MMM..Nah..THEY wouldn't do THAT...HA!! You might recognize some of the names at the bottom..Near as I can tell, they still do this.
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SEC Fines 28 Brokerage Firms $26 Million and Suspends 51 Individual
Traders for Fraudulent Market-Making Activities in the Nasdaq Market
Washington, DC, January 11, 1999 --
The Securities andExchange Commission today imposed civil penalties
of more than$26 million on 28 broker-dealers and suspended 51
individualsfrom the industry for various lengths of time for numerous
federal antifraud or other violations resulting primarily from market-
making activities in the Nasdaq stock market. Richard H. Walker,
Director of the Division of Enforcement said "These settlements
effectively bring to a close the long-standing investigation of the
Nasdaq market first begun by theSEC in 1994. The settlements require
the firms to improve their trading policies and procedures, building
upon other reformsalready implemented." Chairman Arthur Levitt
said, "Thanks to effective leadership, today Nasdaq is stronger and
better. The soundreforms implemented over the past several years and
thecommitment to strong oversight greatly enhance investorprotections
and reaffirm confidence in the Nasdaq market." The firms and
individuals consented to a variety ofsanctions, including: civil
monetary penalties totaling$26,302,500, disgorgement of wrongful
gains totaling $791,525,suspensions or bars for the individual
respondents, and cease anddesist orders
. All of the firms and individuals involved in thisaction settled the
cases without admitting or denying thecharges. The SEC found that the
firms had engaged primarily in one ormore of the following types of
violations: (a) the coordinationof quotations and transactions by
traders making markets inNasdaq stocks in violation of antifraud and
fictitious quotationrules, (b) the intentional delay of trade
reports, (c) other manipulative activity, (d) failure to honor quoted
prices, (e)failure to provide customer orders with best execution, (f)
trading as principal with advisory clients or discretionarycustomers
without disclosure and consent, (g) failure to complywith the books
and records requirements, and (h) failure tosupervise.
The sanctions on the broker-dealer respondents include: (a)civil
monetary penalties, (b) disgorgement of wrongful gains,where
appropriate, (c) cease and desist orders, and (d) in thecase of
twenty-two of the broker-dealers, a review of theirpolicies and
procedures relating to the areas of their violationsby an independent
consultant to be appointed by the Commission. The sanctions on the
individual respondents include: (a)suspensions or bars from the
securities industry, (b) civilmonetary penalties, (c) cease and
desist orders, and (d) disgorgement of wrongful gains, where
appropriate. Details of the Commission's actions, including the names
ofthe firms and individuals and the respective penalties assessed,are
identified in the Commission's order, which is available
at:www.sec.gov.
The SEC acknowledges the assistance of the NASD in thesecases. # # #
SECURITIES AND EXCHANGE COMMISSION Washington, D.C.ADMINISTRATIVE
RELEASE, January 11, 1999SECURITIES EXCHANGE ACT OF 1934Release No.
34-40900In the Matter of Certain Market Making Activities on
Nasdaq,Administrative Proceeding File No. 3-9803 The Securities and
Exchange Commission today announced theinstitution of administrative
proceedings against 28 broker-dealers and 51 individuals who worked
at those broker-dealers forvarious antifraud violations and other
violations of lawresulting primarily from market making activities in
the Nasdaqstock market. The respondents are identified on the
attachedlist. The respondents have simultaneously consented,
withoutadmitting or denying the Commission's findings, to the entry
ofOrders which impose civil monetary penalties totalling$26,302,500,
disgorgement of wrongful gains totalling $791,525,suspensions or bars
for the individual respondents, cease and desist orders and other
sanctions.
The Orders found that therespondents had engaged primarily in one or
more of the followingtypes of violations: (a) the coordination of
quotations andtransactions by traders making markets in Nasdaq stocks
inviolation of antifraud and fictitious quotation rules, (b) the
intentional delay of trade reports, (c) other manipulativeactivity,
(d) failure to honor quoted prices, (e) failure toprovide customer
orders with best execution, (f) trading asprincipal with advisory
clients or discretionary customerswithout disclosure and consent, (g)
failure to comply with thebooks and records requirements, and (h)
failure to supervise.
The sanctions on the broker-dealer respondents include: (a)civil
monetary penalties, (b) disgorgement of wrongful gains,where
appropriate, (c) cease and desist orders, and (d) in thecase of
twenty-two of the broker-dealers, a review of their policies and
procedures relating to the areas of their violationsby an independent
consultant to be appointed by the Commission. The sanctions on the
individual respondents include: (a)suspensions or bars from being in
the securities industry, (b)civil monetary penalties, (c) cease and
desist orders, and (d)disgorgement of wrongful gains, where
appropriate. The Commission issued two different but related types
ofOrders in this proceeding. The Order Instituting
Proceedingsprovides a broad discussion of the various types of
unlawfulconduct that occurred in 1994 in connection with market
making bythe respondents in the Nasdaq market.
In addition, specificOrders Making Findings and Imposing Sanctions
were separatelyissued for each broker-dealer respondent and the
individualrespondents, usually traders, who worked at that particular
broker-dealer. Each Order Making Findings and Imposing
Sanctionsdescribes the extent to which any particular respondent
engagedin the types of unlawful conduct described in the
OrderInstituting Proceedings. The types of violative conduct found
bythe Commission include the following:
1.Market Manipulation. Market makers coordinated the entry of bid
and/or ask quotations into the Nasdaq system for the purpose of
artificially affecting the market price of a particular security in
order to obtain an unfair trading advantage for the participating
market makers. These undisclosed arrangements typically involved one
market maker requesting another market maker to move its quotations
in a manner that changed the inside spread or disadvantaged customers
or other market participants. Such coordinated activity violated the
antifraud provisions of Section 15(c)(1) of the Exchange Act and Rule
15c1-2 thereunder, and the prohibition on the entry of fictitious
quotations provided in Section 15(c)(2) of the Exchange Act and Rule
15c2-7 thereunder.
2. . Another type of misconduct involved undisclosed arrangements
between market makers to coordinate the entry of quotations that did
not have a manipulative impact. In many instances, this activity was
intended to paint a deceptive picture of market conditions, or induce
another market participant into buying or selling at an artificial
price. Although the Commission did not find that, in these instances,
there was any manipulative impact, such as a change in the inside
market, or harm to a customer or other market participant, such
conduct violated the rules prohibiting undisclosed coordinated
quotations. In other instances, one market maker would enlist another
market maker to disseminate a quotation to buy or sell Nasdaq stocks
on its behalf, such as a request to the second market maker to join
the existing inside bid or ask, or create a new inside market price,
in the hopes of buying or selling stock. These undisclosed
arrangements violated the prohibition on the entry of fictitious
quotations provided in Section 15(c)(2) of the Exchange Act and Rule
15c2-7 thereunder.
3. The Intentional Delaying of Trade Reports. In a number of
instances, market makers intentionally delayed reports of significant
trades to the Nasdaq market. The purpose of delaying these trade
reports was to provide the relevant trader with an unfair
informational and trading advantage over other market participants.
The failure to properly report trades in such cases violated the
antifraud provisions of Section 15(c)(1) of the Exchange Act and Rule
15c1-2 thereunder.
4. Other Market Maker Misconduct . Market makers engaged in other
manipulative activity which did not involve arrangements for the
entry of quotations. This activity involved transacting with other
market makers that were quoting the inside bid or inside ask, for the
specific purpose of altering the inside market prices where customer
orders were executed, which resulted in a worse price for the
customer (or for another market participant, in some instances). Such
conduct improperly benefitted the market maker and harmed the
interests of its customer (or another market participant), in
violation of the antifraud provisions of Section 15(c)(1) of the
Exchange Act and Rule 15c1-2 thereunder.
5. Best Execution ViolationsIn a number of instances, Nasdaq market
makers failed to provide best execution for their customers' orders.
These instances involved a market maker deliberately favoring its own
interests, or those of a cooperating market maker, over the interests
of its customers, such that the customer did not receive the most
favorable price reasonably available under the circumstances. This
violated the antifraud provisions of Section 15(c)(1) of the Exchange
Act and Rule 15c1-2 thereunder.
6. Failure to Honor QuotationsB. Another type of misconduct was the
failure by market makers to honor their Nasdaq quotations in various
instances. In these instances, the market makers did not honor their
quotations because they did not like the trading practices of firms
that presented the orders or because of other improper reasons, in
violation of the Commission's firm quote rule (Exchange Act Rule
11Ac1-1, 17 C.F.R. 240.11Ac1-1).
7. Failure to Keep Accurate Books and Records. In many instances,
market makers failed to create or maintain records of their trading
activity, particularly with respect to the terms and conditions of
customer orders, or the times of entry or execution of such orders.
These failures violated the recordkeeping requirements of 17(a) of
the Exchange Act and Rules 17a-3 and 17a-4 thereunder . 8. Failure to
Reasonably Supervise Nasdaq Trading. Most of the respondent firms
failed to reasonably supervise traders and other persons involved in
transactions in Nasdaq stocks. Most of the respondent firms did not
prescribe procedures or guidelines for their traders or supervisors
concerning the potential problems of discussing quotations with
traders at other firms. Other respondent firms had inadequate
procedures in this regard. In addition, most respondent firms had no
procedures or guidelines for supervisors to review activities of
traders for potential coordination or collaboration with respect to
quotations.
Other respondent firms had inadequate procedures or guidelines for
such supervisory reviews. Certain respondent firms relied on their
head Nasdaq trader to perform much or most of the supervisory
function without effective oversight of the head trader's activities.
This proved to be a flaw in the supervisory structure in some
instances when the head trader engaged in one or more of the
violations of the federal securities laws found by the Commission in
these proceedings to have occurred. Further, certain respondent firms
did not provide their Compliance Departments with resources adequate
to perform their assigned responsibilities relating to trading in the
Nasdaq market. The complexities of the Nasdaq market and trading in
Nasdaq stocks will often require, at firms with sizeable Nasdaq
trading departments, a substantial commitment of compliance
resources. In addition, the Orders Making Findings and Imposing
Sanctions asto a few specific firms made findings of certain other
unlawfulconduct in 1994, as is described below:
a. Improper DSPG Trading. PaineWebber, Inc., S.G. Cowen & Co., CIBC
Oppenheimer Corp., and Herzog, Heine, Geduld, Inc., and certain of
their employees engaged in manipulative conduct involving the stock
of DSP Group, Inc. ("DSPG"). Certain traders at these firms engaged
in quote coordination and other collaborative conduct involving DSPG
stock on various days over a period of several months. In the manner
and to the extent described in the applicable Order Making Findings
and Imposing Sanctions, they artificially depressed prices in order
to enable PaineWebber or Cowen to purchase stock more cheaply from
customers or others, and artificially elevated prices in order to
enable PaineWebber or Cowen to sell at higher prices to customers or
others. Among other things, a PaineWebber registered representative
and certain of its traders failed to fulfill their obligation of best
execution for certain customer orders, in order to enhance the
profits and compensation obtained from executing these orders.
This conduct violated the antifraud provisions of Section 10(b) of
the Exchange Act and Rule 10b- 5 thereunder. b. Section 15(f) Charge.
J.P. Morgan Securities, Inc. ("J.P. Morgan") violated Section 15(f)
of the Exchange Act. This provision requires that a registered broker-
dealer establish, maintain and enforce policies and procedures
reasonably designed to prevent the misuse of material nonpublic
information. A J.P. Morgan Nasdaq trader accumulated approximately
100,000 shares of Perrigo Company ("Perrigo") after learning that
J.P. Morgan investment bankers working for Perrigo were analyzing a
potential stock buyback by Perrigo as a means to enhance its stock
price. Perrigo subsequently decided not to proceed with a buyback and
the trader sold this position without profiting from his knowledge of
the consideration of a buyback. J.P. Morgan's then existing policies
and procedures were deficient in not requiring any consultation with
the Compliance Department or legal personnel before the trader bought
this position under these circumstances. c. Principal Trading with
Advisory Clients and Discretionary Customers. Legg Mason Wood Walker,
Incorporated ("Legg Mason") violated Section 206(3) of the Investment
Advisers Act of 1940 ("Advisers Act") by engaging in indirect
principal transactions with its advisory clients, and violated the
antifraud provisions of Section 15(c)(1) of the Exchange Act and Rule
15c1-2 by engaging in indirect principal transactions with its
discretionary customers.
These provisions prohibit a broker-dealer from trading as principal
with its advisory clients and discretionary customers, without
certain disclosures to them and their consent. In executing certain
orders to transact stocks for the account of advisory clients and
discretionary customers, Legg Mason delivered the order to another
market maker, purportedly on an agency basis. Legg Mason then
simultaneously arranged to trade itself with the other market maker
the same amount of the same stock, such that it indirectly filled the
customer's order. The customer confirmation inaccurately indicated
that Legg Mason acted in an agency capacity in the transaction. This
arrangement gave Legg Mason the potential to make a trading profit
from the orders of advisory and discretionary clients, or to dispose
of an unwanted inventory position, in violation of the previously
cited provisions.The Commission acknowledges the assistance of the
NationalAssociation of Securities Dealers, Inc. in the investigation.
Respondent Firms and IndividualsBear Stearns & Co., Inc. and Philip
D. ZeiferCantor Fitzgerald & Co.S.G. Cowen Securities Corp., Kennedy
M. Buckley, David D. Dube,Peter M. Gilfillan, John P. Mottes and
Richard S. StrieflerCS First Boston Corp.Dean Witter Reynolds,
Inc.Donaldson, Lufkin & Jenrette Securities Corp. and Lawrence
H.KurtzGruntal & Co., L.L.C.Hambrecht & Quist LLC and Edward L.
AlbertHerzog, Heine, Geduld, Inc., Ronald F. Cullen, Jr. and
BradleyZipperJ.P. Morgan Securities, Inc., Donald A. Dunworth, Mark
A.Gallagher and David J. MottesJefferies & Company, Inc.Legg Mason
Wood Walker, IncorporatedLehman Brothers Inc.Mayer & Schweitzer,
Inc., Robert Burns and Christopher D. ColganMerrill Lynch, Pierce,
Fenner & Smith IncorporatedMorgan Stanley & Co., Inc., Peter W.
Ferriso, Jr. and Robert S. RanzmanOlde Discount Corp., Jack G.
Monopoli, Frank W. Schwarz, III, andJohn F. Watson, Jr.CIBC
Oppenheimer Corp. and William G. Clark, Jr.PaineWebber Inc., Richard
A. Bruno, Peter F. Comas, Robert D.Coppola, Gerard Kane, Joseph J.
Palma, Arthur A. Raiola, JosephH. Raiola and Reuben G. TaubPiper
Jaffray Inc. and Stacey R. RickertPrudential Securities Inc., Michael
T. Burke, Jr., Joseph G.Candela and Robert D. SprotteRaymond James &
Associates, Inc., Thomas J. Dudenhoefer andTimothy J. KaneThe
Robinson-Humphrey Company, LLCSalomon Smith Barney Inc. (as successor
to Salomon Brothers Inc)Salomon Smith Barney Inc. (formerly known as
Smith Barney Inc.),Glenn Y. Blitzer, Barry J. Dusti and George C.
Ross, Jr.Sherwood Securities Corp., Brian J. Deegan, Richard M.
Marino,Edward G. Schmitz and David M. ZitmanSpear, Leeds & Kellogg,
L.P. (by virtue of the activities of itsTroster Singer division),
Michael J. Ling, James P. Morris, JohnJ. Quigley and Eric J.
ScherzerTucker Anthony Inc.Warburg Dillon Read, LLC, Michael R.
Antolini, Steven D. Murphy,Joel I. Zweig and David S. RothmanWilliam
P. Heenan |
