UNITED STATES SECURITIES AND EXCHANGE COMMISSION
SECURITIES EXCHANGE ACT OF 1934
INVESTMENT ADVISERS ACT OF 1940
PROCEEDINGS INSTITUTED AGAINST BRIAN D. O'TOOLE, STEVEN D. PIRRONE AND SPECTRUM SECURITIES INC.
The Securities and Exchange Commission ("Commission") announced today that it instituted proceedings against Brian D. O'Toole, a registered investment adviser located in Cheyenne, Wyoming for, among other things, using his wife's registration at the California-based brokerage firm of Spectrum Securities Inc. ("Spectrum") to effect securities transactions. Accordingly, the Commission also announced proceedings against Spectrum's president, Steven D. Pirrone, for his failure to supervise; and against Spectrum for books and records violations.
The Division of Enforcement (the "Division") alleges that, at a time when O'Toole was experiencing difficulty finding employment with a brokerage firm due to his disciplinary history, he held himself out to investors as a registered representative associated with Spectrum. According to the Division, O'Toole used his wife's association with Spectrum from approximately August 1996 through April 1997 to transfer over forty-nine customers and forty accounts to Spectrum, and to effect forty-eight trades for those customers totaling over $200,000. Each of these customers dealt exclusively with O'Toole concerning their accounts and trades, and O'Toole failed to disclose to customers that his wife was their Spectrum representative. The Division also claims that Pirrone was responsible for supervising O'Toole's wife but never even spoke with her and that Spectrum's records identified O'Toole's wife as the Spectrum representative for O'Toole's customers. The Division contends that O'Toole's conduct violated Sections 10(b) and 15(a)(1) of the Securities Exchange Act of 1934 ("Exchange Act") and Rule 10b-5 thereunder, and Sections 206(1) and (2) of the Investment Adviser's Act of 1940 ("Advisers Act"). It further alleges that Pirrone failed reasonably to supervise O'Toole's wife; and that Spectrum violated certain Exchange Act recordkeeping provisions.
The Division also alleges that, after he experienced difficulties becoming associated with a brokerage firm as a registered representative, O'Toole registered with the Commission as an investment adviser, and that he violated numerous provisions of the Advisers Act. The Division claims that O'Toole solicited and renegotiated personal loans from advisory clients which were unsuitable investments without adequately disclosing the risks involved. It further alleges that brochures which O'Toole provided to clients and the registration form he provided to the Commission contained misrepresentations; that O'Toole failed to provide clients with the information form required by the Commission or an equivalent form; and that O'Toole improperly charged unqualified clients performance-based fees. The Division further alleges that O'Toole failed to disclose to investors that his precarious financial condition (including negative net worth and negative cash flow) was reasonably likely to impair his ability to meet contractual commitments to clients; and failed to disclose prior disciplinary events, including an NASD order suspending him, requiring him to pay a $12,500 fine and restitution of almost $60,000, as well as a Colorado court order permanently enjoining him for six years from acting as or associating with any broker-dealer, issuer or investment adviser while in Colorado or for any person in Colorado. The Division contends that O'Toole's conduct violated Sections 204, 205(a)(1), 206(1), (2) and (4), and 207 of the Advisers Act and Rules 204-3, 206(4)-1, 206(4)-4(a)(1), 206(4)-4(a)(2) thereunder.
A hearing will be held before an administrative law judge to determine whether the staff's allegations against the respondents are true, and if so, whether a cease-and-desist order is appropriate, what, if any, remedial action is appropriate and whether respondents should be ordered to pay civil penalties.