Member Firm and Specialist Member Disciplined for Failing to Maintain a Fair and Orderly Market
SIG Specialists, Inc. of New York City, a member firm, and John C. Genna, Jr. of New York City, a specialist member, consented without admitting or denying guilt to findings that they failed to maintain a fair and orderly market in an Exchange listed security.
- An NYSE hearing panel found that the firm and Genna, one of its specialists, failed to maintain a fair and orderly market in an Exchange listed security for which they acted as specialist by failing to maintain a liquid and continuous two-way auction market and failing to effectively represent agency orders.
- The panel found that on August 19, 2003, with respect to an Exchange listed security, during an approximate six-minute period between 3:53 p.m. and 3:59 p.m. there was no trading in the security. During that same six-minute period, approximately 125 market and marketable limit orders totaling over 86,000 shares were entered through the Exchange Designated Order Turnaround (“DOT”) System and appeared on the display book. Genna and the firm, due to the distraction of assisting a floor broker with a malfunctioning handheld, did not adequately monitor the display book for the security and did not execute any of those orders at the time they were entered.
- In addition, the panel also found the firm failed to maintain appropriate procedures for supervision and control of its specialist activities and failed to reasonably supervise its specialist activities.
The NYSE imposed a penalty on SIG of a censure, a $100,000 fine and an undertaking relating to supervision and control. As to Genna, the NYSE imposed a penalty of a censure and a $50,000 fine. SIG and Genna consented to the penalties, respectively.
Member Firm Disciplined for Failing to Supervise its Specialist Operations
Susquehanna Specialists, Inc. of New York City, a member firm, was found guilty, after a contested hearing, of failing to appropriately supervise its specialist operations.
- An NYSE hearing panel found that with respect to an Exchange listed security, on June 25, 2002, during an approximate 17-minute period between 9:43 a.m. to 10:00 a.m. when there was no trading in the security, the Firm failed to exercise reasonable supervision.
- The panel found that during this 17-minute trading hiatus in the security, the Firm’s senior partner was not present and the supervision conducted by a second partner was not sufficient. Despite being aware of a negative news story on the security, a gapped quote, and that something unusual was taking place with the security, the partner did not investigate or offer to help the specialist.
The NYSE imposed a penalty on Susquehanna of a censure and a $25,000 fine.
This hearing took place during February 2004 through June 2004 and is being released now since the firm and the Exchange appealed the decision. The appeal was recently withdrawn. As of November 2003, Susquehanna Specialists, Inc. changed its name to SIG Specialists, Inc.
Research Analyst and Registered Representative Disciplined for Failing to Supervise a Firm Analyst
John B. Hoffman of New York City, a former research analyst, and Kevin J. McCaffrey of New York City, a former registered representative, consented without admitting or denying guilt to findings that they failed to supervise a firm analyst.
This matter relates to April 2003 settlement proceedings brought by the Securities and Exchange Commission (the “SEC”) against Jack B. Grubman and Salomon Smith Barney, Inc.(SSB), now known as Citigroup Global Markets, Inc. as part of the Global Research Analyst Settlement (Global Settlement). In the matter the Commission charged that Grubman issued fraudulent research reports and published misleading or exaggerated research regarding various companies that were investment-banking clients of SSB thereby aiding and abetting SSB’s violations of antifraud provisions and violating NASD and New York Stock Exchange rules.
- An NYSE hearing panel found that during approximately 2000 and 2001 Hoffmann and McCaffrey, Grubman’s supervisors, failed to respond adequately to red flags that Grubman had unrealistically bullish ratings and price targets on seven companies he covered.
- In addition, the panel found that Hoffmann and McCaffrey were aware of potential conflicts of interest posed by Grubman’s involvement in the firm’s telecommunications (telecom) investment banking activities and were aware of Grubman’s importance to the firm’s telecom investment banking franchise, but failed to respond adequately to specific evidence of investment banking pressure on Grubman not to downgrade his member firm’s investment banking clients.
The NYSE imposed a penalty on Hoffman of a censure, a total penalty of $120,001 and a 15-month supervisory suspension, and on McCaffrey a censure, a total penalty of $120,001 and a 15-month supervisory suspension. Both penalties include $1.00 in disgorgement. The payments will be made into the interest bearing Distribution Fund account as specified in a separate SEC order relating to these matters. Hoffman and McCaffrey consented to the penalties, respectively.
Separately, the SEC and NASD have filed settled enforcement proceedings against Hoffmann and McCaffrey based on their parallel investigations into the supervision of equity research analysts at firms involved in the Global Settlement.
Branch Office Manager Disciplined for Supervisory Deficiencies
William M. Scott of Cincinnati, Ohio, a former branch office manager, consented without admitting or denying guilt to a finding of supervisory deficiencies.
- An NYSE hearing panel found that, during approximately January 2002 through January 2003, Scott failed to reasonably discharge his duties and obligations in connection with his supervisory responsibilities as a branch office and complex manager. Scott improperly delegated his responsibilities to others, including allowing other employees to access and send electronic mail (“e-mail”) from his member organization’s e-mail account under his signature in contravention of the policies and procedures of the firm.
- The panel also found that Scott made numerous misstatements to his member organization and to the Exchange when questioned about his misconduct.
The NYSE imposed a penalty of a censure, eight-month bar and a requirement to retake the Series 9 and 10 examinations. Scott consented to the penalty.
Four Individuals Disciplined for Engaging in an Outside Business Activity
Daniel Christopher McDonald of Sunnyvale, California, a former registered representative, Seth Andrew Wiener of San Jose, California, a former registered representative, Eric Matthew Winokur a/k/a Eric Matthew Wiener of Los Gatos, California, a former registered representative and Steven James Zellers of Los Angeles, California, a former registered representative, each consented without admitting or denying guilt to findings that they engaged in an outside business activity without the written consent of their member firm employer.
- An NYSE hearing panel found that, at various times during the period July 2000 through March 2001, McDonald, Wiener, Winokur and Zellers engaged in an improper outside business activity without receiving prior authorization of their member firm employer.
- The panel found that the four registered representatives, all of the same member firm branch office, referred firm customers to an outside accounting firm in exchange for referral fees.
The NYSE imposed the following penalties: on McDonald a censure and a six-month bar; on Wiener a censure and a six-month bar; on Winokur a censure and a six-month bar; and on Zellers a censure and a six-month bar. McDonald, Wiener, Winokur and Zellers consented to the penalties, respectively.
Individual Disciplined for Sales Practice Misconduct
Glenn Albert Hamler of New London, Connecticut, a registered representative, consented without admitting or denying guilt to findings that he engaged in sales practice misconduct in two customer accounts.
- An NYSE hearing panel found that, during March 2003, Hamler liquidated positions in a custodial account and caused the issuance of checks drawn on the account based on the instructions of a person other than the customer, without first obtaining the written authorization of the customer. The panel also found that, during June 2002, Hamler failed to follow another customer’s instructions to liquidate an estate account.
The NYSE imposed a penalty of a censure and a one-month suspension. Hamler consented to the penalty.
Individual Disciplined for Failing to Timely Pay an Arbitration Award
Michael John Einersen of Mount Vernon, New York, a former Exchange member, consented without admitting or denying guilt to findings that he failed to timely pay an arbitration award.
- An NYSE hearing panel found that Einersen failed to timely pay a monetary arbitration award issued by the Exchange’s Arbitration Department. The panel found that although the Exchange Arbitration panel issued a written decision in August 1997, Einersen did not pay the award until April 2005.
The NYSE imposed a penalty of a censure and ten-week bar. Einersen consented to the penalty.
Individual Barred for Attempted Misappropriation and Failing to Cooperate
Noel Puriefoy Brinkley of Brookline, Mass., a former registered representative of a member firm, consented without admitting or denying guilt to findings that he attempted to misappropriate customer funds and failed to cooperate in an investigation of this matter by the NYSE Division of Enforcement.
- An NYSE hearing panel found that, during the period July 2003, Brinkley, in connection with his position as a registered financial consultant, attempted to misappropriate approximately $5,600 from a customer account by sending a letter to the firm purportedly from and signed by the customer, causing the firm issue two checks for $2,800 payable to a third party relating to an apartment Brinkley wanted to rent. The firm became aware of the unauthorized disbursements and stopped payment on the checks before they could be cashed.
- Brinkley also failed to comply with written requests by the Exchange for information concerning matters occurring prior to the termination of his employment with the firm.
The NYSE imposed a penalty on Brinkley of a censure and permanent bar. Brinkley consented to the penalty.
Individuals Disciplined for Failing to Disclose Criminal History and Other Violations
Christopher Trent Bromley of Montclair, New Jersey, a former non-registered employee, was found guilty of failing to disclose his criminal history to his member firm employer and failing to cooperate in an investigation by the NYSE Division of Enforcement.
- An NYSE hearing panel found that Bromley failed to disclose on an employment application submitted to his member firm employer five prior convictions including a felony conviction for theft by deception. The felony conviction subjected Hall to a statutory disqualification.
- Bromley also failed to comply with written requests by the Exchange that he appear and testify regarding matters that occurred prior to the termination of his status as an employee of a member firm.
The NYSE imposed a penalty on Bromley of a censure and a five-year bar following the period of statutory disqualification.
Darla Ann Callihan of Milford, Ohio, a former non-registered employee, was found guilty of failing to disclose her criminal history to her member firm employer and failing to cooperate in an investigation by the NYSE Division of Enforcement.
- An NYSE hearing panel found that Callihan failed to disclose, on an employment application submitted to her member firm employer, her criminal history that included a guilty plea to the misdemeanor charge of attempted theft.
- Callihan also failed to comply with written requests by the Exchange for information regarding matters that occurred prior to the termination of her status as an employee of a member firm.
The NYSE imposed a penalty on Callihan of a censure and a four-year bar.
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The cases, prosecuted by the NYSE Division of Enforcement, may be subject to review by the Securities and Exchange Commission and, thereafter, federal courts.
About NYSE Regulation
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, who have no affiliation with any regulated member firm. A new position of chief regulatory officer was created and 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.
