First Colonial Securities Group, Inc., Michael E. Golden and Steven D. Schwartz
SECURITIES EXCHANGE ACT OF 1934
Release No. 43349 / September 26, 2000
ADMINISTRATIVE PROCEEDING
File No. 3-10026
| In the Matter of
FIRST COLONIAL SECURITIES GROUP,
Respondent. |
ORDER MAKING FINDINGS AND IMPOSING REMEDIAL SANCTIONS |
I.
On September 23, 1999, the Securities and Exchange Commission instituted public administrative proceedings pursuant to Sections 15(b) and 19(h) of the Securities Exchange Act of 1934 against First Colonial Securities Group, Inc. ("First Colonial"), Michael E. Golden ("Golden") and Steven D. Schwartz ("Schwartz").
In response to the institution of these administrative proceedings, First Colonial, Golden and Schwartz have submitted an Offer of Settlement, which the Commission has determined to accept. Solely for the purposes of these proceedings and any other proceedings 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 the jurisdiction of the Commission over them and the subject matter of the proceedings, which are admitted, Respondents First Colonial, Golden and Schwartz consent to the issuance of this Order Making Findings and Imposing Remedial Sanctions ("Order").
II.
On the basis of this Order and the Offer submitted by First Colonial, Golden and Schwartz, the Commission makes the following findings:1
A. First Colonial Securities Group, Inc. ("First Colonial") has been registered with the Securities and Exchange Commission ("Commission") as a broker-dealer pursuant to Section 15(b) of the Securities Exchange Act of 1934 ("Exchange Act") since 1989. Its headquarters were in Marlton, New Jersey from 1989 until mid-1998 when it moved to Boca Raton, Florida.
B. Michael E. Golden ("Golden") is First Colonial's president, chief executive officer, and controlling shareholder.
C. Steven D. Schwartz ("Schwartz") was a shareholder of First Colonial.
D. From its inception in 1989 to 1998, First Colonial had grown from one office in Marlton, New Jersey, with three registered representatives, to 150 registered representatives in 24 offices located throughout the continental United States. As part of its expansion, First Colonial hired registered representatives who already controlled office space in remote locations and had their own customers. Many of these offices were designated as Offices of Supervisory Jurisdiction ("OSJ"). During this entire period and despite this expansion, First Colonial's compliance department was comprised of one officer who devoted only part of his time to compliance matters. The compliance officer spent the remainder of his time servicing his own retail customers, and supervising First Colonial registered representatives who sold mutual funds and variable annuities.
E. Golden, who is also a registered principal of First Colonial, drafted the firm's first compliance and supervisory manuals and reviewed all revisions. From approximately April 1996 to March 1998, Schwartz was a registered principal, Vice President, and shareholder of First Colonial, and he was the supervisor of all First Colonial representatives who sold mutual funds and variable annuities. He was also First Colonial's compliance officer. Schwartz also is a registered representative of First Colonial. These findings relate only to Schwartz's actions taken in his capacity as a supervisor and not as a registered representative.
F. Robert Tommassello ("Tommassello") was a registered principal of First Colonial's Hazleton, Pennsylvania OSJ from November 1995 until he was terminated by First Colonial in March 1998. He was licensed to sell only mutual funds and variable annuities. As a principal of the OSJ in Hazleton, Tommassello was responsible for supervising seven registered representatives working in his office and at four other locations in Pennsylvania and Maryland. In October 1995, he had been permitted to resign from his previous employer, a registered broker-dealer, after it had determined that Tommassello had deposited into his personal bank account funds solicited from a customer for the purpose of investing in a variable annuity.
G. Beginning in at least December 1995 and continuing until February 1998, Tommassello engaged in a scheme to misappropriate money from his customers, most of whom also were customers of First Colonial. He obtained funds by soliciting customers to purchase mutual funds or variable annuities, promising high returns with little or no risk. He told the customers to make their checks payable to a company he owned, rather than the mutual fund or variable annuity vendor. Tommassello then deposited these funds into bank accounts which he controlled and used the money to pay his personal expenses, or pay other customers who had grown suspicious and demanded a return of their investments. To lull certain customers, he belatedly purchased the promised securities, with funds obtained from other customers, and prepared fictitious account statements. Through this scheme, Tommassello converted to his own use more than $1.33 million in customer funds.
H. As a result of this conduct, Tommassello violated Section 17(a) of the Securities Act of 1933 ("Securities Act") and Section 10(b) of the Exchange Act and Rule 10b-5 thereunder. On February 26, 1998, the Commission filed an emergency civil action against Tommassello and others based on Tommassello's violations of these provisions. A Temporary Restraining Order and asset freeze were entered that day. SEC v. Tommassello, et al., Civil Action No. 98-0322 (M.D.Pa.). That litigation is still pending.
I. From approximately November 1995 through February 1998, First Colonial, Golden and Schwartz failed reasonably to supervise Tommassello with a view to preventing Tommassello's violations described in subparagraphs II.F. through H. above, in that they failed to establish and/or follow policies and procedures designed to prevent and detect the fraudulent conduct engaged in by Tommassello.
J. As part of the conduct described in subparagraph II.I. above, First Colonial and Golden:
1. Failed to establish sufficient written procedures for following up on disclosures on the Uniform Application for Securities Industry Registration or Transfer (Form U-4) and for reviewing, and advising supervisors of, information contained in the Uniform Termination Notice of Securities Industry Registration (Form U-5) which would have put the firm on notice of Tommassello's past history; and
2. Failed to devote adequate resources to First Colonial's supervision and compliance framework to keep pace with the considerable growth of the firm. Despite having grown from one office with three registered representatives in 1989 to 24 offices with 150 registered representatives in 1998, First Colonial employed only one person to devote only part of his time to compliance matters. That same individual was also responsible for supervision of all First Colonial registered representatives who sold mutual fund shares and variable annuities, and also had his own customers.
K. As part of the conduct described in subparagraph II.I. above, Schwartz failed to follow existing firm procedures requiring annual unannounced inspections of an OSJ, inasmuch as he did not conduct any inspections of Tommassello's Hazleton OSJ until more than two years after it became associated with First Colonial. At that time, he gave Tommassello advance notice of his visit.
L. Based on the foregoing, First Colonial, Golden and Schwartz failed reasonably to supervise Tommassello with a view to preventing his violations of the federal securities laws set forth in subparagraphs II.F. through H. above, within the meaning of Section 15(b)(4)(E) of the Exchange Act.
III.
In view of the foregoing, the Commission deems it appropriate in the public interest and for the protection of investors to accept the Offer submitted by First Colonial, Golden and Schwartz and impose the sanctions specified therein.
Accordingly, IT IS HEREBY ORDERED that:
A. First Colonial:
1. be, and hereby is, censured; and
2. 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 that identifies First Colonial as a 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 Ronald C. Long, District Administrator, Securities and Exchange Commission, The Curtis Center, Suite 1120E., 601 Walnut St., Philadelphia, PA 19106;
B. Golden:
1. be, and hereby is, censured; and
2. shall, within 30 days of the entry of this Order, pay a civil money penalty in the amount of $15,000 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 that identifies Golden as a 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 Ronald C. Long, District Administrator, Securities and Exchange Commission, The Curtis Center, Suite 1120E., 601 Walnut St., Philadelphia, PA 19106; and
C. Schwartz:
1. be, and hereby is, suspended from acting in a supervisory capacity with any broker or dealer for a period of nine months, effective on the second Monday after the entry of this Order; and
2. shall, within 30 days of the entry of this Order, pay a civil money penalty in the amount of $10,000 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 that identifies Schwartz as a 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 Ronald C. Long, District Administrator, Securities and Exchange Commission, The Curtis Center, Suite 1120E., 601 Walnut St., Philadelphia, PA 19106.
By the Commission.
Jonathan G. Katz
Secretary
Footnotes
1 The findings herein are made pursuant to the Offer of Settlement of First Colonial, Golden and Schwartz and are not binding on any other person or entity in this or any other proceeding.