SECURITITES AND EXCHANGE COMMISSION
Securities Exchange Act of 1934
Admin. Proceeding File No. 3-10150
In the Matter of All-Tech Direct, Inc., f/k/a All-Tech Investment Group, Inc., Harry Lefkowitz, Mark Shefts, Lisa Esposito, Ralph Zulferino, David Waldman, Adam Leeds, Barry Parish
The Securities and Exchange Commission today instituted administrative and cease and desist proceedings against All-Tech Direct, Inc., f/k/a All-Tech Investment Group, Inc. ("All-Tech"), Harry Lefkowitz ("Lefkowitz"), Mark Shefts ("Shefts"), Lisa Esposito ("Esposito"), Ralph Zulferino ("Zulferino"), David Waldman ("Waldman"), Adam Leeds ("Leeds"), and Barry Parish ("Parish"). The order instituting proceedings alleges that during 1998, All-Tech a broker-dealer specializing in day-trading engaged in conduct that violated the margin lending provisions of Section 7(c) of the Securities Exchange Act of 1934 ("Exchange Act") and Regulation T promulgated by the Board of Governors of the Federal Reserve ("Federal Reserve"). The order further alleges that each of the individual respondents willfully aided and abetted, and was a cause of, All-Tech's violations, and that, in the alternative, certain of the individual defendants themselves violated Section 7(d) of the Exchange Act.
The order instituting proceedings alleges the following with respect to the named respondents:
1. All-Tech has been a broker-dealer registered with the Commission and incorporated under the laws of the State of Delaware. All-Tech offers day-trading services to customers through its principal office in Montvale, New Jersey, through approximately two dozen franchised branches throughout the United States, and through direct line electronic access similar to an internet connection.
2. Lefkowitz, 43, is Vice-President of Operations for All-Tech and supervises All-Tech's back office, including the margin department, and branch office operations. Lefkowitz works in All-Tech's main office in Montvale, New Jersey and resides in Goshen, New York.
3. Shefts, 42, owns fifty percent of a holding company that owns All-Tech and owns two percent of All-Tech directly. Shefts is the president and a registered representative of All-Tech, and has ultimate responsibility for, among other things, All-Tech's financial reporting, books and records, and correspondence. Shefts works in All-Tech's main office in Montvale, New Jersey, and resides in Tuxedo Park, New York.
4. Esposito, 34, is the head of All-Tech's margin department at the firm's main office in Montvale, New Jersey. She resides in Garnerville, New York.
5. Zulferino, 40, is an All-Tech registered representative, and the owner and manager of the All-Tech's Edison, New Jersey, branch office. He resides in Marlboro, New Jersey.
6. Waldman, 58, resides in Monsey, New York and was employed by All-Tech from approximately February through August 14, 1998. During this period, Waldman was an associated person of All-Tech, although he did not have a formal title. Waldman is an attorney.
7. Leeds, 31, resides in San Diego, California and was a registered representative in All-Tech's San Diego branch office from January 20, 1998 until June 25, 1999.
8. Parish, 46, resides in San Diego, California and was the branch manager of All-Tech's San Diego branch office from January 2, 1997 until December 31, 1999.
The order instituting proceedings further alleges, among other things, that:
Throughout 1998, All-Tech willfully and repeatedly engaged in conduct that violated Section 7(c) of the Exchange Act when the equity in certain customer margin accounts fell below the minimum required by Regulation T. Specifically, All-Tech, directly or indirectly, extended, or arranged for the extension of, uncollateralized loans from the accounts of associated persons to customers who could not otherwise cover the resulting margin calls issued by All-Tech's clearing firm. Under Regulation T, All-Tech should have liquidated securities in those customer accounts to reduce the margin deficiencies, rather than supply those customers with, or otherwise arrange for these customers to receive, additional extensions of credit. The policy of the clearing firm was to liquidate the deficient positions and close the accounts of customers who failed to meet margin calls. Had those accounts been closed, All-Tech would have been prevented from receiving revenue from further day-trading business from the customers in question. All-Tech also willfully violated Exchange Act Rule 10b-16 by failing to take steps to provide customers with written disclosures containing specified information about the loans they received from associated person accounts, including information about the annual rates of interest.
Shefts, as All-Tech's President; Lefkowitz, as All-Tech's Vice-President for Operations; and Parish, as the manager of All-Tech's San Diego branch office, willfully aided and abetted and caused All-Tech's violations of Section 7(c) of the Exchange Act. Shefts and Lefkowitz, also willfully aided and abetted and caused All-Tech's Rule 10b-16 violations. Zulferino and Waldman gave All-Tech's margin department discretion and control over their brokerage accounts, enabling All-Tech's margin clerk, Esposito to draw over $3.6 million from these associated person accounts to satisfy ninety-seven Regulation T margin calls for All-Tech customers between May and December 1998. In addition, through the account of Leeds, a registered representative in its San Diego branch, All-Tech extended another $81,625 to satisfy six customer Regulation T margin calls. Through this conduct, Esposito, Zulferino, Waldman, and Leeds willfully aided and abetted and caused All-Tech's violations of Section 7(c) of the Exchange Act. Furthermore, and in the alternative, Esposito, Zulferino, Waldman and Leeds willfully violated Section 7(d) of the Exchange Act by extending, or, in the case of Esposito arranging, credit in violation of Regulation T.
A hearing will be held before an Administrative Law Judge to determine whether the allegations against the respondents are true, and, if so, what remedial action and other relief, if any, is appropriate.