UNITED STATES OF AMERICA
In the Matter of
J.W. BARCLAY & CO., INC.
|ORDER MAKING FINDINGS AND IMPOSING REMEDIAL SANCTIONS BY DEFAULT AGAINST JOHN A. BRUNO|
The Securities and Exchange Commission (Commission) instituted this proceeding against John A. Bruno (Bruno) and others on April 24, 2002, pursuant to Section 8A of the Securities Act of 1933 (Securities Act) and Sections 15(b) and 21A of the Securities Exchange Act of 1934 (Exchange Act).1 Bruno filed a timely answer. He also submitted lists of prospective witnesses and exhibits, and wrote a prehearing brief. However, on March 21, 2003, the last business day before the start of the hearing, Bruno sent me a letter that stated:
Please be advised that I no longer wish to contend the matter before you. I understand that if I do not appear at the hearing you will enter an order of default against me. I understand the consequence of defaulting.
The hearing commenced on March 24, 2003, in New York City, and Bruno did not appear. Pursuant to Rule 155(a) of the Commission's Rules of Practice, 17 C.F.R. § 201.155(a), I hold Bruno in default.
I find that the following allegations in the OIP are true as to Bruno.2
J.W. Barclay & Co., Inc. (Barclay) registered with the Commission as a broker and a dealer in December 1988. Between June 1997 and December 1998, the times relevant to this proceeding, Barclay was a member of the National Association of Securities Dealers (NASD). Barclay was a privately held corporation principally owned by Bruno.
At the relevant times, Bruno was Barclay's president, executive officer, and majority shareholder. Bruno holds a Series 24 license and is a registered representative. Michael J. Wills (Wills) was Barclay's vice president, managing partner, senior sales manager, and minority shareholder. The other six Respondents named in the OIP were registered representatives who were associated with Barclay at various times between 1994 and 2000. Bruno and Wills acted as supervisors at Barclay, and the registered representatives were subject to their supervision.
From June 1997 through December 1998, the registered representatives engaged in several types of misconduct in the accounts of their customers, including unauthorized trading, unsuitable trading, and churning. The registered representatives also made materially misleading statements or omissions when dealing with their customers and failed to execute sell orders or to follow other instructions from their customers. These acts and omissions involved scienter.
By such misconduct, the registered representatives willfully violated Section 17(a) of the Securities Act in that they, in the offer or sale of securities, by the use of the means or instruments of transportation or communication in interstate commerce or by the use of the mails, directly or indirectly: employed devices, schemes, or artifices to defraud; obtained money or property by means of untrue statements of material fact or omitted to state material facts necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading; and engaged in transactions, practices, or courses of business which would or did operate as a fraud or deceit upon purchasers of such securities.
By such misconduct, the registered representatives also willfully violated Section 10(b) of the Exchange Act and Rule 10b-5 thereunder, in that they, in connection with the purchase or sale of securities, by use of the means or instrumentalities of interstate commerce, or by use of the mails or of the facilities of any national securities exchange, directly or indirectly: employed devices, schemes, or artifices to defraud; made untrue statements of material fact or omitted to state material facts necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading; and engaged in acts, practices, or courses of business which would or did operate as a fraud or deceit upon any person.
Bruno failed reasonably to supervise the activities of the registered representatives with a view toward detecting and/or preventing violations of the federal securities laws. Bruno instituted an inadequate supervisory system by failing to hire enough supervisors for the number of registered representatives associated with Barclay, and by failing to establish adequate procedures designed to detect and prevent sales practice violations and securities fraud resulting from those violations. Bruno also ignored or failed to recognize red flags regarding the registered representatives' misconduct, including scores of customer complaints, the recommendations of Barclay's compliance director to discipline and/or fire certain registered representatives and to improve the firm's supervisory procedures, and examination reports and letters from the NASD concerning Barclay's supervisory personnel and procedures. Based on the foregoing, Bruno failed reasonably to supervise within the meaning of Sections 15(b)(4)(E) and 15(b)(6) of the Exchange Act.
The Division seeks an order barring Bruno from association with any broker or dealer. The bar would extend to all capacities, supervisory and non-supervisory (Division's Prehearing Brief at 36). The Division also requests the imposition of a $110,000 civil penalty against Bruno (Division's Prehearing Brief at 43). The Division does not seek a cease-and-desist order or disgorgement of ill-gotten gains as to Bruno.
On the basis of the foregoing, it is appropriate in the public interest to impose the sanctions sought by the Division.
Pursuant to Section 15(b)(6) of the Securities Exchange Act of 1934, IT IS ORDERED THAT John A. Bruno is barred from association with any broker or dealer; and
Pursuant to Section 21B of the Securities Exchange Act of 1934, IT IS FURTHER ORDERED THAT John A. Bruno shall pay a civil penalty of $110,000 within twenty-one days of the date of issuance of this Order.
Such payment shall be made by United States postal money order, certified check, bank cashier's check, or bank money order and made payable to the Securities and Exchange Commission. Payment, and a cover letter identifying the Respondent and the proceeding designation, should be delivered to the Office of Financial Management, Securities and Exchange Commission, Operations Center, 6432 General Green Way, Stop 0-3, Alexandria, Virginia 22312. A copy of the cover letter and the money order or check should be sent to Kathryn A. Pyszka, Senior Trial Counsel, Securities and Exchange Commission, Midwest Regional Office, 175 West Jackson Blvd., Suite 900, Chicago, Illinois 60604.
James T. Kelly
Administrative Law Judge
|1||Although the Commission invoked Section 21A of the Exchange Act in the caption of the Order Instituting Proceedings (OIP) and in OIP ¶ III.B, that provision is limited to civil penalty sanctions in federal court for insider trading violations. Section 21B of the Exchange Act governs civil penalty sanctions in administrative proceedings, and I find that it was properly invoked against Bruno in OIP ¶ III.E. Section 21C of the Exchange Act governs cease-and-desist order sanctions in administrative proceedings. This OIP did not seek a cease-and-desist order against Bruno (OIP ¶ III.B).|
|2||The findings in this Order are not binding on any other persons in this proceeding or on persons in any other proceeding.|
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