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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. 47325 / February 6, 2003

ADMINISTRATIVE PROCEEDING
File No. 3-11033


In the Matter of

Michael McCarty,

Respondent.


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ORDER INSTITUTING ADMINISTRATIVE PROCEEDING PURSUANT TO SECTION 15(b)(6) OF THE SECURITIES EXCHANGE ACT OF 1934, MAKING FINDINGS, AND IMPOSING SANCTIONS

I.

The Securities and Exchange Commission ("Commission") deems it appropriate and in the public interest that a public administrative proceeding be instituted against Michael McCarty ("Respondent" or "McCarty") pursuant to Section 15(b)(6) of the Securities Exchange Act of 1934 ("Exchange Act").

II.

In anticipation of these administrative proceedings, Respondent has submitted an Offer of Settlement ("Offer"), which the Commission has determined to accept. Solely for the purpose of this proceeding 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 contained herein, except as to those findings contained in Section III.B below and as to jurisdiction of the Commission over Respondent and over the subject matter of this proceeding, which Respondent admits, McCarty consents to the issuance of this Order Instituting Administrative Proceeding Pursuant to Section 15(b)(6) of the Securities Exchange Act of 1934, Making Findings, and Imposing Sanctions ("Order").

Accordingly, IT IS ORDERED that a proceeding pursuant to Section 15(b)(6) of the Exchange Act against McCarty be, and hereby is, instituted.

III.

On the basis of this Order and Respondent's offer, the Commission makes the following findings:

A. From 1987 to March 1998, McCarty was associated with Datek Securities Corporation ("Datek Securities," now iCapital Markets LLC), a broker-dealer registered with the Commission pursuant to Section 15(b) of the Exchange Act. In addition, from April 1998 to June 2001, McCarty was associated with Heartland Securities Corporation ("Heartland"), a broker-dealer registered with the Commission pursuant to Section 15(b) of the Exchange Act.

B. Pursuant to a Final Judgment of the U.S. District Court for the Southern District of New York entered on January 23, 2003, in an action styled Securities and Exchange Commission v. Sheldon Maschler, et al., 03 Civ. 0264 (S.D.N.Y.), McCarty is permanently enjoined from violating Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Exchange Act and Rule 10b-5 promulgated thereunder, and from aiding and abetting violations of Sections 15(b) and 17(a)(1) of the Exchange Act and Rules 15b3-1, 15b7-1, 17a-3(a)(1), 17a-3(a)(2), 17a-3(a)(3), 17a-3(a)(7), 17a-3(a)(9), and 17a-3(a)(12) promulgated thereunder.

C. The Commission's Complaint in Securities and Exchange Commission v. Sheldon Maschler, et al. alleged that from 1993 to March 1998, McCarty and others, while in control of Datek Securities, violated the above provisions by participating in a widespread fraudulent scheme to execute proprietary trades illegally through the Nasdaq Stock Market's Small Order Execution System, resulting in tens of millions of dollars in illegal profits. The great majority of those profits were paid to the firm's undisclosed principals, but McCarty profited as well. The fraudulent scheme was carefully planned and orchestrated, and was concealed from regulators through the use of sophisticated software, allocation of trades to nominee accounts, creation of fictitious books and records, and filing of false reports with the Commission. McCarty and others continued the fraudulent scheme from April 1998 to May 2001 while in control of Heartland, which acquired Datek Securities' day-trading business on March 30, 1998. The Complaint further alleged that McCarty participated in a second fraudulent scheme in connection with the conversion from mutual to stock ownership of three savings and loan institutions in 1997 and 1998. In violation of applicable federal and state law, McCarty and others obtained subscription rights of numerous account holders, misrepresented their identities to the banks, and sold the stock into the open market, generating illegal profits of $1,788,472.

IV.

In view of the foregoing, the Commission deems it appropriate and in the public interest to impose the sanction specified in the Offer of Settlement submitted by McCarty.

Accordingly, IT IS ORDERED that McCarty be, and hereby is, barred from association with any broker or dealer.

By the Commission.

Jonathan G. Katz
Secretary

 

http://www.sec.gov/litigation/admin/34-47325.htm


Modified: 02/06/2003