Monthly Disciplinary Actions - June 2008

• Between on or about February 3, 2006, and on or about March 9, 2006, ATP used an order execution system from a third party vendor to enter and execute on the NYSE Arca Marketplace numerous sell short equities orders that were incorrectly marked as sell short exempt. The orders were thereby improperly exempted from the tick test required by NYSE Arca Equities and federal securities rules. ATP thereby executed on NYSE Arca Equities numerous sell short orders on improper ticks.
• ATP also failed to implement written supervisory procedures to either 1) ensure that its orders were being marked and executed in compliance with Regulation SHO ("Reg SHO ') and NYSE Arca Equities Rules, or 2) review the trading-related products and services provided to ATP by its vendor to ensure that such products and services kept ATP in compliance with Reg SHO and NYSE Arca Equities Rules.

NYSE Arca Equities approved a negotiated settlement that imposed the penalty of a censure and $50,000 fine. In accepting this penalty amount, NYSE Arca Equities took into consideration certain other factors set forth in the decision. ATP Trading consented to the penalty.

• An NYSE hearing officer found that during the period 2000 through 2006, J&D Securities failed to disclose excess net capital withdrawals, filed an inaccurate FOCUS Report, filed untimely and inaccurate 600TC Reports and made untimely and inaccurate 600TC payments, failed to create and maintain accurate records of billing and compensation arrangements, failed to treat error reports properly, failed to properly document errors, failed to comply with order tracking requirements, submitted inaccurate and incomplete compliance reports, failed to appropriately maintain books and records, failed to evidence appropriate review of employee personal brokerage accounts, permitted an employee to review his own outside personal brokerage accounts, failed to properly register employees, failed to appropriately document locates for short sales in violation of Reg SHO and failed to reasonably supervise the Firm’s activities.
• In the  related matter, James Gerard O’Callaghan failed to disclose excess net capital withdrawals as required and failed to reasonably supervise and control the activities of the Firm. Much of the violative conduct occurred repeatedly, despite having been identified in previous examination reports or other correspondence with the Firm.

The NYSE imposed a penalty of a censure, $75,000 fine to be applied jointly and severally, and an undertaking. Both J&D and O’Callaghan consented to the penalty.

• James Gerard O’Callaghan failed to disclose excess net capital withdrawals as required and failed to reasonably supervise and control the activities of the Firm. Much of the violative conduct occurred repeatedly, despite having been identified in previous examination reports or other correspondence with the Firm.
• In a related matter, an NYSE hearing officer found that during the period 2000 through 2006, J&D Securities failed to disclose excess net capital withdrawals, filed an inaccurate FOCUS Report, filed untimely and inaccurate 600TC Reports and made untimely and inaccurate 600TC payments, failed to create and maintain accurate records of billing and compensation arrangements, failed to treat error reports properly, failed to properly document errors, failed to comply with order tracking requirements, submitted inaccurate and incomplete compliance reports, failed to appropriately maintain books and records, failed to evidence appropriate review of employee personal brokerage accounts, permitted an employee to review his own outside personal brokerage accounts, failed to properly register employees, failed to appropriately document locates for short sales in violation of Reg SHO, and failed to reasonably supervise the Firm’s activities.

The NYSE imposed a penalty of a censure, $75,000 fine to be applied jointly and severally, and an undertaking. Both O’Callaghan and J&D Securities consented to the penalty.

• An NYSE hearing officer found that from approximately August 1999 through the end of 2000, Kooy effected over 450 transactions in 15 customer accounts on a discretionary basis without notifying and obtaining approval of a person at his member organization employer with authority to approve handling of discretionary accounts, in violation of NYSE Rule 408(b). Kooy also mismarked the electronic order entry tickets as unsolicited and nondiscretionary, thereby causing a violation of NYSE Rule 440.
• The customers consisted of senior investors who wanted higher returns on their investments. The customers opened accounts marked as “speculative” apart from their regular brokerage accounts at the Firm, consisting of a small portion of their overall portfolio limited to $50,000, and authorized Kooy and his partner to exercise discretion using a short-term trading strategy in speculative stocks. Each customer assumed the risk of losses in the segregated accounts and signed trading authorization forms (“TAF”s) authorizing Kooy and his partner to exercise discretion. Neither Kooy nor his partner submitted the TAFs to the Firm for approval.

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

• An NYSE hearing officer found that from October 2000 through October 2003, Christopher Chung, Kevin Brunnock, and William Savino (the "CBS Group") engaged in deceptive practices, first at UBS and then at Merrill Lynch, through the use of multiple accounts, multiple financial advisor numbers, journaling strategies, and sticky assets agreements, in order to facilitate more than 25,000 short-term trades in mutual funds and fund-like sub-accounts of variable annuities and other insurance products, all for the benefit of customer Millennium Partners.
• In total at UBS,  Chung, Savino, and Brunnock together placed more than 19,000 market timing transactions for Millennium. Such trading resulted in approximately 150 stop notices from the mutual funds seeking to stop the CBS Group’s market timing. The CBS Group, facilitated Millennium’s short-term trading by disguising Millennium’s trades through the use of 35 Millennium accounts, more than 20 annuity contracts, two branch codes, six different FA and FA split numbers. The CBS Group’s trading produced nearly $10 million in revenue for UBS. 
• After leaving UBS , the CBS Group joined Merrill Lynch and opened dozens of Millennium accounts. During the CBS Group’s first four months at Merrill Lynch, they placed through the Millennium accounts approximately 3,700 short-term trades with more than 200 different mutual funds, which resulted in more than a dozen stop notices from mutual funds complaining about the CBS Group’s market timing activity. In response, the CBS Group opened new accounts for Millennium through which they rotated trades to continue their short-term trading.
• Even after Merrill Lynch instructed the CBS Group to cease market timing, the CBS Group entered into a sticky asset arrangement with a fund representative which permitted the CBS Group to conduct frequent trading in the fund in exchange for the CBS Group’s placement of a long-term or sticky asset investment of $1 million. This market timing arrangement with the mutual fund lasted until May 2003. 
• In the last few months of the CBS Group’s employment at Merrill Lynch, the CBS Group was instructed to remain at arm’s length from Millennium’s mutual fund trading in accounts held away from Merrill Lynch. The CBS Group, however, continued to place trades for Millennium accounts held directly at the funds and annuity companies.
• During their tenure at Merrill Lynch, the CBS Group utilized more than 60 accounts and 30 annuity contracts to place more than 6,000 short-term mutual fund transactions in Millennium accounts held with and away from Merrill Lynch.
• Enforcement’s investigations into the mutual fund trading at UBS and Merrill Lynch resulted in two disciplinary actions. InMerrill Lynch, Pierce, Fenner & Smith, NYSE Hearing Panel Decision 05-27 (March 7, 2005 ), Merrill Lynch consented to a censure and a fine of $13.5 million, and undertakings with NYSE and state regulators for its failure to supervise the CBS Group. Similarly, in UBS Financial Services Inc., NYSE Hearing Panel Decision 06-05 (January 12, 2006), UBS consented to a censure, a total payment of $49.5 million, and undertakings with the NYSE and the State of New Jersey for its failure to supervise several financial advisors, including the CBS Group.   

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

• An NYSE hearing officer found that from October 2000 through October 2003, Christopher Chung, Kevin Brunnock, and William Savino (the "CBS Group") engaged in deceptive practices, first at UBS and then at Merrill Lynch, through the use of multiple accounts, multiple financial advisor numbers, journaling strategies, and sticky assets agreements, in order to facilitate more than 25,000 short-term trades in mutual funds and fund-like sub-accounts of variable annuities and other insurance products, all for the benefit of customer Millennium Partners.
• In total at UBS, Chung, Savino, and Brunnock together placed more than 19,000 market timing transactions for Millennium. Such trading resulted in approximately 150 stop notices from the mutual funds seeking to stop the CBS Group’s market timing. The CBS Group facilitated Millennium’s short-term trading by disguising Millennium’s trades through the use of 35 Millennium accounts, more than 20 annuity contracts, two branch codes, six different FA and FA split numbers. The CBS Group’s trading produced nearly $10 million in revenue for UBS.
• After leaving UBS,  the CBS Group joined Merrill Lynch and opened dozens of Millennium accounts. During the CBS Group’s first four months at Merrill Lynch, they placed through the Millennium accounts approximately 3,700 short-term trades with more than 200 different mutual funds, which resulted in more than a dozen stop notices from mutual funds complaining about the CBS Group’s market timing activity. In response, the CBS Group opened new accounts for Millennium through which they rotated trades to continue their short-term trading.
• Even after Merrill Lynch instructed the CBS Group to cease market timing, the CBS Group entered into a sticky asset arrangement with a fund representative which permitted the CBS Group to conduct frequent trading in the fund in exchange for the CBS Group’s placement of a long-term or sticky asset investment of $1 million. This market timing arrangement with the mutual fund lasted until May 2003. 
• In the last few months of the CBS Group’s employment at Merrill Lynch, the CBS Group was instructed to remain at arm’s length from Millennium’s mutual fund trading in accounts held away from Merrill Lynch. The CBS Group, however, continued to place trades for Millennium accounts held directly at the funds and annuity companies.
• During their tenure at Merrill Lynch, the CBS Group utilized more than 60 accounts and 30 annuity contracts to place more than 6,000 short-term mutual fund transactions in Millennium accounts held with and away from Merrill Lynch.
• Enforcement’s investigations into the mutual fund trading at UBS and Merrill Lynch resulted in two disciplinary actions. In Merrill Lynch, Pierce, Fenner & Smith, NYSE Hearing Panel Decision 05-27 (March 7, 2005 ), Merrill Lynch consented to a censure and a fine of $13.5 million, and undertakings with NYSE and state regulators for its failure to supervise the CBS Group. Similarly, in UBS Financial Services Inc., NYSE Hearing Panel Decision 06-05 (January 12, 2006), UBS consented to a censure, a total payment of $49.5 million, and undertakings with the NYSE and the State of New Jersey for its failure to supervise several financial advisors, including the CBS Group.   

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

• An NYSE hearing officer found that from October 2000 through October 2003, Christopher Chung, Kevin Brunnock, and William Savino (the "CBS Group") engaged in deceptive practices, first at UBS and then at Merrill Lynch, through the use of multiple accounts, multiple financial advisor numbers, journaling strategies, and sticky assets agreements, in order to facilitate more than 25,000 short-term trades in mutual funds and fund-like sub-accounts of variable annuities and other insurance products, all for the benefit of customer Millennium Partners.
• In total at UBS,  Chung, Savino, and Brunnock together placed more than 19,000 market timing transactions for Millennium. Such trading resulted in approximately 150 stop notices from the mutual funds seeking to stop the CBS Group’s market timing. The CBS Group, facilitated Millennium’s short-term trading by disguising Millennium’s trades through the use of 35 Millennium accounts, more than 20 annuity contracts, two branch codes, six different FA and FA split numbers. The CBS Group’s trading produced nearly $10 million in revenue for UBS. 
• After leaving UBS, the CBS Group joined Merrill Lynch and opened dozens of Millennium accounts. During the CBS Group’s first four months at Merrill Lynch, they placed through the Millennium accounts approximately 3,700 short-term trades with more than 200 different mutual funds, which resulted in more than a dozen stop notices from mutual funds complaining about the CBS Group’s market timing activity. In response, the CBS Group opened new accounts for Millennium through which they rotated trades to continue their short-term trading.
• Even after Merrill Lynch instructed the CBS Group to cease market timing, the CBS Group entered into a sticky asset arrangement with a fund representative which permitted the CBS Group to conduct frequent trading in the fund in exchange for the CBS Group’s placement of a long-term or sticky asset investment of $1 million. This market timing arrangement with the mutual fund lasted until May 2003.
• In the last few months of the CBS Group’s employment at Merrill Lynch, the CBS Group was instructed to remain at arm’s length from Millennium’s mutual fund trading in accounts held away from Merrill Lynch. The CBS Group, however, continued to place trades for Millennium accounts held directly at the funds and annuity companies.
• During their tenure at Merrill Lynch, the CBS Group utilized more than 60 accounts and 30 annuity contracts to place more than 6,000 short-term mutual fund transactions in Millennium accounts held with and away from Merrill Lynch.
• Enforcement’s investigations into the mutual fund trading at UBS and Merrill Lynch resulted in two disciplinary actions. InMerrill Lynch, Pierce, Fenner & Smith, NYSE Hearing Panel Decision 05-27 (March 7, 2005 ), Merrill Lynch consented to a censure and a fine of $13.5 million, and undertakings with NYSE and state regulators for its failure to supervise the CBS Group. Similarly, in UBS Financial Services Inc., NYSE Hearing Panel Decision 06-05 (January 12, 2006), UBS consented to a censure, a total payment of $49.5 million, and undertakings with the NYSE and the State of New Jersey for its failure to supervise several financial advisors, including the CBS Group.   

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

• An NYSE hearing officer found that during June and July 2006, Deutsche Bank submitted 93 baskets of index arbitrage orders without appropriate tick restrictions in violation of NYSE Rule 80A and submitted inaccurate Daily Program Trade Reports on six trade dates in violation of NYSE Rule 476(a)(10). 

The NYSE imposed a penalty of a censure and a $35,000 fine. Deutsche Bank consented to the penalty.

• An NYSE hearing officer found that from on or about January 2000 through September 2003, Feil, as a junior trader first with Senior Trader A and then with Senior Trader B, engaged in numerous deceptive practices at BS&Co., through the use of multiple accounts, multiple registered representative (“RR”) numbers, and journaling strategies in order to facilitate short-term trades in mutual funds, all for the benefit of several different hedge fund customers. 
• Additionally, Feil, along with Senior Trader B, engaged in the late trading of mutual funds. Late trading enables the trader to profit from market events that occur after 4:00 p.m. Eastern Time but that are not reflected in that day’s price. Feil and Senior Trader B accepted final trade instructions after the 4:00 p.m. Eastern closing of the market from a Texas hedge fund customer and then faxed the post 4:00 p.m. final trade instructions to the Mutual Fund Operation Department of Bear, Stearns Securities Corp., the clearing firm for BS&Co.
• Enforcement’s investigations into the mutual fund trading at the Firm, including deceptive market timing and late trading at BS&Co. during the relevant period, resulted in two disciplinary actions that included 10b-5 charges. In Bear, Stearns & Co., Inc., NYSE Hearing Panel Decision 05-169 and Bear, Stearns Securities Corp., Decision 05-170 (NYSE Hearing Board March 10, 2006), the Firm and Bear, Stearns Securities Corp. consented to a censure, fine of $160 million, disgorgement of $90 million, and appropriate undertakings with the Securities and Exchange Commission and NYSE. 

The NYSE imposed a penalty of a censure, two-year bar, and an undertaking. Feil consented to the penalty.