Securities Act of 1933
Securities Exchange Act of 1934
COMMISSION ISSUES ORDER ALLEGING THAT BROKER-DEALER EMPLOYEES AIDED AND ABETTED THE BROKER-DEALER AND ITS PRINCIPAL TO VIOLATE THE ANTIFRAUD, NET CAPITAL AND BOOKS AND RECORDS PROVISIONS OF THE SECURITIES LAWS
The Commission announced today that it issued an Order Initiating Public Administrative Proceedings and Notice of Hearing Pursuant to Section 8A of the Securities Act of 1933 and Sections 15(b)(6) and 21C of the Securities Act of 1934 (“Order”) against Joseph Berryl Septimus (“Septimus”) and Suzanne Pelosi (“Pelosi”). In the Order the staff alleges that Septimus, while employed as the controller of a now defunct Broker-Dealer (“Broker-Dealer”), willfully aided and abetted and caused the Broker-Dealer and its Principal (the “Principal”) to violate Section 17(a) of the Securities Act of 1933 (“Securities Act”) and Sections 10(b), 15(c) and 17(a) of the Securities and Exchange Act of 1934 (“Exchange Act”) and Rules 10b-3, 10b-5, 15c1-2, 15c3-1, 17a-3 and 17a-5 thereunder. The Order also alleges that Pelosi, while employed as the Principal’s secretary, willfully aided and abetted and caused the Broker-Dealer to violate Section 17(a) of the Exchange Act and Rule 17a-3 thereunder.
In the Order, the staff alleges that between April and September 1994, 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. 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 then sold 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.
While serving as the Broker-Dealer’s controller, Septimus knew that the Principal engaged in these activities and provided substantial assistance to the Principal in connection with his scheme. Septimus assisted the Principal by moving money and securities into and out of Citibank, where Blech maintained numerous cash and security custody accounts, in response to various purchases and sales made by Blech. Septimus also wired money out of accounts controlled by the Principal at Citibank to pay for the Principals’ manipulative trades.
The Order further alleges that the Broker-Dealer violated, and Septimus and Pelosi willfully aided and abetted and caused violations of the books and records provisions of the securities laws (Septimus with violations of Section 17(a) of the Exchange Act and Rules 17a-3 and 17a-5 thereunder and Pelosi with violations of Section 17(a) of the Exchange Act and Rule 17a-3 thereunder), by failing to accurately make and keep certain records and reports as required by Commission rule. For example, in order to make manipulative and unauthorized trades the Principal needed to have the signatures of certain account holders forged. The Principal instructed Pelosi to forge the names of these account holders, and Pelosi complied with these orders. Septimus was aware of, and assisted in, the forging of these documents.
A hearing will be held before an administrative law judge to determine whether the staff’s allegations are true, and, if so, to determine what relief is appropriate in the public interest.