NOTE:  Stipulation of Facts and Consent to Penalty (SFC), Offers of Settlement (OS) and Letters of Acceptance, Waiver, and Consent (AWC) are entered into by Respondents without admitting or denying the allegations, but consent is given to the described sanctions and to the entry of findings.

2005
OUTSIDE BUSINESS ACTIVITIES 

 

Michael Waton Tsang
AWC/2005000183801/December 2005

Tsang engaged in business activities outside the scope of his member firm, without providing prompt written notice of these activities to his firm. 

Fined $5,000; Suspended 6 months in all capacities

Kevin Paul O’Brien
AWC/E8A2004062301/December 2005

O'Brien engaged in outside business activities without giving his firm prompt written notice. 

Fined $25,000; Suspended 10 business days in all capacities

Steven Ernest Henley 
AWC/E3B20030307-01/December 2005

Henley participated in an outside business activity for compensation without giving his member firm prompt written notice. 

Suspended 3 months in all capacities

Carl Gene Fiebich
OS/C8A20040109/ E8A2002082203/December 2005

Fiebich engaged in outside business activities without giving his member firm prompt written notice. 

Barred

John Barry Chambers
OS/CLI20040031/ELI2002045104/December 2005

Chambers 

  • induced public customers to submit $180,600 for investing purposes to his company or its agent and, without their knowledge, authorization or consent, he misused and/or converted the customers’ funds for his own use and benefit;
  • recommended securities transactions to public customers without reasonable grounds to believe the investments were suitable for them in light of their financial situations, investment objectives, needs and the risks associated with the investments;
  • engaged in private securities transactions and outside business activities without providing his member firm with prior written notice; and
  • willfully failed to amend and to timely submit an amendment to his Form U4 to disclose material information. 

Barred; Ordered to pay $73,750 in restitution

Jace Rodney Hermanson
AWC/E3A2004034801/November 2005

Hermanson engaged in business activity outside the scope of his member firm and failed to provide his member firm with prompt written notice. 

Fined $6,582.54; Suspended 3 months in all capacities

Grant Jack Vermillion
AWC/2005000590201/October 2005

Vermillion participated in business activities outside the scope of his member firm without providing prompt written notice to his firm.

Fined $10,000 (includes $2,330.94 disgorgement of commissions); Suspended 30 days in all capacities

Sean Everett Falk (Principal) 
AWC/C9A050036/September 2005

Falk engaged in a business activity for compensation outside the scope of his relationship with his member firm without providing his firm prompt written notice of the activity. 

Fined $2,500; Suspended 30 days in all capacities.

John Foster Wilkinson
AWC/E8A2002124005/September 2005

Wilkinson engaged in outside business activities for compensation without giving prior written notice to his member firm. 

Fined $5,000; Suspended 30 days in all capacities

Charles Arvin Utter
AWC/E3A2004030701/September 2005

Utter engaged in outside business activities without providing prompt written notice to his member firm; and continued to engage in outside business activity knowing that his member firm disapproved of this activity. 

Fined $15,000 (includes $8,800 disgorgement); Suspended 5 months in all capacities

Samuel John Trigillo
8A040082/September 2005

Trigillo affixed a customer’s signature to securities related documents without the customer’s knowledge or consent; and transferred a customer’s funds from a fixed annuity to a variable annuity without the customer’s knowledge or consent. Trigillo affixed another registered representative’s signature on customer forms without the registered representative’s knowledge or consent. In addition, Trigillo engaged in outside business activity without providing prompt written notice to his member firm. (NASD Case #C)

Barred

David Francis Polus
AWC/E8A2002124002/September 2005

Polus engaged in outside business activities for compensation without giving prior written notice to his member firm. 

Fined $10,000; Suspended 6 months in all capacities

Craig Ross Myers
AWC/E8A2002124003/September 2005

Myers engaged in outside business activities for compensation without giving prompt written notice to his member firm. 

Fined $10,000; Suspended 6 months in all capacities

Amanda Moon
AWC/E9B2004058401/September 2005

Moon engaged in business activities outside the scope of her business relationship with her member firm without providing her firm with prompt written notice of these activities. 

Fined $5,000; Suspended 3 months in all capacities

Terrence Michael Meter
AWC/E8A2002124004/September 2005

Meter engaged in outside business activities for compensation without giving prompt written notice to his member firm. 

Fined $10,000; Suspended 3 months in all capacities

Gregory Ian Gatto (Principal)
AWC/E1020032137-01/September 2005

Gatto engaged in outside business activities and failed to provide prompt written notice to his member firm. Gatto appeared for an on-the-record interview and failed to cooperate by refusing to answer NASD’s questions. 

Barred

Thomas Way Bayley, III 
OS/#C9A040063/ E9A2002073703/September 2005

Bayley engaged in business activities outside the scope of his association with his member firm and failed to give prompt written notice of his outside business activities to his member firm. 

Fined $29/966; Suspended 1 month all capacities

Marcus D. Braden
SFC/HPD 05-93/August 25, 2005

In September 1999, Marcus D. Braden began working as an investment specialist at Charles Schwab & Co., Inc. (the “Firm”). As an investment specialist, his duties included opening new accounts, encouraging customers to bring new or additional assets, recommending money management firms, following up with customers on a quarterly basis, and advising customers on overall portfolio strategy. His job duties did not include and did not permit disseminating specific stock recommendations and advice for short term trading. 

In or about December 2000 or January 2001, Braden met with his personal friend T, who informed Braden that he wanted to trade some portion of his assets and he wanted Braden to act as his broker. Because as an "investment specialist" he could not serve as T’s broker, Braden and T discussed the idea of opening an investment account outside of the Firm at an online brokerage.  Following his meeting with T, Braden met with two of his Schwab customers, Y and K, and spoke to them about participating in the investment club account, and both agreed to do so. Both Y and K understood that this account, and Braden’s participation in it, was not permitted by the Firm.

All the parties signed an investment club agreement for the "M.B. Partners Fund," the terms of which were that 

  • each participant, including Braden, was to invest $100,000 to open the account;
  • all investment decisions were to be left to Braden’s discretion;
  • Braden would distribute profits to the XYZ Investors and update them on the account’s performance on a quarterly basis; and 
  • Braden would keep all profits earned in the account above 10 percent. 

NYSE Rule 346. Limitations—Employment and Association with Members and Member Organizations 

(a) Every member not associated with a member organization must be a registered broker or dealer unless exempted by the Securities Exchange Act of 1934.

(b) Without making a written request and receiving the prior written consent of his member or member organization employer, no member, allied member or employee of a member or member organization shall at any time be engaged in any other business; or be employed or compensated by any other person; or serve as an officer, director, partner or employee of another business organization; or own any stock or have, directly or indirectly, any financial interest in any other organization engaged in any securities, financial or kindred business; provided however, that such written request and consent shall not be required with regard to stock ownership or other financial interest in any securities, financial or kindred business which is publicly owned unless a control relationship exists.

NYSE Rule 407. Transactions - Employees of Members, Member Organizations and the Exchange 

(a) No member or member organization shall, without the prior written consent of the employer, open a securities or commodities account or execute any transaction in which a member, allied member or employee associated with another member or member organization or an employee of the Exchange is directly or indirectly interested.

In connection with accounts or transactions of members, allied members and employees associated with another member or member organization, duplicate confirmations and account statements shall be sent promptly to the employer.

(b) No member (associated with a member or member organization), allied member or employee associated with a member or member organization shall establish or maintain any securities or commodities account or enter into any private securities transaction with respect to which such person has any financial interest or the power, directly or indirectly, to make investment decisions, at another member or member organization, or a domestic or foreign non-member broker-dealer, investment adviser, bank, other financial institution, or otherwise without the prior written consent of another person designated by the member or member organization under Rule 342(b)(1) to sign such consents and review such accounts.

Persons having accounts or transactions referred to above shall arrange for duplicate confirmations and statements (or their equivalents) relating to the foregoing to be sent to another person designated by the member or member organization under Rule 342(b)(1) to review such accounts and transactions. All such accounts and transactions periodically shall be reviewed by the member or member organization employer (see also Rule 342.21).

The Exchange may, upon written request, and where good cause is shown, waive any requirements of this Rule.

On or about January 31, 2001, Braden completed and signed an application to open an Investment Club Account at XYZ (not a NYSE member firm). Braden understood at the time he opened the XYZ Account that 

  • it was against the Firm’s policies and procedures to open the XYZ Account without advance written approval from the Firm and that had approval been granted, duplicate copies of all confirmations and account statements were required to be sent to the Firm’s compliance department;
  • he had not sought the Firm’s approval prior to opening the XYZ Account, nor did he arrange for duplicate copies of the account statements or the trade confirmations to be sent to the Firm; and
  • he had an obligation to report his participation in any outside investments to the Firm’s compliance department and that he did not do so when the account was opened or at any point thereafter. 

Page one of the application asked, “Are you or a relation (or partner, if partnership) associated with securities firm, exchange, insurance company or investment advisor?” Braden answered “no”, which was untrue. 

Around the first week of February 2001, each of the investors gave Braden a check for $100,000 made out to “M.B. Partners Fund,” and signed the new account documentation. Despite his agreement to do so and without the knowledge of the XYZ Investors, Braden did not deposit his $100,000 share into the XYZ Account. 

About February 14, 2001, $300,000 was deposited into the XYZ account and Braden began trading.  By March 30, 2001, the value of the XYZ Account had dropped to approximately $87,700. Braden continued to trade the XYZ Account, and the account continued to suffer losses. Braden informed the XYZ Investors that the XYZ Account “was down,” however he never revealed to them the extent of the losses. On or about May 30, 2001, Braden transferred $1,000 from the XYZ Account to a bank account at Fifth Third Bank in the name of MB Partners Fund, and then withdrew the $1,000 for his personal use (without authorization). Between June 12, 2001 and August 29, 2001, Braden made five additional transfers totaling $22,000 from the XYZ Account to the Fifth Third Bank, all without authorization and for his personal use.

On September 30, 2001, following Braden’s withdrawals trading losses, the market value of the XYZ Account was $5,477. In or around November 2001, T informed Braden that he wanted to discontinue his participation in the XYZ Account. Braden informed T of the losses in the account and told him that he could provide T with a check for the remainder of the account. On or about November 20, 2001, Braden sold the remaining securities in the XYZ Account, and on or about November 27, 2001, a check for $6,938 was issued from the XYZ Account and given to T. Braden never told T that he had misappropriated approximately $23,000 from the account.  On April 30, 2002, without the knowledge of the XYZ Investors, the XYZ Account was closed for inactivity. 

At some point in approximately late 2002 to early 2003, Y informed Braden that he needed to withdraw some money from the XYZ Account. Braden informed Y of the losses in the account and gave Y online access to the account activity. Y calculated that approximately $30,000 had been withdrawn and distributed from the account. Braden agreed to pay Y $10,000, his share of the $30,000, by the end of 2003, and Y was satisfied with this agreement.  However, it seems that Braden left the Firm in September 2003 to work for his next employer in Sarasota, Florida, and did not inform Y --- which I guess also means that he never paid Y the promised $10,000 as of that date. 

In or around July or August 2003, after Braden informed Y of the losses in the XYZ Account, Braden met with K and informed him of the losses in the XYZ Account. K never saw the account activity and was not told about Braden’s withdrawals or the monies that were given to T. K did not receive any money from the XYZ Account and he has not made any complaints against Braden. 

About October 16, 2003, upon learning that Braden was no longer employed by the Firm, Y made an oral complaint to the Firm revealing Braden’s involvement in the XYZ Account. The Firm settled with Y for $10,000. 

The Firm terminated Braden on September 12, 2003 and amended his Form U5 to disclose the above circumstance on December 5, 2003. Upon learning of the allegations in the amended Form U5, Braden's new employer terminated him on December 18, 2003. 

The NYSE found that 

I. Engaged in conduct inconsistent with just and equitable principles of trade in that he misappropriated funds from customers of his member firm employer;

II. Violated NYSE Rule 346(b) by engaging in outside business activities without prior written consent of his member firm employer; and

III. Violated NYSE Rule 407(b) in that he maintained a securities account at a domestic non-member broker-dealer for himself and three customers of his member firm employer without the prior written consent of another person designated by his member organization to sign such consents; and failed to arrange for duplicate confirmations and monthly statements to be sent to another person designated by his member organization to review such documents. 

In support of the penalty, NYSE relied upon

  • In the Matter of Fernando A. Gallardo, HPD 03-201 (November 4, 2003) http://www.nyse.com/pdfs/03-201.pdf;
  • In the Matter of Douglas E. Spainer, HPD 02-145 (July 17, 2002) http://www.nyse.com/pdfs/02-145.pdf ; and
  • In the Matter of Michael Anthony Fortugno, HPD 02-89 (April 24, 2002) http://www.nyse.com/pdfs/02-089-090.pdf . Each of these cases involved misappropriation of funds or securities coupled with engaging in outside business activity or maintaining a securities account at another firm without his employer’s written consent. Each of these cases resulted in the imposition of a censure and a permanent bar. 

Censure; Permanent bar in all capacities.

Bill Singer's Comment: A fascinating case on so many levels. First, the RR engages in a prohibited outside business activity --- but his customers are all apparently aware of this. Second, notwithstanding that the customers know Braden is prepared to violate industry rules, they all give him $100,000 to invest . . . but they never notice that he hasn't kicked-in his $100,000. Third, despite their sizable investments, apparently none of the investors check the monthly account statements to discover that there are huge losses and unexplained withdrawals. Okay, as if all that weren't bad enough, Braden cooly quiets one client with a mere $7,000 payment and somehow --- and I've got to give him partial props on this --- convinces a second client to take a paltry $10,000 by year's end. Frankly, he may well have been able to pull this all off but he seems to have reneged on the $10,000 payment, and when that client complained, the house of cards collapsed. It's interesting that Schwab paid the $10,000 to Y. At first glimpse, one might think that Schwab had no liability whatsoever and should have told Y to take a flying you know what. However, Schwab's decision here appears to have been quite smart. Apparently, for a mere $10,000 they seem to have put out a potential conflagration involving three customers with nearly $300,000 in losses and a vulnerable, renegade RR.
Stephen Phillip Lewis (Principal)
AWC/C07050047/August 2005

Lewis engaged in an outside business activity for compensation without providing written notice to his member firm; and he failed to respond to NASD requests for information. 

Barred

Marcus D. Braden
SFC/HPD 05-93/August 25, 2005

In September 1999, Marcus D. Braden began working as an investment specialist at Charles Schwab & Co., Inc. (the “Firm”). As an investment specialist, his duties included opening new accounts, encouraging customers to bring new or additional assets, recommending money management firms, following up with customers on a quarterly basis, and advising customers on overall portfolio strategy. His job duties did not include and did not permit disseminating specific stock recommendations and advice for short term trading. 

In or about December 2000 or January 2001, Braden met with his personal friend T, who informed Braden that he wanted to trade some portion of his assets and he wanted Braden to act as his broker. Because as an "investment specialist" he could not serve as T’s broker, Braden and T discussed the idea of opening an investment account outside of the Firm at an online brokerage.  Following his meeting with T, Braden met with two of his Schwab customers, Y and K, and spoke to them about participating in the investment club account, and both agreed to do so. Both Y and K understood that this account, and Braden’s participation in it, was not permitted by the Firm.

All the parties signed an investment club agreement for the "M.B. Partners Fund," the terms of which were that 

  • each participant, including Braden, was to invest $100,000 to open the account;
  • all investment decisions were to be left to Braden’s discretion;
  • Braden would distribute profits to the XYZ Investors and update them on the account’s performance on a quarterly basis; and 
  • Braden would keep all profits earned in the account above 10 percent. 

On or about January 31, 2001, Braden completed and signed an application to open an Investment Club Account at XYZ (not a NYSE member firm). Braden understood at the time he opened the XYZ Account that 

  • it was against the Firm’s policies and procedures to open the XYZ Account without advance written approval from the Firm and that had approval been granted, duplicate copies of all confirmations and account statements were required to be sent to the Firm’s compliance department;
  • he had not sought the Firm’s approval prior to opening the XYZ Account, nor did he arrange for duplicate copies of the account statements or the trade confirmations to be sent to the Firm; and
  • he had an obligation to report his participation in any outside investments to the Firm’s compliance department and that he did not do so when the account was opened or at any point thereafter. 

Page one of the application asked, “Are you or a relation (or partner, if partnership) associated with securities firm, exchange, insurance company or investment advisor?” Braden answered “no”, which was untrue. 

Around the first week of February 2001, each of the investors gave Braden a check for $100,000 made out to “M.B. Partners Fund,” and signed the new account documentation. Despite his agreement to do so and without the knowledge of the XYZ Investors, Braden did not deposit his $100,000 share into the XYZ Account. 

About February 14, 2001, $300,000 was deposited into the XYZ account and Braden began trading.  By March 30, 2001, the value of the XYZ Account had dropped to approximately $87,700. Braden continued to trade the XYZ Account, and the account continued to suffer losses. Braden informed the XYZ Investors that the XYZ Account “was down,” however he never revealed to them the extent of the losses. On or about May 30, 2001, Braden transferred $1,000 from the XYZ Account to a bank account at Fifth Third Bank in the name of MB Partners Fund, and then withdrew the $1,000 for his personal use (without authorization). Between June 12, 2001 and August 29, 2001, Braden made five additional transfers totaling $22,000 from the XYZ Account to the Fifth Third Bank, all without authorization and for his personal use.

On September 30, 2001, following Braden’s withdrawals trading losses, the market value of the XYZ Account was $5,477. In or around November 2001, T informed Braden that he wanted to discontinue his participation in the XYZ Account. Braden informed T of the losses in the account and told him that he could provide T with a check for the remainder of the account. On or about November 20, 2001, Braden sold the remaining securities in the XYZ Account, and on or about November 27, 2001, a check for $6,938 was issued from the XYZ Account and given to T. Braden never told T that he had misappropriated approximately $23,000 from the account.  On April 30, 2002, without the knowledge of the XYZ Investors, the XYZ Account was closed for inactivity. 

At some point in approximately late 2002 to early 2003, Y informed Braden that he needed to withdraw some money from the XYZ Account. Braden informed Y of the losses in the account and gave Y online access to the account activity. Y calculated that approximately $30,000 had been withdrawn and distributed from the account. Braden agreed to pay Y $10,000, his share of the $30,000, by the end of 2003, and Y was satisfied with this agreement.  However, it seems that Braden left the Firm in September 2003 to work for his next employer in Sarasota, Florida, and did not inform Y --- which I guess also means that he never paid Y the promised $10,000 as of that date. 

In or around July or August 2003, after Braden informed Y of the losses in the XYZ Account, Braden met with K and informed him of the losses in the XYZ Account. K never saw the account activity and was not told about Braden’s withdrawals or the monies that were given to T. K did not receive any money from the XYZ Account and he has not made any complaints against Braden. 

About October 16, 2003, upon learning that Braden was no longer employed by the Firm, Y made an oral complaint to the Firm revealing Braden’s involvement in the XYZ Account. The Firm settled with Y for $10,000. 

The Firm terminated Braden on September 12, 2003 and amended his Form U5 to disclose the above circumstance on December 5, 2003. Upon learning of the allegations in the amended Form U5, Braden's new employer terminated him on December 18, 2003. 

The NYSE found that 

I. Engaged in conduct inconsistent with just and equitable principles of trade in that he misappropriated funds from customers of his member firm employer;

II. Violated NYSE Rule 346(b) by engaging in outside business activities without prior written consent of his member firm employer; and

III. Violated NYSE Rule 407(b) in that he maintained a securities account at a domestic non-member broker-dealer for himself and three customers of his member firm employer without the prior written consent of another person designated by his member organization to sign such consents; and failed to arrange for duplicate confirmations and monthly statements to be sent to another person designated by his member organization to review such documents. 

In support of the penalty, NYSE relied upon

  • In the Matter of Fernando A. Gallardo, HPD 03-201 (November 4, 2003) http://www.nyse.com/pdfs/03-201.pdf;
  • In the Matter of Douglas E. Spainer, HPD 02-145 (July 17, 2002) http://www.nyse.com/pdfs/02-145.pdf ; and
  • In the Matter of Michael Anthony Fortugno, HPD 02-89 (April 24, 2002) http://www.nyse.com/pdfs/02-089-090.pdf . Each of these cases involved misappropriation of funds or securities coupled with engaging in outside business activity or maintaining a securities account at another firm without his employer’s written consent. Each of these cases resulted in the imposition of a censure and a permanent bar. 

Censure; Permanent bar in all capacities.

Hoyit Allen Bacon
OS/C05050010/August 2005

Bacon engaged in outside business activities without providing written notice to his member firm. He also violated standards of commercial honor and just and equitable principles of trade by billing one client for the same advisory services under both an agreement with his member firm and through his outside business. 

Censured; Fined $5,000; Ordered to pay $11,793.59 restitution to a public customer; Suspended 1 year in all capacities.

Teekachand Richard Tiwari 
AWC/C10050031/July 2005 

Tiwari participated in private securities transactions without providing written notification to or obtaining written approval from his member firm. Tiwari engaged in outside business activities without providing prompt written notice to his member firm. In addition, he failed to respond to NASD requests to appear for an on-the-record interview.

Barred

John Francis Ranhofer
OS/C02040033/July 2005

Ranhofer participated in a private securities transactions without providing prior written notice to or receive approval from his member firm.  Ranhofer engaged in outside business transactions and failed to give prompt notice of these activities to his member firm. Ranhofer failed to disclose material facts on his Form U4. (NASD Case #)

Barred

Brian Jared Newmark
AWC/C9A050023/July 2005

Newmark engaged in business activities outside the scope of his relationship with his member firm without providing prompt written notice to his member firm. 

Fined $150,000; Suspended 9 months all capacities

Robert Kurtis Mauss 
C06050010/July 2005

Mauss engaged in private securities transactions without providing prior written notice to his member firm. He engaged in outside business activities and received compensation in connection with such activity without providing prompt written notice to his member firm. Mauss failed to disclose material facts on his Form U4. 

Barred.

James Joseph Rovezzi 
C07040088/June 2005

Rovezzi engaged in outside business activities without providing prompt written notice to his member firm; and he provided a written response to his member firm in which he falsely represented that he had not engaged in the outside business activities.

Barred

Yuan Lung Liu (Principal)
AWC/C02050030/June 2005

Liu engaged in outside business activities for compensation without providing written notice to his member firm. 

Fined $10,000; Suspended 6 months in all capacities

Scott Ronald Kemmerling
AWC/C8A050025/June 2005

Kemmerling failed and neglected to provide prompt, written notice to his member firm of his outside business activities.

Fined $10,000; Suspended 3 months

Kevin Owen Kelley (Principal)
AWC/C11050012/June 2005

Kelley engaged in outside business activities without providing prompt written notice to his member firm. He failed to appear for an NASD on-the-record interview. 

Barred

Ernest Alexander Harris
AWC/C02050031/June 2005

Harris engaged in outside business activity, for compensation, without prior written notification to, or written approval from his member firm. 

Fined $7,000 (including $2,000 disgorgement); Suspended 15 business days all capacities.

Mark Joseph Deves (Principal) 
C3A040043/June 2005

Deves engaged in outside business activities for compensation without prior written notification to his member firm.

Fined $18,541 (including $8,541 commission disgorgement); Suspended 1 year in all capacities

Joseph Abbondante (Principal) 
C10020090/June 2005  (Decision by NAC following OHO Decision)

The NAC found that  Abbondante 

  1. participated in private securities transactions without providing prior written notice to, and receiving prior written approval from, his member firm; 
  2. recklessly made material misrepresentations and omissions to public customers with respect to an investment fund; 
  3. engaged in outside business activities without providing prompt written notice to his member firm; and 
  4. knowingly facilitated another in providing false account statements to seven customers of his member firm.

Barred; Required to pay public customers $276,265 in restitution.

Steven James Zellers
SFC/NYSE Hearing Panel Decision 05-50/May 9, 2005

READ THIS CASE IN CONJUNCTION WITH THE WEINERS AND McDONALD CASES IMMEDIATELY BELOW

Zellers, was a registered representative at Morgan Stanley DW Inc.'s (the “Firm”) Cupertino branch office (the “branch office”), was encouraged, at the branch office level, to network with, and refer, in appropriate circumstances, clients to professionals such as lawyers, accountants and financial planners. Accounting firm “AF” offered its clients programs in tax solutions, tailored to the financial circumstances of individual clients, with the purpose of reducing or deferring their tax liabilities. In the course of his dealings with the “AF” accountant who frequently received referrals from the branch office’s registered representatives, Zellers and others learned that referral fees could be paid to those referring clients for tax solutions. The Firm had a clear policy, consistent with NYSE Rules, that engagement in outside business or the receipt of outside compensation, without prior employer approval, were prohibited. 

After Firm management heard rumors that some branch office employees were engaged in the outside business activity of referring clients to the “AF” accounting firm in exchange for referral fees, the Firm opened up an internal investigation. The Firm learned from its internal review that the “AF” accounting firm made referral payments totaling $155,000 to the corporation of the Firm employee who was terminated via payment to a company owned by terminated employee’s father. The referral fees of the “AF” accounting firm ultimately flowed from the father’s company’s account at the Firm to Zellers and others.

NYSE Rule 346.
Limitations—Employment and Association with Members and Member Organizations 

(b) Without making a written request and receiving the prior written consent of his member or member organization employer, no member, allied member or employee of a member or member organization shall at any time be engaged in any other business; or be employed or compensated by any other person; or serve as an officer, director, partner or employee of another business organization; or own any stock or have, directly or indirectly, any financial interest in any other organization engaged in any securities, financial or kindred business; provided however, that such written request and consent shall not be required with regard to stock ownership or other financial interest in any securities, financial or kindred business which is publicly owned unless a control relationship exists.

NYSE Enforcement commenced its investigation on February 11, 2002 after receiving a Uniform Termination Notice for Securities Industry Representatives (“Form U-5”) from the Firm, that notified the NYSE that a co-worker of Zellers was discharged on April 19, 2001, based upon the Firm’s determination that he engaged in outside employment without prior written employer consent, and as a result of his refusal to cooperate with the Firm’s internal investigation. Enforcement concurrently investigated the conduct of Zellers and others, all of whom worked with the terminated employee, to determine whether they also engaged in an outside business activity without prior written Firm consent. Zellers voluntarily left the Firm prior to the completion of the Firm’s internal investigation. 

The NYSE found that Zellers violated NYSE Rule 346(b) by engaging in an outside business activity without written employer consent. 

Censure; Bar for 6 months in all capacities. 
Zellers agreed to cooperate with the NYSE as follows:

A. Zellers shall fully, fairly and truthfully disclose all information and produce all records in his possession and other evidence relevant to the inquiries by Enforcement concerning any violations of the federal securities laws or NYSE rules by coworkers of Zellers during his tenure at the Firm’s Cupertino branch office of which he has any knowledge or information;  

B. Zellers shall fully, fairly and truthfully testify at any contested hearing brought by the NYSE, concerning any matter falling within paragraph A above; and 

C. Zellers shall actively participate in the NYSE’s investigation and prosecution of any matter within paragraph A above, including meeting with NYSE staff when requested in order to prepare to testify at any contested hearing.

Eric Matthew Winokur a/k/a Eric Matthew Wiener
SFC/NYSE Hearing Panel Decision 05-49/May 9, 2005

Seth Andrew Wiener
SFC/NYSE Hearing Panel Decision 05-48/May 9, 2005

READ THIS CASE IN CONJUNCTION WITH THE McDONALD CASE (IMMEDIATELY BELOW) AND THE ZELLERS CASE IMMEDIATELY ABOVE

Seth Weiner and Eric Wiener, were registered representative at Morgan Stanley DW Inc.'s (the “Firm”) Cupertino branch office (the “branch office”), was encouraged, at the branch office level, to network with, and refer, in appropriate circumstances, clients to professionals such as lawyers, accountants and financial planners. Accounting firm “AF” offered its clients programs in tax solutions, tailored to the financial circumstances of individual clients, with the purpose of reducing or deferring their tax liabilities. In the course of his dealings with the “AF” accountant who frequently received referrals from the branch office’s registered representatives, Seth Weiner and others learned that referral fees could be paid to those referring clients for tax solutions. The Firm had a clear policy, consistent with NYSE Rules, that engagement in outside business or the receipt of outside compensation, without prior employer approval, were prohibited. 

After Firm management heard rumors that some branch office employees were engaged in the outside business activity of referring clients to the “AF” accounting firm in exchange for referral fees, the Firm opened up an internal investigation. The Firm learned from its internal review that the “AF” accounting firm made referral payments totaling $155,000 to the corporation of the Firm employee who was terminated via payment to a company owned by Seth and Eric Weiner’s father. The referral fees of the “AF” accounting firm ultimately flowed from the father’s company’s account at the Firm to Seth Weiner and others.

NYSE Rule 346.
Limitations—Employment and Association with Members and Member Organizations 

(b) Without making a written request and receiving the prior written consent of his member or member organization employer, no member, allied member or employee of a member or member organization shall at any time be engaged in any other business; or be employed or compensated by any other person; or serve as an officer, director, partner or employee of another business organization; or own any stock or have, directly or indirectly, any financial interest in any other organization engaged in any securities, financial or kindred business; provided however, that such written request and consent shall not be required with regard to stock ownership or other financial interest in any securities, financial or kindred business which is publicly owned unless a control relationship exists.

NYSE Enforcement commenced its investigation on February 11, 2002 after receiving a Uniform Termination Notice for Securities Industry Representatives (“Form U-5”) from the Firm, that notified the NYSE that a co-worker of Seth and Eric Weiner was discharged on April 19, 2001, based upon the Firm’s determination that he engaged in outside employment without prior written employer consent, and as a result of his refusal to cooperate with the Firm’s internal investigation. Enforcement concurrently investigated the conduct of Seth and Eric Weiner and others, all of whom worked with the terminated employee, to determine whether they also engaged in an outside business activity without prior written Firm consent. Seth and Eric Weiner voluntarily left the Firm prior to the completion of the Firm’s internal investigation. 

The NYSE found that Seth and Eric Weiner violated NYSE Rule 346(b) by engaging in an outside business activity without written employer consent. 

Censure; Bar for 6 months in all capacities. 
Seth and Eric Weiner agreed to cooperate with the NYSE as follows:

A. Seth and Eric Weiner shall fully, fairly and truthfully disclose all information and produce all records in his possession and other evidence relevant to the inquiries by Enforcement concerning any violations of the federal securities laws or NYSE rules by coworkers of Seth and Eric Weiner during his tenure at the Firm’s Cupertino branch office of which he has any knowledge or information;  

B. Seth and Eric Weiner shall fully, fairly and truthfully testify at any contested hearing brought by the NYSE, concerning any matter falling within paragraph A above; and 

C. Seth and Eric Weiner shall actively participate in the NYSE’s investigation and prosecution of any matter within paragraph A above, including meeting with NYSE staff when requested in order to prepare to testify at any contested hearing.

Daniel Christopher McDonald
SFC/NYSE Hearing Panel Decision 05-47/May 9, 2005

READ THIS CASE IN CONJUNCTION WITH THE WEINERS AND ZELLERS CASES IMMEDIATELY ABOVE

McDonald, was a registered representative at Morgan Stanley DW Inc.'s (the “Firm”) Cupertino branch office (the “branch office”), was encouraged, at the branch office level, to network with, and refer, in appropriate circumstances, clients to professionals such as lawyers, accountants and financial planners. Accounting firm “AF” offered its clients programs in tax solutions, tailored to the financial circumstances of individual clients, with the purpose of reducing or deferring their tax liabilities. In the course of his dealings with the “AF” accountant who frequently received referrals from the branch office’s registered representatives, McDonald and others learned that referral fees could be paid to those referring clients for tax solutions. The Firm had a clear policy, consistent with NYSE Rules, that engagement in outside business or the receipt of outside compensation, without prior employer approval, were prohibited. 

After Firm management heard rumors that some branch office employees were engaged in the outside business activity of referring clients to the “AF” accounting firm in exchange for referral fees, the Firm opened up an internal investigation. The Firm learned from its internal review that the “AF” accounting firm made referral payments totaling $155,000 to the corporation of the Firm employee who was terminated, via payment to a company which was owned by the terminated employee’s father. The referral fees of the “AF” accounting firm ultimately flowed from that company’s account at the Firm to McDonald and others. 

NYSE Rule 346.
Limitations—Employment and Association with Members and Member Organizations 

(b) Without making a written request and receiving the prior written consent of his member or member organization employer, no member, allied member or employee of a member or member organization shall at any time be engaged in any other business; or be employed or compensated by any other person; or serve as an officer, director, partner or employee of another business organization; or own any stock or have, directly or indirectly, any financial interest in any other organization engaged in any securities, financial or kindred business; provided however, that such written request and consent shall not be required with regard to stock ownership or other financial interest in any securities, financial or kindred business which is publicly owned unless a control relationship exists.

MH, a customer, filed an arbitration against McDonald and others alleging various sales practice violations. The complaint arose out of a sale by MH of various mutual fund investments including various International Fund B shares, Mid Cap Growth B shares, Tax Managed Growth Fund B shares and Select Growth B shares.  MH contended that McDonald failed to sell her mutual funds after she specifically instructed him to do so during a telephone conversation. McDonald conceded his failure to execute this sale, but explained that there were mitigating circumstances for the delay, specifically, that the delay was the result of McDonald’s attempt to forestall MH’s sale, as it would have resulted in significant penalties resulting from an early sale of the mutual funds.

NYSE Enforcement commenced its investigation on February 11, 2002 after receiving a Uniform Termination Notice for Securities Industry Representatives (“Form U-5”) from the Firm, that notified the NYSE that a co-worker of McDonald was discharged on April 19, 2001, based upon the Firm’s determination that he engaged in outside employment without prior written employer consent, and as a result of his refusal to cooperate with the Firm’s internal investigation. Enforcement concurrently investigated the conduct of McDonald and others, all of whom worked with the terminated employee, to determine whether they also engaged in an outside business activity without prior written Firm consent. McDonald voluntarily left the Firm prior to the completion of the Firm’s internal investigation. In addition, the NYSE also investigated McDonald after being notified by the Firm that a customer arbitration was commenced against McDonald and others, and which included allegations of misrepresentations, unsuitable investments and the failure to execute a sale order when instructed to do so. 

The NYSE found that McDonald violated NYSE Rule 346(b) by engaging in an outside business activity without written employer consent. 

Censure; Bar for 6 months in all capacities. 
McDonald agreed to cooperate with the NYSE as follows:

A. McDonald shall fully, fairly and truthfully disclose all information and produce all records in his possession and other evidence relevant to the inquiries by Enforcement concerning any violations of the federal securities laws or NYSE rules by coworkers of McDonald during his tenure at the Firm’s Cupertino branch office of which he has any knowledge or information;  

B. McDonald shall fully, fairly and truthfully testify at any contested hearing brought by the NYSE, concerning any matter falling within paragraph A above; and 

C. McDonald shall actively participate in the NYSE’s investigation and prosecution of any matter within paragraph A above, including meeting with NYSE staff when requested in order to prepare to testify at any contested hearing.

Bill Singer's Comment: This is a troubling case on two levels.  One, it's one of those cases that irritates me because firms are always pushing their RRs to network and develop leads.  Which is essentially what McDonald did here.  Two, I always fall victim to that American ethic against tattling on your colleagues, especially if you too were engaged in wrongdoing.  

Having raised points one and two, I must also be fair and offer the following observations.  I think we need to liberalize the outside business activities and private securities transactions violations at both NYSE and NASD because far too many RRs fall afoul of those restrictions.  The sheer numbers of violations in these areas indicate to me that the missteps are frequently out of ignorance and not with an intention to violate.  As such, we need to re-examine the reasons for these prohibitions, better communicate them to the salesforce, and also question why RRs aren't entitled to finder's fees (provided --- and I say this with NO reservation --- that full disclosure is made to the customer and the firm).  Which finally brings me to the requirement that McDonald testify against his colleagues and cooperate with the NYSE in their prosecution.  There is likely no more potent arrow in the regulator's quiver than compelling cooperation from a co-conspirator or an accessory.  Tasteful or otherwise, it is a necessary option.  Moreover, the mere threat that someone engaged with you in misconduct could be induced to turn you in, is often a potent issue that may preclude some schemes.  True, there's something in the American grain that is rankled by such cooperation, but it's often a necessary evil for the system to work.  Notwithstanding, I wish we could dispense with the charade that McDonald somehow simply "agreed to cooperate."  We all know that this was the NYSE's idea and I'm sure there was some prodding on the regulator's part.  Why even play this game?

John Padilla
AWC/C9B050019/May 2005

Padilla engaged in business activities for compensation outside the scope of his member firm without providing his firm with prompt written notice of these activities. 

Fined $5,000; Suspended 6 months in all capacities

Talbot Heber Lloyd
AWC/C3A050016/May 2005

LLoyd engaged in outside business activities without first providing written notice to the member firms with which he was associated.

Fined $50,000 (includes $45,000 disgorgement); Suspended 6 months in all capacities.

William Howard James, III 
AWC/C9A050014/May 2005

James engaged in business activities for compensation outside the scope of his member firm without providing his firm prompt written notice of the activities. He failed to respond to NASD requests for information and to appear to testify.

Barred

Robert Michael Graves Jr.
OS/C06050002/May 2005

Graves 

  • engaged in a private securities transaction with a public customer without providing written notice to his member firm;
  • recommended an unsuitable security to a public customer;
  • participated in outside business activities without prior written notice to his member firm; and
  • received a loan from a public customer, which violates his member firm’s policy prohibiting the receipt or solicitation of loans from customers. 

Fined $7,500; Suspended 20 business days in all capacities

Bill Singer's Comment: You know how you never see someone for years and then twice in the same day.  Well, check out the DeBock case where we have another sanction for borrowing money from a customer.
Ray Rajnian Dubey
AWC/C07050017/May 2005

Dubey engaged in outside business activities and failed to provide prompt written notice to his member firm. 

Fined $5,000; Suspended 30 business days in all capacities

Mark Joseph Deves (Principal)
C3A040043/May 2005 

Deves participated in outside business activities without prior written notice to his member firm. 

Fined $18,541 (includes disgorgement of $8,541 commissions); and Suspended 1 year in all capacities.

Lance Neal Dahmer
C8A030086/May 2005

Dahmer engaged in outside business activities without providing prompt written notice to his member firm.

Fined $5,000; Suspended 60 days in all capacities; Required to requalify as a General Securities Representative

Bill Singer's Comment:  This is one of the few reported cases that apparently went to a hearing (no AWC or OS denoted).  Interesting result.  The fine and sanction are generally within the range of those obtained by settlement --- but do I detect just a little fit of pique in the imposition of the requalification?  If you read the actual NASD Hearing Panel decision at http://www.nasd.com/web/groups/enforcement/documents/oho_disciplinary_decisions/nasdw_014133.pdf you will be amazed at the mitigating factors involved in this matter.  Moreover, I trust that many of you will be disgusted to read that the NASD Staff sought to Bar Mr. Dahmer!  As such, kudos to Dahmer's lawyers and to the Hearing Panel for not imposing the unwarranted sanction the Staff sought.  Simply from judging this decision from the perspective of what the Staff sought, this is a substantial victory for the Respondent. Just another example as to why it may pay to fight some of these Enforcement cases.
Akeem Folajimi Bello
AWC/C10050011/May 2005

Bello made unsuitable recommendations to public customers; and engaged in outside business activities for compensation without providing prompt written notice to his member firm. 

Fined $26,718.92 (includes disgorgement of $26,718.92 --- apparently NASD limited the fine to the actual disgorgement because of Bello's "financial status"); Suspended 1 year

Daniel Quinn Dellinger
AWC/C8A050010/April 2005

Dellinger engaged in outside business activities, received $15,287 in compensation, and failed to provide written notice to his member firm of his intent to engage in such activities. 

Fined $5,000; Suspended 15 business days all capacities

Rafael Ernesto Avila
AWC/C07050009/April 2005

Avila received $92,000 from public customers to invest in securities for the customers, but failed to follow the customers’ instructions and converted the funds to his own use and benefit. Further, he owned or maintained control over two brokerage accounts at an NASD member firm, but failed to disclose his association with his member firm to the firm carrying the accounts, and failed to disclose the existence of the accounts to his member firm. Also, Avila failed to provide prompt written notice to his member firm that he was employed by, or received compensation from, an outside business activity. 

Barred

Anthony George Peterson
AWC/C8A050007/March 2005

Peterson engaged in outside business activities by receiving compensation for selling viaticals, and failed to give prompt written notice of his activities to his member firm. 

Peterson was Barred

Phillip Mauro Nuciola III
AWC/C3A050008/March 2005

Nuciola failed to provide prompt written notice of his outside business activities to his member firm.

Nuciola was Fined $5,000 and Suspended 20 days in all capacities

Robert James Christ 
AWC/C9B050006/March 2005

Christ engaged in outside business activities without providing the firm prompt written notice.

Christ was Fined $5,000 and Suspended 3 months in all capacities.

John David Amick
AWC/C8A050009/March 2005 

Amick engaged in outside business activities by receiving compensation for providing financial planning services to public customers, and failed to give prompt written notice of his outside business activities to his member firm.

Amick Fined $5,000 and Suspended 30 days in all capacities.

Gordon Stratford Pett, Jr.
AWC/C8A040119/February 2005

Pett engaged in outside business activities for which he received in excess of $75,780 in compensation and failed to provide his member firm with prompt written notice of his outside business activities.

Pett was Fined $10,000 and Suspended 6 months in all capacities.

Anthony Mario Nobrega 
AWC/C11050001/February 2005

Nobrega engaged in an outside business activity without providing prompt written notice to his member firm; and failed to appear for an NASD on-the-record interview. 

Nobrega was Barred.

Lewis A. Lanza 
AWC/C8A040118/February 2005

Lanza e conducted outside business activities for which he received $70,000 in compensation while employed with his member firm, and failed to provide his firm with prompt written notice of his activities. 

Lanza was Fined $10,000 and Suspended 3 months in all capacities.

Daniel William Huebner
OS/C04040033/February 2005

Huebner engaged in outside business activities for compensation and failed to provide his member firm with prompt written notice of these transactions and his role therein. 

Huebner was Barred.

James Wesley Holstein
AWC/C07040105/February 2005

Holstein engaged in business activities outside the scope of his relationship with his member firm for compensation and failed to provide his member firm with prompt written notice. 

Holstein was Fined $5,000 and Suspended 30 days in all capacities.

Lacy McClure Walthall, III
C07040048/January 2005

Walthall engaged in outside business activities and private securities transactions without prompt written notification to his member firm and his firm’s written approval to engage in the private securities transactions. 

Fined $35,000, suspended from 1 year in all capacities; and ordered to requalify by exam as a general securities representative (Series 7) before re-entering the securities industry. 

Kyle Edward Pittenger (GSP)
AWC/C8A040111/January 2005

Pittenger engaged in outside business activities and failed and neglected to provide prompt written notice to his member firm. 

Fined $10,000 and suspended 3 months in all capacities.

Bill Singer's Comment:  I really wish NASD would pay a bit more attention to the consistency of their disciplinary action write-ups.  What exactly is the import of "failed and neglected" to provide notce, as opposed to "failed"?  Regulators should place great weight on the precision of their language and it is troublesome when new allegations pop up without explanation.  I'm not sure I've ever seen anyone accused of "neglecting" to provide prompt notice --- it's always been "failed."
Brian Ladah
OS/C11040038/January 2005

Ladah engaged in private securities transactions outside the normal scope of employment with his member firm and failed to give prior written notice to, and receive approval from, his member firm. Also, he engaged in outside business activities without providing prompt written notice to his member firm. 

Fined $5,000; suspended 2 years in all capacities; ordered to disgorge to customers $49,200 commissions plus interest

Tony Ricardo Brown
AWC/C8A040100/January 2005

Brown engaged in outside business activities and failed and neglected to provide prompt written notice to his member firm.

Fined $2,500 and suspended for 10 business days in all capacities. 

Avery Marc Meizner
SFC/NYSE Hearing Panel Decision 04-6/January 19, 2005

From May 1985 to May 2003, Meizner was employed as in a non-registered capacity as an internal auditor at the Firm. Around July 2000, Meizner began taking educational courses with a division of a non-member firm. In late 2001, the non-member firm contacted Meizner and asked him to provide his opinion about its services to potential customers and answer their questions. In exchange for his services, the non-member firm agreed to pay Meizner 5% of the amount paid by each customer who signed up for a seminar or who purchased any of its products as a result of their discussions with Meizner. Thereafter, on or about March 1, 2002, Meizner began receiving compensation from the non-member firm for his services while he was employed by the Firm. During 2002, Meizner received a total of approximately $226 in compensation from the nonmember firm for his services. During 2003, prior to the termination of his employment from the Firm, Meizner received a total of approximately $1,212 from the non-member firm for his services. Meizner neither requested nor received the Firm’s written consent to engage in business activity with the non-member firm while he was employed by the Firm. On January 30, 2002, Meizner signed a Firm document entitled Principles of Employee Conduct, in which he acknowledged that he received a copy of Firm policies prohibiting employees from engaging in outside business activities without the prior written consent of the Firm and agreed to comply with those provisions throughout the year. Nevertheless, Meizner failed to disclose when he began engaging in outside business activities with a non-member firm on or about March 1, 2002. On January 23, 2003 and February 12, 2003, while Meizner was employed by the Firm and receiving compensation from the non-member firm, he signed two additional Principles of Employee Conduct forms issued by the Firm, in which he acknowledged that he would comply with the Firm’s compliance rules regarding employee outside business activities throughout 2003. When he signed these forms, Meizner failed to disclose to the Firm that he was engaged in outside business activities with the non-member firm. 

Around November 2002, while employed by the Firm, Meizner opened a securities account with another securities firm (“the Account”). On the application Meizner completed to open the Account, Meizner stated that he was self-employed with a company called Tech Equities 2003. Meizner described himself as the owner of Tech Equities 2003 and described the nature of his business as Finance-Investing. Meizner listed the address for Tech Equities 2003 as his home address. In response to the following questions on the application to open the Account: “Are you currently affiliated or employed by a member of a stock exchange or the NASD” and “Do you have an affiliation with, or work for a securities firm, bank, trust or insurance company,” Meizner responded “No,” which was not true. Meizner did not request or obtain the Firm’s approval for opening the Account and he did not request duplicate copies of his Account statements to be sent to the Firm, as required by Exchange Rule 407(b). On or about March 11, 2003, while Meizner was employed by the Firm and maintained the Account, Meizner signed a Firm document entitled Brokerage Accounts Outside the Firm, which required each employee to disclose all outside brokerage accounts. Meizner signed the document without disclosing the Account. 

The NYSE found that Meizner

I. Violated Exchange Rule 346(b) in that, without making a written request and receiving the prior written approval of his member organization employer, he engaged in outside business activity. 

II. Violated Exchange Rule 407(b) by maintaining a securities account at another securities firm without the prior written consent of his member firm employer, and without arranging duplicate confirmations and monthly statements of such account to be sent to his member firm employer. 

III. Engaged in conduct inconsistent with just and equitable principles of trade in that he made misstatements to his member firm employer concerning his outside business activities and his securities account maintained outside his member firm employer.

Censure and a 1 year Bar 

Wayne Franklin Currie 
AWC/C07040093/January 2005

Currie failed to give prompt notice of his outside business activities to his member firm. 

Fined $2,500 and suspended 2 months in all capacities 



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