Member Firm Disciplined for On-Floor Trading Violations, Operational Deficiencies, Supervision and Control, and Failure to Comply with an Exchange Undertaking
Moors & Cabot, Inc. of Boston, Massachusetts, an Exchange member firm, consented without admitting or denying guilt to findings of violations concerning on-Floor trading violations, operational deficiencies, supervision and control, and failure to comply with an Exchange undertaking.
- An NYSE hearing panel found that between February 2002 and April 2002, the firm’s senior supervisory Floor broker engaged in improper on-Floor trading in that he initiated and executed numerous trades in the firm’s error account, exercised discretion with respect to the error account transactions, and committed a number of books and records violations with respect to the error account transactions. Accordingly, with respect to his conduct, the firm violated Exchange Rules 342 (a) and (b) by failing to adequately ensure reasonable systems for supervision, review, and follow-up of error account transactions executed by the Floor broker, and failing to have adequate controls to prevent him from creating and approving his own error account entries and transactions. The firm also failed to ensure that its written procedures provided for adequate supervisory oversight of the Floor broker’s activities regarding the designation and recording of erroneous trades for its error account.
- Additionally, the panel found that in 2003 and for a period of several years previously, the firm permitted independent contractors who had not been approved by the Exchange, as required, to perform the duties of registered representatives. Moreover, in 2003 and for a period of several years previously, the firm terminated numerous independent contractor relationships without giving the required notice of such terminations to the Exchange. Previously, in connection with the settlement of a prior disciplinary action, the firm had undertaken to retain an independent consultant to complete a review and prepare a report of the procedures and systems of follow-up and review adopted by the firm to prevent recurrence of the violations found in the prior disciplinary action, including assuring compliance with Exchange requirements before independent contractors are permitted to act as registered representatives at the firm. Separately, in 2002, it failed to review and retain electronic communications with the public in accordance with applicable Exchange Rules and the rules of the Securities and Exchange Commission.
The NYSE imposed a penalty of a censure and $250,000 fine on Moors & Cabot, Inc. The firm consented to the penalty.
Brean Murray & Co., Inc. of New York, New York, an Exchange member firm, and Kenneth John Kirsch II, of New York, New York, an Allied Member, consented without admitting or denying guilt to findings of violations concerning financial and operational deficiencies and failure to supervise.
- An NYSE hearing panel found that during the period November 1999 through February 2002, Brean Murray & Co., Inc. failed to adequately supervise its employees and business activities with respect to: the opening of and transactions in an escrow account; customer accounts; communications with the public; wire fund transfers; continuing education requirements; the activities of a registered employee; and the firm’s business activities.
- The panel also found that the firm also failed to make and preserve required books and records; failed to review employee communications with the public; and failed to have at all times a Series 14 qualified compliance officer.
- In a related matter, during the period May 2001 through January 2002, Kenneth John Kirsch II failed to supervise an escrow account and failed to take reasonable steps to approve wire instructions in connection with disbursements of funds from an escrow account.
The NYSE imposed a penalty on Brean Murray & Co, Inc. of a censure and $175,000 fine. The firm consented to the penalty. The NYSE imposed a penalty on Kirsch of a censure.
Howard A. Rosencrans of New York, New York, a former registered representative, supervisory analyst, and head of research, consented without admitting or denying guilt to findings of violations concerning the dissemination of research reports.
- An NYSE hearing panel found that during the period January 2001 through July 2002, Rosencrans selectively pre-released or caused to be pre-released, via electronic mail and/or other means, research reports which disclosed the rating, target price and estimates he planned to assign the stock and/or the projected dated of publication of the report. These research reports were selectively pre-released to the companies that were the subject of the reports, competitors of the companies that were the subject of the research reports, institutional clients of the respondent’s firm, a former employee of the firm, and various firm employees including registered representatives.
The NYSE imposed a penalty of a censure and three-month bar. Rosencrans consented to the penalty.
Robert Lynn Cram of Indianapolis, Indiana, a director of compliance and general counsel, consented without admitting or denying guilt to findings of violations concerning failure to supervise.
- An NYSE hearing panel found that during the period October 1999 through December 2001, Cram, Director of Compliance and General Counsel, permitted and failed to reasonably supervise the execution of approximately 125 variable annuities switches to customers, the majority of which were unsuitable. This conduct occurred despite the fact that he had knowledge of regulatory activity that occurred prior to and during that time with respect to the improper sale and supervision of annuities at a branch, and that he had received written and verbal warnings concerning improper annuities sales and supervisory practices that were made by an employee of the firm to him and to other members of the firm’s senior management.
The NYSE imposed a penalty of a censure and six-month supervisory suspension. Cram consented to the penalty.
Thomas Gerard McNamara of Atlanta, Georgia, a former registered representative, consented without admitting or denying guilt to findings of violations concerning sales practice violations.
- An NYSE hearing panel found that during the period June 2001 through June 2002, McNamara, a registered representative, was servicing his sister’s account and exercised discretion without her written authorization and without first notifying and obtaining the approval of his member firm employer. He also failed to identify orders entered on a discretionary basis upon order entry, and engaged in unsuitable use of margin, excessive trading and made one or more material misstatements to his member firm employer.
The NYSE imposed a penalty of a censure and a one-year bar. McNamara consented to the penalty.
Chaim Rieger of East Elmhurst, New York, a former non-registered employee, consented without admitting or denying guilt to findings that he failed to disclose his prior criminal history on an employment application submitted to his member organization.
- An NYSE hearing panel found that during 2004, Rieger failed to disclose, on an employment application he submitted to his member organization, prior criminal convictions, including two felony convictions, that made him subject to statutory disqualification.
The NYSE imposed a penalty of a censure and a two-year bar past the period of statutory disqualification. Rieger consented to the penalty.
Susan Jean Elvendahl of Minneapolis, Minnesota, a former registered representative, consented without admitting or denying guilt to findings that she, among other things, misappropriated funds belonging to a customer of her member firm employer and caused books and records violations.
- An NYSE hearing panel found that during April 2002 through June 2002 Elvendahl handled the joint brokerage account of her brother-in-law and his wife, and the brokerage account and IRA account of her cousin. During that time frame, without authorization, Elvendahl obtained three checks drawn on the joint account totaling $9,000, forged the signature of her brother-in-law on disbursement vouchers that she then submitted to the firm, forged the endorsements of both her brother-in-law and his wife on the checks, and deposited the three checks into her personal checking account.
- The panel found that in an attempt to cover up her unauthorized withdrawals from that joint account, Elvendahl signed her cousin’s name without permission or authority on a letter that purported to authorize the transfer of $4,000 from the cousin’s account and $5,000 from the cousin’s IRA to the joint account.
- Additionally, without permission or authority, Elvendahl signed her cousin’s name on a required IRA distribution form for the purpose of authorizing the withdrawal of funds from the IRA. She submitted the authorization letter and the IRA distribution form to the firm, causing the firm to transfer a total of $9,000 from the cousin’s account and the cousin’s IRA into the joint account.
The NYSE imposed a penalty of a censure and permanent bar. Elvendahl consented to the penalty.
Marcus D. Braden of Wesley Chapel, Florida, a former registered representative, consented without admitting or denying guilt to findings that he, among other things, misappropriated funds belonging to customers of his member firm employer.
- An NYSE hearing panel found that in January 2001, Braden, an investment specialist, opened an investment club brokerage account at a non-member firm, with three customers of his member firm employer. Braden did not receive prior written consent from his member firm employer prior to opening the account nor did he arrange for duplicate copies of all confirmations and account statements to be sent to the firm’s compliance department as required by the firm and by Exchange rules.
- The panel also found that between May and August 2001, Braden misappropriated approximately $23,000 from the non-member firm account.
The NYSE imposed a penalty of a censure and permanent bar. Braden consented to the penalty.
Marlena D. Greth of Akron, Ohio, a former non-registered employee, consented without admitting or denying guilt to findings that she misappropriated funds belonging to her member firm employer and caused books and records violations.
- An NYSE hearing panel found that during the period of November 1999 through July 2004, Greth misappropriated approximately $33,829 from her member firm by using a firm corporate credit card, without authorization, to make ATM cash withdrawals and to pay for personal expenses. Greth also submitted fictitious and inflated travel and expense reports.
The NYSE imposed a penalty of a censure and permanent bar. Greth consented to the penalty.
Joseph Edward Herndon of St. Petersburg Beach, Florida, a former registered representative, consented without admitting or denying guilt to findings that he misappropriated customer funds and was convicted of the criminal offense of exploitation of an elderly person, a felony, which involved the theft of customer funds.
- An NYSE hearing panel found that beginning as early as 1997 to 2003, Herndon misappropriated funds totaling almost $1 million from two elderly customers of his member firm.
- On November 20, 2003, Herndon pleaded guilty to and was convicted on the criminal offense of exploitation of an elderly person in Hillsborough County, Florida Court. Because of the amount of money involved, his conviction was a felony.
The NYSE imposed a penalty of a censure and permanent bar. Herndon consented to the penalty.
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, as well as a Risk Assessment Unit and Dispute Resolution/Arbitration.
