UNITED STATES OF AMERICA Before the SECURITIES AND EXCHANGE COMMISSION
SECURITIES EXCHANGE ACT OF 1934
On May 21, 1999, the Commission instituted administrative proceedings pursuant to Sections 15(b) and 19(h) of the Securities Exchange Act of 1934 ("Exchange Act") against Bruce W. Bertsch ("Bertsch").
In response to the institution of these proceedings, Bertsch has submitted an Offer of Settlement ("Offer") which the Commission has determined to accept. Solely for the purpose of these proceedings and any other proceedings 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 the jurisdiction of the Commission over him and over the subject matter of the administrative proceedings, and the findings in paragraph II.A., which Bertsch admits, Bertsch consents to the entry of this Order of the Commission Making Findings and Imposing Remedial Sanctions ("Order").
On the basis of this Order and the Offer submitted by Bertsch, the Commission finds that:
A. Primeline Securities Corp. ("Primeline") is a broker-dealer registered with the Commission pursuant to Section 15(b) of the Exchange Act since December 20, 1984 (File No. 8-32899). It operated on an introducing and fully-disclosed basis, with its principal place of business in Wichita, Kansas. It ceased operations on December 16, 1997 and is currently being liquidated through SIPC. Bertsch, age 46, resides in the Wichita area and served as Primeline's chief operations officer. At all times relevant to this matter, Bertsch was chief assistant to Primeline's president with responsibility to handle compliance matters.
B. From approximately 1992 through mid-1997, Asif Ameen ("Ameen"), a Bangladesh native and Wichita resident, was a registered representative at Primeline. During that period, Ameen operated a Ponzi scheme that victimized at least 97 people, primarily immigrants from Bangladesh and other Asian nations, including 18 persons who had trading accounts at Primeline. Ameen's victims lost over $2 million in the scheme, including almost $267,000 lost by Primeline customers. Ameen effected his scheme through the offer and sale of securities in the form of debentures purportedly issued by various corporations he had formed. Ameen promised his victims that these debentures would pay a high monthly return, but then paid the purported returns with funds Ameen solicited from subsequent investors rather than legitimate business operations.
C. Bertsch was Ameen's immediate supervisor from about 1994 until Ameen left Primeline in 1997. Bertsch ignored obvious signs that Ameen was selling securities to non-Primeline customers and that he was stealing funds from his Primeline clients and other investors. Bertsch failed to adequately investigate complaints and inquiries from Primeline customers that should have alerted him, at least by early 1997, that Ameen was engaged in fraudulent activities. Bertsch, for example:
1. failed to ensure that customer calls were promptly responded to and that customer complaints were adequately addressed;
2. delivered to Ameen, in violation of Primeline's compliance procedures, checks that Primeline had received from a purported Primeline customer of Ameen's even though the checks were improperly filled out, and failed to determine that the person who had sent the checks to Primeline was, in fact, a Primeline customer;
3. failed to investigate whether a transfer of funds that Ameen had instructed be made during 1997 from the account of one of his Primeline customers had, in fact, been authorized by the customer despite being informed of suspicious circumstances.
D. On or about April 16, 1998, Ameen was convicted of four counts of felony theft and one count of securities fraud for his theft of investor funds (State v. Ameen, Sedgwick County, Kansas case no. 97 CR 1196). On or about December 14, 1998, Ameen pleaded no contest to, and was judged guilty on, three additional felony theft counts and two additional securities fraud counts relating to his scheme (State v. Ameen, Sedgwick County, Kansas case no 98-811).
E. The antifraud provisions of the federal securities laws, Section 17(a) of the Securities Act of 1933 ("Securities Act"), Section 10(b) of the Exchange Act, and Rule 10b-5 thereunder prohibit the employment of a fraudulent scheme or the making of material misrepresentations and omissions in connection with the purchase or sale of any security. Ameen violated those provisions through the operation of his Ponzi scheme, which included the use of funds that he stole directly from the accounts of his Primeline customers.
F. As a result of Bertsch's inattention and failure to investigate in the face of red flags, Ameen was able to continue his scheme undetected until approximately June 1997.
G. Based on the foregoing, Bertsch failed reasonably to supervise Ameen with a view to preventing his violations of Section 17(a) of the Securities Act, Section 10(b) of the Exchange Act, and Rule 10b-5 thereunder, within the meaning of Sections 15(b)(4)(E) and 15(b)(6)(A) of the Exchange Act.
In view of the foregoing, the Commission deems it appropriate in the public interest and for the protection of investors to impose the sanctions specified by Bertsch in his Offer.
Accordingly, IT IS ORDERED that:
A. Bertsch be suspended from association with any broker or dealer for a period of three months, effective on the second Monday following entry of the Order. Bertsch shall provide to the Commission, within 30 days after the end of the three-month suspension period described above, an affidavit that he has complied fully with the suspension in this paragraph A;
B. Bertsch be and hereby is, barred from association in a supervisory or proprietary capacity with any broker or dealer, with a right to reapply for such association after two years to the appropriate self-regulatory organization, or if there is none, to the Commission; and
C. Bertsch shall, within ten days of the entry of the Order, pay a civil money penalty pursuant to Section 21B of the Exchange Act in the amount of $10,000 to the United States Treasury. Such payment shall be (1) made by United States postal money order, certified check, bank cashier's check or bank money order; (2) made payable to the Securities and Exchange Commission; (3) hand-delivered or mailed to the Comptroller, Securities and Exchange Commission, Operations Center, 6432 General Green Way, Alexandria, VA 22312-0003; and (4) submitted under cover letter that identifies Bertsch as a Respondent in these proceedings and the file number of these proceedings, a copy of which cover letter and money order or check shall be sent to Randall Fons, Regional Director, Securities and Exchange Commission, 1801 California Street, Suite 4800, Denver, CO 80202.By the Commission.
Jonathan G. Katz