UNITED STATES OF AMERICA
In the Matter of
CHRISTOPHER P. ROACH and
|ORDER MAKING FINDINGS AND IMPOSING SANCTIONS BY DEFAULT|
East West Institutional Services, Inc. (East West) and its owner, Christopher P. Roach, aided and abetted an investment adviser's securities fraud violations through their involvement in an improper soft-dollar scheme. This Order fines East West $500,000 and Roach $100,000, censures and revokes the broker-dealer registration of East West, and bars Roach from association with a broker-dealer. Also, it orders Roach to disgorge $950,000 of ill-gotten gains, and East West and Roach to cease and desist from violations of the antifraud provisions of the securities laws.
The Securities and Exchange Commission (Commission) issued its Order Instituting Proceedings (OIP) in this matter on September 9, 1999, pursuant to Sections 203(f) and 203(k) of the Investment Advisers Act of 1940 (Advisers Act) and Sections 15(b) and 19(h) of the Securities Exchange Act of 1934 (Exchange Act).1 The OIP alleges that Roach and East West willfully aided and abetted and caused violations of Sections 206(1) and 206(2) of the Advisers Act through their involvement, along with other Respondents in this proceeding, in an improper soft-dollar scheme. Roach appeared, pro se, and on behalf of East West, earlier in this proceeding, but did not appear at the December 20, 2001, prehearing conference of which they had been notified.
On February 6, 2002, the Division of Enforcement (Division) filed a Motion for Default as to Roach and East West, pursuant to 17 C.F.R. § 201.155(a). Roach and East West did not oppose the Division's Motion for Default within the time provided by the Commission's Rules. See 17 C.F.R. §§ 201.154 and .160. On February 20 the undersigned ordered Roach and East West to show cause by February 27 why they should not be held in default, and why specified sanctions requested by the Division should not be imposed against them. They did not file any response. Additionally, at a prehearing conference today, Roach stated that he would not contest the charges in the OIP and would accept a default against himself and East West.
Roach and East West are in default within the meaning of 17 C.F.R. 155(a)(1), .155(a)(2), and .221(f). After failing to appear at a prehearing conference of which they had been notified and to respond to a dispositive motion within the time provided, they affirmatively declined to defend the proceeding. See 17 C.F.R. 155(a)(1), .155(a)(2), and .221(f). Accordingly, the undersigned finds that the allegations in the OIP are true as to Roach and East West. The findings of fact and conclusions of law made in this order as to Roach and East West are not binding on any other person in this proceeding.
III. FINDINGS OF FACT
East West is a registered broker-dealer, and Roach is its owner. He has been its sole registered representative since September 1994, when he was relicensed as a registered representative. A registered representative since 1986, Roach lost his securities licenses after PaineWebber, Inc., terminated him for unauthorized trading in 1991. He bought East West in March 1994, but the prior owner agreed to remain listed with the National Association of Securities Dealers as president and owner due to Roach's disciplinary history. Roach was, however, de facto president and owner of East West during the time at issue. He is presently affiliated with two other broker-dealers.
During 1995 and 1996 Roach and East West had an arrangement with an investment adviser, whereby Roach and East West received commissions from the adviser's clients' transactions in exchange for referring clients. They agreed to conceal the arrangement from the adviser's clients. Roach received $950,000 in 1995 and 1996 under the arrangement. The investment adviser did not disclose the payment-for-referral arrangement, and, instead, represented to its clients that it selected brokers to execute clients' transactions on the basis of research the brokers provided.
IV. CONCLUSIONS OF LAW
The investment adviser violated the antifraud provisions of the Advisers Act, Sections 206(1) and 206(2), and Roach and East West willfully aided and abetted and caused the investment adviser's violations. Roach knew that his role was part of an overall activity that was improper and knowingly and substantially assisted the conduct that constituted the violations. See Graham v. SEC, 222 F.3d 994, 1000 (D.C. Cir. 2000). As an associated person, de facto president, and owner of East West, Roach's conduct and scienter are attributed to the firm. See Section 15(b)(4) of the Exchange Act; C.E. Carlson, Inc. v. SEC, 859 F.2d 1429, 1435 (10th Cir. 1988); A.J. White & Co. v. SEC, 556 F.2d 619, 624 (1st Cir. 1977). A company's scienter may be imputed from that of the individuals controlling it. See SEC v. Blinder, Robinson & Co., 542 F. Supp. 468, 476 n.3 (D. Colo. 1982) (citing SEC v. Manor Nursing Ctrs., Inc., 458 F.2d 1082, 1096-97 nn.16-18 (2d Cir. 1972)). Thus Roach and East West willfully aided and abetted the investment adviser's violations, and a respondent who aids and abets a violation is also a cause of the violation, within the meaning of Section 203(k) of the Advisers Act. See Sharon M. Graham, 53 S.E.C. 1072, 1085 n.35, aff'd, 222 F.3d 994 (D.C. Cir. 2000).
The Division seeks civil money penalties against Roach, of $100,000, and East West, of $500,000, and cease-and-desist orders against both. It also seeks to bar Roach from association with a broker-dealer and to censure and revoke the registration of East West. These sanctions are authorized and appropriate pursuant to Sections 203(k) of the Advisers Act and 15(b), 19(h), 21B(a)(2), and 21B(b)(3) of the Exchange Act and the factors articulated in Steadman v. SEC, 603 F.2d 1126, 1140 (5th Cir. 1979), aff'd on other grounds, 450 U.S. 91 (1981) and KPMG Peat Marwick LLP, 74 SEC Docket 384, 429, 436 (Jan. 19, 2001), recon. denied, 74 SEC Docket 1351 (Mar. 8, 2001), appeal pending, No. 01-1131 (D.C. Cir.). The wrongdoing was egregious and recurring, continuing for many months. Roach's past disciplinary history is an aggravating factor. Roach and East West were unjustly enriched through fraud at the expense of the investment advisers' clients. Roach's occupation presents opportunities for future violations. There are no mitigating factors. Thus the sanctions requested will serve the public interest and the protection of investors.
The Division also seeks disgorgement from Roach of ill-gotten gains of $950,000 plus prejudgment interest, pursuant to Section 203(k)(5) of the Advisers Act. Disgorgement is an equitable remedy that requires a violator to give up wrongfully obtained profits causally related to the proven wrongdoing. See SEC v. First City Fin. Corp., 890 F.2d 1215, 1230-32 (D.C. Cir. 1989); see also Hateley v. SEC, 8 F.3d 653, 655-56 (9th Cir. 1993). It returns the violator to where he would have been absent the violative activity. Roach received $950,000 in ill-gotten gains from the violative arrangement with the investment adviser during 1995 and 1996, and disgorgement in this amount plus prejudgment interest from January 1, 1997, will be ordered.
IT IS ORDERED that, pursuant to Section 203(k) of the Investment Advisers Act of 1940, 15 U.S.C. § 80b-3(k),
Christopher P. Roach CEASE AND DESIST from committing or causing any violations or future violations of Sections 206(1) and 206(2) of the Investment Advisers Act of 1940, 15 U.S.C. §§ 80b-6(1) and 80b-6(2) and
East West Institutional Services, Inc., CEASE AND DESIST from committing or causing any violations or future violations of Sections 206(1) and 206(2) of the Investment Advisers Act of 1940, 15 U.S.C. §§ 80b-6(1) and 80b-6(2).
IT IS FURTHER ORDERED that, pursuant to Sections 15(b) and 19(h) of the Securities Exchange Act of 1934, 15 U.S.C. §§ 78o(b) and 78s(h),
Christopher P. Roach IS BARRED from association with any broker or dealer;
East West Institutional Services, Inc., IS CENSURED for willfully aiding and abetting violations of Sections 206(1) and 206(2) of the Investment Advisers Act of 1940, 15 U.S.C. §§ 80b-6(1) and 80b-6(2); and
The REGISTRATION of East West Institutional Services, Inc., as a broker or dealer IS REVOKED.
IT IS FURTHER ORDERED that, pursuant to Section 203(k)(5) of the Investment Advisers Act of 1940, 15 U.S.C. § 80b-3(k)(5),
Christopher P. Roach DISGORGE $950,000 plus prejudgment interest at the rate established under Section 6621(a)(2) of the Internal Revenue Code, 26 U.S.C. § 6621(a)(2), compounded quarterly, pursuant to Rule 600 of the Commission's Rules of Practice, 17 C.F.R. § 201.600. Pursuant to Rule 600(a), prejudgment interest is due from January 1, 1997, through the last day of the month preceding which payment is made.
IT IS FURTHER ORDERED that, pursuant to Section 203(i) of the Investment Advisers Act of 1940, 15 U.S.C. § 80b-3(i),
Christopher P. Roach PAY A CIVIL MONEY PENALTY OF $100,000; and
East West Institutional Services, Inc., PAY A CIVIL MONEY PENALTY OF $500,000.
Payment of disgorgement and penalties shall be made on the first business day following the day this Order becomes effective by certified check, U.S. Postal money order, bank cashier's check, or bank money order payable to the Securities and Exchange Commission. The check and a cover letter identifying the Respondent and Administrative Proceeding No. 3-10007, should be delivered by hand or courier to the Comptroller, Securities and Exchange Commission, Operations Center, 6432 General Green Way, Stop 0-3, Alexandria, Virginia 22312. A copy of the cover letter should be sent to the Commission's Division of Enforcement at the same address.
Carol Fox Foelak
Administrative Law Judge
|1||The proceeding was originally captioned Michael J. Rothmeier, Clarke T. Blizzard, Rudolph Abel, Donald C. Berry, Christopher P. Roach, Craig Janutol, and East West Institutional Services, Inc. It has ended as to Respondents Rothmeier, Berry, and Janutol, who settled. The Commission issued Orders Making Findings and Imposing Sanctions as to each of them on April 13, 2000. The proceeding remains pending as to Respondents Blizzard and Abel.|
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