UNITED STATES OF AMERICA Before the SECURITIES AND EXCHANGE COMMISSION SECURITIES EXCHANGE ACT OF 1934 Release No. 40508 / September 30, 1998 ADMINISTRATIVE PROCEEDING File No. 3-9752 : In the Matter of : : J. DAVID GLOVER, JR., : : Respondent. : ORDER INSTITUTING PUBLIC ADMINISTRATIVE PROCEEDING PURSUANT TO SECTIONS 15(b) AND 19(h) OF THE SECURITIES EXCHANGE ACT OF 1934, MAKING FINDINGS AND IMPOSING REMEDIAL SANCTIONS I. The Securities and Exchange Commission (the "Commission") deems it appropriate and in the public interest that a public administrative proceeding be instituted pursuant to Sections 15(b) and 19(h) of the Securities Exchange Act of 1934 against J. David Glover, Jr. ("Glover"). II. In anticipation of the institution of this administrative proceeding, Glover has submitted an Offer of Settlement, 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, and without admitting or denying the Commission's findings contained herein, except the Commission's jurisdiction over him and over the subject matter of this proceeding, Glover consents to the entry of this Order Instituting Public Administrative Proceeding Pursuant to Sections 15(b) and 19(h) of the Securities Exchange Act of 1934, Making Findings and Imposing Remedial Sanctions ("Order"). III. On the basis of this Order and the Offer of Settlement of Glover, the Commission finds that: A. Glover is 41 years old and a resident of Largo, Florida. From January 1993 until July 1995, Glover was the Resident Vice President of the Las Vegas, Nevada branch office ("Las Vegas Office") of a broker-dealer registered pursuant to Section 15 of the Exchange Act. During that period, he supervised all registered representatives in the Las Vegas Office. B. Beginning in at least the middle of 1993 and continuing until September 1994, a registered representative in the Las Vegas Office conducted a massive scheme to defraud her clients by, among other things, engaging in undisclosed excessive trading in client accounts and misrepresenting the value of client accounts by preparing and mailing fictitious account statements from outside the broker-dealer's premises to conceal her fraud. As a result of her conduct, the registered representative violated Section 17(a) of the Securities Act of 1933, Section 10(b) of the Exchange Act, and Rule 10b-5 thereunder. C. Beginning in February 1994, Glover knew that the registered representative's trading strategy was being negatively impacted by rising domestic interest rates. Glover also knew that the accounts of three clients, who were of high net worth, were responsible for over half of the commissions earned by the registered representative ("three clients"). D. Glover was specifically aware in February 1994 that the accounts of the three clients were experiencing extensive losses, being traded heavily, generating large commissions, and reaching high levels of margin debt as a result of the registered representative's trading strategy. By March 1994, the accounts of the three clients had each generated year-to-date commissions ranging from in excess of $65,000 to $270,000, and losses ranging from in excess of $100,000 to $890,000. E. Pursuant to the broker-dealer's policy regarding actively traded accounts, in March and April 1994, letters were mailed to the three clients by the administrative manager of the Las Vegas Office, who was delegated this responsibility by Glover. These letters did not confirm that the accounts were losing money or any other substantive details about the accounts, including the amount of commissions generated by the accounts. F. Despite the "red flags" raised by the amounts of the commissions and losses in the accounts of the three clients, and the negative impact that rising interest rates were continuing to have on these accounts, Glover did not confirm that the three clients were aware of, or comfortable with, the performance of their accounts. During this period, the only steps Glover took in response to the activity in the three clients' accounts were confined within the broker-dealer. Specifically, Glover spoke with one of the broker-dealer's fixed income strategists regarding the registered representative's trading strategy, instructed the administrative manager of the Las Vegas Office to focus increased attention on the three clients' accounts, and met with the registered representative to encourage her to employ more conservative trading strategies and to reduce the margin debt in the three clients' accounts. G. Although Glover had earlier expressed concerns regarding the registered representative's trading strategy, in July 1994, Glover first informed his supervisor, during the supervisor's annual visit to the Las Vegas Office, of the commissions and losses in the accounts of the three clients. In response, Glover's supervisor encouraged Glover to speak with the three clients. H. Glover contacted one of the three clients by telephone in July 1994. Despite the fact that this client's account had generated year-to-date commissions in excess of $375,000 and losses in excess of $1 million, Glover did not mention in this telephone call that the account was losing money or the amount of commissions the account had generated. I. Glover also instructed the administrative manager of the Las Vegas Office to contact another of the three clients by telephone in July 1994, in Glover's absence. The administrative manager confirmed that the client knew that his account was losing money, but the administrative manager did not mention the magnitude of the losses in this account, which were in excess of $370,000, or that the account had generated year-to-date commissions in excess of $327,000. J. In August 1994, Glover spoke personally with the last of the three clients, after the client's standing weekly meeting with the registered representative in the Las Vegas Office. Glover also failed to discuss commissions or losses with this client, despite the fact that one of this client's accounts had generated year-to-date commissions in excess of $90,000 and losses in excess of $745,000. K. Although the margin debts and trading activity of the accounts of the three clients were reduced, Glover took no further steps in response to the "red flags" raised by the commissions and losses in the accounts of the three clients, even though these accounts continued to lose money and to trade actively in August and September 1994. L. As a result of Glover's activities described in paragraphs III.C. through III.K. above, the registered representative was able to continue her scheme undetected until September 1994, when the scheme was ultimately discovered by one of the registered representative's clients and reported to the broker-dealer. M. Based on the foregoing, from February 1994 until September 1994, Glover failed reasonably to supervise the registered representative with a view to preventing her violations described in paragraph III.B., within the meaning of Section 15(b)(4)(E) of the Exchange Act. IV. In view of the foregoing, it is in the public interest to impose the sanctions specified in the Offer of Settlement of Glover. Accordingly, IT IS HEREBY ORDERED THAT: A. Glover be suspended from association with any broker or dealer for a period of three months, effective on the second Monday following the entry of the Order; B. Glover be suspended from acting in any supervisory or proprietary capacity with any broker or dealer for a period of six months immediately following the period of his suspension from association; and C. Glover pay a civil penalty of $5,000 within thirty days of the entry of the Order. Such payment shall be: (1) made by United States postal money order, certified check, bank cashier's check or bank money order; (2) made 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 (d) submitted under cover letter that identifies J. David Glover, Jr. as Respondent in this matter, the case number of this matter, a copy of which cover letter and money order or check shall be sent to Lisa A. Gok, Assistant Regional Director, Securities and Exchange Commission, Pacific Regional Office, 5670 Wilshire Blvd., 11th Floor, Los Angeles, CA 90036. By the Commission. Jonathan G. Katz Secretary