Monthly Disciplinary Actions - June 2006

For Case Summary See News Release Link Below.

For Case Summary See News Release Link Below.

• An NYSE hearing panel found that in 2002, the firm failed to have associated with it at least one officer or employee who was a member of the NYSE; to reflect its Floor broker commissions on an accrual basis; to retain all Floor order tickets and indicate the time of receipt on the Floor order tickets that were retained; and to preserve electronic communications in a non-rewritable, non-erasable format.
• In addition, the firm failed to provide for, establish and maintain adequate procedures of supervision and control, including a system of follow-up and review, with respect to the employment and compensation of its members, the accounting of its Floor commissions, the retention of electronic communications, and the monitoring and reporting of employee error accounts. 

The NYSE imposed a penalty of a censure and a $25,000 fine. York Securities, Inc. consented to the penalty.       

• An NYSE hearing panel found that the firm violated NYSE Rule 472(a) in that the firm's research reports were not pre-approved by a qualified supervisory analyst; violated NYSE Rule 472(b) in that the firm provided a subject company with research-report drafts that included the research summary and rating or price target prior to its public distribution; violated NYSE Rule 472(f)(6) in that the firm did not include a final recommendation/rating and the rationale for its decision to terminate coverage for a research report.
• The hearing panel also found that the firm violated NYSE Rule 472(k)(1) in that research reports had the font size of the disclosures smaller than that of the research report, did not separate the disclaimers from the important disclosures, did not use affirmative language when disclosing investment-banking compensation, and did not disclose that the subject company had been a client of the firm in the past twelve months. In addition, one research report did not disclose that the firm had received investment-banking compensation from the subject company in the past twelve months; and research reports did not disclose that the firm had received non-investment banking compensation in the past twelve months, and included a price target without a discussion of risk.
• The hearing panel also found that the firm violated NYSE Rule 472(k)(2) in that the firm was unable to demonstrate to the NYSE that a research analyst provided the disclosures required during a media interview; and violated NYSE Rule 476(a)(1) by contravening Regulation AC promulgated under Securities Exchange Act of 1934 in that five research reports combined the analyst certification with disclaimers and the disclosures, and that the specific analyst’s name was not included in certification.

The NYSE imposed a penalty of a censure and a $50,000 fine. Brean Murray & Co., Inc. consented to the penalty.

• An NYSE hearing officer found that in September 2003, the firm entered into an agreement with a registered representative of the firm (who was also a portfolio manager for several of the firm's hedge funds) whereby the firm would provide the registered representative's group an additional bonus in exchange for directed brokerage commissions, which created a conflict of interest between the registered representative and the firm's customers.
• In addition, from 1999 to 2004 the firm overcharged certain ERISA funds and non-ERISA funds it managed for interim cash management services it provided.
• These violations were the result of the firm’s failure to have reasonable supervisory systems in place.

The NYSE imposed the penalty of a censure and a $100,000 fine. Robeco USA, LLC consented to the penalty. See also Gerald Paul Farber , Decision 06-73 (NYSE Hearing Panel May 10, 2006) (discipline of former registered representative).

• An NYSE hearing officer found that in September 2003, Farber (who was also a portfolio manager for several of his firm's hedge funds) entered into an agreement for and accepted compensation in exchange for directing commissions to his member organization employer, creating a potential conflict of interest between himself and the customer accounts he serviced.

The NYSE imposed the penalty of a censure and a $50,000 fine. Farber consented to the penalty.  See also Robeco USA, LLC, Decision 06-72 (NYSE Hearing Panel May 10, 2006) (discipline of former member organization).

• An NYSE hearing panel found that the firm violated NYSE Rule 440 and Securities Exchange Act of 1934 Rule 17a-4 by failing to properly retain employees’ electronic communications; and NYSE Rules 342.16 and 342.17 by failing to conduct supervisory reviews of employees’ electronic communications, and by failing to have written policies and procedures in connection with the review of such communications.
• In addition, the firm improperly asserted the priority in the market afforded to agency cross transactions on three occasions in violation of NYSE Rule 72(b); effected two transactions in the firm’s error account that were not related to bona fide errors in violation of NYSE Rule 134(d)(v); failed to rescind an erroneous report in violation of NYSE Rule 411(a)(iii); failed to properly identify proprietary transactions effected on the Floor relating to error account transactions in violation of NYSE Rule 132.30; and failed to reasonably supervise activity in its error account in violation of NYSE Rule 342.

The NYSE imposed a penalty of a censure and a $50,000 fine. Kabrik Trading LLC  consented to the penalty.

• An NYSE hearing officer found various financial, operational, record keeping and supervisory deficiencies including the firm’s failure to accurately prepare net capital computations and make timely submission to the NYSE of the account statements of personal and family related accounts held by a member.
• In addition, there was a significant unpaid balance due the NYSE in membership fees, transaction fees and charges or fees for facilities or services.
• The firm has paid all outstanding corporate debt owed to the NYSE. 
• The firm has retained a law firm to oversight the firm's compliance program and a new accountant.  

The NYSE imposed the penalty of a censure and a $30,000 fine. Joseph A. Sangimino, Inc. consented to the penalty.

• An NYSE hearing panel found that Sheehy failed to comply with one or more written requests by the NYSE for information and for testimony concerning one or more matters that occurred prior to the termination of his status as an employee of a member organization.

The NYSE imposed a penalty on Sheehy of a censure and a bar until he complies with the NYSE's requests, the bar to become permanent if he does not comply within three months.

• An NYSE hearing panel found that Zarnesky failed to comply with one or more written requests by the NYSE for information concerning one or matters that occurred prior to the termination of his status as an employee of a member organization.

The NYSE imposed a penalty on Zarnesky of a censure and a bar until he complies with the NYSE's requests, the bar to become permanent if he does not comply within three months.

• An NYSE hearing panel found that during the period December 2003 through August 2004, Wares failed to report to her member firm employer her criminal history, including a criminal conviction that made her subject to a statutory disqualification.
• In addition, Wares failed to timely cooperate with the NYSE’s investigation.

The NYSE imposed a penalty of a censure and a 22-month bar. Wares consented to the penalty.

• An NYSE hearing panel found that during July 2004, Rekasis failed to disclose on an employment application submitted to his member organization his prior criminal history, which at the time subjected him to a statutory disqualification.

The NYSE imposed a penalty of a censure and a 15-month bar. Rekasis consented to the penalty.

• An NYSE hearing panel found that in March 2004, Byrd wired money from a customer account to a charitable organization that he was affiliated with while under the mistaken belief that he had the customer’s approval to transfer the money. When the customer complained about the transfer, Byrd did not relay the customer’s complaints to his member firm employer. In an attempt to resolve that customer’s complaint, Byrd issued correspondence to that customer on the charitable organization’s letterhead.

The NYSE imposed a penalty of a censure, a two-month bar and a $5,000 fine. Byrd consented to the penalty. 

• An NYSE hearing panel found that between 1998 and 2000, Rosenwein entered into unapproved consulting agreements with two startup companies, and that he received stock options and warrants as compensation in connection with his agreements with those companies, which he failed to disclose to his member-firm employer.

The NYSE imposed a penalty of a censure and a nine-month bar. Rosenwein consented to the penalty.

• An NYSE hearing panel found that Gibbs, while employed at a member firm, from approximately 1996 through 2001, and with the assistance of a former registered representative beginning in 1997, recommended and effected transactions in the accounts of more than 144 customers which were unsuitable in view of the customers’ investment objectives, investment experience and financial resources.
• In addition, Gibbs and the former registered representative, at Gibbs’ direction, engaged in unauthorized trading in customer accounts and exercised discretionary trading authority in the accounts of various customers without prior written authorization.
• Approximately 144 customers pursued complaints against Gibbs and the former registered representative. The firm has settled the majority of the complaints for a total of over $30 million.

The NYSE imposed a penalty of a censure and a permanent bar. Gibbs consented to the penalty.  See also Susan Huber Saccone, Decision 06-42 (NYSE Hearing Panel March 27, 2006) (former registered representative disciplined) and Earl Duncan Laing, Decision 06-47 (NYSE Hearing Panel April 20, 2006) (former regional manager disciplined).

• An NYSE hearing panel found that a former branch office manager, while employed at a member firm, from approximately 1996 through 2001, and with the assistance of Saccone beginning in 1997, recommended and effected transactions in the accounts of more than 144 customers which were unsuitable in view of the customers’ investment objectives, investment experience and financial resources.
• In addition, the former branch office manager and Saccone, at the manager's direction, engaged in unauthorized trading in customer accounts and exercised discretionary trading authority in the accounts of various customers without prior written authorization.
• Approximately 144 customers pursued complaints against the manager and Saccone. The firm has settled the majority of the complaints for a total of over $30 million.

The NYSE imposed a penalty of a censure and a one year bar. Saccone consented to the penalty.  See also William Floyd Gibbs, Sr., Decision 06-41 (NYSE Hearing Panel March 27, 2006) (former producing branch office manager disciplined) and Earl Duncan Laing, Decision 06-47 (NYSE Hearing Panel April 20, 12006) (former regional manager disciplined).

• An NYSE  hearing panel found that Laing, while employed as a regional manager for a member firm, was directly responsible for the supervisory oversight of a branch office where the producing branch office manager engaged in unsuitable investments and unauthorized trading.
• Laing failed to reasonably discharge his duties and obligations in connection with the supervision of the manager and failed to supervise diligently the activity in numerous customer accounts handled by the manager.

The NYSE imposed a penalty of a censure, a supervisory bar for two years, and a requirement that he retake supervisory examinations prior to resuming employment in any supervisory capacity. Laing consented to the penalty.  See also William Floyd Gibbs , Decision 06-41 (NYSE Hearing Panel March 27, 2006) (former producing branch office manager disciplined) and Susan Huber Saccone, Decision 06-42 (NYSE Hearing Panel March 27, 2006) (former registered representative disciplined).

• An NYSE hearing panel found that in September and October 2000, Moskow received the transfer of approximately $30,000 in gross production credits from three registered representatives which led his member firm to inaccurately conclude that Moskow’s personal production reached annual gross production credits of over $650,000, and to grant Moskow the title of senior vice president.

The NYSE imposed a penalty of a censure, a one-month bar, a two-year supervisory bar and a $15,000 fine. Moskow consented to the penalty. 

• An NYSE hearing panel found that during December 2003, Woodward failed to disclose a felony conviction for embezzlement, which caused her member organization to employ her during a period in which she was subject to statutory disqualification.

The NYSE imposed a penalty of a censure and a one-year bar. Woodward consented to the penalty.

• An NYSE hearing officer found that DeMarco, while employed as a registered representative of a member firm, disseminated to more than 50 firm customers two e-mails improperly soliciting indications of interest in, and recommending the purchase of, certain equity securities during the pre-effective period of a secondary offering. The transmission of these e-mails violated Section 5(b)(1) of the Securities Act of 1933 in that they constituted prospectuses, but did not comply with requirements of Section 10 of the Securities Act of 1933.

The NYSE imposed a penalty of a censure and four-week suspension. DeMarco consented to the penalty.

• An NYSE hearing panel found that Palmer misappropriated funds belonging to her member-firm employer and violated NYSE Rule 351(b) by failing to report her arrest for a felony that occurred during her employment with a member organization.

The NYSE imposed on Palmer a penalty of a censure and a permanent bar.  

• An NYSE hearing officer found that from March 2001 through October 2002, Clarke misappropriated approximately $43,840 from customers of her member-firm employer by writing checks drawn against the branch office account made payable to herself and her husband; falsifying withdrawal documents for certain customers’ accounts equal to the amount of a particular check; then debiting the customer’s account and crediting the branch office account for the amount of the check. The checks were then deposited into a joint account held by Clarke and her husband at a local bank.
• The firm notified the local police department and Clarke was arrested. In May 2003, Clarke was convicted of Grand Larceny in the Third Degree, a felony, in connection with her misappropriation of customer funds.

The NYSE imposed a penalty of a censure and a permanent bar. Clarke consented to the penalty.

• An NYSE hearing officer found that from December 1999 through June 2004, Berner violated NYSE Rules 408(a) and 408(b) by exercising discretionary power in certain customer accounts with oral but not written authorization and by failing to obtain approval from her member firm employer to use discretion.

The NYSE imposed a penalty of a censure and a $15,000 fine. Berner consented to the penalty. 

• An NYSE hearing panel found that Mirgeaux failed to timely comply with the NYSE’s requests for a written explanation; made a material misstatement to the NYSE; and failed to adhere to the principles of good business practice by giving his own personal funds to a customer in connection with his failure to effect a securities transaction in the customer’s account. The hearing panel found Mirgeaux not guilty of sharing in losses in a customer's account. 

The NYSE imposed a penalty of a censure and a six-month bar. Mirgeaux consented to the penalty.

• An NYSE hearing panel found that from October 2000 through June 2002, Barron engaged in outside business activity without receiving the prior written consent of his member-organization employer, and solicited investments in this business which resulted in losses of approximately $640,000 to four individuals. Barron also made omissions or material misstatements to his member organization employer regarding his outside affiliations on the firm's disclosure documents.

The NYSE imposed a penalty of a censure and a nine-month bar. Barron consented to the penalty.

• An NYSE hearing panel found that from 2000 through 2003, Barnes posted at least 20 communications concerning securities on Internet message boards without the knowledge and approval of his member firm employer.  These communications contained speculative statements concerning securities he owned at the time, which could reasonably be expected to affect investor interest.  By posting these messages on the Internet, Barnes engaged in conduct inconsistent with just and equitable principles of trade in violation of NYSE Rule 476(a)(6), and also violated NYSE Rule 472(a).
• In addition, Barnes failed to take reasonable steps to supervise Internet postings made by a registered representative in his branch regarding securities owned by the registered representative, in violation of NYSE Rules 342(a) and (b).

The NYSE imposed a penalty of a censure, a two-month suspension, an additional two-month supervisory suspension and a $20,000 fine. Barnes consented to the penalty.

• An NYSE hearing panel found that between January 1997 and December 2004, Lent misappropriated $385,400 from customer accounts at his member firm employer; that on November 7, 2005 he pleaded guilty to two counts of mail fraud stemming from the misappropriation; and that he did not cooperate with the NYSE's investigation by refusing to provide a written statement.

The NYSE imposed a penalty of a censure and a permanent bar. Lent consented to the penalty.

• An NYSE hearing officer found that in March 2003 Scarfuto's son (who reported to Scarfuto on a trading desk) failed to cooperate in a NYSE investigation alleging that he had engaged in unauthorized trading in the trading desk's proprietary account. Scarfuto's son allegedly concealed the unauthorized trades by creating false order tickets, which purported to show trades between the desk and a customer, which offset the unauthorized trades.
• For at least a portion of March 2003, Scarfuto, who had been designated by the firm as the trading desk's supervisor, failed to discharge his supervisory responsibilities reasonably. In particular, he failed to adequately review all the trading by the desk. As a result, the unauthorized trades went unnoticed.  Moreover, Scarfuto acted as the supervisor of the trading desk even though he had not been registered as such.
• In the course of an investigation by the Division of Enforcement, Scarfuto made material misstatements about his knowledge of his son's activities and about his own method of doing business on the trading desk.
• In addition, Scarfuto caused or permitted the desk to engage in recordkeeping in a manner which was not in compliance with applicable NYSE rules and under the Securities Exchange Act of 1934 in that the desk failed to create and/or complete and/or maintain fewer than six order tickets as required by said rules.

The NYSE imposed a penalty of a censure and a three-month suspension, followed by a six-month supervisory suspension. Scarfuto consented to the penalty.

• An NYSE hearing panel found that the firm failed to appropriately supervise electronic communications. Electronic logs that were supposed to be kept, which would have evidenced supervisory review of electronic communications, had been purged. In all, the supervisory approval logs of approximately 140 of the firm’s 256 domestic retail branches along with its Research Department, Chicago Futures Unit and Precious Metals Unit, were deleted during the period 1999 through August 2002. As such, the firm failed to preserve these approval logs or any evidence of supervisory review of the e-mail from these logs.
• In or about August 2002, certain employees of the firm discovered that supervisory approval logs from 140 of the firm’s retail branch offices, the Research Department and other non-retail offices, were purged from the supervisory databases in the Firm’s e-mail system. None of these purges were reported to the NYSE.
• Further, the firm permitted its customers, among others, to send e-mail to registered representatives directly through the firm’s website. For a period of approximately 16 months, the firm’s e-mail system did not properly archive those e-mails in the required format, or route them for supervisory review. Because approximately 22,000 e-mails generated through the firm's website were not sent to supervisory review mailboxes, they were not reviewed by firm supervisors.
• Certain employees of the firm discovered the routing failures of its website e-mails in or about September 2002. Notwithstanding that discovery, the firm failed to report this failure to the NYSE.
• The firm’s conduct impacted certain investigations by the Division of Enforcement. Specifically, Enforcement conducted two separate investigations during 2003 and 2004 for which the firm’s supervisory-approval logs generated during the relevant time period constituted relevant evidence, and Enforcement sought the production from the firm of certain of those approval logs. It was not until July of 2004, following requests by the NYSE, that the firm reported that it had discovered, nearly two years earlier, the loss of its supervisory-approval logs and that website e-mail had not been subject to supervisory review from June 2001 through September 2002. In the absence of certain approval logs demonstrating the extent of supervisory review of e-mail communications, the sufficiency of the firm’s supervision of such e-mail communications with the public during the period in issue cannot be determined.
• Also, the firm’s procedures for the review of e-mail in its Research Department required that every e-mail be reviewed rather than implementing a procedure of electronically generated random review. As a result, it was nearly impossible for the firm’s Research Department supervisor to review the approximately 5 to 7 thousand e-mails routed for review each day. In light of the loss of the supervisory logs, it was not possible to determine how many, if any, e-mails were actually reviewed or the extent of such review.

The NYSE imposed a penalty of a censure and a $850,000 fine. Prudential Equity Group, LLC consented to the penalty.