UNITED STATES OF AMERICA
In the Matter of
Roger A. Rawlings
ORDER MAKING FINDINGS AND
IMPOSING REMEDIAL SANCTIONS
AGAINST ROGER A. RAWLINGS
PURSUANT TO SECTION 15(b) OF
THE SECURITIES EXCHANGE ACT OF 1934
On September 26, 2000, the Securities and Exchange Commission ("Commission") issued an Order Instituting Public Proceedings pursuant to Section 15(b)(6) of the Securities Exchange Act of 1934 ("Exchange Act") against Roger A. Rawlings ("Rawlings").
Rawlings has submitted to the Commission an Offer of Settlement which the 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 to which the Commission is a party, and without admitting or denying the findings, except the jurisdiction of the Commission over him and over the matters set forth herein and the facts in Section II, paragraph A, which he admits, Rawlings consents to the entry of this Order Making Findings and Imposing Remedial Sanctions against Roger A. Rawlings Pursuant to Section 15(b) of the Securities Exchange Act of 1934 ("Order").
On the basis of this Order and the Offer submitted by Rawlings, the Commission finds1 that:
A. Rawlings was associated between 1994 and September 1999 with D.E. Frey & Company, Inc., a corporation registered with the Commission as a broker-dealer since 1988. Rawlings was a principal, co-owner and branch office manager of that firm's Colorado Springs, Colorado branch office.
B. In 1998, a registered representative subject to Rawlings' supervision in the Colorado Springs branch office ("the representative") engaged in unsuitable trading in the accounts of at least three elderly Frey clients and churned two of those accounts. In one account, the representative exercised de facto control and in another he had written discretionary authority. In the brokerage account of an 82-year-old woman, the representative purchased unsuitable securities, traded options and engaged in margin trading. Such trades were unsuitable given the customer's age, financial resources and investment objectives. Between August and October 1998, under management of that representative, the account had a turnover rate of 4.1. Between October and December 1998, that rate increased to 8.99. In a brokerage account of an 85-year-old woman, the representative obtained written authorization to trade the account and then purchased securities on margin and invested in high-risk funds. Such trading was unsuitable for the customer due to her age, means, and stated investment objectives. Between September and December 1998, the account had a turnover rate of 14.7. In the brokerage account of a 71-year-old retired man, the representative engaged in unsuitable trading. The customer, who had an annual income of $25,000 and stated investment objective to preserve capital, was placed in unsuitable high yield securities.
C. Through the representative's unsuitable trading in three client accounts and churning in two of those accounts, the representative 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 in that, directly or indirectly, in connection with the offer, purchase or sale of securities by use of the means or instrumentalities of interstate commerce or by use of the mails, he employed devices, schemes or artifices to defraud; made untrue statements of material facts or omitted to state material facts necessary in order to make the statements made, in light of the circumstances under which they were made, not misleading; or engaged in acts, transactions, practices, or courses of business which would or did operate as a fraud or deceit.
D. Rawlings was aware that the registered representative had a disciplinary history prior to the representative's association with the firm. When the firm hired the representative in June 1997, the representative's registration to sell securities in Colorado was subject to a "special supervision order." Rawlings was designated by the firm to provide the special supervision. Further, the firm prohibited the representative from exercising discretion over any client accounts.
E. As supervisor for the representative, Rawlings was responsible for satisfying himself that the representative's trades were in accord with each client's investment objectives. Rawlings failed to monitor the representative's trading activity for a period of time, such as by reviewing the exception reports for the representative's clients. If Rawlings had followed the firm's procedures, including reviewing the exception reports during this time period, Rawlings might have discovered the excessive trading in client accounts. He further failed to review account documents that might have revealed that the representative had been granted discretion in one account and was exercising de facto discretion in another.
F. Based upon the foregoing, Rawlings did not reasonably discharge his duties and responsibilities and thereby failed reasonably to supervise, within the meaning of Section 15(b) of the Exchange Act, an individual subject to his supervision with a view to preventing and detecting willful violations of the federal securities laws.
G. Rawlings has submitted a sworn financial statement and other evidence and has asserted his inability to pay a civil penalty. The Commission has reviewed the sworn financial statement and other evidence provided by Rawlings and has determined that Rawlings does not have the financial ability to pay a civil penalty.
In view of the foregoing, the Commission deems it appropriate and in the public interest to accept the Offer submitted by Rawlings and to impose the sanctions specified therein.
Accordingly, pursuant to Sections 15(b) of the Exchange Act, IT IS ORDERED that:
A. Rawlings be, and hereby is, censured;
B. Rawlings be, and hereby is, suspended from association in a supervisory or proprietary capacity with any broker or dealer for one year, effective on the second Monday following the entry of this Order. Rawlings shall provide to the Commission, within 30 days after the end of the one year suspension period described above, an affidavit that he has complied fully with the suspension; and
C. The Division of Enforcement may, at any time following the entry of this Order, petition the Commission to: (1) reopen this matter to consider whether Rawlings provided accurate and complete financial information at the time such representations were made; (2) determine the amount of the civil penalty to be imposed; and (3) seek any additional remedies that the Commission would be authorized to impose in this proceeding if Rawlings' Offer had not been accepted. No other issues shall be considered in connection with this petition other than whether the financial information provided by Rawlings was fraudulent, misleading, inaccurate or incomplete in any material respect, the amount of civil penalty to be imposed and whether any additional remedies should be
imposed. Rawlings may not, by way of defense to any such petition, contest the findings in the Order or the Commission's authority to impose any additional remedies that were available in the original proceeding.
By the Commission.
Jonathan G. Katz
|1||The findings herein are made pursuant to Rawlings's Offer of Settlement and are not binding on any other person or entity.|
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