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 Burton Blank ("Blank" 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 Blank 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.B.1. and II.F. below, which are admitted, Blank, 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 As To Burton Blank ("Order").
Accordingly, IT IS ORDERED that said proceeding be, and hereby is, reopened with regard to Blank.
On the basis of this Order and the Offer submitted by Blank, the Commission finds the following:4
While Respondent Blank served in a supervisory capacity at the New York brokerage firm A.R. Baron & Co., Inc. ("Baron"), numerous registered representatives and principals at Baron, among them, respondents Bressman, Okin and Acosta, and other Baron brokers engaged in stock manipulation and repeated egregious and abusive sales practices in violation of the antifraud and other provisions of federal securities laws. Blank, who served as chief compliance officer from May 1992 through September 1993, and as registered principal and chief operating officer during his entire tenure at Baron, failed to detect or prevent these securities violations despite the fact that he had notice of numerous instances of broker misconduct including frequent complaints of unauthorized trading in customer accounts. By ignoring red flags which should have put him on notice of the brokers' misconduct, Blank, as a registered principal and supervisor for Baron, failed reasonably to supervise these brokers with a view to preventing their violations of Section 17(a) of the Securities Act and Section 10(b) and Rule 10b-5 thereunder as well as these brokers' aiding and abetting and causing violations of Sections 7(c) and 15(c)(1) of the Exchange Act and Rule 15c1-2 thereunder and Regulation T promulgated by the Federal Reserve Board.
B. RESPONDENT AND OTHER RELEVANT ENTITIES
Burton Blank, age 64, resides in New York, New York. Blank was a registered representative and principal with Baron from May 1992 until his departure on June 25, 1996. Blank served as Baron's chief compliance officer from May 1992 through September 1993 and was its chief operating officer during his entire Baron tenure. Blank is presently a registered representative with Joseph Dillon & Co. Blank cooperated with and provided substantial assistance to the New York Count District Attorney in its criminal investigation of Baron and its brokers and to the Commission's staff.
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 (i) 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 (ii) revoking 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. Prior to November 1991, HPI was a wholly-owned, shell corporation subsidiary of Professional Care, Inc. ("PCI"), a company whose common stock was traded on the American Stock Exchange ("Amex") and over-the-counter. On November 21, 1991, HPI merged with PCI and HPI became the successor company. 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. Cypros Pharmaceutical Corp. ("Cypros") is a California corporation with its principal place of business in Carlsbad, California. Cypros has common stock and warrants registered with the Commission pursuant to Section 12(g) of the Exchange Act. Cypros common stock and warrants are listed for trading on Nasdaq.
C. BLANK HAD NOTICE OF CUSTOMER COMPLAINTS OF SALES ABUSES BY BROKERS AT BARON
As Baron's chief compliance officer during the period May 1992 through September 1993, and as a registered principal and chief operating officer during his entire Baron tenure, Blank was responsible for reviewing customer complaints, customer accounts, trade tickets and Regulation T extension requests. Blank had extensive industry experience and was initially hired by Baron's owners to provide the firm expertise in back office operations and firm compliance requirements. Blank's position and expertise accorded him considerable supervisory authority over Baron's brokers throughout his Baron tenure.
At Baron, Blank was aware of numerous customer complaints concerning abusive sales practices by Baron brokers involving transactions in HPI, Cypros and other securities. Many of these complaints alleged abusive practices by Baron's chairman and president whom Blank was required to supervise. These complaints, which put Blank on notice of possible wrong-doing by Baron brokers, included claims of rampant unauthorized trading in customer accounts, churning of accounts and refusals by Baron brokers to execute customer sell orders. In addition, these brokers routinely made Regulation T credit extension requests for unauthorized purchases of Baron house stocks in customer accounts for the purpose of parking these securities in customer accounts beyond the normal time for settlement. From May 1992 until at least September 1993, Blank also reviewed all of the firm's order tickets and noticed or should have noticed that certain Baron brokers routinely placed large block purchases for customer accounts late in the day, a practice indicative of stock parking. Despite abundant red flags, Blank took insufficient action to curb the abuses and failed to prevent Baron's brokers from further violating Section 17(a) of the Securities Act, Sections 10(b) and 7(c) of the Exchange Act and Rule 10(b)(5) thereunder and from aiding and abetting Baron's violations of Section 7(c) of the Exchange Act and Regulation T promulgated by the Federal Reserve Board.
D. BROKERS AT BARON MANIPULATED THE SHARE PRICE OF HPI AND CYPROS
Between May 24, 1993 and June 25, 1993, at a time when Blank had over-all compliance responsibility for Baron and supervisory responsibility over all of Baron's brokers, numerous Baron brokers, including Baron's then chairman and president, Jeffrey Weissman and Andrew Bressman, both of whom were required to be supervised by Blank, manipulated the market price of HPI common stock, reversing a downward price movement and preventing its price from dropping in the wake of heavy selling due to adverse publicity. The Baron brokers effected the manipulation by placing unauthorized trades in customer accounts; adhering to a no-net-sale policy; refusing to execute customer sell orders; making false or misleading claims about the business prospects of HPI; making unfounded predictions about the future price of HPI common stock; failing to tell customers about the risks of investing in HPI common stock; and failing to tell customers that the market in HPI common stock was manipulated; placing Regulation T extension requests on unpaid unauthorized purchases to prevent liquidation; and opening new accounts for customers subject to Regulation T restrictions to effect further unauthorized sales on those new accounts. In so doing, these brokers willfully violated Section 17(a) of the Securities Act and 9(a)(2), 9(a)(4) and 10(b) of the Exchange Act and Rule 10b-5 thereunder, and willfully aided and abetted and caused Baron's violations of Sections 7(c) and 15(c)(1) of the Exchange Act and Rule 15c1-2 thereunder and Regulation T promulgated by the Federal Reserve Board.
During the period January 2, 1995 through October 10, 1995, while Blank was Baron's chief operating officer and a registered principal with supervisory responsibility, certain Baron brokers, through Baron, manipulated the price of Cypros common stock, causing its price to increase from $13 3/8 per share on January 3, 1995, to a high of $23 3/4 per share on June 21, 1995.5 These brokers carried out the manipulation by dominating and controlling the market for Cypros stock and by creating artificial demand for Cypros shares by repeatedly placing unauthorized trades in customer accounts. In so doing, these brokers willfully violated Section 17(a) of the Securities Act and Sections 10(b) and Rule 10b-5 thereunder and willfully aided and abetted and caused Baron's violations of Section 15(c)(1) of the Exchange Act and Rule 15c1-2 thereunder.
E. FAILURE TO SUPERVISE
As a registered principal and while serving as chief compliance officer and as chief operating officer, Blank failed reasonably to detect and prevent repeated unauthorized trading of customer accounts and other sales abuses by Baron's registered representatives. Blank also failed reasonably to detect and prevent stock manipulation by Baron's registered representatives. In addition, Blank failed to periodically review the trading of customer accounts by Baron's employees with a view to preventing churning, stock parking and other abusive sales practices.
In particular, Blank failed to respond adequately to, and failed reasonably to investigate, red flags that signaled possible wrongdoing by the Baron registered representatives, including among other things:
As a result of the foregoing, Blank failed reasonably to supervise registered representatives and registered principals at Baron with a view to preventing their violations of Section 17(a) of the Securities Act and Sections 9(a)(2), 9(a)(4) and 10(b) of the Exchange Act and Rule 10b-5 thereunder, and their aiding, abetting and causing violations of Sections 7(c) and 15(c)(1) of the Exchange Act and Rule 15c1-2 thereunder and Regulation T promulgated by the Federal Reserve Board, as described above.
Based on the above, the Commission finds that Blank failed reasonably to supervise registered representatives and registered principals under his supervision with a view to preventing their violations of Section 17(a) of the Securities Act and Sections 9(a)(2), 9(a)(4) and 10(b) of the Exchange Act and Rule 10b-5 thereunder, and their aiding, abetting and causing violations of Sections 7(c) and 15(c)(1) of the Exchange Act and Rule 15c1-2 thereunder and Regulation T promulgated by the Federal Reserve Board.
Respondent Blank 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 that he does not 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 which makes findings, as set forth above, and orders that Blank be barred from acting in any supervisory capacity with any broker or dealer, with the right to reapply to the Commission for removal of the bar three years after entry of this Order. The Commission notes that Blank's supervisory transgressions warrant greater sanctions and, by accepting Respondent's offer, accords him leniency for his cooperation with criminal authorities and the Commission's staff.
On the basis of the foregoing, the Commission deems it appropriate and in the public interest to impose the sanctions specified in Blank's Offer.
Accordingly, IT IS HEREBY ORDERED that Blank be barred from association in any supervisory capacity with any broker or dealer with the right to reapply for association after three years of entry of this Order to the appropriate self-regulatory organization, or if there is none, to the Commission.
IT IS FURTHER ORDERED that the Division of Enforcement ("Division") may, at any time following the entry of this Order, petition the Commission to: 1) reopen this matter to consider whether Respondent provided accurate and complete financial information at the time such representations were made; (2) determine the amount of the civil penalty to be imposed; and (3) 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, 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
|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.|
|Respondent Burton Blank was not indicted by the grand jury.|
|See Exchange Act Rel. Nos. 42103, 42104 and 42105.|
|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.|
| On May 9, 1995, Cypros split its stock by 2.5:1. For consistency, all prices cited herein are adjusted to reflect the pre-split prices.
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