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U.S. Securities and Exchange Commission

UNITED STATES OF AMERICA
Before the
SECURITIES AND EXCHANGE COMMISSION

SECURITIES EXCHANGE ACT OF 1934
Release No. 44413 / June 13, 2001

ADMINISTRATIVE PROCEEDING
File No. 3-10505


In the Matter of

JPR CAPITAL CORP.,
PAUL UMANSKY, CHARLES
HAMPTON and JEFFREY WOLF,

Respondents.


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ORDER INSTITUTING PUBLIC
ADMINISTRATIVE AND CEASE-AND-
DESIST PROCEEDINGS PURSUANT
TO SECTIONS 15(b) AND 21C OF THE
SECURITIES EXCHANGE ACT OF
1934, MAKING FINDINGS AND
IMPOSING REMEDIAL SANCTIONS

I.

The Securities and Exchange Commission ("Commission") deems it appropriate and in the public interest that public administrative and cease-and-desist proceedings be instituted against JPR Capital Corp. ("JPR Capital" or "the firm"), Paul Umansky. ("Umansky"), Charles Hampton ("Hampton") and Jeffrey Wolf ("Wolf") pursuant to Sections 15(b) and 21C of the Securities Exchange Act of 1934 ("Exchange Act").

II.

In anticipation of the institution of these proceedings, JPR Capital, Umansky, Hampton and Wolf have submitted Offers of Settlement (the "Offers"), 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 any of the findings contained herein, except as to the jurisdiction of the Commission over them and over the subject matter of these proceedings, which are admitted, JPR Capital, Umansky, Hampton and Wolf consent to the entry of this Order Instituting Public Administrative and Cease-and-Desist Proceedings Pursuant to Sections 15(b) and 21C of the Securities Exchange Act of 1934, Making Findings, and Imposing Remedial Sanctions ("Order"), by the Commission.

Accordingly, IT IS HEREBY ORDERED that proceedings pursuant to Sections 15(b) and 21C of the Exchange Act be, and hereby are, instituted.

III.

On the basis of this Order and the Offers submitted by Respondents JPR Capital, Umansky, Hampton and Wolf, the Commission finds that:

Respondents

1. JPR Capital Corp. ("JPR Capital"), which is located in Roslyn, New York, is a broker-dealer registered with the Commission pursuant to Section 15(b) of the Exchange Act. JPR Capital is also a member of the National Association of Securities Dealers, Inc. ("NASD"). At all relevant times, JPR Capital introduced all of its accounts to its clearing firm, Southwest Securities ("Southwest"), which carried all customer positions, cleared all customer transactions, and generally extended margin loans to JPR Capital's customers. Until December 1998, Paul Umansky and Jeffrey Wolf co-owned JPR Capital. Since December 1998, Umansky has been JPR Capital's sole owner. JPR Capital offers day trading services to customers through its office in Roslyn, New York and through direct line electronic access over the Internet.

2. Umansky, age 38, is a resident of Rockville Center, New York, and at all relevant times was associated with JPR Capital as its president and owner, either solely or with Wolf. Umansky is also registered with the NASD as a general securities principal and a general securities representative.

3. Charles Hampton, age 35, resides in Melville, New York. Hampton has been associated with JPR Capital as its Chief Operating Officer since September 1997. Hampton is registered with the NASD as a general securities principal and a general securities representative.

4. Wolf, age 52, resides in New York, New York. From February 1995 through November 1998, Wolf was a co-owner of JPR Capital. During the time he co-owned JPR Capital, Wolf did not have any day-to-day involvement with the firm's brokerage operations. Wolf has never been registered with the Commission, nor licensed by the NASD in any capacity.

Background

5. At all relevant times, JPR Capital held itself out to the public as a day trading firm and provided direct access to the securities markets to approximately 470 day trading customers.1 As described below, between November 1997 and March 2000, JPR Capital violated Section 7(c) of the Exchange Act and Regulation T promulgated by the Board of Governors of the Federal Reserve System ("Federal Reserve Board"), [12 C.F.R. § 220.1, et seq.], by failing to comply with rules and regulations governing the extension of margin loans to customers. JPR Capital also violated Rule 10b-16 under the Exchange Act by failing to provide its customers with certain written disclosures containing specified information about the loans they received from associated person accounts, and Section 17(a) of the Exchange Act and Rule 17a-4 thereunder, by failing to adequately maintain certain books and records.

6. In addition, as described below, Wolf, who held a passive ownership interest in JPR Capital from 1995 to November 1998, and another registered representative of the firm, violated Section 7(d) of the Exchange Act and Regulation T by extending credit to JPR Capital's customers in violation of Regulation T.

7. Umansky and Hampton aided and abetted and caused the violations of the federal securities laws and Regulation T committed by JPR Capital, Wolf and the firm's registered representative.

JPR Capital's Margin Lending Practices

8. JPR Capital's day trading customers conducted all of their day trading in margin accounts. A margin account enables a day trader to purchase securities with funds borrowed from the broker-dealer, and thus purchase those securities with only a portion of the total purchase price. There are, however, limitations on the extension of margin account loans by a broker or dealer or their associated persons. Sections 7(c) and 7(d) of the Exchange Act prohibit brokers or dealers, or their associated persons, from, among other things, extending or maintaining credit to or for any customer except as prescribed by the Federal Reserve Board in Regulation T. Section 7(c) of the Exchange Act also prohibits brokers or dealers, or their associated persons, from extending or maintaining credit to or for any customer without collateral or on any collateral other than securities, except as prescribed by the Federal Reserve Board. By placing limits on margin lending, Sections 7(c) and 7(d) of the Exchange Act and Regulation T protect the financial integrity of broker-dealers.

9. Regulation T regulates the circumstances in which credit may be extended by brokers and dealers to customers, and establishes, among other things, requirements regarding maintenance of account records and initial margin (i.e., the amount of collateral which must be obtained by the creditor, based on that customer's account, on the day a credit transaction is initiated). Regulation T limits the amount of money that a broker-dealer, or any person associated with such broker-dealer, can lend to a customer to 50% of the initial purchase price of margin equity securities, where those securities are held in the customer's margin account as collateral. Section 220.4 of Regulation T [17 C.F.R. § 220.4] requires a broker-dealer to issue a "margin call" whenever a transaction or transactions on a given day create or exacerbate a situation where the margin required under Regulation T exceeds the equity in a margin account. In response to the margin call, the customer must deposit additional funds or securities into his account or the broker-dealer will be required to liquidate securities sufficient to meet the margin call. Section 220.3 of Regulation T [17 C.F.R. § 220.3] also requires that, "[t]he creditor shall maintain a record for each account showing the full details of all transactions."

10. Between November 1997 and November 1998, customers of JPR Capital received $670,000 in uncollateralized loans from other customer accounts (introduced by JPR Capital to Southwest - JPR Capital's clearing firm) in the name of Wolf's mother and two of Wolf's children (the "Wolf Accounts") for the purpose of covering at least 15 margin calls issued to those customers by Southwest Securities pursuant to Regulation T. Although the Wolf accounts were not in Wolf's name, the funds in those accounts came from him, he controlled those accounts, and he had discretionary authority over the funds they contained. Wolf made the loans to the customers after being informed by Hampton or Umansky (who spoke directly with the customers) that the customers could not meet their outstanding Regulation T margin calls. JPR Capital's customers also paid fees for some of the loans they received from the Wolf accounts, and paid those fees directly to Wolf. Although Wolf is a "creditor" in this situation, he did not maintain a record of each loan to customers showing the full details of that transaction.

11. Between January 1999 and March 2000, customers of JPR Capital received $1.3 million in uncollateralized loans from other customer accounts (introduced by JPR Capital to Southwest) in the name of two corporations and one limited partnership controlled by a registered representative of JPR Capital (the "registered representative's accounts"). The customers used these uncollateralized loans to cover at least 22 margin calls issued to those customers by Southwest pursuant to Regulation T. Although the registered representative's accounts were not in the name of the registered representative, all or some of the funds in those accounts came from the registered representative, he controlled the entities from which the loans originated, and he had discretionary authority over all of the funds in those accounts. For example, the registered representative was the sole shareholder and officer in one of the corporations from which loans originated, was a shareholder in the other corporation, and was authorized by both corporations to conduct transactions in the accounts. The registered representative was also a general partner in the limited partnership, and was authorized by the partnership to trade in the limited partnership's account. The registered representative loaned funds to the customers from the accounts he controlled after being informed by Hampton or Umansky (who spoke directly with the customers) that the customers could not meet their outstanding Regulation T margin calls. Although the registered representative is a "creditor" in this situation, he did not maintain a record of each loan to customers showing the full details of that transaction.

12. JPR Capital, through the actions of Hampton and Umansky, effected the transactions necessary to make loans out of the Wolf accounts and the registered representative's accounts. For example, when customers received Regulation T margin calls that they could not meet with their own funds, Umansky would contact Wolf to arrange for a loan to the customer from one of the Wolf accounts. After Wolf agreed to loan the funds, Hampton would instruct JPR Capital's clearing firm to transfer sufficient funds from one of the Wolf accounts to the account of the relevant customer. Hampton delivered these instructions to the clearing firm by preparing and sending a Letter of Authorization ("LOA") to the clearing firm. At the same time, Hampton would instruct the customer receiving the loan to complete another LOA authorizing the transfer of the borrowed funds back to the Wolf accounts the next day or shortly thereafter.

13. Starting in January 1999, after Wolf sold his share of the firm to Umansky, JPR Capital's customers began receiving loans from the registered representative's accounts to cover Regulation T margin calls. JPR Capital, through the actions of Hampton and Umansky, also effected these loan transactions by contacting customers who received Regulation T margin calls, preparing and issuing LOA forms instructing JPR Capital's clearing firm to transfer sufficient funds from one of the registered representative's accounts to the account of the relevant customer, and preparing and issuing LOA forms authorizing the transfer of the borrowed funds back to the registered representative's accounts the next day or shortly thereafter. In some instances, JPR Capital failed to have those customers sign the LOA forms, in contravention of JPR Capital's own compliance procedures.

14. The actions of JPR Capital, Umansky, Hampton, Wolf and the firm's registered representative allowed JPR Capital's day trading customers to continue trading when positions in their margin accounts with Southwest would otherwise have, and should have, been liquidated by Southwest. In addition, Umansky and Hampton were aware that Wolf and JPR Capital's registered representative were not obtaining collateral for these loans, and were not maintaining records regarding each loan transaction as required under Regulation T. Thus JPR Capital acted in contravention of the regulatory requirements established by Section 7(c) of the Exchange Act in that it directly or indirectly extended or maintained, or in the alternative, arranged for the extension or maintenance of credit, to or for customers in contravention of the rules and regulations which the Federal Reserve prescribed, namely Regulation T.

15. Wolf and JPR Capital's registered representative acted in contravention of the regulatory requirements established by Section 7(d) of the Exchange Act and Regulation T by extending or maintaining credit for the purpose of purchasing or carrying securities, in contravention of such rules and regulations as the Federal Reserve prescribed to prevent the excessive use of credit for the purchasing or carrying of or trading in securities, namely Regulation T, without obtaining collateral or maintaining records regarding each loan.

JPR Capital's Failure to Disclose the Terms of the Loans

16. JPR Capital's customers paid a fee for obtaining some of these loans. For example, Wolf charged the clients that received loans from the Wolf accounts a pre-determined fee for the loans they obtained. Customers that received loans from the registered representatives' accounts paid interest on their loans at an annual rate of between 12 and 18 percent. JPR Capital did not provide its customers with a written statement of the terms of the loans that the customers received from associated persons of the firm, or any periodic statements detailing the interest or fees charged on the loans, as required by Rule 10b-16 of the Exchange Act.

JPR Capital Failed Accurately to Make and Keep Certain Books and Records

17. Section 17(a) of the Exchange Act, and Rule 17a-4 thereunder, require a broker-dealer to preserve, for a period of not less than three years, copies of all communications originating from the firm that relate to the firm's business. JPR Capital, aided and abetted and caused by Hampton and Umansky, violated Section 17(a) of the Exchange Act, and Rule 17a-4 thereunder, in that it failed to preserve certain of the LOA forms used to transfer funds from the Wolf accounts or the registered representative's accounts to customers with Regulation T margin calls.

The Violations Committed by JPR Capital, Wolf, Umansky and Hampton

18. As a result of the conduct described above, JPR Capital willfully violated, and committed or caused violations of:

a. Section 7(c) of the Exchange Act and Regulation T by, directly or indirectly, extending and maintaining credit, or arranging for the extension or maintenance of credit, to or for its customers in contravention of Regulation T promulgated by the Federal Reserve Board [12 C.F.R. § 220.1, et seq.];

b. Rule 10b-16 of the Exchange Act by extending credit, directly or indirectly, to its customers in connection with securities transactions without providing those customers with a written statement or statements, at least quarterly, disclosing: (a) the balance at the beginning and end of the period; (b) the date, amount and a brief description of each loan; and (c) the total interest charge for the period, itemized to show dates and the annual rates;

c. Section 17(a) of the Exchange Act and Rule 17a-4 thereunder, by failing to preserve, for a period of not less than 3 years, certain communications relating to the transfer of funds to and from customer accounts.

19. Also as a result of the conduct described above, Wolf willfully violated, and committed or caused violations of, Section 7(d) of the Exchange Act and Regulation T, by, directly or indirectly, extending and maintaining credit to or for JPR Capital's customers in violation of Regulation T promulgated by the Federal Reserve Board [12 C.F.R. § 220.1, et seq.].

20. Also as a result of the conduct described above, Umansky and Hampton willfully aided and abetted, and were a cause of, JPR Capital's violations of Sections 7(c) and 17(a) of the Exchange Act, Rule 17a-4 thereunder, and Rule 10b-16 under the Exchange Act, and Regulation T, and the violations of Section 7(d) of the Exchange Act and Regulation T committed by Wolf and the firm's registered representative.

IV.

On the basis of the foregoing, the Commission deems it appropriate and in the public interest to impose the sanctions specified in the Offers submitted by Respondents JPR Capital, Umansky, Hampton and Wolf.

ACCORDINGLY, IT IS ORDERED that:

A. JPR Capital, Umansky, Hampton and Wolf be, and hereby are, censured.

B. JPR Capital cease and desist, pursuant to Section 21C of the Exchange Act, from committing or causing any violations and any future violations of Sections 7(c) and 17(a) of the Exchange Act, Rule 17a-4 thereunder, Rule 10b-16 under the Exchange Act, and Regulation T promulgated by the Federal Reserve Board.

C. JPR Capital shall, within 30 days of the entry of this Order, pay a civil money penalty in the amount of $55,000 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, Virginia 22312; and (D) submitted under cover letter that identifies JPR Capital 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 Glenn S. Gordon, Assistant Regional Director, Southeast Regional Office, Securities and Exchange Commission, 1401 Brickell Avenue, Suite 200, Miami, FL 33131.

D. JPR Capital shall comply with the following undertakings;

1. Within 120 days of the date this Order is entered, JPR Capital shall hire, for a period of not less than 24 months, a full-time Compliance Officer not previously associated with JPR Capital with at least three years full-time work experience involving compliance with the provisions of Sections 7(c), 7(d) and 17(a) of the Exchange Act, Rule 17a-4 thereunder, Rule 10b-16 under the Exchange Act, and Regulation T promulgated by the Federal Reserve Board, who shall be an officer of JPR Capital invested with all necessary authority to monitor and secure compliance with all applicable legal and regulatory requirements under the federal securities laws. The Compliance Officer shall be given primary responsibility for JPR Capital's day-to-day activities with respect to margin lending and compliance with Sections 7(c), 7(d) and 17(a) of the Exchange Act, Rule 17a-4 thereunder, Rule 10b-16 under the Exchange Act, and Regulation T promulgated by the Federal Reserve Board;

2. Within 120 days of the date this Order is entered, JPR Capital shall hire, for a period of not less than 24 months, a full-time Margin Clerk from outside of JPR Capital with at least three years full-time work experience involving compliance with the provisions of Sections 7(c) and 7(d) of the Exchange Act and Regulation T promulgated by the Federal Reserve Board. The Margin Clerk shall operate under the supervision of the Compliance Officer and shall assist the Compliance Officer in ensuring JPR Capital's compliance with Sections 7(c) and 7(d) of the Exchange Act and Regulation T promulgated by the Federal Reserve Board;

3. Within 180 days of the date this Order is entered, JPR Capital shall revise its compliance procedures to require that JPR Capital establish a policy forbidding associated persons of JPR Capital from arranging, or directly or indirectly, loaning funds to the firm's customers in violation of Sections 7(c) and 7(d) of the Exchange Act and Regulation T promulgated by the Federal Reserve Board;

4. Within 180 days of the date this Order is entered, JPR Capital shall revise its compliance procedures to require that a member of JPR Capital's compliance department orally contact customers who have executed Letters of Authorization ("LOA") for the purpose of verifying and confirming the instructions contained in customer-executed LOA forms;

5. Within 180 days of the date this Order is entered, JPR Capital shall revise its compliance procedures to require that JPR Capital's Compliance Officer, or a qualified person acting under his or her supervision, make a daily review of all margin calls and journal entries in customer accounts, and JPR Capital shall develop a system designed reasonably to prevent and detect violations of the federal securities laws, including, but not limited to, the recurrence of the violations alleged.

E. Within nine months of the date this Order is entered, JPR Capital shall file an affidavit with the Commission's staff stating that it has complied with the undertakings listed in subparagraphs IV.D.1-5, above.

F. Umansky cease and desist, pursuant to Section 21C of the Exchange Act, from committing or causing any violation and any future violation of Sections 7(c), 7(d) and 17(a) of the Exchange Act, Rule 17a-4 thereunder, Rule 10b-16 under the Exchange Act and Regulation T promulgated by the Federal Reserve Board.

F. Umansky shall, within 30 days of the entry of this Order, pay a civil money penalty in the amount of $5,500 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, Virginia 22312; and (D) submitted under cover letter that identifies Umansky as the 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 Glenn S. Gordon, Assistant Regional Director, Southeast Regional Office, Securities and Exchange Commission, 1401 Brickell Avenue, Suite 200, Miami, FL 33131.

G. Hampton cease and desist, pursuant to Section 21C of the Exchange Act, from committing or causing any violation and any future violation of Sections 7(c), 7(d) and 17(a) of the Exchange Act, Rule 17a-4 thereunder, Rule 10b-16 of the Exchange Act, and Regulation T promulgated by the Federal Reserve Board.

H. Hampton shall, within 30 days of the entry of this Order, pay a civil money penalty in the amount of $5,500 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, Virginia 22312; and (D) submitted under cover letter that identifies Hampton as the 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 Glenn S. Gordon, Assistant Regional Director, Southeast Regional Office, Securities and Exchange Commission, 1401 Brickell Avenue, Suite 200, Miami, FL 33131.

I. Wolf cease and desist, pursuant to Section 21C of the Exchange Act, from committing or causing any violation and any future violation of Section 7(d) of the Exchange Act and Regulation T promulgated by the Federal Reserve Board.

J. Wolf shall, within 30 days of the entry of this Order, pay a civil money penalty in the amount of $5,500 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, Virginia 22312; and (D) submitted under cover letter that identifies Wolf as the 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 Glenn S. Gordon, Assistant Regional Director, Southeast Regional Office, Securities and Exchange Commission, 1401 Brickell Avenue, Suite 200, Miami, FL 33131.

By the Commission.

Jonathan G. Katz
Secretary

Footnotes

1 The National Association of Securities Dealers has defined day trading as "an overall trading strategy characterized by the regular transmission by a customer of intra-day orders to effect both purchase and sale transactions in the same security or securities." SR-NASD-99-41 (August 20, 1999).

http://www.sec.gov/litigation/admin/34-44413.htm


Modified: 06/13/2001