==========================================START OF PAGE 1====== INITIAL DECISION RELEASE NO. 79 ADMINISTRATIVE PROCEEDING FILE NO. 3-8543 UNITED STATES OF AMERICA Before the SECURITIES AND EXCHANGE COMMISSION : In the Matter of : : D.E. WINE INVESTMENTS, INC. : INITIAL DECISION W. RANDAL MILLER, KENNETH B. : DECEMBER 8, 1995 KARPF, AND DUNCAN E. WINE : : APPEARANCES: Phillip W. Offill, Jr., and Karen L. Cook for the Division of Enforcement, Securities and Exchange Commission Roger A. Tolins for Respondents BEFORE: Glenn Robert Lawrence, Administrative Law Judge These public proceedings were instituted by an Order of the Commission dated November 4, 1994, pursuant to  8A of the Securities Act of 1933 ("Securities Act") and  15(b), 19(h), 21B and 21C of the Securities Exchange Act of 1934 ("Exchange Act"), to determine whether allegations made by the Division of Enforcement ("Division") against the respondents were true; what, if any, remedial action would be appropriate in the public interest; whether cease and desist orders against respondents should be issued; whether civil penalties should be imposed against the respondents; and whether the respondents should be required to pay disgorgement, including prejudgment interest. In substance, the Division alleges that D.E. Wine Investments, Inc. ("D.E. Wine" or "registrant"), W. Randal Miller, Kenneth B. Karpf, and Duncan E. Wine willfully violated  17(a) of the Securities Act and  10(b) of the Exchange Act and Rule 10b-5 thereunder, by charging D.E. Wine customers excessive, undisclosed markups and markdowns ranging from 10.3 percent to 43.6 percent in 142 trades in connection with the purchase and sale of three penny stocks. The Division also alleges that D.E. Wine willfully violated and Karpf, Miller, and Wine wilfully aided and abetted violations of  15(c) of the Exchange Act and Rule 15c1-2 thereunder by causing D.E. Wine to charge customers excessive, undisclosed markups. Alternatively, the Division alleges that Respondent Wine failed reasonably to supervise Miller and Karpf, persons subject to his supervision, with a view toward preventing their willful violations of the antifraud provisions of the federal securities laws described above, within ==========================================START OF PAGE 2====== the meaning of  15(b)(4)(E) of the Exchange Act. As part of the post hearing procedures, proposed findings, conclusions and supporting briefs were timely filed. My findings and conclusions herein are based upon the preponderance of the evidence as determined from the record and upon my observation of the various witnesses' demeanor during the hearing that was conducted on June 21 and 22, 1995, in Fort Worth, Texas. ISSUE The parties stipulated to information concerning the customer transactions, D.E. Wine's contemporaneous inter-dealer transactions, non-D.E. Wine contemporaneous inter-dealer transactions, and other relevant market information during the time period at issue. See Ex. 1. The parties also stipulated that registrant was an integrated market maker as to the three securities at issue, for which there were active and competitive markets during the relevant time period. Thus, there are no factual issues in dispute. The pivotal issue for decision is on what basis to compute the markups and markdowns charged by registrant to its customers. FINDINGS OF FACT Respondents D.E. Wine is a Texas Corporation, incorporated in 1988 and is a general securities broker-dealer registered with the Securities and Exchange Commission (SEC) pursuant to  15(b) of the Exchange Act since on or about December 16, 1988. ==========================================START OF PAGE 3====== Stipulation (Stip.) 1. Registrant is a wholly-owned subsidiary of Vintage Holdings Corp., a private corporation whose officers, directors and shareholders include Respondents Wine, Miller, and, formerly, Karpf. Stip. 2. During the relevant time period, December 1992 to July 1993, the registrant made a market in approximately 27 securities, of which approximately five stocks were traded on the National Association of Securities Dealers Automated Quotation System ("NASDAQ") Electronic Bulletin Board ("EBB") and approximately 22 were listed on NASDAQ. Stip. 3. During this time period, registrant had approximately 20 registered representatives. Stip. 4. W. Randal Miller is and, during all relevant times was, a registered representative and registered principal associated with registrant. Stip. 10. Respondent Miller obtained his first securities license in 1983. Id. Miller is a director, vice president, secretary, and treasurer of Vintage and the registrant. Id. During the relevant time period, Miller owned 12.5 percent of Vintage's stock and he currently owns 30 percent. Id. Miller is the registrant's financial principal and compliance officer. Id. Miller's duties as compliance officer included reviewing the following: penny stock transactions prior to their execution, confirmation slips and trading blotters daily, trade tickets at least weekly, stock receivable entry blotter weekly, and new account forms periodically. Stip. 12. Miller developed the firm's markup and markdown policies and procedures, and participated in their implementation. Stip. 13. ==========================================START OF PAGE 4====== Kenneth B. Karpf was, during all relevant times, a registered representative and registered principal associated with registrant until he joined another firm in or about December 1993. Stip. 11. Currently, he is vice president of trading at Texas Capital Securities. Id. Karpf received his first securities license in 1987 and, while associated with registrant, he was a director and vice president of trading. Id. During the relevant time period, Karpf owned 12.5 percent of Vintage's stock. Id. Karpf was responsible for and did review all order tickets before trades were executed. Stip. 15. As head trader of registrant, Karpf made the observation as to whether the stock had an active market. Id. Duncan E. Wine is, and during all relevant times was, a registered representative and registered principal associated with registrant. Stip. 8. He obtained his first securities license in 1984. Id. Wine is the chairman of the board and the president of Vintage and registrant. Id. During the relevant time period, he owned 47.5 percent of Vintage's stock and he currently owns 45 percent. Id. Wine approved implementation of the markup and markdown policy established by Miller, and delegated pricing responsibilities to Miller and Karpf. Stip. 13; Hearing Transcript (Tr.) 124-5. Respondents' Trading Activities D.E. Wine's Pricing Policy Registrant's policy regarding markups on principal transactions in over-the-counter ("OTC") securities during the ==========================================START OF PAGE 5====== relevant time period was to charge customers a price 5% over the highest quoted bid available on the EBB. Tr. 28, 129, 167-68, 192-194, 250; Respondents' Answer (Answer) II.L. Similarly, registrant paid customers a markdown premium of 5% of the lowest quoted ask price available on the EBB. Id. In calculating the prices to charge customers, D.E. Wine registered representatives did not know and therefore could not disclose to their customers the prices at which registrant purchased or sold the relevant securities to other broker- dealers. Tr. 132-33, 173, 243-45. Accordingly, they were not aware and could not advise the customers of the actual markups and markdowns. Market Data Corp. Market Data Corp. ("Market Data") is a Texas corporation with its principal place of business in Houston, Texas. Market Data's common stock is registered with the Commission pursuant to  12(g) of the Exchange Act. Order I.B.; Answer I.B. D.E. Wine began making a market in the common stock of Market Data, traded in the OTC market, in 1989, and continues as market maker to the present. Stip. 5. The Division alleges that registrant charged excessive undisclosed markups in 76 retail transactions involving the common stock of Market Data during the period May 3, 1993 to June 29, 1993. Dynacq International, Inc. Dynacq International, Inc. ("Dynacq") is a Nevada ==========================================START OF PAGE 6====== corporation with its principal place of business in Houston, Texas. Dynacq's common stock is registered with the Commission pursuant to  12(g) of the Exchange Act. Order I.C.; Answer I.C. D.E. Wine began making a market in the common stock of Dynacq, traded in the OTC market and on the NASDAQ bulletin board, in 1992 and continues as market maker to the present. Stip. 6. Dynacq stock became listed on NASDAQ in 1993. Id. The Division alleges that registrant charged excessive undisclosed markups in 46 retail transactions and excessive undisclosed markdowns in 7 retail transactions involving the common stock of Dynacq during the period December 17, 1992, to July 1, 1993. First National Film, Inc. First National Film, Inc. ("First Film") is a Colorado corporation with its principal place of business in Austin, Texas. First Film's common stock has been registered with the Commission pursuant to  12(g) of the Exchange Act since November 1989. Order I.D.; Answer I.D. D.E. Wine began making a market in the class A and class B warrants of First Film, traded on NASDAQ, in or about 1989 or 1990. Stip. 7. D.E. Wine ceased making a market in First Film in 1994. Id. The Division alleges that registrant charged excessive undisclosed markdowns in 13 retail transactions involving the warrants of First Film on April 13, 1993. LEGAL STANDARD ==========================================START OF PAGE 7====== As early as 1939, the Commission concluded that a broker- dealer who charges customers a retail price which includes an undisclosed, excessive markup-[1]- violates  17(a) of the Securities Act and  10(b) and 15(c) of the Exchange Act and Rules 10b-5 and 15c1-2 thereunder: Inherent in the relationship between a dealer and his customer is the vital representation that the customer will be dealt with fairly, and in accordance with the standards of the profession. It is neither fair dealing, nor in accordance with such standards, to exploit trust and ignorance for profits far higher than might be realized from an informed customer. It is fraud to exact such profits through the purchase or sale of securities while the representation on which the relationship is based is knowingly false. This fraud is avoided only by charging a price which bears a reasonable relation to the prevailing price. ... Duker & Duker, 6 S.E.C. 386, 388-9 (1939) (footnotes omitted). The Commission reaffirmed this view in its decision in Alstead, Dempsey & Co., Inc., 47 S.E.C. 1034 (1984): "A dealer violates antifraud provisions when he charges retail customers prices that are not reasonably related to the prevailing market price at the time the customers make their purchases." Alstead, 47 S.E.C. at 1035. The Commission specifically has held that markups in excess of 10% of the prevailing market price are fraudulent in the sale of equity securities. See Alstead, 47 S.E.C. at 1035; Powell & Associates, Inc., 47 S.E.C. 746, 748 (1982). The Commission has defined "prevailing market price" as the price at which dealers ---------FOOTNOTES---------- -[1]-This discussion of the legal standard focuses on markups. However, the policy for computing markdowns mirrors that applied to markups. ==========================================START OF PAGE 8====== trade with one another. See Alstead, 47 S.E.C. at 1035, Kenneth B. Stucker, 42 S.E.C. 910, 911 (1968). In defining the prevailing market price for purposes of markup computations, the Commission has distinguished between dealers and market makers. As indicated previously, the parties stipulated that registrant was an integrated market maker as to the three securities at issue. Stip. 5, 6, 7. The parties further agreed that registrant did not dominate or control the market for the relevant securities. The Commission has indicated that "[w]here a market maker is involved, markups may be computed on the basis of the contemporaneous prices charged by the firm or other market makers in actual sales to other dealers or, if no such prices are available, on the basis of representative asked quotations." Alstead, 47 S.E.C. at 1036; Adams Securities, Inc., 51 S.E.C. 311, 313 n.8 (1993). If there are no such sales, then that firm's contemporaneous inter-dealer purchases are the appropriate measure for the prevailing market price. See Richard Perkins, 51 S.E.C. 380, 381, 385 (1993); Century Securities Company, 43 S.E.C. 371, 379 (1967). In Alstead, the Commission considered a broker-dealer's markups for a security for which it was a market maker and did not control the market and held that "the prices it charged the other dealer in two transactions may properly be used as a basis for computing markups. In all other instances during the period in question, the best evidence of the prevailing market price is the price registrant paid for [the security] in contemporaneous ==========================================START OF PAGE 9====== transactions." 47 S.E.C. at 1038. Validated quotations may be used as a basis for determining market price "but only in the absence of actual inter-dealer transactions." LSCO Securities, Inc., 50 S.E.C. 518, 522 (1991). As the Commission has previously indicated, "quotations only propose a transaction, they do no reflect the actual result of a completed arms-length sale." Alstead, 47 S.E.C. at 1036. The Commission also has indicated that, absent some showing of a change in the prevailing market, a dealer's inter-dealer cost may be used to establish market price for a period up to five business days from the date of the dealer's purchase. LSCO Securities, Inc., 50 S.E.C. at 520; see Nicholas A. Codispoti, 48 S.E.C. 842 (1987).-[2]- CONCLUSIONS OF LAW Based upon the foregoing, I find that calculations of markups and markdowns for the transactions at issue should be made as follows:-[3]- On the days that registrant sold securities to both its customers and another dealer or dealers, the best ---------FOOTNOTES---------- -[2]-In Linder, Bilotti & Co., Inc., the Commission seems to indicate that the contemporaneous inter-dealer transaction may be either before or after the retail transaction. 42 S.E.C. 807, 809 n.4 (1965). It strains logic to hold a dealer to a price yet to be determined. Therefore, I have declined to follow this approach. -[3]-I have given registrant the benefit of the highest price if more than one relevant transaction occurred on the date at issue. ==========================================START OF PAGE 10====== evidence of prevailing market price is registrant's contemporaneous inter-dealer sales price. Alstead, 47 S.E.C. at 1036; Adams, 51 S.E.C. at 313 n.8; LSCO Securities, 50 S.E.C. at 519-20. On those days when registrant did not sell to other dealers but purchased the subject securities from another dealer, the price registrant paid for the securities is the best evidence of prevailing market price for purposes of computing markups. Richard Perkins, 51 S.E.C. at 381, 385; Century, 43 S.E.C. at 379. If registrant did not make any inter-dealer transactions on the date in question but had made such a transaction within three business days before the customer transaction, the best of evidence of the prevailing market price was price of the most contemporaneous inter-dealer transaction. LSCO Securities, 50 S.E.C. at 520; Nicholas A. Codispoti, 48 S.E.C. at 844; Toney L. Reed, 56 SEC Docket 387, 390 n.12 (Feb. 24, 1994). Finally, when registrant neither sold nor bought subject securities on a date it executed transactions with its customers, the prevailing market price is the price at which other dealers traded the subject security.-[4]- Toney L. Reed, 56 SEC Docket at 389-390. This order of preference for calculation of markups is grounded on Commission case law and common sense. The best evidence of prevailing market price under the circumstances of this case is the price at which registrant sold to other dealers. The next best evidence is the price at which registrant bought from other ---------FOOTNOTES---------- -[4]-Respondents argue that the highest bid price is the best evidence of market price. But the Commission indicated in Alstead that the use of representative asked quotations is appropriate in determining prevailing market price only in the absence of actual inter-dealer sales. 47 S.E.C. at 1036. See Peter J. Kisch, 47 S.E.C. 802 (1982). Even were it necessary to resort to quotations, the quotations must be "validated." It appears that in order to validate a quotation, a broker dealer must substantiate the quote by its own purchase or sale. See R.B. Webster Investments, Inc., 59 SEC Docket 1194, 1198 (May 23, 1995). ==========================================START OF PAGE 11====== dealers. The prices at which the subject securities where traded by dealers away from registrant are used only when registrant itself was not engaged in contemporaneous inter-dealer transactions. And because the Division has charged violations only in those transactions where there were contemporaneous inter-dealer trades, either with registrant as a party or away from registrant, there is no reason to use validated quotes.-[5]- Excessive Markups There were 29 customer transactions in which registrant charged its customers markups more than 10% of the price at which it sold to a dealer on the same day. See Appendix, Group A. I find that the prices charged to customers in these 29 transactions constituted excessive undisclosed markups in violation of  17(a) of the Securities Act and  10(b) and 15(c) of the Exchange Act and Rules 10b-5 and 15c1-2 thereunder and resulted in $14,435.08 of excessive undisclosed markups, ranging from 10.3% to 39.8% of the prevailing market price. Similarly, there were six customer transactions in which ---------FOOTNOTES---------- -[5]-The Commission noted in Alstead that "there are situations involving a market maker ... where the use of representative asked quotations in the absence of actual inter- dealer sales is appropriate in determining prevailing market price. Where there is an active, independent market for a security, and the reliability of quoted offers can be tested by comparing them with actual inter-dealer transactions during the period in question, such quotations may provide a proper basis for computing markups." 47 S.E.C. at 1036-37 (emphasis added). Thus, it is not necessary to use validated quotations where there were, as in this case, contemporaneous inter-dealer transactions on the dates at issue. ==========================================START OF PAGE 12====== registrant paid its customers markdowns less than 10% of the price it paid a dealer for the same security on the same day. See Appendix, Group B. I find that the prices charged to customers in these six transactions constituted excessive undisclosed markups in violation of  17(a) of the Securities Act and  10(b) and 15(c) of the Exchange Act and Rules 10b-5 and 15c1-2 thereunder and resulted in $5,551.00 of excessive undisclosed markups ranging from 11.3% to 36.6% of the prevailing market price. In another 86 customer transactions, the Division used the price at which D.E. Wine sold to another dealer either three days before or three days after the customer transactions date as the basis for the markup computation, even though D.E. Wine had purchased the same security from a dealer on the same day as it sold to a customer. I find that the price at which registrant purchased securities from another dealer on the date at issue is better evidence of the prevailing market price than the price that registrant sold securities to another dealer up to three days before or after the date at issue. Registrant's purchase price is also better evidence of the prevailing market price than validated quotations. Of 73 customer transactions for which registrant did not make an inter-dealer sale but did make an inter-dealer buy on the transaction date, 32 resulted in markups more than 10% of the prevailing market price, registrant's cost. See Appendix, Group C. I find that the prices charged to customers in 31 of these ==========================================START OF PAGE 13====== transactions constituted excessive undisclosed markups in violation of  17(a) of the Securities Act and  10(b) and 15(c) of the Exchange Act and Rules 10b-5 and 15c1-2 thereunder.-[6]- These 31 transactions resulted in $6,468.58 of excessive undisclosed markups ranging from 12.1% to 39.4% of the prevailing market price. Similarly, of the customer transactions on April 13, 1993, in First Film warrants for which registrant did not make an inter-dealer purchase but did make an inter-dealer sale on the transaction date, all 13 resulted in markdowns less than 10% of registrant's purchase price. See Appendix, Group D. I find that the prices paid by registrant in 12 of these transactions constituted excessive undisclosed markdowns in violation of  17(a) of the Securities Act and  10(b) and 15(c) of the Exchange Act and Rules 10b-5 and 15c1-2 thereunder.-[7]- These 12 transactions resulted in $264.15 of excessive undisclosed markdowns ranging from 10.1% to 17.6% of the prevailing market price.-[8]- ---------FOOTNOTES---------- -[6]-The purchase of 180 shares of Market Data on June 3, 1993, in customer account number 88175016, resulted in a markup of 18.2% over the prevailing market price of $1.375. Proceeds in excess of 10% were $20.25 and total proceeds were $45.00. While the markup in this transaction exceeds 10% of the prevailing market price, it did not result in an unfair price to the customer because the total proceeds were less than $50.00. See Richard Perkins, 51 S.E.C. at 384 n.22. -[7]-The sale of 100 shares of First Film on April 13, 1993, in customer account number 69959574 is excluded. See n.6, supra. -[8]-I reject the Division's contention that these transactions in First Film warrants were riskless principal (continued...) ==========================================START OF PAGE 14====== Finally, there were 21 transactions in which the Division alleges registrant charged excessive undisclosed markups or markdowns on dates in which registrant neither sold nor bought the subject securities in the inter-dealer market. In accordance with the order of preference for the best evidence of the prevailing market price outlined above, the markups or markdowns in these transactions were calculated based on the most contemporaneous inter-dealer transaction price in which registrant participated. See Appendix, Group E. On only one trade date was it necessary to use an inter-dealer transaction price in which registrant did not participate. Specifically, the prevailing market price was determined as follows: For the six sales of Market Data on May 12, 1993, the prevailing market price is registrant's sale price to another dealer on May 11, 1993. For the two sales of Market Data on June 10, 1993, the prevailing market price is the price at which dealers traded the security away from registrant on the same date. For the two sales of Market Data on June 15, 1993, the prevailing market price is the price at which registrant sold to another dealer on June 14, 1993. For the two sales and one purchase of Dynacq on February 5, 1993, the prevailing market price is the price at which registrant bought from another dealer on February 4, 1993. For the three sales of Dynacq on July 1, 1993, the prevailing market price is the price at which ---------FOOTNOTES---------- -[8]-(...continued) trades. A broker-dealer acting as a market maker "often engage[s] in transactions that effectively offset one another giving the appearance of being 'riskless' principal transactions." Securities Exchange Act Release No. 15219 (Oct. 6, 1978), 15 SEC Docket 1245, 1253 (emphasis added). ==========================================START OF PAGE 15====== registrant bought from another dealer on June 30, 1995. Using the prevailing market price as determined above, I find that the prices charged to customers in 10 of these transactions constituted excessive undisclosed markups, and one of these transactions constituted an excessive undisclosed markdown, in violation of  17(a) of the Securities Act and  10(b) and 15(c) of the Exchange Act and Rules 10b-5 and 15c1-2 thereunder.-[9]- These 11 transactions resulted in excessive undisclosed markups and markdowns of $7,231.38, ranging from 16.4% to 30.4% of the prevailing market price. In summary, I find that registrant charged excessive undisclosed markups and markdowns in 89 transactions in violation of  17(a) of the Securities Act and  10(b) and 15(c) of the Exchange Act and Rules 10b-5 and 15c1-2 thereunder. These 89 transactions resulted in $33,873.53 of excessive undisclosed markups and markdowns, ranging from 10.3% to 39.8% of the prevailing market price for markups and 10.1% to 36.6% of the prevailing market price for markdowns. Culpability of Respondents D.E. Wine's pricing policy, as formulated and implemented by Miller, Karpf, and Wine, resulted in excessive undisclosed ---------FOOTNOTES---------- -[9]-I have excluded the sale of Dynacq on February 25, 1993, and the three sales of Dynacq on March 1, 1993. The only evidence of inter-dealer transactions contemporaneous to these dates is a sale by registrant of Dynacq on March 2, 1993. Although it appears that Commission case law permits such a basis for determining prevailing market price, I cannot conclude that registrant should be held to a price yet to be determined. See supra note 3. ==========================================START OF PAGE 16====== markups and markdowns on securities transactions in three securities during the period December 1992 through July 1993. These markups violated the federal securities laws. The respondents were first put on notice that the pricing policy was deficient in an October 1991 letter from the SEC examination staff in Fort Worth. Division Exhibit (Div. Ex.) 6. Miller responded in a letter on November 21, 1991, indicating disagreement with the conclusion that the pricing policy resulted in excessive undisclosed markups, stating that "a firm may rely on quotations in the market place." Id. The respondents continued to compute retail markups under this pricing policy. Miller acknowledged his individual responsibility to develop the firm's pricing system, his individual responsibility to review transactions for pricing before execution, and both that his reviews did not take place until the following day and that he never cancelled a trade for pricing during his tenure at D.E. Wine. Miller reviewed the order tickets on the day following execution of the order, to assure, among other things, that principal transactions complied with the firm's pricing policy. Tr. 127. Miller testified that he did not recall during his tenure with D.E. Wine cancelling and rebilling a transaction because the markup or markdown was incorrectly calculated. Tr. 148, 152. Karpf, as D.E. Wine's trader, knew the prices charged or received by the firm in inter-dealer trades, yet relied on the "inside" quotations displayed on the NASDAQ and the NASDAQ EBB to ==========================================START OF PAGE 17====== determine the market price for computing markups and markdowns. Stip. 11, 15; Tr. 123-5, 167. Wine was the president of D.E. Wine and therefore ultimately responsibility for the pricing policy. He acknowledged his involvement in both designing and, by delegating responsibilities to Miller and Karpf, implementing its pricing system. Stip. 8; Tr. 182-3. PUBLIC INTEREST The Division seeks sanctions as follows: revoke D.E. Wine's broker-dealer registration with the SEC; bar Wine from association with a broker or dealer, with a right to apply to become so associated in a non-supervisory or non-proprietary capacity after a period of one year; bar Miller from association with any broker or dealer; and suspend Karpf from association with any broker or dealer for a period of one year less one day. The Division also seeks civil penalties in the amount of $50,000 against each respondent. The Division requests that each of the respondents be ordered to cease and desist from committing or causing violations or future violations of  17(a) of the Securities Act and  10(b) and 15(c) of the Exchange Act and Rules 10b-5 and 15c1-2 thereunder. Finally, the Division requests that the respondents be ordered, jointly and severally, to disgorge $57,136.68, and to pay prejudgment interest thereon in the amount of $10,398.64. ==========================================START OF PAGE 18====== Imposition of remedial administrative sanctions under  15(b) and 19(h) requires consideration of: the egregiousness of the defendant's actions, the isolated or recurrent nature of the infraction, the degree of scienter involved, the sincerity of the defendant's assurances against future violations, the defendant's recognition of the wrongful nature of his conduct, and the likelihood that his occupation will present opportunities for future violations. Steadman v. SEC, 603 F.2d 1126, 1140 (5th Cir., 1979), aff'd on other grounds, 450 U.S. 91 (1981). The amount of a sanction depends on the facts of each case and the value of the sanction in preventing a recurrence. Berko v. SEC, 316 F.2d 137, 141 (2d Cir. 1963); Leo Glassman, 46 S.E.C. 209, 211 (1975); Richard C. Spangler, Inc., 46 S.E.C. 238, 254 n.67 (1976). The Commission has noted in a similar case that, "These blatant overcharges reflect a marked insensitivity on the part of registrant to the obligation of fair dealing borne by all brokerage firms." Alstead, 47 S.E.C. at 1039. In Alstead, the Commission found that the registrant involved "charged customers excessive prices in nearly 300 transactions, many of which involved markups of more than 20% above the prevailing market price." Id. The sanction imposed for those violations was suspension of registrant's broker-dealer registration for a period of 90 days. Id. In spite of indications from SEC staff that D.E. Wine's pricing policy was illegal, the respondents nonetheless persisted in charging large retail markups, using unsubstantiated ask quotations and disregarding prices consistent with their own ==========================================START OF PAGE 19====== sales to other dealers. This conduct displays, at a minimum, a reckless indifference to the duty they owed their customers. Adams Securities, Inc., 51 S.E.C. at 1092, 1096 n.25; R.B. Webster Investments, Inc., 59 SEC Docket 1194, 1198 (May 23, 1995). Accordingly, these respondents acted with scienter.-[10]- In evaluating the appropriate sanctions, consideration is given to: (1) the number and magnitude of the excessive undisclosed markups charged; (2) respondents' refusal to acknowledge the illegality of the pricing policy; and (3) revisions to registrant's pricing policy. Accordingly, it is considered that sanctions are justified against D.E. Wine, Miller, Karpf, and Wine for charging excessive undisclosed markups. It is also in the public interest to impose penalties on the respondents pursuant to  21B of the Exchange Act. In assessing penalties, consideration is given to the following: (1) the conduct involved reckless disregard of a regulatory requirement (Exchange Act  21B(c)(2)); (2) the extent that respondents were unjustly enriched by the markup policy (Exchange Act  21B(c)(3)); (3) the NASD finding of similar violations (Exchange Act  21B(c)(4)); and (4) the need to deter others (Exchange Act ---------FOOTNOTES---------- -[10]-See Meyer Blinder, 50 S.E.C. 1215, 1230 (1992) ("Where a dealer knows the circumstances indicating the prevailing market price for the securities, knows the retail price that it is charging the customer, and knows or recklessly disregards the fact that its markup is excessive, but nonetheless charges the customer the retail price, the scienter requirement is satisfied."). ==========================================START OF PAGE 20======  21B(c)(5)). An order requiring an accounting and disgorgement is appropriate. The amount of disgorgement is estimated at $33,873.53, based upon the markup calculations discussed above and outlined in the Appendix to this decision. Interest shall be paid at the rate set pursuant to 26 U.S.C. 6621(a), which shall accrue on all amounts owed until paid.-[11]- The purpose of an accounting and disgorgement is "to deprive a wrongdoer of his unjust enrichment and to deter others from violating the securities laws." First City Financial, 890 F.2d 1215, 1230 (D.C. Cir. 1989). See Securities Law Enforcement Remedies and Penny Stock Reform Act of 1990, S. Rep. No. 337, 101st Cong., 2d Sess. 16 (1990) ("[D]isgorgement forces a defendant to give up the amount by which he was unjustly enriched"). Prejudgment interest is applied because the respondents have had the benefit of their ill-gotten gains since they defrauded their customers. See SEC v. Tome, 833 F.2d 1086, 1087 (2d Cir. 1987). ORDER IT IS ORDERED that the registration of D.E. Wine ---------FOOTNOTES---------- -[11]-The Division requested disgorgement and prejudgment interest as follows: "that they [the respondents] be ordered, jointly and severally, to disgorge $57,136.68, and prejudgment interest hereon in the amount of $10,398.64, as of August 21, 1995, for a total of $67,535.32." Division's Brief at 5-6. The Division failed to indicate how it arrived at this figure or why interest does not accrue after August 21, 1995. As part of the accounting and disgorgement, the parties are directed to indicate the time period for which interest shall be calculated. ==========================================START OF PAGE 21====== Investments, Inc., as a broker and dealer with the Securities and Exchange Commission, be suspended for a period of 30 days. D.E. Wine Investments is ordered pursuant to Exchange Act  21B to pay a penalty of $20,000. D.E. Wine Investments, Inc., is ordered under  8A of the Securities Act and  21C of the Exchange Act to permanently cease and desist from committing or causing any violation and committing or causing any future violations of  17(a) of the Securities Act and  10(b) and 15(c) of the Exchange Act and Rules 10b-5 and 15c1-2 thereunder. D.E. Wine is ordered under  8A of Securities Act and  21C of the Exchange Act to account and disgorge, jointly and severally with the other respondents to this proceeding, $33,873.53, consisting of the excessive undisclosed markups and markdowns charged to customers in the 89 transactions identified herein. Prejudgment interest also shall be paid at the rate set pursuant to 26 U.S.C. 6621(a), which shall accrue on all amounts owed until paid. The Division of Enforcement shall submit a plan of accounting and disgorgement to this office no later than sixty (60) days after this initial decision becomes final pursuant to Commission Rules of Practice 17(f). IT IS FURTHER ORDERED that W. Randal Miller be suspended for a period of 30 days from association with any broker or dealer under  15(b)(6) and 19(h) of the Exchange Act. Miller is ordered pursuant to Exchange Act  21B to pay a penalty of $5,000. Miller is ordered under  8A of the Securities Act and  21C of the Exchange Act to permanently cease and desist from ==========================================START OF PAGE 22====== committing or causing any violation and committing or causing any future violations of  17(a) of the Securities Act and  10(b) and 15(c) of the Exchange Act and Rules 10b-5 and 15c1-2 thereunder. Miller is ordered under  8A of Securities Act and  21C of the Exchange Act to account and disgorge, jointly and severally with the other respondents to this proceeding, $33,873.53 consisting of the excessive undisclosed markups and markdowns charged to customers in the 89 transactions identified herein. Prejudgment interest also shall be paid at the rate set pursuant to 26 U.S.C. 6621(a), which shall accrue on all amounts owed until paid. The Division of Enforcement shall submit a plan of accounting and disgorgement to this office no later than sixty (60) days after this initial decision becomes final pursuant to Commission Rules of Practice 17(f). IT IS FURTHER ORDERED that Kenneth B. Karpf be suspended for a period of 30 days from association with any broker or dealer under  15(b)(6) and 19(h) of the Exchange Act. Karpf is ordered pursuant to Exchange Act  21B to pay a penalty of $5,000. Karpf is ordered under  8A of the Securities Act and  21C of the Exchange Act to permanently cease and desist from committing or causing any violation and committing or causing any future violations of  17(a) of the Securities Act and  10(b) and 15(c) of the Exchange Act and Rules 10b-5 and 15c1-2 thereunder. Karpf is ordered under  8A of Securities Act and  21C of the Exchange Act to account and disgorge, jointly and severally with the other respondents to this proceeding, ==========================================START OF PAGE 23====== $33,873.53 consisting of the excessive undisclosed markups and markdowns charged to customers in the 89 transactions identified herein. Prejudgment interest also shall be paid at the rate set pursuant to 26 U.S.C.  6621(a), which shall accrue on all amounts owed until paid. The Division of Enforcement shall submit a plan of accounting and disgorgement to this office no later than sixty (60) days after this initial decision becomes final pursuant to Commission Rules of Practice 17(f). IT IS FURTHER ORDERED that Duncan E. Wine be suspended for a period of 30 days from association with any broker or dealer under  15(b)(6) and 19(h) of the Exchange Act. Wine is ordered pursuant to Exchange Act  21B to pay a penalty of $5,000. Wine is ordered under  8A of the Securities Act and  21C of the Exchange Act to permanently cease and desist from committing or causing any violation and committing or causing any future violations of  17(a) of the Securities Act and  10(b) and 15(c) of the Exchange Act and Rules 10b-5 and 15c1-2 thereunder. Wine is ordered under  8A of Securities Act and  21C of the Exchange Act to account and disgorge, jointly and severally with the other respondents to this proceeding, $33,873.53 consisting of the excessive undisclosed markups and markdowns charged to customers in the 89 transactions identified herein. Prejudgment interest also shall be paid at the rate set pursuant to 26 U.S.C.  6621(a), which shall accrue on all amounts owed until paid. The Division of Enforcement shall submit a plan of accounting and disgorgement to this office no later than sixty (60) days after ==========================================START OF PAGE 24====== this initial decision becomes final pursuant to Commission Rules of Practice 17(f). All payments of penalties shall be made on the first day following the day this initial decision becomes final. Once the accountings ordered in this decision are approved by this office, the amount determined therein along with prejudgment interest shall be disgorged immediately thereafter. All payments of penalties and disgorgement required by this decision must be made by certified check, U.S. Postal money order, bank cashier's check, or bank money order payable to the United States Securities and Exchange Commission, and shall be directed to the Comptroller, Securities and Exchange Commission, Room 2067, Stop 2-5, 450 5th Street, N.W., Washington D.C. 20549 with a cover letter bearing the legend "In the matter of D.E. Wine Investments, Inc., W. Randal Miller, Kenneth B. Karpf, and Duncan E. Wine, Administrative Proceeding File No. 3-8543." Pursuant to Rule 17(f) of the Rules of Practice, 17 C.F.R.  201.17, this initial decision shall become the final decision of the Commission as to each party who has not, within fifteen days after service of this decision upon the party, filed a petition for review of this decision pursuant to Rule 17(b), unless the Commission, pursuant to Rule 17(c), determines on its own initiative to review this decision as to him. If a party timely files a petition for review, or the Commission takes action to review as to a party, the initial decision shall not become final with respect to that party. ==========================================START OF PAGE 25====== Glenn Robert Lawrence Administrative Law Judge Washington, D.C. December 8, 1995