United States of America
Securities and Exchange Commission
Securities Exchange Act of 1934
Release No. 47073 / December 20, 2002
File No. 3-10994
In the Matter of
|ORDER INSTITUTING PROCEEDINGS PURSUANT TO SECTION 15(b) OF THE SECURITIES EXCHANGE ACT OF 1934, MAKING FINDINGS AND IMPOSING REMEDIAL SANCTIONS|
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 Vito Capotorto ("Capotorto" or "Respondent").
In anticipation of the institution of these proceedings, the Respondent has submitted an Offer of Settlement ("Offer"), 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 Commission's jurisdiction over the Respondent and the subject matter of these proceedings, and the findings contained in Section III(B) below, which are admitted, Respondent consents to the entry of this Order Instituting Proceedings Pursuant to Section 15(b) of the Securities Exchange Act of 1934, Making Findings and Imposing Remedial Sanctions ("Order"), as set forth below.
On the basis of this Order and Respondent's Offer, the Commission finds that:
- From 1985 to 1998, Respondent was associated with D.H. Blair & Co., Inc. ("Blair"), a broker-dealer registered with the Commission pursuant to Section 15(b) of the Exchange Act. Respondent was Blair's head trader from 1989 to 1998. Between 1992 and 1998, Respondent held an ownership interest in Blair of between 1 and 2 percent;
- On March 7, 2002, in an action before the Supreme Court of the State of New York, County of New York, Respondent, pursuant to a plea agreement with the District Attorney's Office, pled guilty to and was convicted of three counts of violating the Martin Act-the New York state securities law (see People v. D.H. Blair, et al., Ind. No. 3282/00);
- According to the plea agreement and indictment upon which his conviction was based, Capotorto engaged in the following conduct:
- During the period 1993 to 1998, brokers at Blair retailed numerous securities that had been brought public by D.H. Blair Investment Banking Corp. Stockbrokers at Blair were organized into unofficial groups to follow and support particular Blair stocks, such as Premier Laser Systems, Inc., Titan Pharmaceuticals, Inc. and Digital Video Systems, Inc. To support those stocks and others, Capotorto and certain other members of Blair management, together with the broker groups, engaged in conduct including the following:
- Members of Blair management, together with the broker groups, took steps to increase the prices of Blair stocks in the early aftermarket for those stocks. Before the deals went effective, there were trading agreements between members of management and the leader or leaders of the broker group for that particular deal, and Capotorto's participation as head trader was required to implement these agreements. Pursuant to the agreements, other members of management arranged for their customers to sell, at prearranged prices, newly issued securities, which were thereafter retailed to customers of other Blair brokers, specifically members of the broker group for that deal, at higher prices.
- In addition to the activity in the early aftermarket, a primary purpose of the broker groups was to support the price of the securities during periods of illiquidity. Brokers in the groups were encouraged to be net buyers, for their customers, of the stocks they had agreed to support, and were actively discouraged from being net sellers of those stocks. For example, the brokers were frequently encouraged to "cross" trades in other words, to place "sell" orders only if they had corresponding "buy" orders. From time to time the broker groups caused the price of the illiquid stocks to move to artificial levels, planned in advance, by engaging in programs of coordinated buying or selling on behalf of their customers. Capotorto knew it was very unlikely that the brokers who were soliciting their customers to trade the Blair securities would disclose such techniques for manipulating the prices of those securities. Blair gave its brokers incentives, in the form of higher-than-normal compensation, known as "specials," to help foster demand for and support the price of these securities.
- The conduct involving the brokers and broker groups was closely coordinated with the conduct of Blair's trading department. In particular, the trading department maintained a practice of delaying the time-stamping of the "buy" orders in order to conceal this activity. In addition, the trading department frequently raised or maintained its bid price for Blair stocks, in order to support the price for those stocks, even when such actions were at variance with appropriate trading considerations.
- This conduct occurred in connection with various Blair stocks during the period 1993 through 1998. Capotorto understood and approved of this conduct at the time of its occurrence, and Capotorto personally benefited from it.
- Capotorto's state convictions are offenses specified in Section 15(b)(4)(B) of the Exchange Act.
In view of the foregoing, the Commission deems it appropriate and in the public interest to impose the sanctions specified in Respondent Capotorto's Offer.
ACCORDINGLY, IT IS HEREBY ORDERED:
Pursuant to Section 15(b)(6) of the Exchange Act, that Respondent Capotorto be, and hereby is barred from association with any broker or dealer.
By the Commission.
Jonathan G. Katz