2003
REGULATORY CASES OF NOTE
New York Stock Exchange

NOTE: Stipulations of Facts and Consents to Penalty (SFC) 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.

On or about July 27, 2000, Sine failed to disclose her felony history on an employment application. Sections 3(a)(39) and 15(b)(4) of the Securities Exchange Act of 1934 (“the Exchange Act”) provide that an individual is subject to a statutory disqualification if convicted, within the previous ten years, of any felony or misdemeanor involving, inter alia: “larceny, theft, robbery … fraudulent conversion, or misappropriation of funds.”  Sine’s 1993 conviction for theft subjected her to a statutory disqualification until December 8, 2003.

• Censure
• 5 year bar in all capacities

COMMENT:  Compare to more lenient sanction in Forbes.

Criminal History

1. On October 15, 1997,  convicted of  misdemeanor  driving while ability impaired. Sentenced to 20 days in jail (suspended), 24 hours of community service, and six- to twelve-months of probation.
2. On August 12, 1998, twelve-month deferred prosecution agreement in connection with a felony charge of criminal mischief $400-$15,000. Required  to pay restitution, submit to an alcohol evaluation and treatment program, and provide a letter of apology. Conditions completed and felony charge dismissed with prejudice on August 20, 1999. 
3. On April 13, 2001, Pled guilty to the felony charge of second degree burglary. Four-year deferred sentence  included ten days in jail, the payment of court costs and fees, and participation in a substance abuse evaluation and treatment program.  Also pled guilty to and was convicted of the misdemeanors of obstructing a peace officer and second degree trespass. Probation under the same conditions as the deferred sentence.
4. On July 11, 2002,  granted Forbes’ “Motion for Early ‘Successful’ Termination of Deferred Sentence of Judgment” and dismissed the felony charge of second degree burglary with prejudice.

On or about May 14, 2001, Forbes' completed employment application contained the following question: “Have you ever been convicted of a crime?"   Forbes responded “No” to this question. Based upon his criminal history, this question required a "Yes" answer. When Forbes completed his employment application, he was subject to a statutory disqualification based upon his April 13, 2001 guilty plea and deferred sentence for the felony of second degree burglary. 

Sections 3(a)(39) and 15(b)(4) of the Securities Exchange Act of 1934 provide that an individual is subject to a statutory disqualification if he or she is “convicted” within the past ten years of any felony and certain specified misdemeanors.  Forbes was subject to a statutory disqualification based upon his April 13, 2001, guilty plea and deferred sentence for the felony charge of second degree burglary.  Forbes’ statutory disqualification period for this offense ended on July 11, 2002, when the Boulder District Court ordered the termination of his deferred sentence and dismissed the felony charge with prejudice.

• Censure
• 2 year bar in all capacities

Comment:  Interesting problem.  If he were to have filled out the application today, the NYSE apparently takes the position that post-July 11, 2002 he has not statutory disqualification. Under the circumstances, this may be a fairly lenient sanction.  Compare to more severe sanction in Sine.

SCHUYLER M. TILNEY,FORMER REGISTERED REPRESENTATIVE

Exchange Hearing Panel Decision 03-01
January 9, 2003
Chief Hearing Officer ---
Edward J. Morris

Exchange Rule 476 (failing to provide testimony in connection with matters that occurred while he was an employee of Merrill Lynch). Panel granted unopposed motion by Enforcement to have facts in Charge Memorandum deemed admitted.

On August 27, 2002, Tilney appeared at the Exchange’s offices to provide on-the-record testimony. During the course of questioning by Enforcement Staff, Tilney read a prepared statement indicating that, upon advice of counsel, he would not answer certain questions relating to certain activities at the Firm. Tilney did respond to questions concerning the Firm for approximately two hours.

As to Tilney's assertion of the Fifth Amendment rights, the Panel unequivocally stated: 

It has universally been held that this right does not exist in Exchange proceedings. Nothing in this case warrants an exception to that policy. 

• Barred in any capacity until such time as he complies with the outstanding requests. 

Comment:  In light of this decision, Counsel should consider whether it makes sense to cooperate to any extent in an SRO on-the-record when a client will assert his/her Fifth Amendment right.    

NYSE Rules 342 (supervision, suitability, sales practices); 401 (due diligence, books and records); 405(account supervision, due diligence); 410(written authorization); and 440 (books and records)

'34 Act Section 17(a)

Sec.  220.8(b) and (c) of Reg. T (90 day restrictions)

Firm engaged in a number of practices that constituted sales practice violations and supervisory lapses.  Decision provides insight into better practices, such as:

• educating sales staff

• controlling producing BOMs

• effective restricted lists

• bundling of orders

• Censure,

• $400,000 fine,

• and an undertaking  to retain an independent outside consultant to conduct a review  and prepare a report for submission to NYSE within 120 days. 

During working hours between January and February 2002, RR accessed his personal YAHOO! account through his office computer.  He posted 20 messages that referenced himself and BD (by name) and touted five stocks. Among some of his comments were:

"[I] plan to sell for a hUUUUUUUUUge profit . . .Load up"

"Idiots are selling right now, complete idiots . . ."

• Censure;
• Bar in all capacities for 2 months

RANDALL CRAIG PECK
Exchange Hearing Panel SFC Decision
02-186
September 24, 2002, 
Hearing Officer ---
Vincent F. Murphy

BOM Peck failed to review the bond positions in Elrod's accounts, did not undertake appropriate concentration study, did not examine for suitability,did not discuss the bond with Elrod, and did not review the research file on the bond.  Similarly, Peck did not contact Elrod's customers

• Censure;
• Fined $5,000; and
• Suspension in all capacities for 3 months; and
• Required to be subjected to enhanced supervison for 1 year following suspension

BOM Peck:

• Censure;
• Fined $3,000; and
• Suspension in supervisory capacities for 1 month; and
• Required to complete a training course including the subject of proper supervision of fixed income trading before resuming supervisory role

• Censure;
• Fined $15,000; and
• Bar in all capacities for 2 months

On June 13, 2002, Witter was arrested for Grand Larceny for collecting unemployment checks during 10 weeks of ineligibility. On November 6, 2000 she pleaded guilty to Petit Larceny. On December 18, 2000, she was sentenced to a Conditional Discharge (apparently contingent upon the passage of one year) and ordered to make full restitution, which she did.

The Petit Larceny conviction deemed Witter a statutorily disqualified individual.  She did not notify BD about her arrest or conviction.  Upon learning of the events, BD terminated her on March 20, 2001.

In response to NYSE's investigation, Witter stated that she did not know that she was subject to criminal charges until she appeared in court.  She noted that she was granted a Certificate of Relief by the court and told that her record was sealed and need to inform her employer. Apparently, Witter was represented by an attorney during the criminal matter but represented herself pro se during the NYSE investigation and hearing.

Hearing Panel focused on the recency of the criminal matter to her employment and concluded that notwithstanding her layperson's understanding of the events she "She owed the firm, at the very least, an inquiry as to whether she should report her legal difficulties and her required court appearance." The Panel further noted that the COR and the Conditional Discharge did not serve to vacate the conviction nor override her disclosure obligations. The penalty was based upon both the statutory disqualification and the failure to timely disclose:

• Censure
• Bar in all capacities for 10 years

Note:  Witter claims she was unfairly prosecuted and the NYSE Hearing Panel noted that should her conviction be vacated they would be prepared to reconsider the sanctions.

Woo did not submit any replies and did not appear for an OTR.  He did not appear at the hearing.  Panel determined non-compliance with NYSE Rule 477 requiring cooperation by RR with investigation.

• Censure
• Bar in all capacities until such time as he cooperates

Customer deposited three checks totaling $22,865.26 into account 278-07J59 but funds mistakenly deposited into 278-07L59 (an inactive, unrelated account). Upon being asked to investigate the deposit, Campbell withdrew the funds and deposited them into a bank account in her name and then withdrew the sum.  BD terminated her upon discovery of her misappropriation.

Apparently, Campbell replied to the Division of Enforcement's inquiry by letter dated August 1, 2001.  By letter dated October 31,2002, NYSE advised Campbell that her reply was destroyed on September 11, 2001 and asked her to send another reply (she apparently claimed during a phone call that she did not retain a copy of the August 1 version). Campbell did not submit any further replies and informed NYSE that her attorney advised her not to cooperate any further nor submit any additional responses.

• Censure
• Permanent Bar in all capacities 

The postings were made without the knowledge or prior approval by his BD.  Nonetheless, although RR did not identify himself as BD's employee, he did refer to the BD in several postings.  The postings also constituted speculative statements that could reasonably be expected to affect investor interest.  Finally, RR and several of his customers traded shares of the three NASDAQ stocks referenced in his postings.

• Censure
• Barred in all capacities for 2 months

WALL STREET ACCESS
Exchange Hearing Panel Decision
02-148
July 19, 2002, 
Hearing Officer ---
Milton M. Stein

Unregistered branch cashier deposited checks into her personal security account knowing she had insufficient funds to cover them.  She then failed to properly debit such NSF checks. 

Censure and 3-year bar