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U.S. Securities and Exchange Commission

UNITED STATES OF AMERICA
Before the
SECURITIES AND EXCHANGE COMMISSION

SECURITIES EXCHANGE ACT OF 1934

Release No. 39930 / April 29, 1998

ADMINISTRATIVE PROCEEDING

File No. 3-9592

In the Matter of

RAYMOND A. BASILE,

Respondent.

ORDER INSTITUTING PUBLIC PROCEEDDINGS, MAKING FINDINGS, IMPOSING REMEDIAL SANCTIONS

I.

The Securities and Exchange Commission (Commission) deems it appropriate and in the public interest that public proceedings be instituted pursuant to Sections 15(b), 19(h) and 21B of the Securities Exchange Act of 1934 (Exchange Act) against Raymond A. Basile (Basile). In anticipation of these proceedings, Basile has submitted an Offer of Settlement which the Commission has determined to accept. Solely for the purpose of this proceeding and any other proceeding brought by or on behalf of the Commission, or to which the Commission is a party, Basile, by his Offer of Settlement, without admitting or denying the Commission's findings, except the Commission's jurisdiction and the findings contained in Paragraph III.A, which are admitted, consents to the entry of this Order.

II.

Accordingly, IT IS HEREBY ORDERED THAT proceedings pursuant to Sections 15(b), 19(h) and 21B of the Exchange Act be, and they hereby are, instituted.

III.

On the basis of this Order and the Offer of Settlement submitted by Basile, the Commission finds 1 that:

A. Raymond A. Basile (Basile) is 45 years old and a resident of Bloomfield Hills, Michigan. From in or about 1991 to in or about January 1996, Basile was the branch manager of the Troy, Michigan branch office (Troy Branch) of a broker-dealer registered pursuant to Section 15 of the Exchange Act. During that period, he supervised all registered representatives in the Troy Branch.

REGISTERED REPRESENTATIVE’S MISCONDUCT

B. From at least 1990 to in or about October 1995, Lease Equities Fund, Inc. (LEF) purchased equipment which it then leased to various businesses. LEF financed its equipment purchases by issuing securities in the form of promissory notes (Notes or LEF Notes) secured by the equipment leases. Each Note was purportedly secured by a percentage of a lease equal to the present value of the principal due on the Note. No registration statement has been filed with the Commission or been in effect for the LEF Notes.

C. Beginning in or about 1990 and continuing through in or about October 1995, an officer of LEF (LEF Officer) began operating a Ponzi scheme in which he used part of the proceeds from the sale of new LEF Notes to make payments, labeled as principal and interest, to LEF’s earlier investors. In or about August 1994, LEF, through the LEF Officer, began offering and selling Notes secured by: (1) leases that were previously assigned in full to other investors; (2) leases that were forged or altered; (3) otherwise genuine leases to which LEF was not a party and in which LEF had no interest; and (4) unconsummated agreements between NBF Cable Systems, Inc. (NBF), a cable television company affiliated with LEF, and potential customers of NBF. In addition, the LEF Officer often failed to perfect the security interests of the investors in the leases. Beginning in or about 1993, the LEF Officer was also using funds raised from Notes to finance the operations of NBF. As a result of this Ponzi scheme, LEF owed at least $14.2 million on at least 265 Notes issued to at least 95 investors when it ceased doing business in or about September 1995 and had few, if any, assets with which to repay investors.

D. From in or about 1992 through in or about October 1995, a registered representative in the Troy Branch (Registered Representative) offered and sold at least 161 LEF Notes, totaling at least $13.6 million, to investors. LEF has failed to repay approximately $10 million of principal due from these Notes. During this period, the Registered Representative was paid at least $400,000 in compensation by LEF.

E. The Registered Representative offered and sold LEF Notes primarily to his customers at the broker-dealer where he was employed. The Registered Representative's offer and sale of the Notes were not authorized by the broker-dealer and the sales of the Notes were not processed through the broker-dealer.

F. The Registered Representative conducted no due diligence to determine the risks and suitability of the LEF Notes.

G. While soliciting his customers to purchase Notes, the Registered Representative made numerous misrepresentations of material facts concerning, among other matters, the leases assigned to secure the Notes he sold, the safety of the Notes, the financial condition of LEF, the use of Note proceeds and the capacity in which he was acting. For example, the Registered Representative falsely told at least one investor that the Notes provided a guaranteed return and represented that the Notes were risk-free.

H. During the period from in or about 1992 to in or about October 1995, the Registered Representative failed to disclose to the investors in the LEF Notes various material facts regarding the Notes, including, but not limited to, the following:

1) the extent to which funds raised from the sale of the Notes were being used to finance NBF;

2) that he owned 50 percent of NBF and was the president and a director of NBF;

3) that he was the vice president of LEF;

4) that his offers and sales of the Notes were not authorized by the broker-dealer and that the sales of the Notes were not processed through the broker-dealer;

5) that the LEF Officer was using the funds raised from new LEF investors to pay LEF bank loans and previous Note purchasers;

6) that the LEF Officer was securing LEF Notes with defective leases that were forged, altered, not owned by or assigned to LEF or already fully assigned to other Notes;

7) that the LEF Officer did not always take steps to perfect investors' security interests; and

8) that the LEF Officer was assigning unconsummated NBF agreements to the LEF Notes.

I. From in or about August 1994 to in or about December 1994, the Registered Representative induced some of his customers to invest in LEF by telling them that they had the opportunity to purchase loans from a bank in Pennsylvania at 85 percent of their face value. The Registered Representative represented to his customers that the loans were bad loans, that the bank was forced to sell them at a discount and, as a result, that investors were guaranteed a 15 percent return. In fact, the loans were LEF Notes which were not guaranteed. The Registered Representative omitted to tell these customers that LEF was the debtor on these loans and that additional investor funds were required because the bank was demanding repayment from LEF.

J. From in or about 1992 through in or about October 1995, the Registered Representative willfully violated Sections 5(a) and 5(c) of the Securities Act of 1933 (Securities Act) in that he, directly or indirectly, made use of the means or instruments of transportation or communication in interstate commerce or of the mails to sell or offer to sell, through the use or medium of a prospectus or otherwise, securities described in Paragraph III.B. above, or carried or caused them to be carried through the mails or in interstate commerce by the means or instruments of transportation for the purpose of sale or delivery after sale, while no registration statement was in effect or filed with the Commission, as described in Paragraphs III.B. through III.E. above.

K. From 1992 through October 1995, the Registered Representative willfully violated Section 17(a) of the Securities Act in that he, by the use of the means or instruments of transportation or communication in interstate commerce or by the use of the mails, directly or indirectly, in the offer or sale of securities described in Paragraph III.B. above, employed devices, schemes or artifices to defraud; obtained money or property by means of untrue statements of material fact or omissions to state material facts necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading; or engaged in transactions, practices or courses of business which operated or would operate as a fraud or deceit upon purchasers or prospective purchasers of such securities. As a part of this conduct, he made misrepresentations or omissions of material facts to investors, as described in Paragraphs III.D. through III.I. above.

L. From 1992 through October 1995, the Registered Representative willfully violated Section 10(b) of the Exchange Act and Rule 10b-5 thereunder in that he, in connection with the purchase or sale of securities described in Paragraph III.B. above, directly or indirectly, by the use of the means or instrumentalities of interstate commerce, or of the mails, employed devices, schemes or artifices to defraud; made untrue statements of material fact or omitted to state material facts necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading; or engaged in acts, practices, or courses of business which operated or would operate as a fraud or deceit upon the purchasers of the securities, as described in Paragraphs III.D. through III.I. above.

M. From 1992 through October 1995, the Registered Representative willfully violated Section 15(a)(1) of the Exchange Act in that he made use of the mails or the means or instrumentalities of interstate commerce to effect transactions in, or to induce or attempt to induce the purchase or sale of the securities described in Paragraph III.B. above, without being registered as, or associated with, a broker or dealer registered with the Commission pursuant to Section 15(b) of the Exchange Act, as described in Paragraphs III.B. through III.E. above.

N. From 1992 through October 1995, the Registered Representative willfully violated Section 15(c)(1) of the Exchange Act and Rule 15c1-2 thereunder in that he, while acting as a broker-dealer, by the use of the mails or of the means or instrumentalities of interstate commerce, effected transactions in, or induced or attempted to induce the purchase or sale of the securities described in Paragraph III.B. above, by means of manipulative, deceptive or other fraudulent devices or contrivances, including acts, practices or courses of business which operated or would operate as a fraud or deceit or made untrue statements of material fact or omitted to state material facts necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading, which statements or omissions were made with knowledge or reasonable grounds to believe they were untrue or misleading, as described in Paragraphs III.D. through III.I. above.

BASILE’S FAILURE TO SUPERVISE

O. From at least in or about August 1992 through in or about December 1995, the Registered Representative was subject to Basile's supervision within the meaning of Section 15(b)(4)(E) of the Exchange Act.

P. At all relevant times, the broker-dealer prohibited its registered representatives from soliciting and selling securities not approved by the broker-dealer.

Q. At no time were LEF securities approved by the broker-dealer for solicitation and sale by registered representatives employed by the broker-dealer.

R. Beginning in or about August 1992, Basile, among others, received a "red flag" in the form of a complaint made to Basile’s supervisor by an individual who provided certain financial services to clients of the broker-dealer. The complainant told Basile’s supervisor that the Registered Representative had been selling LEF securities to his customers at the broker-dealer. Basile was told of the complaint by his supervisor.

S. After receiving the red flag described in Paragraph III.R. above, Basile did not take any steps to investigate the complaint other than relying on the Registered Representative’s unverified representations that he did not solicit or sell LEF securities to his customers.

T. From in or about August 1992 to in or about December 1995, Basile failed reasonably to supervise the Registered Representative pursuant to Section 15(b)(6) of the Exchange Act and within the meaning of Section 15(b)(4)(E) of the Exchange Act, with a view to preventing the Registered Representative's violations of Sections 5(a), 5(c) and 17(a) of the Securities Act and Sections 10(b), 15(a) and 15(c) of the Exchange Act and Rules 10b-5 and 15c1-2 thereunder, in that Basile failed adequately to respond to the information concerning improper conduct, or red flags, described in Paragraph III.R. above.

IV.

In view of the foregoing, it is in the public interest to impose the sanctions specified in the Offer of Settlement, such sanctions to begin from the date of the entry of the Commission's order.

Accordingly, IT IS ORDERED THAT:

A. Basile be and hereby is, suspended from association with any broker or dealer for a period of three (3) months, effective on the second Monday following entry of this Order. Within thirty (30) days after the end of the suspension period, Basile shall provide an affidavit, stating that he has complied with this sanction, via certified mail to Mary E. Keefe, Regional Director, Securities and Exchange Commission, Midwest Regional Office, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661.

B. Basile be, and hereby is, suspended from acting in any supervisory or proprietary capacity with any broker or dealer for a period of nine (9) months immediately following the period of his suspension from association. Within thirty (30) days after the end of the suspension period, Basile shall provide an affidavit, stating that he has complied with this sanction, via certified mail to Mary E. Keefe, Regional Director, Securities and Exchange Commission, Midwest Regional Office, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661.

C. Basile shall pay a civil penalty of $5,000 within thirty (30) days of entry of this Order. Such payment shall be: (a) made by United States postal money order, certified check, bank cashier’s check or bank money order; (b) made payable to the Securities and Exchange Commission; (c) hand-delivered or mailed to the Comptroller, Securities and Exchange Commission, Operations Center, 6432 General Green Way, Stop 0-3, Alexandria, VA 22312; and (d) submitted under cover letter that identifies Raymond A. Basile as Respondent in this matter, the case number of this matter, a copy of which cover letter and money order or check shall be sent to Jerrold H. Kohn, Senior Attorney, Securities and Exchange Commission, 500 West Madison Street, Chicago, IL 60661.

By the Commission.

Jonathan G. Katz
Secretary


FOOTNOTES

1 The findings herein are made pursuant to Respondentís Offer of Settlement and are not binding on any other person or entity in this or any other proceeding.

http://www.sec.gov/litigation/admin/3-9592.htm


Modified:04/28/1998