SECURITIES EXCHANGE ACT OF 1934
Release No. 43050 / July 18, 2000

ADMINISTRATIVE PROCEEDING
File No. 3-10255


In the Matter of


JANNEY MONTGOMERY
SCOTT LLC

and

NORMAN T. WILDE, JR.,

Respondent.


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  ORDER INSTITUTING PUBLIC
PROCEEDINGS, MAKING FINDINGS
AND IMPOSING REMEDIAL
SANCTIONS

I.

The Securities and Exchange Commission ("Commission") deems it appropriate and in the public interest that administrative proceedings be instituted pursuant to Sections 15(b) and 19(h) of the Securities Exchange Act of 1934 ("Exchange Act") against Janney Montgomery Scott LLC ("Janney") and Norman T. Wilde, Jr. ("Wilde").

In anticipation of the institution of these proceedings, Janney and Wilde have submitted Offers of Settlement ("Offers") that the Commission has determined to accept. Solely for the purpose of these proceedings and any other proceeding brought by or on behalf of the Commission or to which the Commission is a party, prior to a hearing pursuant to the Commission's Rules of Practice, and without admitting or denying the findings set forth herein, except that Janney and Wilde admit the Commission's jurisdiction over them and over the subject matter of these proceedings, Janney and Wilde consent to the entry of this Order Instituting Public Proceedings, Making Findings and Imposing Remedial Sanctions ("Order").

Accordingly, IT IS ORDERED that proceedings against Janney and Wilde be, and hereby are, instituted.

II.

On the basis of this Order, and the Offers submitted by Janney and Wilde, the Commission finds the following:

A. Respondents

1. Janney has been registered with the Commission as a broker-dealer pursuant to Section 15(b) of the Exchange Act since January 1936. Janney, which is headquartered in Philadelphia, Pennsylvania, has over 50 branch offices throughout the eastern United States. Janney is a wholly owned subsidiary of Independence Square Properties LLC, which is located in Horsham, Pennsylvania, and is organized under the laws of Delaware. Janney is a member of all major securities exchanges. The New York Stock Exchange ("NYSE") is the firm's designated examining authority.

2. Wilde, age 69, has been employed with Janney since September of 1955. He has served as president for the past 29 years and chief executive officer since March of 1971.

B. Mark Coleman Graves' Misconduct

1. Mark Coleman Graves ("Graves") was employed, at all times relevant to this proceeding, as a registered representative with Janney in its Philadelphia branch office. Unbeknownst to Janney management, from 1988 through July 1996, Graves willfully violated Section 17(a) of the Securities Act of 1933 ("Securities Act"), Section 10(b) of the Exchange Act and Rule10b-5 thereunder in that he misappropriated more than $1.8 million from approximately 25 customers. Janney terminated Graves in August 1996 and reimbursed the customers with interest.

2. Graves induced numerous Janney customers to issue him checks by soliciting them to purchase various types of securities, some of which were fictitious. Upon obtaining the checks, he deposited them into his bank account and used the money for his personal expenses.

3. Graves also induced customers to sign letters of authorization ("LOA") to transfer customer funds for fictitious purposes. He prepared fictitious LOAs and other documents. He also forged customers' signatures. He used the documents to effect transfers between Janney customer accounts. Once the money had been transferred, Graves persuaded the customers to issue him checks by falsely claiming that the funds had been transferred in error and that he would correct the mistake.

4. In order to conceal his fraudulent acts, Graves sent false confirmations to customers, lied to customers when they inquired about irregularities in their accounts, and effected transfers between customer accounts in order to replace previously misappropriated funds.

5. Graves was able to defraud these customers because he exploited certain deficiencies in Janney's internal operational systems. In particular, three systems that should have detected irregularities failed to do so because of inadequate establishment or implementation of written supervisory procedures in connection with fund disbursements and transfers, correspondence review, and customer complaint processing.

C. Janney's Inadequate Supervisory Procedures

1. Janney failed reasonably to supervise Graves with a view to preventing and detecting Graves' violations of Section 17(a) of the Securities Act, Section 10(b) of the Exchange Act and Rule 10b-5 thereunder.

2. During the relevant time period, Janney had inadequate procedures requiring review and approval of LOAs. The firm also had no procedures requiring confirmation from a customer after a transfer or withdrawal had been effected. For example, had Janney employed adequate procedures, Graves' supervisors might have been alerted to irregularities in the LOAs and/or in the affected customer accounts. Such "red flags" might have led to the discovery that the customers had not given their informed permission or consent to the transfers.

3. During the relevant time period, Janney had inadequate procedures to ensure that its outgoing correspondence had been properly reviewed. Had Janney employed such adequate measures, Graves' supervisors might have been alerted to the fact that Graves was sending certain Janney customers false confirmation letters detailing his alleged purchases of securities that were neither offered nor sold by the firm.

4. During the relevant time period, Janney had inadequate written procedures regarding the review of incoming correspondence prior to distribution to the registered representatives. During the relevant time period, at least one of Graves' customers sent the firm a letter detailing certain problems with an account. Had Janney implemented adequate procedures regarding the review of incoming correspondence, Graves' supervisors might have been alerted to irregularities in the customer's account, including suspicious transfers of funds.

5. During the relevant time period, Janney had inadequate written procedures regarding the handling of customer complaints. Had the firm established adequate written guidelines for the identification and processing of customer complaints, requiring a supervisor to be placed on notice of customer complaints, Graves' supervisors might have been alerted to a complaint lodged by one of Graves' customers concerning irregularities in her account.

6. During the relevant time period, Janney failed reasonably to improve its written procedures after being placed on notice of certain deficiencies by regulatory agencies. From July 1992 through the discovery of Graves' scheme in 1996, Janney received notice of certain deficiencies from the National Association of Securities Dealers, Inc. ("NASD"), the NYSE, the Pennsylvania Securities Commission ("PSC") and the Commission. In addition, in 1993, Janney terminated two registered representatives for misappropriation of customer funds, implicating some of the same systems exploited by Graves, and failed promptly to implement certain procedures reasonably designed to detect and/or prevent Graves' misconduct.

D. Wilde's Delegation of Supervisory Duties Became Unreasonable

1. Wilde, as the President and Chief Executive Officer of Janney during the relevant time period, delegated to others, including the firm's former Compliance Director (now deceased), the responsibility to establish written procedures reasonably designed to prevent and/or detect violations of the federal securities laws.

2. Wilde had knowledge of supervisory deficiencies in fund disbursements and transfers, correspondence review and customer complaint processing by virtue of the receipt of deficiency letters from, and/or meetings with, regulators from the NASD, NYSE, PSC, and the Commission. Wilde failed reasonably to ensure that adequate corrective action was taken with respect to those areas.

3. Wilde became aware in 1993 that the two registered representatives referred to above in Section II. C. 6. were terminated for misappropriation and failed reasonably to ensure that adequate corrective action was taken with respect to some of the same systems that Graves later exploited.

4. In light of the foregoing, Wilde's delegation of the responsibility to establish procedures reasonably designed to prevent and detect Graves' violations became unreasonable. As a result, Wilde failed reasonably to supervise Graves within the meaning of Section 15(b)(4)(E) of the Exchange Act with a view to preventing the violations described above.

E. Janney's Prior Undertakings

1. In April 1995, Janney engaged an independent consultant to review its policies and procedures, and recommend enhancements to its supervisory procedures.

2. In January 1996, Janney issued the Branch Office Manual, and in the summer of 1996, Janney issued the Home Office Supervisory Manual.

3. In November 1996, the PSC issued an administrative order finding that Janney had violated Pennsylvania statutory provisions concerning the supervision of agents and employees at its Wilkes Barre and Wayne, Pennsylvania branch offices. In consenting to the Order and without admitting or denying the findings therein, Janney agreed to engage the same independent consultant it had previously engaged to further review the firm's branch office supervisory procedures, including training of cashiering personnel.

4. In June 1997, Janney issued the Registered Representative's Manual. On August 10, 1998, the independent consultant issued a final report to the PSC outlining its recommended procedures and describing Janney's adoption of them.

III.

In view of the foregoing, it is in the public interest to impose the sanctions specified in the Offers. Accordingly IT IS HEREBY ORDERED that:

1. Janney and Wilde be, and hereby are, censured;

2. Janney shall, within 30 days of the entry of this Order, pay a civil money penalty in the amount of $100,000 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, VA 22312; and (D) submitted under a cover letter which identifies Janney as a Respondent in this proceeding and the file number of this proceeding, a copy of which cover letter and money order or check shall be sent to Ronald C. Long, District Administrator, Philadelphia District Office, Securities and Exchange Commission, The Curtis Center, Suite 1120E., 601 Walnut Street, Philadelphia, Pennsylvania 19106;

3. Wilde shall, within 30 days of the entry of this Order, 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, VA 22312; and (D) submitted under a cover letter which identifies Wilde as a Respondent in this proceeding and the file number of this proceeding, a copy of which cover letter and money order or check shall be sent to Ronald C. Long, District Administrator, Philadelphia District Office, Securities and Exchange Commission, The Curtis Center, Suite 1120E., 601 Walnut Street, Philadelphia, Pennsylvania 19106;

4. Janney shall, within 1 year of the date of this Order, comply with its undertaking to retain, at Janney's expense, an independent consultant, not unacceptable to the Commission's staff who shall, among other things, conduct a comprehensive review of Janney's policies, procedures and practices relating to the prevention or detection of the types of improper conduct involving Graves described in Section II. B. Within 30 days of retention, the independent consultant shall review such policies, procedures and practices, as described in Section II. B. 5., with a view to determining if all such policies, procedures and practices have been implemented or require supplementation. Janney shall cooperate with the independent consultant's review of Janney's policies, procedures and practices, and shall provide the independent consultant with any and all requested documents that the independent consultant reasonably requests (other than materials or information protected by a valid claim of attorney-client privilege or attorney work product).

a. The independent consultant shall prepare a written report of findings and recommendations within 60 days of retention. Janney shall be provided a reasonable opportunity to comment on the independent consultant's report, not to exceed 30 days after receipt of the independent consultant's report. With respect to any recommendation or proposal with which Janney and the independent consultant do not agree, Janney and the independent consultant shall attempt in good faith to reach agreement. In the event the independent consultant and Janney are unable to agree on an alternative proposal, Janney shall abide by the recommendation of the independent consultant.

b. If the independent consultant concludes that all of Janney's policies, procedures and practices relating to the prevention or detection of the types of improper conduct involving Graves, as described in Section II. B, have been implemented, the independent consultant shall inform Janney and the Philadelphia District Office, Division of Enforcement of this conclusion in writing, and his or her responsibilities with respect to Janney shall conclude. If the independent consultant does not conclude that all of Janney's policies, procedures and practices have been implemented, and/or makes additional recommendations to supplement existing policies, procedures and practices, as described in Section II. B. 5., he or she shall notify Janney and the Philadelphia District Office, Division of Enforcement in writing of the policies, procedures and practices that have not been implemented and/or describe the additional recommendations. Janney shall implement such policies, procedures and practices in a timely manner, but in any event no later than 3 months from the date of receiving notification from the independent consultant. By the same date, Janney shall submit to the Philadelphia District Office, Division of Enforcement, an Affidavit detailing its efforts to implement the procedures discussed in the independent consultant's report and stating whether it has achieved compliance.

c. For good cause shown, and upon receipt of a timely application from the independent consultant or Janney, the Philadelphia District Office, Division of Enforcement, may extend any of the procedural dates set above.

d. For the period of engagement and for a period of 1 year from the completion of the engagement, the independent consultant shall not, without prior written consent of the Philadelphia District Office, Division of Enforcement, enter into any employment, consultant, attorney-client, auditing or other professional relationship with Janney, or any of its present or former affiliates, directors, officers, employees, or agents acting in their capacity. Any firm with which the independent consultant is affiliated or of which he/she is a member, and any person engaged to assist the independent consultant in performance of his/her duties under this Order shall not, without prior written consent of the Philadelphia District Office, Division of Enforcement, enter into any employment, consultant, attorney-client, auditing or other professional relationship with Janney, or any of its present or former affiliates, directors, officers, employees, or agents acting in their capacity as such for the period of the engagement and for a period of 1 year after the engagement.

By the Commission.

Jonathan G. Katz
Secretary