U.S. Securities & Exchange Commission
SEC Seal
Home | Previous Page
U.S. Securities and Exchange Commission

UNITED STATES OF AMERICA
before the
SECURITIES AND EXCHANGE COMMISSION

SECURITIES EXCHANGE ACT OF 1934
Release No. 42447 / February 22, 2000

ADMINISTRATIVE PROCEEDING
File No. 3-10151

In the Matter of

Investment Street Company,
Dynamic Trading Of Miami, Inc.,
Emilio Sardi, and
Javier Saenz,

Respondents.

Order Instituting Public
Administrative and Cease-and-
Desist Proceedings Pursuant
to Sections 15(b) and 21C of the
Securities Exchange Act of
1934, Making Findings and
Imposing Remedial Sanctions

I.

The Securities and Exchange Commission ("Commission") deems it appropriate and in the public interest that public administrative and cease-and-desist proceedings be instituted against Investment Street Company ("Investment Street"), Dynamic Trading of Miami, Inc. ("Dynamic"), Emilio Sardi ("Sardi") and Javier Saenz ("Saenz") pursuant to Sections 15(b) and 21C of the Securities Exchange Act of 1934 ("Exchange Act").

II.

In anticipation of the institution of these proceedings, Investment Street, Dynamic, Sardi, and Saenz have submitted Offers of Settlement (the "Offers"), 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 any of the findings contained herein, except as to the jurisdiction of the Commission over them and over the subject matter of these proceedings, which are admitted, Investment Street, Dynamic, Sardi, and Saenz consent to the entry of this Order Instituting Public Administrative and Cease-and-Desist Proceedings Pursuant to Sections 15(b) and 21C of the Securities Exchange Act of 1934, Making Findings, and Imposing Remedial Sanctions ("Order"), by the Commission.

Accordingly, it is hereby ordered that proceedings pursuant to Sections 15(b) and 21C of the Exchange Act be, and hereby are, instituted.

III.

On the basis of this Order and the Offers submitted by Respondents Investment Street, Dynamic, Sardi, and Saenz, the Commission finds that:1

A. Introduction

1. At all relevant times, Investment Street operated as a day trading firm and provided direct access to the securities markets to approximately 50 day trading customers.2 As described below, between November 1997 and March 1999, Investment Street, aided and abetted and caused by Saenz, a member of its former management, violated Section 7(c) of the Exchange Act and Regulation T promulgated by the Board of Governors of the Federal Reserve System ("Federal Reserve Board") by failing to comply with rules and regulations governing the extension of margin loans to customers, and Rule 10b-16 under the Exchange Act by failing to provide its customers with certain required statements describing those loans. Also as described below, between November 1997 and March 1999, Sardi, aided and abetted and caused by Saenz, violated Section 7(d) of the Exchange Act and Regulation T by extending credit to Investment Street's customers in violation of Regulation T. In addition, from November 1997 to August 1998, Investment Street, aided and abetted and caused by Saenz, violated Section 15(b)(7) of the Exchange Act by permitting certain persons to trade the accounts of Investment Street customers while not possessing required training and qualifications.

2. Also as described below, from November 1997 to August 1998, Dynamic violated Section 15(a) of the Exchange Act by operating as an unregistered broker-dealer.

B. Respondents

3. Investment Street, which is located in Miami, Florida, is a broker-dealer registered with the Commission pursuant to Section 15(b) of the Exchange Act. Investment Street is also a member of the National Association of Securities Dealers, Inc. ("NASD"). From November 1997 to at least July 1999, Investment Street was solely owned by a British Virgin Islands-based holding company controlled by Sardi.

4. At all relevant times, Respondent Dynamic, a Florida corporation, was not registered with the Commission or any self-regulatory organization as a broker or dealer.

5. Sardi, age 56, is a non-U.S. resident, and at all relevant times was associated as a director of Investment Street. At all relevant times, Sardi also controlled Dynamic. Sardi has never been registered by the Commission, nor has he ever held any securities licenses.

6. Saenz, age 40, resides in Miami, Florida. Between December 1997 and October 1999, Saenz was associated with Investment Street as its president and office manager. Saenz is registered with the NASD as a general securities principal and a general securities representative.

C. Investment Street's and Sardi's Margin Lending

7. Investment Street's day traders conducted all of their day trading in margin accounts. A margin account enables the day trader to purchase securities with funds borrowed from the broker-dealer, and thus purchase those securities with only a fractional portion of the total purchase price. There are, however, limitations on the extension of margin account loans by a broker or dealer or their associated persons. Section 7(c) of the Exchange Act and Regulation T prohibit brokers or dealers, or their associated persons, from, among other things, extending or maintaining credit to or for any customer except as prescribed by the Federal Reserve Board. By placing limits on margin lending, Section 7(c) of the Exchange Act protects the financial integrity of broker-dealers.

8. Between November 1997 and March 1999, Investment Street, aided and abetted and caused by Saenz, violated Section 7(c) of the Exchange Act and Regulation T by indirectly extending credit to the firm's day trading customers in violation of margin lending rules promulgated by the Federal Reserve Board.

9. Between November 1997 and March 1999, Sardi, aided and abetted and caused by Saenz, violated Section 7(d) of the Exchange Act and Regulation T by extending credit to Investment Street's day trading customers in violation of margin lending rules promulgated by the Federal Reserve Board.

10. Regulation T regulates the circumstances in which credit may be extended by brokers and dealers to customers, and establishes, among other things, initial margin requirements. Regulation T limits the amount of money that a broker-dealer, or any person associated with such broker-dealer, can lend to a customer to 50% of the initial purchase price of stock. If, at the end of a trading day, the equity in a customer's account is below the 50% threshold, and the customer has taken a new position, the customer will receive a Regulation T "margin call." In response to the margin call, the customer must deposit additional funds or securities into his account or the broker-dealer will be required to liquidate securities sufficient to meet the margin call.

11. Between November 1997 and March 1999, Investment Street's customers received approximately $250,000 from accounts at Investment Street controlled by Sardi for the purpose of covering approximately 22 margin calls issued pursuant to Regulation T. Rather than being required to deposit additional funds or securities into their accounts to satisfy these margin calls, the customers received funds, from accounts that Sardi controlled, that exceeded the entire margin call.

12. Investment Street facilitated the loans to its customers. The loans originated from accounts at Investment Street; Saenz, the firm's president and office manager, facilitated the loans to the firm's day traders, and the firm, through its associated persons, instructed its clearing firm to make the transfers between accounts.

13. Approximately 10 different customers of Investment Street received loans in excess of the limits established by Regulation T. For example, one customer received a Regulation T margin call in April 1998 in the amount of $19,905. The next day, that same customer received $20,000 from an account that Sardi controlled to cover the margin call. That same customer received another Regulation T margin call in June 1998 in the amount of $16,388, which was covered the next day with a loan from an account that Sardi controlled of $16,500. That same customer received another Regulation T margin call in July 1998 in the amount of $13,689. The next day, that customer received $14,000 from an account that Sardi controlled to cover the Regulation T margin call. In some instances, the customers received loans that exceeded the original cash deposits that they made into their accounts. For example, another customer who opened his account with $15,000 in September 1997 received a Regulation T margin call in December 1997 in the amount of $19,161. The next day, that same customer received $20,000 from an account that Sardi controlled to cover the margin call.

14. The actions of Sardi, Investment Street and Saenz allowed Investment Street's day trading customers to continue trading when their accounts would otherwise have, and should have, been restricted or closed. Sardi acted in contravention of the regulatory requirements established by Section 7(d) of the Exchange Act and Regulation T because the loans made from accounts he controlled alleviated the need for Investment Street's customers to add their own funds or securities to their accounts, as Regulation T requires. By indirectly making those loans, Investment Street also violated the regulatory requirements established by Section 7(c) of the Exchange Act and Regulation T.

15. Within one or two days after covering a margin call by means of a loan, the customers repaid the loans. Investment Street's customers paid a fee for obtaining some of these loans. Investment Street did not provide its customers with a written statement of the terms of the loans that it indirectly made to the firm's customers, or any periodic statements of the interest or fees charged on the loans, as required by Rule 10b-16 of the Exchange Act.

16. As a result of the conduct described above, Investment Street willfully3 violated, and committed or caused violations of, Section 7(c) of the Exchange Act and Regulation T by indirectly extending and maintaining credit to or for its customers in contravention of Regulation T promulgated by the Federal Reserve Board [12 C.F.R. § 220.1, et seq.].

17. Also as a result of the conduct described above, Investment Street willfully violated, and committed or caused violations of, Rule 10b-16 of the Exchange Act by indirectly extending credit to its customers in connection with securities transactions without providing those customers with a written statement or statements, at least quarterly, disclosing: (a) the balance at the beginning and end of the period; (b) the date, amount and a brief description of each loan; and (c) the total interest charge for the period, itemized to show dates and the annual rates.

18. Also as a result of the conduct described above, Sardi willfully violated, and committed or caused violations of, Section 7(d) of the Exchange Act and Regulation T, by directly extending and maintaining credit to or for Investment Street's customers in violation of Regulation T promulgated by the Federal Reserve Board [12 C.F.R. § 220.1, et seq.].

D. Violations of the Broker-Dealer Registration Provisions of the Exchange Act

19. Between November 1997 and August 1998, Dynamic, which operated as an unregistered broker or dealer, performed administrative services for Investment Street (with which it shared office space and equipment). During the relevant time period, Dynamic employed two individuals, who did not hold securities licenses and who were not registered with any national securities association, and who traded investors' accounts. Those two individuals reported directly to Sardi.

20. Using Investment Street's facilities and computer software, the two individuals Dynamic employed engaged in day trading for at least six securities accounts controlled by Sardi, either individually or jointly with others, maintained at Investment Street. Dynamic, using funds from accounts controlled by Sardi, compensated the two individuals at the end of each month based upon a percentage of the net increase in the value of each account they traded. Thus, the two individuals handled funds and securities for the accounts of others, and received transaction-based compensation.

21. As a result of the conduct described above, Investment Street willfully violated Section 15(b)(7) of the Exchange Act, and Rule 15b7-1 thereunder, which require broker-dealers to ensure that their associated persons possess the training and qualifications required by the self-regulatory organizations to which they belong. In this case, Investment Street, a member of the NASD, allowed individuals associated with itself and with Dynamic to trade accounts maintained by others at Investment Street for compensation even though they lacked securities licenses and were not registered with the NASD.

22. Also as a result of the above, Dynamic willfully violated, and committed or caused violations of, Section 15(a) of the Exchange Act, in that it made use of the means and instruments of transportation and communications in interstate commerce and of the mails to effect transactions in, and to induce and attempt to induce the purchase of, certain securities, for the accounts of others, without being registered with the Commission as a broker or dealer.

E. Saenz Aided and Abetted and Caused Investment Street's and Sardi's Violations

23. Saenz, Investment Street's former president and office manager, was responsible for Investment Street's compliance with the restrictions on margin lending imposed by Section 7(c) of the Exchange Act and Regulation T. Saenz helped to establish procedures for customers to obtain loans from accounts established by Sardi, whom Saenz knew controlled Investment Street, and approved letters of authorization that transferred funds from those accounts to the customers that received the loans. Saenz also knew when customers received Regulation T margin calls and facilitated the loans obtained by Investment Street's customers to cover the margin calls. Saenz also failed to implement policies or procedures, as required by Rule 10b-16, or take any steps, to provide Investment Street's customers with disclosures regarding the margin call loans they received.

24. Saenz also knew that Dynamic's employees performed certain back-office functions for Investment Street, provided technical support and administrative assistance to Investment Street's day traders, and day traded accounts controlled by Sardi and his family, either individually or jointly with others.

25. As a result of the conduct described above, Saenz willfully aided and abetted, and was a cause of, Investment Street's violations of Sections 7(c) and 15(b)(7) of the Exchange Act, Rule 15b7-1 thereunder, Rule 10b-16 under the Exchange Act, and Regulation T, and Sardi's violations of Section 7(d) of the Exchange Act and Regulation T.

IV.

On the basis of the foregoing, the Commission deems it appropriate and in the public interest to impose the sanctions specified in the Offers submitted by Respondents Investment Street, Dynamic, Sardi, and Saenz. In determining to accept the Offers, the Commission considered remedial acts promptly undertaken by Respondents and cooperation afforded the Commission staff.

Accordingly, it is ordered that:

1. Investment Street be, and hereby is, censured.

2. Investment Street cease and desist, pursuant to Section 21C of the Exchange Act, from committing or causing any violations and any future violations of Sections 7(c) and 15(b)(7) of the Exchange Act, Rule 15b7-1 thereunder, Rule 10b-16 under the Exchange Act, and Regulation T promulgated by the Federal Reserve Board.

3. Dynamic cease and desist, pursuant to Section 21C of the Exchange Act, from committing or causing any violation and any future violation of Section 15(a)(1) of the Exchange Act.

4. Investment Street and Dynamic shall, within 30 days of the entry of this Order, together pay a civil money penalty in the amount of $25,000 to the United States Treasury. 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 Comptroller, Securities and Exchange Commission, Operations Center, 6432 General Green Way, Stop 0-3, Alexandria, Virginia 22312; and (D) submitted under cover letter that identifies Investment Street and Dynamic as Respondents in these proceedings, the file number of these proceedings, a copy of which cover letter and money order or check shall be sent to Glenn S. Gordon, Assistant Regional Director, Southeast Regional Office, Securities and Exchange Commission, 1401 Brickell Avenue, Suite 200, Miami, FL 33131.

5. Sardi be, and hereby is, suspended from association with any broker or dealer for a period of 90 days, effective on the second Monday following the entry of the Order.

6. Sardi cease and desist, pursuant to Section 21C of the Exchange Act, from committing or causing any violation and any future violation of Section 7(d) of the Exchange Act and Regulation T promulgated by the Federal Reserve Board.

7. Sardi shall, within 30 days of the entry of this Order, pay a civil money penalty in the amount of $5,500 to the United States Treasury. 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 Comptroller, Securities and Exchange Commission, Operations Center, 6432 General Green Way, Stop 0-3, Alexandria, Virginia 22312; and (D) submitted under cover letter that identifies Sardi as the 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 Glenn S. Gordon, Assistant Regional Director, Southeast Regional Office, Securities and Exchange Commission, 1401 Brickell Avenue, Suite 200, Miami, FL 33131.

8. Saenz be, and hereby is, suspended from association with any broker or dealer for a period of six (6) months, effective on the second Monday following the entry of the Order.

9. Saenz cease and desist, pursuant to Section 21C of the Exchange Act, from committing or causing any violation and any future violation of Sections 7(c), 7(d) and 15(b)(7) of the Exchange Act, Rule 15b7-1 thereunder, Rule 10b-16 of the Exchange Act, and Regulation T promulgated by the Federal Reserve Board.

10. Saenz shall, within 30 days of the entry of this Order, pay a civil money penalty in the amount of $5,500 to the United States Treasury. 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 Comptroller, Securities and Exchange Commission, Operations Center, 6432 General Green Way, Stop 0-3, Alexandria, Virginia 22312; and (D) submitted under cover letter that identifies Saenz as the 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 Glenn S. Gordon, Assistant Regional Director, Southeast Regional Office, Securities and Exchange Commission, 1401 Brickell Avenue, Suite 200, Miami, FL 33131.

By the Commission.

Jonathan G. Katz
Secretary


Footnotes

1 The findings herein are made pursuant to the Offers submitted by Investment Street, Dynamic, Sardi and Saenz, and are not binding on any other person or entity in this or any other proceeding.

2 The National Association of Securities Dealers has defined day trading as "an overall trading strategy characterized by the regular transmission by a customer of intra-day orders to effect both purchase and sale transactions in the same security or securities." SR-NASD-99-41 (August 20, 1999).

3 In applying the term "willful" in Commission administrative proceedings instituted pursuant to Sections 15(b), 15B, 15C, 17A, and 19(h) of the Securities Exchange Act, Section 9 of the Investment Company Act, and Section 203 of the Investment Advisers Act, the Commission evaluates on a case-by-case basis whether the respondent knew or reasonable should have known under the particular facts and circumstances that his conduct was improper. In this case, as in all Commission administrative proceedings charging willful violations under these statutory provisions, the Commission applies this standard to persons – specifically, securities industry professionals – who are directly subject to Commission jurisdiction and who have responsibility to understand their duties to the investing public and to comply with the applicable rules and regulations which govern their behavior.

http://www.sec.gov/litigation/admin/34-42447.htm


Modified:02/22/2000