Administrative Proceeding File No 3 7912 United States Of-Free PDF

  • Date:13 Sep 2020
  • Views:4
  • Downloads:0
  • Pages:37
  • Size:1.54 MB

Share Pdf : Administrative Proceeding File No 3 7912 United States Of

Download and Preview : Administrative Proceeding File No 3 7912 United States Of

Report CopyRight/DMCA Form For : Administrative Proceeding File No 3 7912 United States Of


ADMINISTRATIVE PROCEEDING,FILE NO 3 7912,UNITED STATES OF AMERICA. Before the,SECURITIES AND EXCHANGE COMMISSION,In the Matter of. RICHARD D DEMAIO INITIAL DECISION,APPEARANCES Bruce M Bettigole and James G Mann. for the Division of Enforcement,Kenneth W Lipman for Richard D DeMaio. BEFORE Edward J Kuhlmann Administrative Law Judge, Richard D DeMaio was a broker group leader and office.
manager at the broker dealer Graystone Nash Incorporated in its. Boca Raton Florida branch office during April 1986 through. December 1988 Graystone Nash was at the time a registered broker. dealer pursuant to Section 15 b of the Securities Exchange Act of. 1934 with headquarters in Bloomfield New Jersey The Order. Instituting Public Proceedings against DeMaio alleged that he. willfully violated aided and abetted or caused violations of. sections 17 a of the Securities Act of 1933 and 10 b and 15 c. of the Exchange Act of 1934 and Rules 10b 5 10b 6 and 15cl 2. thereunder It is also alleged that DeMaio wilfully violated. aided and abetted or caused violations of section 5 of the. Securities Act This hearing was held to determine,A Whether the allegations set forth in the Order. Instituting Public Proceedings are true and if they are. to consider any defenses DeMaio may have to the,allegations. B What if any remedial action is appropriate in the. public interest pursuant to Section 15 b 6 and 21C of. the Exchange Act, The hearing was held in Fort Lauderdale Florida on March 9. and 10 1993 The record was closed on March 10 1993 Following. the hearing the parties filed proposed findings and briefs The. Division filed a reply on May 10 1993,FINDINGS OF FACT. DeMaio was a broker in Graystone s Boca Raton office from. April 1986 through December 1988 except for six weeks beginning. in August of 1986 when he was at another Graystone office Tr 299. 300 Div Ex 1 Stipulation at 1 From about April 1987 to. December 1988 DeMaio was one of the five managers of the Boca. Raton office The other managers were the owner of the office. Dennis Williams Williams nephew Gene Foland who had no assigned. responsibilities James R Ricketts Jr and James L Copley In. May 1988 DeMaio became the office manager second in command after. the office owner Dennis Williams Tr 242 307 08 368. DeMaio was in charge of enforcing the Buy Sell Formula. under which the office was required to generate customer buy orders. totalling at least 125 percent of its customer sell orders Tr. 384 DeMaio also held sales meetings with the brokers and. DeMaio s co managers in the Boca office Ricketts and Copley. were also named as respondents in this proceeding Both. Ricketts and Copley consented to the entry of sanctions. against them prior to the commencement of the hearing The. sanctions included a permanent bar from association with any. broker dealer municipal securities dealer investment. adviser or investment company under Section 15 b 6 of the. Securities Exchange Act of 1934 15 U S C S78o b 6 and. orders pursuant to section 21C of the Exchange Act that they. permanently cease and desist from committing or causing any. violation and committing or causing any future violation of. sections 5 and 17 a of the Securities Act of 1933 and 10 b. and 15 c of the Exchange Act and Rules 10b 5 10b 6 and. 15cl 2 thereunder Div Ex 18 at 2 3 Ex 19 at 2 3 As. part of the settlement Copley and Ricketts submitted sworn. financial statements demonstrating an inability to pay any. disgorgement amount in consideration of which the Commission. agreed to waive any disgorgement requirement Div Ex 18 at. 3 Div Ex 19 at 3, designed special sales incentives known as spiffs Tr 368.
374 75 Div Ex 22 He was involved in at least some personnel. matters such as recruiting the compliance manager for the office. Tr 203 4 When brokers quit the Boca Raton office DeMaio. routinely assigned their clients to other brokers who were staying. with the office Tr 110 11 2 DeMaio was also involved in. handling customer complaints for the Boca Raton office Tr 114. 15 When Dennis Williams was absent from the Boca Raton office. as he frequently was for personal reasons or to visit his other. Graystone branch offices DeMaio was left in charge Tr 31 82. 83 242 376, DeMaio told to his clients that because he was a manager he. had access to privileged information that other brokers were not. aware of Tr 150 189 90 367 68 He told James Morton a. customer of his from March 1986 until Graystone closed that he. received privileged information because he was in management but. that he could not reveal the content of that information. Nevertheless DeMaio did tell Morton that based on information he. knew he could say that the price of the stock in question was. going to go up Tr 150 During the period when he was a manager. in the Boca Raton office DeMaio attended Graystone s monthly. national management meetings Tr 78 79 He also owned part of. the Graystone office in Reno Nevada and was involved in efforts. in 1988 to open an additional office in orlando Florida which was. 2 It was common practice for the newly assigned brokers to. falsely tell the customers that the departing broker had. been fired Tr 110 11, to be owned by DeMaio Williams Gene Foland and Graystone broker. Richard Cohen Tr 84 233 309 10 376 78, From April 1987 through December 1988 the period during which. DeMaio served as a manager of the office he received a 2 1 2. percent override on the production of the office Tr 83 84. 301 369 370 71 In 1987 and 1988 he received approximately. 430 000 from Graystone of which approximately 65 70 percent or. 279 500 301 000 consisted of his commissions as a broker from. selling house stocks to his personal clients The remaining. 129 000 150 500 was his override on the sales of house stocks. by other brokers Tr 369 71 His income was tied directly to. retail sales of the house stocks Tr 84 Although DeMaio also. sold some mutual funds his income from that activity was a tiny. fraction of his overall compensation and yielded minimal. revenue for the office Tr 80 81 371 DeMaio s emphasis was. always on selling the chop the house stocks with the biggest. commissions not mutual funds Tr 151, DeMaio was one of the top five producing brokers in. Graystone s Boca Raton office He had a number of large customer. accounts Tr 84 85 In addition to the regular commissions paid. to brokers DeMaio earned special bonuses for selling particular. combinations of house stocks to his clients such as 1000 shares. of ATC Environmental 1500 shares of W I N E and 1500 shares of. International Electronics in september 1988 Div Ex 20 21 Tr. 372 73 DeMaio initially denied having earned such bonuses but. recanted this testimony when confronted with documentary evidence. DeMaio represented in his Answer and Amended Answer that he. was a former liquor salesman who did not understand the securities. business Answer at 3 Amended Answer at 3 But DeMaio is a. college graduate who had worked at First Jersey securities for 2. 1 2 years prior to his tenure at Graystone First Jersey was a. firm which sold and made a market in penny stocks that its. customers were not permitted to sell unless they bought other. stocks First Jersey also engaged in a practice called flips. where one office would buy a particular stock for clients while. another First Jersey office simultaneously recommended selling the. same stock DeMaio testified he knew of these practices while. employed at First Jersey Tr 296 98 326 366 67, Graystone s Practices in Making Initial Public Offerings and.
Aftermarket Trading, Graystone from January 1 1987 through December 31 1988. underwrote 12 initial public offerings Div Ex 1 stipulation at. 1 DeMaio either directly or indirectly had copies of the. prospectuses for the offerings sent to purchasers of the units Tr. 185 86 196 289 330 The units were common stock and detached. warrants which were immediately exercisable within days of the. first sale of the stocks on the over the counter market Graystone. would purchase nearly all the units from the customers who had. initially purchased them The initial customers would make. substantial profits, Graystone would remove the warrants from the units and sell. the common stock to its customers at successively higher ticks. or preset prices during the first few days the securities traded. in the over the counter market As the tick price increased. Graystone would make more stock available for purchase The total. amount of stock to be sold at any tick was determined by Graystone. headquarters in New Jersey Graystone headquarters also determined. how much stock a branch office would be allocated at the various. after market price levels The branch office determined how much. stock a particular broker would have available at any price level. Div Ex 1 stipulation Bids at other than the set tick prices. would not be executed Tr 20, DeMaio was involved in the initial allocations of IPO units. among the brokers in the office Tr 32 DeMaio and the other. managers of the Boca Raton office instructed the brokers that they. would have to arrange for customers to resell the units to. Graystone almost immediately at a profit to be chosen by. Graystone Tr 16 18 Brokers were told to sell units only to. customers who would play ball Tr 16 This meant that when. management wanted the units back we were supposed to be able to get. those units back Id sanctions were imposed on brokers who. failed to comply Tr 60, When Graystone wanted the units back DeMaio went around the. Boca Raton office with a list of the brokers who had not yet. complied and instructed them to get their units back Tr 29 87. L Henry Aselton a former broker in the Boca Raton office. testified as follows, Q Did DeMaio seem at all apologetic or reluctant about.
doing that,A It was more of a demand,Q Was he enthusiastic about it. customers were also required to buy common stock in the. aftermarket after they had resold their units to Graystone Tr. 27 28 87 88 90 91 141 380 Brokers were routinely instructed. by the managers in the Boca Raton office including DeMaio that. the clients would have to pay in advance of the offerings for both. units and aftermarket common stock Tr 18 19 88 140 The. advance payments which were reflected as credit balances in. customer accounts far exceeded the amounts of the unit offerings. This ensured that the price of the common stock would rise. sUbstantially in the immediate aftermarket Tr 91 This. information was available on the office s computer system Tr. DeMaio was aware of the overselling of Graystone s IPOs and. used it as a marketing tool with his own customers DeMaio told. one of his customers James Morton that Graystone s IPOs were so. successful because they were oversold Consequently it is. a shoo in Tr 28 141 As Morton testified without, contradiction by DeMaio DeMaio mentioned rather horrendous values. of cash which had been raised for some specific offerings Tr. To get customers to pay for units and aftermarket common stock. in advance of the offerings the Boca Raton office gave courtesy. confirmations courtesy confirmations were forms sent to. customers by their brokers in advance of the actual confirmations. which reflected the transaction and the total amount due These. forms were used to get customers to send in payment in advance so. that there would be fewer cancellations of buy tickets due to. failure of the clients to pay on time When customers failed to. pay for their buy tickets Graystone s headquarters would cancel. the trades and fine the brokers DeMaio told the Boca Raton. brokers that the courtesy confirmations were a good tool to bring. in payments more quickly and to avoid sellouts by Graystone s. headquarters Tr 98 101, Clients who only wanted to buy units in the IPOs and not. aftermarket common stock were derided by DeMaio and the other. managers as new issue whores and brokers were instructed not to. sell units to such customers Tr 27 28 87 88 380 DeMaio. conceded that he had told his clients in the majority of cases. that they would have to sell the units back to Graystone Tr. 379 80 DeMaio also admitted that he had his customers send in. money in advance of the offerings for both units and aftermarket. stock Tr 381, DeMaio and the other managers allocated to the brokers. particular amounts of common stock at particular prices prior to. the opening of the OTC market sometimes with several different. price levels being assigned at once Tr 19 20 The amount of. stock assigned by DeMaio and the other managers generally increased. as the preset tick price increased Similarly the commission. levels set by the managers increased as the tick price increased. Tr 32 33 One effect of this scheme was to encourage brokers to. sell to their customers at higher prices in order to reap higher. commissions Tr 33, Because the prices were known in advance in the IPO of a.
stock called W I N E the brokers in the Boca Raton office wrote. out the tickets for the aftermarket in advance at the various tick. levels But at the last minute Graystone headquarters changed the. number of shares allocated at various tick prices DeMaio Richard. Cohen a broker and Jose Gallego the operations manager. readjusted the buy tickets that had been left by the brokers They. ADMINISTRATIVE PROCEEDING FILE NO 3 7912 UNITED STATES OF AMERICA Before the SECURITIES AND EXCHANGE COMMISSION In the Matter of RICHARD D DEMAIO INITIAL DECISION APPEARANCES Bruce M Bettigole and James G Mann for the Division of Enforcement Kenneth W Lipman for Richard D DeMaio BEFORE Edward J Kuhlmann Administrative Law Judge Richard D DeMaio was a broker group leader and

Related Books