UNITED STATES OF AMERICA
| ORDER INSTITUTING ADMINISTRATIVE AND CEASE-AND-DESIST PROCEEDINGS, MAKING FINDINGS, AND IMPOSING REMEDIAL SANCTIONS AND A CEASE-AND-DESIST ORDER PURSUANT TO SECTION 8A OF THE SECURITIES ACT OF 1933, AND SECTIONS 15(b) AND 21C OF THE SECURITIES EXCHANGE ACT OF 1934 |
The Securities and Exchange Commission ("Commission") deems it appropriate and in the public interest that public administrative and cease-and-desist proceedings be, and hereby are, instituted 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 Howard S. Singer ("Singer" or "Respondent").
In anticipation of the institution of these proceedings, Respondent has submitted an Offer of Settlement (the "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 findings herein, except as to the Commission's jurisdiction over him and the subject matter of these proceedings, which are admitted, Respondent consents to the entry of this Order Instituting Administrative and Cease-and-Desist Proceedings, Making Findings, and Imposing Remedial Sanctions and a Cease-and-Desist Order Pursuant to Section 8A of the Securities Act of 1933, and Sections 15(b) and 21C of the Securities Exchange Act of 1934 ("Order"), as set forth below.
FINDINGS OF FACT
On the basis of this Order and Respondent's Offer, the Commission finds1 that:
From July 1998 until approximately December 2000, Singer was a securities trader in the Fort Lauderdale, Florida, office of Suncoast Capital Group, Ltd. ("Suncoast"). Singer traded government agency securities, including U.S. Treasury securities, for Suncoast. He has traded U.S. Treasury securities for over twenty-seven years. He holds NASD, Inc., Series 3, 7, 24, and 63 licenses. Singer, age 54, is a resident of Boynton Beach, Florida.
B. Other Relevant Entities and Persons
Suncoast was a broker-dealer registered with the Commission from 1993 to 2000 pursuant to Section 15(b) of the Exchange Act. Suncoast's principal place of business was in Fort Lauderdale, Florida.
New York Life Insurance Company, Inc. ("New York Life"), a mutual insurance company headquartered in New York City, is owned by its policyholders and regulated by the New York State Department of Insurance. From late 1997 through 1999, New York Life was a customer of Suncoast with regard to certain proprietary investments made by New York Life.
Anthony Dong-Yin Shen ("Shen") was employed by New York Life from 1995 until approximately October 1999 as a trader of government agency and mortgage-backed securities held in New York Life's proprietary accounts. Shen was Suncoast's contact at New York Life.
Deborah J. Breckenridge ("Breckenridge") was a Suncoast registered representative and salesperson from 1993 until approximately August 1999. Breckenridge was the Suncoast salesperson for the New York Life account.2
From July 1998 to April 1999, Singer executed or reviewed and approved six trades in U.S. Treasury securities between Breckenridge and Shen (the "Treasury trades"). The Treasury trades were principal transactions that involved Suncoast's purchase of securities from New York Life and virtually simultaneous sale of the same securities to a primary broker-dealer. Before purchasing securities from New York Life and executing the Treasury trades, Singer and his trading assistants called several primary dealers for prices on the securities. When the Treasury trades were executed shortly thereafter, Singer or his trading assistants prepared the trade tickets, which included, among other information, the price of the trade between Suncoast and New York Life and the price of the trade between Suncoast and the primary broker-dealer. Suncoast charged a markdown - the difference between the price on the trade with the primary broker-dealer and the price on the trade with New York Life - on each of the six Treasury trades.
Singer was responsible for reviewing the U.S. Treasury trades he executed as well as the trades executed by his trading assistants. Singer was responsible for ensuring that the trades he executed or reviewed and approved were fairly priced and reasonably related to prevailing market prices. When Singer executed or reviewed and approved the Treasury trades, he knew the prevailing market prices on the U.S. Treasury securities as well as the price agreed to by Breckenridge and Shen.
Although Singer knew the prevailing market prices for the U.S. Treasury securities, he executed or reviewed and approved each of the Treasury trades at prices that were off-market and not reasonably related to the prevailing market prices. Based on Suncoast's contemporaneous cost for the securities, the markdowns on the six Treasury trades were between 5.5/32 percent to 10/32 percent of the face value of the securities. Under the particular facts of this case, including industry practice, prices on comparable transactions, and the nature of the principal transactions, the prices on the Treasury trades were excessive and not reasonably related to prevailing market prices. See SEC v. Feminella, 947 F. Supp. 722, 729 (S.D.N.Y. 1996) (stating that the reasonableness of a profit charged to a customer is determined by the individual facts of a case, including industry practice, comparable transactions, and the nature of the services provided to the customer); In re Lehman Brothers, Inc., Exchange Act Release No. 37673 (September 12, 1996) (stating that absent countervailing evidence, the best evidence of prevailing market price for a broker-dealer is the dealer's contemporaneous cost for the security). When engaging in principal transactions, a brokerage firm and its associated persons can avoid committing a fraud upon a customer only by either charging a price that bears a reasonable relationship to the prevailing market price, or disclosing information sufficient for the customer to exercise an informed judgment on whether to engage in a transaction. In re Lehman Brothers, Inc., Exchange Act Release No. 37673 (September 12, 1996) (citing In re Duker & Duker, Exchange Act Release No. 2350 (December 19, 1939)). Given Singer's many years of experience as a trader, he knew or was reckless in not knowing that the prices on the Treasury trades were improper. Singer had a duty to treat Suncoast's customers fairly and to inform Suncoast's customers of material information relevant to their trading relationship. Singer failed to disclose to New York Life the material information that the Treasury trades were executed at prices that were off-market and not reasonably related to prevailing market prices. Through his execution or review and approval of the Treasury trades, Singer breached his duty to treat New York Life fairly. See Feminella, 947 F. Supp. at 729 ("[W]here a defendant `exacts unreasonable profits resulting from a price which bears no reasonable relation to the prevailing price' of the security, the anti-fraud provisions of the Securities Act and the Exchange Act are violated.") (quoting In re Duker & Duker, Exchange Act Release No. 2350 (December 19, 1939)).
As a result of the conduct described above, Singer willfully violated Section 17(a) of the Securities Act and Section 10(b) of the Exchange Act and Rule 10b-5 thereunder, which prohibit fraudulent conduct in the offer and sale of securities and in connection with the purchase or sale of securities.
As a result of the conduct described above, Singer willfully aided and abetted and caused Breckenridge and Shen's violations of Section 10(b) of the Exchange Act and Rule 10b-5 thereunder, which prohibit fraudulent conduct in connection with the purchase or sale of securities.
In view of the foregoing, the Commission deems it appropriate and in the public interest to impose the sanctions specified in Respondent Singer's Offer.
ACCORDINGLY, IT IS HEREBY ORDERED:
A. Pursuant to Section 8A of the Securities Act and Section 21C of the Exchange Act, Respondent shall cease and desist from committing or causing any violations and any future violations of Section 17(a) of the Securities Act and Section 10(b) of the Exchange Act and Rule 10b-5 thereunder.
B. Pursuant to Section 15(b)(6) of the Exchange Act, Respondent be, and hereby is, suspended from association with any broker or dealer for a period of three months, effective on the second Monday following the entry of the Order.
C. IT IS FURTHER ORDERED that Respondent shall pay a civil money penalty in
the amount of $25,000 to the United States Treasury in four equal payments of $6,250, with the first payment due within five days of the entry of the Order, the second payment due within thirty days of the entry of the Order, the third payment due within sixty days of the entry of the Order, and the fourth payment due within ninety days of the entry of the Order. Such payment shall be: (A) made by United States postal money order, certified check, bank cashier's check, or bank money order; (B) made payable to the Securities and Exchange Commission; (C) hand-delivered or mailed to the Office of Financial Management, Securities and Exchange Commission, Operations Center, 6432 General Green Way, Stop 0-3, Alexandria, VA 22312; and (D) submitted under cover letter that identifies Singer as a Respondent in these proceedings, the file number of these proceedings, a copy of which cover letter and money order or check shall be sent to Antonia Chion, Associate Director, Division of Enforcement, Securities and Exchange Commission, 450 5th Street N.W., Washington, D.C. 20549-0801. Such civil money penalty may be distributed pursuant to Section 308(a) of the Sarbanes-Oxley Act of 2002 ("Fair Fund distribution"). Regardless of whether any such Fair Fund distribution is made, amounts ordered to be paid as civil money penalties pursuant to this Order shall be treated as penalties paid to the government for all purposes, including all tax purposes. To preserve the deterrent effect of the civil penalty, Respondent agrees that he shall not, in any Related Investor Action, benefit from any offset or reduction of any investor's claim by the amount of any Fair Fund distribution to such investor in this proceeding that is proportionately attributable to the civil penalty paid by Respondent ("Penalty Offset"). If the court in any Related Investor Action grants such an offset or reduction, Respondent agrees that he shall, within 30 days after entry of a final order granting the offset or reduction, notify the Commission's counsel in this action and pay the amount of the Penalty Offset to the United States Treasury or to a Fair Fund, as the Commission directs. Such a payment shall not be deemed an additional civil penalty and shall not be deemed to change the amount of the civil penalty imposed against Respondent in this proceeding. For purposes of this paragraph, a "Related Investor Action" means a private damages action brought against Respondent by or on behalf of one or more investors based on substantially the same facts as alleged in the Order in this proceeding.By the Commission.
Jonathan G. Katz
1 The findings herein are made pursuant to Respondent's Offer of Settlement and are not binding on any other person or entity in this or any other proceeding.
2 Breckenridge and Shen were criminally convicted of violating, inter alia, Section 17(a) of the Securities Act and Section 10(b) of the Exchange Act and Rule 10b-5 thereunder. Breckenridge provided gifts and cash kickbacks to Shen in return for a flow of trades at improper prices.
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