Securities Exchange Act of 1934
Release No. 43802 / January 4, 2001
Administrative Proceeding
File No. 3-10018
In the Matter of STEVEN D. PIRRONE, Respondent. |
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ORDER MAKING
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I.
On September 20, 1999, the Securities and Exchange Commission ("Commission") issued an Order Instituting Public Proceedings pursuant to Section 15(b)(6) of the Securities Exchange Act of 1934 ("Exchange Act") against Steven D. Pirrone ("Pirrone").
Pirrone has submitted to the Commission an Offer of Settlement 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 to which the Commission is a party, and without admitting or denying the findings, except the jurisdiction of the Commission over him and over the matters set forth herein and the facts in Section II, paragraphs A and B, which he admits, Pirrone consents to the entry of this Order Making Findings and Imposing Remedial Sanctions ("Order").
II.
On the basis of this Order and the Offer of Settlement submitted by Pirrone, the Commission finds1 that:
A. Pirrone a resident of Van Nuys, California, was the President and a director of Spectrum Securities Inc. ("Spectrum") from at least the beginning of 1996 to August 1997.
B. Spectrum is a corporation registered with the Commission as a broker-dealer since 1993. Spectrum has been a member of the National Association of Securities Dealers ("NASD") since April 1992.
C. Brian D. O'Toole ("O'Toole") was associated with several broker-dealers as a registered representative from 1987 until he was discharged in June 1996 by the brokerage firm which employed him at that time (his "Prior Firm"). O'Toole has not been associated as a registered representative with any broker-dealer since June 1996.
D. O'Toole has done business as O'Toole Capital Management ("OTCM") since the summer of 1996. He has been registered with the Commission as an investment adviser (# 801-52976) doing business as OTCM since September 1996.
E. O'Toole was married to Dorthy Chikly ("Chikly") from September 1993 to March 1998.
F. After he was discharged by his Prior Firm in June 1996, O'Toole contacted approximately 25 brokerage firms and expressed his desire to associate with those firms as a registered representative. Only two of those firms were willing to review his application. O'Toole submitted written materials to Spectrum in June or July of 1996. O'Toole contends that he withdrew his request to associate with Spectrum shortly after he submitted it, but Spectrum claims that it declined O'Toole's application in July 1996.
G. Chikly also applied to become associated with Spectrum as a registered representative. Her application was approved, and she became associated with Spectrum as a registered representative in August 1996. Chikly was also identified as an associated person giving investment advice on O'Toole's Form ADV.
H. During at least the last half of 1996, O'Toole held himself out to clients, potential clients and the public as a registered representative of Spectrum. He informed at least 150 to 200 of his Prior Firm customers that he was affiliated with Spectrum and provided them with forms to transfer their accounts to Spectrum. The business card he provided to those customers indicated that the corporate headquarters of OTCM were located at Spectrum. O'Toole continued to make these representations and provide these materials after he withdrew his request to associate with Spectrum or Spectrum rejected it.
I. O'Toole also created and used brochures for OTCM which falsely stated that he was a registered representative, that he was affiliated with Spectrum, that he would earn commissions on trades placed through Spectrum, and that his clients included estates, banks and charitable organizations. O'Toole used these brochures after he withdrew his request to associate with Spectrum or Spectrum rejected it.
J. After Chikly became associated with Spectrum, O'Toole began using her license to function as a registered representative. In the period from approximately August 1996 through April 1997, he transferred over forty-nine customers and forty accounts to Spectrum, and effected forty-eight trades for those customers totaling over $200,000. None of these customers ever spoke to Chikly concerning any aspect of their accounts or trades. Rather, as to all of these customers and accounts, O'Toole obtained the information for and completed all of the transfer and new account forms. Similarly, as to all of the trades, O'Toole communicated with the customer, completed any paperwork associated with the trade, and communicated with the traders. Chikly had other full-time employment, in addition to her association with Spectrum, from August 1996 through April 1997. O'Toole failed to disclose to customers that Chikly was their Spectrum representative and that their trades were being effected through her registration.
K. Chikly knew that O'Toole was using and allowed him to use her registration at Spectrum to effect securities transactions and otherwise function as a registered representative.
L. Pirrone was responsible for supervising Chikly from the time she was accepted by Spectrum as a registered representative until at least January 1997. Spectrum had written supervisory policies or procedures during some or all of the time Chikly was associated with Spectrum, but Pirrone did not comply with or implement those procedures with respect to Chikly during the time O'Toole was transferring customers to Spectrum and trading through Spectrum. Pirrone failed to review Chikly's order tickets, accounts, statements, confirmations and files as required by Spectrum's compliance procedures. He also failed substantively to review new account forms or to review Chikly's trades prior to execution. Chikly did not receive a copy of Spectrum's compliance manual until March or April of 1997.
M. Chikly never spoke with Pirrone or any other person identified as her supervisor. Neither O'Toole nor Chikly had any communications with Pirrone concerning the suitability of any trade, any research, or recordkeeping. Neither O'Toole nor Chikly had substantive discussions with Pirrone concerning any customer, account, or other matter relating to supervision.
N. O'Toole communicated with Pirrone for Chikly on several occasions both orally and in writing. Pirrone signed a new account form which disclosed that Chikly was married to O'Toole. Additionally, account transfer forms submitted to Spectrum disclosed that most of Chikly's customers were formerly O'Toole's customers. Pirrone knew or should have known that Chikly was married to O'Toole, that the customers she brought to Spectrum were O'Toole's customers, that O'Toole was the primary contact with customers, and that Chikly had other full time employment while she was associated with Spectrum.
O. Spectrum's records (including new account forms, transfer forms, commission runs and order tickets) identified Chikly as the Spectrum registered representative for the customers with whom O'Toole was dealing and the trades O'Toole effected.
P. O'Toole willfully violated Section 10(b) of the Exchange Act and Rule 10b-5 thereunder in that, directly or indirectly, in connection with the purchase or sale of securities by use of the means or instrumentalities of interstate commerce or by use of the mails, he employed devices, schemes or artifices to defraud; made untrue statements of material facts or omitted to state material facts necessary in order to make the statements made, in light of the circumstances under which they were made, not misleading; or engaged in acts, transactions, practices, or courses of business which would or did operate as a fraud or deceit. Among other things, O'Toole misled clients and potential clients by holding himself out as a registered representative with Spectrum and by conducting a securities business using Chikly's registration. Chikly willfully aided, abetted and caused these violations by allowing O'Toole to use her registration to effect securities transactions and otherwise function as a registered representative.
Q. O'Toole willfully violated Section 15(a)(1) of the Exchange Act in that, while he was not registered as a broker with the commission, he made use of the mails or the means or instrumentalities of interstate commerce to engage in the business of effecting transactions in securities for the account of others, and effected transactions in, or induced or attempted to induce the purchase or sale of securities. Chikly willfully aided, abetted and caused these violations by allowing O'Toole to use her registration to effect securities transactions and otherwise function as a registered representative.
R. O'Toole willfully violated Sections 206(1) and (2) of the Advisers Act in that, directly or indirectly, by use of the mails or means or instrumentalities of interstate commerce, he employed devices, schemes or artifices to defraud clients or prospective clients, and engaged in transactions, practices or courses of business which operated as a fraud or deceit upon clients or prospective clients. Among other things, O'Toole misled clients and potential clients by holding himself out as a registered representative with Spectrum and by conducting a securities business using Chikly's registration. Chikly willfully aided, abetted and caused these violations by allowing O'Toole to use her registration to effect securities transactions and otherwise function as a registered representative.
S. Pirrone failed reasonably to supervise Chikly, a person subject to his supervision, with a view toward preventing her aiding and abetting violations of Sections 10(b) and 15(a)(1) of the Exchange Act and Rule 10b-5 thereunder, and Sections 206(1) and (2) of the Advisers Act, within the meaning of Section 15(b)(6) of the Exchange Act, which incorporates Section 15(b)(4)(E) of the Exchange Act.
T. Pirrone has submitted a sworn financial statement and other evidence and has asserted his inability to pay a civil penalty. The Commission has reviewed the sworn financial statement and other evidence provided by Pirrone and has determined that Pirrone does not have the financial ability to pay a civil penalty.
III.
In view of the foregoing, the Commission finds that it is in the public interest to impose the sanctions specified in the Offer of Settlement.
Accordingly, IT IS ORDERED THAT:
A. Pursuant to Section 15(b)(6) of the Exchange Act, Pirrone be, and hereby is, suspended from association in a supervisory or proprietary capacity with any broker or dealer for a period of four months, effective on the second Monday following the entry of this Order;
B. Pirrone shall, within ten days of the completion of the suspension described above, deliver an affidavit of compliance stating that he has complied with the terms of the suspension. The affidavit shall be sent to Randall J. Fons, Regional Director, Central Regional Office, Securities and Exchange Commission, 1801 California St., Suite 4800, Denver, CO 80202-2648; and
C. The Division of Enforcement may, at any time following the entry of this Order, petition the Commission to: (1) reopen this matter to consider whether Pirrone 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 Spectrum'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 Pirrone 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. Pirrone may not, by way of defense to any such petition, contest the findings in the Order or the Commission's authority to impose any additional remedies that were available in the original proceeding.
By the Commission.
Jonathan G. Katz
Secretary
Footnote
| 1 | The findings herein are not binding on anyone other than Steven D. Pirrone. |