UNITED STATES SECURITIES AND EXHANGE COMMISSION
SECURITIES ACT OF 1933
SECURITIES EXCHANGE ACT OF 1934
Proceedings Instituted Against Dale E. Frey and Roger A. Rawlings for Failure to Supervise and Against William C. Piontek for Fraud
The Commission instituted administrative proceedings against Dale E. Frey, president and chief executive officer of D.E. Frey and Company, Inc., a broker-dealer located in Denver, Colorado, and against Roger A. Rawlings, a registered principal of the broker-dealer's branch office in Colorado Springs. The Division of Enforcement alleges that between 1995 and 1999, three registered representatives at the firm, each of whom had a disciplinary history or history of customer complaints, engaged in unsuitable trading, unauthorized trading and churning in customer accounts. One registered representative named as a respondent in the proceedings, William C. Piontek of Atlanta, Georgia, made unsuitable trade recommendations involving sophisticated options transactions to his customers who were not approved for the transactions. The Division alleges that Dale Frey failed reasonably to supervise Piontek and two other registered representatives and that Rawlings failed reasonably to supervise one of the registered representatives located in Colorado Springs.
The Division alleges that Piontek made unsuitable trade recommendations involving options transactions to two D.E. Frey clients who were not approved for the transactions, had not completed options agreements, and had stated investment objectives including preservation of capital and avoidance of risk. The Division alleges that, through his unsuitable trading in the two client accounts, Piontek willfully violated Section 17(a) of the Securities Act of 1933 ("Securities Act") and Section 10(b) of the Securities Exchange Act of 1934 ("Exchange Act") and Rule 10b-5 thereunder.
According to the Division, Dale Frey failed to develop a system for implementing the supervisory procedures of the firm, including failing to devote adequate resources to such a system. As president, chief executive officer and head of the hiring review committee for the firm, Dale Frey prepared, reviewed and/or approved the firm's supervisory and compliance procedures. The Division alleges that Dale Frey knew that the firm lacked a system to implement the procedures and had insufficient revenue from commissions and transaction charges to adequately fund and staff compliance and supervisory departments.
As president and chief executive officer of the firm, Dale Frey was also responsible for ensuring that appropriate heightened supervision was imposed on registered representatives with disciplinary histories. The Division alleges that Dale Frey personally recruited registered representatives and interviewed them before their association with the firm and knew that a number of new representatives hired by the firm, including the three registered representatives, had significant disciplinary histories or histories of customer complaints alleging serious misconduct that should have required increased day-to-day supervision. Notwithstanding his knowledge, Dale Frey did not develop procedures to provide appropriate heightened supervision.
The Division alleges that Rawlings did not reasonably discharge his duties and responsibilities to supervise a registered representative in the broker-dealer's branch office in Colorado Springs, Colorado. In 1998, the registered representative engaged in unsuitable trading in the accounts of at least three elderly clients and churned two of those accounts. The Division alleges that Rawlings was aware that the registered representative had a disciplinary history prior to his association with the broker-dealer. The registered representative was subject to a "special supervision order" by the State of Colorado and was prohibited by the broker-dealer from exercising discretion over any client accounts. Rawlings was designated by the broker-dealer to be responsible for directly supervising the registered representative. According to the Division, Rawlings failed to monitor the representative's trading activity in accordance with the firm's procedures and did not impose heightened supervision that was appropriate in light of the registered representative's disciplinary history.
A hearing before an administrative law judge will be scheduled to determine whether the allegations in the Order are true and to determine what remedial action, if any, is appropriate in the public interest.