NASD Fines Worldco and Four of Its Owners $1.5 Million for Co-Mingling Operations with a Hedge Fund; CEO Barred, Three Others Suspended
Washington, DC — NASD announced today that it had fined Worldco LLC of New York, NY, and four of its owners $1.5 million for failing to separate Worldco's business operations from the business and operations of PTJP Partners, a hedge fund. John G. Miller, Worldco's CEO, was barred from serving as a principal of a securities firm for three years. Peter Bruan, founder of Worldco, was suspended for 1 year, and his sons, Walter Scott Bruan and Christopher Bruan, were suspended for 4 months and 15 days, respectively. Miller was fined $250,000, Peter Bruan was fined $100,000, Walter Scott Bruan $50,000 and Christopher Bruan $30,000. Each of the four is a part owner in the firm and their fines are part the $1.5 million.
PTJP is controlled by members of the Bruan family, including, initially, Peter Bruan. Worldco failed to disclose that Peter Bruan had a controlling ownership interest in Worldco when it applied for NASD membership because of Bruan's concern that the hedge fund's ongoing relationships with other broker-dealers would be disrupted if the other firms learned of his ownership of a competitor. Worldco experienced significant growth during the 1990s due to its day-trading business. Worldco had about 200 individuals associated with it in 1997; by 2001 that number had increased to almost 1,150. PTJP used trading systems, computers and technology provided by and, in some instances, owned by Worldco. At times, PTJP shared certain office space, personnel and other resources with Worldco. NASD found that, in the past, Worldco failed to establish adequate separation between its business and PTJP's operations, leading to many of the violations.
NASD found that 13 of Worldco's traders and 27 individuals not employed by Worldco, mostly PTJP traders, regularly traded in Worldco's proprietary accounts even though they were not registered, as required by NASD rules. Additionally, at least 35 Worldco traders traded in the PTJP account even though they did not obtain prior written authorization to exercise discretion in a customer account as required by NASD rules.
NASD also found that Worldco maintained inaccurate books and records and submitted inaccurate financial reports to the Securities and Exchange Commission and NASD. In particular, as a result of the failure to adequately separate its business from PTJP, Worldco's books, records and reports did not accurately reflect its individual expenses and revenues.
Further, for over 21 months beginning in early 1999, Worldco inaccurately characterized commission rebates owed to PTJP as revenue to Worldco in anticipation of a possible IPO, resulting in inaccurate books, records and reports. After market conditions changed and an IPO was no longer practicable, Worldco returned over $5 million to two Bruan family members for the benefit of PTJP and another hedge fund also connected to the Bruan family.
NASD also found that Worldco and Miller did not reasonably supervise many of these activities to deter and prevent the violations.
In settling these charges, Worldco, John Miller, Peter Bruan, Walter Scott Bruan and Christopher Bruan neither admitted nor denied the charges.
Investors can obtain more information and the disciplinary record of any NASD-registered broker or brokerage firm by calling NASD's BrokerCheck. NASD makes available BrokerCheck at no charge to the public. In 2003, members of the public used this service to conduct more than 2.9 million searches for existing brokers or firms and requested almost 180,000 reports in cases where disclosable information existed on a broker or firm. Investors can link directly to the program by going online to www.nasdbrokercheck.com. Investors can also continue to access this service by calling 1-800-289-9999.
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