Proceeding Number 2008012925001

Extended Hearing Panel Decision in Department of Enforcement v. The Dratel Group, Inc. and William M. Dratel

September 28, 2012

Respondent The Dratel Group, Inc. (DGI):

 

DGI is fined a total of $185,000 and barred from engaging in the activity of day trading for the violations in the First, Second, Third, Fifth, Sixth, and Seventh Causes of Action.

 

DGI is fined $100,000 and barred from engaging in day trading for:

  • engaging in a fraudulent trade allocation scheme in willful violation of Section 10(b) of the Securities Exchange Act of 1934 (“Exchange Act”), and Rule 10b-5 thereunder, and in violation of NASD Conduct Rules 2120 and 2110, as described in the First Cause of Action;
  • failing to ensure that order tickets accurately reflected account designations and times of entry in willful violation of Section 17(a) of the Exchange Act and Rules 17a-3(a)(6) and (7) thereunder, and in violation of NASD Conduct Rules 3110(a) and 2110, as described in the Second Cause of Action; and
  • failing to ensure that account names or designations were placed on order tickets prior to execution of orders in violation of NASD Conduct Rules 3110(j) and 2110, as described in the Third Cause of Action.

 

DGI is fined $50,000 for failing to establish and maintain reasonable supervisory systems and procedures to achieve compliance with applicable securities laws and regulations in violation of NASD Conduct Rules 3010(a) and (b) and 2110, as described in the Fifth Cause of Action.

 

DGI is fined $10,000 for failing to timely update customer account information in willful violation of Section 17(a) of the Exchange Act and Rule 17a-3(a)(17) thereunder, and in violation of NASD Conduct Rules 3110(a) and 2110, as described in the Sixth Cause of Action.

 

DGI is fined $25,000 for failing to obtain photo identification for new customer accounts and for failing to conduct independent testing of its Anti-Money Laundering program in 2006 and 2007 in violation of NASD Conduct Rules 3011(b) and (c) and 2110, as described in the Seventh Cause of Action.

 

Respondent William M. Dratel:

 

Dratel is barred from associating with any member firm in any capacity for:

  • engaging in a fraudulent trade allocation scheme in willfulviolation of Section 10(b) of the Exchange Act and Rule 10b-5 thereunder, and in violation of NASD Conduct Rules 2120 and 2110, as described in the First Cause of Action;
  • failing to ensure that order tickets accurately reflected account designations and times of entry in violation of NASD Conduct Rules 3110(a) and 2110, as described in the Second Cause of Action; and
  • failing to ensure that account names or designations were placed on order tickets prior to execution of the order in violation of NASD Conduct Rules 3110(j) and 2110, as described in the Third Cause of Action.

 

Dratel is also ordered to disgorge $489,000 in ill-gotten gains that he received during 2006 from his fraudulent allocation scheme.

 

In light of the above sanctions, the Panel majority did not impose sanctions on Dratel for his violations of the Fifth and Sixth Causes of Action:

  • failing to establish and maintain reasonable supervisory systems and procedures to achieve compliance with applicable securities laws and regulations in violation of NASD Conduct Rules 3010(a) and (b) and 2110, as described in the Fifth Cause of Action; and
  • failing to timely update customer account information in violation of NASD Conduct Rules 3110(a) and 2110, as described in the Sixth Cause of Action.

 

One panelist dissented as to the finding of liability for DGI and Dratel for the First Cause of Action. The dissenting panelist found DGI and Dratel liable for the Second and Third Causes of Action; however, the panelist stated that the liability finding was unrelated to the fraudulent trade allocation scheme in the First Cause of Action. The dissenting panelist also dissented as to the sanctions for the Second, Third, Fifth, and Seventh Causes of Action.

 

Respondents are ordered to jointly and severally pay the costs of this proceeding.

 

This decision has been appealed.

View Decision (PDF 369 KB)