UNITED STATES OF AMERICA
In the Matter of
JOSEPH BERRYL SEPTIMUS
ORDER MAKING FINDINGS,
IMPOSING REMEDIAL SANCTIONS
AND IMPOSING A CEASE-AND-
By an order issued June 30, 1999, the Securities and Exchange Commission ("Commission") instituted a public administrative proceeding pursuant to Section 8A of the Securities Act of 1933 (the "Securities Act") and Sections 15(b)(6) and 21C of the Securities Exchange Act of 1934 (the "Exchange Act') against Berryl Septimus.
After the institution of these proceedings, Septimus submitted an Offer of Settlement ("Offer") to the Commission, which the Commission has determined to accept. 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 admitting the Commission's jurisdiction over him and the subject matter of this proceeding and the finding in III.B of this Order, Septimus consents to the issuance of this Order Making Findings, Imposing Remedial Sanctions and Imposing a Cease-and-Desist ("Order") and to the entry of the findings and the imposition of the remedial sanctions set forth below.
On the basis of this Order and Septimus's Offer, the Commission makes the following findings:
A. Septimus is an accountant residing in Brooklyn, NY. He is 56 years old.
B. From September 1991 through September 1994, Septimus was employed by, and associated with, a currently defunct broker-dealer formerly registered with the Commission (the "Broker-Dealer"), as its controller.
C. The Principal of the Broker-Dealer orchestrated a manipulative scheme designed to increase and/or stabilize the prices of a number of the biotechnology securities that the Broker-Dealer took public and in which it made a market. These securities included BioSepra, Inc. common stock, Intelligent Surgical Lasers, Inc. Class A warrants, HemaSure, Inc. common stock, Ariad Pharmaceuticals, Inc. units, Ecogen, Inc. common stock and MicroProbe Corporation common stock and warrants (the "biotechnology stocks"). For instance, from July through September 1994, the Principal knowingly executed hundreds of transactions in biotechnology stocks. The Principal routinely sold biotechnology stocks from the Broker-Dealer's inventory accounts to brokerage accounts the Principal controlled that were in the names of other individuals and entities. These controlled accounts would then sell the biotechnology stocks back to the brokerage firm or to other accounts controlled by the Principal. Additionally, the Principal engaged in other practices such as wash sales and matched orders in the biotechnology stocks. The Principal also engaged in unauthorized trading in customer accounts. These trades created the appearance of active trading in the biotechnology stocks. Additionally, through this trading, the Principal was also able to reduce the Broker-Dealer's inventory position in the biotechnology stocks, yet still artificially withhold from the market the supply of the biotechnology stocks. The Broker-Dealer also operated without sufficient net capital, failed to keep accurate books and records, including records of its aggregate indebtedness and net capital, and filed inaccurate Financial Operational Combined Uniform Single Reports ("FOCUS reports").
D. One of Septimus's duties as controller of the Broker-Dealer was to maintain the firm's general ledger that contained detailed calculations of all asset classes. The general ledger was the foundation upon which FOCUS reports and net capital computations were built.
E. While serving as the Broker-Dealer's controller, Septimus knew, or was reckless in not knowing, that the Principal controlled trading in a number of affiliated accounts in the names of entities and individuals, and that the Principal paid for trades in biotechnology stocks in many of these accounts. Septimus maintained a spreadsheet detailing the securities holdings of accounts that the Principal controlled. Thus, Septimus knew, or was reckless in not knowing, that the Broker-Dealer was not accurately reporting the identity of the true beneficial owner of the securities in the accounts that the Principal controlled. In addition, by maintaining detailed records of the securities that the Principal held in the controlled accounts, Septimus knew, or was reckless in not knowing, that the Principal, in his endeavor to reduce artificially the Broker-Dealer's inventory, was parking biotechnology securities in the controlled accounts and that the Principal was artificially withholding from the market the supply of the biotechnology stocks.
F. Septimus assisted the Principal by, at the Principal's direction, moving money and securities into and out of Citibank, where the Principal maintained numerous cash and security custody accounts, in response to various purchases and sales made by the Principal.
G. On at least eight days between March through June 1994, the Broker-Dealer operated and purchased and/or sold securities without sufficient net capital. Among other reasons, the Broker-Dealer improperly calculated its net capital, and had a net capital deficiency, because the Principal removed blocks of non-marketable securities from the firm's inventory (the value of which could not be included when calculating net capital) and parked them in customer accounts. The transfer of these securities enabled the Broker-Dealer to replace the non-marketable securities with cash or a receivable, thereby inflating the Broker-Dealer's net capital position.
H. Septimus, as Controller, was responsible for maintaining the Broker-Dealer's general ledger that contained detailed calculations of all asset classes. Inaccuracies in the inventory amounts on the general ledger led to inaccurate amounts of inventory, total indebtedness and net capital reported on the FOCUS reports and on the Broker-Dealer's financial records.
I. Septimus knew, or was reckless in not knowing, that the Broker-Dealer was reporting an artificially low amount of securities held in its inventory, and an artificially high amount of cash and other receivables. The general ledger made these misstatements and Septimus knew, or was reckless in not knowing, of these false entries.
J. Based on the conduct described above, the Broker-Dealer and its Principal violated, and Septimus willfully aided and abetted and caused violations of, Section 17(a) of the Securities Act, and Section 10(b) of the Exchange Act, and Rule 10b-5. Additionally, based on the conduct described above, the Broker-Dealer violated, and Septimus willfully aided and abetted and caused violations of, Sections 15(c) and 17(a) of the Exchange Act, and Rules 10b-3, 15c1-2, 15c3-1, 17a-3 and 17a-5.
In view of the foregoing, it is appropriate in the public interest to impose the sanctions specified in the Offer.
Accordingly, IT IS HEREBY ORDERED that:
A. Effective immediately, Septimus cease and desist, pursuant to Section 8A of the Securities Act and Section 21C of the Exchange Act, from committing or causing any violation and any future violation of Section 17(a) of the Securities Act and Section 10(b) of the Exchange Act and Rule 10b-5, and from causing any violation and any future violation of Sections 15(c) and 17(a) of the Exchange Act and Rules 10b-3, 15c-1, 15c3-1, 17a-3 and 17a-5 thereunder; and
B. Septimus be, and hereby is, suspended from association with any broker or dealer for a period of six months, effective on the second Monday following the entry of this Order; and
C. Septimus shall provide to the Commission within thirty days after the end of the six month suspension period described above, an affidavit that he has complied fully with the sanctions described in Section IV.B above; and
D. Septimus shall, within 30 days of the entry of this Order, pay a civil money penalty in the amount of $7,500 to the United States Treasury. Such payment shall be: (i) made by United States postal money order, certified check, bank cashier's check or bank money order made payable to the Securities and Exchange Commission; (ii) hand-delivered or mailed to the Comptroller, Securities and Exchange Commission, Operations Center, 6432 General Green Way, Stop 0-3, Alexandria, VA 22312; and (iii) submitted under cover letter that identifies Berryl Septimus 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 Kay Lackey, Esq., Assistant Regional Director, Northeast Regional Office, Securities and Exchange Commission, 7 World Trade Center, New York, NY 10048.
By the Commission.
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