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Member Firm Disciplined for Net Capital, Reporting, Operational and Supervisory Deficiencies
Merrill Lynch, Pierce, Fenner & Smith, Incorporated of New York City, a member firm, consented without admitting or denying guilt to findings of net capital, reporting, operations and supervisory deficiencies. An NYSE hearing panel found that for a period of three days in October 1998 the firm had a net capital deficiency that ranged from $1 - $3 billion. The panel also found that, while in net capital deficiency, the firm sought and received approval from the Exchange to pre-pay a part of a revolving subordinated loan of approximately $500 million.
The panel found that at various times the firm also failed to report and/or failed to promptly report to the Exchange information concerning the firm and current and former employees; failed to request and/or timely request Exchange approval and registration of employees; and failed to accurately code customer complaints reported to the Exchange.
The hearing panel found that the firm failed to provide for, establish and maintain adequate procedures and controls, including systems of follow-up and review concerning: its financing with its parent to ensure compliance with the rules relating to withdrawal and maintenance of minimum net capital; and its regulatory reporting function to ensure prompt reporting to the Exchange.
The NYSE imposed a penalty of a censure, $250,000 fine and an undertaking that the firm perform a review and prepare a report, particularly concerning the firm's systems and procedures regarding the required reporting of certain events to the Exchange. Merrill Lynch consented to the penalty.
Member Firm Official Disciplined for Artificially Influencing Price of Security
Claudio Honigman of New York City, a former managing director on the emerging markets desk of a member firm, consented without admitting or denying guilt to findings that he effected transactions that had the effect of artificially influencing the price of a security and caused books and records violations. The company whose stock is the subject of this matter is Compania Anonima Nacional Telefonos De Venezuela, a major Venezuelan telephone company whose Class D shares traded on the stock exchange in Venezuela and on Venezuela's electronic exchange. The American Depositary Shares (ADSs) of the Class D stock of the company trade on the NYSE. An NYSE hearing panel found that on Dec. 17, 1997, Honigman effected sell transactions on the stock exchange in Venezuela that had the effect of artificially influencing the price of a stock and resulted in an approximately 10% drop in the price at the close. The panel also found that Honigman failed to make and maintain an order ticket for the transactions. The hearing panel found that Honigman effected the transactions after his member firm's interest in transacting a large block of the company's stock had been solicited by the principal of a broker dealer in Venezuela. The block was expected to be available for sale by a group of current and former employees of the foreign telephone company by the end of the year. Honigman's member firm employer and the broker dealer in Venezuela agreed on a price for the block based on previously established prices.
On Dec.17 the principal requested that Honigman sell Class D shares of the company in Venezuela in a transaction that would have the effect of causing the price of the company's shares to decline significantly. The panel found that Honigman then contacted a second broker dealer in Venezuela, resulting in a sale at the close of more than 195,000 Class D shares on the stock exchange there, the sale being executed in 30 separate transactions that took place at successively lower prices for a drop on the close of approximately 10%.
The NYSE imposed a penalty of a censure and $30,000 fine. Honigman consented to the penalty.
Bond Trader Disciplined for Mismarking Positions and Other Violations
Henry Paracchini of Mamaroneck, N. Y., a former bond trader on the emerging markets trading desk and former registered representative, consented without admitting or denying guilt to findings that he mismarked the value of certain securities to conceal unrealized losses and caused certain books and records violations. An NYSE hearing panel found that for a period of approximately two weeks in March 1997 Paracchini mismarked the price of certain bonds in a proprietary account of his member firm employer, thereby concealing unrealized losses in the account and favorably influencing his profit-and-loss statement at the firm. The panel found that Paracchini's mismarkings, which increased the value of his position in certain bonds by as much as approximately $3.8 million, resulted in inaccuracies on the firm's books and records.
The NYSE imposed a penalty of a censure and 18-month bar. Paracchini consented to the penalty.
Individuals Disciplined for Sales Practice Misconduct
David J. Levenson of New York City, a former registered representative, consented without admitting or denying guilt to findings that he engaged in sales practice conduct in the accounts of five customers. An NYSE hearing panel found that during 1994-1997 Levenson exercised discretion without written authorization in the accounts of five customers, accepted orders from third parties with respect to the accounts of two of the customer without prior written authorization and, concerning one of these two customers, also personally reimbursed the customer for losses sustained in the account.
The NYSE imposed a penalty of a censure and six-month bar. Levenson consented to the penalty.
Frank Ocello of Smithtown, N. Y., a registered representative, consented without admitting or denying guilt to findings that he engaged in sales practice misconduct concerning activities stemming from his relationship to one customer account. An NYSE hearing panel found that over the course of six years, beginning in 1993 and ending with the customer's death in 1999, Ocello had formed a close personal relationship with an elderly customer. The hearing panel found that eventually the customer moved into Ocello's home and participated in family affairs; gave Ocello and his family gifts; sold her home and gave the Ocellos the proceeds of that sale; signed a power of attorney giving Ocello full control over her assets; signed a last will and testament naming Ocello and his wife as primary beneficiaries of her estate; and finally moved her account from Ocello's member firm employer to another broker dealer where it was opened as a joint account with Ocello.
The panel found that at no time did Ocello disclose to his employer either the relationship with the customer or that, during the last five months that the customer held her account at the firm, Ocello was beneficiary of her will and the customer's agent through a power of attorney. The panel also found that Ocello made misstatements to the firm concerning his maintenance of a joint account at another broker dealer and to the other broker dealer regarding his employment at the firm.
The NYSE imposed a penalty of a censure, $25,000 fine and three-month suspension. Ocello consented to the penalty. After a contested hearing, Jenipher Philopois of Littleton, Colo., a former registered representative, was found guilty of engaging in sales practice misconduct in one customer account. An NYSE hearing panel found that during March-August 1998 Philopois entered discretionary transactions in the customer's account without written authorization and, thereafter, attempted to reimburse the customer for the losses incurred.
The NYSE imposed a penalty on Philopois of a censure.
Individual Disciplined for Referring Business Away from his Member Firm and for Unauthorized Outside Business Activities
Reginald Miller of Chagrin Falls, Ohio, a former registered representative, consented without admitting or denying guilt to findings that he facilitated the referral of business away from his member firm employer and engaged in an outside business activity without approval. Under his employment agreement with his member firm employer, Miller was to develop a structured settlement unit to service annuity sales related to personal injury settlements referred to the member firm by a subsidiary of an insurance company. (Miller's member firm employer was itself a subsidiary of the insurance company.)
An NYSE hearing panel found that in early 1994 the national director of the subsidiary, who was responsible for referring the structured settlements to the member firm, made a compensation demand of Miller for payment for business referred by the national director to the member firm on behalf of the insurance company. This compensation arrangement was at odds with the compensation provisions in Miller's employment agreement. The panel found that during January 1994-November 1997 Miller facilitated the referral of substantial structured settlement business to other insurance brokers away from his member firm employer. The hearing panel found that, without the prior written consent of his member firm employer, Miller organized a corporation which was used to receive commissions on those referrals to the other brokers and to pay the commissions to the national director and the insurance company pursuant to the agreement between Miller and the national director.
The NYSE imposed a penalty of a censure and 18-month bar. Miller consented to the penalty.
Individual Disciplined for Submitting False Employment Documents
Carlos Enrique Leon of Newark, N. J., a former non-registered stock loan clerk at a member firm, consented without admitting or denying guilt to findings that he submitted employment documents containing false information. An NYSE hearing panel found that in September 1997 Leon failed to disclose on an application for employment a prior criminal conviction (for two counts of official misconduct involving theft and one count of false swearing) that rendered him subject to a statutory disqualification.
The NYSE imposed a penalty of a censure and five-year bar. Leon consented to the penalty.
Individual Disciplined Concerning Improper Use of Funds and Failure to Cooperate
Barbara Nicole Wheeler of Brooklyn, N. Y., a former non-registered employee of a member firm, consented without admitting or denying guilt to findings concerning the improper use of funds erroneously deposited into her checking account and her failure to cooperate with an Exchange investigation. An NYSE hearing panel found that during January-April 1996 the entity previously employing Wheeler (which was an affiliate of her member firm employer) erroneously continued to pay her salary through a payroll deposit to Wheeler's personal bank account. The panel found that Wheeler used the funds for personal benefit when she knew or should have known that the funds did not belong to her and had been erroneously deposited into her personal bank account by her previous employer.
The hearing panel also found that Wheeler failed to comply with written requests by the Exchange to produce certain bank records.
The NYSE imposed a penalty of a censure and five-year bar. Wheeler consented to the penalty.
Individual Disciplined for Check Kiting
Cheryl Cahill of Glenmont, N. Y., a former non-registered sales assistant at a member firm, consented without admitting or denying guilt to findings that she drew checks on insufficient funds. An NYSE hearing panel found that during April 1997-March 1998 Cahill engaged in a pattern of check kiting by drawing checks on 209 occasions on her personal account maintained at her member firm employer, and converting 187 of the checks to cashiers checks or money orders at a bank for re-deposit into her account at her member firm employer, when she knew or should have known that there were insufficient funds to cover the checks.
The NYSE imposed a penalty of a censure and four-year bar. Cahill consented to the penalty.
Individuals Barred for Misappropriation and Other Violations
Gina M. Perski of South Amboy, N. J., a former non-registered clerical employee at a member firm, was found guilty of misappropriating customer funds, among other violations. An NYSE hearing panel found that in February 1999 Perski made oral and written admissions that she had misappropriated ATM and/or debit cards of certain customers of her member firm employer, entered a new PIN in the automated PIN load system at the firm, and used the cards for her own benefit. The panel found that Perski's admissions covered 107 occasions, representing a total of approximately $68,800, where she either made ATM withdrawals or purchases of store merchandise. The panel found that Perski entered a plea agreement, which was accepted by the court, to felony theft in February 1999.
The hearing panel also found that Perski failed to comply with the Exchange's written requests that she provide a detailed written explanation regarding certain activities that occurred prior to the termination of her employment with a member firm and also failed to comply with a request that she appear and testify before the Exchange concerning the activities.
The NYSE imposed a penalty on Perski of a censure and permanent bar.
Shelley Ausley of University Place, Wash., a former non-registered cashier at a member firm, was found guilty of misappropriation, books and records violations and failure to comply with requests by the Exchange for information. An NYSE hearing panel found that during 1997-1998 Ausley misappropriated approximately $13,000 from her member firm employer by crediting her account without making corresponding deposits to support the entries. The panel also found that Ausley failed to provide the Exchange with a written explanation regarding her activities prior to her termination of employment with the firm.
The NYSE imposed a penalty on Ausley of a censure and permanent bar.
Individuals Barred for Failure to Cooperate
Jennifer Craft of Pittsburgh, Pa., a former registered sales assistant at a member firm, was found guilty of failing to respond to written requests by the Exchange for information concerning activities that occurred while she was an employee of the firm.
The NYSE imposed a penalty on Craft of a censure and bar until she complies, to become a permanent bar if she does not comply within three months.
James W. Baldasare of Staten Island, N. Y., a former non-registered employee at a member firm, was found guilty of failing to comply with a request by the Exchange that he testify concerning activities occurring while he was employed by the firm.
The NYSE imposed a penalty on Baldasare of a censure and bar until he complies, to become a permanent bar if he does not comply within three months.
Louis Lazzarini of Union City, N. J., a former non-registered employee at a member firm, was found guilty of failing to respond to requests by the Exchange that he submit a written explanation regarding certain activities that occurred prior to the termination of his employment with the firm. The NYSE imposed a penalty on Lazzarini of a censure and bar until he complies, to become a permanent bar if he does not comply within three months.
Thomas J. McLeer of Philadelphia, Pa., a former registered representative, was found guilty of failing to respond to written requests by the Exchange for information concerning activities that occurred while he was an employee of the firm. The NYSE imposed a penalty on McLeer of a censure and bar until he complies with the Exchange requests.
Mark R. Lee of Woodland Hills, Calif., a former registered representative, was found guilty of failing to comply with requests by the Exchange for information concerning activities that occurred while he was an employee of the firm. The NYSE imposed a penalty on Lee of a censure and bar until he complies with the Exchange's requests.
Theron Shawn Lesesne of Kissimmee, Fla., a former non-registered employee at a member firm, was found guilty of failing to comply with a written request by the Exchange for a written explanation concerning matters occurring prior to the termination of his status as an employee of the firm.
The NYSE imposed a penalty on Lesesne of a censure and bar until he complies with the Exchange's request.
