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U.S. Securities and Exchange Commission

UNITED STATES OF AMERICA
Before the
SECURITIES AND EXCHANGE COMMISSION

SECURITIES ACT OF 1933
Release No. 8165 / December 19, 2002

SECURITIES EXCHANGE ACT OF 1934
Release No. 47037 / December 19, 2002

ADMINISTRATIVE PROCEEDING
File No. 3-9933


In the Matter of

A.S. GOLDMEN & CO., INC.,
ANTHONY J. MARCHIANO,
STUART E. WINKLER,
JOHN T. DIASABEYAGUNAWARDENA,
(a.k.a. JOHN ABBEY)
JOHN P. DELCIOPPO,
CHRISTOPHER M. DELCIOPPO,
VINCENT J. LIA,
DUANE P. TAYLOR, AND
CHARLES TRENTO,

Respondents.


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ORDER MAKING FINDINGS,
ORDERING RESPONDENTS TO
CEASE AND DESIST, AND
IMPOSING REMEDIAL SANCTIONS
AS TO A.S. GOLDMEN &
CO., INC. AND
ANTHONY J. MARCHIANO

I.

On July 7, 1999, the Securities and Exchange Commission ("Commission") instituted public administrative and cease-and-desist proceedings, pursuant to Section 8A of the Securities Act of 1933 ("Securities Act") and Sections 15(b)(4), 15(b)(6), and 21C of the Securities Exchange Act of 1934 ("Exchange Act").

II.

Respondents A.S. Goldmen & Co., Inc. ("Goldmen") and Anthony J. Marchiano ("Marchiano") have submitted an Offer of Settlement ("Offer"), 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 to which the Commission is a party, and without admitting or denying the Commission's findings contained herein, except that Goldmen and Marchiano admit that the Commission has jurisdiction over them and over the subject matter of these proceedings, Goldmen and Marchiano, by their Offer, consent to the entry of this Order Making Findings, Ordering Respondents to Cease and Desist, and Imposing Remedial Sanctions as to A.S. Goldmen & Co., Inc. and Anthony J. Marchiano ("Order"), as set forth below.

III.

On the basis of this Order and the Offer submitted by Goldmen and Marchiano, the Commission finds:1

  1. A.S. Goldmen & Co., Inc. was a New York corporation registered as a broker-dealer with the Commission since 1988. Goldmen specialized in underwriting IPOs of small development-stage companies, selling those securities to retail investors, and functioning as the primary market-maker in the secondary market for those securities. Goldmen effectively ceased its retail operations in November 1998 and had its NASD registration cancelled in December 1998. On July 23, 2001, after a six-month jury trial, Goldmen was convicted of enterprise corruption, nine counts of securities fraud and six counts of criminal possession of stolen property. Goldmen was ordered, along with Marchiano, to forfeit $8.5 million, of which $8 million represents restitution to victims.

  2. Anthony J. Marchiano, 40, founded A.S. Goldmen & Co., Inc. and was its sole shareholder, director, and president. On July 23, 2001, Marchiano was convicted by jury verdict of enterprise corruption, 36 counts of securities fraud, six counts of criminal possession of stolen property, five counts of falsifying business records, and four counts of grand larceny. On November 8, 2001, Marchiano was sentenced to a maximum prison sentence of 10-30 years and ordered, along with Goldmen, to forfeit $8.5 million, of which $8 million represents restitution to victims.

  3. From at least April 1997 to April 1998, Goldmen and Marchiano conducted an unregistered offering of over 3 million shares of the common stock of Millennium Sports Management, Inc. ("Millennium"), a publicly traded New Jersey corporation, to Goldmen's retail clients, without the availability of an exemption from registration. During that time, Goldmen and Marchiano, acting as underwriters, converted over 3 million Class D warrants that were deposited into a Millennium account at Goldmen as the source of stock that it sold to retail investors during an aggressive cold calling campaign. Some of the sales of Millennium made during this time were short sales that were covered by the conversion of the Class D warrants. Marchiano did not deliver prospectuses (or equivalent information) to these clients, and no exemption existed from the registration and prospectus delivery requirements of the Securities Act for this offering.

  4. From at least July 1997 to at least June 1998, Marchiano orchestrated a scheme to market Millennium stock to Goldmen's retail clients through a variety of fraudulent and deceptive sales practices. Under Marchiano's direction, Goldmen's Naples, Florida office became a "boiler room" dedicated to selling Millennium stock through an aggressive cold-calling campaign, involving high-pressure sales tactics, misrepresentations and omissions of material facts, baseless price predictions, unauthorized purchases, and an undisclosed no net-selling practice.

  5. From at least July 1994 to at least February 1997, Marchiano implemented a scheme to resolve client complaints by placing IPO warrants into the accounts of such complaining clients during various IPOs and controlling the repurchase and resale of those warrants. Because of the control Marchiano exercised over these accounts, the pertinent IPO distributions were not complete before Goldmen commenced aftermarket trading. At least one of the stocks offered in this scheme was a penny stock.

  6. Due to certain nominee accounts used by certain of the respondents, Goldmen's books and records failed to reflect the beneficial ownership of the accounts. Further, certain respondents directed others to falsify, alter, conceal, of dispose of required books and records in order to conceal trades done in states in which securities were not registered, trades by brokers not registered in the states in which the trades occurred, the actual prices of block transactions, and the implementation of Goldmen's no net-selling practice.

IV.

Sections 5(a) and 5(c) of the Securities Act prohibit all sales or offers to sell or buy securities before the filing of a registration statement. Section 5(b) requires the delivery of a prospectus to all purchasers of securities. Section 4 of the Securities Act sets forth exemptions to the registration and prospectus delivery requirements of Section 5. Marchiano willfully violated the registration provisions by conducting, from April 1997 to April 1998, an unregistered offering of over 3 million shares of Millennium stock to Goldmen's retail clients without the availability of an exemption from registration. Goldmen violated Section 5 by directly selling Millennium shares without a registration statement. Marchiano violated Section 5 by directly and indirectly selling Millennium shares without a registration statement. First, Marchiano directly sold Millennium stock to his own retail clients during this period. Second, Marchiano orchestrated and directed the scheme to have Goldmen brokers aggressively sell Millennium stock to Goldmen's retail clients and convert the Class D warrants to supply the stock for those sales.

Goldmen and Marchiano willfully violated the prospectus delivery provision in Section 5(b) of the Securities Act by not having Goldmen brokers deliver prospectuses or equivalent information to retail clients buying Millennium stock during this period.

Section 17(a) of the Securities Act and Section 10(b) of the Exchange Act and Rule 10b-5 thereunder prohibit material misstatements or omissions in the offer or sale, or in connection with the purchase or sale of securities. Information is material if there is a substantial likelihood that a reasonable investor would consider the information to be important or to have significantly altered the total mix of information made available about the investment. Basic, Inc. v. Levinson, 485 U.S. 224, 231-32 & 235 n.13 (1988). A showing of scienter is required to establish a violation of Section 17(a)(1), Section 10(b) and Rule 10b-5. Aaron v. SEC, 446 U.S. 680, 691 & 697 (1980). Recklessness or willful disregard of the truth generally satisfies this requirement. SEC v. Falstaff Brewing Corp., 629 F.2d 62, 77 (D.C. Cir. 1980). Through Marchiano's orchestration and "hands on" involvement in the fraudulent sales practices that occurred at Goldmen's Naples, Florida office in connection with the offer and sale of Millennium stock from July 1997 through June 1998, Goldmen and Marchiano violated Section 17(a) of the Securities Act, Section 10(b) of the Exchange Act and Rule 10b-5 thereunder as primary violators.

Goldmen and Marchiano also violated Section 17(a) of the Securities Act and Section 10(b) of the Exchange Act and Rule 10b-5 thereunder in connection with the scheme to resolve client complaints with IPO warrants. By engaging in that scheme, Marchiano knowingly or recklessly omitted to disclose the material fact that the nature and extent of investor interest in the offering and the trading of securities in the aftermarket of several Goldmen-underwritten IPOs did not result from the unfettered forces of supply and demand. Rather, Goldmen and Marchiano exercised control over the allocation of large amounts of IPO warrants to complaining clients, when and at what price Goldmen repurchases those warrants from those clients, and when Goldmen's brokers resold those warrants back to bona fide purchasers. As a result, there was a materially false impression of the nature and extent of investor interest in the offerings and aftermarket trading following the IPOs.

Rule 10b-6, promulgated under Section 10(b) of the Exchange Act (and replaced by Regulation M as of March 4, 1997), provided that it is a manipulative or deceptive device for an underwriter participating in a distribution of securities to bid for or purchase such securities until it had completed its participation in the distribution. In the Matter of Swartwood, Hesse, Inc., Exchange Act Release No. 31212 (September 22, 1992). Placing securities in proprietary or nominee accounts over which the underwriter exercises control does not constitute a bona fide sale to the investing public as is necessary for the distribution to be completed. In the Matter of Swartwood, Hesse, Inc., Exchange Act Release No. 31212 (September 22, 1992). Thus an underwriter violates Rule 10b-6 if it bids for or purchases such securities in aftermarket trading while securities are held in nominee or proprietary accounts. Moreover, a principal of the underwriter who places securities in the nominee or proprietary accounts during an IPO is directly liable for the underwriter's resulting violation of Rule 10b-6. See SEC v. Blinder Robinson & Co., Inc., 425 F.Supp. 468 (D. Colo. 1982) (president and controlling officer of a broker-dealer directly liable for the firm's violation of Rule 10b-6 because illegal purchase was either at his direction or known to him).

Goldmen and Marchiano violated Rule 10b-6 when Marchiano directed Goldmen's trading desk to commence making markets in the IPO warrants before completing the distribution. At Marchiano's direction, Goldmen posted bids for and made purchases of these securities before Marchiano's participation in the distribution was complete. These bids and purchases constituted violations of Rule 10b-6. Marchiano is primarily liable for these violations because of his control over the disposition of the client shares and the bids and purchases affected by Goldmen's traders

Section 17(a) of the Exchange Act and the rules promulgated by the Commission thereunder require broker-dealers to create and maintain certain records. In violation of Rule 17a-3(a)(9), Goldmen's books and records did not reflect the actual beneficial owners of nominee accounts. Other respondents also willfully aided and abetted and caused Goldmen's violations of Rules 17a-3(a)(1), 17a-3(a)(6), 17a-4(a), 17a-4(b)(1), and 17a-4(b)(4) by instructing certain Goldmen employees to conceal, destroy, and alter certain trade tickets and remove trading blotters and customer complaints from Goldmen's New Jersey office.

Section 15(b)(6)(A) provides, in relevant part, that, with respect to any person who at the time of the alleged misconduct was participating in any offering of any penny stock, the Commission shall bar such person from participating in any offering of penny stock, if the Commission finds such bar to be in the public interest and that such person has been convicted of any offense specified in subparagraph (B) of such paragraph (4) within 10 years of the commencement of the proceeding under this paragraph. Section 15(b)(4)(B) offenses include those involving the purchase or sale of securities.

V.

In view of the foregoing, Goldmen and Marchiano willfully violated Sections 5 and 17(a) of the Securities Act, Section 10(b) of the Exchange Act and Rules 10b-5 and 10b-6 thereunder. In addition, Goldmen willfully violated Section 17(a) of the Exchange Act and Rules 17a-3 and 17a-4 thereunder.

VI.

Based on the foregoing, the Commission deems that it is appropriate and in the public interest to impose the sanctions that are set forth in the Offer.

ACCORDINGLY, IT IS ORDERED that:

  1. Pursuant to Section 8A of the Securities Act and Section 21C of the Exchange Act, Goldmen shall cease and desist from committing or causing any violation and any future violation of Sections 5 and 17(a) of the Securities Act, Sections 10(b) and 17(a) of the Exchange Act, Rules 10b-5, 17a-3 and 17a-4 thereunder, and Rule 101 of Regulation M;

  2. Pursuant to Section 8A of the Securities Act and Section 21C of the Exchange Act, Marchiano shall cease and desist from committing or causing any violation and any future violation of Sections 5 and 17(a) of the Securities Act, Section 10(b) of the Exchange Act, Rule 10b-5 thereunder and Rule 101 of Regulation M;

  3. Pursuant to Section 15(b)(4) of the Exchange Act, Goldmen's registration as a broker-dealer shall be, and hereby is, revoked;

  4. Pursuant to Section 15(b)(6) of the Exchange Act, Marchiano shall be, and hereby is, barred from association with any broker or dealer; and

  5. Pursuant to Section 15(b)(6) of the Exchange Act, Marchiano shall be, and hereby is, barred from participating in any offering of a penny stock, including: (i) acting as a promoter, finder, consultant, agent, or other person who engages in activities with a broker, dealer or issuer for purposes of the issuance or trading in any penny stock; or (ii) inducing or attempting to induce the purchase or sale of any penny stock.

  6. IT IS FURTHER ORDERED that Goldmen and Marchiano shall pay, jointly and severally, within six months of the entry of this Order, disgorgement in the amount of $150,000. Goldmen's and Marchiano's disgorgement obligation shall be satisfied from the Marchianos' interest in proceeds of the sale of certain property now in the possession of the Special Master appointed by the Supreme Court, New York County to receive restitution in Indictment No. 4772 of 1999. To the extent that the proceeds from the Marchianos' interest in the sale of such certain property do not total $150,000, Goldmen and Marchiano will make additional payments to the Restitution Fund that will, when aggregated with the sale proceeds, total $150,000. After they have completed payment of their disgorgement obligation, Respondents shall submit a cover letter that identifies Goldmen and Marchiano as Respondents in these proceedings, the file number of these proceedings, and evidence of payment to Brian A. Ochs, Assistant Director, Division of Enforcement, Securities and Exchange Commission, 450 5th Street, N.W., Washington, D.C. 20549-0801.

By the Commission.

Jonathan G. Katz
Secretary

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1 The findings herein are made pursuant to Goldmen and Marchiano's Offer of Settlement and are not binding on any other person or entity in this or any other proceeding.


http://www.sec.gov/litigation/admin/33-8165.htm


Modified: 12/20/2002