SECURITIES EXCHANGE ACT OF 1934
Release No. 41955 / September 30, 1999
File No. 3 -10060
_______________________________ : In the Matter of : : ORDER INSTITUTING PUBLIC : ADMINISTRATIVE PROCEEDINGS SEASONGOOD & MAYER and : PURSUANT TO SECTIONS 15(b), RICHARD D. REIS, : 15B(c), AND 19(h) OF THE : SECURITIES EXCHANGE ACT : OF 1934, MAKING FINDINGS AND Respondents. : IMPOSING REMEDIAL SANCTIONS : _______________________________
The Securities and Exchange Commission ("Commission") deems it appropriate and in the public interest that public administrative proceedings be instituted pursuant to Sections 15(b), 15B(c), and 19(h) of the Securities Exchange Act of 1934 ("Exchange Act") against Seasongood & Mayer ("Seasongood") and Richard D. Reis ("Reis") (collectively, "Respondents").
In anticipation of the institution of these administrative proceedings, Respondents have submitted Offers of Settlement that the Commission has determined to accept. Solely for the purpose of this proceeding and any other proceedings brought by or on behalf of the Commission, or to which the Commission is a party, and without admitting or denying the findings herein, except as to jurisdiction and those facts set forth in Sections II.A., II.B. and II.C., which are admitted by the Respondents, Respondents consent to the entry of this Order Instituting Public Administrative Proceedings, Making Findings, and Imposing Remedial Sanctions ("Order").
Accordingly, it is ordered that proceedings pursuant to Sections 15(b), 15B(c), and 19(h) of the Exchange Act be, and hereby are, instituted.
On the basis of the Order and the Offers of Settlement submitted by the Respondents, the Commission makes the following findings:
A. William J. Bramble, Jr. ("Bramble") is 38 years old and was a registered representative of Seasongood & Mayer from July 1989 to September 4, 1996 ("relevant time period"). On February 20, 1997, Bramble pleaded guilty in federal court to one count of interstate transportation of stolen securities, arising from the same conduct discussed in Sections II.D. and II.E. of this Order. On June 2, 1997, Bramble was sentenced to 46 months imprisonment, which he is currently serving at the federal correctional institute in Eglin, Florida. Bramble was also ordered to pay restitution in the amount of $1,500,812.96.
B. Seasongood & Mayer was formed in 1887, and became a limited partnership in 1944. It has been registered with the Commission as a broker-dealer pursuant to Section 15(b) of the Exchange Act since 1949. During the relevant time period, Seasongood was also a municipal securities dealer registered with the Municipal Securities Rulemaking Board. It is located in Cincinnati, Ohio, and employs 24 registered representatives.
C. Richard D. Reis is 52 years old and resides in Cincinnati, Ohio. During the relevant time period Reis was, and continues to be, the manager of Seasongood's retail sales force. As such, he was responsible for the day-to-day supervision of Seasongood's retail sales force, including Bramble. Reis became a limited partner of Seasongood in 1978 and a general partner in 1982. Reis became a general securities principal with Seasongood in 1980, and was made the retail sales manager in approximately 1990. He has been a registered representative with Seasongood since 1970.
D. Between 1990 and August 1996, Bramble engaged in a scheme to defraud in which he misappropriated six customers' municipal bearer bonds worth approximately $2 million. In furtherance of his scheme, Bramble misrepresented to his customers that he would purchase, sell, or safekeep bearer bonds for their accounts. Based on these misrepresentations, he obtained funds from his customers to purchase bearer bonds or obtained bearer bonds from his customers to sell for their accounts. Bramble then misappropriated these bearer bonds and converted them to cash through resale, liquidation, or by depositing them in a brokerage account at another broker-dealer where they were margined for cash. Bramble used the proceeds from the bonds to purchase personal assets such as homes, automobiles, an apartment building, and an airplane.
E. Bramble perpetuated and concealed his fraud by, among other things, opening accounts at Seasongood which he used to trade certain misappropriated bearer bonds and to sell those bonds to his customers. Bramble also changed the addresses on his defrauded customer's accounts to that of a post office box that he controlled. By doing so, Bramble was able to intercept legitimate account statements and trade confirmations that would have exposed his fraud. Bramble then created false account statements, trade confirmations, tax forms, and receipts using authentic looking materials he obtained from Seasongood's back office, and sent those false documents to his customers. Those documents misstated his customers' portfolios and misrepresented the activity in their accounts.
F. As a result of the conduct described in Sections II.D. and II.E., above, Bramble willfully violated Sections 17(a) of the Securities Act of 1933 and Section 10(b) of the Exchange Act and Rule 10b-5 thereunder.
G. From at least 1990 through August 1996, Seasongood failed reasonably to supervise Bramble with a view to preventing the violations described in Sections II.D. , II.E. and II.F. Seasongood's supervision of Bramble was deficient in that it:
1. failed to develop and implement effective written supervisory procedures for its back office and retail sales areas;
2. failed to develop and implement effective written policies and procedures identifying and describing appropriate and proscribed activities regarding sales practices, back office operations, and regulatory compliance matters;
3. failed to develop and implement adequate procedures to track the receipt and delivery of customers' bearer bonds;
4. failed to develop and implement policies and procedures to limit access to the back office by registered representatives;
5. failed to develop and implement adequate procedures limiting access to sensitive customer documents by registered representatives;
6. failed to develop and implement adequate procedures to address substantive customer inquiries and complaints;
7. failed to develop and implement adequate procedures to monitor and approve changes to customers' mailing addresses; and
8. failed to develop and implement adequate procedures to monitor registered representatives' outgoing mail.
H. From at least 1990 through August 1996, Richard D. Reis failed reasonably to supervise Bramble with a view to preventing the violations described in Sections II.D., II.E. and II.F. in that, as Bramble's direct supervisor, Reis failed to train Bramble, oversee his day-to-day activities, and review his customers' accounts. Reis also ignored or failed to recognize red flags related to Bramble's conduct, including Bramble's use of Seasongood accounts to resell misappropriated bearer bonds, and Bramble's lifestyle, which was excessive in light of his compensation by Seasongood.
I. As a result of the activities described in Sections II.G. and II.H., Bramble was able to continue his scheme through August 1996.
J. Based on the foregoing, Respondents failed reasonably to supervise Bramble with a view to preventing the violations described in Sections II.D., II.E. and II.F., within the meaning of Section 15(b)(4)(E) of the Exchange Act.
In view of the foregoing, it is in the public interest to impose the sanction specified in the Offers of Settlement.
Accordingly, IT IS ORDERED that:
A. Seasongood be censured;
B. Seasongood shall, prior to the close of business on the tenth business day following the issuance of this Order, pay a civil penalty to the United States Treasury in the amount of $50,000. The payment shall be: (a) made by certified check, bank cashier's check, bank money order or United States postal order; (b) made payable to the Securities and Exchange Commission; (c) mailed or delivered to the Securities and Exchange Commission, Operations Center, 6432 General Green Way, Stop O-3, Alexandria, Virginia 22312; and (d) submitted under cover letter which identifies Seasongood as one of the Respondents in these proceedings, and the Commission's file number in these proceedings. A copy of the cover letter and money order or check shall be sent to Daniel R. Gregus, Assistant Regional Director, Midwest Regional Office, Securities and Exchange Commission, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661.
C. Seasongood comply with the following undertakings:
1. Seasongood shall retain, within 30 days of the date of the Order, at its expense, an Independent Consultant acceptable to the staff of the Midwest Regional Office of the Commission ("Commission Staff"). The Independent Consultant shall conduct a review of Seasongood's supervisory, compliance, and other policies and procedures designed to prevent and detect federal securities law violations of the nature involved in this matter and recommend, at a minimum, procedures that address those deficiencies identified in Sections II.G. and II.H., and an effective system for implementing such procedures. Seasongood shall cooperate fully with the Independent Consultant and shall provide the Independent Consultant with access to its files, books, records, and personnel as reasonably requested for the review.
2. At the conclusion of that review, which in no event shall be more than 120 days after the date of the Order, the Independent Consultant shall submit to Seasongood and to the Commission an Initial Report. The Initial Report shall, at a minimum, address the supervisory deficiencies identified in Sections II.G. and II.H., and shall include the Independent Consultant's recommendations for policies and procedures to address these deficiencies and an effective system for implementing such policies and procedures.
3. Within 150 days of the date of the Order, Seasongood shall in writing advise the Independent Consultant and the Commission of the recommendations from the Initial Report that it has determined to accept and the recommendations that it considers to be unduly burdensome. With respect to any recommendation that Seasongood deems unduly burdensome, Seasongood may propose an alternative policy or procedure designed to achieve the same objective or purpose.
4. With respect to any recommendation or proposal with which Seasongood and the Independent Consultant do not agree, Seasongood and the Independent Consultant shall attempt in good faith to reach agreement within 180 days of the date of the Order. If the Independent Consultant and Seasongood are unable to agree on an alternative proposal acceptable to the Commission Staff, Seasongood shall abide by the recommendation of the Independent Consultant.
5. Within 180 days of the date of the Order, Seasongood shall in writing advise the Independent Consultant and the Commission Staff of the recommendations and proposals that it is adopting.
6. The Independent Consultant shall complete the aforementioned review and submit a written Final Report thereon to Seasongood and to the Commission Staff within 210 days of the date of the Order. The Final Report shall recite the efforts the Independent Consultant undertook to review Seasongood supervisory functions, compliance mechanisms, and other policies and procedures, and shall, at a minimum, set forth in detail the Independent Consultant's recommendations addressing the deficiencies identified in Sections II.G. and II.H., and a reasonable time period, not to exceed one year from the date of the Order, to implement those recommendations. The Final Report shall also describe how Seasongood proposes to implement those recommendations and proposals within the time periods set forth in the Final Report.
7. Seasongood shall take all necessary and appropriate steps to adopt and implement all recommendations contained in the Independent Consultant's Final Report.
8. No later than one year after the date of the Independent Consultant's Final Report, the Independent Consultant shall conduct a follow-up review of Seasongood's efforts to implement the recommendations contained in the Final Report, and shall submit a follow-up report to the Commission Staff. The follow-up report shall set forth the details of Seasongood's efforts to implement the recommendations contained in the Final Report, and shall state whether Seasongood has fully complied with the recommendations in the Final Report.
9. For good cause shown, and upon receipt of a timely application from the Independent Consultant or Seasongood, the Commission Staff may extend any of the procedural dates set forth above.
10. To ensure the independence of the Independent Consultant, Seasongood (i) shall not have the authority to terminate the Independent Consultant without the prior written approval of the staff of the Division of Enforcement; (ii) shall compensate the Independent Consultant, and persons engaged to assist the Independent Consultant, for services rendered pursuant to the Order at their reasonable and customary rates; (iii) shall not, without prior written consent of the staff of the Division of Enforcement, enter into any legal, business, or other financial relationship with the Independent Consultant, any firm with which he or she is affiliated or of which he or she is a member, or any person engaged to assist the Independent Consultant in the performance of his or her duties under the Order, during the period of their engagements and for a period of two years following the completion of their duties described in the Order; and (iv) shall not be in and shall not have an attorney-client relationship with the Independent Consultant and shall not seek to invoke the attorney-client or any other doctrine or privilege to prevent the Independent Consultant from transmitting any information, reports, or documents to the Commission or its staff.
D. Reis be suspended from association with any broker, dealer or municipal securities dealer for a period of six months, effective on the second Monday following the entry of this Order.
E. Beginning immediately upon completion of the six month suspension provided in Section III.D., Reis be barred from association in a supervisory capacity with any broker, dealer or municipal securities dealer with the right to reapply for association after two years to the appropriate self-regulatory organization, or if there is none, to the Commission; and
F. Reis shall, prior to the close of business on the tenth business day following the issuance of this Order, pay a civil penalty to the United States Treasury in the amount of $20,000. The payment shall be: (a) made by certified check, bank cashier's check, bank money order or United States postal order; (b) made payable to the Securities and Exchange Commission; (c) mailed or delivered to the Securities and Exchange Commission, Operations Center, 6432 General Green Way, Stop O-3, Alexandria, Virginia 22312; and (d) submitted under cover letter which identifies Reis as one of the Respondents in these proceedings, and the Commission's file number in these proceedings. A copy of the cover letter and money order or check shall be sent to Daniel R. Gregus, Assistant Regional Director, Midwest Regional Office, Securities and Exchange Commission, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661.
By the Commission.
Jonathan G. Katz