UNITED STATES OF AMERICA Before the SECURITIES AND EXCHANGE COMMISSION SECURITIES ACT OF 1933 Release No. 7335 / September 25, 1996 SECURITIES EXCHANGE ACT OF 1934 Release No. 37722 / September 25, 1996 ADMINISTRATIVE PROCEEDING File No. 3-9097 ------------------------- : : ORDER INSTITUTING PROCEEDINGS, In the Matter of : MAKING FINDINGS, AND ISSUING : A CEASE-AND-DESIST ORDER DAVID G. BATU : : : : ------------------------- I. The Securities and Exchange Commission ("Commission") deems it appropriate and in the public interest that administrative proceedings be instituted pursuant to Section 21C of the Securities Exchange Act of 1934 ("Exchange Act"), and Section 8A of the Securities Act of 1933 ("Securities Act") against David G. Batu ("Batu"). In anticipation of the institution of these proceedings, Batu has submitted an Offer of Settlement ("Offer") which the Commission has determined to accept. Solely for the purpose 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 findings contained herein, except for those set forth in paragraph II.A. below, which are admitted, Batu by his Offer consents to the findings and the imposition of the sanctions and other relief contained in this Order Instituting Proceedings, Making Findings, and Issuing a Cease-and-Desist Order ("Order"). Accordingly, IT IS ORDERED that proceedings against Batu be, and hereby are, instituted. ==========================================START OF PAGE 2====== II. On the basis of this Order, and the Offer submitted by Batu, the Commission finds that:-[1]- A. Batu was employed, at all times relevant to this proceeding, from May 1990 through July 1991, as a registered representative with Prudential Securities, Inc. ("Prudential"), in its Jenkintown, Pennsylvania branch office. From July 1987 to May 1990, prior to his employment at Prudential, Batu was employed as a registered representative with another broker- dealer. After leaving Prudential, Batu was employed as a registered representative with three different broker-dealers until December 1994. He has not been employed in the securities industry since December 1994. B. From May 1990 through July 1991, Batu willfully violated Section 17(a) of the Securities Act in the offer and sale of securities in that he, directly and indirectly, by use of the means or instruments of transportation or communication in interstate commerce or by the use of the mails, employed devices, schemes, or artifices to defraud; obtained money and property by means of untrue statements of material fact or omitted to state material facts necessary to make the statements made, in the light of the circumstances under which they were made, not misleading; or engaged in transactions, practices or courses of business that would and did operate as a fraud or deceit upon the purchasers and prospective purchasers of such securities. C. As part of the aforesaid conduct described in sub- paragraph II.B. above, from May 1990 through July 1991, Batu engaged in fraudulent sales practices that resulted in combined realized losses to five customers exceeding $230,000. Each of these customers had minimal securities investment experience, and their objectives were to make conservative investments yielding income and long-term growth. D. As part of the aforesaid conduct described in sub- paragraph II.B. above, Batu obtained implied discretionary authority over customers' accounts by convincing them that he knew how to best invest their funds. After obtaining this authority, Batu engaged in a pattern of recommending and executing unsuitable transactions. Batu also executed unauthorized transactions in a customer account. In addition, Batu churned three customers' accounts, by obtaining control over their accounts and then conducting excessive trading, for the ---------FOOTNOTES---------- -[1]- The findings herein are made pursuant to Batu's Offer of Settlement and are not binding on any other person or entity named as a respondent in any other proceeding. ==========================================START OF PAGE 3====== purpose of generating commissions. The annualized turnover ratio in each of these accounts exceeded 20. In furtherance of his fraudulent conduct, Batu made numerous false and misleading statements to investors, and omitted to state material facts concerning, among other things: a. the risk involved in trading through margin accounts, including that the customer could be charged interest; b. the risk involved in the securities that he was purchasing for customers' accounts; and c. the suitability of the securities that he was purchasing for customers' accounts. E. As a result of the aforesaid conduct described in sub- paragraph II.B. above, Batu earned net commissions of at least $103,925. F. From approximately May 1990 through July 1991, Batu willfully violated Section 10(b) of the Exchange Act and Rule 10b-5 thereunder, in connection with the purchase and sale of securities, by the use of the means or instrumentalities of interstate commerce or of the mails, employed devices, schemes, or artifices to defraud; made untrue statements of material fact or omitted to state material facts necessary to make the statements made, in the light of the circumstances under which they were made, not misleading; or engaged in acts, practices or courses of business that would and did operate as a fraud or deceit upon the purchasers or prospective purchasers of such securities, as more fully described in paragraphs II.B. through II.E. above. G. The Commission has reviewed Batu's sworn financial statement and other evidence adduced by Batu, and provided that he has submitted a true, accurate and complete sworn affidavit establishing his inability to pay concerning his financial condition, including his assets, liabilities, income and expenses, has determined that Batu does not have the financial ability to pay disgorgement of $103,925 which Batu received in commissions from his activities described in paragraphs II.B. through II.F. above, except as to $10,000, or a civil penalty. III. On the basis of the foregoing, the Commission deems it appropriate and in the public interest to impose the sanctions and other relief specified in the Offer. ==========================================START OF PAGE 4====== Accordingly, IT IS HEREBY ORDERED that: A. Batu, pursuant to Section 21C of the Exchange Act and Section 8A of the Securities Act, cease and desist from committing or causing any violations and any future violations of Section 17(a) of the Securities Act and Section 10(b) of the Exchange Act and Rule 10b-5 thereunder; B. Batu pay disgorgement of $103,925, plus interest, dating to the date of this Order, at the prejudgment rate, provided, however, that the payment of such disgorgement is waived, based upon Batu's demonstrated inability to pay disgorgement, except as to $10,000, and that the Division of Enforcement ("Division") may petition the Administrative Law Judge ("ALJ") to reopen this matter to consider Batu's inability to disgorge funds if the Division obtains information from any source that the financial information provided by Batu was inaccurate or incomplete in any material aspect. In connection with such petition, the ALJ may consider ordering Batu to pay the balance of disgorgement remaining, plus interest. Batu may not, by way of defense to such petition, contest the allegations and findings in this Order or assert that disgorgement and/or a civil penalty should not be ordered for the violations of the federal securities laws alleged therein; and C. the payment required by paragraph III.B. of this Order shall by made within ten days of the date of the entry of this Order, by United States postal money order, certified check, or cashier's check; made payable to the Securities and Exchange Commission; transmitted to the Comptroller, Securities and Exchange Commission, 450 5th Street, N.W., Washington, D.C. 20549; and submitted under cover letter which identifies Batu as the Respondent in this proceeding, the file number of this proceeding, and the Commission's case number. A copy of the cover letter and money order or check shall be simultaneously sent to Donald M. Hoerl, District Administrator, Securities and Exchange Commission, Philadelphia District Office, 601 Walnut Street, Suite 1005E., Philadelphia, PA 19106. By the Commission. Jonathan G. Katz Secretary