UNITED STATES OF AMERICA
In the Matter of
ORDER MAKING FINDINGS AND
In this public administrative proceeding 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"), H.J. Meyers & Co., Inc. ("H.J. Meyers") submitted an Offer of Settlement ("Offer"), which the Commission has determined to accept.1 Solely for the purpose of this proceeding 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 H.J. Meyers admits, H.J. Meyers consents to the entry of this Order.II.
On the basis of this Order, the Order Instituting Proceedings in this matter and the Offer submitted by H.J. Meyers, the Commission finds2 that:
A. H.J. Meyers & Co., Inc. is 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 Borealis Technology Corporation ("Borealis").
B. 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 ("Selling Group").
C. Weeks before the Borealis IPO, H.J. Meyers allocated 1.9 million of the Borealis shares among its branch offices and certain select members of its sales force. The allocation was not based on customer interest. The allocation was done before indications of interest were solicited from H.J. Meyers's customers. Through this allocation, H.J. Meyers sought to restrict the Borealis float by ensuring that the vast majority of the shares would not be traded in the immediate aftermarket.
D. H.J. Meyers allocated 975,000 of the Borealis shares to three of H.J. Meyers's offices for them to sell to their customers. This allocation was based on the ability of the registered representatives ("RRs") in these offices to "support the market" by discouraging customers from selling back their IPO shares while simultaneously selling customers' additional shares in the aftermarket. From June 24, 1996 though June 28,1996, most customers in these offices did not sell the shares they had bought in the IPO, and many bought shares in the aftermarket.
E. Within minutes after it started trading Borealis, H.J. Meyers raised the price of Borealis from the IPO price of $5.00 to $8.49. Despite this large increase, only a few customers sold their IPO shares. From June 24, 1996 through June 28, 1996, H.J. Meyers led or shared the inside bid for Borealis while selling Borealis stock to its customers at inflated prices.
F. H.J. Meyers's act of raising the price of Borealis stock was not related to independent retail demand. On June 24, 1996, H.J. Meyers sold 718,000 shares to approximately 350 retail customers for an average price of $8.49. On that day, there was virtually no retail demand from customers of broker-dealers other than H.J. Meyers. H.J. Meyers's sales to its retail customers constituted approximately 95% of all Borealis retail transactions on June 24, 1996. From June 24 through June 28, 1996, H.J. Meyers's sales to retail customers constituted approximately 90% of all retail transactions.
G. H.J. Meyers used high pressure tactics to sell Borealis shares in the IPO and to create pent-up demand for Borealis stock in the aftermarket. H.J. Meyers sought to discourage and prevent aftermarket sales by selectively enforcing a policy that required most, but not all, of its RRs to forfeit their commissions on IPO and aftermarket sales if a customer sold his or her shares during the first 30 days of trading. This policy gave RRs a motive to discourage and prevent their customers from selling their IPO shares.
H. From June 24, 1996 through June 28, 1996, H.J. Meyers effectively controlled the Borealis float through shares held in its customer accounts. On June 24, 1996, H.J. Meyers controlled at least 68% of the Borealis float. On June 27 and 28, 1996, H.J. Meyers's control of the Borealis float increased to at least 75%.
I. From June 24, 1996 through June 28, 1996, H.J. Meyers dominated and controlled trading in Borealis stock while acting as a market maker and retail seller of Borealis common shares. From June 24 through June 28, 1996, H.J. Meyers's trading activity accounted for 77% of the total trading volume in Borealis.
J. On June 24 and June 25, 1996, H.J. Meyers based markups on sales of Borealis shares on inside interdealer ask prices rather than on H.J. Meyers's contemporaneous cost.
K. On June 24, 1996, H.J. Meyers charged undisclosed, excessive markups on at least 282 sales of approximately 314,064 Borealis shares.
L. On June 25, 1996, H.J. Meyers charged undisclosed, excessive markups on at least 97 sales of approximately 71,770 Borealis shares.
Respondent's Manipulative Conduct
M. During the period June 24, 1996 through June 28, 1996 (the "manipulative period"), H.J. Meyers manipulated the price of Borealis stock by:
1. effecting a series of transactions in which it purchased a total of approximately 913,305 Borealis shares and sold approximately 1,048,253 Borealis shares; and
2. 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 a market maker and retail seller of Borealis common shares;
(ii) executing substantially more trading volume than any other broker-dealer; and
(iii) using high pressure tactics to sell the Borealis IPO shares and to create pent-up demand in the aftermarket; 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) controlling 75% of the floating supply of Borealis stock;
(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 RR's to forfeit their commissions.
Respondent's Excessive, Undisclosed Markups
N. During the period June 24, 1996 through June 25, 1996, Respondent H.J. Meyers fraudulently sold Borealis shares to its customers at undisclosed, excessively marked up prices by:
1. acting as a market maker and retail seller of Borealis;
2. dominating and controlling the market for Borealis shares;
3. basing markups on inside interdealer ask prices rather than on H.J. Meyers's contemporaneous cost; and
4. failing to disclose to customers the size of the markups it was charging on the Borealis shares.
Respondent's Inability To Pay a Civil Penalty
O. Respondent has submitted evidence and has asserted its financial inability to pay a civil penalty. The Commission has reviewed the evidence provided by Respondent and has determined that Respondent does not have the financial ability to pay a civil penalty.
P. From at least on or about June 24, 1996 through June 28, 1996, H.J. Meyers willfully violated Section 17(a) of the Securities Act, Sections 10(b) and 15(c)(1) of the Exchange Act and Rules 10b-5, 15c1-2, and 15c1-8 thereunder.III.
In view of the foregoing, the Commission finds that it is appropriate in the public interest and for the protection of investors to impose the sanctions specified in the Offer.
Accordingly, IT IS HEREBY ORDERED that:
A. Pursuant to Section 8A of the Securities Act and Section 21C of the Exchange Act, H.J. Meyers cease and desist from committing or causing any violation and any future violation of Section 17(a) of the Securities Act, Sections 10(b) and 15(c)(1) of the Exchange Act, and Rules 10b-5, 15c1-2, and 15c1-8 thereunder.
B. Disgorgement is ordered against Respondent in the amount of $514,000. No attempt shall be made by the Commission to enforce the obligation of Respondent to pay such amount except in accordance with any applicable provisions of the United States Bankruptcy Code and any applicable Bankruptcy Rules. The obligation of the Respondent shall be satisfied by a guaranteed dividend of $50,000 pursuant to a further order of the bankruptcy court in H.J. Meyers & Co., Inc., No. 99-21107 (Bankr. W.D.N.Y.).
C. The Division of Enforcement ("Division") may, at any time following the entry of this Order, petition the Commission to: (1) reopen this matter to consider whether Respondent provided accurate and complete financial information at the time such representations were made; and (2) seek any additional remedies that the Commission would be authorized to impose in this proceeding if Respondent's offer of settlement 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 respected
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 The Order Instituting Proceedings in this matter was issued on February 7, 2000.
2 The findings herein are made pursuant to Respondent H.J. Meyers's offer of settlement and are not binding on any other persons or entities in this or any other proceeding.
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