UNITED STATES OF AMERICA
In the Matter of
H.J. Meyers & Co., Inc.,
ORDER MAKING FINDINGS
In the public administrative proceeding File No. 3-10141, ordered pursuant to Sections 15(b), 19(h) and 21C of the Exchange Act and Rule 102(e) of the Commission's Rules of Practice, Respondent James Witzel (Witzel) submitted an Offer of Settlement (Offer), which the Commission has determined to accept.1 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 in this Order, except for the Commission's jurisdiction with respect to the matters set forth in this Order and those facts which are set forth in paragraph II.A. below, which Witzel admits, Witzel consents to the entry of this Order.
On the basis of this Order, the Order Instituting Public Administrative Proceedings in this matter and the Offer submitted by Witzel, the Commission finds that:
A. James C. Witzel (Witzel), age 46 and a resident of Pittsford, New York, was the Chief Financial Officer (CFO) and Financial and Operations Principal (FINOP) of H.J. Meyers & Co., Inc., (H.J. Meyers) a registered broker-dealer. At all times relevant hereto, Witzel held a Series 27 FINOP license and was licensed as a Certified Public Accountant (CPA) in the State of New York. The accounting department at H.J. Meyers reported to Witzel and he was responsible for the department's supervision. Witzel, as the firm's CFO and FINOP, reported directly to the firm's president.
H.J. Meyers' Inaccurate Accounting Records
B. In June 1998, an outside investor agreed to loan $2.5 million jointly to H.J. Meyers and H.J. Meyers Group (HJM Group). HJM Group was a holding company that owned H.J. Meyers. HJM Group, in turn, was owned by the president of H.J. Meyers.
C. Pursuant to the terms of the loan, H.J. Meyers and HJM Group were jointly and severally bound to repay the full $2.5 million plus interest of 15% per annum payable monthly. One of the loan documents stated that the $2.5 million loan was to be secured by collateral -- 130,000 shares of a specified common stock then in H.J. Meyers' inventory.
D. On or about June 29, 1998, the president of H.J. Meyers executed a number of loan documents on behalf of both H.J. Meyers and HJM Group in order to facilitate the loan transaction. Each of the five documents that the firm's president signed was prepared with dual signature blocks for his signature on behalf of HJM Group and H.J. Meyers.
E. Although the loan documents were signed in June, neither H.J. Meyers nor HJM Group received any funds from the outside investor until July 1998.
F. Nevertheless, on or before the time Witzel filed H.J. Meyers' June FOCUS report in July, Witzel through others under his supervision made entries to the accounting records of H.J. Meyers which inaccurately indicated that H.J. Meyers had received $2.25 million of cash in June 1998.
G. In its June 1998 FOCUS Report, H.J. Meyers reported an excess net capital of approximately $808,770. Without the inaccurate accounting entries described in the previous paragraph, H.J. Meyers would have reported a net capital deficiency of over $360,000 as of the end of June 1998.2
H. H.J. Meyers ultimately received proceeds from the loan in the early part of July 1998. Thereafter, H.J. Meyers, through Witzel and/or others under his supervision, should have recorded a liability to the outside investor reflecting the loan. Neither Witzel nor anyone else at H.J. Meyers ever recorded the loan as a liability on H.J. Meyers' books.
I. Also in July 1998, the 130,000 shares to be pledged as collateral for the loan were transferred to HJM Group and then later were placed in a safe deposit box controlled by the outside investor. Thereafter, at all times relevant to this proceeding, the shares were owned by HJM Group. Nevertheless, these same shares were reported as an asset in H.J. Meyers' July FOCUS report that Witzel submitted in August. The shares were reported as an asset in the firm's deficiency notice dated September 9, 1998 filed by Witzel.
J. Witzel and/or others under his supervision made inaccurate entries to the firm's accounting records that inaccurately recorded a transfer of the shares from HJM Group back to H.J. Meyers. No such transfer ever occurred.
K. H.J. Meyers reported excess net capital of approximately $685,704 for July 1998 and a deficit of about $1,050,840 for August 1998. Without the inaccurate accounting entries described above, H.J. Meyers would have reported net capital deficiencies for July 1988 and August 1998 of about $3,078,697 and $4,548,162.3
The Filing of Inaccurate FOCUS Reports and Notice under
Rule 17a-11 of the Exchange Act
L. H.J. Meyers acting through Witzel filed inaccurate FOCUS reports on behalf of H.J. Meyers for the months of June and July 1998 that contained inaccurate net capital calculations. H.J. Meyers acting through Witzel also filed an inaccurate net capital deficiency notice dated September 9, 1998 that contained inaccurate net capital calculations.
M. H.J. Meyers, acting through Witzel, incorrectly reported in the June FOCUS report that the firm had received $2.25 million in cash. As a result, the June FOCUS report incorrectly reported excess net capital of about $808,770.
N. H.J. Meyers acting through Witzel incorrectly included the value of the 130,000 shares transferred to HJM Group as an asset in the firm's July FOCUS report; failed to report any liability related to the loan from the outside investor; and concealed H.J. Meyers' net capital deficiency by overstating the firm's assets. The July FOCUS report incorrectly reported excess net capital of about $685,704.
O. By the time that Witzel had to file H.J. Meyers' August FOCUS report in September, the firm's net capital deficiency had grown too large to overlook. Even with the inaccurate accounting entries described above, the firm's books still indicated that the firm had a net capital deficiency of over $1 million.
P. Accordingly, on September 9, 1998, Witzel notified the Commission of H.J. Meyers' net capital deficiency. However, Witzel's net capital deficiency notice submitted on behalf of H.J. Meyers was inaccurate in that it contained the same incorrect entries described above. Thus, the notification that Witzel filed incorrectly reported a much smaller net capital deficiency of about $1,050,840. In reality the deficiency was over $4.5 million, far greater than what Witzel reported.
Q. As CFO and FINOP of H.J. Meyers, it was Witzel's responsibility to accurately complete the firm's net capital computation and to file the firm's monthly FOCUS report. He was also responsible for submitting all notices of net capital deficiencies to the Commission and the NASD. Through the conduct described above, HJM acting through Witzel incorrectly reported the firm's net capital deficiencies.
R. H.J. Meyers conducted securities transactions on a continuous basis during the time period from June 30, 1998 through September 9, 1998.
S. These proceedings against Witzel are in the public interest and for the protection of investors.
T. As alleged above, H.J. Meyers willfully violated Section 15(c)(3) of the Exchange Act and Rule 15c3-1 thereunder in that, by the use of the mails, or means or instrumentalities of interstate commerce, H.J. Meyers effected transactions in, or induced or attempted to induce the purchase or sale of, securities (other than an exempted security (except a government security) or commercial paper, bankers' acceptances or commercial bills) in contravention of the rules and regulations prescribed by the Commission as necessary or appropriate in the public interest for the protection of investors to provide safeguards with respect to the financial responsibility and related practices of brokers and dealers.
U. As alleged above, H.J. Meyers willfully violated Section 17(a)(1) of the Exchange Act and Rules 17a-3 and 17a-5, respectively, which require registered brokers and dealers to make and keep current books and records relating to its brokerage business, and to make certain reports and filings with the Commission.
V. As alleged above, H.J. Meyers willfully violated Rule 17a-11(b) which requires that every registered broker or dealer whose net capital falls below the minimum amount required by Rule 15c3-1 give telegraphic notice of such deficiency that same day to the Commission.
W. As alleged above, the H.J. Meyers willfully violated Rule 17a-11(d) under the Exchange Act which requires every broker or dealer who fails to make or keep current the books and records required by Rule 17a-3 to give notice to the Commission of the fact that same day.
X. As alleged above, Witzel caused and willfully aided and abetted H.J. Meyers' willful violations of Sections 15(c)(3) and 17(a)(1) of the Exchange Act and Rules 15c3-1, 17a-3, 17a-5 and 17a-11(b) and 17a-11(d) thereunder.
In view of the foregoing, the Commission finds that it appropriate in the public interest and for the protection of investors to impose the sanctions specified in the Offer.
Accordingly, IT IS HEREBY ORDERED that:
1. Pursuant to Section 21C of the Exchange Act, Witzel is hereby ordered to cease and desist from committing or causing any violation and any future violation of Sections 15(c)(3) and 17(a) (1) of the Exchange Act, and Rules 15c3-1, 17a-3, 17a-5, and 17a-11 thereunder;
2. Witzel be, and hereby is, suspended from association with any broker or dealer for a period of twelve months;
3. Witzel shall, within 30 days of the entry of this Order, pay a civil money penalty in the amount of $10,000 to the United States Treasury. Such payment shall be: (A) made by United States postal money order, certified check, bank cashier's check or bank money order; (B) made payable to the Securities Exchange Commission; (C) hand-delivered or mailed to the Comptroller, Securities and Exchange Commission, Operations Center, 6432 General Green Way, Stop 0-3, Alexandria, Virginia, 22312; and (D) submitted under cover letter that identifies Witzel 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 Joy M. Boddie, Esquire, Special Counsel, Securities and Exchange Commission, 500 West Madison Street, Suite 1400, Chicago, Illinois, 60661; and
4. Pursuant to Rule 102(e)(iii) of the Commission's Rules of Practice, Witzel is hereby temporarily denied the privilege of appearing or practicing before the Commission as an accountant for a period of twelve months. Twelve months from the date of the Order, Witzel may resume appearing or practicing before the Commission as an accountant provided that if:
(a) Witzel acts as a preparer or reviewer, or any person responsible for the preparation or review, of financial statements of any public company or a broker-dealer that are filed with the Commission, Witzel's work in his practice before the Commission will be reviewed either by the independent audit committee of the public company for which he works or in some other acceptable manner for a period of twenty-four months from his assumption of such a position; and/or
(b) Witzel acts as an independent accountant that:
(i) Witzel, or the firm with which he is associated, is a member of the SEC Practice Section of the American Institute of Certified Public Accountants Division for CPA firms ("SEC Practice Section");
(ii) Witzel or the firm has received an unqualified report relating to his or the firm's most recent peer review conducted in accordance with the guidelines adopted by the SEC Practice Section; and
(iii) As long as Witzel appears or practices before the Commission as an independent accountant he will remain either a member of the SEC Practice Section or associated with a member firm of the SEC Practice Section, and will comply with all applicable SEC Practice Section Requirements, including all requirements for periodic peer reviews, concurring partner reviews, and continuing professional education.
By the Commission.
Jonathan G. Katz
|1||The Order Instituting Proceeding in this matter was issued on February 7, 2000.|
|2||The discrepancy between H.J. Meyers' reported and actual net capital balances did not equal the amount of the loan primarily because, in connection with its receipt of the loan proceeds, the firm transferred to HJM Group 130,000 shares of stock.|
|3||These discrepancies in part consisted of the loan proceeds and the value of the 130,000 shares.|
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