UNITED STATES OF AMERICA
In the Matter of
Steven E. Muth,
|ORDER MAKING FINDINGS |
IMPOSING REMEDIAL SANCTIONS
PURSUANT TO SECTION 15(b)
OF THE SECURITIES EXCHANGE
ACT OF 1934 AGAINST
BRUCE J. BATES
In these proceedings instituted on November 26, 2003 pursuant to Section 15(b) of the Securities Exchange Act of 1934 ("Exchange Act"), Respondent Bruce J. Bates ("Bates" or "Respondent") has submitted an Offer of Settlement ("Offer") which the Securities and Exchange 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 Commission's findings herein, except as to the jurisdiction of the Commission over him and over the subject matter of these proceedings, which are admitted, Bates consents to the entry of this Order Making Findings and Imposing Remedial Sanctions Pursuant to Section 15(b) of the Securities Exchange Act of 1934 Against Bruce J. Bates ("Order"), as set forth below.
On the basis of this Order and the Respondent's Offer, the Commission finds1 that:
1. Bruce J. Bates was associated with Schneider Securities, Inc. ("Schneider") from October 2000 to July 2001. From October 2000 to May 2001, Bates was the branch office manager for an office of supervisory jurisdiction maintained by Schneider in Englewood, Colorado ("Englewood OSJ").
2. Schneider was at relevant times a broker-dealer headquartered in Denver, Colorado that became registered with the Commission, pursuant to Section 15 of the Exchange Act in 1985. During the relevant time period in 2000 and 2001, Schneider conducted a general securities business through four proprietary branch offices and approximately 19 franchise branch offices located in various states across the United States. Schneider ceased operating as a broker-dealer on October 14, 2002, when it filed a Form BDW with the Commission, but Schneider requested that the effectiveness of the withdrawal be delayed until November 30, 2003. Schneider was also a member of the National Association of Securities Dealers ("NASD") from 1985 until 2002.
3. Steven E. Muth was a registered representative associated with Schneider Securities, Inc. ("Schneider") from September 2000 to May 2001. Muth owned and operated the Englewood OSJ. During the period at issue in this proceeding, Bates was the direct supervisor for Muth's day-to-day activities, and responsible, in part, for imposing special supervision on Muth.
4. From December 2000 to April 2001, while under special supervision, Muth made misstatements of material facts to, and engaged in sales practice violations with, numerous Schneider customers in several states.
5. Muth's misrepresentations of material facts included, but are not limited to, false statements that: (i) analyst research reports for two securities existed and would be published by Schneider in December 2000; (ii) a hedge fund purportedly would be formed to invest millions of dollars in two securities; (iii) Schneider customers would not owe any funds for margin purchases; and (iv) Schneider customers would not receive margin calls on their securities purchased on margin.
6. Additionally, Muth gave baseless stock price predictions for two securities to Schneider customers.
7. Muth also recommended unsuitable margin trading to several Schneider customers with modest financial profiles and failed to follow sell instructions from several Schneider customers.
8. By making misstatements of material facts to Schneider customers and making unsuitable margin trading recommendations and failing to follow customer sell instructions, Muth placed trades totaling at least $161,800.
9. Muth resigned from Schneider in May 2001.
10. In September 2000, Schneider hired Muth to own and operate the Englewood OSJ. At the time Schneider hired him, Muth had been censured and fined by the NASD in 1991. During Muth's tenure with the former broker-dealer, Muth had received four customer complaints relating to potential sales practice violations, including unauthorized trading and failing to execute a sell order.
11. In October 2000, the Colorado Division of Securities required that Muth be subject to special supervision at Schneider due to Muth's disciplinary history and recent customer complaints.
12. In October 2000, Schneider adopted Colorado's special supervisory procedures for Muth's activities at Schneider in connection with all of his customers. The special supervision procedures for Muth that Schneider adopted included procedures under which Muth's direct supervisor would: (i) ensure that Muth kept journal entries of all telephone conversations (the "telephone journal") with customers that resulted in securities transactions; (ii) review all of the entries in the telephone journal on a monthly basis; (iii) perform suitability reviews for the initial transactions placed by Muth in all customer accounts; and (iv) review trades placed by Muth in customer accounts on a daily and monthly basis.
13. In late October 2000, Schneider hired Bates to act as the branch office manager for the Englewood OSJ and to conduct the day-to-day supervision of Muth. Additionally, Bates shared the responsibilities of enforcing the special supervision of Muth.
14. Between December 2000 and April 2001, Bates failed reasonably to supervise Muth with a view to preventing Muth's violations of the federal securities laws by failing to follow the firm's procedures regarding heightened supervision of Muth, and by failing to respond to red flags relating to Muth's misconduct.
15. Thereafter, between January and April 2001, Bates failed reasonably to supervise Muth with a view to preventing Muth's violations of the federal securities laws by failing to follow-up on a customer complaints relating to Muth's misconduct.
16. As a result of the conduct described in paragraphs four through eight above, Muth willfully violated Section 17(a) of the Securities Act of 1933 ("Securities Act") and Section 10(b) of the Exchange Act and Rule 10b-5 thereunder, which prohibit fraudulent conduct in the offer or sale of securities and in connection with the purchase or sale of securities.
17. As a result of the conduct described in paragraphs ten through fifteen above, Bates failed reasonably to supervise Muth with a view to preventing Muth's violations of Section 17(a) of the Securities Act and Section 10(b) of the Exchange Act and Rule 10b-5 thereunder, within the meaning of Section 15(b)(4)(E) of the Exchange Act.
18. Respondent has submitted a sworn Statement of Financial Condition dated January 7, 2004 and other evidence and has asserted his inability to pay a civil penalty in excess of $15,000.
In view of the foregoing, the Commission deems it appropriate in the public interest to impose the sanctions specified in Respondent's Offer.
ACCORDINGLY, IT IS HEREBY ORDERED:
A. Pursuant to Section 15(b)(6) of the Exchange Act, that Respondent be, and hereby is, barred from association in a supervisory capacity with any broker or dealer;
B. Pursuant to Section 15(b)(6) of the Exchange Act, that Respondent be, and hereby is, barred from association with any broker or dealer with the right to reapply for association other than in a supervisory capacity after two (2) years to the appropriate self-regulatory organization, or if there is none, to the Commission;
C. Any reapplication for association by the Respondent will be subject to the applicable laws and regulations governing the reentry process, and reentry may be conditioned upon a number of factors, including, but not limited to, the satisfaction of any or all of the following: (a) any disgorgement ordered against the Respondent, whether or not the Commission has fully or partially waived payment of such disgorgement; (b) any arbitration award related to the conduct that served as the basis for the Commission order; (c) any self-regulatory organization arbitration award to a customer, whether or not related to the conduct that served as the basis for the Commission order; and (d) any restitution order by a self-regulatory organization, whether or not related to the conduct that served as the basis for the Commission order;
D. Respondent shall pay a civil money penalty in the amount of $15,000 to the United States Treasury. Based upon Respondent's sworn representations in his Statement of Financial Condition dated January 7, 2004 and other documents submitted to the Commission, the Commission is not imposing a larger penalty against Bates.
E. Respondent shall pay the civil penalty in twelve equal monthly installments of $1,250.00 with the first installment due within 30 days of the entry of this Order. The remaining payments shall be made on or before the 28th day of each month beginning in July 2004 with the final payment to be made on or before May 28, 2005. If Respondent fails to make any required payment when due, the entire amount remaining to be paid shall become due and collectible immediately. Each 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 Office of Financial Management, Securities and Exchange Commission, Operations Center, 6432 General Green Way, Stop 0-3, Alexandria, VA 22312; and (D) submitted under cover letter that identifies Bates as a 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 Donald M. Hoerl, Associate Regional Director, Central Regional Office, Securities and Exchange Commission, 1801 California Street, Suite 1500, Denver, Colorado 80202.
F. The Division of Enforcement ("Division") may, at any time following the entry of this Order, petition the Commission to: (1) reopen this matter to consider whether Respondent provided accurate and complete financial information at the time such representations were made; and (2) seek an order directing payment of the maximum civil penalty allowable under the law. No other issue shall be considered in connection with this petition other than whether the financial information provided by Respondent was fraudulent, misleading, inaccurate, or incomplete in any material respect. Respondent may not, by way of defense to any such petition: (1) contest the findings in this Order; (2) assert that payment of a penalty should not be ordered; (3) contest the imposition of the maximum penalty allowable under the law; or (4) assert any defense to liability or remedy, including, but not limited to, any statute of limitations defense.
By the Commission.
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