UNITED STATES OF AMERICA
Securities Exchange Act of 1934
The Securities and Exchange Commission ("Commission") deems it appropriate and in the public interest that public administrative proceedings be, and hereby are, instituted pursuant to Sections 15(b) and 21C of the Securities Exchange Act of 1934 ("Exchange Act") against Abraham Weitz ("Weitz").
In anticipation of the institution of these administrative proceedings, Weitz has submitted an Offer of Settlement ("Offer"), which 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 in which the Commission is a party, and without admitting or denying the findings contained herein, except as to the Commission's jurisdiction over him and over the subject matter of this proceeding, which Weitz admits, Weitz consents to the issuance of this Order Instituting Public Administrative Proceedings Pursuant to Sections 15(b) and 21C of the Securities Exchange Act of 1934, Making Findings, and Issuing A Cease and Desist Order and an Order Imposing a Remedial Sanction ("Order") and to the entry of the findings and the imposition of relief set forth below.
Accordingly, IT IS ORDERED that administrative proceedings pursuant to Sections 15(b) and 21C of the Exchange Act be, and hereby are, instituted.
On the basis of this Order and the Offer submitted by Weitz, the Commission finds that:
1. During the period described below, Abraham Weitz ("Weitz"), age 51, was a registered representative associated with First Montauk Securities Corp. ("First Montauk"), a broker-dealer registered with the Commission pursuant to Section 15(b) of the Exchange Act with its principal place of business located in Red Bank, New Jersey. Weitz resides in Wayne, New Jersey.
The Respondent's Fraudulent Conduct
2. Between October 1995 and March 1996, Weitz engaged in a fraudulent scheme to deceive forty-eight First Montauk customers about the performance of their margin option accounts by arranging for them to receive documents showing inflated account values. Weitz inflated these accounts to hide losses and, therefore, induce his customers to continue to trade. The affected accounts were inflated by approximately $6,330,000.
3. In order to carry out this scheme, Weitz first routinely reported to First Montauk's back office clerks trades for index options that were different from, and more valuable than, the options Weitz actually purchased for the accounts. First Montauk's clearing house then calculated the value of the accounts of Weitz's customers based on the options that Weitz erroneously reported, not based on the actual options Weitz bought. Because Weitz executed and reported the trades in question at month's end, before the clearing firm detected the discrepancies, monthly statements to customers showed inflated account values. During the following month, Weitz sold the options, bought more options for the accounts, and inflated the next round of account statements by misreporting some of the new trades.
4. Weitz's customers relied on Weitz's misrepresentations about account values and allowed Weitz to engage in further trading for their accounts. Weitz continued this deception until late March 1996 when he confessed his misconduct to First Montauk. Weitz confessed his misconduct prior to discovery of any wrongdoing by First Montauk or any of Weitz's customers. Soon after Weitz confessed his misconduct to First Montauk, he contributed $200,000 to settlements with the affected customers. Weitz's contribution significantly exceeded the commissions he earned during the five months that he inflated customer accounts.
The Respondent's Violations
5. By reason of the foregoing, Weitz willfully violated, and was a cause of violations of, Section 10(b) of the Exchange Act and Rule 10b-5 thereunder.
On the basis of the foregoing, the Commission deems it appropriate and in the public interest to impose the sanctions specified in the Offer submitted by Weitz.
ACCORDINGLY, IT IS ORDERED that:
1. Weitz cease and desist, pursuant to Section 21C of the Exchange Act, from committing or causing any violation, and committing or causing any future violation, of Section 10(b) of the Exchange Act and Rule 10b-5 thereunder.
2. Weitz be, and hereby is, pursuant to Section 15(b) of the Exchange Act, barred from association with any broker or dealer, with a right to reapply for association after one year to the appropriate self-regulatory organization, or if there is none, to the Commisison.
By the Commission.