise its employees and maintain appropriate systems and procedures to ensure compliance with Exchange rules in that it:
- failed to timely and accurately file daily program trading reports on trade dates between 1999-2002 and failed to report process driven trading as a program;
- failed to adequately supervise firm traders and firm trading systems to ensure compliance with Exchange rules;
- submitted inaccurate account type indicators and audit trail reports;
- failed to supervise firm traders in order to prevent and detect index arbitrage transactions from being effected without the appropriate tick instruction as required when trading collars were in effect;
- failed to ensure compliance with Exchange market-on-close and limit-on-close policies governing order entry and cancellation;
- failed to report transactions in Exchange listed securities executed off the Exchange to either the consolidated tape or to the Exchange; and
- failed to reasonably supervise in connection with violations of Exchange block positioning rules.
The NYSE imposed a penalty of a censure and $800,000. Morgan Stanley consented to the penalty.
Deutsche Bank Securities Inc. Disciplined for Financial, Operational, Reporting, Books-and-Records and Supervisory Deficiencies.
Deutsche Bank Securities Inc. of New York City, a member firm, consented without admitting or denying guilt to findings relating to deficiencies in calculating and reporting short interest; compliance by its registered employees with registration and continuing education requirements; issuing monthly account statements to institutional customers of the firm; reconciling ledgers; and supervising and controlling the actions of its employees.
- An NYSE hearing panel found that:
- during the period February 1998-August 2001, the firm failed to accurately report short interest;
- during the period January 1999-December 2000, the firm permitted registered employees whose registrations had been suspended to perform and to be compensated for duties that required registration, and permitted one or more registered employees whose registrations had been suspended for not complying with continuing education requirements to perform and to be compensated for duties that required registration;
- during the period from September 1998-July 2000, the firm permitted an employee who had failed to obtain a necessary registration to perform and to be compensated for duties that required registration; and
- during the period February 1998-December 2002, the firm failed to promptly report termination of employment by registered employees.
- The panel also found that:
- during the period March 1998-October 2002, the firm issued approximately 972 inaccurate monthly account statements to approximately 293 institutional customers;
- as of Feb. 28, 2002, the firm did not maintain accurate books and records in that it did not record on its books and records unreconciled differences between inventory balances per its general ledger and the balances per its haircut system and could not evidence any action taken to research and resolve the differences in a timely manner; and
- also as of Feb. 28, 2002, the firm did not maintain accurate books and records in that it did not record on its books and records unreconciled inter-company differences and could not evidence any action taken to research and resolve the differences in a timely manner; did not give notice, on the same day, to the SEC or the Exchange of its failure to make and keep current its books and records as of Feb. 28, 2002; and, as of Feb. 28, 2002, the firm improperly netted bank overdrafts with cash balances from different banks in performing its net capital computation.
- The hearing panel also found that the firm failed to reasonably supervise and control the actions of its employees, and failed to establish a separate system of follow-up and review, to ensure compliance with Exchange rules and federal securities laws, in the areas of the firm's business activities noted above.
The NYSE imposed a penalty of a censure, $725,000 fine and a requirement that the firm comply with an undertaking to retain an independent consultant to, among other things, conduct a review of the policies, procedures and practices maintained and implemented by the firm and to take necessary and appropriate steps to bring the firm's policies, procedures and practices on short interest reporting and continuing education into compliance with the pertinent rules. Deutsche Bank Securities consented to the penalty.
Helfant Group, Inc. Disciplined for Operational, Books-and-Records and Supervisory Deficiencies.
Helfant Group, Inc. of New York City, a member firm, consented without admitting or denying guilt to findings of operational, books-and-records and supervisory deficiencies.
- An NYSE hearing panel found that, from April 2002-May 2003, the firm, on numerous occasions, violated the Exchange's market-on-close/limit-on-close policy and Exchange rule by failing to comply with the requirements governing the entry and cancellation of MOC and LOC orders.The panel also found that the firm failed to adhere to the principles of good business practice in the conduct of its business affairs on Jan. 3, 2003 -- when it improperly tested its electronic order routing system's connectivity with NYSE systems -- by failing to clearly denote over 3,000 test messages as such, sending them in the guise of actual orders.
- The hearing panel found that, during various periods in 2002, the firm failed to:
- maintain written evidence of affirmative determinations of stock availability prior to effecting customer short sales;
- have either a carrying or an execution agreement for conducting its public business for one of its customers;
- maintain original floor order tickets including order tickets for error transactions;
- maintain appropriate internal control procedures for its electronic order flow;
- properly treat its erroneous reporting of a trade;
- maintain an accurate written record of compensation arrangements for floor trading;
- ensure that certain floor employees had complied with applicable registration and qualification requirements;
- file a Form U-4 with the Exchange;
- timely notify the Exchange of the termination of floor employees; and
- timely return to the Exchange identification badges of terminated employees.
- The panel also found that, during the relevant period, the firm failed to reasonably supervise or control its employees and business activities and implement adequate supervisory controls in many of the areas of its operations, as noted above.
The NYSE imposed a penalty of a censure, $225,000 fine and a requirement that the firm comply with an undertaking to retain an outside consultant to, among other things, conduct a review of the firm's systems, policies and procedures relating to several of the foregoing areas of firm operations and that the firm adopt and implement the recommendations in the consultant's report. Helfant Group consented to the penalty.
Interactive Brokers LLC Disciplined for Lack of Supervisory Procedures to Detect or Prevent Prohibited Odd-Lot Trading Practices, Among Other Violations.
Interactive Brokers LLC of Greenwich, Conn, a member firm, consented without admitting or denying guilt to findings of financial, operational, books-and-records and supervisory deficiencies.
- An NYSE hearing panel found that the firm failed to establish and maintain adequate supervisory procedures and controls in order to detect and prevent improper odd-lot trading through its order entry systems by its customers.The panel found that, from December 1999-November 2000, certain firm customers used the firm's trader workstation system to access SuperDot and effected abusive odd-lot trading by executing a significant volume of odd-lot trades, which constituted day trading, an activity inconsistent with traditional odd-lot investment activity and prohibited by Exchange rules and policies.
- The hearing panel also found that the firm failed to accurately compute its net capital and customer reserve formula calculations on at least two occasions, resulting in one hindsight reserve deficiency of $4.6 million in September 2001, and another of $11.9 million in September 2002.The panel found that the firm lacked supervisory procedures to prevent such deficiencies, which also resulted in books-and-records violations.The firm also was found to have failed to have procedures in place or take steps to ensure that customers who were identified as pattern day-traders pursuant to Exchange rules were designated as such and failed to ensure that these customers maintained the required minimum equity at all times during the year 2001.The panel found that, prior to October 2002, the firm also failed to have adequate procedures in place to record and account for verbal customer complaints and properly report them to the Exchange.
The NYSE imposed a penalty of a censure and $170,000 fine. Interactive Brokers consented to the penalty.
SG Cowen Securities Corporation Disciplined for Financial, Reporting, Books-and-Records and Supervisory Deficiencies.
SG Cowen Securities Corporation of New York City, a member firm, consented without admitting or denying guilt to findings of financial, reporting, books-and-records and supervisory deficiencies.
- An NYSE hearing panel found that during 2000 the firm failed to accurately calculate the amount required to be on deposit in its special reserve bank account for the exclusive benefit of customers, thereby causing hindsight deficiencies on various occasions of from approximately $27 million to $183 million; failed to report accurately to the Exchange margin debit balances due from public customers; and failed to make, maintain and preserve appropriate monthly entries in the firm's books and records with respect to inter-company account balances.
- The panel also found that the firm failed to provide for appropriate procedures of supervision and control and to establish a system of follow-up and review to prevent the foregoing violations.
The NYSE imposed a penalty of a censure and $60,000 fine. SG Cowen consented to the penalty.
The Williams Capital Group, L.P. Disciplined for Supervisory and Books-and-Records Deficiencies Relating to its Trading Floor Business Activities.
The Williams Capital Group, L.P. of New York City, a member firm, consented without admitting or denying guilt to findings of supervisory and books-and-records deficiencies relating to its trading floor business activities.
- An NYSE hearing panel found that, from approximately December 1999 through 2002, the firm failed to provide reasonable supervision of its business activities on the trading floor.The panel found that, among other things, the firm designated its upstairs head trader to monitor the firm's floor trading activities but made the head trader responsible for reviewing trades that he himself had placed with the firm's qualifying floor broker.The panel also found that the firm failed to maintain billing records that accurately reflected the negotiated commission rates of its floor broker and did not have an adequate system of follow-up and review to ensure that billing records issued by its floor broker were accurate.
The NYSE imposed a penalty of a censure and $25,000 fine. The Williams Capital Group consented to the penalty.
First Manhattan Co. Disciplined for Operational and Supervisory Deficiencies.
First Manhattan Co. of New York City, a member firm, consented without admitting or denying guilt to findings relating to deficiencies in its supervision of its qualifying floor broker's activities and its registered employees' compliance with continuing education requirements.
- An NYSE hearing panel found that during 2000 the firm's written procedures for supervision of its qualifying floor broker's activities were not sufficiently comprehensive and the firm did not sufficiently document supervisory review of such activities.The panel also found that the firm permitted certain employees who had not timely complied with Exchange continuing education requirements to perform the duties of registered persons during the periods that their registrations were deemed inactive.
The NYSE imposed a penalty of a censure and $20,000 fine. First Manhattan consented to the penalty.
Firm Official Disciplined for Improper Options Trading for a Family AccountMartin Scott Sands of New York City, president and co-chairman of the board of a former member firm, consented without admitting or denying guilt to findings relating to trading in options initiated by him for a family account, ahead of a partly filled customer order in the underlying stock.
- An NYSE hearing panel found that, on Nov. 29, 2000, Sands engaged in conduct inconsistent with just and equitable principles of trade in that he purchased options in a particular stock for an account for the benefit of members of his family prior to the completion of an order by a customer to purchase one million shares of the underlying stock, when he knew or was reckless in not knowing that a significant portion of the customer's order had not been completed.The panel found that on the next day, following the detection by the firm's compliance department of Sands' options purchase, the firm cancelled the options trades, moved them to the error account and reported the matter to the Exchange.
The NYSE imposed a penalty of a censure, a four-month bar and $50,000 fine. Sands consented to the penalty.
Individual Barred for Sales Practice Misconduct and Other Violations
Bobby O. Ajiboye of Beverly Hills, Calif., a former registered representative, was found guilty of sales practice misconduct in four customer accounts.
- An NYSE hearing panel found that in 2000 Ajiboye signed (or caused to be signed) the name of a customer on several letters of authorization, which authorized the transfer of securities between customer accounts, submitted the LOAs to his member-firm employer resulting in the transfer of the securities and, on a number of occasions, obtained the proceeds of securities that were subsequently sold from the customer's account.
- The panel also found that Ajiboye caused his member firm's books and records to be inaccurate, engaged in unauthorized outside employment and exercised discretionary power in the account of one customer without first obtaining the written authorization of the customer.
The NYSE imposed a penalty on Ajiboye of a censure and permanent bar.
Individual Disciplined for Improper Communications to Customers via E-Mail, Including Sales Practice Misconduct
Allison Elaine Armstrong of Dallas, Texas, a former registered representative, consented without admitting or denying guilt to findings relating to e-mail communications with customers of her member-firm employer and discretionary trading in a customer's account.
- An NYSE hearing panel found that, on three occasions during May-December 2001, Armstrong sent e-mail correspondence to customers and potential customers related to initial public offerings (IPOs), which e-mails were not approved in advance by the firm.The panel also found that, on Dec. 5, 2001, Armstrong made recommendations to purchase IPOs in three e-mails sent to customers in which she failed to provide a reasonable basis for her recommendations and failed to disclose any market making or other relationships between the firm and the issuer, as required.
- The panel found that Armstrong also effected approximately 34 discretionary transactions in a customer's account with oral but not written authorization.
The NYSE imposed a penalty of a censure and four-month bar. Armstrong consented to the penalty.
Individuals Barred for Acts Detrimental to the Interest or Welfare of the Exchange and Other Violations
Charles Harry Eisenhuth of Largo, Fla., a former non-registered employee of a member firm, was found guilty of engaging in acts detrimental to the interest or welfare of the Exchange stemming from his conviction on a felony charge and failing to cooperate in an investigation by the NYSE Division of Enforcement.
- An NYSE hearing panel found that, on Apr. 28, 2003, Eisenhuth was convicted of one count of felony grand theft resulting from the theft of funds and property belonging to his member-firm employer.The panel also found that Eisenhuth failed to comply with the Exchange's request for a written explanation of events relating to this matter.
The NYSE imposed a penalty on Eisenhuth of a censure and permanent bar.
Brianna Lynelle Westerman of Grants Pass, OR, a former non-registered employee of a member firm, consented without admitting or denying guilt to a finding that she engaged in acts detrimental to the interest or welfare of the Exchange stemming from her conviction on misdemeanor charges.
- An NYSE hearing panel found that, on Jul. 2, 2003, Westerman was convicted of one count of identity theft and one count of theft in the first degree, both misdemeanors, stemming from her forging the signature of one of her colleagues on a credit card application and using the credit card to make unauthorized withdrawals totaling $2,400.
The NYSE imposed a penalty of a censure and permanent bar. Westerman consented to the penalty.
Individual Barred for Failure to Cooperate
Dominic Alex Alvarez of Las Vegas, Nev., 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 Alvarez failed to comply with Exchange requests for documents and other information.
The NYSE imposed a penalty on Alvarez of a censure and bar until he complies with the Exchange's requests.
About NYSE Regulation: The New York Stock Exchange is the designated examining authority for the major securities firms in the United States, including more than 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.
