UNITED STATES OF AMERICA
|:||ORDER INSTITUTING PUBLIC|
|In the Matter of||:||ADMINISTRATIVE PROCEEDINGS|
|:||PURSUANT TO SECTION 15(b)(6)|
|Edward E. Bao,||:||OF THE SECURITIES EXCHANGE|
|:||ACT OF 1934 AND SECTION 203(f) OF|
|Respondent.||:||THE INVESTMENT ADVISERS ACT|
|:||OF 1940, MAKING FINDINGS, AND|
The Securities and Exchange Commission ("Commission") deems it appropriate and in the public interest to institute public administrative proceedings pursuant to Section 15(b)(6) of the Securities Exchange Act of 1934 ("Exchange Act") and Section 203(f) of the Investment Advisers Act of 1940 ("Advisers Act") against Edward E. Bao ("Bao").
In anticipation of the institution of these administrative proceedings, Bao has submitted an Offer of Settlement which the Commission has determined to accept. Solely for the purpose of these proceedings and any other proceedings brought by or on behalf of the Commission, or to which the Commission is a party, and without admitting or denying the findings herein, except as to the entry of the injunction and the conviction as set forth in Section III.B. and D. below, and as to the jurisdiction of the Commission over him and the subject matter of the proceeding, which are admitted, Bao consents to the entry of this Order Instituting Public Administrative Proceedings Pursuant to Section 15(b)(6) of the Securities Exchange Act of 1934 and Section 203(f) of the Investment Advisers Act of 1940, Making Findings, and Imposing Sanctions ("Order").
Accordingly, it is ordered that proceedings pursuant to Section 15(b)(6) of the Exchange Act and Section 203(f) of the Advisers Act be, and hereby are, instituted.
The Commission makes the following findings:
A. From December 1983 to December 1994, Bao was associated with Gruntal & Co., Incorporated ("Gruntal"). Throughout that period, Gruntal was a broker-dealer registered with the Commission pursuant to Section 15(b) of the Exchange Act and an investment adviser registered with the Commission pursuant to Section 203(c) of the Advisers Act.
B. On May 20, 1999, a Final Judgment was entered by the United States District Court for the Southern District of New York, in an action styled Securities and Exchange Commission v. Edward E. Bao, 96 Civ. 2515 (MBM), which permanently enjoins Bao from violating Section 17(a) of the Securities Act of 1933, Sections 10(b) and 13(b)(5) of the Exchange Act, and Exchange Act Rules 10b-5, 13b2-1, and 13b2-2. The Final Judgment was entered by the District Court after a trial on stipulated facts.
C. The Commission's Complaint in Securities and Exchange Commission v. Edward E. Bao alleged that, beginning in 1984 and continuing through late 1994, Bao violated the above provisions of the federal securities laws by participating in a fraudulent scheme designed to divert securities and funds totaling approximately $5 million from customer accounts, unclaimed dividends, stale and outstanding customer and vendor checks, and other sources at Gruntal. As part of the scheme, Bao and others diverted approximately $5 million to fictitious customer accounts and then either transferred the diverted assets to Gruntal profit and loss accounts or used the diverted assets to fund off-books payments of Gruntal expenses. The Complaint alleged that, from 1985 through the third quarter of fiscal 1987, as a result of the scheme, Gruntal Financial Corp., Gruntal's then publicly traded corporate parent, filed with the Commission certain false and misleading periodic reports and a false and misleading registration statement. The Complaint further alleged that in 1987, in connection with the acquisition of Gruntal Financial Corp. by The Home Group, Inc., Bao violated the federal securities laws by selling 618,000 shares of the common stock of Gruntal Financial Corp. while in possession of material, nonpublic information.
D. On September 11, 1997, a Judgment in a Criminal Case was imposed against Bao by the United States District Court for the Southern District of New York, in United States v. Edward Bao, 96 Cr. 247 (TPG). The Judgment was imposed subsequent to the District Court's acceptance of Bao's plea of guilty to Count Fourteen of a seventeen-count Indictment. Count Fourteen charged Bao with unlawfully, willfully, and knowingly aiding, abetting, counseling, commanding, inducing, and causing Gruntal to fail to make and keep such books and records as were required by the Commission, in violation of 15 U.S.C. §§ 78q(a)(1), 78ff, 18 U.S.C. § 2, and 17 C.F.R. § 240.17a-3. The District Court sentenced Bao to thirty-three months' incarceration, a two-year term of supervised release, a $7,500 fine, and the mandatory $50 criminal assessment. Bao appealed, and, on June 11, 1998, the U.S. Court of Appeals for the Second Circuit affirmed the judgment of the District Court.
E. Count Fourteen of the Indictment in United States v. Edward Bao specifically charges that Bao caused Gruntal to make fraudulent and misleading entries in its books and records by causing such entries to be made in the monthly account statement for the Gecon & Co. Inc. account (the "Gecon account") for the period ending April 30, 1993. As asserted in the Indictment, the Gecon account was one of several fictitious customer accounts utilized by Bao in furtherance of a scheme to divert dividend overages, unclaimed checks, and other assets. Count Fourteen incorporates the Indictment's assertion that, in or about April 1993 and pursuant to the scheme, Bao and another Gruntal manager discussed the receipt, into the Gecon account, of approximately $400,000 of diverted funds. Count Fourteen also incorporates the Indictment's assertion that, also in April 1993, Bao and a third Gruntal manager discussed transferring certain securities from a dividend payable account to "our favorite account."
In view of the foregoing, the Commission deems it appropriate and in the public interest to accept Bao's Offer of Settlement.
Accordingly, IT IS ORDERED that Bao is barred from association with any broker or dealer; and
IT IS FURTHER ORDERED that Bao is barred from association with any investment adviser.
By the Commission.
|Jonathan G. Katz|
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