UNITED STATES OF AMERICA
SECURITIES EXCHANGE ACT OF 1934
The Securities and Exchange Commission ("Commission") deems it appropriate and in the public interest to institute public administrative proceedings against Glenn E. Lavender ("Lavender") pursuant to Section 15(b)(6) of the Securities Exchange Act of 1934 ("Exchange Act").
In anticipation of the institution of these administrative proceedings, Lavender has submitted an Offer of Settlement ("Offer"), which the Commission has determined is in the public interest to accept. Solely for the purpose of this proceeding, and any other proceeding brought by or on behalf of the Commission or to which the Commission is a party, Lavender, without admitting or denying the findings set forth herein, except as to the Commission's jurisdiction over him and over the subject matter of this proceeding, which is admitted, consents to the issuance of this Order Instituting Proceedings Pursuant to Section 15(b)(6) of the Securities Exchange Act of 1934, Making Findings and Imposing Remedial Sanctions and to the entry of the findings and the imposition of the remedial sanctions as set forth below.
Accordingly, IT IS ORDERED that said proceedings be, and hereby are, instituted.
Based on this Order and Lavender's Offer, the Commission finds the following1:
A. Lavender, age 29, resides in West Babylon, New York. From June 1995 through April 1997, Lavender was a registered representative associated with the Melville, New York branch office of Investors Associates, Inc. ("Investors Associates"). In addition to being the broker for numerous client accounts, Lavender also served as a "team leader" during part of his tenure at the Melville office. As a team leader, Lavender on occasion trained other Melville brokers and for a time received an "override" on their commissions.
B. During all relevant times, Investors Associates was a broker-dealer registered with the Commission pursuant to Section 15(b) of the Exchange Act, with headquarters in Hackensack, New Jersey. During the relevant time, the firm had approximately seventeen branch offices and employed approximately 500 registered representatives. The firm ceased business, except for liquidating trades, on approximately June 12, 1997. Its corporate charter was revoked by the State of New Jersey on February 16, 1998, and its broker-dealer registration was cancelled by the Commission on September 22, 1998.
C. During 1996 and 1997, Lavender participated in public offerings of Compare Generiks, Inc., Perry's Majestic Beer, Inc., Décor Group, Inc., Superior Supplements, Inc. and other securities (collectively, the "House Stocks"), many of which were penny stocks within the meaning of Section 3(a)(51) of the Exchange Act and Rule 3a51-1 thereunder.
D. As the effective date for each House Stock offering approached, Lavender illegally pre-sold the offering by soliciting orders for the securities in advance of the effective date of the offering. Lavender consistently failed to disclose material negative information concerning the issuer of each House Stock. Lavender used, and on occasion trained other registered representatives to use, an assortment of fraudulent sales practices to obtain orders for House Stocks, including the use of scripts that offered baseless price predictions for each stock. Lavender conducted no independent research on a House Stock, never reviewed the issuer's financial statements or otherwise attempted to verify the outrageous claims contained in the scripts.
E. As part of his pre-selling efforts for each House Stock offering, Lavender typically required his customers to commit to purchasing a large number of shares in the aftermarket in exchange for the opportunity to purchase a small allocation of shares in the offering. The prices for the aftermarket shares, however, were pre-determined by others at Investors Associates, not by a legitimate market. Once each offering was completed, Lavender continued to aggressively and fraudulently sell the House Stock to his clients, including to clients that had participated in the offering, a practice known as "upticking."
F. One specific method Lavender employed to induce his clients to purchase the House Stocks was to request authorization to make vague and unspecified changes in their portfolios. Once authorization was granted, Lavender on occasion sold the high quality stocks in the clients' accounts and used the proceeds to purchase House Stocks. On at least one occasion, Lavender placed an unauthorized trade in a client's account.
G. When Lavender's clients called him to place a sell order for a House Stock, Lavender used nearly every means available to convince them not to sell, including the use of prepared written scripts containing material misstatements and omissions. If a particular client insisted on selling shares of a House Stock, Lavender would process the sell order only if he could match the sell order with a purchase order from another client for the same House Stock. The two transactions were then effected by Investors Associates through a "crossed trade." In so doing, Lavender prevented shares of the House Stock from "leaking out" into the open market and thereby depressing the manipulated price.
Based on the foregoing, the Commission finds that Lavender willfully violated Sections 5(a) and 17(a) of the Securities Act of 1933, and Section 10(b) of the Exchange Act and Rule 10b-5 thereunder.
In view of the foregoing, the Commission deems it appropriate and in the public interest to accept the Offer submitted by Lavender and accordingly,
IT IS HEREBY ORDERED, effective immediately, that Glenn E. Lavender be, and hereby is, barred from association with any broker or dealer; and
IT IS HEREBY ORDERED, effective immediately, that Glenn E. Lavender be, and hereby is, barred from participating in any offering of penny stock, including: acting as a promoter, finder, consultant, agent, or other person who engages in activities with a broker, dealer or issuer for purposes of the issuance or trading in any penny stock; or inducing or attempting to induce the purchase or sale of any penny stock.
By the Commission.
1 The facts, findings, and conclusions herein are made pursuant to Lavender's Offer of Settlement and are not binding on any other person or entity named as a respondent or defendant in this or any other proceeding.