Monthly Disciplinary Actions - August 2008

• An NYSE hearing officer found that between 2003 and 2004, the Firm was cited for certain violations of NYSE Rules. One of the key issues raised during NYSE Member Firm Regulation's examinations was the Firm’s handling of error transactions and its failure to adequately supervise error transactions. For example, the Firm improperly processed non-bona fide errors through its error account, did not keep written records of such trades, and did not maintain adequate supervisory procedures addressing errors. In addition, the Firm did not maintain order tickets and Floor execution reports to support its commission bills, did not adhere to e-mail retention procedures, filed inaccurate FOCUS reports which did not properly compute the Firm’s net capital, and did not report profitable errors to the NYSE.
• Additionally, the Firm improperly handled an error transaction in May 2004. Specifically, the Firm covered a bona fide error, but did not enter the covering buy orders into the Front End Systemic Capture (“FESC”) electronic system. In addition, the Firm provided an incorrect explanation of the nature and resolution of the error on a record of the error. Moreover, the Firm improperly maintained two separate error accounts for Floor trades.

The NYSE imposed a penalty of a censure and $40,000 fine. LL Partners consented to the penalty.

• An NYSE hearing officer found that during the time period of January 20, 2005, through December 31, 2007 (the “First Relevant Period”), the Firm, on four occasions, traded ahead of customer orders in violation of NYSE Rule 92(a). In addition, on 11 occasions, the Firm failed to contemporaneously document whether it had received permission from a customer for it to trade ahead of or along with that customer’s order in violation of NYSE Rule 401. 
• Additionally, on several occasions during the First Relevant Period, the Firm committed various violations of: NYSE Rule 132.30 by submitting inaccurate account type indicators; NYSE Rule 410(b) by failing to mark proprietary orders with the required “G” notation; and NYSE Rule 90 and Exchange Act Section 11(a)(1) by failing to yield priority, parity, and precedence in connection with a “G” order. 
• In addition, on March 10, 2003, and December 13, 2005, the Firm violated NYSE Rule 476(a)(8) by executing three transactions that involved no change of beneficial ownership. 
• Furthermore, during the time period June 30, 2004, and December 31, 2007 (the “Second Relevant Period”), the Firm violated NYSE Rule 123C on multiple trade dates by entering or canceling a total of approximately 3,331 Market-on-Close (MOC) or Limit-on-Close (LOC) orders in various securities after the relevant cut-off times. In addition, on multiple occasions, the Firm submitted trades to comparison and clearance with inaccurate audit trail data or without certain required audit trail data in violation of NYSE Rule 132.
• Moreover, throughout the First Relevant Period, the Firm violated NYSE Rule 342 by failing to reasonably supervise and implement adequate controls, including a separate system of follow up and review, reasonably designed to achieve compliance with NYSE rules with respect to (a) the transmission and execution of certain proprietary and agency trades on the NYSE Floor; and (b) the submission of certain audit trail trade data elements. In addition, between June 30, 2004, and January 3, 2007, the Firm violated NYSE Rule 342 by failing to reasonably supervise and implement adequate controls, including a separate system of follow-up and review, reasonably designed to achieve compliance with NYSE Rule 123C.

The NYSE imposed a penalty of a censure and $350,000 fine. Credit Suisse consented to the penalty.

• An NYSE hearing officer found that during the period January 2004 through December 2005 (“the Relevant Period”), Monaco violated various NYSE Rules and federal securities laws with respect to the handling of 25 error account transactions and erroneous reports. Monaco also violated NYSE Rule 342 by failing to establish and maintain appropriate procedures for the supervision and control, including a separate system of follow-up and review, with respect to the processing and documentation of error account transactions and erroneous reports. Finally, Monaco violated NYSE Rule 35 on several occasions by failing to timely notify NYSE of an employee’s termination and failing to return, or failing to timely return, the NYSE issued identification card for a terminated Floor employee.

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

• An NYSE hearing officer found that from on or about November 2000 through September 2003 Greenberg along with a junior trader (the “Junior Trader”) engaged in numerous deceptive practices at BS&Co., through the use of, among other things, 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. As a result of Greenberg and the Junior Trader’s market timing activity, they received more than 350 complaints and/or block notices from mutual fund companies.  This activity generated in excess of $1.5 million in gross revenues for the Firm.  Additionally, Greenberg and the Junior Trader engaged in the late trading of mutual funds with the assistance of the Mutual Fund Operation Department (“MFOD”) of Bear, Stearns Securities Corp. the clearing firm for BS&Co. Late trading enables the trader to profit from market events that occur after 4:00 p.m. EST but that are not reflected in that day’s price. Greenberg, the Junior Trader, and their assistants accepted final trade instructions after the 4:00 p.m. EST closing of the market from a Texas hedge fund customer (“Texas Hedge Fund”), and then faxed the post 4:00 p.m. final trade instructions to the MFOD.
• See Adam Feil, Decision 08-28 (NYSE Hearing Board May 15, 2008)
• 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., 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, and disgorgement of $90 million and appropriate undertakings with the U.S. Securities and Exchange Commission and NYSE.

The NYSE imposed a penalty of a censure, five-year bar, and undertaking. Greenberg consented to the penalty. 

• An NYSE hearing officer granted a default motion and found that Skinner violated NYSE Rule 346(b) by engaging in outside business activity without receiving prior written consent of firm employer; violated NYSE Rule 476(a)(6) by making misstatements to firm employer concerning outside business activity; violated NYSE Rules 476(a)(11) and 477 by failing to comply with written requests for written statement concerning matters that occurred prior to termination of status as registered representative; violated NYSE Rules 476(a)(11) and 477 by failing to comply with written request that he appear and provide testimony.

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