U.S. Securities and Exchange Commission
Securities Exchange Act of 1934
Release No. 47641 / April 7, 2003
Accounting and Auditing Enforcement
Release No. 1754 / April 7, 2003
File No. 3-11084
ADMINISTRATIVE AND CEASE-AND-DESIST PROCEEDING INSTITUTED AGAINST HARRISON SECURITIES, INC., FREDERICK C. BLUMER AND NEBRISSA SONG ALLEGING BROKER-DEALER NET CAPITAL, RECORD-KEEPING AND FINANCIAL REPORTING VIOLATIONS
The Securities and Exchange Commission announced that it instituted public administrative and cease-and-desist proceedings against a broker-dealer, the principal of the broker-dealer, and a FINOP for repeated violations of the net capital, books-and-records, and financial reporting provisions of the Securities Exchange Act. Named as respondents in the proceeding are:
- Harrison Securities, Inc., a Port Washington, New York based broker-dealer;
- Frederick C. Blumer, Harrison's CEO, compliance officer and sole shareholder;
- Nebrissa Song, Harrison's FINOP (Financial and Operations Principal) from December 3, 2001 through April 30, 2002; and
A hearing will be held before an administrative law judge to determine whether the allegations against Harrison, Blumer and Song are true, and, if so, what remedial action, if any, is appropriate.
The Proceeding Against Harrison, Blumer, and Song
The Division of Enforcement alleges in the Order Instituting Proceedings that on at least 22 occasions from April 2001 through April 2002, Harrison conducted a securities business while not maintaining sufficient net capital, and that on at least three occasions Harrison filed false FOCUS reports. The Division alleges that Blumer, a CPA, willfully aided and abetted and caused the firm's violations, and that Song, for the period in which she served as Harrison's FINOP, caused certain of the firm's violations.
More specifically, the Division alleges that Blumer aided and abetted and caused Harrison's violations by:
- Transferring funds into Harrison from HSI, Inc. an unregulated entity owned and controlled by Blumer for the purpose of creating the impression that Harrison had excess net capital for a given month or quarter, and then shortly after reporting those figures, transferring funds out again to HSI, thereby putting Harrison out of net capital compliance;
- Improperly recording deposits in Harrison's cash receipts blotter prior to the actual receipt of funds into Harrison's bank account;
- Improperly accruing Harrison's expenses either by not accruing an expense when it was incurred, as required under generally accepted accounting principles ("GAAP"), or by improperly removing liabilities from the firm's books and records before they were paid, also in violation of GAAP. In some instances, Blumer improperly removed liabilities by purporting to transfer them to HSI. For example, Harrison owed approximately $500,000 in various federal and state taxes on December 31, 2001. In January 2002, Blumer transferred approximately the same amount from the firm to HSI and removed the tax liability from Harrison's books. However, HSI did not pay Harrison's overdue taxes until April, more than three months later and Harrison remained liable for the taxes in the interim. By removing the tax liability from Harrison's books and records while it remained liable for their payment, Blumer substantially reduced Harrison's liabilities, which made it appear as if Harrison was in compliance with its net capital requirements when it was not;
- Improperly delaying the recording of cash disbursements on Harrison's cash disbursements blotter;
- Improperly using the lower of two possible minimum net capital amounts when computing its net capital; and
- Failing to deduct haircut and, when appropriate, undue concentration charges in calculating Harrison's monthly net capital.
According to the Order Instituting Proceedings, Blumer aided and abetted and caused Harrison's violations, in that he prepared Harrison's financial records and FOCUS reports, maintained its books and records, calculated Harrison's monthly net capital and failed to file notice with the Commission regarding Harrison's net capital deficiencies and books-and-records inaccuracies. With respect to Song, the Order alleges that, as Harrison's registered FINOP from December 3, 2001 through April 30, 2002, she was responsible for the firm's net capital computations, the preparation of its financial reports and supervision of those that assisted in the preparation of such reports, and the maintenance of the firm's books and records. Song allegedly failed to fulfil her responsibilities as FINOP because she failed to review adequately the documentation supporting the assets reflected in Harrison's books and records, net capital computations and FOCUS report, or the source documentation for Harrison's liabilities.
By operating without sufficient net capital, Harrison allegedly violated Section 15(c)(3) of the Exchange Act and Rule 15c3-1(a) thereunder. In addition, Harrison allegedly violated Section 17(a)(1) of the Exchange Act and Rules 17a-3(a), 17a-4(a) and (f), and 17a-5(a) thereunder, by filing inaccurate FOCUS reports and failing to create and preserve current accurate books and records, and violated Section 17(a)(1) of the Exchange Act and Rule 17a-11(b) and (d) thereunder by failing to file notice with the Commission of its net capital deficiencies and its failure to keep current books and records.
The Division alleges that Blumer willfully aided and abetted, and caused the foregoing violations by Harrison, and that Song caused Harrison's violations of Sections 15(c)(3) and 17(a)(1) of the Exchange Act and Rules 15c3-1(a), 17a-3(a), 17a-5(a), 17a-11(b) and 17a-11(d) thereunder that occurred during the period December 3, 2001 through April 30, 2002. Proceedings under Rule 102(e) of the Commission's Rules of Practice were also instituted against Blumer.
According to the Order instituting proceedings, Harrison acts as an introducing broker, services approximately 4,000 retail accounts, and employs approximately 125 registered representatives. According to the Order, Song served as Harrison's FINOP pursuant to a consulting agreement; in addition to Harrison and the four other broker-dealers for whom she now serves as FINOP, Song also served as FINOP for at least six other broker-dealers over the past ten years.