UNITED STATES OF AMERICA
SECURITIES AND EXCHANGE COMMISSION
SECURITIES EXCHANGE ACT OF 1934
Release No. 42105 / November 4, 1999
File No. 3-9168
In the Matter of :
ANDREW BRESSMAN, : ORDER MAKING FINDINGS
ROMAN OKIN, : AND IMPOSING REMEDIAL
RICHARD ACOSTA, : SANCTIONS AND CEASE
RICHARD SIMONE, : AND DESIST ORDER AS TO
BURTON BLANK, : RICHARD SIMONE
MARK GOLDMAN and :
JACK WOLYNEZ :
On December 6, 1996 the Securities and Exchange Commission ("Commission") issued an order postponing these proceedings at the request of the District Attorney of the County of New York to permit the grand jury impaneled by the District Attorney to complete its investigation into the conduct of the respondents in this action and to file any resulting indictments.1 Since that time, respondents Andrew Bressman, Roman Okin, Richard Acosta, Richard Simone, Mark Goldman and Jack Wolynez have been indicted by the grand jury and criminally convicted in connection with their activities while employed at A.R. Baron & Co., Inc.2
In anticipation of the reopening of this proceeding by the Commission, Respondent Richard Simone ("Simone" or "Respondent") has submitted an offer of settlement which the Commission has determined to accept ("Offer"). Accordingly, the Commission deems it appropriate to reopen the proceeding as to Respondent Simone for the purpose of accepting his Offer. Solely for the purpose of this proceeding and any other proceeding brought by or on behalf of the Commission, or in which the Commission is a party, and without admitting or denying the findings contained herein, except as to jurisdiction of the Commission over the Respondent and the subject matter of this proceeding, and as to the entry of the conviction set forth in paragraph II.B.1. and II.D. below, which are admitted, Simone, by his Offer, consents to the findings and the imposition of the sanctions and other relief contained in this Order Making Findings and Imposing Remedial Sanctions and Cease and Desist Order as to Richard Simone ("Order").
Accordingly, it is ordered that said proceeding be, and hereby is, reopened with regard to Simone.
On the basis of this Order and the Offer submitted by Simone, the Commission finds the following:3
In 1995, Simone, then a registered representative at A.R. Baron & Co. Inc. ("Baron"), engaged in repeated and egregious abusive sales practices, including the placing of unauthorized trades in customer accounts, refusing to carry out sell orders, and refusing to remit proceeds of securities sales to a customer at Baron. By his conduct, Simone caused a customer to incur losses of $886,281.60.
B. Respondent and Other Relevant Entities
Richard Simone, age 36, resides in New York, New York. On December 4, 1997, Simone pleaded guilty to a New York State felony charge of grand larceny in the second degree arising from his activities as a stockbroker at Baron. Following the entry of his conviction, Simone was placed on probation. From May 1995 to February 10, 1996, Simone was a registered representative at Baron. Simone currently is not associated with any registered broker-dealer.
2. Other Relevant Entities
a. A.R. Baron & Co., Inc., a Delaware corporation with its principal place of business in New York, New York, was registered with the Commission in September 1991 as a broker-dealer pursuant to Section 15(b) of the Exchange Act. In July 1996, Baron ceased operations and was placed into liquidation pursuant to the Securities Investors Protection Act. On October 17, 1996, the Commission issued an order (i) finding that Baron had violated Section 17(a) of the Securities Act, Sections 7(c), 9(a)(2), 9(a)(4), 10(b) and 15(c)(1) of the Exchange Act and Rules 10b-5 and 15c1-2 thereunder, and Regulation T promulgated by the Federal Reserve Board and (ii) revoking Baron's registration as a broker-dealer.
b. Cypros Pharmaceutical Corp. ("Cypros") is a California corporation with its principal place of business in Carlsbad, California. Cypros has common stock and warrants registered with the Commission pursuant to Section 12(g) of the Exchange Act. Cypros common stock and warrants are listed for trading on Nasdaq.
c. Symbollon Corp. ("Symbollon") is a Massachusetts corporation with its principal place of business in Framingham, Massachusetts. Symbollon has common stock and warrants registered with the Commission pursuant to Section 12(g) of the Exchange Act. Symbollon common stock and warrants are listed for trading on Nasdaq.
C. Sales Practice Abuses
Before moving to Baron from Alex. Brown & Co. ("Alex. Brown"), Simone served as the registered representative for two customer accounts in the name of Fiduciary Management Services ("Fiduciary"), a Cayman Islands entity organized as an investment vehicle for two Bahamanian principals. Fiduciary had approximately $4,000,000 in assets invested in Alex. Brown accounts, primarily in corporate bonds, at the time it transferred those accounts to Baron at Simone's request.
While employed at Baron, Simone was pressured by Baron's principals to use Fiduciary's assets in its accounts to absorb large blocks of Baron house stock and, if necessary, to enter unauthorized stock purchases in Fiduciary's accounts. Simone acquiesced to the demands of Baron's management and engaged in the abusive sales practices described below, to the detriment of his customer, Fiduciary.
1. Unauthorized Purchase of Symbollon Warrants
On July 6, 1995, Fiduciary instructed Simone to sell 30,300 shares of Shoney, Inc. ("Shoney") from its account and deliver the sale proceeds to Fiduciary's bank account. Simone, however, did not remit the proceeds from the sale of the Shoney shares as instructed. Instead, on July 12, 1995, Simone purchased, without authorization from Fiduciary and without its knowledge, 54,000 Symbollon warrants for $378,010, with the intent of using the Shoney proceeds to pay for the Symbollon warrants. Thereafter, between July 14 and July 18, 1995, Simone sold off the Shoney shares for $384,107, using the proceeds to pay for the unauthorized purchase of Symbollon warrants. Simone misled Fiduciary about the reason for the delay in delivering the Shoney sale proceeds to Fiduciary's bank account by claiming that the delay was the result of inefficiencies in the clearing firm's processing of the transactions.4
2. Unauthorized Purchase of Cypros Shares
On August 31, 1995, without authorization from Fiduciary, Simone purchased 150,000 shares of Cypros common stock for the Fiduciary account. To conceal the unauthorized purchase, Simone used proceeds from the sale of corporate bonds in Fiduciary's account to cover the unauthorized purchase of Cypros shares. Despite repeated requests from the customer to deliver the proceeds from the bond sales, Baron failed to deliver the funds to Fiduciary and Simone failed to disclose that the proceeds had been applied to the purchase of the Cypros shares.
3. Simone Allows Bressman to Place Unauthorized Purchases in Fiduciary's Account
On September 8, 1995, in Simone's presence, respondent Bressman wrote two order tickets for the purchase of 90,000 shares and 14,000 shares, respectively, of Cypros common stock for the account Simone's customer, Fiduciary. Simone knew that these purchases had not been authorized by Fiduciary and were fraudulent. Simone also knew that as the registered representative for the Fiduciary account at Baron, he owed a duty to that customer to protect its interest. In contravention of that duty, Simone failed to stop Bressman from entering these two unauthorized transactions in Fiduciary's account and failed to inform Fiduciary that the transactions had been carried out in its account.
Between September 13 and 21, 1995, Fiduciary complained to Simone and Baron about the several unauthorized transactions in its account and ordered that the unauthorized purchases of Symbollon warrants and Cypros common stock for its account be reversed or the unwanted securities be sold out. Neither Simone, who knew that the transactions were unauthorized, nor Baron reversed the transactions or sold out the unwanted positions as instructed by Fidcuiary.
Simone did not receive any commissions from Baron in connection with the above-described unauthorized transactions in the Fiduciary account. As a result of Simone's above-described conduct, Fiduciary incurred $886,281.60 in trading losses.
D. Simone's Criminal Conviction
On December 4, 1997, Simone pleaded guilty to and was convicted of a New York State felony charge of grand larceny in the second degree. In his plea, Simone admitted to taking $832,000 from Fiduciary, without its permission, by allowing Bressman to execute the unauthorized purchases of 104,000 Cypros shares for the Fiduciary account. Simone further admitted to the court that he assisted in the unauthorized taking of Fiduciary's money by not reporting Bressman's actions. Simone was released on probation after entry of his guilty plea.
E. Simone's Agreement To Make Payments to the Trustee for
Liquidation of the Estate of A.R. Baron & Co., Inc.
Simone has entered into an agreement with the Trustee for the Liquidation of the Estate of A.R. Baron & Co., Inc., James W. Giddens ("Trustee") to pay $18,000 in quarterly payments over an eighteen-month period in satisfaction of claims brought against him by the Trustee arising from his conduct while employed at Baron The Trustee was appointed by an order dated July 11, 1996 of the United States District Court for the Southern District of New York, which found that the customers of Baron were in need of the protections afforded under the Securities Investors Protection Act ("SIPA").
III. Legal Discussion
The unauthorized trading of customer accounts accompanied by deception, misrepresentation or nondisclosure violates Section 10(b) of the Exchange Act and Rule 10b-5 thereunder. S.E.C. v. Hasho et al., 784 F.Supp. 1059, 1110 (S.D.N.Y. 1992); Cruise v. Equitable Securities of New York, Inc., 678 F.Supp 1023, 1028-29 (S.D.N.Y. 1987); Pross v. Baird Patrick & Co., 585 F. Supp. 1456, 1459 (S.D.N.Y. 1984). By placing unauthorized securities purchases in Fiduciary's accounts, coupled with deception to conceal the unauthorized transaction or the source of funds used to pay for the unauthorized purchases, Simone violated Section 10(b) of the Exchange Act and Rule 10b-5 thereunder. Simone further violated Section 10(b) and Rule 10b-5 thereunder by allowing Bressman to place unauthorized trades in Fiduciary's accounts without disclosing the transactions to the customer.
These same acts violate Section 17(a) of the Securities Act because they involve a deceptive practice or a material misrepresentation in the sale of securities.
Based on the above, the Commission finds that Respondent Simone willfully violated Section 17(a) of the Securities Act and Section 10(b) of the Exchange Act and Rule 10b-5 thereunder.
Respondent Simone has submitted a sworn financial statement and has asserted his financial inability to pay a civil penalty. Based on Respondent's sworn financial statement and his agreement to pay $18,000 in claims brought against him by the SIPA Trustee for Baron, the Commission has determined that Respondent Simone does not have the financial ability to pay a civil penalty.
V. Offer of Settlement
The Respondent has submitted an offer of settlement in which, without admitting or denying the findings herein, he consents to the Commission's issuance of this Order, including findings as set forth above and the relief ordered below.
On the basis of the foregoing, the Commission deems it appropriate and in the public interest to impose the sanctions and other relief specified in Simone's Offer.
Accordingly, it is hereby ordered that Simone:
(1) be barred from association with any broker or dealer; and
(2) cease and desist from committing or causing any violation and any future violation of Section 17(a) of the Securities Act and Section 10(b) of the Exchange Act and Rule 10b-5 thereunder.
It is further ordered that the Division of Enforcement ("Division") may, at any time following the entry of this Order, petition the Commission to: reopen this matter to (1) consider whether Respondent provided accurate and complete financial information at the time such representations were made; (2) determine the amount of the civil penalty to be imposed; and (3) seek any additional remedies that the Commission would be authorized to impose in this proceeding if Respondent's Offer had not been accepted. No other issues shall be considered in connection with this petition other than whether the financial information provided by Respondent was fraudulent, misleading, inaccurate or incomplete in any material respect, the amount of civil penalty to be imposed and whether any additional remedies should be imposed. Respondent may not, by way of defense to any such petition, contest the findings in this Order or the Commission's authority to impose any additional remedies that were available in the original proceeding.
By the Commission.
Jonathan G. Katz
1 Previously, the Commission instituted administrative proceedings on May 23, 1996 (3-9010) against A.R. Baron & Co. Inc., Andrew Bressman, and Roman Okin, and on October 17, 1996 (3-9168) against A.R. Baron & Co., Inc., Andrew Bressman, Roman Okin, Richard Acosta, Richard Simone, Burton Blank, Mark Goldman and Jack Wolynez pursuant to Section 8A of the Securities Act of 1933 ("Securities Act") and Sections 15(b)(6), 19(h) and 21C of the Securities Exchange Act of 1934 ("Exchange Act"). On October 17, 1996, the Commission accepted an Offer of Settlement from A.R. Baron & Co., Inc. and dismissed the firm from these proceedings. See Exchange Act Release No. 37830. On December 6, 1996, the Commission postponed these proceedings until the completion of the grand jury proceedings. See Exchange Act Rel. No. 38025.
2 Respondent Burton Blank was not indicted by the grand jury.
3 The findings herein are made pursuant to the Respondent's Offer and are not binding on any other person or entity in this or any other proceeding.
4 In August 1995, Fiduciary subsequently received funds from Baron that it was led to believe were the proceeds of the Shoney sales. Unbeknownst to Fiduciary, however, Baron had entered a margin loan against securities in Fiduciary's account and caused funds drawn on margin to be delivered to Fiduciary. Simone, who had a fiduciary duty to his customer, failed to disclose to Fiduciary the misuse of the Shoney proceeds or the margin loan against securities in Fiduciary's account.