SECURITIES ACT OF 1933
Release No. 7918 / November 17, 2000
SECURITIES EXCHANGE ACT OF 1934
Release No. 43579 / November 17, 2000
ADMINISTRATIVE PROCEEDING
File No. 3-10140
| In the Matter of H.J. Meyers & Co., Inc. |
ORDER MAKING FINDINGS, AND IMPOSING REMEDIAL SANCTIONS, CEASE-AND-DESIST ORDER, AND CIVIL MONEY PENALTY AS TO JAMES A VILLA |
ADMINISTRATIVE PROCEEDING
File No. 3-10141
| In the Matter of H.J. Meyers & Co., Inc. |
I.
In the public administrative proceeding, File No. 3-10140, ordered pursuant to Section 8A of the Securities Act of 1933 (Securities Act) and Sections 15(b), 19(h) and 21C of the Securities Exchange Act of 1934 (Exchange Act) and the public administrative proceeding, File No. 3-10141, ordered pursuant to Sections 15(b), 19(h) and 21C of the Exchange Act, Respondent James A. Villa (Villa) submitted an Offer of Settlement (Offer), which the Commission has determined to accept.1 Solely for the purpose of these proceedings and any other proceedings brought by or on behalf of the Commission or in which the Commission is a party, and without admitting or denying the findings contained in this Order, except for the Commission's jurisdiction with respect to the matters set forth in this Order and those facts which are set forth in paragraph II.A. below, which Villa admits, Villa consents to the entry of this Order.
II.
On the basis of this Order, the Orders Instituting Public Administrative Proceedings in this matter and the Offer submitted by Villa, the Commission finds that:2
Respondent
A. James A. Villa, age 42 and currently a resident of Boca Raton, Florida, was President of H.J. Meyers & Co., Inc. (H.J. Meyers) from at least 1993 through 1998.
The Borealis IPO
B. H.J. Meyers was a broker-dealer registered with the Commission pursuant to Section 15(b) of the Exchange Act since at least 1995. On June 24, 1996, H.J. Meyers underwrote the initial public offering (IPO) of 2.3 million shares of Borealis Technology Corporation (Borealis).
C. On or about June 24, 1996, H.J. Meyers sold approximately 1.9 million, or 80%, of the Borealis IPO shares to its retail customers at the price of $5.00 per share. The remaining 20%, approximately 400,000 shares, of the Borealis IPO was sold by 21 other broker-dealers.
Manipulation of the Price of Borealis Shares
D. During the period June 24, 1996 through June 28, 1996 (manipulative period), H.J. Meyers manipulated the price of Borealis stock by:
- effecting a series of transactions, in which it purchased a total of approximately 913,305 Borealis shares and sold approximately 1,048,253 shares;
- raising the price of Borealis from the IPO price of $5.00 per share to approximately $8.49 by:
a. exercising price leadership by leading or sharing the inside bid for Borealis throughout the vast majority of the manipulative period;
b. dominating and controlling the market for the Borealis shares by:
(i) executing 77% of the total trading volume in Borealis while acting as market maker and retail seller of Borealis common shares;
(ii) executing substantially more trading volume than any other broker-dealer;
(iii) using high pressure tactics to sell the Borealis IPO shares and to create pent-up demand for aftermarket shares; and
c. controlling and substantially reducing the floating supply of Borealis shares by:
(i) discouraging customers from selling back their IPO shares while simultaneously selling customers additional shares in the aftermarket;
(ii) reducing the floating supply of Borealis stock to control 75% of the float;
(iii) ensuring that the vast majority of the shares would not be traded in the immediate aftermarket; and
(iv) refusing to accept sales tickets and selectively enforcing a policy that required most of its registered representatives to forfeit their commissions.
Excessive, Undisclosed Markups
E. During the period June 24, 1996 through June 25, 1996, Respondent H.J. Meyers fraudulently sold Borealis shares to its customers for total profits of $305,000 and $71,000, respectively, by charging undisclosed, excessive mark ups. Specifically, it:
- acted as market maker and retail seller of Borealis;
- dominated and controlled the market for Borealis shares;
- based markups on inside interdealer ask prices rather than on H.J. Meyers' contemporaneous costs;
- failed to disclose to customers the size of the markups it was charging on the Borealis shares.
Villa's Failure Reasonably to Supervise
F. During the manipulative period, Villa was the supervisor of H.J. Meyers' Executive Vice President and of the firm's Head Trader.
G. During the manipulative period, Villa did not take adequate steps to monitor the performance of H.J. Meyers' Executive Vice President or the performance of the firm's Head Trader, to detect and prevent the manipulation of the price of Borealis shares or to detect and prevent undisclosed markups on Borealis shares.
H. Villa did not properly delegate to another person his duty to supervise H.J. Meyers' Executive Vice President and its Head Trader.
I. From at least on or about June 24,1996 through June 28, 1996, Villa failed reasonably to supervise the conduct of H.J. Meyers' Executive Vice President and the firm's Head Trader, within the meaning of Section 15(b)(4)(E) of the Exchange Act, with a view toward preventing violations of the Exchange Act and the rules and regulations thereunder.
While Villa was its President, H.J. Meyers Falsified
Accounting Records, Filed False FOCUS Reports and a False Notice
of Net Capital Deficiency
J. During 1998, as a broker-dealer registered pursuant to Section 15(b) of the Exchange Act, H.J. Meyers was required to file monthly FOCUS reports with the National Association of Securities Dealers Regulation, Inc., pursuant to Exchange Act Rule 17a-5(a). These FOCUS Reports required a calculation of the firm's net capital.
K. In June 1998, an outside investor agreed to loan $2.5 million jointly to H.J. Meyers and H.J. Meyers Group (HJM Group). HJM Group was a holding company that owned H.J. Meyers. Villa owned HJM Group and was the President of that company.
L. Pursuant to the terms of the loan, H.J. Meyers and HJM Group were jointly and severally bound to repay the full $2.5 million plus interest of 15% per annum payable monthly. One of the loan documents stated that the $2.5 million loan was to be secured by collateral -- 130,000 shares of a specified common stock then in H.J. Meyers' inventory.
M. On or about June 29, 1998, Villa executed five loan documents on behalf of both H.J. Meyers and HJM Group in order to facilitate the loan transaction. Each of the five documents that Villa signed was prepared with dual signature blocks for his signature on behalf of HJM Group and H.J. Meyers.
N. Although the loan documents were signed in June, neither H.J. Meyers nor HJM Group received any funds from the outside investor until July 1998.
O. On or before the time H.J. Meyers filed its June 1998 FOCUS report in July of that year, H.J. Meyers made entries to the firm's accounting records, which were incorporated in its June 1998 FOCUS report, that falsely indicated that H.J. Meyers had received $2.25 million of cash in June 1998.
P. H.J. Meyers ultimately received the proceeds from the loan in the early part of July 1998. Thereafter, H.J. Meyers should have recorded a liability to the outside investor reflecting the loan. H.J. Meyers did not record the loan as a liability on H.J. Meyers' accounting records, or reflect it in the FOCUS reports for July or August.
Q. Also in July 1998, the 130,000 shares of common stock to be pledged as collateral for the loan were transferred to HJM Group. Thereafter, at all times relevant to this proceeding, the shares were owned by HJM Group. Nevertheless, these same shares were reported as an asset in H.J. Meyers' July and August FOCUS reports. H.J. Meyers made false entries to the firm's accounting records that falsely recorded a transfer of the shares from HJM Group back to H.J. Meyers. No such transfer ever occurred.
R. Without the false accounting entries described in paragraphs P. and Q. above, H.J. Meyers would have reported net capital deficiencies for July and August 1998 of about $3,078,697 and $4,548,162, respectively.
S. H.J. Meyers filed false FOCUS reports for the months of June, July and August, 1998, which all contained false net capital calculations.
T. On September 9, 1998, H.J. Meyers notified the Commission of H.J. Meyers' net capital deficiency. In the notification, H. J. Meyers falsely reported a net capital deficiency of about $1,050,840. In reality the deficiency was over $4.5 million.
U. From June 30, 1998, through September 9, 1998, H.J. Meyers failed to maintain adequate net capital. During that same period, H.J. Meyers conducted securities transactions on a continuous basis.
V. From June 30, 1998, through September 9, 1998, Villa, President of H.J. Meyers, caused and willfully aided and abetted violations by H.J. Meyers of Sections 15(c)(3) and 17(a)(1) of the Exchange Act and Rules 15c3-1, 17a-3, 17a-5 and 17a-11 thereunder.
W. These proceedings against Villa are in the public interest and for the protection of investors.
III.
In view of the foregoing, the Commission finds that it is in the public interest amd for the protection of investors to impose the sanctions specified in the Offer.
Accordingly, IT IS HEREBY ORDERED that:
A. Pursuant to Section 21C of the Exchange Act, Villa is hereby ordered to cease and desist from committing or causing any violation and any future violation of Sections 15(c)(3) and 17(a) (1) of the Exchange Act, and Rules 15c3-1, 17a-3, 17a-5 and 17a-11 thereunder.
B. Villa be, and hereby is, barred from association with any broker or dealer, with the right to reapply for association after three years to the appropriate self-regulatory organization, or if there is none, to the Commission.
C. Villa shall, within 30 days of the entry of this Order, pay a civil money penalty in the amount of $20,000 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 Exchange Commission; (C) hand-delivered or mailed to the Comptroller, Securities and Exhange Commission, Operations Center, 6432 General Green Way, Stop 0-3, Alexandria, Virginia, 22312; and (D) submitted under cover letter that identifies Villa 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 Joy M. Boddie, Esquire, Special Counsel, Securities and Exhange Commission, 500 West Madison Street, Suite 1400, Chicago, Illinois, 60661.
By the Commission.
Jonathan G. Katz
Secretary
Footnotes
| 1 | The Orders Instituting Proceedings in these matters were issued on February 7, 2000. |
| 2 | The findings herein are made pursuant to Respondent Villa's offer of settlement and are not binding on any other persons or entity in this or any other proceeding. |