UNITED STATES OF AMERICA
|In the Matter of
|ORDER MAKING FINDINGS
AND IMPOSING REMEDIAL
SANCTIONS AND CEASE-AND-
DESIST ORDER AS TO
On December 6, 1996 the Securities and Exchange Commission ("Commission") issued an order postponing these proceedings at the request of the District Attorney of the County of New York to permit the grand jury impaneled by the District Attorney to complete its investigation into the conduct of the respondents in this action and to file any resulting indictments.1 Since that time, respondents Andrew Bressman, Roman Okin, Richard Acosta,
Richard Simone, Mark Goldman and Jack Wolynez have been indicted by the grand jury and criminally convicted in connection with their activities while employed at A.R. Baron & Co., Inc.2 On November 4, 1999, the Commission accepted offers of settlement from respondents Bressman, Okin and Simone and issued orders making findings and imposing sanctions and other relief as to these respondents.3
In anticipation of the reopening of this proceeding by the Commission, Respondent Richard Acosta ("Acosta" or "Respondent") has submitted an offer of settlement which the Commission has determined to accept ("Offer"). Accordingly, the Commission deems it appropriate to reopen the proceeding as to Respondent Acosta for the purpose of accepting his Offer. 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 as to jurisdiction of the Commission over the Respondent and the subject matter of this proceeding, and as to the entry of the conviction set forth in paragraph II.G. below, which are admitted, Acosta, by his Offer, consents to the findings and the imposition of the sanctions and other relief contained in this Order Making Findings and Imposing Remedial Sanctions and Cease and Desist Order as to Richard Acosta ("Order").
Accordingly, IT IS ORDERED that said proceeding be, and hereby is reopened with regard to Acosta.
On the basis of this Order and the Offer submitted by Acosta, the Commission finds the following:4
In 1991, Acosta, then a registered representative at D.H. Blair & Co., Inc. ("Blair"), in concert with others, engaged in a scheme to manipulate the market for the common stock of Professional Care, Inc. In 1992, Acosta and others at Blair manipulated the market for the common stock of Health Professionals, Inc., the successor of Professional Care, Inc. After moving to A.R. Baron & Co., Inc. in 1993 ("Baron"), Acosta and others at Baron continued the scheme to manipulate the market price for HPI common stock. In addition, over an extended period of time during his tenure at both Blair and Baron, Acosta engaged in repeated and egregious sales practice abuses, including the unauthorized trading of customer accounts.
B. RESPONDENT AND OTHER RELEVANT ENTITIES
Richard Acosta, age 32, of New York, New York is presently an inmate in a New York state correctional facility. Acosta was a registered representative with Blair from September 1991 through April 1992, with Baron from April 1992 through November 28, 1994, and with Barington Capital Ltd. from November 28, 1994, through March 31, 1998. Acosta presently is not associated with any broker or dealer.
2. Other Relevant Entities
a. A.R. Baron & Co., Inc., a Delaware corporation with its principal place of business in New York, New York, was registered with the Commission in September 1991 as a broker-dealer pursuant to Section 15(b) of the Exchange Act. In July 1996, Baron ceased operations and was placed into liquidation pursuant to the Securities Investors Protection Act. On October 17, 1996, the Commission issued an order finding that Baron had violated Section 17(a) of the Securities Act, Sections 7(c), 9(a)(2), 9(a)(4), 10(b) and 15(c)(1) of the Exchange Act and Rules 10b-5 and 15c1-2 thereunder and Regulation T promulgated by the Federal Reserve Board and revoked Baron's registration as a broker-dealer.
b. D.H. Blair, a New York corporation with its principal place of business in New York, New York, was, during the relevant period, registered with the Commission as a broker-dealer pursuant to Section 15(b) of the Exchange Act. Blair ceased operations in August 1998 and has applied to terminate its registration with the Commission.
c. Professional Health Care, Inc. ("PCI"), was a New York corporation listed for trading on the American Stock Exchange ("Amex") and the National Association of Securities Dealers Automated Quotation System ("Nasdaq"). In November 1991, PCI merged with its wholly-owned subsidiary, Health Professionals, Inc., discussed below. Prior to the merger, PCI had common stock registered with the Commission under Section 12(b) and warrants registered under Section 12(g) of the Exchange Act.
d. Health Professionals, Inc. ("HPI"), is a Delaware corporation with its principal place of business in Fort Lauderdale, Florida. Prior to November 1991, HPI was a wholly-owned, shell corporation subsidiary of PCI, discussed above. On November 21, 1991, HPI merged with PCI and HPI became the successor company. HPI has common stock registered with the Commission under Section 12(b) and warrants registered under Section 12(g) of the Exchange Act. At all relevant times, HPI common stock was listed and traded on both the Amex and Nasdaq.
C. 1991 MARKET MANIPULATION IN PCI STOCK
Between October 28, 1991and November 12, 1991, Acosta, in concert with other persons at Blair, manipulated the market price of PCI common stock, causing its price to rise from $11.50 per share to around $21 per share. Acosta engaged in the manipulative conduct for the purpose of inducing others to buy the security by among other things, placing unauthorized trades in customer accounts, adhering to a no-net-sale policy, refusing to execute customer sell orders, making false or misleading claims about the business prospects of PCI, making unfounded predictions about the future price of PCI common stock, failing to tell customers about the risks of investing in PCI common stock, and failing to tell customers that the market in PCI common stock was manipulated.
D. 1992 MARKET MANIPULATION IN HPI STOCK
Between January 27, 1992, and February 12, 1992, Acosta, in concert with other persons at Blair, manipulated the stock price of HPI, the successor of PCI, preventing its price from dropping in the wake of heavy selling due to adverse publicity, and causing its price to increase from around $17 per share to around $21.25 per share. As in the 1991 manipulation of PCI, Acosta engaged in this conduct to induce others to buy the security, by among other things, placing unauthorized trades in customer accounts, adhering to a no-net-sale policy, refusing to execute customer sell orders, making false or misleading claims about the business prospects of HPI, making unfounded predictions about the future price of HPI common stock, failing to tell customers about the risks of investing in HPI common stock, and failing to tell customers that the market in HPI common stock was manipulated.
E. 1993 MARKET MANIPULATION IN HPI STOCK
Acosta left Blair in April 1992 for employment with Baron. Between May 24, 1993 and June 25, 1993, Acosta, in concert with other persons at Baron, again manipulated the market price of HPI common stock, reversing a downward price movement and preventing its price from dropping in the wake of heavy selling due to adverse publicity, for the purpose of inducing others to buy the security. In this instance, Acosta engaged in the same conduct as during the 1991 and 1992 manipulative periods discussed above. In addition, Acosta placed Regulation T extensions on unauthorized stock purchases to prevent liquidation and delay payment, opened new accounts for customers whose accounts had been restricted pursuant to Regulation T, and purchased HPI common stock for those new accounts on delayed payment terms.
F. SALES PRACTICE ABUSES
From approximately October 1991 through November 28, 1994, Acosta engaged in repeated abusive and fraudulent sales practices in connection with the offer, purchase or sale of PCI, HPI, Cypros and other securities. Specifically, Acosta made misleading or untrue statements of a material fact; placed unauthorized purchases in customer accounts; refused to execute customer sell orders; refused or delayed the delivery of proceeds of securities sales to customers; churned customer accounts; concentrated customer accounts in few speculative issues without regard to the customers' investment objectives or the inherent risks in such concentration; placed Regulation T extension requests on unauthorized securities purchases; and engaged in a no-net-selling scheme by refusing or failing to execute customer sell orders unless those orders could be crossed with purchases from other Baron customers, without disclosing the scheme to customers.
G. ACOSTA'S CRIMINAL CONVICTION
On November 12, 1997, Acosta pleaded guilty to and was convicted of a New York state class B felony of enterprise corruption and on December 14, 1998, he was sentenced to two to six years in jail and fined $5,000. In his plea, Acosta admitted to participating in a criminal enterprise at Baron involving, among other things, misrepresentations in the sale of securities.
H. ACOSTA'S ILLEGAL PROFITS
While employed at Blair, during the 1991 and 1992 stock manipulations described above, Acosta earned gross commissions of approximately $21,000 in PCI trades and $80,000 in HPI trades in furtherance of the manipulation.
A. VIOLATIONS OF THE ANTIFRAUD PROVISIONS THROUGH MARKET MANIPULATION
Section 9(a)(2) of the Exchange Act, which prohibits the manipulation of the prices of securities listed for trading on a national exchange, makes it unlawful for a person to engage in a series of transactions that creates actual or apparent activity or raises or depresses the stock's price when done for the purpose of inducing others to buy or sell the security. Section 9(a)(4) of the Exchange Act prohibits a person purchasing or offering to purchase or selling or offering to sell securities registered on a national securities exchange from making false or misleading statements for the purpose of inducing the purchase or sale.
The manipulative practices described in Sections 9(a)(2) and 9(a)(4) also violate the antifraud provisions in Section 10(b) and Rule 10b-5 of the Exchange Act for both exchange-listed and over-the-counter securities. S.E.C. v. Sayegh, 906 F.Supp 939, 946 (S.D.N.Y. 1995); S.E.C. v. Lorin et al., 877 F.Supp. 192, 196-197 (S.D.N.Y. 1995); In re Michael Batterman, 46 S.E.C. 304, 305 (1976). Section 17(a) of the Securities Act is violated by these same acts to the extent that they were committed in connection with the sale of or offer to sell the manipulated stocks. Finally, conduct of a broker or dealer of the type prohibited by Section 9(a) also violates Section 15(c)(1) of the Exchange Act and Rule 15c1-2 thereunder with respect to securities traded over-the-counter. In re F.N. Wolf & Co., Inc., 60 S.E.C. Docket 3348, 3376 (1996); In re Barrett & Co., 9 S.E.C. 319, 328-29 (1941).
Acosta's participation in the manipulation of PCI and HPI common stock involved trades executed in an exchange as well as over-the-counter, thus, his conduct in the above-described stock manipulations violated Section 17(a) of the Securities Act and Sections 9(a)(2), 9(a)(4) and 10(b) of the Exchange Act and Rule 10b-5 thereunder, and aided and abetted and caused Baron's violation of Section 15(c)(1) of the Exchange Act and Rule 15c1-2 thereunder.
B. ABUSIVE SALES PRACTICES ARE VIOLATIONS OF THE ANTIFRAUD PROVISIONS
In carrying out the manipulative schemes in PCI and HPI, as well as at other times between October 1991 and November 1994 in connection with the purchase or sale of other securities, Acosta engaged in repeated, egregious sales practice abuses that violated the antifraud provisions of the Securities Act and the Exchange Act.
1. Material Misrepresentations
Acosta's abusive sales practices included, among other things, making unfounded predictions about the future value PCI, HPI and other securities; making false and misleading claims about the issuers' business prospects; and misleading customers about the risks associated with these speculative securities. In doing so, Acosta violated Section 17(a)(1) and (2) of the Securities Act and Sections 9(a)(4) and 10(b) of the Exchange Act and Rule 10b-5 thereunder. See James E. Cavallo, 49 S.E.C. 1099, 1102 (1989); Lester Kuznetz, 48 S.E.C. 551, 553-54 (1986).
Acosta also solicited purchases and sold securities to his customers without telling them that their purchases were subject to a no-net-sale policy and would not be sold unless Acosta could find another Baron customer to buy the securities. In furtherance of the no-net-sale policy, Acosta discouraged his customers from selling by making highly-optimistic and unfounded predictions about the future price of the security and by simply refusing to carry out sell orders. Acosta's failure to disclose the no-net-sale policy constituted a material misrepresentation in connection with the sale of securities, in violation of Section 10(b) of the Exchange Act and Rule 10b-5 thereunder.
2. Unauthorized Purchases
The unauthorized trading of customer accounts accompanied with deception, misrepresentation or nondisclosure violates Section 10(b) of the Exchange Act and Rule 10b-5 thereunder. S.E.C. v. Hasho et al., 784 F.Supp. 1059, 1110 (S.D.N.Y. 1992); Cruise v. Equitable Securities of New York, Inc., 678 F.Supp 1023, 1028-29 (S.D.N.Y. 1987); Pross v. Baird Patrick & Co., 585 F. Supp. 1456, 1459 (S.D.N.Y. 1984). By placing unauthorized securities purchases in customer accounts, coupled with deception, misrepresentation or nondisclosure, Acosta violated Section 10(b) of the Exchange Act and Rule 10b-5 thereunder. Acosta deceived his customers by seeking the customers' ratification of unauthorized transactions through misrepresentations. He also concealed the unauthorized transactions by executing proceeds trades so that no cash payment was required from the customer.
C. CREDIT VIOLATIONS
Section 7(c) of the Exchange Act prohibits a broker-dealer from extending or maintaining credit or arranging for the extension or maintenance of credit to or for any customer in contravention of the regulations promulgated by the Federal Reserve Board. Federal Reserve Board Regulation T, 12 C.F.R. §§ 220.1 et seq., imposes payment rules on securities transactions and requires a broker to obtain full cash payment for customer purchases in a cash account within one payment period which, at the time of the 1993 HPI manipulation, was seven business days. 12 C.F.R. §§ 220.2(w) and 220.8(b)(1). If a customer has not paid for a stock purchase within the required time, the broker must promptly cancel or otherwise liquidate the transaction or part of the transaction for which the customer has not made full cash payment. 12 C.F.R. § 220.8(b)(4).
Under certain circumstances, a broker may apply to its examining authority for an extension of time for payment if the customer makes a good faith request for more time based on an inability to timely deliver payment to the broker, such as when a check is delayed in the mail. 12 C.F.R. § 220.8(d)(1).
Acosta aided, abetted and caused Baron's violations of the credit provisions, Section 7(c) of the Exchange Act and Regulation T promulgated by the Federal Reserve Board, by making extension requests in bad faith. Acosta placed extension requests on his own unauthorized transactions in his customers' accounts. The customers had not timely paid because they had not authorized the purchases.
Based on the above, the Commission finds that Respondent Acosta willfully violated Section 17(a) of the Securities Act and Sections 9(a)(2), 9(a)(4) and 10(b) of the Exchange Act and Rule 10b-5 thereunder and willfully aided, abetted and caused violations of Sections 7(c) and 15(c)(1) of the Exchange Act and Rule 15c1-2 thereunder and Regulation T promulgated by the Federal Reserve Board.
Respondent Acosta has submitted a sworn financial statement and has asserted his financial inability to pay a disgorgement or civil penalty. The Commission has reviewed Respondent's sworn financial statement and has determined that he does not have the financial ability to pay a disgorgement or civil penalty.
OFFER OF SETTLEMENT
The Respondent has submitted an offer of settlement in which, without admitting or denying the findings herein, except as to jurisdiction and Respondent's criminal conviction, he consents to the Commission's issuance of this Order, which makes findings as set forth above, and imposes sanctions and other relief as set forth below.
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 Acosta's Offer.
Accordingly, IT IS HEREBY ORDERED that Acosta:
(1) be barred from association with any broker or dealer; and
(2) cease and desist from committing or causing any violation and any future violation of Section 17(a) of the Securities Act and Sections 7(c), 9(a)(2), 9(a)(4), 10(b) and 15(c)(1) of the Exchange Act and Rules 10b-5 and 15c1-2 thereunder and Regulation T promulgated by the Federal Reserve Board.
IT IS FURTHER ORDERED that the Division of Enforcement ("Division") may, at any time following the entry of this Order, petition the Commission to: reopen this matter to (1) consider whether Respondent provided accurate and complete financial information at the time such representations were made; (2) determine the amount of the civil penalty to be imposed; and (3) seek any additional remedies that the Commission would be authorized to impose in this proceeding if Respondent's Offer had not been accepted. No other issues shall be considered in connection with this petition other than whether the financial information provided by Respondent was fraudulent, misleading, inaccurate or incomplete in any material respect, the amount of civil penalty to be imposed and whether any additional remedies should be imposed. Respondent may not, by way of defense to any such petition, contest the findings in this Order or the Commission's authority to impose any additional remedies that were available in the original proceeding.
By the Commission.
Jonathan G. Katz
|1||Previously, the Commission instituted administrative proceedings on May 23, 1996 (3-9010) against A.R. Baron & Co. Inc., Andrew Bressman, and Roman Okin, and on October 17, 1996 (3-9168) against A.R Baron & Co., Inc., Andrew Bressman, Roman Okin, Richard Acosta, Richard Simone, Burton Blank, Mark Goldman and Jack Wolynez pursuant to Section 8A of the Securities Act of 1933 ("Securities Act") and Sections 15(b)(6), 19(h) and 21C of the Securities Exchange Act of 1934 ("Exchange Act"). On October 17, 1996, the Commission accepted an Offer of Settlement from A.R. Baron & Co., Inc. and dismissed the firm from these proceedings. See Exchange Act Release No. 37830. On December 6, 1996, the Commission postponed these proceedings until the completion of the grand jury proceedings. See Exchange Act Rel. No. 38025.|
|2||Respondent Burton Blank was not indicted by the grand jury.|
|3||See Exchange Act Rel. Nos. 42103, 42104 and 42105.|
|4||The findings herein are made pursuant to the Respondent's Offer and are not binding on any other person or entity in this or any other proceeding.|
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