UNITED STATES OF AMERICA before the SECURITIES AND EXCHANGE COMMISSION SECURITIES ACT OF 1933 Release No. 7290 / May 10, 1996 SECURITIES EXCHANGE ACT OF 1934 Release No. 37199 / May 10, 1996 ADMINISTRATIVE PROCEEDING File No. 3-8781 ------------------------------------ : In the Matter of : : STUART, COLEMAN & CO., INC., : BRIAN PAONESSA, individually, and : d/b/a L.P. TRANSFER SERVICES, INC, : VICTOR SICURANZA, : ORDER MAKING FINDINGS AND STANLEY JENKINS, : IMPOSING A CEASE AND PHILIP SNYDER, : DESIST ORDER AND REMEDIAL PAMELA WOODS, and : SANCTIONS AGAINST BRIAN SAM SEHON : PAONESSA, STANLEY JENKINS : AND SAM SEHON Respondents : ------------------------------------ I. In these proceedings, instituted on August 14, 1995, pursuant to Section 8A of the Securities Act of 1933 and Sections 15(b), 19(h) and 21C of the Securities Exchange Act of 1934, Respondents Brian Paonessa, individually, and doing business as L.P. Transfer Services, Inc. (collectively "Paonessa"), Stanley Jenkins ("Jenkins") and Sam Sehon ("Sehon") have submitted Offers of Settlement ("Offers") which the Commission has agreed to accept. II. Solely for the purpose of this proceeding and any other proceeding brought by or on behalf of the Commission, or to which the Commission is a party, and without admitting or denying the findings contained herein, except as to the jurisdiction of the Commission over Paonessa, Jenkins and Sehon (collectively "Respondents") and over the subject matter of these proceedings and as to the findings contained in Section III, paragraphs A and B, below, which are admitted, Respondents, by their Offers, consent to the entry of a cease and desist order, and the findings and sanctions set forth below. ==========================================START OF PAGE 2====== III. On the basis of this Order, the Order Instituting Public Administrative and Cease-and-Desist Proceedings Pursuant to Section 8A of the Securities Act of 1933 and Sections 15(b), 19(h) and 21C of the Securities Exchange Act of 1934 ("Order Instituting Proceedings"), and the Offers by Respondents, the Commission finds that: -[1]- A. Stuart, Coleman & Co., Inc. ("Stuart Coleman"), a New York corporation with its headquarters in New York, New York, has been registered with the Commission as a broker-dealer pursuant to Section 15(b) of the Exchange Act since March 1981. B. No application for registration as a broker-dealer on Form BD has been filed or is in effect with the Commission pursuant to Section 15(b) of the Exchange Act with respect to Paonessa, L.P. Transfer Services, Inc. ("L.P. Transfer"), Philip Snyder ("Snyder"), Pamela Woods ("Woods") and Sehon. C. During the period from in or about September 1991 to in or about October 1993, Stuart Coleman maintained a branch office in West Palm Beach, Florida (the "branch office"). D. During the period from in or about February 1992 to in or about September 1992, Paonessa was associated as a representative with Stuart Coleman's branch office. During the period from in or about September 1992 to in or about February 1993, Paonessa was the branch office's operations manager. E. During the period from in or about November 1991 to in or about October 1993, Jenkins was associated with Stuart Coleman as a registered representative and was the branch office manager. F. During the period from in or about February 1992 to in or about April 1993, Snyder was associated as a registered representative with Stuart Coleman's branch office. ---------FOOTNOTES---------- -[1]- The findings herein are made pursuant to Respondents' Offers of Settlement and shall not be binding on any other person or entity named as a respondent in this or any other proceeding. ==========================================START OF PAGE 3====== G. During the period from in or about April 1992 to in or about April 1993, Woods was associated as a registered representative with Stuart Coleman's branch office. H. During the period from in or about July 1992 to in or about September 1993, Sehon was associated as a registered representative with Stuart Coleman's branch office. I. During the period from in or about March 1992 until in or about February 1993, L.P. Transfer, a Florida corporation now administratively dissolved, maintained an office on Stuart Coleman's branch office premises. During all relevant times hereto, Paonessa was the sole owner and director of L.P. Transfer. J. During the period from in or about September 1992 to in or about December 1992, Snyder, Woods and Sehon sold from the Stuart Coleman branch office approximately $115,000, $47,000 and $104,000, respectively, of limited partnership units through L.P. Transfer. K. During the period from in or about September 1992 to in or about December 1992, a registered representative from a broker-dealer other than Stuart Coleman sold an additional $33,000 of limited partnership units to seven investors through L.P. Transfer. L. The limited partnerships sold through L.P. Transfer were not approved products of, nor executed through, any registered broker-dealer, including Stuart Coleman. M. During the period from in or about September 1992 to in or about December 1992, in connection with the limited partnership sales described above, Paonessa and L.P. Transfer paid Snyder, Woods and Sehon approximately $11,500, $4,700 and $10,400 respectively, in commissions. N. Jenkins facilitated the limited partnership sales. For example, during the period from in or around September 1992 to in or around December 1992, in connection with the sales described above, Jenkins notarized at least seventeen limited partnership transfer agreements O. Paonessa commingled and deposited investor funds received from the limited partnership sales into accounts he controlled. P. Paonessa utilized investor proceeds for his personal expenditures, including his purchases of speculative securities. ==========================================START OF PAGE 4====== Q. Paonessa sent false securities transaction confirmations to investors reflecting their purchase of limited partnership units when, in fact, no purchase had been made. R. Paonessa made material misrepresentations and omitted to disclose material facts in connection with the limited partnership sales. For example, he failed to disclose to investors that: (i) the limited partnerships they purchased were not approved products of, nor executed through, any registered broker-dealer, including Stuart Coleman; (ii) the investors did not have the financial security of Stuart Coleman behind their securities transactions because Paonessa, Snyder, Woods, Sehon and L.P. Transfer were acting as unregistered broker-dealers; and (iii) Paonessa and L.P. Transfer were paying ten percent commissions to Snyder, Woods and Sehon for their sales of the limited partnership units. S. During the period from in or about September 1992 to in or about February 1993, Paonessa willfully violated Section 10(b) of the Exchange Act and Rule 10b-5 thereunder, in that, in connection with the purchase or sale of certain securities, namely limited partnerships units, by use of the means or instrumentalities of interstate commerce or, by use of the mails, directly or indirectly, he employed devices, schemes, or artifices to defraud; made untrue statements of material facts or omitted to state material facts necessary in order to make the statements made, in light of the circumstances under which they were made, not misleading; or engaged in acts, practices or a course of business which would and did operate as a fraud or deceit. As part of the aforesaid conduct, Paonessa would and did engage in acts and practices described in Paragraphs III.A. through III.R., above. T. During the period from in or about September 1992 to in or about February 1993, Paonessa willfully violated Section 17(a)(1) of the Securities Act, in that, in the offer or sale of certain securities, namely limited partnership units, by use of the means or instruments of transportation or communication in interstate commerce or by use of the mails, directly or indirectly, he employed devices, schemes or artifices to defraud. As part of the aforesaid conduct, Paonessa would and did engage in acts and practices described in Paragraphs III.A. through III.R., above. U. During the period from in or about September 1992 to in or about February 1993, Paonessa willfully violated ==========================================START OF PAGE 5====== Sections 17(a)(2) and 17(a)(3) of the Securities Act, in that, in the offer or sale of certain securities, namely limited partnership units, by use of the means or instruments of transportation or communication in interstate commerce or by use of the mails, directly or indirectly, he obtained money or property by means of untrue statements of material facts or omissions to state material facts necessary in order to make the statements made, in light of the circumstances under which they were made, not misleading, or engaged in transactions, practices or a course of business which would and did operate as a fraud or deceit upon the purchasers of such securities. As part of the aforesaid conduct, Paonessa would and did engage in acts and practices described in Paragraphs III.A. through III.R., above. V. During the period from in or about September 1992 to in or about December 1992, Paonessa, Snyder, Woods and Sehon willfully violated, and Jenkins willfully aided and abetted violations, of Section 15(a) of the Exchange Act in that Paonessa, Snyder, Woods and Sehon, aided and abetted by Jenkins, acted and conducted business as a securities broker-dealer and as such made use of the mails or means or instrumentalities of interstate commerce to effect transactions in or to induce the purchase or sale of securities (other than exempted securities or commercial paper, bankers' acceptances, or commercial bills) otherwise than on a national securities exchange without being registered with the Commission in accordance with Section 15(b) of the Exchange Act. As part of the aforesaid conduct, Paonessa, Jenkins, Snyder, Woods and Sehon would and did engage in acts and practices described in Paragraphs III.A. through III.R., above.-[2]- W. As a result of the conduct, as more particularly described in Paragraphs III.A. through III.R. above, Jenkins caused violations of Section 15(a) of the Exchange Act. ---------FOOTNOTES---------- -[2]- See also Order Making Findings, Imposing Remedial Sanctions and Cease and Desist Order against Pamela Woods by Default, Release No. 34-36962 (March 13, 1996) and Order Making Findings, Imposing Remedial Sanctions and Cease and Desist Order against Phillip Snyder by Default, Release No. 34-36963 (March 13, 1996). ==========================================START OF PAGE 6====== IV. The Commission has reviewed Paonessa's, Jenkins' and Sehon's sworn financial statements dated January 3, 1996, December 11, 1995, and December 19, 1995, respectively, and other evidence adduced by them, and provided that they have submitted true, accurate and complete sworn affidavits establishing their inability to pay concerning their financial conditions, including their assets, liabilities, income and expenses, has determined that they do not have the financial ability to pay disgorgement of ill-gotten gains, which they received as a result of their activities described above, and/or a civil penalty. V. In view of the foregoing, it is in the public interest to issue a cease and desist order and impose the sanctions specified in their Offers. Accordingly: IT IS HEREBY ORDERED, pursuant to Section 8A of the Securities Act and Section 21C of the Exchange Act, that Paonessa cease and desist from committing or causing any violation or future violation of Sections 17(a)(1), 17(a)(2) and 17(a)(3) of the Securities Act, Section 10(b) and 15(a) of the Exchange Act and Rule 10b-5, thereunder; IT IS HEREBY ORDERED, pursuant to Section 21C of the Exchange Act, that Sehon and Jenkins cease and desist from committing or causing any violation or future violation of Section 15(a) of the Exchange Act; IT IS HEREBY ORDERED that Paonessa is barred from association with any broker, dealer, municipal securities dealer, investment company or investment adviser with the right to reapply in four years with the appropriate self- regulatory agency or where there is none to the Commission; IT IS HEREBY ORDERED that Jenkins and Sehon be barred from association with any broker, dealer, municipal securities dealer, investment company or investment adviser with the right to reapply in one year with the appropriate self- regulatory agency or where there is none to the Commission; IT IS HEREBY ORDERED that Paonessa and Sehon disgorge $149,500 and $10,400, respectively, representing ill-gotten gains they obtained as a result of the activities described in Section III. above, and prejudgment interest of $39,007.23 and $2,713.52, respectively. Based on sworn statements of financial condition by Paonessa and Sehon dated January 3, 1996, and December 19, 1995, respectively, and submitted to the Commission, payment of the disgorgement and interest thereon is waived, contingent upon the accuracy and completeness of such statements of financial condition; IT IS HEREBY ORDERED that the Commission does not impose civil penalties against Paonessa, Jenkins and Sehon based upon their demonstrated financial inability to pay. The determination that Paonessa, Jenkins and Sehon are unable to pay a civil penalty, and to waive payment of disgorgement and prejudgment interest thereon as to Paonessa and Sehon, is contingent upon the accuracy and completeness of their statements of financial condition executed under oath by them on January 3, 1996, December 11, 1995 and December 19, 1995, respectively. The Division of Enforcement ("Division") may petition the Administrative Law Judge ("ALJ") to reopen this matter to consider any of the Respondents' inability to disgorge funds and/or pay a civil penalty if the Division obtains information from any source that the financial information provided by such Respondent was inaccurate or incomplete in any material respect as of the time such representations were made; the Division may, at its sole discretion and without prior notice to such Respondent, petition the ALJ for an order requiring such Respondent to pay disgorgement in the amounts indicated above, and prejudgment interest, and requiring that such Respondent pay a civil penalty. In connection with any such petition, the only issues shall be whether the financial information provided by such Respondent was fraudulent, misleading, inaccurate or incomplete in any material respect as of the time such representations were made, and the amount of civil penalty to be imposed. In any such petition, the Division may move the ALJ to consider all available remedies. Such Respondent may not, by way of defense to such petition, contest the findings in the Order or assert that disgorgement and/or a civil penalty should not be ordered for the violations of the federal securities laws alleged therein. IT IS HEREBY ORDERED that Paonessa provide to the staff of the Southeast Regional Office of the Commission a sworn accounting of all funds raised from the sale of limited partnerships by or through L.P. Transfer and the disposition of those funds, within sixty (60) calendar days from the date of entry of this Order. By the Commission. Jonathan G. Katz ==========================================START OF PAGE 7====== Secretary ==========================================START OF PAGE 8======