SECURITIES AND EXCHANGE COMMISSION
In the Matter of
MICHAEL J. MARKOWSKI
OPINION OF THE COMMISSION
Ground for Remedial Action
President of registered broker-dealer was enjoined permanently, with his consent, from violating antifraud provisions of the securities laws. Held, it is in the public interest to bar respondent from association with any broker or dealer.
William Vandercreek and W. Scott Newbern, for Michael J. Markowski.
Carmen J. Lawrence, Edwin H. Nordlinger, Henry Klehm III, Dorothy Heyl, Alistaire Bambach, and Patricia Walsh, for the Division of Enforcement.
Appeal filed: August 20, 1998
Last brief received: February 11, 2000
Oral Argument held: January 12, 2000
Michael J. Markowski, who was the president, owner, and chief executive officer of Global America, Inc. ("Global" or "the Firm"), a former member of the National Association of Securities Dealers, Inc. ("NASD"), appeals from the decision of an administrative law judge. The law judge found that Markowski was permanently enjoined, with his consent, from violating the antifraud provisions of the securities laws.1 The law judge concluded that it is in the public interest to bar Markowski from association with any broker or dealer. We base our findings on an independent review of the record.
On August 24, 1995, the Commission filed an injunctive action against Markowski in the United States District Court for the Southern District of New York. The complaint alleged that Markowski and Joseph Riccio, the firm's trader, knowingly or recklessly manipulated the market prices of the securities of three issuers, Capucino's, Mountaintop, Inc. ("Mountaintop"), and Auto Depot, Inc. ("Auto Depot"), beginning with their initial public offerings and continuing through at least November 1990. The complaint alleged that Markowski and Riccio conducted aggressive and fraudulent sales campaigns to promote the securities, which included making specific price predictions about the securities and making unauthorized purchases of the securities in customer accounts. The complaint also alleged that Markowski and Riccio instructed Global brokers to solicit unlawfully aftermarket orders during the distribution of the units. Finally, the complaint alleged that Markowski and Riccio restricted the supply of these securities by discouraging brokers from accepting customer sell orders, reprimanding brokers who did accept sell orders, paying brokers commissions on buy orders but not sell orders, and fraudulently delaying the execution of customer sell orders for days, weeks, or even months.
On February 9, 1996, Markowski, without admitting or denying liability, consented to the entry of an order enjoining him from future violations of Section 17(a) of the Securities Act2 andSection 10(b) of the Exchange Act3 and Rules 10b-5 and 10b-6 thereunder.4 Based upon the entry of the injunction and the facts alleged in the complaint seeking the injunction, and pursuant to Section 15(b)(6) of the Exchange Act,5 we instituted this proceeding on March 20, 1997. Based upon the district court injunction and the extensive record established before her, the law judge barred Markowski from association with any broker or dealer.
Exchange Act Section 15(b)(6)(A)(iii)6 provides that we may sanction any person who is, or at the time of the alleged misconduct was, associated with a broker or dealer if we find that (1) such a sanction is in the public interest and (2) the person is enjoined from engaging in any conduct or practice in connection with either (a) the activity of a broker or dealer or (b) the purchase or sale of a security.
Markowski contends that this proceeding is time-barred by the general five-year statute of limitations contained in 28 U.S.C. § 2462.7 Markowski argues that the Commission's cause of action accrued more than five years before this proceeding was instituted, when he committed the wrongdoing that was the basis for the entry ofthe injunction against him.8 We are not persuaded by Markowski's argument.
Limitations periods, such as the one at issue here, commence when the party instituting the proceeding has a "complete and present cause of action."9 To determine when the limitations period begins, therefore, we must look to the language of the statute providing the cause of action.10 Congress provided three alternative grounds for Commission action under Section 15(b)(6)(A) -- an injunction, a conviction, or the misconduct itself. Thus, the statute provides that the same misconduct can result in separate claims, each with its own accrual date under Section 15(b)(6)(A).11 This proceeding is based on the injunction issued against Markowski. Accordingly, the Commission did not have a complete and present claim, and its cause of action did not accrue, until the United States District Court entered the injunction on February 9, 1996.12 We instituted this proceeding little more than a year later on March 20, 1997, well within Section 2462's five-year limitations period. We find, therefore, that this action is not time-barred.
Markowski attempts to bolster his argument that the cause of action accrues at the time of the conduct underlying the injunction by contending that, because the Commission can file an injunctive action at any time, it is able to extend the limitations period indefinitely.13 The statute on its face makes clear that a judicial determination to enter an injunction is sufficient to allow the Commission to determine the appropriate remedy in the publicinterest. We reiterate that Congress' clear intent was to allow us separate means -- with separate accrual dates -- to bring administrative proceedings under Section 15(b)(6).
Section 15(b)(6) of the Exchange Act empowers us to act in the public interest when a person has been enjoined, with no exception made in the case of a consent injunction.14 Moreover, the allegations in the complaint in an action settled by consent may, in subsequent proceedings before the Commission, be given considerable weight for purposes of assessing the public interest.15
Markowski claims there is insufficient evidence in the record to support the charges of market manipulation and delay in executing customer sell orders.16 Having consented to the entry of an injunction, however, Markowski may not now question the allegations on which that injunction is based.17 Our complaint in the injunctive action alleged that Markowski knowingly or recklessly manipulated the market and delayed execution of customer sell orders, in addition to other illegal conduct. Markowski is foreclosed from challenging these facts here and is limited to introducing evidence relevant to his degree of culpability for the purpose of determining the appropriateness of the sanctions to be imposed upon him.18
In determining what sanction of Markowski is in the public interest, we consider the following factors:
the egregiousness of the [respondent's] actions, the isolated or recurrent nature of the infraction, the degree of scienter involved, the sincerity of the [respondent's] assurances against future violations, the [respondent's] recognition of the wrongful nature of his conduct, and the likelihood that the [respondent's] occupation will present opportunities for future violations.19
Applying these factors, the law judge determined that Markowski should be barred from association with any broker or dealer.
Markowski's conduct was egregious.20 The complaint in the injunctive action describes the manner in which Markowski knowingly and recklessly manipulated the market prices of three Global-backed securities, including aggressive and fraudulent sales practices, unlawful solicitation of aftermarket orders during initial public offerings, and delayed execution of the sell orders of Global customers.
Moreover, the evidence independently adduced in this proceeding shows a bar of Markowski to be in the public interest. Global's failure to execute customer sell orders occurred over the course of several months and involved numerous customers. Global's former compliance officer testified that, beginning in the fall of 1989, he became aware that customers were complaining that their orders to sell stock were not being executed and that these complaints continued to grow in number during 1990 until eventually Global brokers were complaining that they could not get their sell orders executed by Global's traders. Global's compliance officer testified that he brought the problem of unexecuted sell orders to Markowski's attention on numerous occasions, both orally and in writing.
Broker-dealers are obligated to deal fairly with customers, and this includes the obligation to execute transactions promptly.21 A customer must be free to sell any security in the customer's account whenever the customer so desires.22
Markowski responds that Global brokers discouraged customers from selling Global-backed securities in accordance with Global's "buy and hold" philosophy and that brokers were instructed not to solicit sell orders only to prevent them from churning customer accounts. However, Global's compliance officer testified that the policy against soliciting sell orders was applied across the board, without regard to other factors such as the financial condition of the issuer. Moreover, a "buy and hold" philosophy and the desire to prevent churning do not justify the failure to sell a security once a customer has ordered that it be sold.23
Markowski also argues that the Firm's backlog of unexecuted customer sell orders is excused by an August 1990 fire in a telephone exchange, which rendered the Firm's phones inoperable for one week, and the fact that in December 1990 Global's clearing firm began refusing to allow Global to purchase customer securities for the Firm's trading account. Markowski's arguments are not persuasive because, among other things, the Firm's compliance officer testified that the problem with unexecuted sell orders began in the fall of 1989 and continued throughout 1990, much earlier than these events.
Markowski's conduct with respect to market manipulation and customer complaints regarding unexecuted sell orders demonstrates a high degree of scienter. Markowski was aware that Global was able to support artificially the price of Global-backed securities by restricting the supply of the stock.24 Markowski also was informedrepeatedly of Global's backlog of customer sell orders but did not attempt to remedy this situation. Rather, Markowski testified that he did not believe the unexecuted sell orders reported by the Firm's compliance officer were a serious problem.
Markowski continues to refuse to accept responsibility for his misconduct. He attempts to minimize the gravity of his misconduct by arguing that "Global was owned by Markowski, but not directed by him." As owner and chief executive officer, however, Markowski had primary responsibility for Global's compliance with the federal securities laws.25
We disagree with Markowski's claim that no harm came to the investing public as a result of his actions. While some complaints regarding unexecuted sell orders were resolved without financial loss to the customer, many others were not. Numerous former Global customers have brought arbitrations against Markowski for his failure to execute sell orders and market manipulation. Markowski testified that he has not paid any of the awards granted in these proceedings.
Markowski also has a disciplinary history. He failed to provide the NASD with access to Global's books and records in the initial stages of the NASD's investigation of the same market manipulation at issue here. This is a serious violation of the NASD's Rules of Fair Practice for which Markowski was censured, fined $50,000, and given a two-year suspension in all capacities and a permanent bar from acting as a principal or having any financial interest in any NASD member firm.26
Markowski has provided no credible assurance against future violations. Indeed, Markowski's testimony bespeaks a complete lack of understanding of, and appreciation for, the regulatory schemegoverning the securities industry.27 Markowski testified that he would like to return to work in the securities industry. His failure to recognize the wrongfulness of his conduct presents a significant risk that, given this opportunity, he would commit further misconduct in the future. Therefore, based upon the injunction entered against Markowski and the evidence adduced in the administrative proceeding, it is in the public interest to bar Markowski from association with any broker or dealer.
An appropriate order will issue.28
By the Commission (Acting Chairman UNGER and Commissioners HUNT and CAREY).
Jonathan G. Katz
Admin. Proc. File No. 3-9277
In the Matter of
MICHAEL J. MARKOWSKI
ORDER IMPOSING REMEDIAL SANCTION
On the basis of the Commission's opinion issued this day, it is
ORDERED that Michael J. Markowski be, and hereby is, barred from association with any broker or dealer.
By the Commission.
Jonathan G. Katz
|1||Markowski was enjoined from further violations of Section 17(a) of the Securities Act of 1933, 15 U.S.C. § 77q(a), and Section 10(b) of the Securities Exchange Act of 1934, 15 U.S.C. § 78j(b), and Rules 10b-5 and 10b-6 thereunder. 17 C.F.R. §§ 240.10b-5 and 240.10b-6.|
|2||15 U.S.C. § 77q(a).|
|3||15 U.S.C. § 78j(b).|
|4||17 C.F.R. § 240.10b-5; 17 C.F.R. § 240.10b-6.|
|5||15 U.S.C. § 78o(b)(6).|
|6||15 U.S.C. § 78o(b)(6)(A)(iii).|
|7|| Section 2462 states, in pertinent part:
Except as otherwise provided by Act of Congress, an action, suit or proceeding for the enforcement of any civil fine, penalty, or forfeiture, pecuniary or otherwise, shall not be entertained unless commenced within five years from the date when the claim first accrued . . . .
|8||Markowski bases his argument that accrual of the Commission's cause of action occurred at the time of the facts underlying the injunction in part on Johnson v. SEC, 87 F.3d 484, 492 (D.C. Cir. 1996). The administrative proceeding in Johnson, however, was brought pursuant to section 15(b)(6)(A)(i) on the basis of alleged violations of securities law -- not, as here, on the basis of an injunction.|
|9||Bay Area Laundry and Dry Cleaning Pension Trust Fund v. Ferbar Corp., 522 U.S. 192, 201 (1997)(quoting Rawlings v. Ray, 312 U.S. 96, 98 (1941))(noting that act that specified its statute of limitations ran from "the date on which the cause of action arose" incorporated general rule that limitations period commences at the point when the plaintiff can file suit and obtain relief).|
|10||Profitt v. FDIC, 200 F.3d 855, 862-63, reh'g denied, 208 F.3d 1066 (D.C. Cir. 2000).|
|11||Profitt, 200 F.3d at 863 (holding that, under Section 8(e) of the Federal Deposit Insurance Act, the same misconduct can result in separate Section 8(e) enforcement actions, each with a separate accrual date).|
|12|| Markowski urges us to reexamine the statute of limitations analysis contained in Russell G. Koch, Exchange Act Rel. No. 38658 (May 20, 1997) 64 SEC Docket 1616, 1621, rev'd on other grounds, 177 F.3d 784 (9th Cir. 1999), the leading Commissionprecedent regarding the accrual of a cause of action under Section 15(b)(6)(A) for purposes of Section 2462's five-year statute of limitations. We decline to do so. In Koch, the United States Court of Appeals for the Ninth Circuit held that the penny stock bar provisions of the Securities Enforcement Remedies and Penny Stock Reform Act, Pub. L. No. 101-429, 104 Stat. 931 (1990), (the "Remedies Act") could not be applied retroactively to conduct that occurred prior to the passage of the Act. The Ninth Circuit explicitly did not reach the statute of limitations claim.
Retroactive application of Section 15(b)(6)(A) is not at issue here. In Koch, the Court held that the respondent could not have known that his misconduct might subject him to a penny stock bar because the law providing for this bar had not been enacted at the time of Koch's misconduct. Here, Markowski was on notice at the time of his misconduct that the Commission could bring an action to bar him on the basis of an injunction under Section 15(b)(6)(A)(iii). The consequences of his conduct have not changed.
|13||Markowski's argument is based on his erroneous assumption that a district court will award injunctive relief for stale claims. To the contrary, a district court will consider lapse of time in determining whether injunctive relief is appropriate. SEC v. Monarch Fund, 608 F.2d 938, 943 (2d Cir. 1979) (holding that an injunction was not warranted when judgment was entered more than seven years after a single alleged instance of violation); Loss & Seligman, Fundamentals of Securities Regulation, 1162-63 (3d ed. 1995) (noting that when an injunction is sought, "the longer the lapse of time between the cessation of violations and the filing of the complaint, the more difficult is the problem of proving equity").|
|14||Exchange Act § 15(b)(6)(A)(iii); Charles Phillip Elliot, 50 S.E.C. 1273, 1277 (1992), aff'd per curiam, Elliott v. SEC, 36 F.3d 86 (11th Cir. 1994).|
|15||Samuel O. Forson, Exchange Act Rel. No. 38853 (July 21, 1997), 65 SEC Docket 24, 25; Richard J. Puccio, 52 S.E.C. 1041, 1042 (1996); Elliot, 50 S.E.C. at 1277.|
|16||Markowski also contends that the law judge improperly rejected the testimony of his expert. According to Markowski, his expert would have opined that the finding of manipulation in a separate NASD proceeding against Markowski was not substantiated by the record in that proceeding. This proceeding and our public interest determination, however, are in no way based on the NASD's finding of market manipulation.|
|17||Forson, 65 SEC Docket at 25.|
|18||Blinder, Robinson & Co. v. S.E.C., 837 F.2d 1099, 1109 (D.C. Cir.), cert. denied, 488 U.S. 869 (1988); Forson, 65 SEC Docketat 25.|
|19||Puccio, 52 S.E.C. at 1044; Donald T. Sheldon, 51 S.E.C. 59, 86 (1992), aff'd, 45 F.3d 1515 (11th Cir. 1995).|
|20||Pagel, Inc., 48 S.E.C. 223, 231-32 (1985)("Manipulation strikes at the heart of the pricing process on which all investors rely. It attacks the very foundation and integrity of the free market system."), aff'd, 803 F.2d 942 (8th Cir. 1986).|
|21||C. James Padgett, 52 S.E.C. 1257, 1269 (1997)(citations omitted), aff'd sub nom. Sullivan v. SEC, 159 F.3d 637 (D.C. Cir. 1998)(Table).|
|22||David M. Haber, 52 S.E.C. 201, 204 (1995).|
|23||Cf. id. (holding that policy of discouraging brokers from accepting sell orders is irrelevant to the prevention of churning).|
|24||The price for the securities of Capucino's, Mountaintop, and Auto Depot collapsed soon after Global ceased doing business on January 16, 1991.|
|25||See Padgett, 52 S.E.C. at 1276 (firm's principals responsible for inquiring as to whether firm was complying with securities laws); Haber 52 S.E.C. at 207 (president of broker-dealer responsible for firm's compliance with the securities laws and abdication of that duty supported public interest in imposing a bar).|
|26||See Michael J. Markowski, 51 S.E.C. 553 (1993), aff'd, 34 F.3d 99 (2d Cir. 1994).|
|27||For example, Markowski testified that Global's compliance officer, while competent and doing an excellent job, liked to "make a mountain out of a molehill," but according to Markowski, "that's generally what a Compliance Officer does."|
|28||We have considered all of the parties' contentions. We have rejected or sustained these contentions to the extent that they are inconsistent or in accord with the views expressed herein.|