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U.S. Securities and Exchange Commission

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.

SECURITIES EXCHANGE ACT OF 1934
Rel. No. 47227 / January 22, 2003

Admin. Proc. File No. 3-10428

 
In the Matter of the Applications of

JOHN MONTELBANO
59 Florence Place
Staten Island, New York 10309,

GERARD MCMAHON
83 Galloping Circle
Belford, New Jersey 07718,

and MICHAEL GALASSO, JR.
472 Cortelyou Avenue
Staten Island, New York 10312

For Review of Disciplinary Action Taken by the

NATIONAL ASSOCIATION OF SECURITIES DEALERS, INC.

ORDER DENYING MOTION FOR LEAVE TO FILE OPPOSITION

OPINION OF THE COMMISSION

    REGISTERED SECURITIES ASSOCIATION -- REVIEW OF DISCIPLINARY

    ACTION

      Violations of Exchange Act and Conduct Rules

        Manipulation
        False Investigative Testimony
        Deficient Supervision
        Excessive and Fraudulent Markups
        Bidding During Distribution

    Acting president of member firm of registered securities association and firm's research director and its trader participated in a manipulation and gave false investigative testimony, president failed to exercise proper supervision, and trader charged excessive and fraudulent markups and violated Exchange Act Rule 10b-6. Held, association's findings of violation and the sanctions it imposed are sustained in part.

APPEARANCES:

    John Montelbano, Gerard McMahon, and Michael Galasso, Jr., pro se.

    Vickie R. Olafson, for NASD Regulation, Inc.

Appeal filed: February 27, 2001
Last brief received: July 27, 2001

I.

John Montelbano, a principal of Monitor Investment Group, Inc. ("Monitor" or "the firm")1 who, beginning in April 1996, held himself out and acted as Monitor's president,2 Gerard McMahon, Monitor's research director, and Michael Galasso, Jr., the firm's trader, appeal from disciplinary action taken against them by the National Association of Securities Dealers, Inc. ("NASD"). The NASD found that applicants violated the antifraud provisions of Section 10(b) of the Securities Exchange Act of 1934 ("Exchange Act") and Rule 10b-5 thereunder,3 and NASD Conduct Rules 2120 and 2110,4 byparticipating in a manipulation of the common stock of Accessible Software, Inc. ("ASWI") during the period December 1995 through May 1996. In addition, the NASD found that applicants violated NASD Procedural Rule 82105 and Conduct Rule 2110 by giving false testimony concerning their participation in the ASWI manipulation in investigative interviews conducted by the NASD staff. The NASD also found that Montelbano violated NASD Conduct Rules 30106 and 2110 by failing to exercise proper supervision over Monitor salespersons in connection with their sales of ASWI. Moreover, the NASD found that Galasso violated (1) Section 10(b) of the Exchange Act, Rule 10b-5, and NASD Conduct Rules 2440,7 2120, and 2110 by charging customers who purchased ASWI stock excessive markups; (2) Section 10(b), Rule 10b-6,8 and NASD Conduct Rules 2120 and 2110 by bidding for ASWI stock during a distribution of that security; and (3) NASD Conduct Rules 31109 and 2110 by assisting in the creation of false customer confirmations.

The NASD separately assessed sanctions for each violation. Montelbano and McMahon each were barred from association with any NASD member in any capacity, suspended from any such association for a period of two years, and fined $90,000. Galasso was barred from association with any NASD member in any capacity, suspended from any such association for one year plus 10 business days, and fined $91,000. The fines imposed on applicants were suspended until such time as they seek re-entry into the securities industry.10 We base our findings on an independent review of the record.

II.

Background

During the relevant period, Monitor was owned and/or controlled by four individuals, William Palla, who served as Monitor's president and later its chairman, and Jeffrey Pokross, Salvatore Piazza and James Labate, none of whom had an official position with the firm. 11 Pokross was a major investor in ASWI, a development stage company engaged in computer consulting and software development. ASWI had been organized in May 1995 and, as of December 31 of that year, had suffered a net loss of $141,252.

At Pokross's suggestion, James Tagliareni, ASWI's president, decided to raise capital for his company by means of an offering of common stock pursuant to the exemption from registration provided by Rule 504 of Regulation D under the Securities Act of 1933.12 Pokross introduced Tagliareni to Palla, and Monitor handled the stock offering. The offering consisted of 575,000 shares of ASWI at $1 per share, sold in 10,000-share units. The disclosure statement, dated November 13, 1995, warned that an investment in ASWI entailed a high degree of risk. It further cautioned, among other things, that there was no assurance that the company's proposed business plan would prove successful, or that ASWI would ever be able to operate profitably.

The ASWI offering began in December 1995 and closed on April 1, 1996. The controlling persons of Monitor and their relatives and affiliates acquired 485,000 of the 535,000 shares that were sold, more than 90% of the total.13 Pokross and Labate transferred 125,000 of those shares to NASD member firm Baird Patrick & Co., Inc. for the account of DMN Capital Investment, Inc., a company that they controlled.

In December 1995, Monitor submitted an application to the NASD, signed by Palla and Galasso, seeking to quote ASWI on the Over-the-Counter Bulletin Board ("OTCBB").14 Galasso filled in a portion of the application stating that the initial quotes for ASWI would be 7/8 bid and 1 1/4 asked, based on the $1 per share price of the Regulation D offering. On May 10, 1996, the NASD cleared Monitor to quote ASWI on the OTCBB, and Monitor, the sole market maker, began trading the stock on May 13.

III.

The ASWI Manipulation

The NASD found that Palla and Pokross engineered and orchestrated the manipulation of ASWI common stock. As detailed below, Montelbano, McMahon, and Galasso all played important roles in carrying out this manipulative scheme.

A. Montelbano and McMahon

Prior to the start of ASWI trading, Montelbano and McMahon aggressively promoted the stock to Monitor's registered representatives, who passed the information on to their customers. The representatives were located at two Monitor offices in New York City: 30 Broad Street, Monitor's headquarters where Montelbano acted as manager and shared an office with McMahon, and 919 Third Avenue, the location of Galasso's trading operation.

About a week before the start of trading in ASWI, McMahon conducted a sales meeting for the representatives at 919 Third Avenue. 15 Montelbano also attended the meeting, implicitly endorsing McMahon's representations.16 Salespersons in attendance testified that McMahon was very excited and enthusiastic about ASWI. McMahon stated that he liked the company so much that he was taking his investment banking fee in ASWI stock or warrants rather than cash. He told the representatives that "what ASWI had" was "veryhush-hush", and that, in the short term, the price of ASWI would rise to the range of $15-20, and eventually would go to $100 a share. He warned the salespersons that there were very few shares available.

Two Third Avenue salesmen testified that, prior to the beginning of trading, McMahon gave them advance notice of the price at which they could sell ASWI to customers. One salesman stated that McMahon told him that ASWI would be available at a price of $6-$7. Another stated that McMahon and Palla told him before the start of trading that the price of ASWI would be $6 3/4. The record also shows that Third Avenue salespersons were offered a powerful incentive to recommend ASWI, a commission or "sales credit" of $2.25 per share.17

McMahon and Montelbano also vigorously touted ASWI stock to the registered representatives at 30 Broad Street. They told one salesman that ASWI had major contracts with IBM and the stock was going very, very high. They further stated that there would be an initial ASWI public offering at $15, and the stock would then go to $20-$40 per share. They warned the salesman that there was only a limited number of ASWI shares left, and told him that he was very lucky that shares were being allotted to him. They also told the salesman that the price of ASWI to his customers would be $8-$8 1/4, and that he would be earning $1 a share.18

Another Broad Street salesman stated that he was first alerted to ASWI by Montelbano, who told him about the company and stated that there was only a limited number of shares available. The salesman asserted that either Montelbano or McMahon told him that ASWI's software product "outdated" that of Tivoli Systems, another Tagliareni company that had been sold to IBM for more than $700 million.

Other Broad Street salesmen stated that Montelbano and McMahon were "building [ASWI] up", telling them that ASWI could possibly be another IBM/Tivoli, that the stock was going to make money for everybody, and that their compensation would be between 5/8 and $1 per share. Salesmen were told by Montelbano that other firms would be trading ASWI, that the stock would be offered to customers at a priceof $6 3/8, and that there would be an ASWI secondary offering at $12-$15 per share.

Trading in ASWI began at 10:26 a.m. on the morning of May 13, 1996, with Galasso posting initial quotes of 7/8 bid, 1 1/4 asked. One Broad Street salesman stated that, when he arrived at the office at about 9:00 a.m. on that day, he (like the other salespersons) was told that the opening quote for ASWI would be about 6 3/8, and was directed to enter that figure as a limit price on his order tickets. The salesman stated that Montelbano and another firm official told all the salespersons to turn off their Quotron machines, and that the two officials patrolled the office to make sure that salespersons complied with that order. Thus salespersons were prevented from learning that initial ASWI quotations were far below the prices they had been directed to enter on customer order tickets.

B. Galasso

As noted above, Galasso began trading ASWI on May 13, 1996, with quotes of 7/8 bid, 1 1/4 asked. In a little less than two hours, he raised his ASWI quotations to 6 bid, 9 3/8 asked. The ostensible basis for this extraordinary rise in price was three orders that Monitor received from other broker-dealers. However, as the NASD found and as can readily be inferred from the circumstances detailed below, all of these orders had been pre-arranged by Monitor.

The first order that Galasso filled, for 2,000 shares of ASWI, was placed with the brokerage firm Monarch Financial Corp. of America by Leonard and Marie DiFazio, Galasso's grandparents, a relationship that, as indicated below, Galasso subsequently sought to conceal from the NASD. The second order, which was partially filled by Monitor in the amount of 2,000 shares,19 was placed with Ernst & Company by Raymond McKinstry of Astaire & Partners, a London brokerage firm. McKinstry had close ties to Pokross. Anne Magelinski, an Ernst trader who had a business and social relationship with Pokross, testified that Pokross introduced her to McKinstry, who then opened an Astaire account serviced by her. Pokross also introduced McKinstry to Montelbano and McMahon and, at Pokross's suggestion, McKinstry called them to open an Astaire account at Monitor.

Magelinski stated that Galasso made ASWI "difficult to buy". He doled out ASWI stock in 500-share increments, his quote requirement, raising the price for each additional 500 shares purchased. Because McKinstry had placed a limit order, Magelinski was forced to contactMcKinstry with respect to each price increase to determine if he was willing to pay the higher price demanded by Galasso. McKinstry kept raising Astaire's limit price until 2,000 shares of ASWI had been purchased.20

The third order received by Galasso was a market order for 5,000 ASWI shares placed by John R. Serpico with Dean Witter & Co., Inc. Serpico was a customer of Monitor salesman Patrick Giglio, 21 and had been Giglio's accountant for 18 years. Serpico's order was partially filled in the amount of 3,000 shares. As with Magelinski, Galasso told Dean Witter trader Richard Dubronsky that he could buy only 500 shares of ASWI (of the 5000-share order) at the quoted level. Dubronsky purchased 2,500 more shares in 500-share increments at increasing prices, buying the last 500 shares at 12:25 p.m. at a price of $9 3/8. Later in the day, Serpico purchased 1,000 additional shares of ASWI from Giglio at a price of $6 1/2.

While Galasso was running up the price of ASWI on the basis of the pre-arranged orders, Monitor's salespersons were busy selling ASWI to their customers at pre-determined price levels that included the salespersons' compensation. Monitor had started the day without any ASWI stock in inventory, but Galasso was not concerned. Despite the fact that he doled out ASWI stock to Magelinski and Dubronsky in 500-share increments, Galasso admittedly had an arrangement with John D'Angelo, a Baird Patrick trader, to sell Galasso all the stock he needed. Galasso acknowledged that he was confident that he could get the necessary stock at an appropriate price. Indeed, he had every reason to be confident. Pokross called D'Angelo throughout the day, directing him to sell ASWI stock to Monitor from the DMN account in which, as noted above, Pokross and Labate had placed 125,000 shares of ASWI that they had acquired in the Regulation D offering.22 Thus the DMN account served as a conduit through which the controlling persons of Monitor sold ASWI stock that they already owned to the firm that they controlled, with an immediate resale to Monitor's customers.

After Galasso had finished driving up the price of ASWI, he began moving the bid price of ASWI down in order to acquire a cheap inventory to fill retail customer orders in the pre-determined $6-$7 price range. Palla instructed Galasso that he must buy the stock at a price low enough to include the salespersons' promised compensation in the retail sales price. In less than half an hour on the afternoon of May 13, Galasso lowered the bid price of ASWI from 6 1/8 to 3 7/8, and purchased 89,500 shares of the stock from the DMN account at Baird Patrick at decreasing prices that mirrored his bids. He executed 74 customer orders after the close of business and, having run out of inventory, purchased additional stock from the DMN account on the morning of May 14, executing an additional 34 customer orders. In the two days May 13 and 14, Monitor sold a total of 120,600 shares of ASWI to its customers, mostly at prices of $6-$7 per share that included the salespersons' promised compensation.

C. Analysis

The price leadership that results from exclusive control of the supply of a security empowers a broker-dealer to set prices arbitrarily. If that power is abused, the result is a manipulation.23 Here Monitor and its controlling persons controlled the supply of ASWI and, on May 13 and 14, Monitor controlled the market for that security to such an extent that there were no trades away from the firm and no independent competitive market. Monitor deliberately abused the control that it exercised over the supply of ASWI and its market price. The upward and downward gyration in ASWI's price had nothing to do with market forces. Instead, it was the paradigm of a "stage-managed performance."24 Montelbano, McMahon, and Galasso all had leading roles in that performance.

Shortly before trading in ASWI began, Montelbano and McMahon made an intensive effort to get Monitor's salespersons to sell ASWI to their customers. ASWI was a fledgling company that had never made a profit. McMahon admitted that ASWI "didn't have any real revenues and . . . wasn't ready to go public." Yet, without any reasonable basis, applicants energized Monitor's sales force with extravagantrepresentations, inherently fraudulent price predictions,25 and the promise of lucrative sales credits. Applicants knew in advance the price range at which ASWI stock would be pegged for sale to the public, and they primed the sales force to sell the highly speculative stock at that inflated level. Montelbano subsequently took pains to conceal from the sales force the substantially lower quotes that were initially entered by Galasso by ordering salespersons to turn off their Quotron machines and making certain they did so.

Galasso placed the quotations and effected the buy and sell orders that arbitrarily moved the price of ASWI stock up and down. Galasso knew of ASWI's stock offering at $1 per share and based his opening quotations on that price. He then used pre-arranged transactions to boost ASWI's offering price from 1 1/4 to 9 3/8 in the space of less than two hours, doling out the stock in increments at higher and higher levels although he knew that a ready supply was available. Thereafter, in order to acquire an ASWI inventory at prices that would allow retail customer orders to be filled at pre-determined levels that included the salespersons' promised compensation, he lowered his ASWI bid from 6 1/8 to 3 7/8 in less than half an hour, and purchased the necessary stock at the desired prices.

We conclude that applicants were willing participants in a manipulative scheme, and acted with the requisite scienter.

Montelbano and McMahon deny that they participated in the ASWI manipulation. They assert that they did not provide Monitor salespersons with misleading information, did not make price projections, and did not even recommend ASWI stock. In support of their position, they launch a wide-ranging attack on the testimony of the representatives who gave evidence against them, claiming, as detailed below, that none of that testimony can be credited.

Applicants point out minor differences in the salespersons' testimony, and that the investigative testimony of certain representatives on which the NASD relied was hearsay. They further note that two salesmen (who were respondents in this proceeding and were charged, among other things, with misstatements to the NASD)defaulted and were sanctioned by the Association,26 and that certain representatives were indicted in criminal proceedings.27 Applicants further claim that one salesman who gave investigative testimony "set up the scam";28 that the witnesses against them "feared for their safety if they didn't go along with the program"; and that the witnesses were biased.

We have given careful consideration to the many objections raised with respect to the salesmen's testimony. However, we do not believe that applicants' arguments provide a basis for exonerating them. A wealth of evidence (both from witnesses who appeared at the hearing and others whose on-the-record investigative testimony was introduced into evidence) paints a consistent and convincing picture of the events at issue. The evidence clearly demonstrates that Montelbano and McMahon energized the sales force to sell speculative ASWI stock at inflated price levels.

With respect to the witnesses who testified at the hearing, it is well settled that credibility determinations of an initial fact-finder, which are based on hearing the witnesses' testimony and observing their demeanor, are entitled to considerable weight and deference, and can be overcome only where the record contains substantial evidence for doing so.29 Here the NASD Hearing Panel credited the salesmen's testimony and rejected the denials of Montelbano and McMahon. Particularly in light of the number of salesmen who testified and the consistency of their testimony, we find no basis for disagreement with the Panel's assessment.

As for those witnesses who did not appear at the hearing, we have often stated that hearsay may be admitted into evidence and, in appropriate cases, may form the basis for findings of fact. 30 Such is the case here. The evidence in question is associated with a number of factors that establish the reliability and probative value of hearsay evidence.31 First, the evidence consists of sworn statements in the form of on-the-record investigative testimony. Second, contrary to applicants' assertions, there is no evidence that these witnesses (or for that matter those who testified at the hearing) were biased against applicants or motivated by fear for their safety.32 Finally, we note that the investigative statements of the various salesmen are mutually corroborative and consistent with the testimony of the salesmen who testified at the hearing. Under the circumstances, we find the investigative testimony reliable and probative.

Montelbano and McMahon further argue that they did not act with scienter. They contend that there is insufficient evidence of any intent on their part to deceive Monitor's salespersons in order to further the firm's manipulative scheme. We cannot agree. Applicants played an essential role in that scheme. They aggressively promoted speculative ASWI stock when they had no reasonable basis for doing so. They made fraudulent price predictions and other misstatements to Monitor's representatives who passed the information on to their customers. They knew in advance and relayed to salespersons the inflated price level at which ASWI would be sold to the public. And their sales campaign was timed to coincide with the start of ASWI trading.

Applicants assert that they were unaware of certain aspects of Monitor's scheme such as the purchase of ASWI stock by Monitor's controlling persons in the Regulation D offering. Whether or not applicants were familiar with every facet of the scheme is immaterial. They were fully cognizant of the scheme's essentials and their own role in it. Moreover, they did all they could to ensure its success.

Montelbano and McMahon also contend that, without "clear evidence" of their motive, the findings against them must be set aside. This contention lacks merit. Since, as we have determined, applicants participated in the ASWI scheme with the requisite scienter, their personal motivation is irrelevant.33 In any case, it appears that applicants followed the orders of Monitor's controlling persons and were suitably rewarded. Following themanipulation, Montelbano received a raise and was officially named president of Monitor, and McMahon became the firm's vice chairman.

Galasso seeks to shift all responsibility for the ASWI manipulation to others. He asserts that D'Angelo's trades, directed by Pokross, caused the rise and fall in ASWI's price. He further argues that Magelinski and Dubronsky were "the true culprits" who, together with their clients, shared responsibility for ASWI's price movement. He also contends that he "unknowingly" followed Palla's orders, and that the NASD is to blame for allowing ASWI to trade with only one market maker.

Although others contributed to the success of the manipulative scheme, Galasso played a central and crucial role. He raised ASWI's quoted offering price from 1 1/4 to 9 3/8 in less than two hours, and doled out ASWI stock in pre-arranged trades (with his grandparents and others) until the stock rose to that level. He later moved his ASWI bid price down precipitously in order to acquire an inventory of ASWI stock at a low price.

The fact that Palla may have directed Galasso's trading does not absolve Galasso of responsibility. A trader's manipulative activity cannot be excused because it was dictated by others. 34 Moreover, in our view, Galasso was not "unknowingly" following orders but knew what he was doing. As for Galasso's attempt to place responsibility on the NASD, there is no restriction against a single market maker trading an OTCBB stock. 35 While an NASD member executing a customer order in a non-Nasdaq security is normally required to obtain quotations from three dealers, the NASD's rule provides that, if there are less than three dealers acting as a market maker, it is sufficient to contact the lesser number. 36 In any event, we have repeatedly pointed out that the responsibility for compliance with applicable requirements cannot be shifted to regulatory authorities.37

Galasso further contends that his trading was proper. He argues that, on the first day of trading, Monitor did not have any ASWIstock in inventory, did not know where to obtain any stock, and did not get any response to its bids. He argues that Monitor was at risk when it sold stock to other broker-dealers but nevertheless honored its 500-share "tier size." These contentions are disingenuous. As noted above, Galasso admittedly had an agreement with D'Angelo to supply all the ASWI stock that was needed. His carefully stage-managed trading entailed no risk to Monitor.

We accordingly sustain the NASD's findings that applicants violated the Exchange Act's antifraud provisions and NASD rules by participating in the manipulation of ASWI stock. 

IV.

Deficient Supervision

As noted above, the NASD found that Montelbano not only played a key role in furthering the ASWI manipulation, but also was guilty of deficient supervision with respect to the conduct of Monitor salespersons in selling ASWI stock to their customers. Montelbano argues that he was not Monitor's president and, in any event, was not responsible for supervising Monitor's salespersons and did not exercise any supervisory authority over them. We do not agree. Whether or not Montelbano was officially Monitor's president, he held himself out and acted in that capacity. In doing so, he assumed supervisory authority over the firm's personnel. We further note that Montelbano served as manager of Monitor's Broad Street office. Moreover, whatever Montelbano's prior responsibilities may have been with respect to Monitor's salespersons, he acted in a supervisory capacity in conducting (together with McMahon) the ASWI sales campaign, energizing Monitor's sales force to sell that stock to their customers.

Notwithstanding suggestions to the contrary in some prior decisions, R.A. Johnson & Company, Inc., 48 S.E.C. 943, 947 n.14 (1988); Fox Securities Company, Inc., 45 S.E.C. 377, 382-383 (1973); Adolph D. Silverman, 45 S.E.C. 328, 331 (1973), we do not believe there is any inherent inconsistency in finding a respondent both substantively responsible and a deficient supervisor with respect to the same misconduct. Participating in misconduct is itself a supervisory failure. In any event, we believe that Montelbano engaged in separate supervisory failures as well as primary violations.38 A supervisor is charged withresponsibility for ensuring that persons subject to his or her oversight are complying with the law. Where, as here, a supervisor, whose duty it is to prevent misconduct by subordinates, actually fosters and encourages that misconduct, it constitutes an egregious breach of that responsibility, an abdication of the proper exercise of supervisory authority. Directing others in manipulative conduct is the antithesis of responsible supervision.

We accordingly sustain the NASD's findings of violation.

V.

Additional Violations by Galasso

A. Rule 10b-6

During the relevant period, Exchange Act Rule 10b-6 prohibited any person engaged in the distribution of a security to bid for or purchase that security until that person had completed his participation in the distribution. 39 The rule was designed, among other things, to prevent persons participating in a distribution from artificially conditioning the market in order to facilitate the distribution. 40

As used in Rule 10b-6, the term "distribution" meant "an offering of securities, whether or not subject to registration under the Securities Act of 1933, that is distinguished from ordinarytrading transactions by the magnitude of the offering and the presence of special selling efforts and selling methods." 41

On May 13 and 14, 1996, Monitor sold 120,600 shares of ASWI to its retail customers. Those shares constituted 22.5% of ASWI's publicly tradeable float and 47.8% of ASWI's trading volume on those days. 42 In addition, as noted above, Monitor's sales force was mobilized to sell ASWI stock to the firm's customers, and salespersons were promised substantial compensation for doing so. It is clear that, by virtue of the magnitude of the ASWI offering and the special selling efforts employed, Monitor's retail sales of ASWI on the days in question constituted a distribution within the meaning of Rule 10b-6. 43

During Monitor's distribution of ASWI, Galasso continuously placed bids for the stock on the OTCBB. Assuming, without deciding, that a finding of scienter is required,44 it is clear that Galasso acted with the requisite scienter. We accordingly sustain the NASD's findings of violation.

B. Excessive Markups

The prices charged retail customers by a broker-dealer must be reasonably related to the prevailing market price. Typically, that price is the current inter-dealer price, i.e., the price at which dealers trade with one another. However, when an integrated dealer such as Monitor so dominates and controls the market for a security that it can effectively set wholesale prices, the best evidence ofmarket price is the dealer's contemporaneous cost in acquiring the security.45

On May 13 and 14, 1996, Monitor exercised total domination and control of the market for ASWI stock. Thus, as the NASD found, the best evidence of ASWI's market price was Monitor's cost in acquiring ASWI from Baird Patrick. Based on that cost, Monitor charged markups ranging from 6.45% to 74.19% in 106 retail transactions. In 105 of those transactions, the markups exceeded 10%, with markups in 95 of the transactions ranging from 27.5% to 74.19%. We have repeatedly held that, at the least, markups of more than 10% above the prevailing market price are fraudulent.46

A trader is obligated to know the standards for determining fair prices,47 and is responsible for seeing to it that fair prices are charged.48 Galasso was aware that Monitor dominated and controlled the market for ASWI, and knew the prices that Monitor paid Baird Patrick and the prices it charged retail customers. Galasso admitted that he "might have" expressed the view that Monitor's markups were excessive. We find that Galasso acted with the requisite scienter, and we sustain the NASD's findings against him in connection with the excessive markups charged by his firm.49

VI.

False Investigative Testimony

The NASD's complaint charged that, during their on-the-record interviews in the NASD's investigation of this matter, applicants gave false responses to questions by the NASD's staff. The facts are as follows.

A. McMahon and Montelbano

1. During his investigative interview, McMahon claimed that he first heard of ASWI at a March 1996 meeting when Pokross introduced him to Tagliareni. However, Tagliareni testified that he was introduced to McMahon in September 1995, a few weeks before McMahon joined Monitor. Tagliareni stated that McMahon was introduced "as a research analyst [who] was going to clean [ASWI's] materials up." McMahon was subsequently asked by Pokross and Palla to edit ASWI's business plan in preparation for a possible public offering.

2. McMahon stated during the NASD's investigation that he never discussed ASWI with Montelbano except to remark that Tagliareni was "a nice guy." However, Montelbano testified that McMahon introduced him to Tagliareni in November 1995, told him that Monitor might be doing business with Tagliareni, and gave Montelbano ASWI's business plan to review. Subsequently, McMahon, after speaking with Tagliareni, told Montelbano that ASWI was going to have a Rule 504 offering instead of an initial public offering.

3. In their investigative testimony, both McMahon and Montelbano denied speaking to Monitor's salespersons about ASWI stock. As we have noted, their denials were contradicted by many salesman witnesses.50

The NASD credited the testimony contradicting the statements made by McMahon and Montelbano. Applicants do not question the testimony of Tagliareni and Montelbano on which the NASD relied, although they claim that some of Montelbano's statements were taken out of context. They do argue once again that the salespersons' testimony cannot be credited, a contention we have already rejected. We accordingly sustain the NASD's findings of violation against McMahon and Montelbano, with the exceptions noted above.51

B. Galasso

At a June 1996 on-the-record interview, Galasso was asked if he knew the persons who had made the first purchase of ASWI on May 13, 1996 through Monarch Financial. He was first questioned about Marie Sacca DiFazio and then about Leonard DiFazio. Galasso denied that he knew either one. He then asked to speak with counsel and, after a 25-minute recess, admitted that the DiFazios were his grandparents.

Noting that he was questioned first about Marie DiFazio, Galasso claims that "he clearly did not know who this person was." He states that he realized whom the NASD was questioning him about only when he was asked if he knew Leonard DiFazio, at which point he consulted with counsel. Galasso told a different story at the hearing. When asked by a Panel member why he had told the NASD staff that he didn't know the DiFazios, Galasso stated:

I guess it is a normal human reaction. They were my grandparents. I didn't want the NASD to call them and start asking them questions because they didn't do anything wrong. That's, basically, it.

In light of the foregoing, we deny Galasso's motion to dismiss the charge of false investigative testimony, and sustain the NASD's findings of violation.52

VII.

Other Matters

Applicants make a number of evidentiary and procedural arguments and motions designed to demonstrate or remedy asserted defects in the NASD proceeding. As described below, we reject them.

1. Galasso has filed numerous motions seeking to introduce voluminous materials into evidence. In addition, he has attached additional documents to other motions, and he, Montelbano, and McMahon have attached still more documents to their briefs. Rule 452 of our Rules of Practice53 requires that a party seeking to introduce new evidence must "show with particularity that such additional evidence is material and that there were reasonable grounds for failure to adduce such evidence previously." Some of the additional materials are already in evidence. As for the rest, applicants have failed to make the showing required by Rule 452. Accordingly, Galasso's motions to adduce additional evidence are denied, and the materials that applicants have attached to other motions and briefs are excluded from the evidentiary record.

2. Galasso also has filed three motions asking us to compel the NASD to produce various documents.

a. At the outset of the hearings, the NASD staff, pursuant to Procedural Rule 9253 which requires the production of witness statements, supplied Galasso and other respondents with correspondence, notes and memoranda of four NASD examiners who subsequently testified in this proceeding. Galasso now asks us to obtain certain documents referenced in those materials, and additional memoranda and handwritten notes that may have been created by these and other NASD examiners. He also notes that the documents supplied by the NASD were not Bates-stamped, and asks us to obtain "all such unstamped documents."

Galasso's request is untimely. He offers no explanation of the reason he did not request the materials he seeks from the NASD. Nor has he shown that any of the requested documents, if they exist, are material. Galasso is not entitled to go on a fishing expedition in the hope that something might turn up to aid his defense.54 Wefind no basis for his claim that the NASD has "withheld, buried, and tampered with evidence . . . to the disadvantage of the respondents."

b. Galasso asserts that the Bates-stamp numbers on two staff memoranda supplied to him at the hearing are duplicative of the numbers on certain transcripts of investigative testimony. He claims that this circumstance somehow indicates that many documents were not properly made available to him.55 He also claims that the gap in numbering between the two memoranda shows that the NASD improperly withheld many documents. He asks us to obtain the missing documents from the NASD.

Galasso has not established that there are any "missing documents" or that, if there are, they are material to his defense. In response to Galasso's motion below seeking the production of such documents, the NASD staff explained its Bates-stamp process and shed light on any overlap or gap in numbering. According to the staff, several NASD employees assisted in the process of Bates-stamping over 26,000 pages of documents, and each employee used a different Bates-stamp machine and began stamping at a different number in an effort to avoid overlaps. After completing this process, the staff reviewed the documents and withheld certain of them that were exempt from discovery pursuant to NASD Procedural Rule 9251(b), such as attorney work product.

In denying Galasso's discovery motion, the Hearing Officer stated as follows:

[The staff] has [repeatedly] explained . . . that all of the documents that [it] is required to produce have been produced to respondents or [their] counsel or at least made available for inspection and copying . . . [The staff] has more than adequately explained the problems with the Bates numbering system, and [Galasso has] not offered any evidence that documents are being improperly withheld or in fact that there are missing documents.

We find no reason to disagree with the Hearing Officer's assessment.

c. An NASD hearing officer (not the hearing officer who presided at the hearing in this matter) issued a decision makingfindings and imposing sanctions on the respondents who defaulted in this proceeding ("the default decision"). Galasso asks that we obtain from the NASD the name of an individual who is referred to but not identified in that decision, and all "work products, jenks materials, and discovery" that led to the decision.

The default decision was issued three months prior to the decision of the NASD's National Adjudicatory Council in this matter. Yet the record does not show that Galasso made any effort to obtain from the NASD the materials he now requests. Nor has Galasso made any showing that this information (even assuming it is otherwise subject to discovery) is material. Rather, it appears that Galasso's request is nothing more than another fishing expedition.

In light of the foregoing, we deny Galasso's motions asking us to compel the NASD to produce documents and other information.

3. Applicants contend that the NASD staff improperly sought to prevent Palla and Pokross from testifying on the ground that their testimony was not material. In fact, in opposing applicants' motion requesting that the NASD compel these individuals to appear, the staff pointed out that applicants had failed to make the required showing of a good faith effort to obtain the testimony by other means.56 In any event, the Hearing Panel determined that it wanted to hear the testimony of Palla and Pokross, and the Hearing Officer directed the staff to order them to appear pursuant to NASD Rule 8210.57 However, Palla and Pokross chose to disregard the NASD's summons.58

4. Applicants contend that the Hearing Officer and the NASD's prosecuting attorney made a concerted and successful effort to keep Dennis McCarthy, a former NASD attorney, from testifying. McCarthyleft the Association prior to the start of hearings in this matter, and joined an NASD member firm.

According to testimony by Galasso, McCarthy told him that the charges against him could be drastically reduced "if [Galasso] could redirect [his] testimony to point fingers at certain people." In response to a request for McCarthy's testimony, the Hearing Officer initially stated, mistakenly, that the Association had no authority to compel McCarthy to testify, but then told respondents that they could file written applications requesting the NASD to obtain McCarthy's appearance. 59 The NASD's prosecuting attorney supplied the name of McCarthy's employer and his city of employment, but stated that she believed McCarthy was away on his honeymoon and unavailable.

We do not consider that these facts demonstrate any impropriety on the part of the Hearing Officer or the prosecuting attorney. Moreover, the record does not show, and applicants do not claim, that they ever filed an application requesting the NASD to obtain McCarthy's testimony, or otherwise tried to secure his appearance. In any event, we are unable to conclude that applicants were prejudiced by McCarthy's absence. No claim is made that McCarthy influenced Galasso's testimony or the testimony of any other witness.60

5. Galasso seeks to amend the decision of the NASD Hearing Panel. The facts are as follows.

The Hearing Panel exonerated respondent Todd Nejaime of lying when he denied in an on-the-record interview that he knew Tagliareni. In dismissing this charge, the Panel found it "more likely than not" that the NASD examiner who disputed Nejaime's denial confused Nejaime with Galasso. Galasso argues that the examiner was not confused and that the Panel was mistaken. He asks that his name be stricken from the Panel's findings with respect to Nejaime, and asserts that the Panel's action is evidence of an NASD conspiracy to "convict" him.

The NASD's findings with respect to Nejaime are not before us.61 Thus we have no authority to alter them, even assuming the Panel was in error. We note, however, that Galasso was not charged with lying with respect to Tagliareni, and was not prejudiced by the Panel's finding. Galasso's claim of an NASD "conspiracy" has no foundation in the record. We accordingly deny Galasso's motion.62

VIII.

Montelbano and McMahon argue that the sanctions imposed on them are excessive and oppressive, and out of line with those in other cases.

For their roles in the ASWI manipulation, Montelbano, McMahon and Galasso were barred from association with any member firm in any capacity and fined $40,000, $50,000, and $50,000, respectively. Wehave made it clear that there are few, if any, more serious offenses than manipulation. Such misconduct "is a fraud perpetrated not merely on particular customers but on the entire market."63 It "attacks the very foundation and integrity of the free market system."64 Applicants have refused to accept any responsibility for their actions, and have sought to place the blame on others. We agree with the NASD that, even if their activities were directed by other persons, applicants were willing participants in the ASWI manipulation, and played key roles in ensuring its success.

We have consistently held that appropriate sanctions depend on the particular facts and circumstances of each case, and cannot be determined by comparison with the action taken in other cases.65 In view of applicants' egregious misconduct, we do not find the sanctions imposed for their manipulative activities excessive or oppressive. As the NASD concluded, applicants have demonstrated that they pose a substantial threat to public investors. We also consider the sanctions imposed on Montelbano for deficient supervision fully warranted.66 As described above, Montelbano was guilty of serious supervisory failures.

Although we have set aside a few of the NASD's findings of false investigative testimony by Montelbano and McMahon,67 we do not find that the sanctions imposed on them for that offense are excessive.68 Similarly, we do not find the very lenient sanctions imposed on Galasso for this violation to be excessive. 69 Applicants sought to conceal their involvement in the ASWI manipulation. Failures torespond truthfully to NASD questioning undermine the NASD's ability to carry out its self-regulatory functions.70

The sanctions imposed on Galasso for charging excessive markups and violating Rule 10b-6 are fully warranted.71 As noted above, almost all of the markups at issue were grossly excessive. Galasso was fully aware that Monitor's customers were being substantially overcharged. His actions provide additional evidence of his marked insensitivity to his obligation of fair dealing, and additional support for the conclusion that he presents a serious threat to investors and should be excluded from the securities industry. Galasso's Rule 10b-6 violations were part of his manipulative conduct, the serious nature of which has already been discussed.72

An appropriate order will issue.73

By the Commission (Chairman PITT and Commissioners GLASSMAN, ATKINS and CAMPOS); Commissioner GOLDSCHMID not participating.

Jonathan G. Katz
Secretary

 


UNITED STATES OF AMERICA
before the
SECURITIES AND EXCHANGE COMMISSION

SECURITIES EXCHANGE ACT OF 1934
Rel. No. 47227 / January 22, 2003

Admin. Proc. File No. 3-10428

 
In the Matter of the Applications of

JOHN MONTELBANO
59 Florence Place
Staten Island, New York 10309,

GERARD MCMAHON
83 Galloping Circle
Belford, New Jersey 07718,

and MICHAEL GALASSO, JR.
472 Cortelyou Avenue
Staten Island, New York 10312

For Review of Disciplinary Action Taken by the


ORDER DENYING MOTION FOR LEAVE TO FILE OPPOSITION

ORDER MODIFYING DISCIPLINARY ACTION TAKEN BY REGISTERED SECURITIES ASSOCIATION

On the basis of the Commission's opinion issued this day, it is

ORDERED that the sanctions imposed by the National Association of Securities Dealers, Inc. (NASD) on John Montelbano, Gerard McMahon and Michael Galasso, Jr. for participating in a manipulation of the common stock of Accessible Software, Inc. and giving false investigative testimony, the sanctions imposed on Montelbano for deficient supervision, the sanctions imposed on Galasso for charging excessive markups and violating Rule 10b-6 under the Securities Exchange Act of 1934, and the NASD's assessment of costs be, and they hereby are, sustained; and it is further

ORDERED that the sanctions imposed on Galasso for assisting in the creation of false customer confirmations be, and they hereby are, set aside.

By the Commission.

Jonathan G. Katz
Secretary

Footnotes

1 Monitor, formerly a member firm of the National Association of Securities Dealers, Inc. ("NASD"), was a respondent in this proceeding. The firm defaulted and was expelled from NASD membership.

2 According to Montelbano, he was directed to act as president by William Palla, an owner and the real president of Monitor. Montelbano asserts that he did not officially become Monitor's president until June 1996.

3 15 U.S.C. § 78j(b) and 17 C.F.R. § 240.10b-5.

4 Conduct Rule 2120 prohibits the use of any manipulative, deceptive or fraudulent device or contrivance in the purchase or sale of securities. Conduct Rule 2110 mandates adherence to high standards of commercial honor and just and equitableprinciples of trade.

5 Procedural Rule 8210 requires persons associated with member firms to report orally with respect to any matter involved in an NASD investigation.

6 Conduct Rule 3010 requires that supervision of persons associated with member firms be reasonably designed to achieve compliance with applicable requirements.

7 Conduct Rule 2440 requires that customers be charged fair prices in principal transactions.

8 17 C.F.R. § 240.10b-6 (1996).

9 Conduct Rule 3110 requires that a member firm's books and records comply with applicable requirements.

10 The NASD also assessed costs against applicants, jointly and severally.

11 Palla, Pokross and Piazza were respondents in this proceeding and defaulted. Palla and Pokross were barred and fined $350,000 and $300,000, respectively. The proceedings against Piazza were dismissed due to insufficient evidence of his involvement in the charged violations. Labate was not named as a respondent.

12 17 C.F.R. § 230.504.

13 The 485,000-share figure includes 75,000 shares that converted into equity a $75,000 bridge loan that ASWI had received in July 1995 from controlling persons of Monitor.

14 The OTCBB is a quotation medium that publishes bid and asked quotations of over-the-counter stocks that do not meet the minimum net worth and other requirements of the Nasdaq Stock Market.

15 Although McMahon denies that he ever held such a meeting, five salesmen testified that it took place.

16 See Jay Houston Meadows, 52 S.E.C. 778, 784 (1996), aff'd, 119 F.3d 1219 (5th Cir. 1997).

17 In fact, the salespersons did not receive that amount. Following their sales of ASWI stock, Palla reduced the amount of their compensation.

18 There is no explanation in the record as to why Broad Street representatives were offered less compensation than Third Avenue representatives.

19 There is conflicting evidence in the record as to whether the full order was for 5,000 or 10,000 shares.

20 Magelinski stated that, at the end of the trading day, McKinstry told her that she should buy 500 of the 2,000 shares she had purchased for Astaire, telling her that ASWI was going to do very well. Magelinski accordingly bought the 500 shares for herself.

21 Giglio was a respondent in this proceeding. He did not appeal from the NASD Hearing Panel decision which barred him, suspended him for two years, and fined him $80,000.

22 See text at note 13, supra.

23 Michael J. Markowski, Securities Exchange Act Release No. 43259 (September 7, 2000), 73 SEC Docket 625, 629, aff'd, 274 F.3d 525 (D.C. Cir. 2001), cert. denied, 123 S. Ct. 96 (2002); Pagel, Inc., 48 S.E.C. 223, 226 (1985), aff'd sub nom. Pagel, Inc. v. SEC, 803 F.2d 942 (8th Cir. 1986).

24 Edward J. Mawod & Co., 46 S.E.C. 865, 872 (1977), aff'd, 591 F.2d 588 (10th Cir. 1979).

25 See C. James Padgett, 52 S.E.C. 1257, 1265 (1997), aff'd sub nom. Sullivan v. SEC, 159 F.3d 637 (D.C. Cir. 1998) (Table), cert. denied, 525 U.S. 1070 (1999); Lester Kuznetz, 48 S.E.C. 551, 553 (1986), aff'd, 828 F.2d 844 (D.C. Cir. 1987) (Table).

26 Applicants state that one of those salesmen, Scott Herkert, was sanctioned for failing to testify truthfully in his investigative testimony. In fact, Herkert was exonerated on that charge. Applicants further assert that even the NASD's National Adjudicatory Council ("NAC") did not find the testimony of the second salesman, Edward Telmany, to be probative "on many issues." In fact, the NAC merely noted that Telmany initially testified that McMahon had allocated 4,000 shares of ASWI to him, but later stated that he thought it was Montelbano who had done so. In light of Telmany's uncertainty, the NAC stated that it would not accept the NASD Hearing Panel's finding that it was McMahon who made the allocation. The NASD's finding that Telmany gave untruthful investigative testimony was based on his denial that he told customers that ASWI was an initial public offering, which was contradicted by one customer.

27 The criminal proceedings do not involve the issues in this case.

28 Contrary to applicants' assertion, the record does not show that applicants ever asked the NASD, pursuant to its rules, to require this salesman to testify at the hearing.

29 Keith Springer, Securities Exchange Act Release No. 45439 (February 13, 2002), 76 SEC Docket 2726, 2734, and the authorities cited there.

30 Id. at 2735, and the authorities cited there.

31 See Charles D. Tom, 50 S.E.C. 1142, 1145 (1992).

32 Applicants point to the investigative testimony of one Monitor salesman who stated that he and another salesman were physically assaulted because they failed to push "house stocks." However, there is no evidence that this incident either influenced the witnesses who testified or (contrary to applicants' further claim) prevented any witness from testifying on applicants' behalf.

33 See SEC v. U.S. Environmental, 155 F.3d 107, 112 (2d Cir. 1998).

34 See Jeffrey D. Field, 51 S.E.C. 1074, 1076 (1994).

35 See NASD Rule 6540.

36 NASD Rule 2320(g).

37 See Quest Capital Strategies, Inc., Securities Exchange Act Release No. 44935 (October 15, 2001), 76 SEC Docket 131, 143, and the authorities cited there.

38 See C. James Padgett, 52 S.E.C. 1257 (1997), aff'd sub nom. Sullivan v. SEC, 159 F.3d 637 (D.C. Cir. 1998) (Table), where wefound certain respondents liable for supervisory failures as well as for substantive misconduct. See also Randolph K. Pace, 51 S.E.C. 361 (1993).

39 The conduct at issue occurred in May 1996. In December of that year, the Commission adopted Regulation M to replace Rules 10b-6, 10b-6A, 10b-7, 10b-8 and 10b-21. Exchange Act Release No. 38067 (December 20, 1996), 63 SEC Docket 1374. Regulation M did not change ths substance of the requirements at issue here.

40 Review of Antimanipulation Regulation of Securities Offerings ("Review"), Securities Act Release No. 7057 (April 26, 1994), 56 SEC Docket 1442, 1445.

41 17 C.F.R. § 240.10b-6(c)(5) (1996).

42 The remaining trading volume consisted of Monitor's purchases from Baird Patrick (49.4%) and Monitor's sales to other broker-dealers acting as agent (2.8%).

43 See A.S. Goldmen & Co., Inc., Exchange Act Release No. 44328 (May 21, 2001), 75 SEC Docket 49, 61; First Albany Corporation, 50 S.E.C. 890, 898-899 (1992); Review, supra, 56 SEC Docket at 1445-46.

44 See SEC v. Burns, 614 F.Supp. 1360, 1363 (S.D. Cal. 1985), aff'd on other grounds, 816 F.2d 471 (9th Cir. 1987) (Scienter is required for findings of Rule 10b-6 violations).

45 A.S. Goldmen & Co., Inc., supra, 75 SEC Docket at 54; C. James Padgett, 52 S.E.C. 1257, 1260 (1997), aff'd sub nom. Sullivan v. SEC, 159 F.3d 637 (D.C. Cir. 1998)(Table), cert. denied, 525 U.S. 1070 (1999).

46 See, e.g., Adams Securities, Inc., 51 S.E.C. 311, 315 (1993). Under the NASD's markup policy, markups in equity securities of more than 5% above the prevailing market price are generally considered unreasonable and violative of NASD rules. Thus the markup of 6.45% in one ASWI transaction violated NASD Rules 2440 and 2110, while the remaining markups also violated antifraud provisions.

47 G.K. Scott & Co., Inc., 51 S.E.C. 961, 968 (1994), aff'd, 56 F.3d 1531 (D.C. Cir. 1995) (Table).

48 Jeffrey D. Field, supra.

49 The NASD also found that Galasso violated its recordkeeping rules and just and equitable principles of trade by assisting in the creation of false customer confirmations in connection with Monitor's sales of ASWI. The confirmations were found to be false because they did not disclose Monitor's markups or thesalesmen's compensation. However, no rule or regulation required that such disclosure be made on ASWI customer confirmations. We accordingly set aside the NASD's findings of violation in this respect and the sanctions it imposed on Galasso on the basis of those findings -- a one-year suspension and a $10,000 fine.

50 The NASD's National Adjudicatory Council ("NAC") made a few additional findings of false investigative statements by McMahon and Montelbano. The NASD's Hearing Panel did not make these findings, and the record does not support them. We accordinglyset the additional findings aside.

51 See n. 50.

52 Galasso argues that the Hearing Panel's finding that he also denied knowing his grandparents in a May 1996 NASD interview was unjustified. We make no findings with respect to that interview.

53 17 C.F.R. § 201.452.

54 See A.S. Goldman & Co., Inc., supra, 75 SEC Docket at 68 n. 48; Dan Adlai Druz, 52 S.E.C. 416, 428 (1995), aff'd, 103 F.3d 112 (3d Cir. 1996) (Table); John Gordon Simek, 50 S.E.C. 152, 162 (1989).

55 NASD Procedural Rule 9251(a) provides that, with certain exceptions, the NASD staff must make available for inspection and copying by any respondent documents prepared or obtained by the staff in connection with its investigation.

56 See NASD Code of Procedure Rule 9252(b).

57 NASD Rule 8210 empowers the NASD staff to require persons associated with member firms to testify in any proceeding.

58 Galasso complains about the NASD's failure to have various other persons testify. However, the record does not show that he ever filed a motion, pursuant to Rule 9252 of the NASD's Code of Procedure, asking the NASD to order any person to appear, or otherwise tried to secure the appearance of any individual. As we have previously pointed out, it is a respondent's obligation, not the NASD's, to marshal all the evidence in his defense. Ronald Earl Smits, 50 S.E.C. 1020, 1024 (1992).

59 The NASD has no subpoena power. However, as noted above, NASD Rule 8210 empowers the NASD staff to require persons associated with member firms to testify in any proceeding. Pursuant to Rule 9252 of the NASD's Code of Procedure, a respondent, in accordance with certain specified conditions, may request the NASD to invoke Rule 8210 and compel associated persons to testify.

60 Montelbano and McMahon also complain that the Hearing Officer tried to "cut off [their] defense" by instructing them not to argue about the errors in Monitor's broker-dealer registration forms ("Forms BD"). However, the Hearing Officer simply advised applicants that it was unnecessary to press their argument since the Panel agreed with their contention that the Forms BD did not accurately reflect the positions they held with the firm.

Montelbano further claims that the NASD staff introduced three Monitor employment agreements into evidence on which his signature on behalf of the firm was assertedly forged by Monitor. He states that, although the staff offered to withdraw these documents, he wanted them introduced in order to show thestaff's "malicious intent." We fail to detect any "malicious intent" on the part of the staff. Indeed, the record indicates that Montelbano himself provided the documents in question to an NASD examiner. Moreover, Montelbano was not prejudiced. It does not appear that the NASD placed any reliance on the documents, and we have not done so.

61 The NASD dismissed all charges against Nejaime.

62 Galasso objects to the fact that the NASD's brief on appeal includes responses to some of his motions. In light of Galasso's many successive filings, the NASD was granted permission to incorporate some of its responses into its brief. We fail to see how Galasso was prejudiced thereby, and his "motion in opposition" is denied. Galasso's further complaint that a document he filed is missing from the NASD's index to the record is unwarranted. The document is listed in the index.

63 R.B. Webster Investments, Inc., 51 S.E.C. 1269, 1278 (1994).

64 Michael J. Markowski, supra, 73 SEC Docket at 633; Pagel, Inc., supra, 48 S.E.C. at 232.

65 See, e.g., Pasquale Schettino, Exchange Act Rel. No. 44329 (May 21, 2001), 75 SEC Docket 71, 82; Robert A. Grunberg, 52 S.E.C. 1081, 1083 (1996).

66 The NASD barred Montelbano and fined him $10,000 for this offense.

67 See n. 50, supra.

68 For this violation, the NASD suspended both Montelbano and McMahon from association with any member firm for a period of two years, and fined them $40,000 each.

69 For this offense, Galasso was suspended for 10 business days and fined $1,000.

70 Michael Markowski, 51 S.E.C. 553, 559 (1993), aff'd, 34 F.3d 99 (2d Cir. 1994); Michael David Borth, 51 S.E.C. 178, 181 (1992).

71 For charging excessive markups, Galasso was barred and fined $30,000. The NASD imposed the same sanctions for Galasso's Rule 10b-6 violations as it did for his participation in the ASWI manipulation - a bar and a $50,000 fine. However, the NASD deemed it unnecessary to make the sanctions for the two violations cumulative.

72 As noted above, we have set aside the sanctions imposed on Galasso for assisting in the creation of false customer confirmations (n. 49).

73 We have considered all of the parties' contentions. We reject or sustain them to the extent that they are inconsistent or in accord with the views expressed herein.

 

http://www.sec.gov/litigation/opinions/34-47227.htm


Modified: 01/23/2003