UNITED STATES OF AMERICA
In the Matter of
In connection with previously instituted public administrative and cease-and-desist proceedings pursuant to Sections 15(b) and 21C of the Securities Exchange Act of 1934 ("Exchange Act"),1 Respondent Paul Nortman ("Nortman") 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 in this Order Making Findings, Imposing Remedial Sanctions and Issuing a Cease-and-Desist Order Against Paul Nortman ("Order"), except as to the Commission's jurisdiction over him and the subject matter of these proceedings, which he admits, Nortman consents to the findings and remedial sanctions set forth below and to the issuance of a cease-and-desist order.
On the basis of this Order and the Offer submitted by Nortman, the Commission finds that:
A. Nortman, age 70, was, at all relevant times, responsible for the preparation of general ledgers, trial balances, and other information used to prepare Alex Moore's FOCUS reports and mademost executive decisions regarding Alex Moore. Through his daughters, Nortman controlled a majority interest in Alex Moore.
B. Alex Moore & Co., Inc. ("Alex Moore"), which is located in Garden City, New York, is a broker-dealer registered with the Commission pursuant to Section 15(b) of the Exchange Act. Alex Moore is a member of the National Association of Securities Dealers, Inc.
C. Livetrade.com, Inc. ("Livetrade") is an online trading software provider located in Garden City, New York and is not registered with the Commission as a broker-dealer.
D. Michael Weissman ("Weissman"), age 43, is, and at all relevant times was, Livetrade's Chief Executive Officer ("CEO").
E. As more fully described below, from May 1998 through at least December 1999, Livetrade and Alex Moore, pursuant to an arrangement negotiated by Weissman and Nortman, jointly provided online securities trading services. Although Alex Moore was registered with the Commission as a broker-dealer, Livetrade was not. Consequently, Livetrade willfully violated Section 15(a)(1) of the Exchange Act, and Nortman, Weissman and Alex Moore each willfully aided and abetted, and was a cause of, those violations.
F. Additionally, Alex Moore failed to account properly for certain assets and liabilities relating to its online securities trading activities. Specifically, Alex Moore: (1) failed to record on its books and records certain accounts payable and certain accounts receivable; (2) reported inaccurate accounts payable and/or accounts receivable in several FOCUS reports; and (3) failed to provide notice to the Commission of those inaccuracies. Consequently, Alex Moore willfully violated Section 17(a) of the Exchange Act and Rules 17a-3, 17a-5, and 17a-11 thereunder, and Nortman was a cause of those violations.
Violations of the Broker-Dealer Registration Provision
G. With certain exceptions not applicable here, Section 15(a) of the Exchange Act makes it unlawful for any non-natural person to sell securities without being registered with the Commission as a broker-dealer. Livetrade, which is not a natural person, acted as an unregistered broker-dealer by providing online trading services jointly with Alex Moore. Nortman and Weissman, on behalf of Alex Moore and Livetrade, respectively, negotiated the terms under which the two companies jointly provided online trading services. Under that arrangement:
(a) actively solicited customers by maintaining a web site and by advertising on radio, television, and the Internet;2
(b) sent out brokerage account opening documents to prospective customers in Livetrade envelopes, directed customers to return the completed forms to Livetrade, and delivered the completed account opening forms to Alex Moore;
(c) provided the online trading software;
(d) provided the software used to route customer orders to buy and sell securities to the electronics communications network ("ECN") for execution;
(e) paid the majority of Alex Moore's expenses for overhead; and
(f) received transaction-based compensation.
(2) Alex Moore:
(a) acted as the broker-dealer of record for trades executed by customers utilizing Livetrade's software;
(b) maintained customer accounts;
(c) established the clearing arrangement;
(d) received from its clearing firm commissions and other fees paid by customers utilizing Livetrade's software;
(e) used the funds received from the clearing firm to pay certain of Alex Moore's expenses; and
(f) paid transaction-based compensation and reimbursement of costs to Livetrade pursuant to oral agreement.
Indeed, Livetrade received the majority of the transaction-based fees that Alex Moore/Livetrade customers paid for securities transactions.
H. As a result of the foregoing, Livetrade willfully violated Section 15(a) of the Exchange Act. Nortman willfully aided and abetted, and was a cause of, Livetrade's violations of Section 15(a)(1) of the Exchange Act, in that Nortman:
(1) negotiated with Livetrade and entered into the arrangement described above;
(2) knew that under the terms of that arrangement Livetrade was, among other things, soliciting customers to open accounts, routing customer trades to an ECN for execution, and receiving transaction-based compensation; and
(3) approved Alex Moore's payment of transaction-based compensation and reimbursement of costs to an unregistered person, namely Livetrade.
Violations of the Record-Keeping and Financial Reporting Provisions
I. Section 17(a) of the Exchange Act and Rule 17a-3 require registered broker-dealers to make and keep books and records relating to its securities activities, including trial balances and general ledgers. That such records must be accurate is implicit. In re Merrill Lynch, Pierce, Fenner & Smith, Inc., Exchange Act Release No. 33367 (Dec. 22, 1993), 55 SEC Docket 1970 (Jan. 11, 1994). Section 17(a) of the Exchange Act and Rule 17a-5 require registered broker-dealers to file periodic reports, which include financial statements. Those reports also must be accurate. Section 17(a) of the Exchange Act and Rule 17a-11 require registered broker-dealers to notify the Commission that same day of any inaccuracies in its required books and records, and to file a report within forty-eight hours of the notice stating what it had done or is doing to correct the situation.
J. From May 1998 through December 1998, Alex Moore created and maintained inaccurate trial balances and general ledgers by failing to record:
(1) amounts that Alex Moore was owed by its clearing firm; and
(2) amounts that Alex Moore owed to Livetrade and the ECN.
K. Alex Moore did not notify the Commission at any time between May 1998 and December 1998 that its trial balances and general ledgers were inaccurate. Alex Moore also failed to file a report with the Commission at any time between May 1998 and December 1998 stating what it had done or was doing to correct the situation.
L. Similarly, Alex Moore failed to include:
(1) the correct accounts receivable from its clearing firm in Alex Moore's FOCUS reports for the quarters ended June 30, 1998 and September 30,1998; and
(2) the correct accounts payable to Livetrade and the ECN in Alex Moore's FOCUS reports for the quarters ended June 30, 1998 and September 30, 1998, and the year ended December 31,1998.
M. Accordingly, Alex Moore willfully violated Section 17(a) of the Exchange Act and Rules 17a-3, 17a-5, and 17a-11 thereunder.
N. Nortman was a cause of Alex Moore's violations of Section 17(a) of the Exchange Act and Rules 17a-3, 17a-5, and 17a-11 thereunder, in that Nortman:
(1) supplied the information that was used to prepare Alex Moore's trial balances and general ledgers from May 1998 through December 1998, and its FOCUS reports for the quarters ended June 30, 1998 and September 30, 1998 and the year ended December 31, 1998 or otherwise participated in the preparation of such reports;
(2) knew that the Financial and Operations Principal ("FINOP") relied on Nortman to provide the proper information for preparation of the trial balances, general ledgers, and FOCUS reports;
(3) knew that Alex Moore was owed money from its clearing firm at the end of each month and knew or should have known that those receivables were not reflected in Alex Moore's trial balances, general ledgers and FOCUS reports; and
(5) knew about the liabilities to Livetrade and the contractual obligations to the ECN, and knew or should have known that those payables were not reflected in Alex Moore's trial balances, general ledgers, and FOCUS reports for the quarters ended June 30, 1998 and September 30, 1998, and were not accurately reflected in Alex Moore's FOCUS report for the year ended December 31, 1998.
In view of the foregoing, it is in the public interest to impose the sanctions specified in the Offer of Settlement. Accordingly, IT IS HEREBY ORDERED that:
A. Nortman be, and hereby is, censured;
B. Nortman cease and desist, pursuant to Section 21C of the Exchange Act, from committing or causing any violation and any future violation of Section 15(a) of the Exchange Act, and from causing any violation and any future violation of Section 17(a) of the Exchange Act and Rules 17a-3, 17a-5, and 17a-11 thereunder; and
C. Nortman shall, within thirty 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: (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, Stop 0-3, Alexandria, VA 22312; and (4) submitted under cover letter which identifies Nortman as a Respondent in this proceeding, and the Commission's case number, a copy of which cover letter and money order or check shall be sent to Leslie Kazon, Assistant Regional Director, Northeast Regional Office, Securities and Exchange Commission, 7 World Trade Center, 13th Floor, New York, N.Y. 10048.
By the Commission.
Jonathan G. Katz
|1||The Order Instituting Proceedings in this matter was issued on September 28, 2000.|
|2||Customers accessing the website represent almost all of Alex Moore's customers. Prior to entering into its arrangement with Livetrade, Alex Moore was a broker-dealer with limited activity.|
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