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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. 8275/August 25, 2003

SECURITIES EXCHANGE ACT OF 1934
Release No. 48408/August 25, 2003

ADMINISTRATIVE PROCEEDING
File No. 3-11161


In the Matter of

MARK GILBERT PLATT, JOHN WAYNE EZELL, and RICHARD M. OHLHABER


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ORDER MAKING FINDINGS AND IMPOSING SANCTIONS BY DEFAULT AGAINST MARK GILBERT PLATT AND JOHN WAYNE EZELL

SUMMARY

Mark Gilbert Platt and John Wayne Ezell, formerly employed at a broker-dealer, violated the antifraud provisions through their fraudulent dealings with elderly, unsophisticated customers. This Order bars them from association with a broker-dealer and orders them to cease and desist from violations of the antifraud provisions of the securities laws. Also, it fines each $110,000 and orders Platt to disgorge $39,990, and Ezell, $3,886, of ill-gotten gains.

I. BACKGROUND

The Securities and Exchange Commission (Commission) issued its Order Instituting Proceedings (OIP) in this matter on June 18, 2003, 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).1 The OIP alleges that Mark Gilbert Platt and John Wayne Ezell willfully violated Section 17(a) of the Securities Act and Section 10(b) of the Exchange Act and Rule 10b-5 thereunder through fraudulent sales practices in customer accounts. Platt and Ezell were each served with the OIP on July 17, 2003. Each failed to file an Answer, due twenty days after he was served. See § 201.220(b); OIP at 7. Additionally, Ezell failed to appear at a July 25 prehearing conference of which he had been notified.

II. DEFAULT

On August 7, the Division of Enforcement (Division) filed a Motion for Default, pursuant to 17 C.F.R. § 201.155(a). The Division asks that Platt and Ezell each be barred from association with a broker-dealer, ordered to cease and desist from violations of the antifraud provisions, and ordered to pay a civil penalty of $110,000. Additionally, the Division requests disgorgement of ill-gotten gains - Platt in the amount of $39,990 and Ezell in the amount of $3,886 - plus prejudgment interest. Neither Platt nor Ezell opposed the Division's Motion for Default within the time provided by the Commission's Rules. See 17 C.F.R. §§ 201.154, .160. To date, neither has filed an Answer to the OIP, Opposition to the Motion for Default, or any other correspondence.

Platt and Ezell are in default within the meaning of 17 C.F.R. § 201.155(a)(2). Ezell's failure to appear at a prehearing conference of which he had been notified is an additional instance of default. See 17 C.F.R. §§ 201.155(a)(1), .221(f). Accordingly, the undersigned finds that the allegations in the OIP are true as to Platt and Ezell. In addition to the OIP, the record, within the meaning of 17 C.F.R. § 201.155(a), includes the Division's Motion for Default. The findings of fact and conclusions of law made in this Order as to Platt and Ezell are not binding on any other person in this proceeding.

III. FINDINGS OF FACT

Platt and Ezell were registered representatives at the Addison, Texas, branch office of Josephthal & Co., Inc. (Josephthal), formerly a broker-dealer registered with the Commission - Platt from September 1998 to September 2001, and Ezell from November 1998 until September 2001. Prior to Platt's association with Josephthal, he was the subject of three customer complaints of unsuitable and excessive trading, which resulted in monetary awards to the customers. In December 1994, the National Association of Securities Dealers suspended Ezell for thirty days and fined him $27,500 for unauthorized and unsuitable transactions and for churning his customers' accounts. Platt and Ezell currently hold securities licenses.

A. Platt

Platt used fraudulent sales practices in the accounts of three retired, financially unsophisticated customers who sought low-risk investments and relied on Platt to make suitable recommendations. As a result, Platt received $39,990 in net commissions, while the accounts lost $253,000 and paid gross commissions of $66,650.

Between March 1999 and April 2000, in the account of a retired dentist, Platt recommended the purchase of volatile, small-cap technology stocks that were contrary to the customer's stated investment objective of growth. During this period, the account had an average equity of $78,218, with an annualized turnover ratio of 35.22 and a cost-to-equity factor of 36.08 percent. Seventy-four percent of the securities in the account were held less than thirty days, and ninety-seven percent, less than ninety days. Platt also executed five unauthorized trades in the account. The account realized losses of $144,736, while paying gross commissions of $23,202.

Between October 1998 and June 1999, in the account of a seventy-eight year old retired man, Platt recommended volatile, small-cap technology stocks that were unsuitable for the customer's age and financial condition. Also, Platt convinced the customer to invest $9,000 in a speculative penny stock company by falsely claiming that the customer could realize fifty percent on his investment in two weeks. During this period, the account had an average equity of $80,022 with an annualized turnover ratio of 8.42 and a cost-to-equity factor of 25.12 percent. Seventy-one percent of the securities in the account were held less than thirty days, and eighty-seven percent, less than ninety days. The account realized losses of $28,197, while paying gross commissions of $18,891.

Between October 1998 and February 2001, in the account of a seventy-one year old retired school principal, Platt recommended the purchase of volatile, small-cap technology stocks that were contrary to the customer's stated investment objective of growth. Platt convinced the customer to purchase these securities by falsely stating that they would double in value. During this period, the account had an average equity of $45,328 with an annualized turnover of 13.53 and a cost-to-equity factor of 70.62 percent. Fifty-two percent of the securities in the account were held less than thirty days, and eighty-four percent, less than ninety days. The account realized losses of $79,808, while paying gross commissions of $24,557.

B. Ezell

Ezell used fraudulent sales practices in the accounts of two financially unsophisticated customers who sought low-risk investments. Ezell controlled the accounts by making nearly all of the trading recommendations. As a result, Ezell received $3,886 in net commissions, while the accounts lost $155,612 and paid gross commissions of $7,773.

Between November 1999 and August 2000, in an account maintained by a daughter to invest her elderly mother's life savings, Ezell recommended the purchase of volatile, small-cap technology stocks that were contrary to the customer's stated investment objectives of growth and income. Without the customer's knowledge, Ezell opened a margin account, and, when the customer began receiving margin calls, assured her that the market would correct any problem. Ezell also made nineteen unauthorized trades in the account. He deflected the customer's questions about the unauthorized trades by telling her the securities were safe. During this period, the account had an average equity of $2,744 with an annualized turnover ratio of 13.65 and a cost-to-equity factor of 65.88 percent. Sixty percent of the securities in the account were held less than thirty days. The account realized losses of $7,481, while paying gross commissions of $1,609.

Between November 1999 and May 2001, in the account of a sixty-five year old retired Army colonel, Ezell recommended the purchase of volatile, small-cap technology stocks that were contrary to the customer's stated objective of conservative growth. The customer never questioned Ezell's recommendations because Ezell assured her that the securities would do well. During this period, the account had an average equity of $69,409, with an annual turnover ratio of 7.19 and a cost-to-equity factor of 27.27 percent. Thirty-two percent of the securities in the account were held for less than thirty days, and sixty-five percent, less than 180 days. The account realized losses of $148,131, while paying $6,164 in gross commissions.

IV. CONCLUSIONS OF LAW

Platt and Ezell each willfully violated the antifraud provisions of the Securities and Exchange Acts - Securities Act Section 17(a) and Exchange Act Section 10(b) and Rule 10b-5. As found above, each churned his customers' accounts, which in itself violates the antifraud provisions. See Donald A. Roche, 53 S.E.C. 16, 20-23 (1997) (citations omitted) (describing the elements of churning and holding that churning violates the antifraud provisions). Each had de facto control of the accounts since the unsophisticated customers relied on his recommendations. The turnover ratios and cost-to-equity factors show excessive trading in the accounts. The record shows Platt's and Ezell's scienter - they intended to deceive and defraud. They benefited from the excessive trading and their prior disciplinary histories for unsuitable and excessive trading show that they understood the costs of a short-term trading strategy and knew their recommendations were unsuitable and contrary to their customers' investment objectives. Additionally, Platt convinced a customer to invest in a speculative penny stock company by falsely claiming that the customer could achieve enormous returns in two weeks, a material misrepresentation. Ezell deflected a customer's queries about unauthorized trades to avoid taking responsibility for his unauthorized actions, a material omission. The unauthorized trading by each and Ezell's unauthorized use of margin lend additional support to the conclusion that Platt and Ezell acted with scienter.

V. SANCTIONS

The Division asks that Platt and Ezell each be ordered to pay civil money penalties of $110,000 and to cease and desist from further violations. It also asks that Platt and Ezell be barred from association with a broker-dealer. These sanctions are authorized and appropriate pursuant to Section 8A of the Securities Act and Sections 15(b) and 21C of the Exchange Act and the factors articulated in Steadman v. SEC, 603 F.2d 1126, 1140 (5th Cir. 1979), aff'd on other grounds, 450 U.S. 91 (1981) and KPMG Peat Marwick LLP, 74 SEC Docket 384, 429, 436 (Jan. 19, 2001), recon. denied, 74 SEC Docket 1351 (Mar. 8, 2001), aff'd, 289 F.3d 109 (D.C. Cir. 2002), reh. en banc denied, 2002 U.S. App. Lexis 14543 (July 16, 2002). The wrongdoing was egregious and recurring, continuing for many months. Platt's past history of customer complaints and Ezell's disciplinary history are aggravating factors. Platt and Ezell were unjustly enriched through fraud at the expense of their customers. Their occupation presents opportunities for future violations. There are no mitigating factors. Thus the sanctions requested will serve the public interest and the protection of investors.

The Division also seeks disgorgement of ill-gotten gains from Platt of $39,900 plus prejudgment interest from March 1, 2001, and from Ezell of $3,886 plus prejudgment interest from June 1, 2001, pursuant to Sections 21B and 21C of the Exchange Act. Disgorgement is an equitable remedy that requires a violator to give up wrongfully obtained profits causally related to the proven wrongdoing. See SEC v. First City Fin. Corp., 890 F.2d 1215, 1230-32 (D.C. Cir. 1989); see also Hateley v. SEC, 8 F.3d 653, 655-56 (9th Cir. 1993). It returns the violator to where he would have been absent the violative activity. Platt received $39,900 in ill-gotten gains from his violative conduct through February 2001, and disgorgement in this amount plus prejudgment interest from March 1, 2001, will be ordered. Ezell received $3,886 from his violative conduct through May 2001, and disgorgement in this amount plus prejudgment interest from June 1, 2001, will be ordered.

VI. ORDER

IT IS ORDERED that, pursuant to Section 8A of the Securities Act, 15 U.S.C. § 77h-1, and Section 21C of the Exchange Act, 15 U.S.C. § 78u-3,

Mark Gilbert Platt CEASE AND DESIST from committing or causing any violations or future violations of Section 17(a) of the Securities Act, 15 U.S.C. § 77q(a), and Section 10(b) of the Exchange Act, 15 U.S.C. § 78j(b), and Rule 10b-5 thereunder, 17 C.F.R. § 240.10b-5; and

John Wayne Ezell CEASE AND DESIST from committing or causing any violations or future violations of Section 17(a) of the Securities Act, 15 U.S.C. § 77q(a), and Section 10(b) of the Exchange Act, 15 U.S.C. § 78j(b), and Rule 10b-5 thereunder, 17 C.F.R. § 240.10b-5.

IT IS FURTHER ORDERED that, pursuant to Section 15(b) of the Exchange Act, 15 U.S.C. § 78o(b),

Mark Gilbert Platt IS BARRED from association with any broker or dealer; and

John Wayne Ezell IS BARRED from association with any broker or dealer.

IT IS FURTHER ORDERED that, pursuant to Section 8A of the Securities Act, 15 U.S.C. § 77h-1, and Sections 21B and 21C of the Exchange Act, 15 U.S.C. §§ 78u-2,78u-3,

Mark Gilbert Platt DISGORGE $39,990 plus prejudgment interest at the rate established under Section 6621(a)(2) of the Internal Revenue Code, 26 U.S.C. § 6621(a)(2), compounded quarterly, pursuant to 17 C.F.R. § 201.600, from March 1, 2001, through the last day of the month preceding which payment is made; and

John Wayne Ezell DISGORGE $3,886 plus prejudgment interest at the rate established under Section 6621(a)(2) of the Internal Revenue Code, 26 U.S.C. § 6621(a)(2), compounded quarterly, pursuant to 17 C.F.R. § 201.600, from June 1, 2001, through the last day of the month preceding which payment is made.

IT IS FURTHER ORDERED that, pursuant to Section 21B of the Exchange Act, 15 U.S.C. § 78u-2,

Mark Gilbert Platt PAY A CIVIL MONEY PENALTY OF $110,000; and

John Wayne Ezell PAY A CIVIL MONEY PENALTY OF $110,000.

Payment of disgorgement and penalties shall be made on the first business day following the day this Order becomes effective by certified check, U.S. Postal money order, bank cashier's check, or bank money order payable to the Securities and Exchange Commission. The check and a cover letter identifying the Respondent and Administrative Proceeding No. 3-11161, should be delivered by hand or courier to the Comptroller, Securities and Exchange Commission, Operations Center, 6432 General Green Way, Stop 0-3, Alexandria, Virginia 22312. A copy of the cover letter should be sent to the Commission's Division of Enforcement at the same address.

Carol Fox Foelak
Administrative Law Judge

 


1 The proceeding has been stayed as to Richard M. Ohlhaber pending Commission consideration of his offer of settlement. See Mark Gilbert Platt, Admin. Proc. No. 3-11161 (A.L.J. July 31, 2003) (unpublished).

 

http://www.sec.gov/litigation/admin/33-8275.htm


Modified: 08/26/2003