UNITED STATES OF AMERICA
SECURITIES AND EXCHANGE COMMISSION
SECURITIES ACT OF 1933
Release No. 8248 / July 10, 2003
SECURITIES EXCHANGE ACT OF 1934
Release No. 48150 / July 10, 2003
File No. 3-11175
ADMINISTRATIVE AND CEASE-AND-DESIST PROCEEDINGS INSTITUTED AGAINST ROBERT OSTROWSKI AND REES HARRIS
On July 10, 2003, the Securities and Exchange Commission ("Commission") issued an Order Instituting Public Administrative and Cease-and-Desist Proceedings pursuant to Section 8A of the Securities Act of 1933 ("Securities Act") and Sections 15(b) and 21C of the Securities Exchange Act of 1934 ("Exchange Act") against Robert Ostrowski, a former registered representative of Prudential Securities, Incorporated ("Prudential"), and Rees T. Harris, a former Prudential branch office manager.
In the Order, the Division of Enforcement ("Division") alleges that Ostrowski, 67, a resident of Kingston, Pennsylvania, was a top-selling registered representative for many years in Prudential's Wilkes-Barre, Pennsylvania, branch office, and at one time was ranked first in the country in sales of Prudential mutual funds. The Division alleges that, on at least 42 occasions from 1998 through 2000, Ostrowski sold his customers more than $100,000 of Class B shares in certain Prudential proprietary mutual funds without disclosing the existence of multiple classes of shares within the same fund; the fact that he had decided to purchase Class B shares for their accounts; and the existence of "breakpoints" - sales charge discounts for large purchases - available with the purchase of Class A shares of the same funds. These discounts would have made large purchases of the funds' Class A shares lower cost investments for these customers than the same level of investment in Class B shares, which do not offer breakpoints. The Division alleges that Ostrowski received approximately $51,500 in excess commissions from the improper sale of Class B shares and that, as a result of his conduct, Ostrowski willfully violated Section 17(a) of the Securities Act and Section 10(b) of the Exchange Act and Rule 10b-5 thereunder.
The Division further alleges that Harris, 71, a resident of Mountaintop, Pennsylvania, failed reasonably to supervise, within the meaning of Section 15(b) of the Exchange Act, the activities of Ostrowski by failing to monitor Ostrowski's compliance with Prudential's policies and procedures regarding the sale of mutual fund shares. Harris approved all 42 of Ostrowski's sales of Class B shares in amounts exceeding $100,000 despite policies and procedures that specifically required Harris to ensure that registered representatives under his supervision discussed with customers, among other things, the availability of multiple classes of mutual fund shares and the various sales charges prior to a sale.
A hearing will be scheduled before an administrative law judge to determine whether the allegations contained in the Order are true, to provide Ostrowski and Harris an opportunity to respond to the allegations against them, and to determine whether any remedial action should be ordered, or disgorgement and/or penalties imposed, by the Commission.