United States Securities and Exchange Commission
Securities Act of 1933
Release No. 8341 / November 26, 2003
Securities Exchange Act of 1934
Release No. 48853 / November 26, 2003
Release No. 3-11346
In the Matter of Steven E. Muth, Richard J. Rouse and Bruce J. Bates
The Commission today instituted cease-and-desist and administrative proceedings against Steven E. Muth ("Muth"), a former registered representative with Schneider Securities, Inc. ("Schneider"), Richard J. Rouse ("Rouse"), the former Executive Vice President and a Director of Schneider, and Bruce J. Bates ("Bates"), a former branch office manager of Schneider (collectively, "Respondents"). Muth is a resident of Houston, Texas, Rouse is a resident of Highlands Ranch, Colorado, and Bates is a resident of Parker, Colorado.
The Division of Enforcement alleges that Muth engaged in fraudulent sales practices and made misrepresentations of material facts to Schneider customers from December 2000 through April 2001. The Division of Enforcement also alleges that Rouse and Bates failed to supervise Muth reasonably to prevent and detect his illegal activities.
The Division of Enforcement alleges, from December 2000 through April 2001, Muth made false statements that: (i) analyst research reports for two securities existed and would be published by Schneider in December 2000; (ii) a hedge fund purportedly would be formed to invest millions of dollars in two securities; (iii) Schneider customers would not owe any funds for margin purchases; and (iv) Schneider customers would not receive margin calls on securities purchased on margin. The Division of Enforcement further alleges that Muth gave baseless stock price predictions and engaged in sales practice abuses in the accounts of Schneider customers, including recommending unsuitable margin trading to several elderly Schneider customers with modest financial profiles and failing to follow sell instructions from several customers.
The Division of Enforcement alleges that Rouse participated in hiring the registered representative and in establishing procedures for the heightened supervision of the registered representative, while knowing that the registered representative had a disciplinary history and a history of customer complaints. The Division of Enforcement further alleges that Rouse failed reasonably to supervise Muth with a view to preventing Muth's violations of the federal securities laws by failing to develop a system to monitor whether Muth's supervisors, including himself, were adequately carrying out their responsibilities. The Division of Enforcement further alleges that Rouse and Bates failed reasonably to supervise Muth by failing to follow the firm's procedures regarding heightened supervision and failed to respond to red flags relating to Muth's misconduct. Finally, the Division of Enforcement alleges that Bates failed reasonably to supervise Muth with a view to preventing and Muth's violations of the federal securities laws by failing to follow-up on a customer complaint relating to Muth's misconduct.
The Commission instituted these proceedings against Respondents to determine whether: (a) the allegations against Respondents are true and to afford Respondents an opportunity to establish any defense to such allegations; (b) Muth should be ordered to cease and desist from committing or causing any violations and any future violations of the antifraud provisions of the Securities Act of 1933 and the Securities Exchange Act of 1934 ("Exchange Act") (collectively, the "antifraud provisions"); (c) remedial sanctions against Muth, pursuant to Sections 21B and 21C of the Exchange Act, should be ordered, including disgorgement and civil money penalties; and (d) remedial sanctions against Rouse and Bates, pursuant to Sections 15(b)(6) and 21B of the Exchange Act, should be ordered, including civil money penalties, for their failure reasonably to supervise Muth with a view to preventing Muth's violations of the antifraud provisions.
A hearing will be scheduled before an administrative law judge to determine whether the allegations contained in the Order Instituting Public Administrative and Cease-and-Desist Proceedings Pursuant to Section 8A of the Securities Act of 1933 and Sections 15(b) and 21C of the Securities Exchange Act of 1934 (Order) are true, to provide the Respondents an opportunity to dispute these allegations, and to determine what sanctions, if any, are appropriate in the public interest. The Commission directed that an administrative law judge shall issue an initial decision in this matter within 300 days from the date of service of the Order.