UNITED STATES OF AMERICA
SECURITIES AND EXCHANGE COMMISSION
SECURITIES ACT OF 1933
Release No. 8499 / September 30, 2004
SECURITIES EXCHANGE ACT OF 1934
Release No. 50476 / September 30, 2004
INVESTMENT ADVISERS ACT OF 1940
Release No. 2309 / September 30, 2004
Admin. Proc. File No. 3-11692
IN THE MATTER OF RAYMOND JAMES FINANCIAL SERVICES, INC., J. STEPHEN PUTNAM and DAVID LEE ULLOM
On September 30, 2004, the Commission issued an Order Instituting Public Administrative and Cease-and-Desist Proceedings Pursuant to Section 8A of the Securities Act of 1933 (Securities Act), Sections 15(b) and 21C of the Securities Exchange Act of 1934 (Exchange Act), and Section 203(f) of the Investment Advisers Act of 1940 (the Order) against Raymond James Financial Services, Inc. (Raymond James), a St. Petersburg, Florida-based broker-dealer and investment adviser registered with the Commission; J. Stephen Putnam (Putnam) of Tarpon Springs, Florida; and David Lee Ullom (Ullom) of Greene, Rhode Island. The Division of Enforcement (Division) alleges that Raymond James committed fraud based on the fraudulent acts of Dennis S. Herula (Herula), one of its registered representatives, and also charges Raymond James, Putnam and Ullom for failing reasonably to supervise Herula.
The Division alleges that in his capacity as a Raymond James registered representative during 1999 and 2000 and as part of a fraudulent scheme, Herula made numerous false representations to solicit investors, who deposited approximately $44.5 million in a brokerage account at Raymond James held in the name of Brite Business Corporation. According to the Order, Putnam, who was then the president and chief operating officer of Raymond James, and Ullom, who was Herula's branch office manager at Raymond James, were aware that Herula was making and/or had made misrepresentations on behalf of Raymond James, but failed to take timely or adequate steps to address those misrepresentations or to stop Herula from making further misrepresentations. The Division further alleges that approximately $15.5 million of the investor funds deposited in the Brite Business account at Raymond James - most of which was subsequently transferred to Herula's wife's brokerage account at Raymond James - was dissipated and never returned to investors. The Division also alleges that Herula and his wife misappropriated approximately $8.7 million of those funds. According to the Order, Putnam and/or Ullom facilitated the dissipation of those funds by approving the transfers from the Brite Business account to Herula's wife's account. The Division alleges that Putnam and Ullom failed reasonably to supervise Herula when they failed to respond adequately to several "red flags" concerning Herula's activities. The Division also alleges that Raymond James committed direct violations of the antifraud provisions of the federal securities laws based on Herula's activities, and charges Raymond James and Putnam with failing reasonably to supervise Herula by failing to establish procedures or systems to implement existing procedures concerning the supervision of registered representatives who worked away from the office (as Herula did), heightened supervision of registered representatives, monitoring or auditing operating accounts of branch offices, and investigation of fund transfers.
The Division alleges that as a result of Herula's fraudulent conduct, Raymond James violated Section 17(a) of the Securities Act and Section 10(b) of the Exchange Act and Rule 10b-5 thereunder. The Division also alleges that Raymond James, Putnam and Ullom failed reasonably to supervise Herula, a person subject to their supervision, with a view to preventing or detecting Herula's violations of Section 17(a) of the Securities Act and Section 10(b) of the Exchange Act and Rule 10b-5 thereunder. According to the Order, Raymond James also violated Section 17(a) of the Exchange Act and Rule 17a-4 thereunder by failing to preserve for three years, the first two years in an accessible place, electronic mail communications, and by failing to promptly furnish certain electronic mail communications to the Commission staff.
A hearing will be held by an administrative law judge to determine whether the allegations contained in the Order are true, to provide the Respondents an opportunity to dispute these allegations, and to determine what, if any, remedial sanctions are appropriate and in the public interest. The Order requires the Administrative Law Judge to issue an initial decision no later than 300 days from the date of service of this Order, pursuant to Rule 360(a)(2) of the Commission's Rules of Practice.
See also the Order in this matter