UNITED STATES OF AMERICA
SECURITIES EXCHANGE ACT OF 1934
On February 22, 2000, the Securities and Exchange Commission ("Commission") instituted public administrative and cease-and-desist proceedings pursuant to Sections 15(b) and 21C of the Securities Exchange Act of 1934 ("Exchange Act") against All-Tech Direct, Inc. f/k/a All-Tech Investment Group, Inc. ("All-Tech"), Harry Lefkowitz, Mark Shefts, Lisa Esposito, Ralph Zulferino, David Waldman ("Waldman"), Adam Leeds, and Barry Parish.
Waldman 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 for the jurisdiction of the Commission +over him and over the subject matter of these proceedings, which are admitted, Waldman consents to the entry of the findings, a cease-and-desist order, and the imposition of the remedial sanctions set forth herein.
On the basis of this Order and the Offer submitted by Waldman, the Commission finds that:1
Waldman, 58, resides in Monsey, New York and was employed by All-Tech from approximately February through August 14, 1998. During this period, Waldman was an associated person, although he did not have a formal title. Waldman is an attorney and is currently in private practice.
OTHER RELEVANT RESPONDENT
All-Tech, during the relevant period, has been a broker-dealer registered with the Commission and incorporated under the laws of the State of Delaware. All-Tech offers day-trading services to customers through at least twenty-one franchised branches throughout the United States and through direct line electronic access similar to an internet connection.
UNLAWFUL EXTENSION OF MARGIN CREDIT
1. Throughout 1998, when the equity in certain customer margin accounts fell below the minimum required by Regulation T ("Regulation T"), promulgated by the Board of Governors of the Federal Reserve ("Federal Reserve"), 12 C.F.R. §§ 220.1 - 220.12, All-Tech, directly or indirectly, extended uncollateralized loans from the accounts of associated persons to those customers, who could not otherwise cover the resulting margin calls issued by All-Tech's clearing firm, Southwest Securities, Inc. ("Southwest"). Under Regulation T, All-Tech should not have supplied those customers with additional extensions of credit.
2. Waldman's account was one of the associated person accounts from which All-Tech drew funds when extending credit to customers who otherwise could not cover Regulation T margin calls. From in or about May through August 1998, while Waldman was an associated person and was employed by All-Tech, the All-Tech margin department loaned $1,667,270 from Waldman's account to All-Tech customers to satisfy forty-eight margin calls issued under Regulation T. Waldman gave the All-Tech margin department discretion and control over most aspects of the margin call loans made out of his account, such as when, to whom and on what terms All-Tech could use his account to fund those margin calls to customers. Waldman provided All-Tech with pre-signed blank journal forms that were then photocopied and used each time a loan was made out of his account. Waldman did not individually authorize particular loans, learn the identities of borrowers, approve the creditworthiness of particular borrowers, or pass on the amounts of any particular loans. Customers paid a total of $1,701 in fees for this financial assistance provided by All-Tech and Waldman. These fees were transferred directly into Waldman's account.
3. These uncollateralized loans from Waldman's account not only violated Regulation T, but also violated All-Tech's internal policies and procedures at the time, which, among other things specifically forbade loans that violated Regulation T or that otherwise were on terms more favorable to the customer than available through Southwest.
4. Waldman knew or should have known that margin transactions were governed by federal law and knew that it was improper for All-Tech and its principals to extend margin call loans to customers.
5. By reason of the foregoing, All-Tech willfully violated Section 7(c) of the Exchange Act in that it directly or indirectly extended uncollateralized margin call loans to customers in contravention of the rules and regulations that the Federal Reserve has prescribed, namely Regulation T. By reason of the foregoing, Waldman willfully aided and abetted, and was a cause of, All-Tech's violations of Section 7(c) of the Exchange Act and Regulation T.
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 Respondent Waldman.
ACCORDINGLY, IT IS ORDERED that:
1. Waldman be, and hereby is, censured.
2. Waldman cease and desist, pursuant to Section 21C of the Exchange Act, from causing any violations and any future violations of Sections 7(c) of the Exchange Act and Regulation T promulgated by the Federal Reserve.
3. Waldman shall, within thirty days of the entry of this Order, pay a civil money penalty in the amount of $5,000 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 Waldman 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 Zachary Brez, Northeast Regional Office, Securities and Exchange Commission, 7 World Trade Center, New York, NY 10048.
4. Waldman shall, within thirty days of the entry of this Order, pay disgorgement of fees of $1,701 plus prejudgment interest of $287.57, for a total amount of $1,988.57 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 Waldman 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 Zachary Brez, Northeast Regional Office, Securities and Exchange Commission, 7 World Trade Center, New York, NY 10048.
5. Waldman be, and hereby is, suspended from association with any broker or dealer for a period of three months, effective on the second Monday following the entry of the Order.
6. Waldman shall provide to the Commission, within thirty days after the end of the three month suspension period described in paragraph IV.5 above, an affidavit that he has complied fully with the sanctions described in Section IV.
By the Commission.
1 The findings herein are made pursuant to the Offer submitted by Waldman and are not binding on any other person or entity in this or any other proceeding.