UNITED STATES OF AMERICA
SECURITIES EXCHANGE ACT OF 1934
The Securities and Exchange Commission ("Commission") deems it appropriate and in the public interest that public administrative and cease-and-desist proceedings be instituted against Jeffrey Ramson ("Ramson") pursuant to Sections 15(b) and 21C of the Securities Exchange Act of 1934 ("Exchange Act").
In anticipation of the institution of these proceedings, Ramson has submitted an Offer of Settlement (the "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 to which the Commission is a party, and without admitting or denying any of the findings contained herein, except as to the jurisdiction of the Commission over him and over the subject matter of these proceedings, which are admitted, Ramson consents to the entry of this Order Instituting Public Administrative and Cease-and-Desist Proceedings Pursuant to Sections 15(b) and 21C of the Securities Exchange Act of 1934, Making Findings, and Imposing Remedial Sanctions ("Order"), by the Commission.
Accordingly, IT IS HEREBY ORDERED that proceedings pursuant to Sections 15(b) and 21C of the Exchange Act be, and hereby are, instituted.
On the basis of this Order and the Offer submitted by Respondent Ramson, the Commission finds that:
1. Ramson, age 39, is a resident of Jericho, New York. From December 1998 to September 2000, Ramson was associated as a registered representative of JPR Capital Corp. ("JPR Capital"), a broker-dealer located in Roslyn, New York. Ramson is also registered with the National Association of Securities Dealers ("NASD") as a general securities principal and a general securities representative.
Other Relevant Entity
2. JPR Capital is a broker-dealer registered with the Commission pursuant to Section 15(b) of the Exchange Act. JPR Capital is also a member of the NASD. At all relevant times, JPR Capital introduced all of its accounts to its clearing firm, Southwest Securities ("Southwest"), which carried all customer positions, cleared all customer transactions, and generally extended margin loans to JPR Capital's customers. At all relevant times, JPR Capital held itself out to the public as a day trading firm and provided direct access to the securities markets to approximately 470 day trading customers.1
Ramson's Unlawful Extensions of Credit to Customers of JPR Capital
3. At all relevant times, JPR Capital's day trading customers conducted all of their day trading in margin accounts. A margin account enables a day trading customer to purchase securities with funds borrowed from the broker-dealer, and thus purchase those securities with only a portion of the total purchase price. There are, however, limitations on the extension of margin account loans by a broker or dealer or their associated persons. Sections 7(c) and 7(d) of the Exchange Act prohibit brokers or dealers, or their associated persons, from, among other things, extending or maintaining credit to or for any customer except as prescribed by the Board of Governors of the Federal Reserve System ("Federal Reserve Board") in Regulation T, [12 C.F.R. §220.1, et seq.]. Section 7(c) of the Exchange Act also prohibits brokers or dealers, or their associated persons, from extending or maintaining credit to or for any customer without collateral or on any collateral other than securities, except as prescribed by the Federal Reserve Board. By placing limits on margin lending, Sections 7(c) and 7(d) of the Exchange Act protect the financial integrity of broker-dealers.
4. Regulation T regulates the circumstances in which credit may be extended by brokers and dealers to customers, and establishes, among other things, requirements regarding maintenance of account records and initial margin (i.e., the amount of collateral which must be obtained by the creditor based on that customer's account on the day a credit transaction is initiated). Regulation T limits the amount of money that a broker-dealer, or any person associated with such broker-dealer, can lend to a customer to 50% of the initial purchase price of margin equity securities, where those securities are held in the customer's margin account as collateral. Section 220.4 of Regulation T [17 C.F.R. §220.4] requires a broker-dealer to issue a "margin call" whenever a transaction or transactions on a given day create or exacerbate a situation where the margin required under Regulation T exceeds the equity in a margin account. In response to the margin call, the customer must deposit additional funds or securities into his account or the broker-dealer will be required to liquidate securities sufficient to meet the margin call. Section 220.3 of Regulation T [17 C.F.R. §220.3] also requires that, "[t]he creditor shall maintain a record for each account showing the full details of all transactions."
5. Between January 1999 and March 2000, customers of JPR Capital received $1.3 million in uncollateralized loans from other customer accounts (introduced by JPR Capital to Southwest - JPR Capital's clearing firm) in the name of two corporations and one limited partnership controlled by Ramson (the "Ramson accounts"). The customers used these uncollateralized loans to cover at least 22 margin calls issued to those customers by Southwest pursuant to Regulation T. Although the Ramson accounts were not in his name, all or some of the funds in those accounts came from him, he controlled the entities from which the loans originated, and he had discretionary authority over all of the funds in those accounts. For example, Ramson was the sole shareholder and officer in one of the corporations from which loans originated, was a shareholder in the other corporation, and was authorized by both corporations to conduct transactions in the accounts. Ramson was also a general partner in the limited partnership, and was authorized by the partnership to trade in the limited partnership's account.
6. Ramson gave persons in JPR Capital's compliance department discretion and control over most aspects of the loans made from one of the Ramson accounts, including the decision as to which customers received loans and the amount of funds the customers received. Ramson also gave persons in JPR Capital's compliance department the authority to make the loans without his pre-authorization. Thus, Ramson did not individually authorize particular loans, learn the identities of the borrowers, or approve the creditworthiness of particular borrowers. Further, although Ramson is a "creditor" in this situation, he did not maintain a record of each loan to customers showing the full details of that transaction.
7. Ramson's actions allowed JPR Capital's day trading customers to continue trading when positions in their accounts would otherwise have, and should have, been liquidated by Southwest.
8. As a result of the conduct described above, Ramson willfully violated, and committed or caused violations of, Section 7(d) of the Exchange Act and Regulation T, by, directly or indirectly, extending and maintaining credit to or for JPR Capital's customers in violation of Regulation T promulgated by the Federal Reserve Board [12 C.F.R. §220.1, et seq.].
On the basis of the foregoing, the Commission deems it appropriate and in the public interest to impose the sanctions specified in the Offer submitted by Respondent Ramson.
ACCORDINGLY, IT IS ORDERED that:
A. Ramson be, and hereby is, censured.
B. Ramson cease and desist, pursuant to Section 21C of the Exchange Act, from committing or causing any violation and any future violation of Section 7(d) of the Exchange Act and Regulation T promulgated by the Federal Reserve Board.
C. Ramson shall, within 30 days of the entry of this Order, pay a civil money penalty in the amount of $5,500 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 and 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 Ramson as the Respondent in these proceedings, the file number of these proceedings, a copy of which cover letter and money order or check shall be sent to Glenn S. Gordon, Assistant Regional Director, Southeast Regional Office, Securities and Exchange Commission, 1401 Brickell Avenue, Suite 200, Miami, FL 33131.
By the Commission.
1 The National Association of Securities Dealers has defined day trading as "an overall trading strategy characterized by the regular transmission by a customer of intra-day orders to effect both purchase and sale transactions in the same security or securities." SR-NASD-99-41 (August 20, 1999).