Mark Gilbert Platt, John Wayne Ezell and Richard M. Ohlhaber
SECURITIES EXCHANGE ACT OF 1934
Release No. 48968 / December 22, 2003
Admin. Proc. File No. 3-11161
In the Matter of Mark Gilbert Platt, John Wayne Ezell and Richard M. Ohlhaber, Respondent. |
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ORDER MAKING FINDINGS AND IMPOSING REMEDIAL SANCTIONS AS TO RICHARD M. OHLHABER |
I.
On June 18, 2003, the Securities and Exchange Commission ("Commission") instituted public administrative proceedings pursuant to Section 15(b) of the Securities Exchange Act of 1934 against Richard M. Ohlhaber ("Ohlhaber or "Respondent").
In connection with the proceedings instituted against him, Ohlhaber has submitted an Offer of Settlement ("Offer") to the Commission, which the Commission has determined to accept. Solely for the purposes of this proceeding and any other proceeding brought by or on behalf of the Commission or in which the Commission is a party, 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 set forth herein, except those contained in paragraph II. A. and B. below, and the jurisdiction of the Commission over him and the subject matter of these proceedings, which are admitted, Ohlhaber consents to the issuance of this Order Making Findings and Imposing Remedial Sanctions as to Richard M. Ohlhaber ("Order"), and to the entry of the findings set forth below.
II.
On the basis of this Order and the Offer submitted by Ohlhaber, the Commission finds that:1
A. Ohlhaber, age 32, is a resident of Southlake, Texas. From September 1998 until June 30, 2001, he was the branch manager of the Addison, Texas branch office of Josephthal & Co., Inc. ("Josephthal"), a broker-dealer formerly registered with the Commission.2 Ohlhaber is currently associated with another broker-dealer registered with the Commission.
B. From at least September 1998 through March 2001, Ohlhaber failed reasonably to supervise two registered representatives who were subject to his direct supervision, within the meaning of Section 15(b) of the Exchange Act, with a view toward preventing their willful violations of the federal securities laws as described in paragraphs III. C. through J., below. The two registered representatives, each of whom had a disciplinary history or a history of customer complaints, engaged in fraudulent sales practices by making excessive (churning), unsuitable and unauthorized trades in certain of their customers' accounts.
III.
Ohlhaber's Failure to Supervise the First Registered Representative
C. From September 1998 through at least March 2001, a registered representative subject to Ohlhaber's direct supervision ("the first representative") engaged in sales practice violations of the federal securities laws in at least three Josephthal customer accounts.3 Prior to becoming associated with Josephthal in September 1998, the first representative was the subject of three customer complaints alleging that he had engaged in unsuitable and excessive trading while employed at another brokerage firm. Each of the complaints resulted in monetary awards to the customers, two through settlements and one through arbitration. When the first representative transferred his securities licenses from his prior brokerage to Josephthal, he was subject to a Texas State Securities Board ("TSSB") undertaking, which required Josephthal and Ohlhaber to implement special supervisory procedures for this representative. Among other things, the TSSB required Ohlhaber to perform a quarterly review of the representative's customer trading activity and to memorialize his findings in writing.
D. From September 1998 through at least February 2001, while purportedly under Ohlhaber's "special supervision," the first representative recommended unsuitable speculative small-cap technology stocks for the accounts of three elderly Josephthal customers each of whom had stated more conservative investment objectives. Additionally, the representative churned each of these three accounts causing the accounts to suffer realized losses totaling $252,741. The three customer accounts had annual turnover ratios between 8.42 and 35.22, and cost-to-equity ratios between 25.12 and 70.62.4 During this same period, the first representative received gross commissions from these three accounts totaling $66,650.
E. Between July 1999 and March 2001, the first registered representative also executed five unauthorized trades in one of the above referenced customer accounts. On two occasions, the customer complained to Ohlhaber about unauthorized trades in his account. On both occasions, Ohlhaber denied the customer's request to reverse the trades based on the representations by the registered representative that the customer authorized the trades.
F. In conducting his quarterly review of the first representative's customers' trading activity, Ohlhaber failed to take any action after being confronted with red flags showing evidence of excessive and unsuitable trading in the representative's customer accounts.
G. Moreover, Ohlhaber failed to effectively respond to another red flag of possible sales practice abuses-the fact that two of the first registered representative's referenced accounts appeared numerous times on Josephthal's monthly active account exception report. According to Josephthal's procedures, it was Ohlhaber's responsibility to contact customers whose accounts appeared on this report to determine whether the activity in their account was consistent with their investment objectives and instructions. However, Ohlhaber did not contact one of the referenced customers until two months after the customer's account first appeared on the report, and even then Ohlhaber did not question whether the account activity was in accordance with the customer's instructions and objectives. Further, Ohlhaber never contacted the other customer about the activity in the account even though the account appeared on the active account exception report eight times.
Ohlhaber's Failure to Supervise the Second Registered Representative
H. A second registered representative subject to Ohlhaber's direct supervision ("the second representative") also engaged in sales practice abuses in two Josephthal customer accounts.5 Prior to his association with Josephthal, this representative was the subject of seven customer complaints alleging that he engaged in either unauthorized or unsuitable trading. Based on five of these complaints, in December 1994, the National Association of Securities Dealers ("NASD") suspended the representative for 30 days and fined him $27,500 for unauthorized and unsuitable transactions, and for churning his customers' accounts. Ohlhaber recruited this registered representative, who in November 1998 began his association with Josephthal.
I. Almost immediately, this registered representative began to engage in churning and unsuitable trading. In September 1999, Josephthal's compliance department reviewed the second representative's five most active accounts, including the two accounts referenced in paragraph H, above. Significantly, this review revealed that, from January 1999 through September 1999, the second representative churned and engaged in unsuitable trading in these two customer accounts. During this period, the two accounts generated 22 percent of the second representative's gross commissions and the two accounts had turnover ratios of 13.15 and 17.17, respectively. As a result, Josephthal placed the second representative on special supervision for a six-month period and required Ohlhaber to review the above-referenced accounts monthly. The firm also specifically directed Ohlhaber to assure that the representative reduced the margin balances in each account.
J. Despite the firm's directive requiring him to specially supervise the second representative, Ohlhaber continued to approve numerous securities transactions involving unsuitable small-cap technology stocks for these two customer accounts. By ignoring this red flag that unsuitable trading persisted, Ohlhaber permitted the second representative to engage in excessive and unsuitable trading. During the six-month special supervisory period, the two accounts had annual turnover ratios of 7.19 and 13.65, and cost-to-equity ratios of 27.27 and 65.88, respectively. Additionally, Ohlhaber never contacted these customers and the representative executed 19 unauthorized trades in one of these accounts. The second representative's trading activity in these two accounts resulted in customer losses totaling $155,612, while he received gross commissions totaling $7,773. Finally, during this period the margin balance in one of these accounts increased and the margin balance for the other account was not eliminated.
IV.
Based on the foregoing, Ohlhaber did not reasonably discharge his duties and responsibilities and thereby failed reasonably to supervise, within the meaning of Section 15(b) of the Exchange Act, two individuals subject to his supervision with a view to preventing violations of the federal securities laws.
V.
In view of the foregoing, the Commission deems it appropriate and in the public interest to accept the Offer submitted by Ohlhaber and impose the sanctions specified therein.
Accordingly, IT IS ORDERED that:
A. Ohlhaber be, and hereby is, barred from association in a supervisory capacity with any broker or dealer, with the right to reapply for association after three (3) years with the appropriate self-regulatory organization, or if there is none, to the Commission; and
B. Ohlhaber shall pay a civil money penalty in the amount of $50,000 to the United States Treasury. Such payment shall be 1) made by the United States postal money order, certified check, bank cashier's check or bank money order; 2) 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 Ohlhaber 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 Harold F. Degenhardt, District Administrator, Fort Worth District Office, 801 Cherry Street, Unit 1800, Fort Worth, Texas 76102.
C. Any reapplication for association by the Respondent will be subject to the applicable laws and regulations governing the reentry process, and reentry may be conditioned upon a number of factors, including, but not limited to, the satisfaction of any or all of the following: (a) any disgorgement ordered against the Respondent, whether or not the Commission has fully or partially waived payment of such disgorgement; (b) any arbitration award related to the conduct that served as the basis for the Commission order; (c) any self-regulatory organization arbitration award to a customer, whether or not related to the conduct that served as the basis for the Commission order; and (d) any restitution order by a self-regulatory organization, whether or not related to the conduct that served as the basis for the Commission order.
By the Commission.
Jonathan G. Katz
Secretary