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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. 45465 / February 21, 2002

ADMINISTRATIVE PROCEEDING
File No. 3-10708


In the Matter of

DELTA EQUITY SERVICES CORPORATION, and

RAYMOND L. GRENIER, JR., Respondents


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ORDER INSTITUTING PUBLIC PROCEEDINGS, MAKING FINDINGS AND IMPOSING REMEDIAL SANCTIONS

I.

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 Section 15(b) of the Securities Exchange Act of 1934 ("Exchange Act") against Delta Equity Services Corporation ("Delta") and Raymond L. Grenier, Jr. ("Grenier").

In anticipation of the institution of these proceedings, Delta and Grenier have submitted an Offer of Settlement ("Offer") which the Commission has determined to accept. Solely for the purpose of this proceeding and any other proceeding brought by or on behalf of the Commission, or in which the Commission is a party, and prior to a hearing pursuant to the Commission's Rules of Practice, 17 C.F.R. § 201.100 et seq., and without admitting or denying the findings, except that Delta and Grenier admit the Commission's jurisdiction over them and over the subject matter of these proceedings, Delta and Grenier consent to the issuance of this Order Instituting Public Proceedings, Making Findings and Imposing Remedial Sanctions ("Order"), and to the entry of the findings set forth below.

II.

On the basis of this Order and the Offer submitted by Delta and Grenier, the Commission finds1 that:

A. THE RESPONDENTS

1. Delta Equity Services Corporation ("Delta"), a broker-dealer registered with the Commission pursuant to Section 15(b) of the Exchange Act, is a Massachusetts corporation headquartered in Bolton, Massachusetts. One of Delta's offices was in Akron, Ohio. Delta is a member of the National Association of Securities Dealers, Inc. ("NASD").

2. Raymond L. Grenier ("Grenier"), age 49, resides in Southborough, Massachusetts and since 1993 has been both the president and sole shareholder of Delta. Grenier is a registered principal of Delta and, during the relevant time period, Grenier had the authority to hire, fire and discipline registered representatives, including, among others, both Andrew Bodnar and Michael Keating.

B. OTHER RELEVANT INDIVIDUALS

1. Andrew Bodnar, 48 years old, was a registered representative and principal of Delta between September 1995 and September 1997. He was also the president, owner, and manager of Bodnar & Associates, which during the relevant time period operated as a branch office of Delta in Akron, Ohio. Six Delta registered representatives, including John R. Rodeman, Jeffrey A. Parker, and Frank J. Greulich, worked in the Akron office during the relevant time period. Grenier hired Bodnar, Rodeman, Parker and Greulich as Delta representatives in September 1995.

2. Michael Keating, age 40, was registered as a principal and as the sole registered representative of Delta's Ellicott City, Maryland office between January 1995 and November 1997. The Ellicott City branch office did business under the name Keating Advisory Group. Grenier hired Keating as a Delta representative in January 1995. Keating referred Bodnar to Delta.

C. INTRODUCTION

1. This matter arises from the failure of Delta and Grenier to reasonably supervise Keating, Bodnar, Rodeman, Parker and Greulich (collectively, the "Maryland and Ohio Brokers") with a view toward preventing violations of Section 17(a) of the Securities Act of 1933 ("Securities Act"), and Section 10(b) of the Exchange Act and Rule 10b-5 thereunder. Delta also willfully violated Section 17(a) of the Exchange Act and Rules 17a-3 and 17a-4 thereunder.

2. Delta lacked adequate supervisory and compliance procedures and failed adequately to implement procedures that were in place. Delta's written procedures during the relevant period failed adequately to provide for: proper delineation of supervisory responsibilities; monitoring of the off-site offices of registered representatives; monitoring of outside business activities of registered representatives; tracking and review of correspondence; verification of information about an applicant; and a system of follow-up and review to ensure that supervision was being diligently exercised. As president, Grenier failed to adequately respond to indications of problems with Bodnar and Keating, and failed to ensure that Delta had put in place reasonable procedures and implemented those procedures. As explained more fully below, Delta and Grenier failed adequately to supervise the Maryland and Ohio Brokers.

D. THE UNDERLYING VIOLATIONS

1. Beginning in at least November 1996 and continuing through July 1997, Bodnar engaged in a scheme to defraud investors and to misappropriate money through the fraudulent offer and sale by the Maryland and Ohio Brokers of the unregistered securities of CBT Holding Corporation and CBT-Ohio (collectively "CBT"). The CBT securities were sold without the approval of Delta.

2. The Maryland and Ohio Brokers solicited and induced at least one hundred public investors to purchase over $6.4 million of promissory notes issued by CBT. The Maryland and Ohio Brokers falsely characterized the notes as low risk certificates of deposit (or instruments akin to and secured by certificates of deposit) in a bank, which were suitable for Individual Retirement Accounts and for investors approaching or reaching retirement. The Maryland and Ohio Brokers told many investors that the investments were issued by an off-shore bank referred to as Commercial Bank & Trust.

3. Bodnar and others misappropriated most of the investor funds raised through the sale of the CBT securities and converted a substantial portion of those funds for their own use and benefit. In addition, Bodnar used investor funds to make principal and interest payments to other investors who had invested in CBT securities at earlier points in time, as well as to investors who had lost money in prior investments promoted by Bodnar.

4. In April 1999, the Commission filed a civil injunctive action against, among others, Bodnar, CBT-Ohio, Keating, and Keating Advisory Group alleging numerous willful securities law violations, including violations of Sections 5(a), 5(c) and 17(a) of the Securities Act and Sections 10(b) and 15(a) of the Exchange Act and Rule 10b-5 thereunder. In March 2000, a final judgment and order was issued as to Keating and Keating Advisory Group permanently enjoining them from future violations of Sections 5(a), 5(c) and 17(a) of the Securities Act and Sections 10(b) and 15(a) of the Exchange Act and Rule 10b-5 thereunder. In March 2001, the Commission issued an Order Instituting Public Proceedings, Making Findings and Imposing Remedial Sanctions against Keating and Keating Advisory Group.

5. In April 1999, the Commission issued an Order Instituting Public Proceedings, Making Findings and Imposing Remedial Sanctions and Cease-and-Desist Order against Rodeman and Greulich. In September 1999, the Commission issued an Order Instituting Public Proceedings, Making Findings and Imposing Remedial Sanctions and Cease-and-Desist Order against Parker.

6. In August 2001, Bodnar was sentenced to 11 and 1/4 years in prison after pleading guilty to criminal securities fraud, mail fraud, and conspiracy charges in the United States District Court for the Northern District of Ohio.

E. DELTA'S SUPERVISORY POLICIES AND PROCEDURES

1. General

a) Delta failed reasonably to supervise the Maryland and Ohio Brokers with a view to preventing and detecting violations of Sections 5(a), 5(c) and 17(a) of the Securities Act and Sections 10(b) and 15(a) of the Exchange Act and Rule 10b-5 thereunder. In addition, as set forth in greater detail below, Delta failed to establish adequate written procedures, or a system for implementing such procedures, which were reasonably designed to prevent or detect violations of the federal securities laws.

b) Portions of Delta's written procedures were vague or ambiguous. In particular, Delta's written procedures did not describe in adequate detail the roles or responsibilities of Delta's principals, nor did they clearly allocate responsibility for specific supervisory duties to those principals. Moreover, during the relevant time period, Delta's written procedures failed to provide for a system of follow-up and review to ensure that supervision was being diligently exercised.

c) Although Delta's written procedures contained provisions for the investigation of the character, qualifications and experience of applicants, these procedures were not effectively implemented at all times during the relevant time period. For example, both Keating's and Bodnar's Form U-4 sections relating to contacts with previous employers were left blank.

2. Specific Supervisory Failures

a) Although Delta's written supervisory procedures required annual inspections of Offices of Supervisory Jurisdiction and Branch Offices, this requirement was not always implemented. For example, as of June 1, 1997 Keating had been a registered representative of Delta for over two years, and for fourteen months during this time period his office had been considered by Delta an Office of Supervisory Jurisdiction. Yet during the relevant time period, Keating's office had never received an on-site office inspection by Delta.

b) Delta's chief compliance officer visited the Akron office in August 1996 as part of his investigation into a complaint concerning Bodnar. In addition, Grenier conducted meetings at the Akron office in September 1995 and September 1996. However, Grenier's meetings were inadequate, and largely social in nature.

c) Delta circulated a two-page outside business activities form to its representatives. Bodnar did not return a completed outside business activities form to Delta until May 1997, twenty months after he was hired, after Delta finally threatened to withhold Bodnar's commissions. On that form, Bodnar acknowledged receiving $10,000 a month from "Commercial Bank & Trust." None of the relevant individuals at Delta's home office recalls reviewing that form.

d) Delta's written policies and procedures did not contain sufficient provisions detailing the process for obtaining correspondence from its representatives, tracking its representatives' responses, or reviewing the forwarded correspondence.

e) Although the Akron office forwarded considerable correspondence to the home office during the fourth quarter of 1995, Delta did not have any record of receiving any correspondence from Bodnar in 1996. Even though the Akron office had its Office of Supervisory Jurisdiction designation removed in September 1996, there is no evidence that any home office principal pre-approved the Akron office's correspondence after that date.

f) In addition, Delta did not maintain a complete blotter for sales of mutual funds or direct participation programs such as limited partnerships.

F. SUPERVISORY RESPONSIBILITIES FOR BODNAR AND KEATING

1. As President and sole owner, Grenier controlled Delta. Grenier's approval was required for all significant expenditures, the withholding of commission checks to registered representatives, and the imposition of some fines. Grenier hired the Maryland and Ohio Brokers and had the clear authority to fire or discipline the Maryland and Ohio Brokers. Grenier sometimes became involved in specific compliance issues at the request of representatives. Grenier also participated in formulating Delta's compliance policies and procedures. In addition, Grenier personally conducted meetings at the Akron office, various meetings with Keating covering compliance issues, and some of the account reviews for the Akron representatives. Therefore, the Maryland and Ohio Brokers were subject to Grenier's supervision.

2. Grenier delegated some of his supervisory responsibilities to Delta's chief compliance officer. However, over the course of their relationship, Grenier became aware of various deficiencies of the chief compliance officer. In particular, Grenier knew that the chief compliance officer was disorganized and was not keeping to various compliance schedules as well as Grenier would have liked. Grenier directed another employee at the home office to assist the chief compliance officer in managing his paperwork and responsibilities. However, Grenier's efforts to remedy the chief compliance officer's deficiencies and to delegate supervisory responsibilities to the chief compliance officer were ineffective and unreasonable.

G. HANDLING OF INDICATIONS OF PROBLEMS WITH BODNAR AND KEATING

1. Grenier's failure to adequately respond to indications of problems with Bodnar and Keating resulted in his failure to reasonably supervise the Maryland and Ohio Brokers within the meaning of Section 15(b)(4)(E) of the Exchange Act with a view to preventing their securities law violations.

2. In August 1996, Delta received an inquiry concerning an investment that Bodnar sold to a customer before he joined Delta. After conducting a joint investigation with Bodnar's previous employer, Delta determined that prior to joining Delta, Bodnar had taken approximately $20,000 from that customer and did not apply the funds to the purpose for which it was intended. Delta also learned that at some point an employee of Bodnar's attempted to hide the problem by sending the customer false documentation purportedly evidencing the purchase of a substitute investment. During the course of the investigation, Bodnar gave conflicting accounts to Delta's chief compliance officer as to how the customer's funds had been handled. Delta's chief compliance officer was unable to determine what happened to the original $20,000. As a result of the investigation, Bodnar reimbursed the customer from what Grenier understood to be Bodnar's own funds.

3. As a result of this incident, in September 1996, Grenier removed the Akron office's Office of Supervisory Jurisdiction designation. This change in status meant that all correspondence, new account forms and applications from Bodnar's office needed to be routed to a home office principal for approval. By October 1996, Grenier became aware that these new procedures were not being followed. However, Grenier did not sanction the relevant individuals nor revisit Delta's implementation of these procedures.

4. At least two of the Maryland and Ohio Brokers claimed to have briefly mentioned CBT to Grenier during Grenier's visit to Akron in September 1996. However, Grenier claimed that he never heard those comments.

5. In January 1997, the Maryland Office of Attorney General, Securities Division ("Maryland") issued a subpoena to Keating in connection with an inquiry triggered by a customer complaint. Keating failed to respond to the subpoena, notwithstanding repeated reminders from Maryland, until late May 1997. Delta's chief compliance officer had been promptly provided copies by Maryland of its subpoenas, was aware of Keating's refusal to respond, and informed Grenier of that fact. While Grenier did tell the chief compliance officer that Keating needed to comply with the Maryland request, he neither sanctioned Keating, nor adequately responded to Keating's failure to cooperate with the Maryland investigation.

H. BOOKS AND RECORDS VIOLATIONS

1. Delta did not maintain a complete blotter showing the purchase and sale of mutual funds or direct participation programs such as limited partnerships. Delta also failed to retain correspondence from the Akron office for the year 1996.

2. Based upon paragraph H.1 above, Delta willfully violated the books and records requirements applicable to broker-dealers pursuant to Section 17(a) of the Exchange Act and Rules 17a-3 and 17a-4 thereunder.

III.

In view of the foregoing, the Commission deems it appropriate and in the public interest to impose the sanctions that are set forth in the Offer submitted by Delta and Grenier.

Accordingly, IT IS ORDERED that:

A. Grenier is hereby censured.

B. Grenier shall, within 90 days of the issuance of the Order, pay a civil money penalty in the amount of $15,000 to the United States Treasury. Such payment shall be: 1) made by United States postal money order, certified check, bank cashier's check or bank money order; 2) made payable to the Securities and Exchange Commission; 3) hand-delivered or mailed to the Comptroller, Securities and Exchange Commission, Operations Center, 6432 General Green Way, Stop 0-3, Alexandria, VA 22312; and 4) submitted under a cover letter that identifies Grenier as a respondent in these proceedings and states 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, Philadelphia District Office, Securities and Exchange Commission, The Curtis Center, 601 Walnut Street, Suite 1120 East, Philadelphia, PA 19106-3322.

C. Grenier is hereby barred from association in a supervisory capacity with any broker or dealer, with a right to reapply for such association after one year and three months to the appropriate self-regulatory organization, or if there is none, to the Commission. During the period of Grenier's supervisory bar, Grenier will not have any supervisory or compliance responsibilities at Delta, but will continue to be associated with Delta as a supervised registered representative.

D. Delta is hereby censured.

E. Delta shall, within 90 days of the issuance of the Order, pay a civil money penalty in the amount of $45,000 to the United States Treasury. Such payment shall be: 1) made by United States postal money order, certified check, bank cashier's check or bank money order; 2) made payable to the Securities and Exchange Commission; 3) hand-delivered or mailed to the Comptroller, Securities and Exchange Commission, Operations Center, 6432 General Green Way, Stop 0-3, Alexandria, VA 22312; and 4) submitted under a cover letter that identifies Delta as a respondent in these proceedings and states 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, Philadelphia District Office, Securities and Exchange Commission, The Curtis Center, 601 Walnut Street, Suite 1120 East, Philadelphia, PA 19106-3322.

F. Delta shall comply with the following undertakings:

1. Delta shall retain, within 30 days of the date of entry of the Order, the services of an Independent Consultant not unacceptable to the staff of the Philadelphia District Office of the Commission (the "Commission Staff"). The Independent Consultant's compensation and expenses shall be borne exclusively by Delta or its affiliate. The Independent Consultant shall conduct a comprehensive review of Delta's supervisory, compliance, and other policies and procedures designed to prevent and detect federal securities law violations of the nature involved in this matter, and recommend, at a minimum, policies and procedures that address each of the deficiencies identified in Section II of the Order and an effective system for both implementing such policies and procedures and maintaining records that evidence compliance with such policies and procedures. Delta shall cooperate fully with the Independent Consultant and shall provide the Independent Consultant with access to its files, books, records, and personnel as reasonably requested for the review.

2. At the conclusion of the review, which in no event shall be more than 120 days after the date of entry of the Order, the Independent Consultant shall submit to Delta and to the Commission Staff an Initial Report. The Initial Report shall address, at a minimum, the adequacy of Delta's policies and procedures to detect and prevent federal securities law violations of the nature involved in this matter, as well as the adequacy of Delta's supervisory system, and shall include a description of the review performed, the conclusions reached, and the Independent Consultant's recommendations for policies and procedures to address each of the deficiencies identified in Section II of the Order (as well as any other deficiencies found during the course of the review), an effective system for implementing the recommended policies and procedures and an effective system for establishing and maintaining written records that evidence compliance with the recommended policies and procedures.

3. Within 150 days after the date of entry of the Order, Delta shall in writing advise the Independent Consultant and the Commission Staff of the recommendations from the Initial Report that it has determined to accept and the recommendations that it considers to be unnecessary or inappropriate. With respect to any recommendation that Delta considers unnecessary or inappropriate, Delta shall propose in writing an alternative policy, procedure or system designed to achieve the same objective or purpose.

4. With respect to any recommendation with which Delta and the Independent Consultant do not agree, Delta and the Independent Consultant shall attempt in good faith to reach an agreement within 180 days of the date of entry of the Order. In the event the Independent Consultant and Delta are unable to agree on an alternative proposal not unacceptable to the Commission staff, Delta shall abide by the recommendation of the Independent Consultant.

5. Within 195 days of the date of entry of the Order, Delta shall in writing advise the Independent Consultant and the Commission Staff of the recommendations and proposals that it is adopting.

6. The Independent Consultant shall complete the aforementioned review and submit a written Final Report thereon to Delta and to the Commission Staff within 210 days after the date of entry of the Order. The Final Report shall recite the efforts the Independent Consultant undertook to review Delta's supervisory functions, compliance mechanisms, and other policies and procedures, and shall, at a minimum, set forth in detail (i) the Independent Consultant's recommendations addressing separately each of the deficiencies identified in Section II of the Order (as well as any other deficiencies found during the course of the review), (ii) the Independent Consultant's recommendations addressing Delta's system for implementing each of the recommended policies and procedures, (iii) the Independent Consultant's recommendations addressing Delta's system for establishing and maintaining written records that evidence compliance with each of the recommended policies and procedures, and (iv) a reasonable time period or time periods, not to exceed one year from the date of entry of the Order, for Delta to implement each of those recommendations. The Final Report shall also describe how Delta proposes to implement those recommendations and proposals within the time periods set forth in the Final Report.

7. Delta shall take all necessary and appropriate steps to adopt and implement all recommendations and proposals contained in the Independent Consultant's Final Report.

8. No later than fifteen months after the date of entry of the Order, the Independent Consultant shall conduct a follow-up review of Delta's efforts to implement each of the recommendations contained in the Independent Consultant's Final Report, and shall submit a follow-up report to the Commission staff no later than seventeen months after the date of entry of the Order. The follow-up report shall set forth the details of Delta's efforts to implement each of the recommendations contained in the Final Report, and shall separately state whether Delta has fully complied with each of the recommendations in the Final Report.

9. For good cause shown, and upon receipt of a timely application from the Independent Consultant or Delta, the Commission's staff may extend any of the procedural dates set forth above.

10. To ensure the independence of the Independent Consultant, Delta: (i) shall not have the authority to terminate the Independent Consultant, without the prior written approval of the staff of the Division of Enforcement; (ii) shall compensate the Independent Consultant, and persons engaged to assist the Independent Consultant, for services rendered pursuant to the Order at their reasonable and customary rates; (iii) shall not be in and shall not have an attorney-client relationship with the Independent Consultant and shall not seek to invoke the attorney-client or any other doctrine or privilege to prevent the Independent Consultant from transmitting any information, reports, or documents to the Commission or its staff.

11. To further ensure the independence of the Independent Consultant, for the period of the engagement and for a period of two years from completion of the engagement, the Independent Consultant shall not enter into any employment, consultant, attorney-client, auditing or other professional relationship with Delta, or any of its present or former affiliates, directors, officers, employees, or agents acting in their capacity. Any firm with which the Independent Consultant is affiliated in performance of his or her duties under the Order shall not, without prior written consent of the Commission staff, enter into any employment, consultant, attorney-client, auditing or other professional relationship with Delta, or any of its present or former affiliates, directors, officers, employees, or agents acting in their capacity as such for the period of the engagement and for a period of two years after the engagement.

12. During the period of Grenier's supervisory bar, an Oversight Committee comprised of Delta's Chief Operating Officer, Chief Financial Officer and Director of Operations shall be responsible for supervision and compliance at Delta. Any disagreements among Oversight Committee members shall be resolved by majority vote. During the period of Grenier's supervisory bar, none of the individuals on the Oversight Committee shall be under the control of Grenier. The supervision of any member of the Oversight Committee shall be the responsibility of the other two members, and if a member of the Oversight Committee leaves Delta for any reason, his or her successor (regardless of title) shall be hired by the other two members.

13. Delta further undertakes to have each member of the Oversight Committee provide to the Commission in conjunction with any reapplication as described in III.C above, a written affidavit, notarized and executed under penalties of perjury, to the effect that during the period of Grenier's supervisory bar, the Oversight Committee was responsible for supervision and compliance at Delta. In the event that any member of the Oversight Committee leaves Delta before the end of Grenier's supervisory bar, Delta undertakes to have each individual serving on the Oversight Committee provide the necessary affidavit with respect to the relevant time period. The affidavits shall be sent to Ronald C. Long, District Administrator, Philadelphia District Office, Securities and Exchange Commission, The Curtis Center, 601 Walnut Street, Suite 1120 East, Philadelphia, PA 19106-3322.

By the Commission.

Jonathan G. Katz
Secretary

Footnote

1 The findings herein are made pursuant to Respondents' Offer of Settlement and are not binding on any other person or entity in this or any other proceeding.

http://www.sec.gov/litigation/admin/34-45465.htm


Modified: 02/27/2002