SECURITIES EXCHANGE ACT OF 1934
Release No. 49703 / May 14, 2004
ADMINISTRATIVE PROCEEDING
File No. 3-11489
In the Matter of DAVID STETSON Respondent. |
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ORDER INSTITUTING ADMINISTRATIVE AND CEASE-AND-DESIST PROCEEDINGS, MAKING FINDINGS, AND IMPOSING REMEDIAL SANCTIONS AND A CEASE-AND-DESIST ORDER PURSUANT TO SECTION 8A OF THE SECURITIES ACT OF 1933, AND SECTIONS 15(b) AND 21C OF THE SECURITIES EXCHANGE ACT OF 1934 |
I.
The Securities and Exchange Commission ("Commission") deems it appropriate and in the public interest that public administrative and cease-and-desist proceedings be, and hereby are, instituted pursuant to Section 8A of the Securities Act of 1933 ("Securities Act"), and Sections 15(b) and 21C of the Securities Exchange Act of 1934 ("Exchange Act"), against David Stetson ("Stetson" or "Respondent").
II.
In anticipation of the institution of these proceedings, Respondent has submitted an Offer of Settlement (the "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 them and the subject matter of these proceedings, Respondent consent to the entry of this Order Instituting Administrative and Cease-and-Desist Proceedings, Making Findings, and Imposing Remedial Sanctions and a Cease-and-Desist Order Pursuant to Section 8A of the Securities Act of 1933, and Sections 15(b) and 21C of the Securities Exchange Act of 1934 as set forth below.
III.
On the basis of this Order and Respondent's Offer, the Commission finds1 that:
Respondent
1. Stetson is 43 years of age and resides in Oyster Bay, New York. In or around May 1999, Stetson and others entered into an agreement with Donald & Co. Securities, Inc. ("Donald & Co.") to open a Garden City branch office of Donald & Co. ("Garden City Office"). Stetson and others later established an office of supervisory jurisdiction ("OSJ") with Donald & Co. in Garden City, New York. Stetson and others ran the Donald & Co. OSJ as a partnership, and actively participated in the management of the office, including all personnel and business decisions. Stetson holds Series 7, 63 and, 55 licenses.
Other Relevant Entity
2. Donald & Co. was registered with the Commission as a broker-dealer from May 25, 1977 until September 10, 2002 when Donald & Co. filed a Form BD-W. Donald & Co. was a member of the NASD. The firm's main office was located in Tinton Falls, New Jersey, and the firm maintained 10 branch offices. On July 24, 2002, Donald & Co. filed notice, pursuant to Rule 17a-11 of the Exchange Act that it was in a position of a net capital deficiency and closed its branch offices, including its Garden City Office.
Background
3. Respondent and others at Donald & Co. acquired large positions in The Classica Group, Inc. ("Classica") and eLEC Communications Corporation ("eLEC") at low prices. Respondent and others then instructed registered representatives working at Donald & Co.'s Garden City Office to solicit their clients to purchase Classica and eLEC at inflated prices. To persuade the brokers to push Classica and eLEC on their clients, Respondent and others, among other things, paid registered representatives undisclosed commissions.
4. Respondent also instructed registered representatives to make baseless predictions about the price of Classica and eLEC stock and other misleading statements about Classica and eLEC. Respondent and others also instructed brokers to tell customers falsely that favorable announcements about Classica and eLEC would be coming out shortly. While Respondent was telling brokers to get their customers to purchase Classica and eLEC at inflated prices, Respondent and others were selling it out of their own holdings at a profit.
5. Respondent, at times, refused to allow the brokers he controlled to execute customer orders to sell Classica and eLEC unless the sale could be made to another Garden City Office customer. According to Garden City Office policy, if a client insisted that Classica or eLEC be sold, the broker was responsible for the shares until a buyer was found for those same shares.
6. Through his conduct, Respondent participated in the offering of the common stocks of Classica and eLEC, both "penny stocks" as that term is used in Section 15(b)(6) and as defined by Section 3(a)(51) of the Exchange Act and Rule 3a51-1 thereunder.
7. As a result of the conduct described above, Respondent willfully violated Section 17(a) of the Securities Act, Section 10(b) of the Exchange Act and Rule 10b-5 thereunder, which prohibit fraudulent conduct in the offer or sale of securities and in connection with the purchase or sale of securities.
IV.
The Respondent's Offer does not include an agreement to pay disgorgement or penalties. The issue of disgorgement and penalties will be resolved at a later date. As a part of his Offer in this matter, Respondent agree that if Respondent fails to submit an offer of settlement with respect to disgorgement and penalties that are acceptable to the Commission, then the Commission may reopen this proceeding against the Respondent for the purpose of resolving the issue of disgorgement and penalties. If the Commission reopens this proceeding, Respondent agrees that he will not contest the findings of fact or law in this Order as a basis for any Commission determination to order disgorgement or penalties that may be appropriate and in the public interest.
V.
In view of the foregoing, the Commission deems it appropriate and in the public interest to impose the sanctions specified in Respondent's Offer.
Accordingly, it is hereby ORDERED:
A. Pursuant to Section 8A of the Securities Act and Section 21C of the Exchange Act, that Respondent Stetson cease and desist from committing or causing any violations and any future violations of Section 17(a) of the Securities Act, Section 10(b) of the Exchange Act and Rule 10b-5 thereunder.
B. Pursuant to Section 15(b)(6) of the Exchange Act, that Respondent Stetson be, and hereby is, barred from association with any broker or dealer.
C. That Respondent Stetson be, and hereby is, barred from participating in any offering of a penny stock, including: acting as a promoter, finder, consultant, agent or other person who engages in activities with a broker, dealer or issuer for purposes of the issuance or trading in any penny stock, or inducing or attempting to induce the purchase or sale of any penny stock.
D. 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.
Secretary
Endnotes