UNITED STATES OF AMERICA
Before the
SECURITIES AND EXCHANGE
COMMISSION
SECURITIES ACT OF 1933
Release No. 7972 / April 18, 2001
SECURITIES EXCHANGE ACT OF 1934
Release No. 44196 / April 18, 2001
ADMINISTRATIVE PROCEEDING
File No. 3-10344
|
In the Matter of SHAMROCK PARTNERS, LTD., Respondents.
|
: |
ORDER MAKING FINDINGS AND IMPOSING REMEDIAL SANCTIONS AND CEASE-AND- DESIST ORDER AS TO STEPHEN J. FISCHER |
I.
On October 10, 2000, the Securities and Exchange Commission ("Commission") instituted this administrative proceeding and cease-and-desist proceeding pursuant to Section 8A of the Securities Act of 1933 ("Securities Act") and Sections 15(b)(6), 19(h), and 21C of the Securities Exchange Act of 1934 ("Exchange Act") against Stephen J. Fischer ("Fischer").
II.
Fischer has submitted an Offer of Settlement ("Offer"), which the Commission has determined to accept. Solely for the purpose of this proceeding and any other proceedings brought by or on behalf of the Commission, or in which the Commission is a party, and without admitting or denying the findings contained herein, except that Fischer admits the jurisdiction of the Commission over him and over the subject matter of this proceeding, Fischer consents to the entry of the findings, and remedial sanctions and cease-and-desist order set forth below.
III.
The Commission finds that:1
A. Fischer, during 1995, was employed as a securities trader with a brokerage firm (the "Brokerage Firm"), which was formerly registered (and is now defunct). Fischer resides in Los Angeles, California. During 1995, Fischer held series 7 (general securities license) and 63 (state securities license) licenses.
B. The L.L. Knickerbocker Co., Inc. ("KNIC") is a California corporation based in Lake Forest, California. It is primarily engaged in celebrity-endorsed marketing and other ventures. In January 1995, KNIC sold approximately 943,000 common shares in an initial public offering. Subsequently, KNIC's stock traded on the Nasdaq Small-Cap stock system until August 1, 1995, when it became a Nasdaq-National Market System stock. Between July 3 and August 11, 1995 ("the Relevant Period"), KNIC's stock price increased more than eightfold, from $6 to $52 per share. Shortly thereafter, KNIC's price dropped 38% to $32.50 per share. On August 25, 1999, the NASD delisted KNIC's stock, and three KNIC creditors filed a petition to liquidate the company.
C. During the Relevant Period, Fischer, on behalf of the Brokerage Firm, was a market maker for KNIC stock. In this capacity, Fischer submitted bid and ask quotes for KNIC to the Nasdaq system. The quotes indicated to the market the prices at which the Brokerage Firm was willing to buy and sell KNIC stock. Fischer also was a trader for a proprietary account at the Brokerage Firm during the Relevant Period.
D. During the Relevant Period, Fischer engaged in a collusive relationship with a stockbroker, Rafi Khan ("Khan"), at another brokerage firm, Shamrock Partners, Ltd. ("ROCK"), to manipulate KNIC's stock price. Specifically, Fischer, through the Brokerage Firm, agreed to purchase KNIC stock for ROCK. Khan told Fischer the quantity of shares to purchase and sell and how high to raise his offer to buy (i.e., bid price) and offer to sell (i.e., ask price). In effect, Khan directed the Brokerage Firm's market-making activities in KNIC stock. As a result, the Brokerage Firm and ROCK were generally KNIC's highest bidding market makers, that is, the market makers that spent the most time submitting shared or exclusive high bid quotes to the Nasdaq system. The Brokerage Firm's high bid quotes for KNIC were often entered simultaneously with ROCK's high bid quotes, giving the misleading appearance to other market participants that the two market makers were competing for KNIC stock. In fact, unknown to the market, Fischer and ROCK had the arrangement described above. As a result, the market received misleading information about the demand for KNIC stock.
E. Section 15(c)(2) of the Exchange Act and Rule 15c2-7 thereunder prohibit, among other things, a broker-dealer firm from submitting quotations to the Nasdaq system without disclosing that such quotations are submitted pursuant to an arrangement with a second broker-dealer firm. Fischer willfully aided and abetted and caused the Brokerage Firm's violation of Section 15(c)(2) of the Exchange Act and Rule 15c2-7 thereunder by entering into the arrangement with Khan.
IV.
Based upon the foregoing, the Commission deems it appropriate in the public interest and for the protection of investors to impose the sanctions specified in Fischer's Offer.
Accordingly, IT IS HEREBY ORDERED that:
(1) Fischer shall be suspended from associating with any broker or dealer for a period of three months, effective beginning the second Monday following the entry of the Order, provided that, upon completion of the suspension, he provides the Pacific Regional Office with an affidavit that he has complied with the terms of the suspension;
(2) Fischer shall cease and desist from causing any violation and any future violation of Section 15(c)(2) of the Exchange Act and Rule 15c2-7 thereunder; and
(3) Fischer shall pay a civil money penalty in the amount of $5,000 to the United States Treasury. The first payment of $3,000 is due within 30 days after the entry of this Order. The remainder, or $2,000, is due within 90 days after the entry of this Order. Such payments 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, Alexandria, Virginia 22312-0003; and (D) submitted under a cover letter that identifies Fischer as a Respondent in these proceedings, and the file number of these proceedings, a copy of which cover letter and money order or check shall be sent to Thomas Zaccaro, Regional Trial Counsel, Pacific Regional Office, Securities and Exchange Commission, 5670 Wilshire Boulevard, 11th Floor, Los Angeles, California 90036.
By the Commission.
Jonathan G. Katz
Secretary
Footnotes
1 The findings herein are made pursuant to Respondent Fischer's Offer of Settlement and are not binding on any other person or entity in this or any other proceeding.