UNITED STATES OF AMERICA
In the Matter of
A.S. GOLDMEN & CO., INC.,
ORDER MAKING FINDINGS,
On July 7, 1999, the Securities and Exchange Commission ("Commission") instituted public administrative and cease-and-desist proceedings, pursuant to Section 8A of the Securities Act of 1933 ("Securities Act") and Sections 15(b)(4), 15(b)(6), and 21C of the Securities Exchange Act of 1934 ("Exchange Act").
Respondents A.S. Goldmen & Co., Inc. ("Goldmen") and Anthony J. Marchiano ("Marchiano") have submitted an Offer of Settlement ("Offer"), which the Commission has determined to accept. 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, and without admitting or denying the Commission's findings contained herein, except that Goldmen and Marchiano admit that the Commission has jurisdiction over them and over the subject matter of these proceedings, Goldmen and Marchiano, by their Offer, consent to the entry of this Order Making Findings, Ordering Respondents to Cease and Desist, and Imposing Remedial Sanctions as to A.S. Goldmen & Co., Inc. and Anthony J. Marchiano ("Order"), as set forth below.
On the basis of this Order and the Offer submitted by Goldmen and Marchiano, the Commission finds:1
Sections 5(a) and 5(c) of the Securities Act prohibit all sales or offers to sell or buy securities before the filing of a registration statement. Section 5(b) requires the delivery of a prospectus to all purchasers of securities. Section 4 of the Securities Act sets forth exemptions to the registration and prospectus delivery requirements of Section 5. Marchiano willfully violated the registration provisions by conducting, from April 1997 to April 1998, an unregistered offering of over 3 million shares of Millennium stock to Goldmen's retail clients without the availability of an exemption from registration. Goldmen violated Section 5 by directly selling Millennium shares without a registration statement. Marchiano violated Section 5 by directly and indirectly selling Millennium shares without a registration statement. First, Marchiano directly sold Millennium stock to his own retail clients during this period. Second, Marchiano orchestrated and directed the scheme to have Goldmen brokers aggressively sell Millennium stock to Goldmen's retail clients and convert the Class D warrants to supply the stock for those sales.
Goldmen and Marchiano willfully violated the prospectus delivery provision in Section 5(b) of the Securities Act by not having Goldmen brokers deliver prospectuses or equivalent information to retail clients buying Millennium stock during this period.
Section 17(a) of the Securities Act and Section 10(b) of the Exchange Act and Rule 10b-5 thereunder prohibit material misstatements or omissions in the offer or sale, or in connection with the purchase or sale of securities. Information is material if there is a substantial likelihood that a reasonable investor would consider the information to be important or to have significantly altered the total mix of information made available about the investment. Basic, Inc. v. Levinson, 485 U.S. 224, 231-32 & 235 n.13 (1988). A showing of scienter is required to establish a violation of Section 17(a)(1), Section 10(b) and Rule 10b-5. Aaron v. SEC, 446 U.S. 680, 691 & 697 (1980). Recklessness or willful disregard of the truth generally satisfies this requirement. SEC v. Falstaff Brewing Corp., 629 F.2d 62, 77 (D.C. Cir. 1980). Through Marchiano's orchestration and "hands on" involvement in the fraudulent sales practices that occurred at Goldmen's Naples, Florida office in connection with the offer and sale of Millennium stock from July 1997 through June 1998, Goldmen and Marchiano violated Section 17(a) of the Securities Act, Section 10(b) of the Exchange Act and Rule 10b-5 thereunder as primary violators.
Goldmen and Marchiano also violated Section 17(a) of the Securities Act and Section 10(b) of the Exchange Act and Rule 10b-5 thereunder in connection with the scheme to resolve client complaints with IPO warrants. By engaging in that scheme, Marchiano knowingly or recklessly omitted to disclose the material fact that the nature and extent of investor interest in the offering and the trading of securities in the aftermarket of several Goldmen-underwritten IPOs did not result from the unfettered forces of supply and demand. Rather, Goldmen and Marchiano exercised control over the allocation of large amounts of IPO warrants to complaining clients, when and at what price Goldmen repurchases those warrants from those clients, and when Goldmen's brokers resold those warrants back to bona fide purchasers. As a result, there was a materially false impression of the nature and extent of investor interest in the offerings and aftermarket trading following the IPOs.
Rule 10b-6, promulgated under Section 10(b) of the Exchange Act (and replaced by Regulation M as of March 4, 1997), provided that it is a manipulative or deceptive device for an underwriter participating in a distribution of securities to bid for or purchase such securities until it had completed its participation in the distribution. In the Matter of Swartwood, Hesse, Inc., Exchange Act Release No. 31212 (September 22, 1992). Placing securities in proprietary or nominee accounts over which the underwriter exercises control does not constitute a bona fide sale to the investing public as is necessary for the distribution to be completed. In the Matter of Swartwood, Hesse, Inc., Exchange Act Release No. 31212 (September 22, 1992). Thus an underwriter violates Rule 10b-6 if it bids for or purchases such securities in aftermarket trading while securities are held in nominee or proprietary accounts. Moreover, a principal of the underwriter who places securities in the nominee or proprietary accounts during an IPO is directly liable for the underwriter's resulting violation of Rule 10b-6. See SEC v. Blinder Robinson & Co., Inc., 425 F.Supp. 468 (D. Colo. 1982) (president and controlling officer of a broker-dealer directly liable for the firm's violation of Rule 10b-6 because illegal purchase was either at his direction or known to him).
Goldmen and Marchiano violated Rule 10b-6 when Marchiano directed Goldmen's trading desk to commence making markets in the IPO warrants before completing the distribution. At Marchiano's direction, Goldmen posted bids for and made purchases of these securities before Marchiano's participation in the distribution was complete. These bids and purchases constituted violations of Rule 10b-6. Marchiano is primarily liable for these violations because of his control over the disposition of the client shares and the bids and purchases affected by Goldmen's traders
Section 17(a) of the Exchange Act and the rules promulgated by the Commission thereunder require broker-dealers to create and maintain certain records. In violation of Rule 17a-3(a)(9), Goldmen's books and records did not reflect the actual beneficial owners of nominee accounts. Other respondents also willfully aided and abetted and caused Goldmen's violations of Rules 17a-3(a)(1), 17a-3(a)(6), 17a-4(a), 17a-4(b)(1), and 17a-4(b)(4) by instructing certain Goldmen employees to conceal, destroy, and alter certain trade tickets and remove trading blotters and customer complaints from Goldmen's New Jersey office.
Section 15(b)(6)(A) provides, in relevant part, that, with respect to any person who at the time of the alleged misconduct was participating in any offering of any penny stock, the Commission shall bar such person from participating in any offering of penny stock, if the Commission finds such bar to be in the public interest and that such person has been convicted of any offense specified in subparagraph (B) of such paragraph (4) within 10 years of the commencement of the proceeding under this paragraph. Section 15(b)(4)(B) offenses include those involving the purchase or sale of securities.
In view of the foregoing, Goldmen and Marchiano willfully violated Sections 5 and 17(a) of the Securities Act, Section 10(b) of the Exchange Act and Rules 10b-5 and 10b-6 thereunder. In addition, Goldmen willfully violated Section 17(a) of the Exchange Act and Rules 17a-3 and 17a-4 thereunder.
Based on the foregoing, the Commission deems that it is appropriate and in the public interest to impose the sanctions that are set forth in the Offer.
ACCORDINGLY, IT IS ORDERED that:
By the Commission.
Jonathan G. Katz
|1||The findings herein are made pursuant to Goldmen and Marchiano's Offer of Settlement and are not binding on any other person or entity in this or any other proceeding.|
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