Monthly Disciplinary Actions - November 2006

• An NYSE hearing officer granted a motion for a default determination of guilt and found that Kalweit violated NYSE Rule 476(a)(6) by recommending to retired or soon-to-be-retired customers the purchases and sales of technology-sector stocks that were unsuitable in view of the level of concentration and customers’ investment experience, financial resources, and investment objectives.
• Kalweit gave investment seminars to employees of an oil refinery in California who were offered lump-sum retirement payments in lieu of pensions. Many were unsophisticated investors who had little or no prior experience trading equities. Eventually, the customers had unsuitable concentrations in technology stocks. Kalweit failed to ascertain whether the customers were financially able to sustain the potential risk of loss associated with such sector concentration.
• The NYSE hearing officer also found that Kalweit violated NYSE Rule 352(b) by making a guarantee against loss to a customer.

The NYSE imposed a penalty of a censure and a four-year bar.

On appeal, the NYSE Regulation Board of Directors affirmed the decision of the hearing officer in all respects. 

• An NYSE hearing offcier found that for an unknown, but significant number of years, in violation of NYSE Rule 421, the firm failed to report to the NYSE its short interest positions in preferred securities and certain equity securities of affiliated entities; and since 2004 has failed to report short interest positions in certain equity securities. During the same period, the firm also failed to report similar short interest positions to AMEX; and since 1986 (the year that the NASD’s short interest reporting rule went into effect), failed to report to NASD short interest positions in certain equity securities. The firm also failed to provide for appropriate procedures of supervision and control, and to implement a separate system of follow-up and review, over its business activities relating to its regulatory obligation to report short interest.

The NYSE imposed the penalty of a censure and a $500,000 fine to be paid in equal one-third shares to the NYSE, NASD and AMEX. Morgan Stanley DW Inc. consented to the penalty.

• An NYSE hearing panel found that Reynolds violated NYSE Rule 476(a)(6) in that he improperly altered or caused to be altered records of his firm by adding, deleting or changing information after the fact, adding signatures of customers and/or employees, and/or by backdating and improperly destroying documents.
• In addition, he violated NYSE Rule 342 in that he failed to reasonably discharge his duties and obligations in connection with the supervision and control of the activities of the employees in his branch office; and caused a violation of NYSE Rule 440 and Section 17(a) of the Securities Exchange Act of 1934 and Rule 17a-4 thereunder by destroying certain books and records of his firm and by failing to preserve other books and records accurately.
• Taking advantage of an advance notification of the branch office inspection, Reynolds caused numerous documents to be destroyed, improperly altered and/or falsified.  

The NYSE imposed a penalty of a censure, a two-year bar and a permanent supervisory bar.

• An NYSE hearing officer found that from February to September 2003, the firm disclosed nonpublic personal information of customers to a nonaffiliated third party as part of its anti-money laundering policies and procedures without contracting with the third party to maintain the customers information confidentiality, though the firm has confirmed with the third party that it did not disclose customers' nonpublic information and maintained the confidentiality of the information.
• The NYSE hearing officer also found that the firm’s disclosures in research reports issued during 2003 lacked sufficient disclosures.
• In addition, from July 2002 to October 2003, the firm failed to preserve and maintain instant messages for more than 100 firm employees; and, while the firm had a software program that captured e-mail containing certain key phrases, the firm was not reviewing a representative sample of e-mail.
• The firm also failed to apply for approval by the NYSE of two affiliated entities (in 1984 and 2002, respectively) and one branch office manager in a three person office (in 2003).

The NYSE imposed the penalty of a censure and a $100,000 fine. Stifel Nicolaus & Company Inc. consented to the penalty.

• An NYSE hearing officer found that from January through May 2003, Price failed to reasonably discharge his duties and obligations in connection with the supervision and control of his firm’s stock loan activities and the activities of a stock loan trader and stock loan supervisor under his supervision.
• Price failed to review various trading reports, which demonstrated the complicity of the stock loan trader in directing payments to a purported “finder” who had performed no business function to warrant such payments.
• Price also failed to review the firm’s books and records regarding these transactions to determine whether they were accurate and/or complete.

The NYSE imposed a penalty of censure, a two-year bar, a consecutive one-year supervisory bar, and requirement that he take and pass the General Securities Principal Examination prior to being re-employed in a supervisory capacity. Price consented to the penalty. See also Patrick Joseph Hayes, Decision 05-138 (NYSE Hearing Panel November 15, 2005) (former stock loan supervisor disciplined for failure to supervise and books and records violations) and Jason Andrew Bander, Decision 05-119 (NYSE Hearing Panel October 20, 2005) (former stock loan trader permanently barred for failure to cooperate).

• An NYSE hearing officer found that Hogan exercised discretionary authority over a customer’s fee-based securities account without the customer’s written authorization. Additionally, Hogan borrowed money from the customer and signed a promissory note evidencing the loan, but he did not disclose the loan or the note to his firm.

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

• An NYSE hearing officer granted a motion for a default determination of guilt and found that Holliday failed to disclose, on one or more employment applications submitted to his member firm employer, a prior criminal conviction that rendered him subject to statutory disqualification and failed to comply with written requests by Enforcement for information.

The NYSE imposed a censure and a permanent bar.

• An NYSE hearing officer found that from July through September 2003, the firm failed to maintain adequate written policies and procedures regarding the supervision of Branch Office Managers ("BOM") who manage customer accounts, the review of BOM correspondence, and the preparation of monthly supervisory reviews.  In addition the firm failed to supervise a BOM who managed a customer account.
• The firm also had inadequate policies and procedures regarding the research department, provided subject companies with draft research reports that contained more information than permitted, failed to include on the firm's research reports disclosures that were clear and prominent, and failed to file a quarterly certification for an Associated Person. The firm also failed to maintain all electronic communications in the required format.
• The NYSE hearing officer noted that the firm has revised its written policies and procedures with respect to the supervision of BOMs, the research department, and the retention of electronic communications, has implemented written policies and procedures for the compliance department to review draft research reports after they have been submitted to a subject company, disclosures on the firm's research reports are now clear and prominent, and the firm now stores electronic communications in WORM format. 

The NYSE imposed a penalty of a censure and a $100,000 fine. First Albany Capital, Inc. consented to the penalty.

• An NYSE hearing officer granted a motion for a default determination of guilt and found that Trumbull violated NYSE Rules 476(a)(11) and 477 by failing to comply with written requests by NYSE for information concerning matters that occurred prior to termination of her employment with a member organization.

The NYSE imposed a censure and bar until she complies with the requests for information, the bar to become permanent if she does not comply within three months.

• An NYSE hearing officer granted a motion for a default determination of guilt and found that Runge made a misstatement on a Form U‑4 filed with the NYSE, submitted an inaccurate Form U‑4 containing false information and failed to comply with requests by Enforcement for a written statement regarding the termination of his employment with his member firm employer for failing to disclose pertinent information during his employment application process.

The NYSE imposed a censure and a permanent bar.

• An NYSE hearing officer granted a motion for a default determination of guilt and found that Violetta misappropriated funds from a customer’s bank account, forged a customer’s signature on money orders used to debit funds from a customer’s bank account, and failed to comply with requests for information regarding a matter that occurred prior to the termination of her employment with her member firm employer.

The NYSE imposed a censure and a permanent bar.

• An NYSE hearing officer granted a motion for a default determination of guilt and found that Glover misappropriated funds from a firm customer, made or caused to to be made false entries in the books and records of her member-firm employer and failed to comply with one or more written requests by Enforcement for information concerning one or more matters that occurred prior to the termination of her status as an employee of a member organization.

The NYSE imposed a censure and a permanent bar.

• An NYSE hearing officer found that McKenna exercised discretionary power in the account of two customers with the oral, but not the written authorization of the customers. McKenna also accepted orders for two accounts from a person other than the customer, without written authorization. In addition, McKenna received at his home communications from the public relating to the firm’s business without subjecting it to firm review, including a customer complaint that he requested be sent to his home rather than the branch.

• An NYSE hearing officer found that from April 27, 2004 to June 24, 2005, the firm violated NYSE Rule 123C in that it failed to comply with requirements governing the entry and cancellation of market-on-the-close ("MOC") and limit-on-the-close ("LOC") orders. The firm entered 121 MOC/LOC orders after 3:40 p.m. These orders did not offset a published imbalance, and there were no regulatory halts, at, or after, 3:40 p.m. in the securities involved. 29 of these orders were entered on an expiration Friday and/or a date on which certain S&P indices were rebalanced. 56 of these orders were part of a basket. On May 20, 2005, the firm cancelled three LOC orders after 3:50 p.m. On June 24, 2005, the firm cancelled one LOC order after 3:50 p.m.
• Between December 19, 2001 and February 12, 2004, the NYSE issued six summary fines to the firm for entering late MOC/LOC orders in violation of NYSE Rule 123C. At the time the summary fines were issued, the firm was informed that additional violations could result in further regulatory action. 
• In addition, the firm violated NYSE Rule 342(a) and (b) in that it failed to reasonably discharge its duties and obligations in connection with supervision and control of the entry and cancellation of MOC and LOC orders.

The NYSE imposed a penalty of a censure and a $50,000 fine. SIG Brokerage, LP consented to the penalty.

• An NYSE hearing officer found that from March 2002 through July 2003 Diaz misappropriated approximately $269,208 from a customer of his member organization by unauthorized third-party wire transfers.
• In order to carry out the misappropriations, Diaz signed Letters of Authorization ("LOAs") in the names of the customer and her father without their knowledge or approval. In the case of the customer's father, Diaz used LOAs with his signature after he had passed away.
• The NYSE hearing officer also found thaty Diaz failed to comply with Enforcement’s requests to appear and testify.

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

A NYSE hearing panel found that Heinze failed to comply with requests by the NYSE that he appear and testify in an Enforcement investigation concerning allegations that he violated NYSE rules and federal securities laws in connection with his performance as a specialist in various securities during the years 1999-2003. The panel noted that Heinze claimed he was willing to testify before the NYSE when his lawyers believe he is no longer under threat of indictment or being pursued by the SEC. The panel stated "[i]t is the NYSE, and not the respondent, that controls the timing of the investigation. The respondent cannot be permitted to impose conditions on his cooperation."

The NYSE imposed a penalty of a censure and a bar until he complies, the bar to become permanent if he does not comply within 30 days. Heinze failed to cooperate within 30 days.

On appeal, the NYSE Regulation Board of Directors affirmed the decision of the hearing panel in all respects. 

Heinze subsequently appealed to the U.S. Securities and Exchange Commission, which remanded the matter to the NYSE for further consideration on July 19, 2007 solely on the issue of "state action," including whether Heinze should be entitled to a new hearing to present additional evidence regarding his "state action" claim and to determine whether such evidence is sufficient to establish a complete defense to the charge of failing to cooperate issued against him.

On October 9, 2007, before any further reconsideration by the Hearing Panel, Heinze agreed to testify before the Division of Enforcement, and the Division of Enforcement agreed to withdraw the Charge Memorandum and requested that the penalty imposed pursuant to Decision 05-84 be rescinded. Accordingly, the bar imposed was terminated on October 9, 2007.