Member Firm Disciplined for Deficiencies Involving Margin Regulations (including Day Trading Restrictions), Supervision, Due Diligence and Books and Records:
Bear Stearns & Co. Inc. of New York City, a member firm, consented without admitting or denying guilt to findings of deficiencies in the areas of: supervision; using due diligence to learn the essential facts on every customer, order, cash or margin account; and books and records. During various periods in 1995 through 1998, the firm failed to reasonably monitor, compute and enforce margin requirements, including certain day trading restrictions, and to adequately supervise the margin department.
Certain supervisory and other issues concerning this matter relate to Exchange examination findings. Others arise from activities covered in an earlier, contested Exchange disciplinary proceeding against Carlos M. Gonzalez of Washington Township, N.J. (hearing panel decision 97-94), a trader at another broker dealer who opened an account at Bear Stearns. [A disciplinary proceeding is currently pending with respect to the registered representative who opened the Gonzalez account.] The hearing panel findings in the Gonzalez matter relate to his trading in a stock for his personal account when he was also trading the stock for his member firm employer and its customers and, in that action, Gonzalez was censured and barred for three years. On appeal, the NYSE board of directors affirmed the findings and the penalty imposed on Gonzalez.
Regarding Bear Stearns, an NYSE hearing panel found that during December 1995-May 1996 there were numerous instances in which the Gonzalez account was permitted to effect several million dollars in day trades in violation of federal and Exchange margin rules. The panel found that there were systemic problems at the firm relating to day trading and other margin rules. In addition, the firm had inadequate procedures, including lack of proper documentation, for allocation of trades effected away from the firm. The panel also found that the firm failed to have procedures reasonably designed to prevent and detect the post-execution placement of trades into the Gonzalez account and that the firm did not adequately supervise the registered representative, did not require supervisory approval of late or "as of" trades entered into the account, and did not have a reasonable system of active account surveillance.
The hearing panel found that: during December 1992-December 1996 the firm's inadequate system of account code designation contributed to a lack of reasonable supervision over a pension fund account and the registered representative servicing the account; during various periods in 1995-1998, the firm failed to reasonably monitor, compute and enforce margin requirements and to adequately supervise its margin department; during the period December 1997-April 1998 certain registered representatives at the firm failed to designate account names and/or numbers in a timely fashion in connection with orders for customer accounts; during various periods in 1995-1998 the firm failed to have an adequate system of supervision to ensure that fee-based managed accounts were not improperly charged transaction commissions in addition to agreed upon management fees; in 1996 the firm failed to supervise and provide adequate systems of follow-up and review to ensure compliance with rules relating to the sale of restricted securities; and, during various periods in 1995-1998, the firm failed to review and document its review of correspondence transmitted to customers by its registered representatives.
The NYSE imposed a penalty of a censure, $400,000 fine and an undertaking that the firm retain an outside consultant to undertake a review and prepare a report of the firm's systems and procedures in the foregoing areas, and adopt and implement any and all policies, procedures and practices recommended by the report. Bear Stearns consented to the penalty.
Member Firm Disciplined Concerning the Circulation of a Rumor - Former Managing Director Also Disciplined:
UBS Securities LLC (now known as Warburg Dillon Read LLC) of New York City, a member firm, and Thomas Henry Hanley also of New York City, a former managing director of the firm and registered representative, consented without admitting or denying guilt to findings concerning Hanley's circulation of a rumor regarding the securities of two publicly-traded companies formerly listed on the Exchange (Bankers Trust New York Corp. and Travelers Group Inc.).
An NYSE hearing panel found that on one or more occasions on Sept. 18, 1997, Hanley orally circulated and caused to be circulated to the firm's customers and/or the public - through a series of break-in calls with the firm's sales force and by interviews with the media - information about the merger of two Exchange-listed companies within a specific price range. The panel found that Hanley lacked a reasonable basis for his statements and should have expected reasonably that the circulation of such information might affect market conditions of a security listed on the Exchange.
The hearing panel found that UBS Securities permitted and/or failed to prevent Hanley from circulating the rumor which was sensational in character for which he lacked a reasonable basis and which might reasonably be expected to affect market conditions. The panel found that the firm's written procedures did not require that a supervisory analyst, compliance officer or supervisor of research conduct any prior review or approve communications made orally to the firm's customers and/or the public regarding rumors that utilize any form of communication including the press, wire services, the media or by making break-in calls to the firm's sales force.
The NYSE imposed the following penalties: on Hanley, a censure and $75,000 fine; and, on the firm, a censure and $60,000 fine. Hanley and UBS Securities consented to the penalties, respectively.
Member Firm Disciplined for Supervisory Deficiencies Relating to Non-Compliance with Continuing Education Requirements and Other Violations:
Lawrence Helfant Inc. of New York City, a member firm, consented without admitting or denying guilt to findings of supervisory deficiencies relating to non-compliance with continuing education requirements and the acceptance and entry of orders by non-qualified floor clerks, among other violations.
An NYSE hearing panel found that during October 1996-May 1999 the firm failed to have systems and procedures to assure compliance by its employees with certain registration requirements in that it: failed to supervise its floor clerks by failing to assure that persons who accepted public orders were duly qualified; and permitted a floor clerk whose license had been suspended by reason of his failure to comply with continuing education requirements to enter orders from public customers.
The panel also found that the firm failed to adhere to representations made to the Exchange regarding steps that the firm was pursuing to resolve violations identified by the Exchange during the course of several examinations of the firm.
The NYSE imposed a penalty of a censure, $40,000 fine and an undertaking, reduced by the hearing panel from the penalty consented to by Lawrence Helfant Inc. of a censure, $65,000 and an undertaking. The undertaking requires the firm to adopt written procedures and systems reasonably designed to ensure that the firm: complies with applicable rules to prevent a recurrence of the violations in this disciplinary action; generally communicates regulatory requirements in writing to relevant staff members with copies to their supervisors; makes and keeps records of registered employees' compliance in regards to continuing education requirements; and enforces continuing education requirements.
Three Equity Traders Barred for Securities Fraud and Other Violations:
Lawrence Helfant Inc. of New York City, Ethan Heston Weitz also of New York City, and Ronald Joseph Etergino of Short Hills, N. J., former equity traders and registered representatives at a member firm, consented without admitting or denying guilt to findings that they violated Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder when they traded ahead of institutional customer orders, among other violations.
An NYSE hearing panel found that on many occasions during 1998 - involving numerous institutional customer orders for various securities including but not limited to October and November 1998 - Altman, Weitz and Etergino each traded or directed third parties at other firms to trade in the same stock and on the same day as orders and/or expressions of interest were received from institutional customers of their member firm employer. The panel found that when Altman, Weitz and Etergino received or learned of an institutional customer order and/or expression of interest for a large purchase or sale of securities, one or more of them disclosed to one or more third parties the terms of the customer's order and/or directed such third parties to trade in the same security as the firm's institutional customers ahead of or along with the execution of such customer's orders.
The hearing panel found that such disclosure and/or instructions to trade were made without a legitimate business purpose and without the knowledge or consent of the firm's institutional customers or of the firm. The panel found that the third parties to whom disclosure was made often received more favorable prices on executions than the firm's customers in the same security, and made profits. The panel found that Altman, Weitz and Etergino shared in profits from such trading.
The panel also found that Altman, Weitz and Etergino failed to produce documents and to appear and testify in connection with the Exchange's investigation.
The NYSE imposed a penalty of a censure and permanent bar on the three individuals. Altman, Weitz and Etergino consented to the penalties, respectively.
Individual Disciplined for Insider Trading:
Patricia Alexandra Navarro of New York City, a former registered representative, consented without admitting or denying guilt to findings that she violated Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder when she traded securities of a publicly-traded company based on material non-public information, among other violations.
An NYSE hearing panel found that in November 1998 Navarro purchased and tipped others to purchase the securities of a publicly-traded company based on material non-public information concerning the company's plans to spin-off one of its subsidiaries and make an initial public offering of the stock. The panel found that Navarro knew or was reckless in not knowing that such information had been communicated to her in breach of fiduciary duty or similar duty. The hearing panel found that the purchases occurred in November 1998, before the IPO and spin-off were publicly announced, and when the IPO and spin-off were announced the price of the securities increased. As a result of her trading and conveying such information to others, Navarro, as well as others she tipped, made illegal profits.
The NYSE imposed a penalty of a censure, five-year bar and $25,000 fine. Navarro consented to the penalty.
Individuals Disciplined for Improper Trade Allocations and Other Infractions:
After a contested hearing, Keith Springer of Sacramento, Calif., a former registered representative, was found guilty of engaging in a course of conduct of effecting improper post-execution allocation of trades and attempting to obstruct his member firm employer's internal investigation into his trading activities, among other violations.
An NYSE hearing panel found that during June 1995-March 1996 Springer delayed approximately 150 allocations in his accounts and those of his customers. The panel found that by delaying allocations, Springer had the ability to watch the market and decide which, if any, trades would guarantee a profit and also enabled him, at times, to execute two transactions for a stock, and grant himself the more favorable transactions, allocating the less favorable transactions to customers.
The hearing panel found that, when Springer's member firm employer began an internal investigation of trading in his personal account (which showed a gain at an annualized rate of over 200%), Springer asked his sales assistant to tell the Compliance Department that she was responsible for holding up transmission of trade allocations, which was false.
The panel also found that by failing to make and preserve required and timely records relating to designation and execution of customer orders, Springer caused violations of books and records requirements.
The hearing panel imposed a penalty on Springer of a censure and 2 ½-year bar. On appeal, the NYSE Board of Directors affirmed the hearing panel's findings with respect to guilt, but modified the penalty by imposing a censure and a four-year bar.
Jack D. Stone of Chicago, Ill., a former registered representative, consented without admitting or denying guilt to findings that he allocated trades from a firm proprietary account to his wife's account without approval, among other violations.
An NYSE hearing panel found that from approximately March 1995-April 1996 Stone altered and/or falsified (or caused to be altered and/or falsified) order tickets to realize profitable day trades of equities in the account of his wife held at the firm. The conduct involved, among other things, allocating to his wife's account profitable trades, or portions of trades, from a firm trading account that Stone controlled or effecting trades for his wife's account from and to a firm proprietary account at prices away from the market, to the benefit of his wife's account and to the detriment of the firm.
The panel also found that Stone: made false statements to the Exchange regarding his conduct; opened individual accounts in his own name without obtaining the prior written consent of his member firm employer and without arranging for duplicate confirmations and monthly statements for the accounts to be sent to the firm; failed to mark sell order tickets to indicate whether the sale was long or short; failed to report to the Exchange certain transactions; and caused books and records violations.
The NYSE imposed a penalty of a censure, three-year bar from membership, allied membership, approved person status or employment or association in certain specified capacities, and a $25,000 fine. Stone consented to the penalty.
Individuals Disciplined for Sales Practice Misconduct Including Options Violations and Other Infractions:
After a contested hearing, Donald A. Peterson of Falls Church, Va., a former registered representative, was found guilty of engaging in sales practice misconduct in one customer account.
An NYSE hearing panel found that over an approximate five-year period from 1991-1996 Peterson engaged in unsuitable, unauthorized and excessive trading in the account of a customer, made misrepresentations to the customer and shared in the losses in the account.
The NYSE imposed a penalty on Peterson of a censure and 18-month bar.:
Roy Timothy Tepper, Jr. of Richmond, Va., a registered representative, consented without admitting or denying guilt to findings that he engaged in sales practice misconduct in the accounts of three customers.
An NYSE hearing panel found that on several occasions during 1996 and 1997 Tepper exercised discretionary power in the accounts of three customers without first obtaining their written authorization and failed to identify the discretionary orders as such. The panel found that in July 1997, after favorable recommendations concerning two securities were rescinded, Tepper effected transfers of purchases and sales of such securities out of the accounts of the customers, into his personal account, without authorization of the customers.
The NYSE imposed a penalty of a censure and six-month suspension. Tepper consented to the penalty.
Phillip Allen Hudson of Grovetown, Ga., a former registered representative, consented without admitting or denying guilt to findings that he engaged in sales practice misconduct in the accounts of two customers.
An NYSE hearing panel found that during approximately March 1994-October 1995 Hudson effected excessive and unsuitable equities transactions in the accounts of two customers and exercised discretionary power with respect to equity transactions in the customers' accounts without their prior written authorization. The panel also found that, concerning one of the customers, Hudson exercised discretionary power with respect to options contracts without the customer's prior written authorization, engaged in unsuitable options trading, and made inaccurate entries on that customer's new account forms.
The NYSE imposed a penalty on Hudson of a censure and six-month bar. Hudson consented to the penalty.
Timothy D. Oliver of Dallas, Texas, a former registered representative, consented without admitting or denying guilt to findings that he engaged in sales practice misconduct in equities and/or options in the accounts of three customers.
An NYSE hearing panel found that, during approximately January 1994-December 1997, Oliver engaged in discretionary trading in equities and options in the accounts of two customers of his member firm employer and effected an unauthorized equities transaction in the account of a third customer.
The NYSE imposed a penalty of a censure and three-month bar. Oliver consented to the penalty.
After a contested hearing, Amy Shui of Long Branch, N.J., a registered representative formerly with a member firm, was found guilty of failing to disclose essential facts relative to the orders of nine customers, and related books and records violations. An NYSE hearing panel found that on Nov. 2, 1995, Shui entered 11 orders for the accounts of nine customers to sell shares and marked the order tickets "long" when she knew or should have known at the time she entered the orders that the customers did not own the securities.
The NYSE imposed a penalty on Shui of a censure and two-month bar.
In related cases involving individuals employed by the same member firm, Sheldon Berman of Hallandale, Fla., a former branch office manager, Ronald Ansmann of Somerset, N.J., a proprietary bond trader and Stuart Rubens of North Miami Beach, Fla., a registered representative, consented without admitting or denying to findings relating to guarantees given to customers in connection with the expected yields and/or call prices on certain high yield bonds.
An NYSE hearing panel found that in January-February 1994 Ansmann gave a guarantee to Berman and Rubens and thereafter Rubens conveyed the guarantee to a customer that, among other things, if the revenue bond the customer purchased was called prior to a certain date and he suffered a loss in principal, the customer's account would be credited with the difference. The panel also found that Ansmann engaged in a practice of making the same or similar guarantees to retail customers at the firm and that Berman failed to adequately supervise the activities of other registered representatives subject to his supervision and failed to diligently supervise certain customer accounts handled by the registered representatives.
The NYSE imposed the following penalties: on Berman, a censure, one-month bar and a four-month supervisory bar (to run concurrently), a $15,000 fine and an undertaking; on Ansmann, a censure, three-week suspension, a $2,000 fine and a requirement that he re-take and pass the Series 55 examination; and, on Rubens, a censure, one-month bar and an undertaking. The undertaking requires Berman and Rubens to testify in any related disciplinary proceedings. Berman, Ansmann and Rubens consented to the penalties, respectively.
Myron Jerome Goodstein of Swampscott, Mass., a registered representative, consented without admitting or denying guilt to findings that he engaged in sales practice misconduct in the accounts of 12 customers.
An NYSE hearing panel found that during 1998 Goodstein purchased 41 bank checks totaling approximately $105,725 and deposited the checks into the accounts of 12 customers to share in losses resulting from declines in the value of securities positions and/or margin maintenance calls.
The NYSE imposed a penalty of a censure and one-month suspension. Goodstein consented to the penalty.
Individual Disciplined for Submitting False Employment and Registration Documents:
Pedro Barajas Rico (also known as Juan Pedro Barajas) of Morgan Hill, Calif., a former non-registered employee, consented without admitting or denying guilt to findings that he submitted employment and registration documents containing false information.
An NYSE hearing panel found that in October 1998 Rico failed to disclose on a Form U-4 for securities industry registration that he submitted to his member firm employer and filed with the Exchange, and on an employment application he submitted to the firm, his prior felony conviction and that he had been known by another name. The conviction, for automobile theft, constitutes a statutory disqualification.
The NYSE imposed a penalty of a censure and 10-year bar. Rico consented to the penalty.
Individuals Disciplined for Engaging in Unauthorized Outside Businesses and Other Violations:
Alan G. Cutler of Provo, Utah, a former registered representative, consented without admitting or denying guilt to findings that he engaged in unauthorized outside businesses, among other violations.
An NYSE hearing panel found that during March 1996-January 1998 Cutler engaged in several outside businesses and received compensation from other persons without the prior written consent of his member firm employer; made misstatements on compliance forms used by the firm; and issued unapproved correspondence on three occasions to 25 customers of the firm.
The NYSE imposed a penalty of a censure and six-month bar. Cutler consented to the penalty.
Jay Church Beck of Marcellus, N.Y., a former registered representative, consented without admitting or denying guilt to findings that he engaged in an unauthorized outside business, among other violations.
An NYSE hearing panel found that during December 1996-January 1997 and while employed by the firm, Beck performed certain consulting services for another company, without first making a written request and receiving the prior written consent of his member firm. The panel also found that Beck sent a communication to the company using stationery of his member firm employer, without the prior review and approval of the firm.
The NYSE imposed a penalty of a censure and six-month bar. Beck consented to the penalty.
Individual Disciplined for Insufficient Funds Check:
Gary Brian Neus of Baltimore, Md., a former registered sales assistant at a member firm, consented without admitting or denying guilt to findings concerning a check issued when the funds in his personal bank account were insufficient to cover the check.
An NYSE hearing panel found that in May 1999 Neus deposited a check in his personal account maintained at his member firm employer to pay for the purchase of securities when he knew or should have known that the funds in his personal bank account were insufficient to cover the check. The panel also found that Neus presented false bank account records to his member firm employer.
The NYSE imposed a penalty of a censure and six-month bar. Neus consented to the penalty.
Individuals Barred for Misappropriation and Other Violations:
After a contested hearing, Alan John Rude of New York City, a former registered representative, was found guilty of engaging in a scheme to misappropriate funds and of pleading guilty in federal court to securities fraud, among other violations. Rude was found guilty in an NYSE disciplinary action, concluded in 1982, of failing to comply with the Exchange's written request to appear and testify concerning the activities that are the subject of the hearing panel decision being announced today. In that action, Rude was barred until such time as he complied with the request, which he did not do until 1998.
In a scheme that spanned employment at both an affiliate (of which Rude was the sole proprietor) of a non-member firm and a member firm, Rude accepted funds from a customer and misappropriated those funds to cover the monthly overhead of the affiliate as well as his personal living expenses.
The hearing panel found that when the customer requested the return of the funds, Rude used monies provided to him by a second customer (to purchase bonds) to repay the first customer. While Rude was employed by the member firm, the second customer demanded delivery of the bonds for which he had paid. Thereafter, Rude purchased the bonds for the customer through yet another non-member firm and, to pay for the bonds, he wrote a check that was returned for insufficient funds. In total, Rude misappropriated approximately $210,000 from the two customers and the non-member firm that purchased the bonds.
The NYSE imposed a penalty on Rude of a censure and permanent bar.
Eric Craig of Lexington, Ky., a former non-registered cashier at a member firm, consented without admitting or denying guilt to findings that he misappropriated funds from customer accounts of his member firm employer and failed to cooperate in an investigation by the NYSE Division of Enforcement.
An NYSE hearing panel found that on several occasions during the period of approximately January 1997-November 1998 Craig took funds received for deposit by firm customers and deposited the funds in an account, controlled by Craig, in the name of a fictitious person. The panel found that, in one instance in November 1998, a firm customer called the firm to complain that only $257,637.69 of a check for $352,806.64 had been credited to his account.
The hearing panel also found that Craig verbally informed the Exchange that he would not appear to provide testimony before the Exchange.
The NYSE imposed a penalty of a censure and permanent bar. Craig consented to the penalty.
Robert John Boule of Marlborough, Mass., a former registered representative, was found guilty of misappropriating customer funds and failing to cooperate in an investigation by the NYSE Division of Enforcement.
An NYSE hearing panel found that on June 10, 1999, Boule deposited a $5,500 check into his securities account at the firm to cover a debit in his account. The check was received from a customer and payable to Boule's member firm employer.
The panel also found that Boule failed to comply with Exchange requests that he provide information and appear and testify.
The NYSE imposed a penalty on Boule of a censure and permanent bar.
Ilya Iseman of Jackson Heights, N.Y., a former registered representative, was found guilty of misappropriating customer funds and failing to cooperate in an investigation by the NYSE Division of Enforcement.
An NYSE hearing panel found that on Jan. 14, 1999 and pursuant to instructions from Iseman, a customer of the firm wired $4,000 from his personal bank account to the bank account of Iseman's girlfriend. On several occasions in March 1999, Iseman sent checks to the customer drawn on the account of another customer at the firm, although none of the checks drawn on the customer's account cleared.
The hearing panel also found that Iseman failed to comply with a written request by the Exchange for information with respect to activities that occurred while he was an employee of a member firm.
The NYSE imposed a penalty on Iseman of a censure and permanent bar.
Clara Ann Mendez of Austin, Texas, a former non-registered branch office administrator at a member firm, was found guilty of misappropriating funds belonging to a customer of her member firm employer and failing to cooperate in an investigation by the NYSE Division of Enforcement.
An NYSE hearing panel found that in May 1999 and without the knowledge or approval of the customer Mendez deposited three checks from a customer, totaling $1,703.57, into her own personal bank account and later redirected another customer's check for approximately $500 to the customer's account from which she had previously taken the three checks.
The hearing panel also found that Mendez did not contact the Exchange or provide testimony as requested.
The NYSE imposed a penalty on Mendez of a censure and permanent bar.
Individual Barred for Failure to Cooperate:
David Anthony Petri of Moundsview, Minn., a former registered representative, was found guilty of failing to provide information and failing to appear and testify concerning matters that occurred prior to the termination of his employment as a registered representative of a member firm.
The NYSE imposed a penalty on Petri of a censure and bar until he complies with the Exchange's requests, to become a permanent bar if he does not
