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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. 48338 / August 14, 2003

ADMINISTRATIVE PROCEEDING
File No. 3-11013


In the Matter of

ANDOVER BROKERAGE, LLC,
MICHAEL PICOZZI, III,
ELIAS SCHECHTER, and
DAVID DAILY,

Respondents.


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ORDER MAKING FINDINGS AND IMPOSING REMEDIAL SANCTIONS AND CEASE-AND-DESIST ORDER

I.

In these proceedings instituted pursuant to Sections 15(b) and 21C of the Securities Exchange Act of 1934 ("Exchange Act"),1 Respondents Andover Brokerage, LLC (now known as Rumson Capital, LLC) ("Andover"), Michael Picozzi, III ("Picozzi"), Elias Schechter ("Schechter") and David Daily ("Daily") (collectively, the "Respondents") have submitted Offers of Settlement ("Offers") which the Securities and Exchange Commission ("Commission") has determined to accept.

II.

Solely for the purpose of settling 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 Respondents and the subject matter of these proceedings, which are admitted, Respondents consent to the entry of this Order Making Findings and Imposing Remedial Sanctions and Cease-and-Desist Order ("Order") pursuant to Sections 15(b) and 21C of the Exchange Act, as set forth below.

III.

On the basis of this Order and the Respondents' Offers, the Commission finds that:

Respondents

1. Andover is a broker-dealer registered with the Commission pursuant to Section 15(b) of the Exchange Act. Andover is a limited liability company organized in the State of New York, and it maintains its headquarters in Montebello, New York. Andover has been a registered broker-dealer since June 18, 1993. On March 3, 2003, Andover sold its entire assets, business activities, trading software, operational and support systems to Prescient Securities, LLC ("Prescient"), a broker-dealer currently registered with the Commission pursuant to Section 15(b) of the Exchange Act, which continued the operations it acquired from Andover. Prescient did not participate in any way in the violative conduct described in Paragraphs III.6-12 below. Also on March 3, 2003, Andover changed its name to Rumson Capital, LLC. Prior to the sale, Andover operated approximately 36 offices throughout New York, New Jersey, Maryland, Florida, Illinois, Michigan, Texas, California, Arizona, Minnesota, Kansas, and Colorado. Andover specialized in day trading for its own proprietary accounts and provided a medium for retail investors to engage in day trading activities for their own accounts.

2. Picozzi, age 35, is a resident of Montebello, New York. Since May 1996, Picozzi has been the sole owner, Managing Member, and President of Andover. (Picozzi is not, and has never been associated with Prescient). Picozzi has Series 7, 24, 55 and 63 securities licenses.

3. Schechter, age 47, is a resident of Boca Raton, Florida. Between April 20, 1998 through May 20, 2002, Andover employed Schechter as a trader for its proprietary accounts. Prior to his employment at Andover, Schechter worked as a registered representative at other registered broker-dealers. Schechter has Series 7 and 63 securities licenses.

4. Daily, age 36, is a resident of Highland Beach, Florida. Between February 18, 1997 through December 1, 1998, Andover employed Daily as a trader for its proprietary accounts. Daily held Series 4, 7, 24, 27, 53, 63 and 65 securities licenses.

Background

5. Section 10(a) of the Exchange Act and Rule 10a-1 thereunder ("Short Sale Rule") provides that, subject to certain exceptions, a listed security may be sold short: (i) at a price above the price at which the immediately preceding sale was effected (plus-tick), or (ii) at the last sale price if it is higher than the last different price (zero-plus-tick). Conversely, short sales are not permitted on minus-ticks or zero-minus-ticks, subject to narrow exceptions. A minus-tick refers to a price below the immediately preceding sale price. A zero-minus-tick refers to a price which is the same as the immediately preceding sale price, but which is less than the most immediate different preceding sale price.

Violations

6. From approximately May through October 1998, Andover, and its proprietary traders, Schechter and Daily, effected short sales of securities registered on a national securities exchange on minus-ticks or zero-minus-ticks in violation of Section 10(a) of the Exchange Act and Rule 10a-1 thereunder. In particular, between May 1 and May 31, 1998, between August 25 and September 25, 1998, and between October 1 and October 31, 1998, Andover, Schechter and Daily executed a total of 204 short sale transactions in securities then listed on the New York Stock Exchange ("NYSE") on minus-ticks and zero-minus-ticks in Andover's proprietary accounts. In each of these 204 transactions, Schechter and Daily, as Andover's proprietary traders, did not identify these trades as short sales, and instead incorrectly marked them as "long."

7. In each of the 204 transactions described in Paragraph III.6. above, Andover created inaccurate memoranda of sell orders when it failed to mark its short sale transactions as "short." Schechter and Daily caused Andover to create inaccurate memoranda by failing to mark Andover's short sale transactions as "short."

8. Picozzi, as president of Andover, had ultimate responsibility for firm supervision, including establishing procedures and a system for applying such procedures that would reasonably be expected to prevent and detect violations of the federal securities laws. Picozzi instituted an inadequate supervisory system by, among other things, failing to implement procedures reasonably designed to prevent traders from mismarking sell transactions or executing short sales on a minus-tick (or zero-minus-tick). Picozzi also failed reasonably to supervise, with a view toward detecting and preventing violations of the Short Sale Rule, Schechter and Daily while they were subject to Picozzi's supervision.

9. As a result of the conduct described above, Andover, Schechter and Daily willfully violated Section 10(a) of the Exchange Act and Rule 10a-1(a) thereunder, which prohibit, subject to certain narrow exceptions, short sales of any security registered on, or admitted to unlisted trading privileges on, a national securities exchange on minus or zero-minus-ticks.

10. As a result of the conduct described above, Andover willfully violated, and Schechter and Daily caused Andover's violations of, Section 10(a) of the Exchange Act and Rules 10a-1(c) and 10a-1(d) thereunder, which prohibit a broker or dealer from effecting any sell order for a security registered on, or admitted to unlisted trading privileges on, a national securities exchange unless such order is properly marked either "long" or "short."

11. As a result of the conduct described above, Andover willfully violated, and Schechter and Daily caused Andover's violations of, Section 17(a) of the Exchange Act and Rule 17(a)-3(a)(7) thereunder, which require that brokers and dealers registered with the Commission maintain and preserve certain books and records, such as memoranda of each brokerage order and of any other instruction whether executed or unexecuted, given or received for the purchase or sale of securities.

12. As a result of the conduct described above, Picozzi failed reasonably to supervise Schechter and Daily within the meaning of Section 15(b)(4)(E) of the Exchange Act with a view toward preventing and detecting the violations described above.

Undertakings

13. Pursuant to a January 31, 2003 decision letter issued by the National Association of Securities Dealers, Inc. approving the transfer of assets from Andover to Prescient, Prescient agreed to perform certain undertakings, that are enumerated in Paragraphs III.14-21 below.

14. Prescient agrees to review its policies and procedures relating to its compliance with Section 10(a) of the Exchange Act and Rules 10a-1(a), 10a-1(c), 10a-1(d) and Rule 17(a)-3(a)(7), promulgated pursuant to Section 17(a) of the Exchange Act, and to adopt and implement policies and procedures to prevent and detect violations of these provisions. In particular, Prescient has agreed to: (A) retain Foley & Lardner, or counsel not unacceptable to the staff of the Commission, to, among other things, review Prescient's supervisory policies and procedures as they relate to Prescient's compliance with Section 10(a) of the Exchange Act and Rules 10a-1(a), 10a-1(c), 10a-1(d) and Rule 17(a)-3(a)(7), promulgated pursuant to Section 17(a) of the Exchange Act; (B) retain Foley & Lardner, or counsel not unacceptable to the staff of the Commission, to review Prescient's system for applying such supervisory policies and procedures as they relate to Prescient's compliance with Section 10(a) of the Exchange Act and Rules 10a-1(a), 10a-1(c), 10a-1(d) and Rule 17(a)-3(a)(7), promulgated pursuant to Section 17(a) of the Exchange Act; (C) implement any and all changes to Prescient's supervisory policies and procedures and its system for applying such policies and procedures so that they would reasonably be expected to prevent and detect violations of Section 10(a) of the Exchange Act and Rules 10a-1(a), 10a-1(c), 10a-1(d) and Rule 17(a)-3(a)(7), promulgated pursuant to Section 17(a) of the Exchange Act, that Foley & Lardner, or any other counsel, proposes; (D) retain Foley & Lardner, or counsel not unacceptable to the staff of the Commission, to review Prescient's policies and procedures as they relate to ensuring that there are adequate supervisory personnel for each of Prescient's offices; (E) implement any and all necessary changes to Prescient's policies and procedures to ensure that there are adequate supervisory personnel for each of Prescient's offices that Foley & Lardner, or any other counsel, proposes; and (F) provide additional training to Prescient's employees and customers regarding compliance with Section 10(a) of the Exchange Act and Rules 10a-1(a), 10a-1(c), 10a-1(d) and Rule 17(a)-3(a)(7), promulgated pursuant to Section 17(a) of the Exchange Act. Prescient agrees to complete the review of its policies and procedures and to adopt and implement policies and procedures to prevent and detect violations of Section 10(a) of the Exchange Act and Rules 10a-1(a), 10a-1(c), 10a-1(d) and Rule 17(a)-3(a)(7), promulgated pursuant to Section 17(a) of the Exchange Act, as well as provide additional training to employees and customers within three months of the date of the Order.

15. Prescient agrees to retain, at its own expense, an Independent Consultant acceptable to the staff of the Commission to conduct a review to provide reasonable assurance of the implementation and effectiveness of the policies and procedures referenced in Paragraph III.14 above. This review will begin one year after the date of the entry of the Order. The Independent Consultant will produce a report regarding Prescient's compliance with the internal policies and procedures referenced in Paragraph III.14 above. If necessary, the report shall also make recommendations designed to ensure that Prescient's procedures are reasonably designed to prevent violations of the federal securities laws. The report will be produced to Prescient and the Commission staff within 30 days from the completion of the review, but no later than 18 months from the date of entry of the Order. The Independent Consultant shall have the option to seek an extension of time by making a written request to the Commission staff.

16. Prescient shall have a reasonable opportunity to comment on the Independent Consultant's review and proposed report prior to its submission to the Commission, including a reasonable opportunity to comment on any and all conclusions and recommendations, and to seek confidential treatment of such information and findings set forth therein to the extent that the report concerns proprietary commercial and financial information of Prescient. This report will be subject to the protections from disclosure set forth in the rules of the Commission, including the protections from disclosure set forth in 5 U.S.C. § 552(b)(8) and 17 C.F.R. § 200.80(b)(8), and will not constitute a record, report, statement or data compilation of the Commission under Rule 803(8) of the Federal Rules of Evidence.

17. Prescient shall adopt all recommendations contained in the written report of the Independent Consultant; provided, however, that as to any recommendation that Prescient believes is unduly burdensome or impractical, Prescient may demonstrate why the recommended policy or procedure is, under the circumstances, unreasonable, impractical and/or not designed to yield benefits commensurate with its cost, or Prescient may suggest an alternative policy or procedure designed to achieve the same objective, and submit such explanation and/or alternative policy or procedure in writing to the Independent Consultant and to the Commission staff. Prescient and the Independent Consultant shall then attempt in good faith to reach agreement as to any policy or procedure as to which there is any dispute and the Independent Consultant shall reasonably evaluate any alternative policy or procedure proposed by Prescient. If an agreement on any issue is not reached, Prescient will abide by the determinations of the Independent Consultant with regard thereto and adopt those recommendations deemed appropriate by the Independent Consultant. Within ninety (90) days of the Commission staff's receipt of the Independent Consultant's report, Prescient shall submit an affidavit to the Commission staff stating that it has implemented any and all actions recommended by the Independent Consultant or required by the Commission staff, or explaining the circumstances under which it has not implemented such actions.

18. Prescient shall cooperate fully with the Independent Consultant in this review, including making such information and documents available, as the Independent Consultant may reasonably request, and by permitting and requiring Prescient's employees and agents to supply such information and documents as the Independent Consultant may reasonably request.

19. To ensure the independence of the Independent Consultant, Prescient (i) shall not have the authority to terminate the Independent Consultant without the prior written approval of the Commission staff; and (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.

20. For the period of 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 Prescient, or any of its present or former affiliates, directors, officers, employees, or agents acting in their capacity. The agreement between Prescient and the Independent Consultant shall provide that any firm with which the Independent Consultant is affiliated or of which he/she is a member, and any person engaged to assist the Independent Consultant in performance of his/her duties under the Order shall not, without prior written consent of the Commission's Northeast Regional Office, enter into any employment, consultant, attorney-client, auditing or other professional relationship with Prescient, 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.

21. Prescient agrees that, for a period of two years following the date hereof, it will not make any material revision of the policies and procedures regarding compliance with Section 10(a) of the Exchange Act and Rules 10a-1(a), 10a-1(c), 10a-1(d) and Rule 17(a)-3(a)(7), promulgated pursuant to Section 17(a) of the Exchange Act, without approval from the Independent Consultant, provided such approval will not be unreasonably withheld. Prior to the appointment of the Independent Consultant, any material revisions of the policies and procedures regarding compliance with Section 10(a) of the Exchange Act and Rules 10a-1(a), 10a-1(c), 10a-1(d) and Rule 17(a)-3(a)(7), promulgated pursuant to Section 17(a) of the Exchange Act, will require the approval of Foley & Lardner, or counsel not unacceptable to the staff of the Commission.

22. Respondents Picozzi, Schechter and Daily shall each provide to the Commission, within ten days after the end of their suspension periods, an affidavit that he has complied fully with the sanctions described in Paragraphs IV.D. through IV.F. below.

23. In determining whether to accept the Offers, the Commission has considered these undertakings described in Paragraphs III.13 through III.22.

IV.

In view of the foregoing, the Commission deems it appropriate, and in the public interest to impose the sanctions specified in the Respondents' Offers.

ACCORDINGLY, IT IS HEREBY ORDERED:

A. Pursuant to Section 21C of the Exchange Act, Respondents Andover, Schechter and Daily shall cease and desist from committing or causing any violations and any future violations of Section 10(a) of the Exchange Act and Rule 10a-1(a) thereunder;

B. Pursuant to Section 21C of the Exchange Act, Respondent Andover shall cease and desist from committing or causing any violations and any future violations of Sections 10(a) and 17(a) of the Exchange Act and Rules 10a-1(c), 10a-1(d) and 17(a)-3(a)(7) thereunder;

C. Pursuant to Section 21C of the Exchange Act, Respondents Schechter and Daily shall cease and desist from causing any violations and any future violations of Sections 10(a) and 17(a) of the Exchange Act and Rules 10a-1(c), 10a-1(d) and 17(a)-3(a)(7) thereunder;

D. Pursuant to Section 15(b)(6) of the Exchange Act, Respondent Schechter be, and hereby is, suspended from association with any broker or dealer for a period of 30 days, effective on the second Monday following the entry of this Order;

E. Pursuant to Section 15(b)(6) of the Exchange Act, Respondent Daily be, and hereby is, suspended from association with any broker or dealer for a period of 30 days, effective on the second Monday following the entry of this Order;

F. Pursuant to Section 15(b)(6) of the Exchange Act, Respondent Picozzi be, and hereby is, suspended from association in a supervisory capacity with any broker or dealer for a period of nine months, effective on the second Monday following the entry of this Order;

G. IT IS FURTHER ORDERED that Respondents Andover and Schechter shall, within ten days of the entry of this Order, pay on a joint and several basis, disgorgement of $4,117 representing profits gained of $3,046, together with prejudgment interest thereon in the amount of $1,071 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 Office of Financial Management, Securities and Exchange Commission, Operations Center, 6432 General Green Way, Stop 0-3, Alexandria, VA 22312; and (D) submitted under cover letter that identifies Andover and Schechter as Respondents in these proceedings, the file number of these proceedings, a copy of which cover letter and money order or check shall be sent to Kay Lackey, Esq., Assistant Regional Director, Northeast Regional Office, Securities and Exchange Commission, 233 Broadway, 13th Floor, New York, New York 10279.

H. IT IS FURTHER ORDERED that Respondents Andover and Daily shall, within ten days of the entry of this Order, pay on a joint and several basis, disgorgement of $83,176 representing profits gained of $61,537, together with prejudgment interest thereon in the amount of $21,639, 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 Office of Financial Management, Securities and Exchange Commission, Operations Center, 6432 General Green Way, Stop 0-3, Alexandria, VA 22312; and (D) submitted under cover letter that identifies Andover and Daily as Respondents in these proceedings, the file number of these proceedings, a copy of which cover letter and money order or check shall be sent to Kay Lackey, Esq., Assistant Regional Director, Northeast Regional Office, Securities and Exchange Commission, 233 Broadway, 13th Floor, New York, New York 10279.

I. IT IS FURTHER ORDERED that Respondent Andover shall, within ten days of the entry of this Order, pay a civil money penalty in the amount of $64,583 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 Office of Financial Management, Securities and Exchange Commission, Operations Center, 6432 General Green Way, Stop 0-3, Alexandria, VA 22312; and (D) submitted under cover letter that identifies Andover 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 Kay Lackey, Esq., Assistant Regional Director, Northeast Regional Office, Securities and Exchange Commission, 233 Broadway, 13th Floor, New York, New York 10279.

J. IT IS FURTHER ORDERED that Respondent Picozzi shall, within ten days of the entry of this Order, pay a civil money penalty in the amount of $25,000 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 Office of Financial Management, Securities and Exchange Commission, Operations Center, 6432 General Green Way, Stop 0-3, Alexandria, VA 22312; and (D) submitted under cover letter that identifies Picozzi 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 Kay Lackey, Esq., Assistant Regional Director, Northeast Regional Office, Securities and Exchange Commission, 233 Broadway, 13th Floor, New York, New York 10279.

K. IT IS FURTHER ORDERED that Respondent Schechter shall, within ten 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 Office of Financial Management, Securities and Exchange Commission, Operations Center, 6432 General Green Way, Stop 0-3, Alexandria, VA 22312; and (D) submitted under cover letter that identifies Schechter 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 Kay Lackey, Esq., Assistant Regional Director, Northeast Regional Office, Securities and Exchange Commission, 233 Broadway, 13th Floor, New York, New York 10279.

L. IT IS FURTHER ORDERED that Respondent Daily shall, within ten days of the entry of this Order, pay a civil money penalty in the amount of $10,000 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 Office of Financial Management, Securities and Exchange Commission, Operations Center, 6432 General Green Way, Stop 0-3, Alexandria, VA 22312; and (D) submitted under cover letter that identifies Daily 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 Kay Lackey, Esq., Assistant Regional Director, Northeast Regional Office, Securities and Exchange Commission, 233 Broadway, 13th Floor, New York, New York 10279.

By the Commission.

Jonathan G. Katz
Secretary

 


1 On January 22, 2003, the Commission issued an Order Instituting Public Administrative and Cease-and-Desist Proceedings, and Notice of Hearing Pursuant to Sections 15(b) and 21C of the Securities Exchange Act of 1934 against the Respondents.

 

http://www.sec.gov/litigation/admin/34-48338.htm


Modified: 08/14/2003