Marion Bass Securities Corp. and Gerald Chandik
SECURITIES ACT OF 1933
Release No. 7929 / December 20, 2000
SECURITIES EXCHANGE ACT OF 1934
Release No. 43754 / December 20, 2000
ADMINISTRATIVE PROCEEDING
File No. 3-9471
| In the Matter of MARION BASS SECURITIES CORP.
|
ORDER MAKING FINDINGS,
IMPOSING REMEDIAL SANCTIONS, AND ISSUING CEASE-AND-DESIST ORDER PURSUANT TO SECTION 8A OF THE SECURITIES ACT OF 1933 AND SECTIONS 15(b), 19(h), AND 21C OF THE SECURITIES EXCHANGE ACT OF 1934 |
I.
The Securities and Exchange Commission ("Commission") has instituted public administrative and cease-and-desist proceedings pursuant to Sections 8A of the Securities Act of 1933 ("Securities Act") and Sections 15(b), 19(h) and 21C of the Securities Exchange Act of 1934 ("Exchange Act") against Marion Bass Securities Corp. ("MBSC") and public administrative proceedings pursuant to Sections 15(b) and 19(h) of the Exchange Act against Gerald Chandik ("Chandik").1 MBSC and Chandik have each submitted an Offer Of Settlement which the Commission has determined to accept.
II.
Solely for the purpose of these proceedings and any other proceedings brought by or on behalf of the Commission, or to which the Commission is a party, prior to a hearing pursuant to the Commission's Rules of Practice, 17 CFR 201.100 et seq., and without admitting or denying the findings herein, except that MBSC and Chandik admit the jurisdiction of the Commission over them and the subject matter of these administrative proceedings and admit only the findings contained in Section III.A. and III.B. below, MBSC and Chandik, by their Offers of Settlement, consent to the entry of this Order Making Findings, Imposing Remedial Sanctions, And Issuing Cease-And-Desist Order Pursuant to Section 8A of the Securities Act of 1933 and Sections 15(b), 19(h), and 21C of the Securities Exchange Act of 1934 (the "Order").
III.
On the basis of this Order and the Offers Of Settlement submitted by MBSC and Chandik, the Commission finds that:
A. MBSC has been registered with the Commission as a broker-dealer pursuant to Section 15(b) of the Exchange Act since 1979. MBSC is headquartered in Charlotte, North Carolina, is a member of the National Association of Securities Dealers, Inc. ("NASD"), and is engaged in a general securities business.
B. Chandik has served as MBSC's compliance officer since June 1991. Chandik is registered with the NASD as a general securities principal, municipal securities principal, and financial and operations principal.
C. From March 1991 through March 1994, MBSC sold municipal securities to its customers. Among those municipal securities that MBSC sold were eighteen different municipal securities issues which included: revenue bonds which funded or refunded retirement facilities, nursing homes or hospitals; industrial development revenue bonds; a general obligation bond; and a special assessment bond.
D. From March 1991 through March 1994, MBSC, in connection with the sale of these eighteen municipal securities issues to customers in 110 transactions, charged undisclosed, excessive markups which ranged between 4.07% to 7.9%.
E. From April 1993 through February 1994, MBSC sold U.S. government agency and government agency-like securities to certain of its institutional customers. Among those securities that MBSC sold were Resolution Funding Corporation ("RFCO") zero coupon securities and Federal National Mortgage Association ("FNMA") zero coupon securities.
F. From April 1993 through February 1994, MBSC, in connection with the sale of RFCO and FNMA zero coupon securities to institutional customers in 63 transactions, charged undisclosed, excessive markups which ranged between 3.45% to 4.41%.
G. In October 1993, MBSC purchased RFCO zero coupon securities from an institutional customer in 3 transactions. In connection with the purchase of these securities, MBSC charged the institutional customer an undisclosed, excessive markdown of 3.26%.
H. MBSC did not disclose to its customers that it charged the markups and markdowns in connection with the transactions described in Paragraphs III.C through G above.
I. During the period from May 1991 through March 1994, Chandik was responsible for drafting the firm's markup and markdown policy found in MBSC's supervisory procedures manual, which was to prevent excessive markups or markdowns from being charged.
J. Chandik also had the responsibility, ability and authority, from at least July 1993, to affect the conduct of MBSC employees who set the prices and the markups and markdowns charged to customers in the transactions set forth in paragraphs III.C through III.G above. Chandik monitored MBSC's trading activity to detect and prevent excessive markups and markdowns from being charged. Chandik reviewed MBSC's blotter and order tickets. He had the authority to cancel trades that had excessive markups or markdowns and to have the trades re-executed at different prices, which he did on certain occasions. He had the authority to, and did, discipline MBSC employees for, among other things, charging excessive markups.
IV.
MBSC's Undisclosed, Excessive Markups
The markups that MBSC charged on the municipal securities (ranging from 4.07% to 7.9%) and the markups and markdowns it charged on FNMA and RFCO zero coupon securities (ranging from 3.26% to 4.41%) were excessive and bore no reasonable relationship to the prevailing market price for these securities. Accordingly, MBSC, through negligent conduct, violated Sections 17(a)(2) and (3) by charging undisclosed excessive markups.
Chandik Failed Reasonably To Supervise
Sections 15(b)(4)(E) and 15(b)(6)(A) of the Exchange Act provide for the imposition of sanctions upon a person who "has failed reasonably to supervise, with a view to preventing violations of the provisions of [the federal securities laws], another person who commits such a violation, if such other person is subject to his supervision."
Employees of brokerage firms who have legal or compliance responsibilities do not become "supervisors" for purposes of Sections 15(b)(4)(E) and 15(b)(6) solely because they occupy those positions. Rather, determining if a particular person is a "supervisor" depends on whether, under the facts and circumstances of a particular case, that person has a requisite degree of responsibility, ability or authority to affect the conduct of the employee whose behavior is at issue. (footnote omitted)
John H. Gutfreund, 51 S.E.C. 93, 113 ( 1992).
As set forth in Paragraph III.J, Chandik had the responsibility, ability and authority to affect the conduct of MBSC employees who set the prices and the markups and markdowns charged to customers on certain of the securities transactions at issue here. Accordingly, Chandik was a "supervisor" for purposes of Sections 15(b)(4)(E) and 15(b)(6)(A). See First Albany Corporation, 50 S.E.C. 890, 896 (1992); Craig Leibold, 68 SEC Docket 0304, 0306 (1998).
V.
On the basis of this Order and the Offers Of Settlement submitted by MBSC and Chandik, the Commission finds that:
A. MBSC willfully2 violated Sections 17(a)(2) and (3) of the Securities Act by charging undisclosed, excessive markups in the sale of municipal securities and FNMA and RFCO zero coupon securities and by charging undisclosed, excessive markdowns in the purchase of RFCO zero coupon securities, as more particularly described above.
B. Chandik failed reasonably to supervise MBSC employees 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 their violations of Section 17(a)(2) and (3) of the Securities Act, as more particularly described above.
VI.
In view of the foregoing, it is appropriate, in the public interest, and for the protection of investors to impose the sanctions specified in MBSC's and Chandik's Offers Of Settlement.
ACCORDINGLY, IT IS ORDERED that:
A. As to MBSC:
- MBSC be and hereby is censured pursuant to Section 15(b)(4) of the Exchange Act;
- MBSC cease and desist from committing or causing any violations and any future violations of Section 17(a)(2) and (3) of the Securities Act, pursuant to Section 8A of the Securities Act;
- MBSC shall, within 10 days of the entry of this Order, pay disgorgement and prejudgment interest in the total amount of $100,000.00 to the United States Treasury. 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 MBSC as a Respondent in these proceedings, the file number of these proceedings, a copy of which cover letter and money order or check shall be sent to Richard P. Wessel, District Administrator, Securities and Exchange Commission, Atlanta District Office, 3475 Lenox Road, N.E., Suite 1000, Atlanta, GA 30326; and
- MBSC shall, within 10 days of the entry of this Order, pay a civil money penalty in the amount of $50,000.00 to the United States Treasury. 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 MBSC as a Respondent in these proceedings, the file number of these proceedings, a copy of which cover letter and money order or check shall be sent to Richard P. Wessel, District Administrator, Securities and Exchange Commission, Atlanta District Office, 3475 Lenox Road, N.E., Suite 1000, Atlanta, GA 30326.
B. As to Chandik:
- Chandik be and hereby is censured pursuant to Section 15(b)(6) of the Exchange Act.
By the Commission.
Jonathan G. Katz
Secretary
Footnotes
| 1 | These administrative proceedings were instituted on September 30, 1997. |
| 2 | In applying the term "willful" in Commission administrative proceedings instituted pursuant to Sections 15(b), 15B, 15C, 17A, and 19(h) of the Exchange Act, Section 9 of the Investment Company Act, and Section 203 of the Investment Advisers Act, the Commission evaluates on a case-by-case basis whether the respondent knew or reasonably should have known under the particular facts and circumstances that his conduct was improper. In this case, as in all Commission administrative proceedings charging a willful violation under these statutory provisions, the Commission applies this standard to persons - specifically, securities industry professionals -- who are directly subject to Commission jurisdiction and who have a responsibility to understand their duties to the investing public and to comply with the applicable rules and regulations which govern their behavior. |