UNITED STATES OF AMERICA
|In the Matter of
PAUL I. COMI,
|ORDER INSTITUTING PUBLIC ADMINISTRATIVE AND CEASE-AND-DESIST PROCEEDING, MAKING FINDINGS, IMPOSING SANCTIONS, AND ORDERING RESPONDENT TO CEASE AND DESIST|
File No. 9601
The Securities and Exchange Commission ("Commission") deems it appropriate and in the public interest that a combined public administrative and cease-and-desist proceeding pursuant to Sections 15(b), 19(h) and 21C of the Securities Exchange Act of 1934 ("Exchange Act") be, and hereby is, instituted against Paul Comi ("Respondent").
In anticipation of the institution of this proceeding, the Respondent 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 to which the Commission is a party, and prior to a hearing pursuant to the Commission's Rules of Practice, 17 C.F.R. § 201.100 et seq., and without admitting or denying any findings contained herein, except as to the jurisdiction of the Commission over him and over the subject matter of this proceeding, the Respondent consents to the issuance of this Order Instituting Public Administrative and Cease-and-Desist Proceeding, Making Findings, Imposing Sanctions and Ordering Respondent to Cease and Desist ("Order") containing the findings set forth in Section III. below and imposing sanctions as set forth in Section IV. below.
On the basis of this Order and the Offer submitted by the Respondent, the Commission finds that 1 :
Paul I. Comi ("Comi"), age 37, is a registered representative and holds National Association of Securities Dealers ("NASD") Series 7, 24, and 63 licenses. From June 1993 to February 1995, Comi worked as a securities trader for AmeriNational Financial Services, Inc. ("AmeriNational"), formerly a registered broker-dealer firm, now defunct.
1. The Issuer
Future Communications, Inc. ("FCMI"), now defunct, was engaged from 1982 to November 1993 in cable television programming and other ventures. Prior to and during the period June 30 to August 30, 1993, FCMI's stock was traded on the National Association of Securities Dealers Automated Quotation system ("NASDAQ").
2. The Price Rise and Collapse
From June 30 to August 30, 1993 (the "price rise period"), FCMI's stock price rose 419%, from $6.50 to $27.25. On August 31, 1993, the NASD halted trading in FCMI stock based on questions about the price rise and the accuracy of FCMI's disclosures about its business prior to and during the price rise period. Shortly after the trading halt, FCMI's stock price collapsed and the company declared bankruptcy.
3. The Two Highest Bidding Market Makers
During the price rise period, FCMI's highest bidding market maker, i.e., the market maker who spent the most time submitting shared or exclusive high bid quotations to the NASDAQ system, was a trader at Reynolds Kendrick Stratton, Inc. ("RKS"), a now-defunct broker-dealer firm. Comi was the second highest bidding FCMI market maker during the price rise period. The RKS trader and Comi knew each other since Comi, prior to his employment at AmeriNational, had worked at RKS. Comi and the RKS trader talked frequently about FCMI stock during the price rise period.
C. VIOLATIVE CONDUCT: SUBMITTING FICTITIOUS QUOTATIONS PURSUANT TO AN ARRANGEMENT WITHOUT DISCLOSURE
Comi, through AmeriNational, became a market maker for FCMI stock on July 12, 1993, and anticipated that he would receive order flow in FCMI stock from RKS's trader. From July 12 to August 30, 1993, on 32 of 36 total trading days, Comi submitted high bid quotations for FCMI stock to the NASDAQ system. On each of these 32 days, the RKS trader also submitted high bid quotations for FCMI stock to the NASDAQ system. Thus, Comi and the RKS trader appeared by their high bidding to be in competition for FCMI stock.
In fact, Comi had no customer orders for FCMI stock on any of the 32 days he submitted high bid quotations. On 23 of the 36 total trading days during the period, Comi executed trades in FCMI stock.2 2 On all days Comi executed FCMI trades, his last trade of the day was with the RKS trader, which allowed Comi to eliminate any position in his inventory account and avoid overnight exposure to adverse price movement. On 22 of the 23 days, Comi's last FCMI trade of the day with the RKS trader resulted in a profit to Comi, typically of 1/16th over Comi's cost. AmeriNational's profit from these trades was approximately $7,000. Comi's compensation therefrom was approximately $3,500.
The pattern of trading described above reflects that Comi entered bid quotations for FCMI stock pursuant to an arrangement with the RKS trader, whereby Comi, if he bought FCMI shares as a result of his high bid quotations, would resell any remaining shares to the RKS trader at the end of the day for cost plus 1/16th. Comi's high bid quotations for FCMI stock, often entered simultaneously with the RKS trader's high bid quotations, gave an appearance to other market participants that Comi and the RKS trader were competing for FCMI stock. In fact, unknown to the market, Comi and the RKS trader were cooperating pursuant to the arrangement described above. As a result, the market received misleading information about the demand for FCMI stock.
Section 15(c)(2) of the Exchange Act and Rule 15c2-7 thereunder prohibit, among other things, a broker-dealer firm from submitting quotations to the NASDAQ system without disclosing that such quotations are submitted pursuant to an arrangement with a second broker-dealer firm. Comi willfully aided and abetted and caused AmeriNational's violation of Section 15(c)(2) of the Exchange Act and Rule 15c2-7 thereunder by submitting quotations for FCMI stock to the NASDAQ system pursuant to an arrangement with the RKS trader without disclosing the arrangement.
Based on the foregoing, the Commission deems it appropriate and in the public interest to impose the sanctions set forth in the Offer submitted by Respondent.
Accordingly, IT IS HEREBY ORDERED that:
A. Pursuant to Sections 15(b), 19(h) and 21C of the Exchange Act, Comi cease and desist from causing any violation and any future violation of Section 15(c)(2) of the Exchange Act and Rule 15c2-7 thereunder.
B. Pursuant to Sections 15(b), 19(h) and 21C of the Exchange Act, Comi be and hereby is suspended from associating with any broker or dealer for a period of six months, effective on the second Monday following the entry of this Order. Respondent shall provide to the Commission, within 30 days after the end of the six-month suspension, an affidavit that he has complied fully with the terms of the suspension. The affidavit shall be sent to Elaine M. Cacheris, Regional Director, Pacific Regional Office, Securities and Exchange Commission, 5670 Wilshire Boulevard, 11th Floor, Los Angeles, California, 90036.
C. IT IS FURTHER ORDERED that Respondent shall, within 30 days of the entry of this Order, pay a civil money penalty in the amount of $5,000 to the United States Treasury. Such payment shall be: (A) made by United States postal money order, certified check, bank cashier's check or bank money order; (B) made payable to the Securities and Exchange Commission; (C)
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 Paul Comi as a Respondent in these proceedings, the file number of these proceedings, a copy of which cover letter and money order or check shall be sent to Elaine M. Cacheris, Regional Director, Pacific Regional Office, Securities and Exchange Commission, 5670 Wilshire Boulevard, 11th Floor, Los Angeles, California, 90036.By the Commission.
|1||The findings herein are made pursuant to Respondent's Offer of Settlement and are not binding on any other person or entity in this or any other proceeding.|
|1||On the other days, Comi bid for but did not buy any FCMI stock.|
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