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U.S. Securities and Exchange Commission

UNITED STATES OF AMERICA
Before The
SECURITIES AND EXCHANGE COMMISSION

SECURITIES ACT OF 1933
Release No. 8125 / September 3, 2002

SECURITIES EXCHANGE ACT OF 1934
Release No. 46448 / September 3, 2002

ADMINISTRATIVE PROCEEDING
File No. 3-10881


In the Matter of

KEITH J. MAUNEY,

Respondent.


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ORDER INSTITUTING PUBLIC
CEASE-AND-DESIST PROCEEDINGS
PURSUANT TO SECTION 8A
OF THE SECURITIES ACT OF
1933 AND SECTION 21C OF THE SECURITIES
EXCHANGE ACT OF 1934,
MAKING FINDINGS AND IMPOSING
CEASE-AND-DESIST ORDER

I.

The Securities and Exchange Commission ("Commission") deems it appropriate that public cease-and-desist proceedings be instituted pursuant to Section 8A of the Securities Act of 1933 ("Securities Act") and Section 21C of the Securities Exchange Act of 1934 ("Exchange Act") against Keith J. Mauney.

In anticipation of the institution of these proceedings, Mauney has submitted an Offer of Settlement ("Offer"), which Offer the Commission has determined to accept. Solely for the purpose of these proceedings and any other proceeding brought by or on behalf of the Commission, or in which the Commission is a party, Mauney admits the jurisdiction of the Commission over him and the subject matter of these proceedings and consents to the entry of this Order Instituting Public Cease-and-Desist Proceedings Pursuant to Section 8A of the Securities Act of 1933 and Section 21C of the Securities Exchange Act of 1934, Making Findings and Imposing Cease-and-Desist Order ("Order"), without admitting or denying the Commission's findings, except as for those contained in paragraph III.A below, which are admitted.

II.

Accordingly, IT IS HEREBY ORDERED that proceedings pursuant to Section 8A of the Securities Act and Section 21C of the Exchange Act be, and hereby are, instituted.

III.

On the basis of this Order and the Offer submitted by Mauney, the Commission makes the following findings:1

RESPONDENT

A. Mauney, age 53, held the position of Managing Director, High Grade Corporate Bond Trader for a registered broker-dealer from March 1997 through April 1998.

EXECUTION OF TRADES AT PRICES ABOVE THE PREVAILING MARKET PRICES

B. In March and April 1998, a portfolio manager associated with a registered investment adviser and a registered representative associated with the same broker-dealer that employed Mauney planned and transacted a series of adjusted trades in investment-grade corporate bonds. Adjusted trading is a fraudulent trading practice where a person sells a security at a price above the prevailing market price and purchases another security at a corresponding price above the prevailing market price to offset the overpayment in the first transaction. Here, the portfolio manager and registered representative fraudulently increased the assets of favored accounts managed by the investment adviser at the expense of disfavored accounts by trading certain bonds above their prevailing market prices.

C. To accomplish the scheme, the registered representative told Mauney that the investment adviser was offering to sell $100 million of investment-grade bonds from certain accounts to the highest bidding broker-dealer. The registered representative told Mauney that the investment adviser would then use the proceeds from this sale to purchase $100 million of different bonds from that same broker-dealer. The registered representative further told Mauney that a few days later the investment adviser would repurchase from the broker-dealer the initial $100 million of bonds that the investment adviser had sold. In fact, the series of bond transactions did not occur as the registered representative had told Mauney.

D. On March 30 and 31, 1998, the registered representative gave Mauney a list of approximately $100 million of investment-grade corporate bonds and prices that the registered representative and the portfolio manager had negotiated. These prices were above the prevailing market prices. The registered representative told Mauney that the broker-dealer at which they were employed would be the highest bidder if Mauney agreed to purchase the bonds at the prices on the list. Mauney purchased for the broker-dealer's trading account all of the bonds on the list without confirming whether the prices were at the prevailing market prices. The portfolio manager sold these bonds from the favored accounts.

E. Instead of immediately purchasing $100 million of different bonds as the registered representative had told Mauney, the investment adviser repurchased on April 2 and April 3, 1998 the initial $100 million of bonds that it had sold to Mauney. It repurchased the bonds at prices negotiated by the registered representative and portfolio manager. These prices were lower than the prices that Mauney had paid on March 30 and 31, 1998. As a result, the broker-dealer's trading account suffered a loss.

F. To recoup this loss, on March 31, April 3, and April 6, 1998, Mauney sold $100 million of different investment-grade corporate bonds to the investment adviser at prices above the prevailing market prices. These sale prices were negotiated by the registered representative and the portfolio manager. The portfolio manager purchased these bonds for and placed them in the disfavored accounts.

G. Shortly thereafter, the broker-dealer began an internal investigation into the trades. The broker-dealer determined, among other things, that Mauney had transacted certain trades above the prevailing market prices and at the time shortly after he had suffered a family tragedy. Upon completing the internal investigation, the broker-dealer took steps to sanction Mauney. In particular, the broker-dealer suspended Mauney for one month, fined him $50,000, removed him from his trading and supervisory position, placed him under heightened supervision, and required him to make a firm-wide apology.

VIOLATIONS

H. Section 17(a) of the Securities Act makes it unlawful for any person in the offer or sale of any securities to: employ any device, scheme, or artifice to defraud; obtain money or property by means of any untrue statement of a material fact or any omission to state a material fact necessary in order to make the statements made, in light of the circumstances under which they were made, not misleading; or engage in any transaction, practice, or course of business which operates or would operate as a fraud or deceit upon the purchaser. Adjusted trading is a violation of Section 17(a) of the Securities Act. Hanauer, Stern & Co., Securities Exchange Act Rel. No. 21313, 1984 SEC LEXIS 759 (Sept. 11, 1984); TransAmerican Securities, Inc., Securities Exchange Act Rel. No. 17063, 1980 SEC LEXIS 2353 (June 9, 1980).

I. Section 10(b) of the Exchange Act and Rule 10b-5 thereunder make it unlawful for any person in connection with the purchase or sale of any security to: employ any device, scheme or artifice to defraud; make any untrue statement of material fact or omit to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading; or engage in any act, practice or course of business which operates or would operate as a fraud or deceit upon any person. Adjusted trading is a violation of Section 10(b) of the Exchange Act and Rule 10b-5 thereunder. Id.

J. Mauney caused violations of Section 17(a) of the Securities Act and Section 10(b) of the Exchange Act and Rule 10b-5 thereunder by: recklessly failing to confirm that the prices of the March 30 and 31, 1998 transactions were at the prevailing market prices; recklessly failing to inquire into red flags and suggestions of irregularities in selling the initial $100 million of bonds back to the investment adviser at lower prices than the prices that he had paid on March 30 and 31, 1998, despite the fact that prices in the bond market had risen in the interim; and knowingly selling $100 million of different bonds to the investment adviser at prices above the prevailing market prices to recoup his earlier loss.

IV.

In view of the foregoing, the Commission deems it appropriate to accept Mauney's Offer of Settlement and to impose the sanctions specified therein.

Accordingly, IT IS HEREBY ORDERED, pursuant to Section 8A of the Securities Act and Section 21C of the Exchange Act, that Mauney cease and desist from committing or causing any violation and any future violation of Section 17(a) of the Securities Act and Section 10(b) the Exchange Act and Rule 10b-5 thereunder.

By the Commission.

Jonathan G. Katz
Secretary

Footnotes

1 The findings herein are made pursuant to Mauney's 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/33-8125.htm


Modified: 09/03/2002