UNITED STATES OF AMERICA
In the Matter of
ANDREW S. PARLIN,
|ORDER INSTITUTING PUBLIC
MAKING FINDINGS AND IMPOSING
The Securities and Exchange Commission ("Commission") deems it appropriate and in the public interest that proceedings be, and hereby are, instituted pursuant to Section 21C of the Securities Exchange Act of 1934 ("Exchange Act") and Section 203(f) of the Investment Advisers Act of 1940 ("Advisers Act") against Andrew Parlin.1
In anticipation of the institution of these administrative proceedings, Andrew Parlin has submitted an Offer of Settlement that the Commission has determined to accept. Solely for the purposes of these proceedings and any other proceedings brought by or on behalf of the Commission or to which the Commission is a party, and prior to a hearing and without admitting or denying the findings set forth herein, except that he admits to the jurisdiction of the Commission over him and over the subject matter of these proceedings, Parlin consents to the entry of this Order Instituting Public Administrative Proceedings, Making Findings and Imposing Remedial Sanctions. The Commission has determined that it is appropriate and in the public interest to accept the Offer of Settlement from Parlin, and accordingly is issuing this Order.
Based on the foregoing, the Commission finds that: 2
Andrew S. Parlin, age 39, lives in Massachusetts. During the relevant time, Parlin had primary responsibility for managing a number of client accounts including those managed pursuant to Oechsle's Select management approach. He also was one of seven managing principals and served on Oechsle's five-member executive committee.
B. Other Parties
Oechsle is a registered investment adviser headquartered in Boston with approximately $11.8 billion under management as of December 31, 1998. Oechsle services institutional investors and high net worth individuals through a series of separate client accounts and commingled investment vehicles.
ABN AMRO Incorporated ("AAI"), headquartered in Chicago with offices in New York, is a registered broker-dealer pursuant to Section 15 of the Exchange Act and maintains an international equities sales trading operation in its New York location.
Angelo Iannone, age 39, lives in Old Westbury, New York. During the relevant period, Iannone was head of AAI's international equities sales trading desk in New York, and had a long-standing client relationship with Oechsle and Parlin, pre-dating his employment with AAI. In addition, Iannone was responsible for hiring and supervising other sales traders on AAI's international equities sales trading desk.
During 1998, Andrew Parlin, then a principal and portfolio manager at Oechsle, and Angelo Iannone, then the head of international equities sales trading at AAI, engaged in a trading strategy in which, among other things, they placed market orders to purchase shares in five securities heavily owned by Parlin's advisory clients shortly before the close of the market with the purpose of increasing the closing price of those securities, a practice known as "marking the close." At the time of the trading, the client accounts under Parlin's management maintained substantial portfolio positions in the involved securities. By intentionally paying a higher price to buy securities at the end of the day and the end of the reporting period, Parlin sought to cause, and, in some cases caused a short-term increase in the overall value of certain securities held in the accounts under his management. In certain instances the increases in closing price coincided with fiscal period ends. However, Parlin did not sell these securities based on the short-term price increases.
D. Select Portfolio Management Approach
During the relevant time period, Parlin managed a number of client accounts invested in Oechsle's Select product and was the lead portfolio manager until he was placed on administrative leave. Client accounts managed under the Select approach were primarily invested in equity securities of non-U.S. companies. The Select accounts' assets were typically concentrated in 30 to 40 stocks with the top 10 holdings comprising approximately 50 percent of the portfolios total value. Select was marketed to institutional clients. While each client account had its own performance objectives, the typical benchmark for the Select investment approach was to earn a cumulative investment return that exceeded the return of the Morgan Stanley Capital International EAFE Index. As of December 31, 1998, there was $720 million in client accounts managed according to the Select approach.
E. Trading in Question
Telephone conversations between Parlin and Iannone and between Iannone and others discussed increasing the prices of foreign equity securities at or near market close. Some of these conversations and related trades occurred on or near the last trading days of the fiscal quarters ended June 30 and September 30, 1998. The conversations identify five securities in which Parlin and Iannone's primary motive was to raise the price of the security by marking the close. Those securities include: (1) British Biotech plc, a U.K. pharmaceutical concern; (2) Volkswagen A.G., the German automaker; (3) Banca di Roma SpA, the Italian financial services firm; (4) the American Depository Receipts ("ADRs") of Pohang Iron and Steel, a Korean steel manufacturer; and (5) Renault, a French automaker. Except for Pohang ADRs, these securities traded on various foreign exchanges. As mentioned above, these securities were among the largest positions in the Select clients' accounts under Parlin's management.
Over a three-day period, Iannone and Parlin had numerous conversations regarding how to implement Parlin's objective of September 28, 1998 to close the price of British Biotech plc higher by the end of the quarter, with 40 pence being the desired target. On September 29, 1998, Iannone asks Oechsle's head trader ". . . what the price target is of BBG." Later, Iannone is reminded by Oechsle's trader that "the main objective is the end of the month. . . ." In addition, Parlin reminded Iannone "my strategy on BBG, it's a two day, it's a two day 40 strategy." To which Iannone responded ". . . the longer we wait, the better we're gonna be." Finally, on September 30, 1998, Iannone informed Parlin "I bought a hundred early on just so someone wouldn't open it down low." Later in the morning, Iannone and Parlin discussed how many shares it would take to get BBG to 40. During the three-day period, many of these conversations included detailed discussions concerning the amount of money and the number of shares that would be necessary.
Regarding Pohang Iron and Steel, Iannone and Parlin's intent to move the price is revealed in a discussion where Parlin asked Iannone "should I nudge it a bit?" To which, Iannone answered, "At this point in time, you've got so much stock under your belt. . . . When the wind's at your back, we're going to make it . . . storm." Two days prior to attempting, albeit unsuccessfully, to move the price of Pohang, Iannone and Parlin began to discuss their plan for moving the stock at the end of the quarter. As for Renault, Parlin asked Iannone what it would take to make the Renault stock price chart look more "constructive" at the closing because he wanted to build a platform the day before the end of the quarter. Iannone responded that it would be easy because "we can move the queue so easy, we'll just have to wait till close to the close." The following day, Parlin and Iannone confirmed that they would purchase an additional 80,000 shares of Renault on the close. Thereafter, due to heavy selling of Renault stock, Parlin and Iannone made no purchases at the close. Regarding Volkswagen A.G., Parlin informed Iannone that he was a buyer of 67,000 shares and that he wanted to make the stock "scream." Iannone responded "we're going to do it on the close." Volkswagen's price did not in fact increase. As for Banca di Roma SpA, on June 30, 1998, Parlin told Iannone "it's hard to do uh, this window dressing when markets suck." Similarly, on September 30, 1998, just three minutes prior to the close of the Italian Exchange, Iannone asked Parlin where he would like to close Banca di Roma, and Parlin responded "if you could close that up five percent, I'd love it." Despite Parlin's purchases, Banca di Roma's stock price fell.
Section 10(b) of the Exchange Act and Rule 10b-5 thereunder proscribe materially false and misleading statements "in connection with the purchase or sale of any security." A statement is material if there is a substantial likelihood that, under all the circumstances, it would have assumed actual significance in the deliberations of a reasonable investor. Basic, Inc. v. Levinson, 485 U.S. 224, 231-32 (1988). In addition, Section 10(b) and Rule 10b-5 prohibit schemes to manipulate the price of securities. See e.g. SEC. v. Sayegh, 906 F. Supp. 939, 946 (S.D.N.Y. 1995), aff'd. sub nom, SEC v. Militano, 101 F.3d 685 (2d Cir. 1996); SEC v. Resch-Cassin & Co., 362 F. Supp. 964, 975 (S.D.N.Y. 1973). To establish manipulation, the SEC must show that the defendant engaged in a series of transactions that created actual or apparent activity or that raised or depressed the price of a security, and that operated as a fraud or deception on the market for the security. Sayegh, 906 F. Supp. at 946; In the Matter of Michael Batterman, 46 S.E.C. 304, 305 (1976).
Although this matter does not involve wash sales, matched orders, or other fictitious devices, the Commission has held that such elements are not required to establish manipulation. "Actual buying with the design to create activity, prevent price falls, or raise prices [operates] to distort the character of the market as a reflection of the combined judgment of buyers and sellers and to make of it a stage-managed performance." Halsey, Stuart & Co., 30 S.E.C. 106, 112 (1949). See also In the Matter of Financial Programs, Inc., Admin. Proc. No. 3-4610, Exchange Act Release No. 11312 (Mar. 24, 1975) (willful antifraud violations found where, among other things, fund managers engaged in aggressive buying of thinly traded stocks, and there was no disclosure that "the ascending market prices had been caused and were being maintained by the funds' own purchases...").
Finally, proof of scienter is necessary to establish violations of Section 10(b). In this context, scienter means "a mental state embracing intent to deceive, manipulate or defraud," Ernst & Ernst v. Hochfelder, 425 U.S. 185, 194 n.12 (1976), and includes recklessness. See, e.g., SEC v. U.S. Environmental, Inc. et al., 155 F.3d 107, 111 (2d Cir. 1998); Hollinger v. Titan Capital Corp., 914 F.2d 1564, 1568-69 (9th Cir. 1990); SEC v. Blavin, 760 F.2d 706, 711 (6th Cir. 1985); SEC v. Falstaff Brewing Corp., 629 F.2d 62, 77 (D.C. Cir.), cert. denied, 449 U.S. 1012 (1980); Rolf v. Blyth, Eastman Dillon & Co., 570 F.2d 38 (2d Cir.), cert. denied, 439 U.S. 1039 (1978).
Sections 206(1) and (2) of the Advisers Act make it unlawful for an investment adviser to employ any device, scheme, or artifice to defraud clients, or to engage in any transaction, practice or course of business that defrauds clients or prospective clients. Sections 206(1) and (2) impose upon investment advisers an affirmative fiduciary duty of utmost good faith to make full and fair disclosure of all material facts to advisory clients. SEC v. Moran, 922 F. Supp. 867 (S.D.N.Y. 1996). Scienter is required in order to prove a violation of Section 206(1). However, no showing of scienter is required in order to establish a violation of Section 206(2). SEC v. Capital Gains Research, 375 U.S. 180, 195 (1963).
The evidence, including the trading records and tapes of contemporaneous conversations, reflects that Parlin attempted to mark or marked the close in the securities discussed above. Parlin and Iannone discussed which stocks to purchase, focusing on several of Parlin's largest positions and the likelihood that prices could be moved upward, and chose target closing prices for the securities. Such trading on certain occasions caused a short-term increase in the overall value of certain securities held in accounts under his management at the end of fiscal quarters, when those results were reported to clients. In addition, such a trading strategy was neither disclosed to Select clients nor authorized under the Select guidelines.
By reason of the foregoing, the Commission finds that Andrew Parlin willfully violated Section 10(b) of the Exchange Act and Rule 10b-5 thereunder, and willfully aided and abetted violations of Sections 206(1) and (2) of the Advisers Act.
Accordingly, IT IS HEREBY ORDERED that Andrew Parlin
A. Cease and desist from committing or causing any violations and any future violations of Section 10(b) of the Exchange Act and Rule 10b-5 thereunder, and Sections 206(1) and (2) of the Advisers Act;
B. Be suspended from association with any investment adviser for a period of 12 months, effective the second Monday following the entry of the Order; and
C. Pay a civil money penalty of $75,000, within ten days of the entry of the Order, by wire transfer, U.S. Postal money order, certified check, bank cashier's check, or bank money order, made payable to the Securities and Exchange Commission and shall be hand-delivered or mailed to the Comptroller, Securities and Exchange Commission, Operations Center, 6432 General Green Way, Stop 0-3, Alexandria, VA 22312, under cover of a letter that identifies the respondent and the name and file number of this proceeding. A copy of the cover letter and of the form of payment shall be simultaneously transmitted to Gregory S. Bruch, Assistant Director, Securities and Exchange Commission, 450 Fifth St., N.W., Washington, DC 20549-0703.
By the Commission.
Jonathan G. Katz
|1||The Commission simultaneously filed settled proceedings against the broker-dealer, the investment adviser, and the trader, respectively, referred to below, In the Matter of ABN AMRO Incorporated (Admin. Proc. No. 3-10552); In the Matter of Oechsle International Advisors, L.L.C. (Admin. Proc. No. 3-10554) and In the Matter of Angelo Iannone (Admin. Proc. No. 3-10553).|
|2||The findings herein are made pursuant to Parlin's Offer of Settlement and are not binding on any other person or entity in this or any other proceeding.|
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