UNITED STATES OF AMERICA
In the Matter of
CHARLES C. CAMPBELL,
|ORDER INSTITUTING PROCEEDINGS, MAKING FINDINGS, AND IMPOSING A CEASE-AND-DESIST ORDER|
The Commission deems it appropriate to institute public administrative proceedings pursuant to Section 8A of the Securities Act of 1933 ("Securities Act") and Section 21C of the Securities Exchange Act of 1934 ("Exchange Act") against Charles C. Campbell, and such proceedings are hereby instituted.
In anticipation of the institution of these proceedings, Campbell has 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 to which the Commission is a party, Campbell, without admitting or denying the findings contained herein, except that he admits to the Commission's jurisdiction over him and over the subject matter of these proceedings, consents to the issuance of this Order.
The Commission makes the following findings:1
Charles C. Campbell, age 39, is a real estate developer. He has never worked in the securities business.
B. Relevant Broker-Dealer
Knight Securities, L.P. ("Knight") is a registered broker-dealer headquartered in Jersey City, New Jersey. Knight is a subsidiary of Knight Trading Group, Inc., a Delaware corporation headquartered in Jersey City, New Jersey. The common stock of Knight Trading Group, Inc. is registered with the Commission pursuant to Exchange Act Section 12(g) and trades on the Nasdaq National Market.
C. The Fraud
On or about March 5, 2001, at the request of a friend and business partner who was then employed as an equity trader at Knight, Campbell opened an account with E*TRADE Securities LLC ("E*TRADE"), an on-line retail brokerage firm that directs the vast majority of its customer orders to Knight for execution as a market maker. Thereafter, with Campbell's knowledge and consent, Campbell's friend, along with another equity trader at Knight (jointly referred to as the "Knight Traders"), placed orders through Campbell's E*TRADE account to purchase and sell specific thinly-traded securities for which the Knight Traders were responsible for executing trades in Knight's proprietary accounts. The Knight Traders would typically use electronic means, such as a Palm Pilot, to place the orders. The Knight Traders knew that the orders they placed in Campbell's E*TRADE account would be routed for execution to Knight, and specifically to themselves.
Typically, the Knight Traders sold securities from Knight's proprietary accounts to Campbell's E*TRADE account at prices that were significantly less than their fair market value and, shortly thereafter, repurchased the same securities from Campbell's E*TRADE account at prices that were higher than their fair market value, all at Knight's expense. Between March 2001 and October 2001, the Knight Traders, with Campbell's acquiescence, executed 17 fraudulent trades with Campbell's E*TRADE account, resulting in an average profit per trade to the account of $30,383.67 and a total of $516,522.40 in unlawful profits. Every dollar of profit generated for the Campbell E*TRADE account translated into a corresponding loss for Knight. In addition, although Campbell did not receive or control the disposition of the unlawful profits, a portion of the unlawful profits was used to fund a business in which Campbell and one of the Knight Traders were partners.2 As the nominal owner of the E*TRADE account, as a friend and business partner of one of the Knight Traders, and as an indirect beneficiary of the Knight Traders' fraudulent trading in the account, Campbell knew or should have known that the E*TRADE account was being used to facilitate an unlawful trading scheme.
D. Legal Analysis
Securities Act Section 8A and Exchange Act Section 21C authorize the Commission to issue a cease-and-desist order against any person who is a "cause" of another person's violation of the federal securities laws. A person is a "cause" of another's violation if the person "knew or should have known" that his or her act or omission would contribute to such a violation. See Securities Act Section 8A; Exchange Act Section 21C.
Here, by opening an E*TRADE account and allowing it to be used by the Knight Traders to engage in an unlawful trading scheme, Campbell was a cause of the Knight Traders' violations of Securities Act Section 17(a), Exchange Act Section 10(b), and Exchange Act Rule 10b-5.
Based on the foregoing, the Commission finds that Campbell was a cause, within the meaning of Securities Act Section 8A and Exchange Act Section 21C, of the Knight Traders' violations of Securities Act Section 17(a), Exchange Act Section 10(b) and Exchange Act Rule 10b-5.
In view of the foregoing, the Commission deems it appropriate to accept the Offer of Settlement submitted by Campbell. Accordingly, IT IS HEREBY ORDERED, pursuant to Securities Act Section 8A and Exchange Act Section 21C, that Campbell cease and desist from committing or causing any violations of, and any future violations of Securities Act Section 17(a), Exchange Act Section 10(b), and Exchange Act Rule 10b-5.
Jonathan G. Katz
1 The findings herein are not binding on anyone other than Campbell.
2 In a related action, the Commission has contemporaneously filed a lawsuit in federal court charging the Knight Traders and another defendant with violating Securities Act Section 17(a), Exchange Act Section 10(b) and Exchange Act Rule 10b-5. Simultaneous with the filing of the Commission's complaint in that case, and without admitting or denying the Commission's allegations, one of the Knight Traders consented to a final judgment permanently enjoining him from violating Securities Act Section 17(a), Exchange Act Section 10(b) and Exchange Act Rule 10b-5.
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