John Roger Faherty

SECURITIES EXCHANGE ACT OF 1934
Rel. No. 47502 / March 14, 2003

Admin. Proc. File No. 3-9778

ORDER SETTING ASIDE DISCIPLINARY ACTION TAKEN BY REGISTERED SECURITIES ASSOCIATION

On the basis of the Commission's opinion issued this day, it is

ORDERED that the disciplinary action taken by the National Association of Securities Dealers, Inc. against John Roger Faherty be, and it hereby is, set aside.

By the Commission.

Jonathan G. Katz
Secretary

Footnotes

¹ 15 U.S.C. § 78o(c)(1); 17 C.F.R. § 240.15c2-1.

² Faherty earned a consulting fee of $15,000 per month, and for his first year at Hibbard received as a bonus a percentage of the gross commissions generated by the firm. Thereafter, Hibbard changed Faherty's bonus arrangement. According to Faherty, in 1990, he received a bonus at the discretion of Hibbard's president or Hibbard's national sales manager. The record does not disclose the amount of Faherty's subsequent bonuses.

Faherty testified that, beginning in the fall of 1990, he became the chairman of and a consultant to an unrelated company and that his consultancy increasingly consumed his time.

³ From time to time, Faherty also had an assistant. However, he did not have an assistant between May and November 1990, the period at issue in this proceeding.

⁴ Hibbard's compliance director also periodically reviewed the firm's trading activity.

⁵ In 1989, EMI had registered an offering of 25,000 units consisting of two shares of common stock, 30 Class A Warrants, and 30 Class B Warrants, at $6.00 per unit. According to EMI's prospectus, EMI had no operations. The proceeds of the offering were to be used to seek potential business combinations, either by merger or acquisition.

⁶ The Post-Effective Amendment registered the shares of FNRA common stock underlying the Class A and Class B Warrants. The Post-Effective Amendment was declared effective August 10, 1990.

⁷ Although Faherty was the sole Hibbard representative during Hibbard's initial contacts with FNRA, other Hibbard personnel dealt with the company. Brown testified that he met with FNRA management to assess their experience. FNRA's former president submitted an affidavit to the NASD averring that, "At a later meeting, Mr. Brown and Mr. Faherty stated that they liked [FNRA]--both its strategy and its management, and were interested in purchasing and exercising the Warrants."

FNRA's former chief financial officer further testified that, at some point, he discussed FNRA's projections with Hibbard's "analysis department" "so they could evaluate the company."

⁸ FNRA's CFO testified that he prepared projections. According to the CFO, FNRA's forecasts assumed that FNRA would be able to increase its share of commissions from the real estate transactions generated by its operating units and that the residential real estate market would improve in the spring of 1991.

⁹ The record is unclear when this conversation occurred.

¹⁰ During the investigation, Faherty testified as follows:

Q. The potential financing arrangements that you and Hibbard Brown were considering, consisting of the exercise of the Warrants, would include the sale of the underlying stock?

A. I mean that--that's not--my decision. You know, I--thought that this was attractive and would recommend to see if we could acquire the Warrants because that's where the float was. I mean there is no . . . big amount of common stock.

¹¹ Faherty testified that he also gave Brown the Post-Effective Amendment, but Brown stated that he did not receive it.

¹² Faherty testified that, while he was uncertain where he obtained the quotation, he thought it came from Hibbard's trading desk. Faherty further claimed that FNRA personnel had told him that FNRA stock had been trading at around $5 per share.

There were few trades in FNRA common stock between January and August 1990. Those trades ranged in price from $2.45 to $2.75. However, at the beginning of September, there were a handful of small trades away from Hibbard at $6 per share.

¹³ FNRA's CFO testified that the projected revenue reported in the Brown Memorandum seemed consistent with FNRA's projections, but that he had never seen the projected earnings per share calculation.

The NASD found the Brown Memorandum's projections of earnings of $.48 "misleading, given the number of shares that would enter the market upon exercise of the Warrants." However, as noted above, the Brown Memorandum also calculated the projected earnings per share assuming exercise of the Warrants. Faherty testified that FNRA had not authorized Class C or Class D Warrants at the time that he wrote the Brown Memorandum.

¹⁴ On August 22, 1990, Brown authorized Faherty to acquire for Hibbard the so-called "underwriter warrants" held by EMI's underwriter. As part of its initial offering, EMI had granted to its underwriter warrants. These warrants granted EMI's underwriter the right to purchase an aggregate of 5,000 shares of EMI common stock and 75,000 EMI Class B Warrants. The underwriter's warrants were exercisable at a price of $6.42 per warrant, and each underwriter warrant gave the holder the right to purchase two shares of common stock and 30 Class B Warrants, which were convertible into common stock. It is unclear from the record whether Hibbard exercised the underwriter warrants.

¹⁵ Faherty testified that he was concerned that exercise of theClass A and Class B Warrants would not generate sufficient working capital for FNRA.

¹⁶ Most of the FNRA Warrants were held by friends or affiliates of Hentic.

Hentic was a long-time client of Allan R. Sacharow at Fahnestock & Company ("Fahnestock"). Hentic introduced Faherty to Sacharow. On August 9, 1990, Faherty's wife, Ninanne Norris, opened an account at Fahnestock. Faherty had authority to trade in Norris' account. On August 24, 1990, Bow Burn Ltd., an account over which Hentic had trading authority, sold 75,000 FNRA Class A and 75,000 Class B Warrants, which Faherty purchased for Norris' account.

¹⁷ There is no evidence in the record of any transactions in FNRA Class A or Class B Warrants before Hentic's sale of Warrants to Norris.

Brown testified that, in general, he considered various factors when purchasing warrants, including the price of the underlying security, the exercise price, and any impediments to exercise, such as the absence of blue sky registration or the existence of lawsuits among insiders.

¹⁸ Brown did not explain why he determined to pay $.75 per Warrant for the FNRA Class A and Class B Warrants. On September 14, 1990, Fahnestock sold Hibbard 117,000 Class A and 117,000 Class B FNRA Warrants at $.75 per Warrant. This sale included the Warrants from Norris' account. Norris made a profit of $102,000.

¹⁹ The research department, which was headed by John Attalienti, was separate from Faherty's corporate finance department. The research department reported to Brown.

²⁰ The Pink Sheets listed the following market makers for FNRA stock for the period of September 14 through October 31, 1990: M. H. Myerson and Company, Inc., Datek Securities Corp., Mascera & Co., Inc., Fahnestock, and Wien Securities Corp. None of these firms listed quotations in the Pink Sheets for FNRA.

²¹ The wholesale transactions were between Hibbard and Datek. Datek purchased over 22,000 shares of FNRA from Hibbard in a series of transactions at prices ranging from $6-1/2 to

$6-7/8. Datek made two sales to Hibbard of 10,000 shares each at $7 and $7-1/4. The NASD concluded that Hibbard's transactions with Datek were an attempt to establish an illusory price and create the impression of interest in FNRA away from Hibbard.

²² Faherty testified that he urged Brown to exercise the Warrants so that FNRA would not "go down the drain."

²³ Faherty testified that the stock underlying the Class C and Class D Warrants was not registered at that time.

²⁴ In a November 26, 1990, letter to Faherty, FNRA requested a meeting with Faherty to discuss exercise of FNRA's C and D Warrants. On November 27, 1990, after the period at issue here, Hibbard wrote a check to FNRA attempting to exercise Hibbard's Class C Warrants. The firm subsequently issued astop payment order on the check because, according to Brown, "they were not registered at the time." Ultimately, Hibbard exercised the FNRA C and D Warrants in late spring and early summer 1991.

The NASD notes that, in the spring of 1991, Hibbard, through Faherty, induced FNRA to lend money to another Hibbard client. While this transaction evidences Hibbard's influence with FNRA, the transaction does not seem related to the manipulative conduct at issue here.

²⁵ Faherty left the securities industry in December 1991.

²⁶ Graham v. SEC, 222 F.3d 994, 1000 (D.C. Cir. 2000); Donald T. Sheldon, 51 S.E.C. 59, 66 (1992), aff'd, 45 F.3d 1515 (11th Cir. 1995).

²⁷ Ernst & Ernst v. Hochfelder, 425 U.S. 185, 199 (1976). See also, Brooklyn Capital & Securities Trading, Inc, 52 S.E.C. 1286, 1290 (1997); Pagel, Inc., 48 S.E.C. 223, 226 (1985), aff'd 803 F.2d 942 (8^th Cir. 1986).

²⁸ Brooklyn Capital, 52 S.E.C. at 1290.

²⁹ Id. at 1290, citing Patten Securities Corp., 51 S.E.C. 568, 573 (1993).

³⁰ See n.14 supra.

³¹ Brown was so confident of his supply that he delayed exercising FNRA Warrants until FNRA agreed to reduce the exercise price of its Class D Warrants.

³² See, e.g., Patten Securities, 51 S.E.C. at 573; Gary E.Bryant, 51 S.E.C. 463, 468 (1993).

³³ A finding of manipulation does not hinge on the presence or absence of any particular device usually associated with a manipulative scheme. Instead, we judge each case on its own facts. Patten Securities, 51 S.E.C. at 574. See also United States v. Regan, 937 F.2d 823, 829 (2d Cir. 1991) (holding that no single set of factors identifies manipulation which encompasses "diverse devices that ingenious minds" have conceived to manipulate securities prices.), cert. denied sub nom, Zarzecki v. United States, 504 U.S. 940 (1992).

³⁴ E.g., Harold B. Hayes, 51 S.E.C. 1294, 1298 (1994) (increase in supply of securities should have had a downward impact on prices).

³⁵ Pagel, 48 S.E.C. at 226. The NASD also notes that Faherty profited by selling Warrants from Norris' account to Hibbard. This action reflects Faherty's knowledge that he was recommending that Hibbard acquire all the FNRA Warrants. The record, however, strongly suggests that this transaction arose from an arrangement between Faherty and Hentic to benefit Faherty. Hentic introduced Faherty to Sacharow at Fahnestock. Hentic and Faherty apparently orchestrated the purchase by the Norris account of Bow Burn's Class A and Class B Warrants. An NASD examiner testified that she had found no information indicating that Hibbard was aware of this transaction.

³⁶ The Market Surveillance Committee, which heard the witnesses and observed their demeanor, did not comment on any witness's credibility.

³⁷ Hibbard's sales staff received at least two research memoranda about FNRA generated by Hibbard's research department (which was independent of Faherty). Faherty provided the research department with "company documents" and reviewed the research department memoranda. The record is unclear as to whether the Brown Memorandum was supplied to the research department.

The degree of Faherty's input in the research memoranda is uncertain. The research department memoranda contain information not in the Brown Memorandum, and the Brown Memorandum reports information (including the (OTC-6-1/2) notation) not incorporated into the research department memoranda.

³⁸ In his investigative testimony, Faherty stated that he would not have been the conference call participant who would have discussed price.

³⁹ Faherty also encouraged FNRA to issue Class C and D Warrants that would be issued to the holder of the Class A and B Warrants upon exercise of the latter Warrants. However, Faherty asserted that he did not believe that exercise of the Class A and B Warrants would generate sufficient working capital for FNRA's operations and acquisitions. His testimony was not refuted.

⁴⁰ We have considered all of the contentions advanced by the parties. We have rejected or sustained them to the extent that they are inconsistent or in accord with the views expressed in this opinion.