SECURITIES EXCHANGE ACT OF 1934
RELEASE NO. 41908 / September 23, 1999
FILE NO. 3-10026
FIRST COLONIAL SECURITIES GROUP, INC., MICHAEL E. GOLDEN AND STEVEN D. SCHWARTZ CHARGED WITH FAILURE TO SUPERVISE
The Securities and Exchange Commission today instituted public administrative proceedings against First Colonial Securities Group, Inc. ("First Colonial"), Michael E. Golden ("Golden"), and Steven D. Schwartz ("Schwartz").
The Commission's Order alleges that First Colonial, a broker-dealer registered with the Commission, Golden, its president and chief executive officer, and Schwartz, a shareholder and formerly First Colonial's compliance officer, failed reasonably to supervise Robert Tommassello ("Tommassello"), a registered representative under their supervision, with a view toward preventing his violations of the federal securities laws.
The Order alleges that Tommassello operated a First Colonial Office of Supervisory Jurisdiction ("OSJ") in Hazleton, Pennsylvania, from November 1995 until he was terminated in March 1998. During this time, First Colonial's headquarters were in Marlton, New Jersey. Beginning in December 1995, and continuing until February 1998, Tommassello engaged in a scheme to misappropriate money from First Colonial customers by soliciting customers to invest in mutual funds and variable annuities and converting those funds to his personal use. He used new investor funds to pay existing investors, and prepared fictitious account statements. Through this scheme, Tommassello converted to his own use more than $1.33 million in customer funds. As a result of this conduct, Tommassello violated Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder.
The Order alleges that First Colonial and Golden failed to establish sufficient written procedures for following up on information contained in Forms U-4 and U-5, which would have put the firm on notice of Tommassello's past history of misappropriation, and failed to devote adequate resources to the firm's compliance and supervisory framework in order to keep pace with the growth of the firm. Despite having grown from one office with three registered representatives in 1989 to 24 offices with 150 registered representatives in 1998, First Colonial employed only one person to devote only part of his time to compliance matters.
The Order also alleges that Schwartz failed to follow the firm's existing procedures requiring annual unannounced inspections of an OSJ. Schwartz did not conduct any compliance inspections of Tommassello's Hazleton OSJ until more than two years after it became associated with First Colonial. At that time, he gave Tommassello advance notice of his visit.
A hearing will be held before an administrative law judge to determine whether the staff's allegations against First Colonial, Golden and Schwartz are true, and if so, what remedial sanctions are appropriate and in the public interest and whether First Colonial, Golden and Schwartz should be ordered to pay civil penalties.