This installment describes registered representative Havill's involvement and the defenses he raised to SEC charges of aiding and abetting. Readers are urged to review the earlier Chemainstallments for fuller discussions of the nature of the RR's violations, as such has been abbreviated here. The next installment will review the conduct of the remaining salespersons.

Adrian C. Havill ("Havill"), formerly a registered representative with Scott & Stringfellow, Inc. ("SSI" or the "Firm"), appeals from the decision of an administrative law judge ("ALJ") that found from August 1989 to January 1990, Havill aided, abetted, and caused violations of Sections 9(a)(1), 9(a)(2), and 10(b) of the Securities Exchange Act of 1934 ("Exchange Act") and Rule 10b-5 thereunder committed by John G. Broumas ("Broumas"), one of Havill’s customers. The law judge suspended Havill from association with any broker or dealer for two months. He also ordered Havill to cease and desist from committing or causing any future violations of the provisions he was found to have violated.

Havill first met Broumas in the early 1970s, and when Havill joined SSI in August 1989, Broumas opened two margin accounts: an account in Broumas’ individual name and a joint account in the names of Broumas and his wife. Havill knew that Broumas was the Chairman of MNBV and a substantial shareholder in JML. While the Broumas accounts were open at SSI, Havill maintained posting sheets of the activity in the accounts, which he updated within a few days of the transactions.

In September or October 1989, Havill asked Broumas why he made the unprofitable trades described above. Broumas admitted to trying "to create interest" in JML, because "if nobody [bought] it on a certain day, it [wouldn’t] show up in the [newspaper] listing." Havill relayed this information to his SSI branch manager, who, nonetheless, approved Broumas’ continued trading. The branch manager assured Havill that "[i]t's okay because [Broumas is] not making any money, and to make the stock go up artificially, you have to buy a lot more than 100 shares."

After Havill had executed several of the wash trades, Broumas told him that the JML shares were being sold to and bought from Broumas’ own accounts at other firms. Havill again informed his branch manager of Broumas’ activities. The branch manager complained about the commission rate that Havill proposed to charge and required Havill to charge Broumas a higher rate.

Havill subsequently told Broumas that SSI had ordered Havill "not to take these upticks" because the trades were "not proper and . . . might affect the market or something . . .." The AMEX began an investigation of transactions in JML entered in January 1990 through SSI. Havill became aware of the AMEX investigation shortly thereafter.

The SEC determined that Havill was at least reckless in not recognizing various indicia of Broumas’ violative activity, and concluded that he a) willfully aided and abetted both Broumas’ marking-the-close and wash trade violations, and b) was a cause of Broumas’ violations. The SEC pointedly dismissed Havill's explanation of ignorance of the practice and concepts of wash trades/marking-at-the-close, or his professed lack of training/education in such matters.

In initially attacking the ALJ's decision, Havill defended his conduct by depicting his role in placing Broumas' orders as that of an order-taker, and, consequently, within the law. The SEC disagreed, noting that Havill knew that that Broumas' trading was unprofitable and "unusual . . . something I had never seen before or since then."

Havill argued that he should not liable because he described Broumas’ practice of trading at the end of the day to his branch manager, including Broumas’ explanations for his trading. Havill states that the branch manager "educated" Havill about Broumas’ trading at the close, explaining to Havill that Broumas was not making money on the trades and could not manipulate the market with such small trades. Havill states that the branch manager had a principal’s license, over twenty years of experience, and several college degrees. Havill asserts that he had no reason not to rely on the manager’s advice and no motive to assist Broumas. Havill also noted that his manager was not disciplined in connection with Broumas’ trading activity.

The SEC rejected Havill's argument that he properly relied on the branch manager’s explanation concerning the marking-the-close trades. Havill knew or was reckless in not knowing that his branch manager’s suggestion that Broumas’ trades could not affect JML’s price was wrong. The marking-the-close trades frequently resulted in an increase in JML’s closing price, an increase which Havill knew or was reckless in not knowing was advantageous to Broumas’s margined position in that stock. The SEC also questioned whether the branch manager completely understood the nature of these transactions, specifically citing the manager's testimony that he was not aware that the transactions were resulting in an uptick although he recognized that market orders generally would be executed at an uptick.

Havill also claimed that his branch manager approved the wash trades. When Broumas began entering wash trades, Havill informed his branch manager about the trades. Havill and his branch manager had a disagreement about the rate of commissions that Broumas should be charged. Unlike the marking-the-close transactions, however, Havill did not claim that the branch manager explained or "educated" him about Broumas’ wash trading. Rather, Havill’s testimony indicated that the discussion was limited to the amount of commissions to be charged. Although the SEC allowed that the branch manager may have been aware of the trading, it did not believe that the record supported Havill’s conclusion that the manager advised him that Broumas’ trading was somehow proper.

In light of the factors noted above, the SEC sustained the ALJ's sanction and affirmed the ALJ's imposition of a two-month suspension and an order to cease and desist.