UNITED STATES OF AMERICA
|In the Matter of
ORDER MAKING FINDINGS
On December 6, 1996 the Securities and Exchange Commission ("Commission") issued an order postponing these proceedings at the request of the District Attorney of the County of New York to permit the grand jury impaneled by the District Attorney to complete its investigation into the conduct of the respondents in this action and to file any resulting indictments.1 Since that time, respondents Andrew Bressman, Roman Okin, Richard Acosta, Richard Simone, Mark Goldman and Jack Wolynez have been indicted by the grand jury and criminally convicted in connection with their activities while employed at A.R. Baron & Co., Inc.2
On November 4, 1999, the Commission accepted offers of settlement from respondents Bressman, Okin and Simone and issued orders making findings and imposing sanctions and other relief as to these respondents.3
In anticipation of the reopening of this proceeding by the Commission, Respondent Mark Goldman ("Goldman" or "Respondent") has submitted an offer of settlement which the Commission has determined to accept ("Offer"). Accordingly, the Commission deems it appropriate to reopen the proceeding as to Respondent Goldman for the purpose of accepting his Offer. Solely for the purpose of this proceeding and any other proceeding brought by or on behalf of the Commission, or in which the Commission is a party, and without admitting or denying the findings contained herein, except as to jurisdiction of the Commission over the Respondent and the subject matter of this proceeding, and as to the entry of the conviction set forth in paragraph II.E, below, which are admitted, Goldman, by his Offer, consents to the findings and the imposition of the sanctions and other relief contained in this Order Making Findings and Imposing Remedial Sanctions and Cease and Desist Order As To Mark Goldman ("Order").
Accordingly, IT IS ORDERED that said proceeding be, and hereby is, reopened with regard to Goldman.
On the basis of this Order and the Offer submitted by Goldman, the Commission finds the following:4
While Respondent Goldman served as a compliance officer and supervisor at A.R. Baron & Co., Inc. ("Baron"), Baron registered representatives subject to his supervision engaged in egregious sales practice abuses. Goldman failed adequately to respond to and investigate "red flags" indicating possible wrongdoing by the Baron registered representatives and so did not prevent their sales abuses. Thus, Goldman failed reasonably to supervise registered representatives at Baron with a view to preventing their violations of Section 17(a) of the Securities Act and Section 10(b) of the Exchange Act and Rules 10b-5 thereunder and their aiding, abetting and causing violations of Sections 7(c) of the Exchange Act and Regulation T promulgated by the Federal Reserve Board.
In addition, in May and June of 1993, Goldman knowingly and actively participated in a manipulation of the market in HPI common stock. In furtherance of this manipulation, Goldman executed or caused to be executed unauthorized trades in customer accounts, advised a customer not to sell HPI shares without telling such customer that he was discouraging the selling of HPI shares so as to further the manipulation, and approved the opening of "priority accounts" with the knowledge that such accounts would be used to park HPI stock in furtherance of the manipulation.
B. RESPONDENT AND OTHER RELEVANT ENTITIES
Mark Goldman, age 53, resides in Roslyn Heights, New York. Goldman was a registered principal with Baron and served as a Baron supervisor and/or compliance officer from September 1991 until his departure on June 25, 1996. At various times during his Baron tenure, Goldman also served as its president, chief operating officer and chief financial officer.
2. Other Relevant Entities
a. A.R. Baron & Co., Inc., a Delaware corporation with its principal place of business in New York, New York, was registered with the Commission in September 1991 as a broker-dealer pursuant to Section 15(b) of the Exchange Act. In July 1996, Baron ceased operations and was placed into liquidation pursuant to the Securities Investors Protection Act. On October 17, 1996, the Commission issued an order finding that Baron had violated Section 17(a) of the Securities Act, Sections 7(c), 9(a)(2), 9(a)(4), 10(b) and 15(c)(1) of the Exchange Act and Rules 10b-5 and 15c1-2 thereunder and Regulation T promulgated by the Federal Reserve Board and revoked Baron's registration as a broker-dealer.
b. Health Professionals, Inc. ("HPI"), is a Delaware corporation with its principal place of business in Fort Lauderdale, Florida. HPI has common stock registered with the Commission under Section 12(b) and warrants registered under Section 12(g) of the Exchange Act. At all relevant times, HPI common stock was listed and traded on both the Amex and Nasdaq.
C. GOLDMAN FAILED REASONABLY TO SUPERVISE BARON'S REGISTERED REPRESENTATIVES
While Goldman served as a Baron compliance officer and a supervisor of its registered representatives, Andrew Bressman ("Bressman"), Jeffrey Weissman ("Weissman") and other registered representatives under Goldman's supervision engaged in numerous and repeated egregious sales practice abuses involving the sales of HPI common stock and other Baron "house stock.5 These Baron registered representatives violated Section 17(a) of the Securities Act and Section 10(b) of the Exchange Act and Rule 10b-5 thereunder and aided, abetted and caused violations of Sections 7(c) of the Exchange Act and Regulation T promulgated by the Federal Reserve Board through rampant unauthorized trading of customer accounts, the making of materially false statements to customers concerning securities they sold or offered to sell, the refusal to execute customer sell orders, the repeated parking of securities in customer accounts, the repeated making of unauthorized Regulation T credit extension requests for customer accounts in which unauthorized purchases of securities had been placed and the opening of "priority accounts" for customers who were then subject to Regulation T restrictions.6
Goldman did not reasonably address "red flags" indicative of possible improper activities, including numerous complaints he received from Baron's customers concerning unauthorized trades and abusive sales practices. In particular, Goldman failed adequately to respond to and reasonably investigate the following "red flags" indicative of possible wrongdoing by Baron's registered representatives:
As a result of the foregoing, Goldman failed reasonably to supervise Baron's registered representatives with a view to preventing their violations of Section 17(a) of the Securities Act and Section 10(b) of the Exchange Act and Rules 10b-5 thereunder and their aiding, abetting and causing violations of Section 7(c) and Regulation T promulgated by the Federal Reserve Board, as described above.
D. GOLDMAN PARTICIPATED IN MARKET MANIPULATION
In May and June 1993, Bressman, Weissman and other Baron registered representatives manipulated and artificially propped up the market price of HPI common stock. In furtherance of this manipulation, the Baron representatives engaged in massive unlawful parking of HPI stock in customer accounts through unauthorized trades, often executed after the close of the trading day, refused to execute customer sell orders and evaded Regulation T by delaying the liquidation of unpaid securities purchases and enabling the parking of HPI stock in accounts of customers then subject to Regulation T restrictions through the opening of "priority accounts." Goldman knew that Baron's registered representatives were engaged in the manipulation of HP stock and he willfully participated in the manipulation, by, among other things, (i) executing or causing to be executed trades that he knew were not unauthorized by the customers for whose accounts the trades were placed; (ii) advising a customer who had placed sell orders for HPI stock not to sell without telling that customer that he was discouraging the selling of HPI shares in furtherance of a manipulation; and (iii) approving the opening of "priority accounts" with the knowledge that such accounts would be and were used to park unwanted HPI securities. Goldman did not receive any commission or profit from the HPI manipulation.
E. GOLDMAN'S CRIMINAL CONVICTION
On December 16, 1997, Goldman pleaded guilty to and was convicted in the Supreme Court of the State of New York of one count of enterprise corruption arising from his activities at Baron and was sentenced to one to three years in jail. Goldman served one year in jail and was released on probation on January 26, 1999.
F. GOLDMAN'S AGREEMENT TO MAKE PAYMENT TO BANKRUPTCY TRUSTEE
Goldman has committed, subject to completion of papers, with the Trustee for the liquidation of the Estate of A.R. Baron & Co., Inc., James W. Giddens, and the Trustee for the Goldman bankruptcy proceeding, Richard L. Stern, to pay $120,000, lump sum, to the Trustee in the Goldman bankruptcy, case no. 96-87160-288 (Bkr. E.D.N.Y.) in satisfaction of claims brought against Goldman by the two trustees arising, inter alia, from his conduct while employed at Baron. The Baron liquidation Trustee was appointed by an order dated July 11, 1996, of the United States District Court for the Southern District of New York, which found that the customers of Baron were in need of the protections afforded under the Securities Investors Protection Act. The Goldman bankruptcy Trustee was appointed by the United States Bankruptcy Court for the Eastern District of New York.
A. FAILURE TO SUPERVISE
Section 15(b)(6) of the Exchange Act authorizes the Commission to sanction individuals associated with a broker or dealer for failing to supervise other persons subject to their supervision. Proper supervision requires reasonable response to red flags suggesting that registered representatives may be engaging in improper activities. See Matter of J.B. Hanauer & Co., et al., Exch. Act Rel. No. 41832 (Sep. 2, 1999); In re Vieira, Exch. Act Rel. No. 26576, 42 S.E.C. Docket 1815, 1821 (Feb. 28, 1989). Thus, Goldman's failure to reasonably respond to the various red flags described above constituted a failure to supervise.
B. VIOLATIONS OF THE ANTIFRAUD PROVISIONS THROUGH MARKET MANIPULATION
Section 9(a)(2) of the Exchange Act, which prohibits the manipulation of the prices of securities listed for trading on a national exchange, makes it unlawful for a person to engage in a series of transactions that creates actual or apparent activity or raises or depresses the stock's price when done for the purpose of inducing others to buy or sell the security.
The manipulative practices described in Sections 9(a)(2) also violate the antifraud provisions in Section 10(b) and Rule 10b-5 of the Exchange Act for both exchange-listed and over-the-counter securities. S.E.C. v. Sayegh, 906 F.Supp 939, 946 (S.D.N.Y. 1995); S.E.C. v. Lorin et al., 877 F.Supp. 192, 196-197 (S.D.N.Y. 1995); In re Michael Batterman, 46 S.E.C. 304, 305 (1976). Finally, conduct of a broker or dealer of the type prohibited by Section 9(a) also violates Section 15(c)(1) of the Exchange Act and Rule 15c1-2 thereunder with respect to securities traded over-the-counter. In re F.N. Wolf & Co., Inc., 60 S.E.C. Docket 3348, 3376 (1996); In re Barrett & Co., 9 S.E.C. 319, 328-29 (1941).
In furtherance of the above-described manipulation, Baron and its registered representatives executed HPI stock trades on an exchange and over-the-counter. Thus, by assisting this manipulation, Goldman willfully violated Section 9(a)(2) and 10(b) of the Exchange Act and Rule 10b-5 thereunder and willfully aided, abetted and caused Baron's violations of Section 15(c)(1) of the Exchange Act and Rule 15c1-2 thereunder.
Based on the above, the Commission finds that Goldman failed reasonably to supervise registered representatives under his supervision with a view to preventing their violations of Section 17(a) of the Securities Act and Section 10(b) of the Exchange Act and Rule 10b-5 thereunder and their aiding, abetting and causing violations of Section 7(c) of the Exchange Act and Regulation T promulgated by the Federal Reserve Board.
The Commission further finds that Goldman willfully violated Sections 9(a)(2) and 10(b) of the Exchange Act and Rule 10b-5 thereunder and willfully aided, abetted and caused violations of Section 15(c)(1) of the Exchange Act and Rule 15c1-2 thereunder.
Respondent Goldman has submitted a sworn financial statement and other evidence and has asserted his financial inability to pay a civil penalty. The Commission has reviewed the sworn financial statement and other evidence provided by Respondent and has determined, in light of Respondent's outstanding commitment, subject to completing the papers, to pay $120,000 to the Goldman bankruptcy trustee, that Respondent does not currently have the financial ability to pay a civil penalty.
OFFER OF SETTLEMENT
The Respondent has submitted an offer of settlement in which, without admitting or denying the findings herein, he consents to the Commission's issuance of this Order, including findings as set forth above and the relief ordered below.
On the basis of the foregoing, the Commission deems it appropriate and in the public interest to impose the sanctions and other relief specified in Goldman's Offer.
Accordingly, IT IS HEREBY ORDERED that Goldman:
(1) be barred from association with any broker or dealer; and
(2) cease and desist from committing or causing any violation and any future violation of Sections 9(a)(2), 10(b) and 15(c)(1) of the Exchange Act and Rules 10b-5 and 15c1-2 thereunder.
IT IS FURTHER ORDERED that the Division of Enforcement ("Division") may, at any time following the entry of this Order, petition the Commission to: reopen this matter to (1) consider whether Respondent provided accurate and complete financial information at the time such representations were made; (2) consider whether Respondent made the required payment of $120,000 to the Goldman Bankruptcy trustee; (3) determine the amount of the civil penalty to be imposed; and (4) seek any additional remedies that the Commission would be authorized to impose in this proceeding if Respondent's Offer had not been accepted. No other issues shall be considered in connection with this petition other than whether the financial information provided by Respondent was fraudulent, misleading, inaccurate or incomplete in any material respect, whether Respondent made the required payment to the bankruptcy trustee, the amount of civil penalty to be imposed and whether any additional remedies should be imposed. Respondent may not, by way of defense to any such petition, contest the findings in this Order or the Commission's authority to impose any additional remedies that were available in the original proceeding.
By the Commission.
Jonathan G. Katz
|1||Previously, the Commission instituted administrative proceedings on May 23, 1996 (3-9010) against A.R. Baron & Co. Inc., Andrew Bressman, and Roman Okin, and on October 17, 1996 (3-9168) against A.R Baron & Co., Inc., Andrew Bressman, Roman Okin, Richard Acosta, Richard Simone, Burton Blank, Mark Goldman and Jack Wolynez pursuant to Section 8A of the Securities Act of 1933 ("Securities Act") and Sections 15(b)(6), 19(h) and 21C of the Securities Exchange Act of 1934 ("Exchange Act"). On October 17, 1996, the Commission accepted an Offer of Settlement from A.R. Baron & Co., Inc. and dismissed the firm from these proceedings. See Exchange Act Release No. 37830. On December 6, 1996, the Commission postponed these proceedings until the completion of the grand jury proceedings. See Exchange Act Rel. No. 38025.|
|2||Respondent Burton Blank was not indicted by the grand jury.|
|3||See Exchange Act Rel. Nos. 42103, 42104 and 42105.|
|4||The findings herein are made pursuant to the Respondent's Offer and are not binding on any other person or entity in this or any other proceeding.|
Baron promoted a handful of securities known as "house stock" that it recommended to its customers to the virtual exclusion of all other securities. These "house stock" were thinly-traded speculative securities, including securities underwritten by Baron, that Baron and its registered representatives manipulated or intended to manipulate by controlling the float of the stock through concentrated holdings of its customers.
"Priority accounts" were new accounts opened in the names of Baron customers whose existing accounts were restricted pursuant to Regulation T from purchasing securities on a delayed payment basis because of the customer's past failures to pay for securities purchases. Baron's registered representatives used the "priority accounts" to continue to place securities purchases on a delayed payment basis in an unlawful circumvention of Regulation T. Securities could thus be parked in such account, without payment, until another customer account could be found to acquire or hold the unwanted security without causing it to be sold to the street or held in the firm's inventory.
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