UNITED STATES OF AMERICA Before the SECURITIES AND EXCHANGE COMMISSION SECURITIES EXCHANGE ACT OF 1934 Release No. 37662 / September 9, 1996 ADMINISTRATIVE PROCEEDING File No. 3-9073 ----------------------------- : In the Matter of : ORDER INSTITUTING PROCEEDINGS : PURSUANT TO SECTION 8A OF THE : SECURITIES ACT OF 1933 AND ROBERT GILBERT, : SECTIONS 15(b)(6), 19(h) AND ALAN WEISSMAN, and : 21C OF THE SECURITIES DANIEL FELTER, : EXCHANGE ACT OF 1934, MAKING : FINDINGS AND IMPOSING REMEDIAL Respondents. : SANCTIONS : ------------------------------ I. The Securities and Exchange Commission ("Commission") deems it appropriate and in the public interest that public administrative proceedings be, and they hereby are, instituted pursuant to Section 8A of the Securities Act of 1933 ("Securities Act") and Sections 15(b)(6), 19(h) and 21C of the Securities Exchange Act of 1934 ("Exchange Act") to determine whether Robert Gilbert ("Gilbert"), Alan Weissman ("Weissman") and Daniel Felter ("Felter") (collectively "Respondents") violated Section 17(a) of the Securities Act and Sections 9(a)(2), 9(a)(4) and 10(b) of the Exchange Act and Rule 10b-5 thereunder, whether Respondents aided and abetted and caused violations of Section 7(c) of the Exchange Act and Regulation T promulgated by the Federal Reserve Board, and whether Gilbert and Felter aided and abetted and caused violations of Section 15(c)(1) of the Exchange Act and Rule 15c1- 2 thereunder. In anticipation of the institution of these administrative proceedings, the Respondents have submitted Offers of Settlement ("Offers") to the Commission, which the Commission has determined to accept. Solely for the purpose of these proceedings and any other proceeding brought by or on behalf of the Commission, or to which the Commission is a party, and 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 contained herein, the Respondents, by their Offers, consent to the findings ==========================================START OF PAGE 2====== and the imposition of the remedial sanctions set forth below. Accordingly, IT IS ORDERED that proceedings against Robert Gilbert, Alan Weissman and Daniel Felter be, and hereby are, instituted. II. FACTS The Commission finds the following:1 A. SUMMARY As registered representatives of the brokerage firm D.H. Blair & Co., Inc. ("Blair") and then of A.R. Baron & Co., Inc. ("Baron"), Gilbert, Weissman and Felter engaged in fraudulent sales practices; at Baron they also violated the provisions governing the extension of credit to customers. In addition, the Respondents participated in a manipulation of the market for the common stock of Health Professionals, Inc. ("HPI") during two periods between October 1991 and February 1992, and Gilbert and Felter participated in a third period of HPI market manipulation during May and June 1993. Gilbert, Weissman and Felter participated in the manipulations by aggressively marketing HPI securities and by adhering to an improper no-net-sale policy. B. RESPONDENTS AND RELEVANT ENTITIES 1. Respondents a. Robert Gilbert, age 30, resides in New York, New York. Gilbert was a registered representative with Blair from May 1988 through May 1992 and with Baron from May 1992 through July 1993, when he left Baron to become associated with another firm. Gilbert resumed working at Baron from December 1993 through October 1995. Presently, Gilbert is not associated with any broker-dealer. b. Alan Weissman, age 28, resides in New York, New York. Weissman was a Blair registered representative from June 1989 through June 1992 and with Baron from June 1992 through December 1993. Presently, Weissman is not associated with any broker-dealer. c. Daniel Felter, age 29, resides in New York, New 1 The findings herein are made pursuant to Offers of Settlement submitted by Gilbert, Weissman and Felter. These findings are not binding on any other person named as a defendant or respondent in this or any other proceeding. ==========================================START OF PAGE 3====== York. Felter was a registered representative with Blair from September 1989 through April 1992 and with Baron from June 1992 through November 1994. Presently, Felter is not associated with any broker-dealer. 2. Relevant Entities a. Health Professionals, Inc. is a Delaware corporation in the health care industry with its principal place of business in Fort Lauderdale, Florida. Prior to November 26, 1991, HPI was known as Professional Care, Inc. HPI is registered with the Commission under Section 12(b) of the Exchange Act. At all relevant times, HPI was listed and traded on both the AMEX and on Nasdaq. b. D.H. Blair & Co., Inc. is a broker-dealer incorporated in New York with its principal place of business in New York, New York. Blair is registered with the Commission as a broker-dealer pursuant to Section 15(b) of the Exchange Act. c. A.R. Baron & Co., Inc. is a broker-dealer incorporated in Delaware with its principal place of business in New York, New York. Baron is registered with the Commission as a broker-dealer pursuant to Section 15(b) of the Exchange Act. C. THE MANIPULATION OF HPI SECURITIES AND THE NO-NET-SALE POLICY In October and November 1991 and in January and February 1992, Blair broker Jeffrey Weissman, assisted by others, engineered a manipulation of the market for the securities of HPI. Jeffrey Weissman enlisted Gilbert, Weissman and Felter, who were also at Blair, to participate in the 1991 and 1992 manipulations. In mid-1992, Andrew Bressman ("Bressman") and Jeffrey Weissman founded Baron and recruited Gilbert, Weissman and Felter to work with them at the firm. In May and June 1993, Bressman and Jeffrey Weissman engineered another manipulation of the market for HPI securities, and Gilbert and Felter participated in the 1993 manipulation at Baron. 1. The No-Net-Sale Policy In order to carry out the manipulations, Bressman and Jeffrey Weissman set and enforced a no-net-sale policy for HPI securities. Pursuant to this policy, they required brokers participating in the manipulation to find a customer to purchase a corresponding amount of HPI stock before they were permitted to execute any sell order for HPI securities. The no-net-sale policy helped keep the price of HPI securities from being depressed due to customer selling. Gilbert, Weissman and Felter were pressured to adhere to and did adhere to this policy. ==========================================START OF PAGE 4====== 2. The 1991 and 1992 Manipulations During the first period of manipulation -- October 28, 1991 through November 12, 1991 -- Bressman and Jeffrey Weissman raised the price of HPI common stock from $11.50 per share to $21 per share. In the second period of manipulation -- January 27, 1992 through February 12, 1992 -- they raised the price of HPI stock from $16 1/8 to $23 1/4 per share. Gilbert, Weissman and Felter participated in these manipulations by adhering to the no-net-sale policy with respect to HPI securities. In addition, they aggressively marketed HPI securities to their customers, making unfounded optimistic claims about the future price of HPI securities and the company's future performance while failing to tell customers that the market was being manipulated, that HPI securities were very speculative, and that customers might have difficulty selling these securities due to the no-net-sale policy. 3. The 1993 Manipulation a. Baron's Purchases The third period of manipulation began the first trading day after a negative article about HPI appeared on Saturday, May 22, 1993, in Barron's magazine. On Monday, May 24, 1993, before the opening of trading, Baron began placing orders on the AMEX to purchase HPI shares for its firm account. Within the first five minutes of trading, Baron purchased over 60,000 shares and purchased approximately 120,000 shares of HPI stock within the first 30 minutes. That day Baron purchased 300,000 shares of HPI stock and did not sell a single share on the AMEX. By the end of trading on May 24, HPI closed at $12 per share, down $3/8 from the previous close but up from the day's low of $10 1/2 per share.2 Baron's AMEX purchases, which amounted to 66% of the AMEX volume, apparently had offset heavy selling and had prevented HPI's stock price from falling much further. Over the next few weeks, Baron continued to purchase HPI shares on the AMEX in the firm trading account. Between May 24, 1993, and June 9, 1993, Baron's trading account purchased on the AMEX a total of approximately 780,000 HPI shares and sold on the AMEX only 1,000 HPI shares. Baron's AMEX purchases for the period constituted 64% of the AMEX volume. These purchases absorbed much of the supply of HPI stock on the AMEX and kept the price of HPI stock from falling precipitously. 2 HPI's stock split 2 for 1 in March 1992. The prices quoted for all time periods in 1993 reflect the split. ==========================================START OF PAGE 5====== b. Securities Placed in Customer Accounts During the 1993 manipulation, Baron placed its AMEX purchases of HPI stock in the firm trading account. To prevent that concentration of shares from adversely affecting Baron's net capital, Baron instructed its brokers to aggressively market HPI stock so that by the end of each trading day, most of the purchased shares were placed in customer accounts. Gilbert and Felter participated in the manipulation by placing unauthorized purchases for HPI stock in customer accounts and by aggressively marketing HPI stock with unfounded optimistic claims about HPI's short-term prospects while failing to disclose to customers that the price of HPI securities was being manipulated or that customers likely would have difficulty selling the HPI securities. During the 1993 HPI manipulation, Gilbert and Felter were encouraged to open and did open unauthorized accounts for customers whose existing accounts had been placed on 90-day restriction under Regulation T promulgated by the Federal Reserve Board. The restrictions resulted from these customers' attempts to purchase HPI stock with the proceeds of sales of other securities; when Baron failed to sell those other securities in time, the customers were unable to pay for HPI stock on a timely basis. When an account is on 90-day restriction, cash payment must be made at the time of any trade made in the account. Gilbert and Felter were encouraged to circumvent and did circumvent the restriction by opening unauthorized new accounts, called "priority" accounts, for customers that had their accounts restricted. Gilbert and Felter then transacted securities purchases on credit in the new accounts. * * * Despite Baron's buying efforts, HPI's stock price declined. By mid-June 1993, Baron had exhausted its capacity to purchase HPI stock on the AMEX and place it in customer accounts. As a result, the price of HPI securities ultimately fell precipitously. D. SALES PRACTICE ABUSES Gilbert, Weissman and Felter engaged in abusive sales practices involving HPI stock in furtherance of the HPI market manipulation and during periods other than the three manipulations discussed above. These practices included placing unauthorized trades in customer accounts and aggressively marketing HPI securities with unfounded optimistic claims while failing to disclose to customers that the securities would be difficult to sell. In addition, the respondents engaged in sales practice abuses at Baron involving other securities in which Baron made a market. ==========================================START OF PAGE 6====== In addition, Gilbert engaged in the following violative practice: he placed an unauthorized purchase of the shares in the account of one customer, and when payment became due, he sold the shares out of that customer's account and placed a purchase of the shares in the account of another customer without that customer's authorization. Gilbert continued this chain of unauthorized purchases and sell outs until he found a customer that accepted the trade. This practice enabled Gilbert to avoid making a net sale without receiving money from any of the customers. Additionally, Weissman, in at least one instance, placed a Regulation T extension request in a customer account without the customer's authorization when the customer did not pay for an unauthorized trade. This enabled him to park HPI stock in the customer's account for over two weeks without the customer's knowledge or authorization. III. OPINION A. MARKET MANIPULATION Section 9(a)(2) of the Exchange Act, which prohibits the manipulation of the prices of securities listed for trading on a national exchange, makes it unlawful for a person to engage in a series of transactions that creates actual or apparent activity or raises or depresses the stock's price when done for the purpose of inducing others to buy or sell the security. Section 9(a)(4) of the Exchange Act prohibits a person purchasing or offering to purchase or selling or offering to sell securities registered on a national securities exchange from making false or misleading statements for the purpose of inducing the purchase or sale. These manipulative practices also violate Section 10(b) and Rule 10b-5 of the Exchange Act for both exchange-listed and over- the-counter securities. Section 10(b) and Rule 10b-5, however, do not require a showing of manipulative purpose. Instead "[i]t is sufficient for the person to engage in a course of business which operates as a fraud or deceit as to the nature of the market for the security." In re Michael Batterman, 46 S.E.C. 304, 305 (1976). Accord United States v. Charnay, 537 F.2d 341, 350-51 (9th Cir. 1976). Furthermore, the manipulative conduct at issue in this case violates Section 17(a) of the Securities Act to the extent that such acts were committed in connection with the sale of or offer to sell the manipulated stocks. Gilbert, Weissman and Felter violated Section 9(a)(2) of the Exchange Act by participating in the 1991 and 1992 manipulations. Gilbert and Felter violated that section during the 1993 manipulation period as well by engaging in a series of transactions that prevented the price of HPI shares from falling. ==========================================START OF PAGE 7====== The respondents aggressively marketed HPI stock and adhered to the no-net-sale policy in furtherance of the manipulation. They failed to tell customers that the price of HPI stock was being manipulated and that the customers likely would have difficulty selling the stock. Conduct of a broker or dealer that is considered manipulative under Sections 9(a) and 10(b) also violates Section 15(c)(1) of the Exchange Act and Rule 15c1-2 promulgated thereunder with respect to securities not traded on an exchange. See, e.g., In re Barrett & Co., 9 S.E.C. 319, 328-29 (1941). Gilbert and Felter aided and abetted and caused Baron's violations of these provisions with respect to the 1993 manipulation. B. ABUSIVE SALES PRACTICES In aggressively marketing HPI securities, the Respondents made unfounded optimistic claims about the future price of HPI securities and the company's future performance. By making such irresponsible misstatements and predictions to induce customers to purchase the securities, as well as by omitting material information concerning the speculative nature of the securities and the likely difficulty the customer would have in selling, the Respondents violated Section 17(a) of the Securities Act and Sections 9(a)(4) and 10(b) of the Exchange Act and Rule 10b-5 thereunder. See In re James E. Cavallo, 43 S.E.C. Docket 779 (1989); In re Lester Kuznetz, 36 S.E.C. Docket 332 (1986). C. CREDIT VIOLATIONS Section 7(c) of the Exchange Act prohibits a broker-dealer from extending or maintaining credit or arranging for the extension or maintenance of credit to or for any customer in contravention of the regulations promulgated by the Federal Reserve Board. Federal Reserve Board Regulation T, 12 C.F.R.  220.1 et seq. (1996), imposes payment rules on securities transactions and requires a broker to obtain full cash payment for customer purchases in a cash account within one payment period; during the relevant period, this was seven business days. 12 C.F.R.  220.2(w) and 220.8(b)(1). If a customer has not paid for a stock purchase within the required time, then the broker must promptly cancel or otherwise liquidate the transaction or part of the transaction for which the customer has not made full cash payment. 12 C.F.R.  220.8(b)(4). Under certain circumstances, a broker may apply to its examining authority to extend the time for payment. Such extensions are legitimate for good-faith customer orders in which the customer has difficulty getting the payment to the broker on a timely basis, such as when a check is delayed in the mail. 12 C.F.R.  220.8(d)(1). ==========================================START OF PAGE 8====== Weissman aided and abetted and caused Baron's violations of the credit provisions by making an extension request in bad faith. Weissman placed an extension request on an unauthorized transaction -- the customer had not timely paid because he had not authorized the purchase. Gilbert and Felter aided and abetted and caused Baron's violations of the credit provisions when they circumvented the 90-day restriction requirement by opening "priority" accounts. IV. FINDINGS Based on the above, the Commission finds that: (1) Robert Gilbert and Daniel Felter willfully violated Section 17(a) of the Securities Act and Sections 9(a)(2), 9(a)(4) and 10(b) of the Exchange Act and Rule 10b-5 thereunder and aided and abetted and caused violations of Sections 7(c) and 15(c)(1) of the Exchange Act and Rule 15c1-2 thereunder and Regulation T promulgated by the Federal Reserve Board; and (2) Alan Weissman willfully violated Section 17(a) of the Securities Act and Sections 9(a)(2), 9(a)(4) and 10(b) of the Exchange Act and Rule 10b-5 thereunder and aided and abetted and caused violations of Section 7(c) of the Exchange Act and Regulation T promulgated by the Federal Reserve Board. Respondent Gilbert has submitted a sworn financial statement and other evidence and has asserted his financial inability to pay disgorgement in excess of $10,000, prejudgment interest on disgorgement or a civil penalty. The Commission has reviewed the sworn financial statement and other evidence provided by Gilbert and has determined that Gilbert does not have the financial ability to pay additional disgorgement, prejudgment interest on disgorgement or a civil penalty. V. OFFERS OF SETTLEMENT The Respondents have submitted Offers of Settlement in which they, without admitting or denying the findings herein, consent to the Commission's issuance of this Order which makes findings, as set forth above, and orders that: (A) Gilbert: (1) be barred from association with any broker, dealer, investment company, investment adviser or municipal securities dealer for a period of three years; (2) cease and desist from committing or causing any violations of Section 17(a) of the Securities Act and Sections 7(c), 9(a)(2), 9(a)(4), 10(b) and 15(c)(1) of the Exchange Act and Rules 10b-5 and 15c1-2 thereunder and Regulation T promulgated by the Federal Reserve Board; (3) disgorge $10,000 in commissions on unauthorized ==========================================START OF PAGE 9====== trades; and (4) be liable for civil penalties pursuant to Section 21B of the Exchange Act, but not imposing such civil penalties based upon Gilbert's demonstrated financial inability to pay; (B) Weissman: (1) be barred from association with any broker, dealer, investment company, investment adviser or municipal securities dealer for a period of three years; (2) cease and desist from committing or causing any violations of Section 17(a) of the Securities Act and Sections 7(c), 9(a)(2), 9(a)(4) and 10(b) of the Exchange Act and Rule 10b-5 thereunder and Regulation T promulgated by the Federal Reserve Board; (3) disgorge $1,250 in commissions on unauthorized trades and prejudgment interest thereon of $359; and (4) pay a civil penalty of $25,000 pursuant to Section 21B of the Exchange Act; and (C) Felter: (1) be suspended from association with any broker, dealer, investment company, investment adviser or municipal securities dealer for a period of twelve months; (2) cease and desist from committing or causing any violations of Section 17(a) of the Securities Act and Sections 7(c), 9(a)(2), 9(a)(4), 10(b) and 15(c)(1) of the Exchange Act and Rules 10b-5 and 15c1-2 thereunder and Regulation T promulgated by the Federal Reserve Board; (3) disgorge $3,843 in commissions on unauthorized trades plus prejudgment interest of $1,472; (d) pay a civil penalty pursuant to Section 21B of the Exchange Act of $20,000; and (e) cooperate fully with the Commission and its staff in any investigation, whether current or future, civil litigation or administrative proceeding related to the Order or any allegations therein. VI. ORDER Based on the foregoing, the Commission finds it appropriate and in the public interest to accept the Offers submitted by the Respondents and to impose the relief consented to therein. Accordingly, IT IS HEREBY ORDERED that: A. Robert Gilbert: 1. be, and hereby is, barred from association with any broker, dealer, investment company, investment adviser or municipal securities dealer for a period of three years; 2. cease and desist from committing or causing any violations of Section 17(a) of the Securities Act and Sections 7(c), 9(a)(2), 9(a)(4), 10(b) and 15(c)(1) of the Exchange Act and Rules 10b-5 and 15c1-2 thereunder and Regulation T promulgated by the Federal Reserve ==========================================START OF PAGE 10====== Board; 3. disgorge $10,000 in commissions; 4. is liable for civil penalties pursuant to Section 21B of the Exchange Act, but such penalties are not imposed based on Gilbert's demonstrated financial inability to pay. It is ordered that the Division of Enforcement ("Division") may, at any time following the entry of this Order, petition the Commission to : (a) reopen this matter to consider whether Gilbert provided inaccurate and incomplete financial information at the time such representations were made; (b) determine the amount of the civil penalty to be imposed; and (3) seek any additional remedies that the Commission would be authorized to impose in this proceeding if Gilbert's Offer of Settlement had not been accepted. No other issues shall be considered in connection with this petition other than whether the financial information provided by Gilbert was fraudulent, misleading, inaccurate or incomplete in any material respect, the amount of civil penalty and whether any additional remedies should be imposed. Gilbert may not, by way of defense to any such petition, contest the findings in this Order or the Commission's authority to impose any additional remedies that were available in the original proceeding. 5. pay postjudgment interest (calculated pursuant to 28 U.S.C.  1961) on any of the above payments that are not paid within 60 days of the entry of this Order; and 6. make all payments by U.S. postal money order, certified check, bank cashier's check, or bank money order, made payable to the Securities and Exchange Commission and transmitted by certified mail to the Comptroller, Securities and Exchange Commission, Mail Stop 2-5, 450 Fifth Street, N.W., Washington, DC 20549, under cover of a letter that identifies the respondent and the name and file number of this proceeding. A copy of the cover letter and of the form of payment shall be simultaneously transmitted to counsel for the Commission. B. Alan Weissman: 1. be, and hereby is, barred from association with any broker, dealer, investment company, investment adviser or municipal securities dealer for a period of three years; 2. cease and desist from committing or causing any ==========================================START OF PAGE 11====== violations of Section 17(a) of the Securities Act and Sections 7(c), 9(a)(2), 9(a)(4) and 10(b) of the Exchange Act and Rule 10b-5 thereunder and Regulation T promulgated by the Federal Reserve Board; 3. disgorge $1,250 in commissions and prejudgment interest thereon of $359; 4. pay a civil penalty of $25,000 pursuant to Section 21B of the Exchange Act; 5. pay postjudgment interest (calculated pursuant to 28 U.S.C.  1961) on any of the above payments that are not paid within 60 days of the entry of this Order; and 6. make all payments by U.S. postal money order, certified check, bank cashier's check, or bank money order, made payable to the Securities and Exchange Commission and transmitted by certified mail to the Comptroller, Securities and Exchange Commission, Mail Stop 2-5, 450 Fifth Street, N.W., Washington, DC 20549, under cover of a letter that identifies the respondent and the name and file number of this proceeding. A copy of the cover letter and of the form of payment shall be simultaneously transmitted to counsel for the Commission. C. Daniel Felter: 1. be, and hereby is, suspended from association with any broker, dealer, investment company, investment adviser or municipal securities dealer for a period of twelve months, effective on the second Monday following the entry of this Order. Felter shall provide to the Commission, within 30 days after the end of the twelve month suspension described above, an affidavit that he has complied fully with the sanctions described herein; 2. cease and desist from committing or causing any violations of Section 17(a) of the Securities Act and Sections 7(c), 9(a)(2), 9(a)(4), 10(b) and 15(c)(1) of the Exchange Act and Rules 10b-5 and 15c1-2 thereunder and Regulation T promulgated by the Federal Reserve Board; 3. disgorge $3,843 in commissions plus prejudgment interest thereon of $1,472; 4. pay a civil penalty of $20,000 pursuant to Section 21B of the Exchange Act; 5. cooperate fully with the Commission and its staff in ==========================================START OF PAGE 12====== any investigation, whether current or future, civil litigation or administrative proceeding related to the Order or any allegations therein; 6. pay postjudgment interest (calculated pursuant to 28 U.S.C.  1961) on any of the above payments that are not paid within 60 days of the entry of this Order; and 7. make all payments by U.S. postal money order, certified check, bank cashier's check, or bank money order, made payable to the Securities and Exchange Commission and transmitted by certified mail to the Comptroller, Securities and Exchange Commission, Mail Stop 2-5, 450 Fifth Street, N.W., Washington, DC 20549, under cover of a letter that identifies the respondent and the name and file number of this proceeding. A copy of the cover letter and of the form of payment shall be simultaneously transmitted to counsel for the Commission. By the Commission. Jonathan G. Katz Secretary