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Microcap & Penny Stocks : Zia Sun(zsun) -- Ignore unavailable to you. Want to Upgrade?

To: StockDung who wrote (9404)	8/20/2000 11:58:40 PM
From: Sir Auric Goldfinger	Read Replies (1) \| Respond to of 10354

Appeals Court Upholds SEC Order Against Virginia Brokerage Firm By JUDITH BURNS Dow Jones Newswires WASHINGTON -- A U.S. appeals court has upheld an order sanctioning a broker for aiding and abetting a client's fraudulent stock sales, saying the broker should have bucked her bosses rather than break securities laws. In a decision issued Friday, the U.S. Court of Appeals for the District of Columbia concluded the Securities and Exchange Commission acted reasonably in sanctioning broker Sharon Graham and her employer, Stephen Voss, owner of a Springfield, Va., independent discount brokerage company. "We're very pleased," said Susan McDonald, an SEC senior litigation counsel who argued the appeal on behalf of the agency. She said the ruling indicates "strong support" from the court for the commission's stance in the case. Ida Draim, a partner at the Washington, D.C., law firm of Dickstein, Shapiro, Morin & Oshinsky LLP, who represents Ms. Graham and Mr. Voss, said her clients are "deeply disappointed" with the decision. "As far as we're concerned, this case is not yet over," she added. The case stems from trades made by John Broumas, a former chairman of Madison National Bank of Virginia, who took a beating in the 1987 stock market collapse and was in dire financial straights by 1989, when he began using accounts at Voss & Co., to engage in "wash" trades, the SEC said. In a scheme similar to check-kiting, about every 10 days Mr. Broumas would sell thousands of shares of stock in James Madison Ltd., a bank holding company, to himself or to accounts he controlled, the SEC said. The trades didn't generate profits, but allowed Mr. Broumas to obtain cash from the stock sales a few days before payment for the purchases came due. The trading came to halt after 18 months, when Mr. Broumas was unable to meet margin calls or pay for his last transaction. In a subsequent settlement with the SEC, Mr. Broumas didn't admit or deny the agency's allegations, but agreed to an order barring him from future violations. He later pled guilty to criminal charges of using a check-kiting scheme to meet margin calls. The SEC charged Ms. Graham, a registered representative at Voss & Co., with aiding and abetting Mr. Broumas, and took action against Mr. Voss for failing to supervise Ms. Graham. In 1995, an administrative law judge found Ms. Graham and Mr. Voss liable, and on appeal to the full SEC, the commission affirmed most of the law judge's findings. In what he termed an "exceedingly close call," Commissioner Norman Johnson dissented on grounds that Ms. Graham reasonably relied on her supervisors' advice in helping Mr. Broumas make the trades. On appeal to the federal court, Ms. Graham contended the trades weren't fraudulent and that she didn't knowingly or recklessly help Mr. Broumas violate securities laws. Mr. Voss argued that since Ms. Graham wasn't aiding and abetting Mr. Broumas, he couldn't be found to have failed to supervise her. In its decision, the D.C. Circuit Court concluded that the trades were fraudulent and said it had no doubt Ms. Graham helped Mr. Broumas execute them, ignoring warning signs that amounted to "a large red flag." The court rejected Ms. Graham's contention that she had no discretion in handling the account and couldn't buck her bosses once they approved the trades. "Graham did have discretion," the court reasoned. "A registered representative can always refuse to execute a trade she knows may constitute a securities violation." While the court acknowledged that taking a tough stance could have made Ms. Graham's work life "difficult," or even gotten her fired, it said fear of the consequences doesn't excuse her behavior. The fact that Ms. Graham didn't personally benefit from the trades, which were handled through a "house" account that paid commissions to the company, rather than to the individual broker, doesn't absolve her, the court added. Having upheld the SEC's case against Ms. Graham, the court concluded that the evidence also supports the SEC's finding that Mr. Voss failed to supervise the broker he employed. Write to Judith Burns at judith.burns@dowjones.com