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0.0009 Tc -0.0009 Tw (I. INTRODUCTION) Tj
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-445.2 -14.16 TD -0.0133 Tc 1.2133 Tw (and 23 of its employees. Eighteen of the individual respondents settled the allegations against) Tj
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-36 -14.16 TD -0.0154 Tc 0.0154 Tw (suitability statement prior to effecting a penny stock transaction with a non-established customer.) Tj
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-344.04 -14.16 TD -0.0308 Tc 0.1508 Tw (respondents Corey ) Tj
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294.36 0 TD -0.0137 Tc 0.8537 Tw (Jolla office, many of whom did not) Tj
-294.36 -14.16 TD -0.022 Tc 0.4667 Tw (testify at the DBCC hearing. In the early stage of its investigation, the Staff sent questionnaires) Tj
0 -14.16 TD -0.024 Tc 1.704 Tw (to more than 100 La ) Tj
108.36 0 TD -0.0142 Tc 1.8022 Tw (Jolla customers asking them to describe the circumstances of the penny) Tj
-108.36 -14.16 TD -0.0325 Tc 2.4325 Tw (stock purchases they had made through La ) Tj
223.32 0 TD -0.0105 Tc 2.5305 Tw (Jolla during the relevant period. A cover letter) Tj
-223.32 -14.16 TD -0.0163 Tc 0.3523 Tw (accompanied each questionnaire, warning recipients that NASD Regulation's inquiry "should not) Tj
0 -14.16 TD -0.0184 Tc 0.8024 Tw (be construed as an indication that any violations of the Association's rules have occurred by the) Tj
T* -0.014 Tc 1.874 Tw (member." After receiving the completed customer questionnaires, a Staff examiner drafted a) Tj
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36 -34.32 TD -0.0261 Tc 1.4761 Tw (The questionnaires and declarations are hearsay evidence because they are out of court) Tj
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-0.001 Tc 2.401 Tw (No. 34-35872 \(June 20, 1995\); ) Tj
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32.64 0 TD 0 Tc 2.46 Tw (, 51 ) Tj
25.92 0 TD 0.0015 Tc 2.5185 Tw (S.E.C. 316 \(1993\); ) Tj
100.92 0 TD -0.0312 Tc 2.5512 Tw (In re Dillon) Tj
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74.28 0 TD 0 Tc 0 Tw (., 51 ) Tj
24 0 TD 0.0015 Tc -0.0015 Tw (S.E.C. 142 \(1993\); ) Tj
93.36 0 TD -0.03 Tc 0.03 Tw (In re Mark J. ) Tj
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328.32 490.32 TD
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39.84 0 TD 0 Tc (, 50 ) Tj
21 0 TD 0 Tc -0 Tw (S.E.C. 339 \(1992\).) Tj
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263.64 488.4 104.52 0.6 re f
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108 456 TD
-0.0099 Tc 0.2499 Tw (The DBCC Hearing Panel admitted into evidence: \(1\) all of the customer questionnaires;) Tj
-36 -14.16 TD -0.0144 Tc 0.5544 Tw (\(2\) the declaration of any customer that testified; and \(3\) the declarations of all customers of the) Tj
0 -14.16 TD -0.0208 Tc 1.4983 Tw (New York Office, whether or not they testified. In its decision, however, the DBCC gave no) Tj
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T* -0.0187 Tc 2.4842 Tw ("questionable methodology." Several of the declarations are strikingly inconsistent with the) Tj
T* -0.0111 Tc 0.4825 Tw (questionnaires or testimony of the customers who signed them. The inconsistencies show a bias) Tj
T* -0.0222 Tc 1.3851 Tw (in the Staff's favor, often regarding critical elements of the case. The DBCC correctly decided) Tj
T* -0.0231 Tc 1.5511 Tw (that they are unreliable as a group. Accordingly, we conclude that the declarations should be) Tj
T* -0.0109 Tc 0.0109 Tw (excluded from the record.) Tj
36 -34.32 TD -0.0059 Tc 1.7219 Tw (Respondents contend that the customer questionnaires also should have been excluded) Tj
-36 -14.16 TD -0.0283 Tc 0.4123 Tw (from evidence because they are hearsay and also unreliable. The five factors employed to assess) Tj
0 -14.16 TD -0.0289 Tc 3.2946 Tw (the reliability of hearsay are: \(1\) whether the hearsay is corroborated; \(2\) whether direct) Tj
T* -0.0192 Tc 0.3492 Tw (testimony is contradictory; \(3\) possible bias of the ) Tj
245.76 0 TD -0.0312 Tc 0.3912 Tw (declarant; \(4\) the type of hearsay at issue; and) Tj
-245.76 -14.16 TD -0.0126 Tc 0.7326 Tw (\(5\) whether the missing ) Tj
119.28 0 TD -0.0225 Tc 0.7425 Tw (declarant was available to testify. ) Tj
169.92 0 TD -0.0699 Tc 0.7899 Tw (In re Gary Greenberg) Tj
103.92 0 TD -0.017 Tc 0.737 Tw (, Exchange Act) Tj
ET
361.2 249.84 103.92 0.6 re f
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72 237.6 TD
-0.0081 Tc 0.9219 Tw (Rel. No. 28076 \(1990\). Respondents' counsel argue that the questionnaires should be excluded) Tj
0 -14.16 TD -0.0206 Tc 1.7988 Tw (or, if admitted, given little weight because: \(1\) they are ) Tj
288.84 0 TD -0.0099 Tc 1.8099 Tw (unsworn; \(2\) the Staff has made no) Tj
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0 -14.16 TD -0.0098 Tc 0.0098 Tw (questionnaires lack sufficient detail to reconstruct a particular transaction.) Tj
36 -34.32 TD -0.0115 Tc 3.5686 Tw (We hold that the questionnaires are admissible as a group, but that they must be) Tj
-36 -14.16 TD -0.0169 Tc 3.7587 Tw (individually analyzed to determine their probative value. Customer questionnaires are "a) Tj
0 -14.16 TD -0.0219 Tc 2.6073 Tw (necessary and appropriate means of gathering information on members' sales practices" that) Tj
T* -0.02 Tc 0.38 Tw ("furthers the ) Tj
63.36 0 TD -0.0317 Tc 0.3917 Tw (NASD's regulatory objectives." ) Tj
157.92 0 TD -0.034 Tc 0.394 Tw (In re Robert A. ) Tj
76.68 0 TD -0.0048 Tc 0 Tw (Amato) Tj
32.64 0 TD 0 Tc 0.48 Tw (, 51 ) Tj
21.96 0 TD 0 Tc 0.48 Tw (S.E.C. 316, 320 \(1993\).) Tj
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0 -14.16 TD -0.048 Tc 0.048 Tw (through La ) Tj
55.56 0 TD -0.0019 Tc 0.0019 Tw (Jolla. The Respondents called no witnesses.) Tj
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0 -14.16 TD -0.0118 Tc 3.5718 Tw (declarations. Although sworn questionnaires are more persuasive than ) Tj
373.92 0 TD -0.0072 Tc 3.6072 Tw (unsworn ones, the) Tj
-373.92 -14.16 TD -0.0178 Tc 1.5244 Tw (unsworn questionnaires are corroborated by substantial testimonial and documentary evidence,) Tj
0 -14.16 TD -0.0152 Tc 2.2552 Tw (and also by each other. To the extent that individual questionnaires are deficient, they will) Tj
T* -0.0122 Tc 4.2399 Tw (receive less weight in determining liability. We find that the customer questionnaires) Tj
T* -0.0111 Tc 0.0111 Tw (demonstrate sufficient indicia of reliability to be admitted into evidence.) Tj
176.28 -34.56 TD /F1 12 Tf
0.009 Tc 0 Tw (III.) Tj
36 0 TD 0.0096 Tc -0.0096 Tw ( DISCUSSION) Tj
-176.28 -34.08 TD /F0 12 Tf
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-36 -14.16 TD -0.0191 Tc 0.8591 Tw (will address each cause of action separately, setting forth the relevant facts, the applicable legal) Tj
0 -14.16 TD -0.0118 Tc 0.0118 Tw (standards, and the application of the legal standard to the relevant facts.) Tj
36 -34.32 TD -0.012 Tc 0 Tw (A.) Tj
36 0 TD -0.015 Tc 0.015 Tw (Cause One) Tj
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108 472.32 TD
-0.0213 Tc 3.3158 Tw (The underlying facts are largely undisputed. The Respondents have stipulated that) Tj
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344.16 0 TD -0.0104 Tc 1.0504 Tw (Jolla offices effected 268) Tj
-344.16 -14.16 TD -0.024 Tc 0.144 Tw (transactions in 15 penny stocks for which La ) Tj
218.04 0 TD -0.0176 Tc 0.2576 Tw (Jolla was a market maker. These, the "Penny Stock) Tj
-218.04 -14.16 TD -0.0104 Tc 1.4134 Tw (Transactions,\224 occurred as follows: 85 purchases totaling $189,763.70 at the Main Office; 95) Tj
0 -14.16 TD -0.0092 Tc 0.6692 Tw (purchases totaling $289,310 at the ) Tj
174 0 TD -0.0142 Tc 0.7342 Tw (Bethesda Office; 67 purchases totaling $161,752 at the New) Tj
-174 -14.16 TD -0.0201 Tc 0.5371 Tw (York Office; 13 purchases totaling approximately $30,756.75 at the Las Vegas Office; and eight) Tj
0 -14.16 TD -0.0118 Tc 3.7646 Tw (purchases totaling approximately $13,000 at the Modesto Office. Respondents have also) Tj
T* -0.0105 Tc 1.128 Tw (stipulated that the stocks in question are penny stocks under Rule 3a51-1, and that none of the) Tj
T* -0.0111 Tc 0.3435 Tw (customers involved received the disclosures required by Rule 15g. The stipulations establish the) Tj
T* -0.0072 Tc 0 Tw (prima) Tj
27.96 0 TD 0 Tc 0.6 Tw ( ) Tj
3.6 0 TD -0.0312 Tc 0 Tw (facie) Tj
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ET
103.56 342.96 23.16 0.6 re f
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72 330.72 TD
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0 -14.16 TD -0.0025 Tc 0.0025 Tw (who is responsible for the violations.) Tj
72 -34.32 TD 0 Tc 0 Tw (1.) Tj
36 0 TD -0.0179 Tc 0.0179 Tw (Effect Of The Unsolicited Transactions Letters) Tj
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180 280.32 224.88 0.6 re f
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108 247.92 TD
-0.0116 Tc 0.6116 Tw (The Respondents bear the burden of p) Tj
185.88 0 TD -0.0087 Tc 0.6087 Tw (roving that the transactions are exempt under Rule) Tj
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51.24 0 TD -0.09 Tc 0.69 Tw (In re ) Tj
26.16 0 TD -0.0293 Tc 0.6292 Tw (Kochcapital, Inc.) Tj
82.44 0 TD 0 Tc 0.6 Tw (, 51 ) Tj
22.2 0 TD -0.0151 Tc 0.7217 Tw (S.E.C. 241 \(1992\). The Respondents argue that the Penny) Tj
ET
123.24 231.84 108.6 0.6 re f
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72 219.6 TD
-0.0125 Tc 1.2425 Tw (Stock Transactions are exempt from the Disclosure Rules under Rule 15g-1\(e\) because, before) Tj
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213 0 TD -0.0179 Tc 1.5779 Tw (Jolla required the penny stock purchaser to sign an) Tj
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0 -14.16 TD -0.0175 Tc 0.0175 Tw (the Unsolicited Transaction Letter contained the following language:) Tj
36 -34.32 TD -0.0083 Tc 3.7283 Tw (All previous and future transactions in the stock\(s\) listed below have been) Tj
0 -14.16 TD -0.03 Tc 0.55 Tw (UNSOLICITED in the past and will continue to be UNSOLICITED in the future.) Tj
T* -0.023 Tc 0.703 Tw (I perform my own due diligence and make my own investment decisions without) Tj
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-201.84 -14.16 TD -0.0176 Tc 0.3261 Tw (with these particular securities. I know and understand I run the real risk of losing) Tj
0 -14.16 TD -0.0291 Tc 0.5541 Tw (part or all of any investment I make in a low-priced security. I have the financial) Tj
T* -0.0111 Tc 0.0111 Tw (resources to assume such a risk.) Tj
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-0.0171 Tc 1.9698 Tw (The Unsolicited Transaction Letter was periodically refined, but throughout the relevant time) Tj
0 -14.16 TD -0.0181 Tc 0.0181 Tw (period it remained the Firm's sole vehicle for complying with the Penny Stock Rules.) Tj
36 -34.32 TD -0.0138 Tc 0.3302 Tw (The Staff claims that the Unsolicited Transaction Letters, by themselves, cannot establish) Tj
-36 -14.16 TD -0.0143 Tc 4.5503 Tw (that the transactions were exempt because Rule 15g-1\(e\) applies to "non-recommended") Tj
0 -14.16 TD -0.0138 Tc 0.4458 Tw (transactions, rather than to "unsolicited" ones. The Staff correctly notes that a transaction that is) Tj
T* -0.0094 Tc 0.1594 Tw (unsolicited can, nevertheless, be recommended. When the Commission adopted the Penny Stock) Tj
T* -0.0113 Tc 0.4913 Tw (Rules, it rejected the suggestion of two ) Tj
192.96 0 TD -0.0133 Tc 0.4933 Tw (commenters that the 15g-1\(e\) exemption should apply to) Tj
-192.96 -14.16 TD -0.0077 Tc 0.0077 Tw (unsolicited, rather than to non-recommended, transactions:) Tj
36 -34.32 TD -0.0053 Tc 0.631 Tw (... the exemption is limited to situations in which a broker-dealer acts as an order) Tj
0 -14.16 TD -0.0099 Tc 0.7853 Tw (taker for the customer, with little or no incentive to engage in manipulative sales) Tj
T* -0.0091 Tc 1.8552 Tw (tactics. The rule does not exempt situations in which a broker-dealer brings a) Tj
T* -0.0102 Tc 1.2531 Tw (penny stock to the attention of an investor because, in most cases, this action is) Tj
T* -0.01 Tc 1.6791 Tw (intended, and is understood by the customer, as an implicit recommendation to) Tj
T* -0.0473 Tc 0.0473 Tw (buy the penny stock.) Tj
-36 -51.48 TD -0.0185 Tc 2.1785 Tw (Exchange Act ) Tj
79.92 0 TD -0.0057 Tc 2.2657 Tw (Rel. No. 34-30608 \(April 28, 1992\). The Staff argues that the Commission) Tj
-79.92 -14.16 TD -0.0009 Tc 0.8409 Tw (reiterated this distinction in ) Tj
138 0 TD -0.012 Tc 0 Tw (Kochcapital.) Tj
60.84 0 TD -0.0063 Tc 0.8729 Tw ( There the Commission held that order tickets marked) Tj
ET
210 399.6 60.84 0.6 re f
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72 387.36 TD
-0.0141 Tc 0.3041 Tw ("unsolicited" were insufficient to establish that penny stock transactions were exempt under 15g-) Tj
0 -14.16 TD -0.0146 Tc 0.0146 Tw (1\(e\), because the order tickets were silent on whether the securities had been recommended.) Tj
36 -34.32 TD -0.024 Tc 0.048 Tw (In this case, however, the ) Tj
124.56 0 TD -0.0218 Tc 0.1418 Tw (difference between non-recommended and unsolicited is largely) Tj
-160.56 -14.16 TD -0.0037 Tc 0.6277 Tw (linguistic. The crux of the exemption is that representatives must not advise their clients, either) Tj
0 -14.16 TD -0.0259 Tc 0.9001 Tw (explicitly or implicitly, regarding a penny stock transaction; they must act as mere order takers.) Tj
T* -0.0128 Tc 0.9728 Tw (The Unsolicited Transaction Letter states not only that the transactions are unsolicited, but also) Tj
T* -0.0163 Tc 0.8563 Tw (that the customer is acting "without the advice or recommendations" of La ) Tj
369.48 0 TD -0.0202 Tc 0.9402 Tw (Jolla's personnel. If) Tj
-369.48 -14.16 TD -0.0096 Tc 0.9596 Tw (the client acted without a representative's advice or recommendation, the transaction is exempt,) Tj
0 -14.16 TD -0.014 Tc 3.854 Tw (regardless of whether the letter is titled "unsolicited" as opposed to "non-recommended.") Tj
T* -0.0285 Tc 3.8805 Tw (Conversely, representatives may not recommend penny stocks simply because a customer) Tj
T* -0.0035 Tc 0.0035 Tw (initiates contact.) Tj
72 -34.32 TD 0 Tc 0 Tw (2.) Tj
36 0 TD -0.0129 Tc 0.0129 Tw (The Penny Stock Rule Violations) Tj
ET
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108 156.96 TD
-0.0171 Tc 0.268 Tw (Substantial evidence indicates that many of the allegedly unsolicited transactions were, in) Tj
-36 -14.16 TD -0.0182 Tc 1.1753 Tw (fact, recommended. Dozens of customers testified, in person or by telephone, that they signed) Tj
0 -14.16 TD -0.0242 Tc 2.2714 Tw (Unsolicited Transaction Letters although their purchases had been recommended by La ) Tj
445.2 0 TD 0.0264 Tc 0 Tw (Jolla) Tj
-445.2 -14.16 TD -0.0143 Tc 2.1742 Tw (personnel. Gerald ) Tj
97.56 0 TD -0.0655 Tc 2.2655 Tw (Seroy and Corey ) Tj
89.4 0 TD -0.0315 Tc 2.3115 Tw (Singman, former La ) Tj
106.32 0 TD -0.0225 Tc 2.3025 Tw (Jolla employees, testified that they) Tj
-293.28 -14.16 TD -0.0175 Tc 0.3666 Tw (recommended penny stock purchases and then obtained Unsolicited Transaction Letters from the) Tj
0 -14.16 TD -0.0133 Tc 0.0133 Tw (purchasers. Numerous customer questionnaires corroborated this testimony.) Tj
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/F0 12 Tf
-0.0238 Tc 3.1002 Tw (The testimony and questionnaires reveal several patterns of misconduct by La ) Tj
409.2 0 TD 0.0264 Tc 0 Tw (Jolla) Tj
-445.2 -14.16 TD -0.0213 Tc 0.5413 Tw (representatives: \(1\) customers received advice from a La ) Tj
281.88 0 TD -0.0051 Tc 0.6051 Tw (Jolla representative, but were told that) Tj
-281.88 -14.16 TD -0.02 Tc 1.2938 Tw (the Unsolicited Transaction Letter was a "formality"; \(2\) a transaction was recommended, but) Tj
0 -14.16 TD -0.0164 Tc 1.4478 Tw (the customer was told that the Unsolicited Transaction Letter was a prerequisite to buying the) Tj
T* -0.0204 Tc 0.0204 Tw (stock; \(3\) customers contacted a La ) Tj
175.68 0 TD -0.0138 Tc 0.0271 Tw (Jolla office in response to a radio lead-generation program in) Tj
-175.68 -14.16 TD -0.0495 Tc 1.8495 Tw (which a La ) Tj
61.32 0 TD -0.0133 Tc 1.8933 Tw (Jolla registered representative participated, and during which the firm's telephone) Tj
-61.32 -14.16 TD -0.0176 Tc 3.2376 Tw (number was offered; and \(4\) customers' signatures were forged or replicated without their) Tj
0 -14.16 TD 0.0026 Tc 0 Tw (authorization.) Tj
36 -34.32 TD -0.003 Tc 5.043 Tw (Violations stemming from the Respondents) Tj
228.72 0 TD -0.016 Tc 5.116 Tw (' participation in radio lead-generation) Tj
-264.72 -14.16 TD -0.0325 Tc 0.3925 Tw (programs are particularly troubling. The managers of La ) Tj
278.28 0 TD -0.0106 Tc 0.3706 Tw (Jolla's New York and ) Tj
107.4 0 TD -0.0232 Tc 0.3832 Tw (Bethesda Offices) Tj
-385.68 -14.16 TD -0.0197 Tc 1.4967 Tw (both participated in a radio lead-generation program called "The Next Hot Stock," where they) Tj
0 -14.16 TD -0.0265 Tc 0.9265 Tw (discussed penny stocks in which La ) Tj
179.28 0 TD -0.0301 Tc 0.9901 Tw (Jolla made a market. In each case, they gave the audience) Tj
-179.28 -14.16 TD -0.0201 Tc 0.5001 Tw (the telephone number either of the La ) Tj
186.36 0 TD -0.0076 Tc 0.5836 Tw (Jolla office or of the issuer to call for further information.) Tj
-186.36 -14.16 TD -0.02 Tc 0.26 Tw (Knight told the registered representatives in La ) Tj
229.8 0 TD -0.012 Tc 0.252 Tw (Jolla's New York Office that leads from the radio) Tj
-229.8 -14.16 TD -0.0157 Tc 1.0423 Tw (show would come in and "we were to persuade [the callers] to buy stock," and that if a person) Tj
0 -14.16 TD -0.0132 Tc 2.1732 Tw (called into the Firm, the subsequent penny stock purchase would be unsolicited. Registered) Tj
T* -0.005 Tc 0.085 Tw (persons in the ) Tj
69.84 0 TD -0.0128 Tc 0.1328 Tw (Bethesda Office also considered these transactions to be unsolicited and, therefore,) Tj
-69.84 -14.16 TD -0.0108 Tc 0.0108 Tw (exempt from the Penny Stock Rules.) Tj
36 -34.32 TD -0.0198 Tc 1.8438 Tw (The radio lead-generation programs generated substantial penny stock business for the) Tj
-36 -14.16 TD -0.0109 Tc 0.4909 Tw (Firm. For example in June and July of 1994, Knight recommended on the radio, ) Tj
396.48 0 TD -0.0514 Tc 0.6514 Tw (InfoServe, Inc.) Tj
-396.48 -14.16 TD -0.066 Tc 0 Tw (\(") Tj
8.76 0 TD -0.0338 Tc 1.8138 Tw (InfoServe"\), a stock in which La ) Tj
168.96 0 TD -0.008 Tc 1.808 Tw (Jolla made a market. In those two months, 28 customers) Tj
-177.72 -14.16 TD -0.0187 Tc 0.4987 Tw (purchased ) Tj
51.96 0 TD -0.0229 Tc 0.5029 Tw (InfoServe from the New York Office. Of those, 20 purchased the stock on the day of) Tj
-51.96 -14.16 TD -0.0404 Tc 0.1947 Tw (or the day after opening their La ) Tj
158.28 0 TD -0.0041 Tc 0.2441 Tw (Jolla accounts, and all but two purchased it within two weeks of) Tj
-158.28 -14.16 TD -0.0151 Tc 2.8296 Tw (opening their accounts. There were an additional 34 purchases of ) Tj
348.72 0 TD -0.0217 Tc 2.9017 Tw (InfoServe under similar) Tj
-348.72 -14.16 TD -0.0066 Tc 0.1266 Tw (conditions during that period at the ) Tj
171.84 0 TD -0.0162 Tc 0.2562 Tw (Bethesda Office. Thus, there were 62 transactions in a single) Tj
-171.84 -14.16 TD -0.0132 Tc 2.4903 Tw (penny stock during a two-month period, and Respondents claim that all of them were non-) Tj
0 -14.16 TD -0.015 Tc 0 Tw (recommended.) Tj
36 -34.32 TD -0.0167 Tc 1.7481 Tw (We disagree. Purchases of penny stocks that were made in connection with the radio) Tj
-36 -14.16 TD -0.0203 Tc 0.0303 Tw (lead-generation program were recommended and are, therefore, subject to the Penny Stock Rules.) Tj
0 -14.16 TD -0.0252 Tc 0.3552 Tw (There are a limited number of ways these transactions occurred through La ) Tj
365.64 0 TD -0.0024 Tc 0.3624 Tw (Jolla. After listening) Tj
-365.64 -14.16 TD -0.0103 Tc 0.222 Tw (to the radio presentation the customer could, \(1\) call the Firm and purchase the stock; \(2\) call the) Tj
0 -14.16 TD -0.0125 Tc 2.8605 Tw (Firm for further information and then purchase the stock; or \(3\) call the issuer for further) Tj
T* -0.0178 Tc 0.8578 Tw (information, and then call La ) Tj
146.4 0 TD -0.0065 Tc 0.8965 Tw (Jolla to purchase the stock. The evidence shows that, in all three) Tj
-146.4 -14.16 TD -0.0194 Tc 0.7175 Tw (cases, the recommendations made during the lead-generation program were reinforced when the) Tj
0 -14.16 TD -0.0268 Tc 0.7468 Tw (customers called La ) Tj
100.68 0 TD -0.0192 Tc 0.8092 Tw (Jolla or the issuer for further information, and when they called La ) Tj
331.32 0 TD 0.0223 Tc 0.8177 Tw (Jolla to) Tj
-432 -14.16 TD -0.012 Tc 0.012 Tw (purchase the stock.) Tj
36 -34.32 TD -0.0173 Tc 2.2864 Tw (The customer testimony and questionnaires so often and so thoroughly contradict the) Tj
-36 -14.16 TD -0.0154 Tc 0.3754 Tw (Unsolicited Transaction Letters, that the Letters must be considered unreliable as a group. Thus,) Tj
0 -14.16 TD -0.016 Tc 2.188 Tw (where customer testimony or questionnaires contradict an Unsolicited Transaction Letter, the) Tj
T* -0.0061 Tc 1.2761 Tw (Unsolicited Transaction Letter is insufficient to establish that the subject transaction is exempt) Tj
T* -0.0178 Tc 0.9403 Tw (from the Penny Stock Rules. Based upon these parameters and our review of the evidence, we) Tj
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-0.0148 Tc 0.984 Tw (conclude that for 146 of the 268 Penny Stock Transactions, the Unsolicited Transaction Letters) Tj
0 -14.16 TD -0.0099 Tc 2.2813 Tw (do not establish an exemption from the Penny Stock Rules. These transactions occurred as) Tj
T* -0.0091 Tc 0.7107 Tw (follows: 43 purchases totaling $99,614 in the New York Office; 63 purchases totaling $201,340) Tj
T* 0 Tc 0.6 Tw (in the ) Tj
31.2 0 TD -0.0101 Tc 0.7301 Tw (Bethesda Office; 27 transactions totaling $60,681 in the Main Office; and 13 transactions) Tj
-31.2 -14.16 TD -0.0216 Tc 0.0216 Tw (totaling $30,756 in the Las Vegas Office.) Tj
197.88 5.52 TD /F0 8.04 Tf
0.06 Tc 0 Tw (11) Tj
-161.88 -39.84 TD /F0 12 Tf
-0.012 Tc 2.672 Tw (The evidence was insufficient to establish any violations in the Modesto Office, the) Tj
-36 -14.16 TD -0.024 Tc 0.864 Tw (single-person office of supervisory jurisdiction run by ) Tj
267 0 TD -0.0138 Tc 0.8738 Tw (Budke. The Staff presented no customer) Tj
-267 -14.16 TD -0.0231 Tc 2.5431 Tw (testimony that ) Tj
76.08 0 TD -0.0221 Tc 2.6621 Tw (Budke recommended the eight penny stock purchases that he effected at the) Tj
-76.08 -14.16 TD -0.012 Tc 0.012 Tw (Modesto Office.) Tj
36 -34.32 TD -0.0045 Tc 2.0445 Tw (The Staff did intro) Tj
95.04 0 TD -0.0101 Tc 2.0501 Tw (duce three customer questionnaires. One states that ) Tj
267.48 0 TD -0.018 Tc 2.058 Tw (Budke neither) Tj
-398.52 -14.16 TD -0.0143 Tc 0.8062 Tw (advised nor encouraged her to buy the stock in question. The other two questionnaires indicate) Tj
0 -14.16 TD 0 Tc 0 Tw (that ) Tj
21 0 TD -0.021 Tc 0.021 Tw (Budke recommended the purchase of penny stocks, but ) Tj
267.36 0 TD -0.0253 Tc 0.0253 Tw (Budke adamantly denies doing so.) Tj
-252.36 -34.32 TD -0.0066 Tc 6.0546 Tw (The Staff attempted to bolster the customer questionnaires with the following) Tj
-36 -14.16 TD -0.0111 Tc 0.9711 Tw (circumstantial evidence: \(1\) ) Tj
139.56 0 TD -0.016 Tc 1.084 Tw (Budke published a newsletter in which he discussed a penny stock) Tj
-139.56 -14.16 TD -0.0342 Tc 3.0342 Tw (that several La ) Tj
82.2 0 TD -0.0053 Tc 3.0053 Tw (Jolla customers purchased; \(2\) ) Tj
161.16 0 TD -0.01 Tc 3.13 Tw (Budke misunderstood the non-recommended) Tj
-243.36 -14.16 TD -0.0096 Tc 1.3296 Tw (exemption from the Penny Stock Rules; \(3\) ) Tj
224.88 0 TD -0.022 Tc 1.342 Tw (Budke was "enthusiastic" about one penny stock,) Tj
-224.88 -14.16 TD -0.0185 Tc 0.36 Tw (had had prior dealings with the issuer's president, and had suggested that La ) Tj
370.68 0 TD -0.0045 Tc 0.3645 Tw (Jolla make a market) Tj
-370.68 -14.16 TD -0.0101 Tc 2.2501 Tw (in the issuer's stock; and \(4\) ) Tj
150 0 TD -0.0192 Tc 2.2992 Tw (Budke referred customers to the issuer's management for more) Tj
-150 -14.16 TD -0.011 Tc 1.2664 Tw (information about the stock. These facts might, in certain circumstances, support an inference) Tj
0 -14.16 TD 0 Tc 1.32 Tw (that ) Tj
22.32 0 TD -0.0084 Tc 1.4207 Tw (Budke recommended the transactions in question, but not in the absence of live customer) Tj
-22.32 -14.16 TD -0.0245 Tc 0.0245 Tw (testimony and in the face of ) Tj
136.08 0 TD -0.021 Tc 0.021 Tw (Budke's otherwise ) Tj
90.48 0 TD -0.0093 Tc 0.0093 Tw (uncontroverted denials.) Tj
112.44 5.52 TD /F0 8.04 Tf
0.06 Tc 0 Tw (12) Tj
-303 -39.84 TD /F0 12 Tf
-0.0219 Tc 0.7419 Tw (Having found the evidence insufficient to prove any violations by ) Tj
324.6 0 TD -0.0053 Tc 0.7253 Tw (Budke, we dismiss all) Tj
-360.6 -14.16 TD -0.0072 Tc 0.0072 Tw (allegations against him and eliminate all sanctions imposed against him.) Tj
72 -34.32 TD 0 Tc 0 Tw (3.) Tj
36 0 TD -0.15 Tc 0.15 Tw (La ) Tj
15.36 0 TD 0.0135 Tc -0.0135 Tw (Jolla And ) Tj
49.44 0 TD -0.0057 Tc 0.0057 Tw (Gallison Are Responsible For All Of The Violations.) Tj
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108 247.92 TD
-0.0258 Tc 1.3458 Tw (Gallison and La ) Tj
83.28 0 TD -0.0093 Tc 1.4227 Tw (Jolla are responsible for the widespread violations for several reasons.) Tj
-119.28 -14.16 TD -0.0222 Tc 3.2022 Tw (Gallison was intimately involved in every aspect of the Firm's penny stock business. He) Tj
0 -14.16 TD -0.0209 Tc 0.0209 Tw (developed and controlled the Firm's penny stock trading policies and practices. The only credible) Tj
T* -0.0203 Tc 1.3003 Tw (explanation for La ) Tj
95.16 0 TD -0.012 Tc 1.332 Tw (Jolla's blanket use of the Unsolicited Transaction Letters was to avoid ever) Tj
-95.16 -21.36 TD /F0 9.96 Tf
0 Tc 0.03 Tw ( ) Tj
75.6 0 TD ( ) Tj
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72 174.96 TD
/F0 6.48 Tf
0 Tw (11) Tj
36 -4.56 TD /F0 12 Tf
-0.001 Tc 0.8943 Tw (Schedule A to the Complaint, lines 1, 2, 4, 15, 22, 30, 34, 39, 40, 44-47, 49-51, 56, 57,) Tj
-36 -14.16 TD -0 Tc 0 Tw (62, 66, 71, 73, 74-78;) Tj
103.32 0 TD /F0 9.96 Tf
0 Tc 0.03 Tw ( ) Tj
2.52 0 TD /F0 12 Tf
-0.0038 Tc 0.0938 Tw (Schedule B to the Complaint, lines 1-8, 10-20, 23, 26, 28-38, 41-49, 51-66,) Tj
-105.84 -14.16 TD -0 Tc 0.4406 Tw (68, 70- 71, 79, 83, 84, 91;) Tj
126.96 0 TD /F0 9.96 Tf
0 Tc 0.51 Tw ( ) Tj
3 0 TD /F0 12 Tf
-0 Tc 0.4802 Tw (Schedule C to the Complaint, lines 1, 4, 6, 7, 9, 10, 12-17, 21, 23-39,) Tj
-129.96 -14.16 TD -0 Tc 0 Tw (41, 43, 47, 49, 52-54, 56, 58, 60, 62, 63; Schedule D to the Complaint, lines 1-13.) Tj
0 -19.68 TD /F0 6.48 Tf
0 Tc 0 Tw (12) Tj
36 -4.56 TD /F0 9.96 Tf
-0.0018 Tc 0.4818 Tw (There is no evidence that these customers received ) Tj
208.44 0 TD -0.0076 Tc 0.5176 Tw (Budke's newsletter. The DBCC presumed that because) Tj
-244.44 -11.76 TD 0.0024 Tc 2.1181 Tw (Budke considered a trade to be unsolicited if a customer called him and "brought up" the stock, that he also) Tj
0 -11.76 TD 0.0034 Tc 1.8766 Tw (considered the trade to be non-recommended. There is no evidence that ) Tj
312.36 0 TD -0.0179 Tc 1.9679 Tw (Budke's misunderstanding of the rule) Tj
-312.36 -11.76 TD -0.0138 Tc 0.0438 Tw (extended this far and, in any event, it is no violation to simply misunderstand a rule.) Tj
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72 708.72 TD
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-0.0183 Tc 0.6283 Tw (making the disclosure that Congress demanded penny stock purchasers to receive. ) Tj
406.32 0 TD -0.0033 Tc 0.7233 Tw (Gallison and) Tj
-406.32 -14.16 TD -0.15 Tc 0.39 Tw (La ) Tj
15.6 0 TD -0.0069 Tc 0.2653 Tw (Jolla stipulated that in no case under investigation did a customer receive complete disclosure) Tj
-15.6 -14.16 TD -0.0193 Tc 1.2193 Tw (under the Penny Stock Rules. Having created the Unsolicited Transaction Letter and designed) Tj
0 -14.16 TD -0.0134 Tc 0.4934 Tw (the mechanism to circumvent the primary obligation under the Rules, ) Tj
340.32 0 TD -0.0035 Tc 0.4835 Tw (Gallison is responsible for) Tj
-340.32 -14.16 TD -0.0103 Tc 0.0103 Tw (the consequences of that circumvention.) Tj
36 -34.32 TD -0.012 Tc 0.8889 Tw (Gallison is also responsible as the Firm's head trader and market maker. ) Tj
361.44 0 TD -0.005 Tc 0.965 Tw (Gallison made) Tj
-397.44 -14.16 TD -0.0191 Tc 0.3391 Tw (markets in each penny stock underlying each violation that the Firm's representatives committed.) Tj
0 -14.16 TD -0.0198 Tc 0.6307 Tw (In fact, 27 violations occurred in the San Diego office where ) Tj
299.64 0 TD 0.0034 Tc 0.7166 Tw (Gallison himself worked. Six San) Tj
-299.64 -14.16 TD -0.0162 Tc 2.5798 Tw (Diego Office customers testified that, despite their Unsolicited Transaction Letters, La ) Tj
445.2 0 TD 0.0264 Tc 0 Tw (Jolla) Tj
-445.2 -14.16 TD -0.0196 Tc 1.0876 Tw (representatives recommended the penny stocks they purchased, and 16 customer questionnaires) Tj
0 -14.16 TD -0.0204 Tc 2.3724 Tw (corroborate that testimony. As the Firm's head of trading, ) Tj
303.96 0 TD -0.0098 Tc 2.4098 Tw (Gallison caused the trades to be) Tj
-303.96 -14.16 TD -0.0143 Tc 0.0143 Tw (executed and was a central link in the chain of events by which the violations occurred.) Tj
36 -34.32 TD -0.0244 Tc 0.6777 Tw (Again, the radio lead-generation programs are particularly troubling. ) Tj
339.96 0 TD -0.0037 Tc 0.7237 Tw (Gallison knew that) Tj
-375.96 -14.16 TD -0.0175 Tc 1.4575 Tw (the New York and ) Tj
96.84 0 TD -0.0185 Tc 1.4585 Tw (Bethesda Offices were participating in the programs and that the programs) Tj
-96.84 -14.16 TD -0.014 Tc 0.2112 Tw (were forwarding requests for information about the companies to the Firm's Offices. He testified) Tj
0 -14.16 TD -0.0153 Tc 0.9541 Tw (that in June 1994, the New York Office's phones were "ringing off the hook" with calls from a) Tj
T* -0.0201 Tc 1.2001 Tw (lead- generation program. As noted above, there were 62 purchases of ) Tj
355.56 0 TD -0.03 Tc 1.23 Tw (InfoServe alone during) Tj
-355.56 -14.16 TD -0.0113 Tc 0.3913 Tw (June and July of 1994. ) Tj
116.4 0 TD -0.0107 Tc 0.4908 Tw (Mehlmann's June 1994 New York Branch Audit Report \(which ) Tj
310.92 0 TD 0.0015 Tc 0 Tw (Gallison) Tj
-427.32 -14.16 TD -0.015 Tc 2.365 Tw (received\), specifically noted that office's affiliation with a national financial radio show that) Tj
0 -14.16 TD -0.0153 Tc 0.0153 Tw (generated investor "inquires [sic] and potential clients." Berry also told ) Tj
346.08 0 TD -0.0206 Tc 0.1106 Tw (Gallison that many of the) Tj
-346.08 -14.16 TD -0.0215 Tc 0.0215 Tw (trades were from radio lead-generation programs.) Tj
36 -34.32 TD -0.0153 Tc 2.9753 Tw (Gallison had no incentive to halt these violations because they supported La ) Tj
402.48 0 TD 0.0034 Tc 0 Tw (Jolla's) Tj
-438.48 -14.16 TD -0.0226 Tc 1.4326 Tw (market making and wholesale activities. Berry testified that when La ) Tj
355.2 0 TD -0.0147 Tc 1.4547 Tw (Jolla agreed to make a) Tj
-355.2 -14.16 TD -0.0134 Tc 0.6462 Tw (market in a particular stock, the issuer would often sell La ) Tj
288.24 0 TD -0.008 Tc 0.728 Tw (Jolla a block of shares priced below) Tj
-288.24 -14.16 TD -0.015 Tc 3.115 Tw (the bid to sell to La ) Tj
114.36 0 TD -0.012 Tc 3.132 Tw (Jolla's retail customers. The Firm's registered personnel would then) Tj
-114.36 -14.16 TD -0.015 Tc 1.32 Tw (recommend the stocks on radio shows sponsored by, or in cooperation with, the issuer. If the) Tj
0 -14.16 TD -0.0174 Tc 1.7066 Tw (program broadcast the Firm's telephone number, purchasers would call the Firm directly; if it) Tj
T* -0.0114 Tc 3.0206 Tw (broadcast the issuer's telephone number, the issuer would refer the customers to the Firm.) Tj
T* -0.051 Tc 0.291 Tw (Finally, ) Tj
39.84 0 TD -0.0128 Tc 0.3728 Tw (Gallison used sales contests to encourage representatives to sell stocks in which La ) Tj
405.36 0 TD 0.0264 Tc 0 Tw (Jolla) Tj
-445.2 -14.16 TD -0.012 Tc 0.012 Tw (made markets.) Tj
72 -34.32 TD 0 Tc 0 Tw (4.) Tj
36 0 TD -0.0161 Tc 0.0161 Tw (Knight Is Responsible For Violations At The New York Office) Tj
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108 168.96 TD
-0.0075 Tc 1.5275 Tw (Knight is also responsible for numerous violations. The complaint alleges that Knight) Tj
-36 -14.16 TD -0.0159 Tc 1.2713 Tw (managed the New York Office and that, during his tenure, respondents there recommended 67) Tj
0 -14.16 TD -0.012 Tc 2.4212 Tw (purchases of penny stocks without providing the requisite disclosures. As noted above, the) Tj
T* -0.0079 Tc 0.294 Tw (evidence establishes that 43 of those transactions were recommended and, thus, not exempt from) Tj
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72 708.72 TD
0 0 0 rg
/F0 12 Tf
-0.0113 Tc 0.8855 Tw (the Penny Stock Rules. Knight personally committed 10 of those violations, and is responsible) Tj
0 -14.16 TD -0.0052 Tc 0.0052 Tw (for the other 33 violations as well.) Tj
164.16 5.52 TD /F0 8.04 Tf
0.06 Tc 0 Tw (13) Tj
-128.16 -39.84 TD /F0 12 Tf
-0.0156 Tc 2.0456 Tw (Knight claims that he was not the "designated" office manager until November 1995,) Tj
-36 -14.16 TD -0.0178 Tc 0.1378 Tw (after the relevant period, because he was not listed as such on La ) Tj
314.52 0 TD -0.0056 Tc 0.1656 Tw (Jolla's Uniform Application For) Tj
-314.52 -14.16 TD -0.0271 Tc 1.9471 Tw (Broker Dealer Registration \("Form BD"\).) Tj
206.16 5.52 TD /F0 8.04 Tf
0.06 Tc 0 Tw (14) Tj
8.16 -5.52 TD /F0 12 Tf
-0.0077 Tc 2.0117 Tw ( This is accurate, but irrelevant. The question is) Tj
-214.32 -14.16 TD -0.0191 Tc 0.8351 Tw (whether Knight had the authority and responsibilities of a manager, and not simply whether he) Tj
0 -14.16 TD -0.0154 Tc 0.182 Tw (enjoyed the title. The Staff presented substantial evidence that he did: \(1\) from July to March of) Tj
T* -0.0116 Tc 1.0676 Tw (1995 Knight received all or some of the Office's commission overrides; \(2\) he paid office bills) Tj
T* -0.0184 Tc 1.4498 Tw (from his bank account called "Chris Knight Broker Payroll Account," which had a federal tax) Tj
T* -0.0172 Tc 1.1819 Tw (I.D. number; \(3\) he hired several brokers in April 1994; \(4\) he signed the office lease; and \(5\)) Tj
T* -0.0218 Tc 0.1718 Tw (Knight was listed as the co-manager of the office in the La ) Tj
285.36 0 TD -0.0312 Tc 0.2712 Tw (Jolla Agency Agreement dated March) Tj
-285.36 -14.16 TD 0 Tc 0 Tw (2, 1994.) Tj
39 5.52 TD /F0 8.04 Tf
0.06 Tc (15) Tj
-3 -39.84 TD /F0 12 Tf
-0.15 Tc 1.71 Tw (La ) Tj
16.92 0 TD -0.012 Tc 1.5806 Tw (Jolla personnel at all levels considered Knight to be the manager of the New York) Tj
-52.92 -14.16 TD -0.0149 Tc 1.8469 Tw (Office during the relevant period. In his June 1994 New York audit report, ) Tj
393.48 0 TD -0.005 Tc 1.925 Tw (Mehlmann, the) Tj
-393.48 -14.16 TD -0.0137 Tc 2.026 Tw (National Branch Compliance Officer, listed Knight as the owner and principal of the Office.) Tj
0 -14.16 TD -0.0155 Tc 0.578 Tw (Gallison testified that he considered Knight to be a co-manager of the New York office. Gerald) Tj
T* -0.0167 Tc 0.4506 Tw (Seroy, a former registered person under Knight's supervision, testified that Knight had hired him) Tj
T* -0.0193 Tc 1.5708 Tw (and that Knight ran the office. The DBCC, after assessing Knight's testimony and demeanor,) Tj
T* -0.0142 Tc 0.8542 Tw (concluded that Knight's denials were not credible.) Tj
244.2 5.52 TD /F0 8.04 Tf
0.06 Tc 0 Tw (16) Tj
8.16 -5.52 TD /F0 12 Tf
-0.0196 Tc 0.873 Tw ( We agree, and conclude that Knight was a) Tj
-252.36 -14.16 TD -0.0206 Tc 0.0206 Tw (manager of the New York Office during the relevant period.) Tj
36 -34.32 TD -0.0071 Tc 1.7431 Tw (Knight's conduct, as much as his title, makes him liable for the violations at the New) Tj
-36 -14.16 TD -0.019 Tc 2.3426 Tw (York Office. Knight encouraged representatives under his supervision to recommend penny) Tj
0 -14.16 TD -0.0141 Tc 1.5187 Tw (stocks to their customers. Knight participated in the radio lead-generation program, where he) Tj
T* -0.0286 Tc 0.8686 Tw (discussed penny stocks that La ) Tj
154.44 0 TD -0.007 Tc 0.847 Tw (Jolla's customers purchased. Knight told ) Tj
208.44 0 TD -0.028 Tc 0.908 Tw (Seroy that leads from) Tj
-362.88 -14.16 TD -0.0145 Tc 0.2292 Tw (the radio show would come in and "we were to persuade [the callers] to buy stock." He also told) Tj
0 -14.16 TD -0.0178 Tc 2.5778 Tw (Seroy that, if a person called into the firm, the subsequent penny stock purchase would be) Tj
T* -0.0209 Tc 1.4009 Tw ("unsolicited." Thus, Knight not only knew that associated persons were recommending penny) Tj
T* 0.0011 Tc -0.0011 Tw (stocks to customers, but he also told them to do it.) Tj
0 -55.68 TD /F0 9.96 Tf
0 Tc 0.03 Tw ( ) Tj
75.6 0 TD ( ) Tj
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72 212.28 144 0.48 re f
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72 203.04 TD
/F0 6.48 Tf
0 Tw (13) Tj
6.48 -4.56 TD /F0 9.96 Tf
0.03 Tw ( ) Tj
29.52 0 TD -0.0151 Tc 2.4874 Tw (Knight acted as a principal for his own sales to customers, signing the New Account Form as both) Tj
-36 -11.76 TD 0.0013 Tc 0.5087 Tw (Registered Representative and Branch Manager. ) Tj
200.88 0 TD 0.0059 Tc 0 Tw (See) Tj
14.4 0 TD 0.0278 Tc 0.5197 Tw ( Schedule C, lines 4, 6, 7, 9, 10, 12, 14, 17, 21, 23. These 10) Tj
ET
272.88 185.16 14.4 0.48 re f
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72 174.96 TD
-0.0013 Tc 0.0313 Tw (transactions totaled $18,868 and generated $854.55 in commissions for Knight's own account.) Tj
0 -19.2 TD /F0 6.48 Tf
0 Tc 0 Tw (14) Tj
36 -4.56 TD /F0 9.96 Tf
-0.0218 Tc 0.8071 Tw (Knight claims that his brother William managed the New York Office. William was named in the instant) Tj
-36 -11.76 TD -0.0124 Tc 0.0424 Tw (complaint, but settled the allegations against him.) Tj
0 -19.2 TD /F0 6.48 Tf
0 Tc 0 Tw (15) Tj
36 -4.56 TD /F0 9.96 Tf
-0.0195 Tc 0.0495 Tw (We reject Knight's claims that the commission runs are mistaken.) Tj
-36 -19.2 TD /F0 6.48 Tf
0 Tc 0 Tw (16) Tj
36 -4.56 TD /F0 9.96 Tf
-0.0063 Tc 0.5054 Tw (The Respondents offer no evidence or argument sufficient to disturb the ) Tj
294.72 0 TD -0.0088 Tc 0.5188 Tw (DBCC's credibility determination.) Tj
-330.72 -11.76 TD 0.0059 Tc 0 Tw (See) Tj
14.4 0 TD 0 Tc 0.15 Tw ( ) Tj
2.64 0 TD 0.0105 Tc 0.1395 Tw (In re Christopher J. Benz) Tj
ET
72 78.6 14.4 0.48 re f
BT
189.72 80.16 TD
-0.0187 Tc 0.1687 Tw (, Exchange Act ) Tj
63.84 0 TD 0.038 Tc 0.112 Tw (Rel. No 38440 \(Mar. 26, 1997\); ) Tj
131.04 0 TD 0.0094 Tc 0.1406 Tw (In re Frank. J. ) Tj
ET
89.04 78.6 100.68 0.48 re f
BT
443.4 80.16 TD
-0.0075 Tc 0 Tw (Custable) Tj
34.8 0 TD 0.05 Tc 0.22 Tw (, 51 ) Tj
18.12 0 TD 0.027 Tc 0.243 Tw (S.E.C. 643) Tj
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384.6 78.6 93.6 0.48 re f
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72 68.4 TD
0.0454 Tc -0.0154 Tw (\(1993\); ) Tj
32.16 0 TD 0.0198 Tc 0.0102 Tw (In re Robert E. ) Tj
62.04 0 TD 0.0171 Tc 0 Tw (Gibbs) Tj
23.88 0 TD 0.05 Tc -0.02 Tw (, 51 ) Tj
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53.28 0 TD -0.0171 Tc 1.9471 Tw (ts claim that they believed in good faith that the Penny Stock Transactions) Tj
-89.28 -14.16 TD -0.0126 Tc 2.4366 Tw (were exempt due to the use of the Unsolicited Transaction Letters. The evidence does not) Tj
0 -14.16 TD -0.022 Tc 0.4802 Tw (support their claim. In any event, since there is no ) Tj
249.72 0 TD -0.0102 Tc 0.4902 Tw (scienter requirement for finding violations of) Tj
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0 -14.16 TD -0.0024 Tc 0.8424 Tw (sanctions. ) Tj
55.32 0 TD -0.024 Tc 0.864 Tw (In re Franklin N. Wolf) Tj
111.24 0 TD -0.017 Tc 0.857 Tw (, Exchange Act ) Tj
78.96 0 TD -0.0087 Tc 0.9344 Tw (Rel. No. 36523 \(Nov. 29, 1995\) \(genuine but) Tj
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0 -14.16 TD -0.0131 Tc 0 Tw (Kochcapital) Tj
57.84 0 TD 0 Tc 1.8 Tw (, ) Tj
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29.52 0 TD -0.0114 Tc 0.7314 Tw (Gallison, and Knight violated Conduct Rule 2110 by) Tj
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127.44 0 TD 0.0105 Tc 0.8295 Tw (Jolla and ) Tj
47.76 0 TD -0.0046 Tc 0.8446 Tw (Gallison are liable for the violations committed at all of the) Tj
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0 -14.16 TD -0.0058 Tc 0.0058 Tw (the 33 violations that the other New York representatives committed while under his supervision.) Tj
36 -34.32 TD -0.042 Tc 0 Tw (B.) Tj
36 0 TD -0.0124 Tc 0.0124 Tw (Cause Two - Failure To Supervise) Tj
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111.96 0 TD 0.0013 Tc 3.5987 Tw (Gallison, ) Tj
50.28 0 TD -0.0107 Tc 3.6107 Tw (Mehlmann and Weaver,) Tj
-345.36 -14.16 TD -0.015 Tc 2.035 Tw (violated Conduct Rule 3010 by failing to establish, maintain and enforce written supervisory) Tj
0 -14.16 TD -0.0187 Tc 0.3787 Tw (procedures reasonably designed to detect, deter, or prevent the penny stock violations committed) Tj
T* -0.0227 Tc 0.0227 Tw (by the Respondents at the Firm's ) Tj
158.88 0 TD -0.022 Tc 0.022 Tw (Bethesda, New York, Las Vegas, Modesto, and Main Offices.) Tj
-122.88 -34.32 TD -0.0123 Tc 0.6778 Tw (Conduct Rule 3010 requires that members establish, maintain, and enforce a supervisory) Tj
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145.56 0 TD -0.0222 Tc 1.5822 Tw (In re Christopher Benz,) Tj
116.88 0 TD -0.0185 Tc 1.5785 Tw ( Exchange Act ) Tj
78.12 0 TD -0.006 Tc 1.566 Tw (Rel. No. 38440 \(Mar. 26,) Tj
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72 268.08 TD
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36.84 0 TD -0.0268 Tc 2.6188 Tw (In re Consolidated Investment Services, Inc.) Tj
224.88 0 TD -0.017 Tc 2.657 Tw (, Exchange Act ) Tj
84.36 0 TD 0.0019 Tc 2.6381 Tw (Rel. No. 36687 \(Jan. 5,) Tj
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34.56 0 TD -0.0348 Tc 0.2748 Tw (In re Rita H. ) Tj
63.6 0 TD 0.003 Tc 0 Tw (Malm) Tj
28.68 0 TD -0.017 Tc 0.257 Tw (, Exchange Act ) Tj
77.16 0 TD -0.0057 Tc 0.333 Tw (Rel. No. 35000 \(Nov. 23, 1994\). The burden is on the) Tj
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396.96 0 TD -0.09 Tc 0.45 Tw (In re ) Tj
25.68 0 TD 0.0051 Tc 0 Tw (Wedbush) Tj
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72 225.6 TD
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72 0 TD -0.017 Tc 0.737 Tw (, Exchange Act ) Tj
78.6 0 TD -0.0179 Tc 0.7679 Tw (Rel. No. 25504 \(May 24, 1988\). It is not enough to demonstrate) Tj
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72 211.44 TD
-0.0059 Tc 0.6434 Tw (that an individual is less than a model supervisor or that the supervision could have been better.) Tj
0 -14.16 TD -0.024 Tc 0.024 Tw (In re Arthur James Huff) Tj
114.84 0 TD 0 Tc 0 Tw (, 48 ) Tj
21 0 TD 0.0015 Tc -0.0015 Tw (S.E.C. 767 \(1991\); ) Tj
93.36 0 TD -0.0491 Tc 0.0491 Tw (In re Louis R. ) Tj
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36.72 0 TD 0 Tc (, 49 ) Tj
21 0 TD 0 Tc -0 Tw (S.E.C. 1106 \(1989\).) Tj
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108 128.64 TD
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32.88 0 TD -0.018 Tc 1.218 Tw (Gallison joined La ) Tj
95.64 0 TD -0.0024 Tc 1.2474 Tw (Jolla in 1991, he developed and implemented the Unsolicited) Tj
-164.52 -14.16 TD -0.0235 Tc 2.5735 Tw (Transaction Letter approach to penny stock transactions. Under that approach, penny stock) Tj
0 -14.16 TD -0.0177 Tc 1.1808 Tw (supervision focused on ensuring that each penny stock transaction was exempt from the Penny) Tj
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T* -0.0269 Tc 0.5269 Tw (The Letter was submitted to La ) Tj
155.64 0 TD -0.0185 Tc 0.6185 Tw (Jolla's trading desk along with an order ticket for a penny stock,) Tj
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243.6 0 TD -0.0162 Tc 1.6962 Tw (Gallison, would effect the transaction only if) Tj
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0 -14.16 TD -0.026 Tc 0.026 Tw (Transaction Letter.) Tj
36 -34.32 TD -0.0191 Tc 1.3114 Tw (In the Spring of 1994, the Firm began requiring that the Unsolicited Transaction Letter) Tj
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228 0 TD -0.0234 Tc 3.6234 Tw (Gallison changed the policy because he noted) Tj
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402 5.52 TD /F0 8.04 Tf
0.06 Tc 0 Tw (17) Tj
8.16 -5.52 TD /F0 12 Tf
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0 -14.16 TD -0.0183 Tc 0.0183 Tw (whether the registered representatives were using unsolicited letters properly, and to deter abuse.) Tj
36 -34.32 TD -0.053 Tc 0.773 Tw (Arthur Berry, ) Tj
69.12 0 TD -0.0066 Tc 0.7266 Tw (Gallison's trading assistant, testified that ) Tj
200.16 0 TD -0.004 Tc 0.772 Tw (Gallison did require him to make) Tj
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T* -0.0138 Tc 0.4938 Tw (the trade was, in fact, "unsolicited.") Tj
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0.06 Tc 0 Tw (18) Tj
8.16 -5.52 TD /F0 12 Tf
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0 -14.16 TD -0.0324 Tc 0.3444 Tw (in any way encouraged the purchase. There were no written procedures instructing Berry how to) Tj
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T* -0.015 Tc 1.8921 Tw (testified that he called roughly a quarter of the customers who had signed unsolicited letters,) Tj
T* -0.0173 Tc 0.4252 Tw (which was approximately 25 calls per day. Although the written procedures did not require spot) Tj
T* -0.0229 Tc 0.0229 Tw (checks until December 1994, Berry began making such calls somewhat earlier.) Tj
36 -34.32 TD -0.0301 Tc 1.5644 Tw (In January 1995, the Firm changed its penny stock procedures again. The Firm began) Tj
-36 -14.16 TD -0.0191 Tc 1.2468 Tw (requiring an employee directly to contact each customer involved in a transaction that invoked) Tj
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227.4 0 TD -0.0033 Tc 1.3233 Tw (Gallison and ) Tj
66.6 0 TD -0.0194 Tc 1.3394 Tw (Mehlmann learned of forgeries and) Tj
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0.06 Tc 0 Tw (19) Tj
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67.68 0 TD -0.0203 Tc 1.0894 Tw (Gallison, wishing to discourage so many unsolicited transactions and to get away) Tj
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0 -14.16 TD -0.0268 Tc 0.8334 Tw (trades would be delayed up to 48 hours in order for Berry or a principal to call every customer.) Tj
T* -0.0159 Tc 3.7859 Tw (The Firm abandoned this policy after just two weeks because salespeople and customers) Tj
T* -0.0251 Tc 0.0251 Tw (demanded timely trades.) Tj
0 -58.32 TD /F0 9.96 Tf
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136.8 0 TD 0.0091 Tc 0.8609 Tw (Jolla representatives appeared on radio lead-generation programs or that) Tj
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146.64 0 TD -0.007 Tc 0.517 Tw (Gallison testified that he believed the transactions resulting) Tj
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36 -4.56 TD /F0 9.96 Tf
0 Tc (Berry) Tj
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299.28 0 TD -0.0063 Tc 0.2463 Tw (Bethesda and Las Vegas Offices,) Tj
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0 -11.76 TD -0.0077 Tc 0.0377 Tw (reused, as well as forged signatures on the letters.) Tj
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297.48 0 TD -0.024 Tc 1.464 Tw (ny stock investors a seven-) Tj
-333.48 -14.16 TD -0.0152 Tc 2.0952 Tw (page disclosure document, whether or not it received an Unsolicited Transaction Letter from) Tj
0 -14.16 TD -0.0135 Tc 0.561 Tw (them. This document contained some but not all of the disclosures required by the Penny Stock) Tj
T* -0.0125 Tc 3.7175 Tw (Rules, and some but not all of La ) Tj
191.64 0 TD -0.0158 Tc 3.7358 Tw (Jolla's penny stock customers received the disclosure) Tj
-191.64 -14.16 TD -0.0053 Tc 0.3653 Tw (document. ) Tj
57 0 TD -0.0047 Tc 0.3647 Tw (Gallison also testified that the Firm kept a log of all unsolicited transactions, but that) Tj
-57 -14.16 TD -0.0157 Tc 0.0157 Tw (log was not offered into evidence.) Tj
72 -34.32 TD 0 Tc 0 Tw (2.) Tj
36 0 TD -0.15 Tc 0.15 Tw (La ) Tj
15.36 0 TD 0.0105 Tc -0.0105 Tw (Jolla and ) Tj
46.08 0 TD -0 Tc 0 Tw (Gallison Violated Conduct Rule 3010) Tj
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108 569.28 TD
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16.56 0 TD 0.0105 Tc 1.1895 Tw (Jolla and ) Tj
48.48 0 TD -0.0172 Tc 1.2608 Tw (Gallison never made a legitimate attempt to comply with the Penny Stock) Tj
-101.04 -14.16 TD -0.0296 Tc 0.2696 Tw (Rules as a whole. Instead, they crafted procedures that focused on ensuring only that each penny) Tj
0 -14.16 TD -0.0209 Tc 2.6909 Tw (stock order was accompanied by an Unsolicited Transaction Letter, rather than on ensuring) Tj
T* -0.0135 Tc 0.5792 Tw (compliance with the Penny Stock Rules. Rule 3010\(b\)\(1\) requires "procedures to supervise the) Tj
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T* -0.0169 Tc 0.8569 Tw (compliance with applicable securities laws and regulations." La ) Tj
318.12 0 TD -0.0142 Tc 0.8842 Tw (Jolla's procedures carved out a) Tj
-318.12 -14.16 TD -0.012 Tc 1.2212 Tw (small portion of the securities laws and regulations applicable to penny stock transactions, and) Tj
0 -14.16 TD -0.0153 Tc 2.3296 Tw (ignored the rest. Thus, we disagree with Respondents' claim that they used the Unsolicited) Tj
T* -0.0209 Tc 1.1609 Tw (Transaction Letters to ensure compliance with a "variety of rules" when claiming that the non-) Tj
T* -0.0113 Tc 0.4013 Tw (recommended exemption was available in a particular transaction. The Firm devised procedures) Tj
T* -0.0168 Tc 0.6301 Tw (to comply with one rule and one rule only. It avoided, at all costs, providing its customers with) Tj
T* -0.015 Tc 0.5605 Tw (the disclosures that Congress deemed necessary to avoid high-pressure tactics and manipulation.) Tj
T* -0.012 Tc 0.012 Tw (The violations in this case confirm Congress' fears.) Tj
36 -33.6 TD -0.15 Tc 1.23 Tw (La ) Tj
16.44 0 TD -0.0195 Tc 1.1795 Tw (Jolla's procedures were inadequate even with respect to the small area they covered.) Tj
-52.44 -14.16 TD -0.014 Tc 4.3802 Tw (The Firm did not design reasonable procedures to oversee the salespersons\222 use of the) Tj
0 -14.16 TD -0.0135 Tc 1.5643 Tw (Unsolicited Transaction Letter. The procedures did not adequately explain that, to be exempt) Tj
T* -0.0143 Tc 1.5486 Tw (from the Penny Stock Rules, penny stock transactions needed to be both unsolicited and non-) Tj
T* -0.0188 Tc 1.0158 Tw (recommended. There were no procedures in place for educating registered personnel about the) Tj
T* -0.0256 Tc 4.6729 Tw (difference between those terms. The supervisory manual never correctly defined "non-) Tj
T* -0.0184 Tc 2.0584 Tw (recommended" transactions, and never properly distinguished between non-recommended and) Tj
T* -0.0098 Tc 0.9831 Tw (unsolicited transactions. Thus, although we disagree with the ) Tj
307.2 0 TD -0.0218 Tc 1.1018 Tw (DBCC's conclusion that La ) Tj
138 0 TD 0.0264 Tc 0 Tw (Jolla) Tj
-445.2 -14.16 TD -0.0176 Tc 1.9745 Tw (actively misled its representatives into violating the Penny Stock Rules, we conclude that La) Tj
0 -14.16 TD -0.0125 Tc 2.8371 Tw (Jolla recklessly failed to educate them about the proper use of the Unsolicited Transaction) Tj
T* -0.0405 Tc 0 Tw (Letters.) Tj
36 -33.6 TD -0.15 Tc 1.11 Tw (La ) Tj
16.32 0 TD -0.0113 Tc 1.0513 Tw (Jolla claims that it went above and beyond the minimum requirements by instituting) Tj
-52.32 -14.16 TD -0.025 Tc 1.409 Tw (procedures for contacting penny stock purchasers. Beginning in the Spring of 1994, La ) Tj
445.2 0 TD 0.0264 Tc 0 Tw (Jolla) Tj
-445.2 -14.16 TD -0.0119 Tc 2.6082 Tw (required registered representatives to include the client's phone number on their Unsolicited) Tj
0 -14.16 TD -0.021 Tc 3.801 Tw (Transaction Letters. There is no evidence, however, that the Firm actually spot-checked) Tj
T* -0.0182 Tc 1.6982 Tw (transactions until much later in the year, relying instead on the threat of detection. Although) Tj
T* -0.0179 Tc 1.9779 Tw (Gallison did instruct Berry to call customers regarding the Unsolicited Transaction Letters in) Tj
T* -0.0123 Tc 1.3523 Tw (late-1994, the written procedures contained no instructions about what inquiry was required to) Tj
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0.06 Tc 0 Tw (20) Tj
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-0.0295 Tc 0.2215 Tw (Therefore, we find that La ) Tj
129.6 0 TD 0.0105 Tc 0.2295 Tw (Jolla and ) Tj
46.56 0 TD -0.0162 Tc 0.2562 Tw (Gallison's new procedures were not a reasonable response to) Tj
-176.16 -14.16 TD -0.0201 Tc 0.0201 Tw (the problems that they had detected.) Tj
36 -33.6 TD -0.0247 Tc 0.2647 Tw (The Firm's procedure) Tj
102.84 0 TD -0.0142 Tc 0.3524 Tw (s were also deficient with respect to the layers of supervision within) Tj
-138.84 -14.16 TD -0.0105 Tc 1.4505 Tw (the Firm. ) Tj
54.24 0 TD -0.0163 Tc 1.5043 Tw (Gallison fragmented the Firm's supervision, separating the supervision of La ) Tj
384.24 0 TD 0.0034 Tc 0 Tw (Jolla's) Tj
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249.12 0 TD -0.0298 Tc 1.7098 Tw (Jolla's supervisory system. ) Tj
139.8 0 TD -0.016 Tc 0 Tw (See) Tj
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70.44 0 TD 0 Tc 1.44 Tw (, ) Tj
7.44 0 TD -0.108 Tc 0 Tw (Inc) Tj
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83.88 0 TD -0.0113 Tc 1.5713 Tw (Rel. No. 21813 \(March 5, 1985\) \("as firms) Tj
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T* -0.0146 Tc 0.1174 Tw (increases, not decreases, as branch offices become more numerous, dispersed and distant."\). ) Tj
450.72 0 TD -0.016 Tc 0 Tw (See) Tj
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205.8 547.68 TD
0 Tc 1.92 Tw (, 39 ) Tj
24.84 0 TD -0.0099 Tc 1.9299 Tw (S.E.C. 902 \(1960\) \("The existence of numerous and scattered) Tj
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BT
72 533.52 TD
-0.008 Tc 0.6541 Tw (branch offices complicates the problem of supervision and makes essential the installation of an) Tj
0 -14.16 TD -0.0262 Tc 0.0262 Tw (adequate system of control."\).) Tj
36 -33.6 TD -0.012 Tc 4.452 Tw (Although ) Tj
52.68 0 TD -0.0227 Tc 4.4799 Tw (Gallison delegated significant supervisory authority and responsibility to) Tj
-88.68 -14.16 TD -0.0197 Tc 1.0074 Tw (Mehlmann to monitor the Firm's remote offices, he specifically retained control over the penny) Tj
0 -14.16 TD -0.0132 Tc 0.9932 Tw (stock trading practices. Thus, when ) Tj
181.44 0 TD -0.0093 Tc 1.0893 Tw (Mehlmann audited a remote office, he did not evaluate its) Tj
-181.44 -14.16 TD -0.017 Tc 0.977 Tw (penny stock transactions, and neither did ) Tj
204.12 0 TD 0.002 Tc 1.018 Tw (Gallison. To the extent that ) Tj
143.16 0 TD -0.0044 Tc 1.0844 Tw (Gallison could supervise) Tj
-347.28 -14.16 TD -0.0176 Tc 0.5056 Tw (the Offices' penny stock practices from the Trading Desk in San Diego, that supervision was not) Tj
0 -14.16 TD -0.0072 Tc 2.2872 Tw (coordinated with ) Tj
88.44 0 TD -0.0099 Tc 2.3699 Tw (Mehlmann. Thus, the audit procedure, customer complaint procedure, and) Tj
-88.44 -14.16 TD -0.0172 Tc 1.2717 Tw (penny stock spot checking procedure were all compartmentalized and uncoordinated with each) Tj
0 -14.16 TD -0.01 Tc 0 Tw (other.) Tj
36 -33.6 TD -0.0112 Tc 0.0912 Tw (Gallison also failed to establish reasonable procedures to monitor the office managers and) Tj
-36 -14.16 TD -0.0147 Tc 0.7347 Tw (for the managers to supervise their registered representatives. Rule 3010\(a\)\(5\) requires firms to) Tj
0 -14.16 TD -0.0222 Tc 0.6102 Tw (assign "each registered person to an appropriately registered representative\(s\) and/or principal\(s\)) Tj
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T* -0.0296 Tc 0.8235 Tw (system of supervisory procedures which rely \(sic\) solely on the branch manager is insufficient.") Tj
T* -0.0286 Tc 0.6286 Tw (In re Dickinson) Tj
75.48 0 TD -0.017 Tc 0.617 Tw (, Exchange Act ) Tj
78.24 0 TD -0.0043 Tc 0.6043 Tw (Rel. No. 36338 \(Oct. 5, 1995\); ) Tj
153.48 0 TD -0.09 Tc 0.75 Tw (In re ) Tj
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BT
405.48 282.24 TD
-0.0245 Tc 0.7445 Tw (Shearson Lehman Brothers,) Tj
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379.2 280.32 160.8 0.6 re f
BT
72 268.08 TD
-0.108 Tc 0 Tw (Inc) Tj
15 0 TD -0.0157 Tc 1.8157 Tw (., Exchange Act ) Tj
84.84 0 TD -0.0124 Tc 1.8124 Tw (Rel. No. 23640 \(Sept. 24, 1986\). La ) Tj
192.36 0 TD -0.0072 Tc 1.9032 Tw (Jolla was also required to "provide) Tj
ET
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72 253.92 TD
-0.0217 Tc 0.0617 Tw (effective staffing, sufficient resources and a system of follow up and review to determine that any) Tj
0 -14.16 TD -0.0181 Tc 4.8661 Tw (responsibility to supervise delegated to compliance officers, branch managers and other) Tj
T* -0.0211 Tc 0.3811 Tw (personnel is being diligently exercised." ) Tj
196.56 0 TD -0.09 Tc 0.45 Tw (In re ) Tj
25.68 0 TD -0.006 Tc 0.366 Tw (Mabon, ) Tj
40.32 0 TD -0.0228 Tc 0.3828 Tw (Nugent & Co.) Tj
68.16 0 TD 0 Tc 0.42 Tw (, 47 ) Tj
21.84 0 TD 0 Tc 0.48 Tw (S.E.C. 862, 867 \(1983\).) Tj
ET
268.56 223.68 134.16 0.6 re f
BT
72 211.44 TD
-0.0217 Tc 0.0586 Tw (This is particularly troubling where, as here, the offices were distant from La ) Tj
371.28 0 TD -0.0102 Tc 0.1302 Tw (Jolla's headquarters,) Tj
-371.28 -14.16 TD -0.0176 Tc 1.6016 Tw (were owned by the managers, were free to determine their own business mix, and neither the) Tj
0 -14.16 TD -0.0236 Tc 0.0236 Tw (managers nor the representatives received any training from the Firm.) Tj
36 -33.6 TD -0.0075 Tc 0.1532 Tw (Gallison also ignored numerous red flags that should have alerted him to violations. ) Tj
409.8 0 TD -0.09 Tc 0.33 Tw (In re) Tj
ET
517.8 147.6 22.2 0.6 re f
BT
72 135.36 TD
0.018 Tc 1.062 Tw (John H. ) Tj
42.6 0 TD -0.0133 Tc 0 Tw (Gutfreund) Tj
49.2 0 TD 0 Tc 1.08 Tw (, 51 ) Tj
23.16 0 TD -0.0124 Tc 1.2124 Tw (S.E.C. 93 \(1992\) \(failure to supervise can arise where a supervisor was) Tj
ET
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BT
72 121.2 TD
-0.0402 Tc 0.2135 Tw (aware only of "red flags" or "suggestions" of irregularity\); ) Tj
282 0 TD -0.0304 Tc 0.2704 Tw (In re Michael H. Hume) Tj
112.08 0 TD -0.017 Tc 0.257 Tw (, Exchange Act) Tj
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354 119.28 112.08 0.6 re f
BT
72 103.68 TD
/F0 9.96 Tf
0 Tc 0.03 Tw ( ) Tj
75.6 0 TD ( ) Tj
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BT
72 96.48 TD
/F0 6.48 Tf
0 Tw (20) Tj
36 -4.56 TD /F0 9.96 Tf
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-36 -11.76 TD -0.0093 Tc 1.3459 Tw (Seven of these customers made purchases after January 1, 1995, when every customer was to be contacted The) Tj
0 -11.76 TD 0.0013 Tc 0.0287 Tw (remainder of the customers made purchases during the earlier "spot check" period.) Tj
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72 708.72 TD
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0 -14.16 TD -0.0191 Tc 0.1191 Tw (when the firm's own procedures detect irregularities or unusual trading activity. ) Tj
387.6 0 TD -0.016 Tc 0 Tw (See) Tj
17.28 0 TD 0 Tc 0.12 Tw ( ) Tj
3.12 0 TD -0.0348 Tc 0.1548 Tw (In re Rita H.) Tj
ET
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480 692.64 60 0.6 re f
BT
72 680.4 TD
0.003 Tc 0 Tw (Malm) Tj
28.68 0 TD -0.017 Tc 1.777 Tw (, Exchange Act ) Tj
81.72 0 TD -0.0074 Tc 1.8074 Tw (Rel. No. 35000 \(Nov. 23, 1994\). When a supervisor is faced with red) Tj
ET
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BT
72 666.24 TD
-0.0198 Tc 0.5275 Tw (flags, especially when the employee in question has no effective line supervisor, the supervisor's) Tj
0 -14.16 TD -0.0177 Tc 1.0827 Tw (duty to follow-up and investigate is heightened. ) Tj
242.76 0 TD -0.02 Tc 1.1 Tw (In re Bradford John Titus) Tj
125.88 0 TD -0.017 Tc 1.097 Tw (, Exchange Act ) Tj
79.68 0 TD 0.003 Tc 0 Tw (Rel.) Tj
ET
314.76 650.16 125.88 0.6 re f
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72 637.92 TD
-0.0103 Tc 0.0103 Tw (No. 38027 \(Dec. 9, 1996\).) Tj
36 -16.8 TD -0.0159 Tc 2.4559 Tw (Among the numerous red flags that ) Tj
186.84 0 TD -0.013 Tc 2.533 Tw (Gallison had were: \(1\) that the New York and) Tj
-222.84 -14.16 TD -0.0324 Tc 1.4615 Tw (Maryland Offices were engaged in radio lead-generation programs regarding penny stocks; \(2\)) Tj
0 -14.16 TD -0.0114 Tc 0.3714 Tw (that penny stock transactions accounted for a substantial portion of the business at those Offices;) Tj
T* -0.0141 Tc 1.2655 Tw (\(3\) that the Firm was processing numerous, clustered transactions in penny stocks for which it) Tj
T* -0.0156 Tc 0.6841 Tw (made markets; \(4\) that Unsolicited Transaction Letters had been forged or misused at several of) Tj
T* -0.0153 Tc 1.5753 Tw (the Firm's offices; and \(5\) that Knight had engaged in misconduct that was serious enough to) Tj
T* -0.0216 Tc 0.0216 Tw (warrant a fine and suspension by the Firm.) Tj
36 -33.6 TD -0.0025 Tc 0.2978 Tw (Gallison attempts to shift the responsibility for these violations to the Commission and to) Tj
-36 -14.16 TD -0.011 Tc 1.7585 Tw (the NASD in two ways: \(1\) he claims that the Commission and NASD inspected the Firm's) Tj
0 -14.16 TD -0.0289 Tc 0.2089 Tw (procedures and failed to identify any weaknesses regarding penny stock practices; and \(2\) he also) Tj
T* -0.0146 Tc 2.2946 Tw (claims that an NASD examiner explicitly approved the Firm's activities regarding Rule 15g.) Tj
T* -0.026 Tc 0.026 Tw (These claims fail because La ) Tj
141 0 TD 0.0009 Tc -0.0009 Tw (Jolla cannot shift its compliance responsibilities to the NASD. ) Tj
305.04 0 TD -0.09 Tc 0.09 Tw (In re) Tj
ET
518.04 444 21.96 0.6 re f
BT
72 431.76 TD
-0.0277 Tc 0.3877 Tw (First Inland Securities, Inc.) Tj
130.68 0 TD 0 Tc 0.36 Tw ( 51 ) Tj
18.72 0 TD 0.0011 Tc 0.3589 Tw (S.E.C. 1086, n. 12 \(1994\); ) Tj
131.16 0 TD -0.0271 Tc 0.4671 Tw (In re Sherman, Fitzpatrick & Co., Inc) Tj
ET
72 429.84 130.68 0.6 re f
BT
534 431.76 TD
0 Tc 0 Tw (.,) Tj
ET
352.56 429.84 181.44 0.6 re f
BT
72 417.6 TD
1.2 Tw (51 ) Tj
16.2 0 TD -0.0016 Tc 1.3016 Tw (S.E.C. 1048, fn. 8 \(1994\). ) Tj
137.76 0 TD -0.0086 Tc 1.3286 Tw (See also) Tj
40.92 0 TD 0 Tc 1.32 Tw ( ) Tj
4.32 0 TD -0.039 Tc 1.359 Tw (In re W.N. ) Tj
ET
225.96 415.68 40.92 0.6 re f
BT
329.16 417.6 TD
-0.0256 Tc 1.3456 Tw (Whelen & Co., Inc.) Tj
97.56 0 TD 0 Tc 1.32 Tw (, 50 ) Tj
23.64 0 TD 0 Tc 1.32 Tw (S.E.C. 282 \(1990\)) Tj
ET
271.2 415.68 155.52 0.6 re f
BT
72 403.44 TD
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252.84 0 TD -0.0084 Tc 2.6884 Tw (estop later action or cure violation\); ) Tj
190.44 0 TD -0.09 Tc 2.85 Tw (In re) Tj
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72 389.28 TD
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83.76 0 TD 0 Tc 4.32 Tw (, 51 ) Tj
29.64 0 TD -0.0096 Tc 4.4016 Tw (S.E.C. 1074, fn. 9 \(1994\) \("Participants in the industry must take) Tj
ET
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BT
72 375.12 TD
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0 -14.16 TD -0.0154 Tc 0.0154 Tw (excused for lack of knowledge, understanding or appreciation of these requirements"\).) Tj
36 -33.6 TD -0.016 Tc 3.52 Tw (Gallison, as President of La ) Tj
153.12 0 TD -0.0048 Tc 3.6048 Tw (Jolla, was responsible for compliance with all of the) Tj
-189.12 -14.16 TD -0.0183 Tc 0.0183 Tw (requirements imposed on La ) Tj
139.56 0 TD -0.0122 Tc 0.0572 Tw (Jolla "unless and until he reasonably delegate[d] particular functions) Tj
-139.56 -14.16 TD -0.0081 Tc 1.7706 Tw (to another person in that firm, and neither [knew] nor had reason to know that such person's) Tj
0 -14.16 TD -0.0138 Tc 1.4538 Tw (performance [was] deficient." ) Tj
154.56 0 TD 0.003 Tc 1.437 Tw (Patrick v. SEC) Tj
73.92 0 TD -0.0072 Tc 1.4472 Tw (, 19 F.3d 66, 69 \(2d ) Tj
106.2 0 TD 0.0012 Tc 1.4988 Tw (Cir. 1994\); ) Tj
58.68 0 TD -0.0351 Tc 1.5951 Tw (In re Universal) Tj
ET
226.56 282.96 73.92 0.6 re f
465.36 282.96 74.64 0.6 re f
BT
72 270.72 TD
-0.023 Tc 0.983 Tw (Heritage Investments Corp.) Tj
133.68 0 TD 0 Tc 1.08 Tw (, 47 ) Tj
23.16 0 TD 0 Tc (S.E.C. 839, 845 \(1982\). ) Tj
125.4 0 TD -0.0195 Tc 1.0995 Tw (Gallison did not delegate penny stock) Tj
ET
72 268.8 133.68 0.6 re f
BT
72 256.56 TD
0.0009 Tc 1.5591 Tw (supervision to ) Tj
73.8 0 TD -0.0142 Tc 1.6942 Tw (Mehlmann and, therefore, ) Tj
132.36 0 TD -0.0046 Tc 1.6846 Tw (Gallison remained responsible for the violations that) Tj
-206.16 -14.16 TD -0.024 Tc 0 Tw (occurred.) Tj
36 -33.6 TD -0.0405 Tc 0.5205 Tw (Accordingly, we find that La ) Tj
143.4 0 TD 0.0105 Tc 0.4695 Tw (Jolla and ) Tj
47.04 0 TD -0.0069 Tc 0.5469 Tw (Gallison failed to establish, maintain, and enforce) Tj
-226.44 -14.16 TD -0.017 Tc 0.3586 Tw (procedures reasonably designed to ensure compliance with the Penny Stock Rules in violation of) Tj
0 -14.16 TD -0.0113 Tc 0.0113 Tw (Conduct Rule 3010. We further find that La ) Tj
216.24 0 TD 0.0105 Tc -0.0105 Tw (Jolla and ) Tj
46.08 0 TD -0.0151 Tc 0.0351 Tw (Gallison's conduct failed to satisfy just and) Tj
-262.32 -14.16 TD -0.0147 Tc 0.0147 Tw (equitable principles of trade and high standards of commercial honor required by Conduct Rule) Tj
0 -16.8 TD 0 Tc 0 Tw (2110.) Tj
36 -33.6 TD (3.) Tj
36 0 TD -0.0049 Tc 0.0049 Tw (Mehlmann Violated Conduct Rule 3010, But Weaver Did Not) Tj
ET
144 114 298.08 0.6 re f
BT
108 82.32 TD
-0.0173 Tc 3.0173 Tw (Weaver and ) Tj
66.48 0 TD -0.0215 Tc 3.1055 Tw (Mehlmann argue that they cannot be charged with failure to supervise) Tj
-102.48 -14.16 TD -0.035 Tc 1.515 Tw (activity for which they had no supervisory responsibility. They correctly note that whether a) Tj
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258.84 0 TD -0.0285 Tc 0.6285 Tw (In re John ) Tj
52.56 0 TD -0.0133 Tc 0 Tw (Gutfreund) Tj
49.2 0 TD 0 Tc 0.6 Tw (, 51 ) Tj
22.2 0 TD 0 Tc 0.6 Tw (S.E.C. 93 \(1992\).) Tj
ET
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72 666.24 TD
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17.28 0 TD 0 Tc 0.48 Tw (, ) Tj
6.48 0 TD -0.0408 Tc 0.6408 Tw (In re First Albany Corp.) Tj
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213 666.24 TD
0 Tc 0.6 Tw (, 51 ) Tj
22.2 0 TD -0.0098 Tc 0.6098 Tw (S.E.C. 145 \(1992\) \(firm officials can be responsible for failure) Tj
ET
95.76 664.32 117.24 0.6 re f
BT
72 652.08 TD
-0.0231 Tc 1.2231 Tw (to supervise even if they lacked the ability to hire and fire\); ) Tj
300.48 0 TD -0.0351 Tc 1.3251 Tw (In re Michael E. ) Tj
85.68 0 TD -0.0132 Tc 0 Tw (Tannenbaum) Tj
62.52 0 TD 0 Tc 1.32 Tw (, 47) Tj
ET
372.48 650.16 148.2 0.6 re f
BT
72 637.92 TD
-0.006 Tc 0.006 Tw (S.E.C. 703 \(1982\) \(same\).) Tj
36 -33.6 TD -0.0092 Tc 2.6592 Tw (Mehlmann was an influential supervisor at the Firm. The Firm hired ) Tj
364.92 0 TD -0.0012 Tc 2.7612 Tw (Mehlmann in) Tj
-400.92 -14.16 TD -0.0175 Tc 1.9375 Tw (November 1993 to perform a compliance function at La ) Tj
288.12 0 TD -0.0142 Tc 2.0543 Tw (Jolla's troubled Colorado office. In) Tj
-288.12 -14.16 TD -0.0227 Tc 2.6827 Tw (February 1994 he became the Firm's National Branch Compliance Officer, and he assumed) Tj
0 -14.16 TD -0.025 Tc 4.0707 Tw (responsibility for the Firm's supervisory procedures. ) Tj
283.92 0 TD -0.0153 Tc 4.0953 Tw (Mehlmann reviewed the procedures) Tj
-283.92 -14.16 TD -0.0115 Tc 2.8152 Tw (manual, drafted proposed revisions, obtained Weaver's feedback on the proposals, and then) Tj
0 -14.16 TD 0.0056 Tc 2.0344 Tw (submitted them to ) Tj
95.88 0 TD 0.0013 Tc 2.0387 Tw (Gallison. ) Tj
53.76 0 TD -0.0201 Tc 2.1134 Tw (Gallison retained the authority to approve, modify or reject his) Tj
-149.64 -14.16 TD -0.0145 Tc 1.0745 Tw (recommendations. The Firm's procedures manual was amended through this procedure at least) Tj
0 -14.16 TD -0.0093 Tc 0.0093 Tw (twice in 1994, and then again in 1995.) Tj
36 -33.6 TD -0.0139 Tc 0.2263 Tw (Mehlmann was also responsible for the Firm's national branch audit program. The Firm's) Tj
-36 -14.16 TD -0.0165 Tc 3.2565 Tw (procedures manual required ) Tj
146.28 0 TD -0.0145 Tc 3.2545 Tw (Mehlmann to audit all 13 of La ) Tj
175.32 0 TD -0.0213 Tc 3.3013 Tw (Jolla's offices of supervisory) Tj
-321.6 -14.16 TD -0.0155 Tc 0.7955 Tw (jurisdiction twice per year, to issue detailed audit reports rating various elements of the Offices') Tj
0 -14.16 TD -0.0111 Tc 0.4825 Tw (performance, and to recommend the imposition of sanctions by the Firm to address violations of) Tj
T* -0.0222 Tc 0.2622 Tw (applicable rules. As noted earlier, by ) Tj
183.24 0 TD -0.0134 Tc 0.3734 Tw (Gallison's design, ) Tj
88.32 0 TD -0.0087 Tc 0.3687 Tw (Gallison was responsible for supervising) Tj
-271.56 -14.16 TD -0.0221 Tc 0.2621 Tw (penny stock transactions and ) Tj
141.72 0 TD -0.0073 Tc 0.2473 Tw (Mehlmann was not. Although ) Tj
150.36 0 TD -0.0066 Tc 0.3666 Tw (Mehlmann was not required to audit) Tj
-292.08 -14.16 TD -0.0191 Tc 0.6468 Tw (the Offices' penny stock trading or procedures, his audit reports did identify numerous problems) Tj
0 -14.16 TD -0.0194 Tc 1.9908 Tw (with the penny stock trading at various Firm offices: significant penny stock sales in several) Tj
T* -0.0197 Tc 0.6306 Tw (branches; the use of the lead-generation programs; customer complaints regarding penny stocks;) Tj
T* -0.0168 Tc 1.0784 Tw (forged customer signatures on the Unsolicited Transaction Letters; and the use of unregistered) Tj
T* -0.0167 Tc 0.0167 Tw (personnel in the New York Office, which had a significant penny stock business.) Tj
36 -33.6 TD -0.0113 Tc 1.0227 Tw (Mehlmann claims that he did not violate Conduct Rule 3010 because he had no day-to-) Tj
-36 -14.16 TD -0.0295 Tc 1.4233 Tw (day supervisory responsibility for penny stock transactions and because he had no authority to) Tj
0 -14.16 TD -0.0705 Tc 1.0305 Tw (change La ) Tj
54 0 TD -0.0221 Tc 1.0258 Tw (Jolla's penny stock supervisory procedures. These claims are irrelevant. ) Tj
362.04 0 TD -0.0045 Tc 0 Tw (Mehlmann) Tj
-416.04 -14.16 TD -0.0215 Tc 0.1575 Tw (had sufficient red flags regarding the Firm's penny stock trading problems that he was required to) Tj
0 -14.16 TD -0.0197 Tc 0.4125 Tw (investigate and follow-up, particularly because he knew that the Firm's registered representatives) Tj
T* -0.023 Tc 1.423 Tw (had no effective line supervisor regarding penny stocks. ) Tj
286.08 0 TD -0.02 Tc 1.46 Tw (In re Bradford John Titus) Tj
127.32 0 TD -0.0173 Tc 1.4573 Tw (, Exchange) Tj
ET
358.08 223.68 127.32 0.6 re f
BT
72 211.44 TD
-0.016 Tc 2.176 Tw (Act ) Tj
22.44 0 TD -0.0091 Tc 2.1691 Tw (Rel. No. 38027 \(Dec. 9, 1996\). Although ) Tj
219.96 0 TD -0.0224 Tc 2.1824 Tw (Mehlmann was not specifically charged with) Tj
-242.4 -14.16 TD -0.0235 Tc 4.1977 Tw (supervising penny stock trading, he was required to review and revise all of La ) Tj
438.48 0 TD 0.0034 Tc 0 Tw (Jolla's) Tj
-438.48 -14.16 TD -0.0218 Tc 3.6118 Tw (supervisory procedures, including the penny stock procedures. There is no evidence that) Tj
0 -14.16 TD -0.0168 Tc 0.9675 Tw (Mehlmann took any steps to improve the penny stock procedures; he launched no investigation) Tj
T* -0.0184 Tc 0.8584 Tw (and drafted no proposed changes.) Tj
163.8 5.52 TD /F0 8.04 Tf
0.06 Tc 0 Tw (21) Tj
8.16 -5.52 TD /F0 12 Tf
-0.156 Tc 1.076 Tw ( If ) Tj
19.44 0 TD -0.0106 Tc 0.9706 Tw (Mehlmann had taken appropriate steps and ) Tj
214.68 0 TD -0.0033 Tc 0.9633 Tw (Gallison had) Tj
-406.08 -14.16 TD -0.011 Tc 0.011 Tw (failed to act, ) Tj
62.52 0 TD -0.0179 Tc 0.0179 Tw (Mehlmann would have a stronger defense. Instead, he did nothing.) Tj
-62.52 -20.64 TD /F0 9.96 Tf
0 Tc 0.03 Tw ( ) Tj
75.6 0 TD ( ) Tj
ET
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BT
72 112.8 TD
/F0 6.48 Tf
0 Tw (21) Tj
36 -4.56 TD /F0 9.96 Tf
-0.016 Tc 0.2689 Tw (The Commission has suggested that non-line supervisors can take many steps to discharge their ) Tj
385.68 0 TD -0.0139 Tc 0 Tw (supervisory) Tj
-421.68 -11.76 TD 0.002 Tc (responsibilities:) Tj
36 -25.44 TD /F0 12 Tf
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0 -14.16 TD -0.0133 Tc 1.4424 Tw (issue, make appropriate recommendations for limiting the activities of the employee or) Tj
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308.52 0 TD -0.0171 Tc 0.2571 Tw (ce of Weaver's prominent) Tj
-344.52 -14.16 TD -0.024 Tc 1.464 Tw (status and role at La ) Tj
106.44 0 TD -0.0225 Tc 1.5345 Tw (Jolla. He served La ) Tj
105.84 0 TD -0.0136 Tc 1.5736 Tw (Jolla in numerous capacities, including Chief Legal) Tj
-212.28 -14.16 TD -0.0175 Tc 0.8675 Tw (Counsel, member of the Board of Directors, Executive Vice President, Secretary and Treasurer,) Tj
0 -14.16 TD -0.0181 Tc 1.0639 Tw (general securities principal, and 30 percent shareholder of the Firm. In these varied capacities,) Tj
T* -0.0168 Tc 1.8888 Tw (Weaver participated in many Firm activities, including attending Firm management meetings,) Tj
T* -0.0155 Tc 0.0155 Tw (approving new accounts, and filing the Firm's Focus Reports.) Tj
36 -33.6 TD -0.0143 Tc 5.7743 Tw (There is, however, no direct evidence that ) Tj
244.08 0 TD -0.0274 Tc 5.8774 Tw (Weaver was assigned supervisory) Tj
-280.08 -14.16 TD -0.0222 Tc 0.9604 Tw (responsibility for penny stock sales practices, that he affirmatively assumed such responsibility,) Tj
0 -14.16 TD -0.0104 Tc 2.3045 Tw (or that he knew of the Firm's problems in that area or took affirmative steps to avoid such) Tj
T* -0.0138 Tc 0.0784 Tw (knowledge. Weaver attended Firm management meetings, but there is no evidence that problems) Tj
T* -0.0166 Tc 0.2491 Tw (with the penny stock procedures were discussed at those meetings. Nor can we assume that such) Tj
T* -0.016 Tc 1.2252 Tw (discussions occurred because the Firm\222s penny stock business accounted for five percent of its) Tj
T* -0.0146 Tc 0.4271 Tw (overall business. Weaver had the authority to approve new accounts, but there is no evidence of) Tj
T* -0.0179 Tc 0.8836 Tw (which new account forms Weaver reviewed or that simply reviewing new account forms did or) Tj
T* -0.0122 Tc 3.8822 Tw (should have signaled him that problems existed with the Firm's penny stock procedures.) Tj
T* -0.0168 Tc 1.4739 Tw (Weaver's high status at the Firm and his generalized knowledge of the Firm's operations were) Tj
T* -0.0225 Tc 0.0225 Tw (insufficient to create a duty to supervise the Firm's penny stock practices.) Tj
36 -33.6 TD -0.0178 Tc 1.8178 Tw (Similarly, while Weaver played a substantial role in developing and im) Tj
358.56 0 TD -0.0111 Tc 1.9311 Tw (plementing the) Tj
-394.56 -14.16 TD -0.0143 Tc 2.4915 Tw (Firm's penny stock procedures, there is no evidence that this role continued into the period) Tj
0 -14.16 TD -0.0125 Tc 2.0782 Tw (covered by this complaint. When the Commission changed the Penny Stock Rules in 1992,) Tj
T* -0.0165 Tc 1.5765 Tw (Weaver analyzed the new rules, attended an NASD information session regarding those rules,) Tj
T* -0.0133 Tc 3.2533 Tw (and helped ) Tj
61.68 0 TD -0.0195 Tc 3.3095 Tw (Gallison draft the Firm's new penny stock procedures. There is no evidence,) Tj
-61.68 -14.16 TD -0.0222 Tc 1.4422 Tw (however, that the Firm's supervisory manual ever delegated supervisory duties to Weaver and,) Tj
0 -14.16 TD -0.015 Tc 2.055 Tw (although ) Tj
46.92 0 TD -0.0107 Tc 2.1467 Tw (Gallison asked Weaver to review ) Tj
172.68 0 TD -0.0091 Tc 2.1691 Tw (Mehlmann's proposed modifications to the Firm's) Tj
-219.6 -14.16 TD -0.0204 Tc 1.9061 Tw (supervisory procedures, there is no evidence that ) Tj
249.6 0 TD -0.0049 Tc 1.9249 Tw (Mehlmann told Weaver about the problems) Tj
-249.6 -14.16 TD -0.0114 Tc 2.0329 Tw (with the Firm\222s penny stock trading or otherwise indicated to Weaver that problems existed.) Tj
0 -14.16 TD -0.0251 Tc 2.3881 Tw (Weaver's early involvement in drafting the Firm's penny stock procedures, by itself, did not) Tj
T* -0.0175 Tc 0.0175 Tw (create an open-ended obligation for him to supervise penny stock sales practices.) Tj
36 -33.6 TD -0.0189 Tc 5.3912 Tw (Thus, although the DBCC may have been correct in noting that Weaver is a) Tj
-36 -14.16 TD -0.0099 Tc 2.2199 Tw (knowledgeable and competent individual, that he had a financial incentive to understand the) Tj
0 -14.16 TD -0.0094 Tc 2.7544 Tw (Firm's business, and that he served the Firm in a multitude of capacities, we find that the) Tj
T* -0.0178 Tc 1.1901 Tw (particular facts and circumstances described above did not create a duty that Weaver supervise) Tj
T* -0.0244 Tc 0.0244 Tw (the Firm's penny stock sales practices.) Tj
0 -12.96 TD /F0 9.96 Tf
0 Tc 0.03 Tw ( ) Tj
75.6 0 TD ( ) Tj
75.6 0 TD ( ) Tj
75.6 0 TD ( ) Tj
75.6 0 TD ( ) Tj
75.6 0 TD ( ) Tj
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-0.0164 Tc 1.5327 Tw (for the institution of appropriate procedures, reasonably designed to prevent and detect) Tj
0 -14.16 TD -0.0153 Tc 0.2553 Tw (future misconduct, and verify that his or her recommendations, or acceptable alternatives,) Tj
T* -0.0212 Tc 4.7612 Tw (are accepted. ... Once a person has supervisory responsibilities by virtue of the) Tj
T* -0.0086 Tc 0.9249 Tw (circumstances of a particular situation, he must either discharge those responsibilities or) Tj
T* -0.0132 Tc 0.0132 Tw (know that others are taking appropriate action.) Tj
-36 -28.32 TD -0.0252 Tc 0.0252 Tw (In re John H. ) Tj
65.4 0 TD -0.0133 Tc 0 Tw (Gutfreund) Tj
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21 0 TD 0 Tc -0 Tw (S.E.C. 93 \(1992\).) Tj
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-0.0305 Tc 0.1205 Tw (Accordingly, we find that ) Tj
126 0 TD -0.0144 Tc 0.1344 Tw (Mehlmann failed to establish, maintain and enforce supervisory) Tj
-162 -14.16 TD -0.0185 Tc 2.9262 Tw (procedures reasonably designed to detect and deter violations of the Penny Stock Rules in) Tj
0 -14.16 TD -0 Tc 1.8175 Tw (violation of Conduct Rule 3010, and that ) Tj
212.04 0 TD -0.0046 Tc 1.9246 Tw (Mehlmann violated just and equitable principles of) Tj
-212.04 -14.16 TD -0.0092 Tc 0.4172 Tw (trade and the high standards of commercial honor that Conduct Rule 2110 demands. We further) Tj
0 -14.16 TD -0.0161 Tc 0.0161 Tw (find that the allegations against Weaver should be and, hereby are, dismissed.) Tj
72 -33.6 TD 0 Tc 0 Tw (4.) Tj
36 0 TD -0.0041 Tc 0.0041 Tw (Knight Violated Conduct Rule 3010) Tj
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-0.0215 Tc 0.1175 Tw (Knight's only defense to the failure to supervise charge is that he was not the "designated") Tj
-36 -14.16 TD -0.0141 Tc 1.6729 Tw (supervisor of the New York Office. We reject that defense, as we rejected it with respect to) Tj
0 -14.16 TD -0.0113 Tc 0.1233 Tw (Cause One. The Staff introduced substantial evidence that Knight could affect the conduct of the) Tj
T* -0.0172 Tc 2.1372 Tw (registered representatives at the New York Office. Despite the lack of the title of manager,) Tj
T* -0.0134 Tc 1.6389 Tw (Knight hired representatives, received commission overrides, signed the office lease, and paid) Tj
T* -0.0209 Tc 1.1159 Tw (office expenses. The fact that he was not designated as the office manager on La ) Tj
408.36 0 TD -0.0055 Tc 1.2055 Tw (Jolla's Form) Tj
-408.36 -14.16 TD -0.0146 Tc 0.0146 Tw (BD is irrelevant in light of Knight's supervisory responsibilities.) Tj
36 -33.6 TD -0.0131 Tc 1.0193 Tw (Knight does not dispute that he failed to supervise the representatives at La ) Tj
375.84 0 TD -0.0072 Tc 1.0872 Tw (Jolla's New) Tj
-411.84 -14.16 TD -0.0105 Tc 0.7563 Tw (York Office. The evidence establishes that Knight took no steps to monitor the representatives') Tj
0 -14.16 TD -0.0097 Tc 1.3057 Tw (compliance with the Penny Stock Rules, that he took no steps to investigate the numerous red) Tj
T* -0.012 Tc 1.7595 Tw (flags signaling violations of the Penny Stock Rules, and that he took no steps to deter future) Tj
T* -0.0171 Tc 0.774 Tw (misconduct. Accordingly, we find that he failed to supervise the registered representatives who) Tj
T* -0.032 Tc 0.272 Tw (engaged in the ) Tj
73.32 0 TD -0.015 Tc 0.2919 Tw (violative penny stock transactions in the New York Office. We find that Knight's) Tj
-73.32 -14.16 TD -0.0028 Tc 0.0028 Tw (conduct violated Conduct Rules 2110 and 3010.) Tj
36 -33.6 TD 0.018 Tc 0 Tw (C.) Tj
36 0 TD -0.0093 Tc 0.0093 Tw (Cause Five - Knight Violated Membership and Registration Rule 1031) Tj
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108 297.36 TD
-0.0156 Tc 0.2095 Tw (Cause Five alleges that from March 24, 1994 through January 17, 1995, Knight permitted) Tj
-36 -14.16 TD -0.0169 Tc 0.6169 Tw (three unregistered persons whom he supervised to engage in the securities business by soliciting) Tj
0 -14.16 TD -0.02 Tc 0.444 Tw (investors to purchase penny stocks and by accepting customer orders. This conduct is alleged to) Tj
T* -0.0249 Tc 2.1295 Tw (have violated Membership and Registration Rule 1031\(a\) \(formerly Part III, Section 1\(a\) of) Tj
T* -0.0026 Tc 0.0026 Tw (Schedule C to the ) Tj
87.96 0 TD -0.092 Tc 0 Tw (By-Laws\).) Tj
-51.96 -33.6 TD -0.008 Tc 2.168 Tw (Rule 1031\(a\) requires that "[a]) Tj
155.28 0 TD -0.0188 Tc 2.2322 Tw (ll persons engaged or to be engaged in the investment) Tj
-191.28 -14.16 TD -0.0115 Tc 2.6515 Tw (banking or securities business of a member who are to function as representatives shall be) Tj
0 -14.16 TD -0.0169 Tc 0.4112 Tw (registered as such with the Corporation in the category of registration appropriate to the function) Tj
T* -0.015 Tc 0.1083 Tw (to be performed." Section 1\(b\) defines "representatives" as "[p]) Tj
306.84 0 TD -0.0103 Tc 0.1303 Tw (ersons associated with a member,) Tj
-306.84 -14.16 TD -0.0132 Tc 0.8716 Tw (including assistant officers other than principals, who are engaged in the investment banking or) Tj
0 -14.16 TD -0.0057 Tc 0.3557 Tw (securities business for the member including the functions of supervision, solicitation or conduct) Tj
T* -0.014 Tc 0.464 Tw (of business in securities or who are engaged in the training of persons associated with a member) Tj
T* -0.0297 Tc 2.0479 Tw (for any of these functions." Article I \(k\) of the ) Tj
248.52 0 TD -0.022 Tc 2.062 Tw (NASD's ) Tj
44.4 0 TD -0.0308 Tc 2.0708 Tw (By-Laws provides that "investment) Tj
-292.92 -14.16 TD -0.0102 Tc 2.2102 Tw (banking or securities business" means the business of "underwriting or distributing issues of) Tj
0 -14.16 TD -0.0179 Tc 0.4529 Tw (securities, or of purchasing securities and offering the same for sale as a dealer, or of purchasing) Tj
T* -0.0139 Tc 0.0139 Tw (and selling securities upon the order and for the account of others." ) Tj
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-0.01 Tc 4.21 Tw (The individuals in question were required to regi) Tj
263.28 0 TD -0.0302 Tc 4.2602 Tw (ster because they performed the) Tj
-299.28 -14.16 TD -0.0141 Tc 0.0879 Tw (functions of a representative. Functions performed by representatives include, but are not limited) Tj
0 -14.16 TD -0.0057 Tc 0.1719 Tw (to, communicating with members of the public to determine their interest in making investments,) Tj
T* -0.0103 Tc 0.3403 Tw (discussing the nature or details of particular securities or investment vehicles, recommending the) Tj
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T* -0.0076 Tc 0.7276 Tw (securities. ) Tj
55.68 0 TD -0.016 Tc 0 Tw (See) Tj
17.28 0 TD -0.0158 Tc 0.7458 Tw ( NTM 85-48 \(July 1985\) \(personnel who solicit new accounts by telephone must) Tj
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72 606.96 TD
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0 -14.16 TD -0.0173 Tc 0.0173 Tw (and NTM 88-50 \(July 1988\) \(personnel who make "cold-calls" must register\).) Tj
36 -33.6 TD -0.0122 Tc 2.366 Tw (At least three individuals engaged in the securities business in the New York Office) Tj
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0 -14.16 TD -0.0109 Tc 5.4829 Tw (questionnaires stating that salespeople named ") Tj
253.44 0 TD -0.02 Tc 5.54 Tw (Dzurko," ") Tj
57.12 0 TD -0.019 Tc 5.539 Tw (Rosani," and "Anderson" had) Tj
-310.56 -14.16 TD -0.0181 Tc 1.0981 Tw (recommended penny stocks to them prior to January 17, 1995. Michael ) Tj
355.8 0 TD -0.0088 Tc 1.2088 Tw (Dzurko was associated) Tj
-355.8 -14.16 TD -0.046 Tc 1.366 Tw (with La ) Tj
42.36 0 TD -0.0203 Tc 1.3403 Tw (Jolla from April to December of 1994, without registering in any capacity during that) Tj
-42.36 -14.16 TD -0.0132 Tc 1.4532 Tw (time. Frank ) Tj
65.52 0 TD -0.0182 Tc 1.4822 Tw (Rossani became associated with La ) Tj
179.76 0 TD 0 Tc 1.5593 Tw (Jolla in March of 1994, but did not pass the) Tj
-245.28 -14.16 TD -0.0084 Tc 0.2564 Tw (Series 7 examination until April of 1995. Between June and December of 1994, Nigel Anderson) Tj
0 -14.16 TD -0.024 Tc 1.584 Tw (was associated with La ) Tj
119.76 0 TD -0.0091 Tc 1.6624 Tw (Jolla without registering. Anderson had been associated with ) Tj
312.36 0 TD -0.0171 Tc 0 Tw (Burnett) Tj
-432.12 -14.16 TD -0.0438 Tc 0.0438 Tw (Grey, the predecessor to La ) Tj
134.28 0 TD -0.0195 Tc 0.0195 Tw (Jolla's New York Office, from January through March of 1994.) Tj
-98.28 -33.6 TD -0.0208 Tc 1.3408 Tw (Knight was aware that non-register) Tj
173.28 0 TD -0.0145 Tc 1.403 Tw (ed individuals were prohibited from engaging in the) Tj
-209.28 -14.16 TD -0.018 Tc 0.378 Tw (securities business at La ) Tj
120.36 0 TD -0.0199 Tc 0.4699 Tw (Jolla's offices because he had been fined and suspended by the Firm for) Tj
-120.36 -14.16 TD -0.0204 Tc 1.7004 Tw (that very conduct. On October 31, 1994, ) Tj
212.4 0 TD -0.0142 Tc 1.6942 Tw (Mehlmann alerted Knight and Knight's brother that) Tj
-212.4 -14.16 TD -0.0187 Tc 0.1849 Tw ("trade problems" had occurred in accounts opened for Knight by an individual whose registration) Tj
0 -14.16 TD -0.0164 Tc 0.3764 Tw (was pending approval. ) Tj
115.44 0 TD -0.0157 Tc 0.4084 Tw (Mehlmann warned Knight that "[t]he office needs to make sure that only) Tj
-115.44 -14.16 TD -0.014 Tc 2.1924 Tw (recognized and approved brokers are permitted in the office and allowed to contact clients,") Tj
0 -14.16 TD -0.0215 Tc 1.1872 Tw (citing the Firm's Policy No. 3045. ) Tj
176.04 0 TD -0.0076 Tc 1.2076 Tw (Mehlmann and ) Tj
77.64 0 TD -0.0085 Tc 1.2085 Tw (Gallison fined Knight $2,500 and restricted) Tj
-253.68 -14.16 TD -0.0169 Tc 0.0169 Tw (him from all supervisory responsibilities for 60 days. Knight signed the letter.) Tj
36 -33.6 TD -0.0082 Tc 1.6236 Tw (Knight claims that he is not responsible for the registration violations because: \(1\) the) Tj
-36 -14.16 TD -0.0193 Tc 0.2993 Tw (unregistered individual only filed papers and "answer[) Tj
261.6 0 TD -0.0116 Tc 0.3716 Tw (ed] telephones when there was no one else) Tj
-261.6 -14.16 TD -0.0149 Tc 0.1199 Tw (available due to the large number of radio call-ins";) Tj
247.68 5.52 TD /F0 8.04 Tf
0.06 Tc 0 Tw (22) Tj
8.16 -5.52 TD /F0 12 Tf
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-255.84 -14.16 TD -0.0124 Tc 0.6296 Tw (individual effecting securities transactions; and \(3\) he was not a supervisor. Knight's claims are) Tj
0 -14.16 TD -0.0149 Tc 0.9103 Tw (meritless. As noted above, associated persons who regularly respond to telephone inquiries are) Tj
T* -0.0189 Tc 0.7904 Tw (required to register. The DBCC rejected Knight's claims of ignorance, finding his credibility to) Tj
T* -0.021 Tc 2.3268 Tw (be "suspect in every respect," and we will not disturb its credibility determination. Finally,) Tj
T* -0.0105 Tc 0.0105 Tw (Knight was a supervisor at the New York Office and, as such, is responsible for the violations.) Tj
36 -33.6 TD -0.0151 Tc 2.8151 Tw (Accordingly, we find that Knight violated Conduct Rule 2110 and) Tj
342.36 0 TD -0.0083 Tc 2.8883 Tw ( Membership and) Tj
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0 -14.16 TD -0.0095 Tc 0.0095 Tw (business, as alleged in Cause Five of the complaint.) Tj
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36 -4.56 TD /F0 9.96 Tf
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-36 -11.76 TD -0.0087 Tc 0.0387 Tw (people were busy.) Tj
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36 -33.6 TD -0.012 Tc 0 Tw (A.) Tj
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41.76 0 TD -0.0298 Tc 3.0298 Tw (recusal of panel member and attorney, Jerry M. ) Tj
253.44 0 TD -0.0257 Tc 3.1457 Tw (Gluck \(") Tj
44.16 0 TD -0.0196 Tc 3.1396 Tw (Gluck"\). The panel was) Tj
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318.48 0 TD -0.0096 Tc 0 Tw (Gluck) Tj
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0 -14.16 TD 0 Tc 1.92 Tw (in the ) Tj
33.84 0 TD -0.0055 Tc 1.9615 Tw (NASD's District 10 office. Respondents did not object to ) Tj
298.44 0 TD -0.0086 Tc 2.0486 Tw (Gluck's participation in the) Tj
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36 -33.6 TD -0.0164 Tc 0.1364 Tw (During the 12) Tj
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0.0524 Tc 0 Tw (th) Tj
6.36 -5.52 TD /F0 12 Tf
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95.88 0 TD -0.0077 Tc 0.1877 Tw (Gluck disclosed that his son had accepted an examiner) Tj
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380.88 0 TD -0.0128 Tc 0.8528 Tw (Gluck's continued) Tj
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0 -14.16 TD -0.0179 Tc 1.5522 Tw (Respondents made three arguments: \(1\) the issues presented by the case are complicated and) Tj
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T* -0.023 Tc 0.503 Tw (panel; and \(3\) that the remaining panelists were unduly influenced by ) Tj
340.2 0 TD -0.0289 Tc 0.6289 Tw (Gluck, who had forcefully) Tj
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0 -14.16 TD -0.0008 Tc 1.0808 Tw (issues -- without ) Tj
85.56 0 TD -0.0267 Tc 1.2267 Tw (Gluck's participation. They agreed that ) Tj
202.92 0 TD -0.0076 Tc 1.2076 Tw (Gluck should not participate further,) Tj
-288.48 -14.16 TD -0.0165 Tc 0.2393 Tw (but they refused to terminate the hearing. The remaining panelists reasoned that Procedural Rule) Tj
0 -14.16 TD -0.0256 Tc 0.6331 Tw (9223 \(a\) requires only a two- person hearing panel, that they had an NASD Attorney Advisor to) Tj
T* -0.0187 Tc 4.5787 Tw (assist with complicated legal issues, and that they had not been influenced by ) Tj
432 0 TD -0.0223 Tc 0 Tw (Gluck's) Tj
-432 -14.16 TD -0.0043 Tc (participation.) Tj
36 -33.6 TD -0.0111 Tc 2.2693 Tw (We reject Respondents' renewed objections to the DBCC panel members' decision to) Tj
-36 -14.16 TD -0.0193 Tc 0.5593 Tw (continue the hearing after ) Tj
127.68 0 TD -0.0128 Tc 0.6128 Tw (Gluck's departure. NASD Procedural Rule 9223\(1\) provides that "the) Tj
-127.68 -14.16 TD -0.0191 Tc 0.5966 Tw (entire District Business Committee may sit as a hearing panel, or it may appoint a hearing panel) Tj
0 -14.16 TD -0.018 Tc 0.978 Tw (of ) Tj
17.88 0 TD -0.0098 Tc 0.9698 Tw (two or more persons) Tj
101.04 0 TD -0.0085 Tc 1.0885 Tw (, all of whom are associated with members of the Corporation, at least) Tj
ET
89.88 125.52 101.04 0.6 re f
BT
72 113.28 TD
-0.0046 Tc 3.1246 Tw (one of whom shall also be a member of the District Business Conduct Committee unless) Tj
0 -14.16 TD -0.0125 Tc 5.6405 Tw (otherwise directed by the National Business Conduct Committee.\224 \(emphasis added\).) Tj
T* -0.0163 Tc 0.8038 Tw (Respondents did not have a right to have an attorney sit on the hearing panel. ) Tj
387.84 0 TD -0.029 Tc 0.869 Tw (In re Thomas R.) Tj
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459.84 83.04 80.16 0.6 re f
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72 70.8 TD
0.0048 Tc 0 Tw (Alton) Tj
27.36 0 TD -0.017 Tc 0.497 Tw (, Exchange Act ) Tj
77.88 0 TD -0.0174 Tc 0.6041 Tw (Rel. No. 36058 \(Aug. 4. 1995\) \(rejecting same challenge\), ) Tj
287.04 0 TD -0.0312 Tc 0 Tw (aff\222d) Tj
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72 68.88 27.36 0.6 re f
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487.44 70.8 TD
-0.004 Tc 0.604 Tw (, 94-16589) Tj
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464.28 68.88 23.16 0.6 re f
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-0.003 Tc 0.003 Tw (\(9th ) Tj
22.32 0 TD -0.0151 Tc 0.0951 Tw (Cir. 1996\) \(unpublished opinion\). Nor were they entitled to a three-person hearing panel. ) Tj
435.96 0 TD -0.138 Tc 0 Tw (In) Tj
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530.28 706.8 9.72 0.6 re f
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72 694.56 TD
-0.04 Tc 0.4 Tw (re Keith L. ) Tj
56.04 0 TD -0.0069 Tc 0 Tw (DeSanto) Tj
41.28 0 TD -0.0185 Tc 0.3785 Tw ( Exchange Act ) Tj
74.52 0 TD 0 Tc 0.36 Tw (Rel. No. 35860 \(June 19, 1995\), ) Tj
159.48 0 TD -0.048 Tc 0 Tw (aff'd) Tj
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424.56 694.56 TD
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403.32 692.64 21.24 0.6 re f
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72 680.4 TD
-0.0145 Tc 0.0145 Tw (1996\) \(table\). The Panel was duly constituted under Procedural Rule 9223\(a\).) Tj
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284.88 0 TD -0.0223 Tc 0.3823 Tw (Gluck's ) Tj
39.36 0 TD -0.0273 Tc 0.3873 Tw (recusal, particularly in) Tj
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234.12 0 TD -0.024 Tc 0 Tw (de) Tj
11.28 0 TD 0 Tc 2.28 Tw ( ) Tj
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346.68 632.64 TD
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463.8 632.64 TD
0 Tc 2.28 Tw ( ) Tj
5.28 0 TD -0.048 Tc 2.328 Tw (In re Curtis I.) Tj
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446.52 630.72 17.28 0.6 re f
469.08 630.72 70.92 0.6 re f
BT
72 618.48 TD
0.0189 Tc 0 Tw (Wilson,) Tj
37.8 0 TD -0.0185 Tc 0.3785 Tw ( Exchange Act ) Tj
74.52 0 TD 0 Tc 0.36 Tw (Rel. No. 26425 \(Jan. 6, 1989\), ) Tj
150.48 0 TD -0.0312 Tc 0 Tw (aff\222d) Tj
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357.96 618.48 TD
0 Tc 0.36 Tw ( ) Tj
3.36 0 TD 0.004 Tc 0 Tw (sub) Tj
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334.8 616.56 23.16 0.6 re f
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378 618.48 TD
0 Tc 0.36 Tw ( ) Tj
3.36 0 TD 0.008 Tc 0 Tw (nom) Tj
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361.32 616.56 16.68 0.6 re f
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402.72 618.48 TD
0 Tc 0.36 Tw (., ) Tj
9.36 0 TD 0.0185 Tc 0.3415 Tw (Wilson v. SEC) Tj
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381.36 616.56 21.36 0.6 re f
BT
484.68 618.48 TD
-0.008 Tc 0.368 Tw (, 902 F.2nd) Tj
ET
412.08 616.56 72.6 0.6 re f
BT
72 604.32 TD
-0.006 Tc 0.126 Tw (1580 \(9) Tj
37.08 5.52 TD /F0 8.04 Tf
0.0524 Tc 0 Tw (th) Tj
6.36 -5.52 TD /F0 12 Tf
0 Tc 0.12 Tw ( ) Tj
3.12 0 TD -0.0109 Tc 0.1309 Tw (Cir. 1990\). There is no evidence that Respondents requested or expected either a three-) Tj
-46.56 -14.16 TD -0.0191 Tc 0.3475 Tw (member panel or that the panel include a lawyer. It is standard for the DBCC to appoint a three-) Tj
0 -14.16 TD -0.0128 Tc 0.1508 Tw (member panel in a case of this magnitude, but there is no entitlement to such a panel. In fact, the) Tj
T* -0.0214 Tc 0.0214 Tw (possibility of a ) Tj
74.04 0 TD -0.0205 Tc 0.0297 Tw (recusal or withdrawal is a primary reason for appointing a three-member panel. A) Tj
-74.04 -14.16 TD -0.0211 Tc 1.0891 Tw (rule requiring a new hearing whenever a panel member is ) Tj
288.96 0 TD -0.0184 Tc 1.0984 Tw (recused would place an unwarranted) Tj
-288.96 -14.16 TD -0.0194 Tc 0.0194 Tw (burden on the disciplinary process.) Tj
36 -33.6 TD -0.0129 Tc 0.4157 Tw (Respondents have presented no evidence of actual bias or prejudice as a result of ) Tj
396 0 TD -0.0223 Tc 0 Tw (Gluck's) Tj
-432 -14.16 TD -0.0076 Tc 0.05 Tw (initial participation or his later removal. There is no evidence in the record that the panelists who) Tj
0 -14.16 TD -0.013 Tc 0.613 Tw (decided the case -- without ) Tj
135 0 TD -0.0201 Tc 0.6965 Tw (Gluck's participation -- were biased. Nor is there evidence that they) Tj
-135 -14.16 TD -0.0447 Tc 1.6047 Tw (were unduly influenced by ) Tj
136.56 0 TD -0.0093 Tc 1.6893 Tw (Gluck's participation, or that ) Tj
146.28 0 TD -0.0116 Tc 1.6916 Tw (Gluck's questioning of witnesses was) Tj
-282.84 -14.16 TD -0.0178 Tc 2.5378 Tw (inappropriate or motivated by bias. ) Tj
188.88 0 TD -0.016 Tc 0 Tw (See) Tj
17.28 0 TD 0 Tc 2.52 Tw ( ) Tj
5.52 0 TD -0.0349 Tc 2.6749 Tw (In re Brooklyn Capital & Securities Trading, Inc.) Tj
ET
260.88 441.36 17.28 0.6 re f
BT
537 443.28 TD
0 Tc 0 Tw (,) Tj
ET
283.68 441.36 253.32 0.6 re f
BT
72 429.12 TD
-0.0185 Tc 2.7785 Tw (Exchange Act ) Tj
75.96 0 TD -0.012 Tc 2.772 Tw (Rel. No. 38454 \(Mar. 31, 1997\) \(panel member's questions were directed at) Tj
-75.96 -14.16 TD -0.0311 Tc 0.8711 Tw (clarifying witness' answers\); ) Tj
141.48 0 TD -0.0184 Tc 0.8584 Tw (In re U.S. Securities Clearing Corp) Tj
171.96 0 TD -0.017 Tc 0.977 Tw (, Exchange Act ) Tj
79.32 0 TD -0.001 Tc 0.961 Tw (Rel. No. 35066) Tj
ET
213.48 413.04 171.96 0.6 re f
BT
72 400.8 TD
-0.0158 Tc 1.5758 Tw (\(Dec. 8, 1994\) \(same\); ) Tj
117.24 0 TD -0.0447 Tc 1.7247 Tw (In re Michael A. Leeds) Tj
116.88 0 TD 0 Tc 1.68 Tw ( 51 ) Tj
21.36 0 TD -0.0065 Tc 1.6865 Tw (S.E.C. 500, 506 \(1993\) \(panel has right to) Tj
ET
189.24 398.88 116.88 0.6 re f
BT
72 386.64 TD
-0.0126 Tc 2.0151 Tw (question witness to elicit testimony\). There is no evidence of prejudice from the lack of an) Tj
0 -14.16 TD -0.0156 Tc 2.2013 Tw (attorney on the DBCC panel; the remaining panelists had available the legal expertise of an) Tj
T* -0.0209 Tc 0.3409 Tw (attorney advisor from an outside NASD office. Finally, there is no evidence of prejudice against) Tj
T* -0.0114 Tc 2.1899 Tw (Respondents based on retaliation for their request for a new hearing panel. Unsubstantiated) Tj
T* -0.0099 Tc 0.2223 Tw (assertions of bias are an insufficient basis to invalidate NASD Regulation proceedings. ) Tj
425.28 0 TD -0.016 Tc 0 Tw (See) Tj
17.28 0 TD 0 Tc 0.24 Tw ( ) Tj
3.24 0 TD -0.09 Tc 0.33 Tw (In re) Tj
ET
497.28 328.08 17.28 0.6 re f
517.8 328.08 22.2 0.6 re f
BT
72 315.84 TD
0.002 Tc 0.238 Tw (Rita H. ) Tj
38.16 0 TD 0.0024 Tc 0 Tw (Malm,) Tj
31.68 0 TD -0.0185 Tc 0.2585 Tw ( Exchange Act ) Tj
74.16 0 TD -0.0032 Tc 0.2432 Tw (Rel. No. 35000 \(Nov. 23, 1994\); ) Tj
160.68 0 TD -0.0393 Tc 0.2793 Tw (In re David A. ) Tj
ET
72 313.92 69.84 0.6 re f
BT
449.52 315.84 TD
-0.0274 Tc 0 Tw (Gingras) Tj
37.8 0 TD 0 Tc 0.3 Tw (, 51 ) Tj
21.6 0 TD 0.012 Tc 0 Tw (S.E.C.) Tj
ET
376.68 313.92 110.64 0.6 re f
BT
72 301.68 TD
-0.0048 Tc 0.9648 Tw (622 \(1992\); ) Tj
61.2 0 TD -0.0497 Tc 1.0097 Tw (In re Cal ) Tj
47.52 0 TD -0.0065 Tc 0.9665 Tw (Caulfield & Co.) Tj
78.84 0 TD 0 Tc 0.96 Tw (, 48 ) Tj
22.92 0 TD 0.0015 Tc 0.9985 Tw (S.E.C. 452 \(1986\); ) Tj
96.36 0 TD -0.033 Tc 1.113 Tw (In re Robert E. ) Tj
ET
133.2 299.76 126.36 0.6 re f
BT
457.08 301.68 TD
0.0024 Tc 0 Tw (Gibbs) Tj
28.68 0 TD 0 Tc 1.08 Tw (, 51 ) Tj
23.16 0 TD 0.012 Tc 0 Tw (S.E.C.) Tj
ET
378.84 299.76 106.92 0.6 re f
BT
72 287.52 TD
-0.0044 Tc 0.0044 Tw (1131 \(1993\); ) Tj
65.28 0 TD -0.0346 Tc 0.0346 Tw (In re Arthur J. Lewis) Tj
99.72 0 TD 0 Tc 0 Tw (, 50 ) Tj
21 0 TD 0 Tc -0 Tw (S.E.C. 1487, 1489 \(1991\).) Tj
ET
137.28 285.6 99.72 0.6 re f
BT
108 253.92 TD
-0.0195 Tc 0.5649 Tw (Accordingly, Respondents' challenges to the composition of the DBCC hearing panel are) Tj
-36 -14.16 TD -0.02 Tc 0 Tw (rejected.) Tj
36 -33.6 TD -0.042 Tc (B.) Tj
36 0 TD -0.003 Tc 0.003 Tw (Staff Conduct) Tj
ET
144 204.24 66.96 0.6 re f
BT
108 172.56 TD
-0.0187 Tc 0.2587 Tw (Respondents allege that the Staff acted improperly during three phases of ) Tj
356.4 0 TD -0.008 Tc 0.248 Tw (this case. First,) Tj
-392.4 -14.16 TD -0.0144 Tc 1.3944 Tw (Respondents contend that the staff examiners acted improperly during their examination of La) Tj
0 -14.16 TD -0.0103 Tc 2.4663 Tw (Jolla by failing to conduct an exit interview, failing to give the Respondents notice that an) Tj
T* -0.009 Tc 0.1474 Tw (investigation was under consideration, and failing to inform one individual, who was later named) Tj
T* -0.0122 Tc 1.1597 Tw (as a respondent, that he had the right to counsel during the examination. These arguments are) Tj
T* -0.009 Tc 1.3976 Tw (without merit. Even assuming that their allegations are correct, Respondents did not have the) Tj
T* -0.0081 Tc 0.5331 Tw (right to either an exit interview or notice that an investigation was under consideration. Nor did) Tj
T* -0.0136 Tc 0.5536 Tw (Respondents have a constitutional or statutory right to counsel in NASD Regulation disciplinary) Tj
T* -0.022 Tc 0.142 Tw (proceedings, ) Tj
63.84 0 TD -0.0364 Tc 0.1804 Tw (In re Falcon Trading Group, Ltd.) Tj
158.04 0 TD -0.017 Tc 0.257 Tw (, Exchange Act ) Tj
77.16 0 TD -0.0069 Tc 0.2469 Tw (Rel. No. 36619 \(Dec. 21, 1995\); ) Tj
159.24 0 TD -0.138 Tc 0 Tw (In) Tj
ET
135.84 57.36 158.04 0.6 re f
530.28 57.36 9.72 0.6 re f
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BT
72 708.72 TD
0 0 0 rg
/F0 12 Tf
-0.004 Tc 1.564 Tw (re Phyllis J. Elliott) Tj
93.96 0 TD 0 Tc 1.56 Tw (, 51 ) Tj
24.12 0 TD 0.0012 Tc 1.5588 Tw (S.E.C. 991, 996 \(1994\); ) Tj
123.6 0 TD -0.0198 Tc 1.6698 Tw (In re Richard R. Perkins) Tj
ET
72 706.8 93.96 0.6 re f
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436.2 708.72 TD
0 Tc 1.68 Tw (, 51 ) Tj
24.36 0 TD 0.0055 Tc 1.6745 Tw (S.E.C. 380, 386) Tj
ET
313.68 706.8 122.52 0.6 re f
BT
72 694.56 TD
-0.0169 Tc 3.2169 Tw (\(1993\), and there is no policy justification for granting such a right to counsel during an) Tj
0 -14.16 TD 0.006 Tc 0 Tw (examination.) Tj
36 -33.6 TD -0.0069 Tc 0.1269 Tw (Second, Respondents allege that the St) Tj
186.36 0 TD -0.0298 Tc 0.1978 Tw (aff acted improperly during the ) Tj
153 0 TD -0.0327 Tc 0.2727 Tw (investigatory phase) Tj
-375.36 -14.16 TD -0.0229 Tc 2.7572 Tw (of the case by refusing to produce the examiners' work papers and by misstating customer) Tj
0 -14.16 TD -0.0071 Tc 3.8071 Tw (communications in the declarations that the examiners drafted for the customers to sign.) Tj
T* -0.0078 Tc 0.2478 Tw (Respondents had no right to discover the ) Tj
200.4 0 TD -0.022 Tc 0.262 Tw (NASD's ) Tj
42.6 0 TD -0.025 Tc 0.305 Tw (investigatory materials. ) Tj
118.92 0 TD -0.09 Tc 0.45 Tw (In re) Tj
22.32 0 TD /F3 9.96 Tf
0 Tc 0.4806 Tw ( ) Tj
3.12 0 TD /F0 12 Tf
-0.003 Tc 0.363 Tw (Patten Securities) Tj
ET
433.92 602.4 106.08 0.6 re f
BT
72 590.16 TD
0 Tc 0 Tw (Corp.) Tj
27 0 TD 0 Tc 0.84 Tw (, 51 ) Tj
22.68 0 TD -0.0078 Tc 0.8478 Tw (S.E.C. 568, 578 \(1993\) \(respondents have no right to probe ) Tj
295.32 0 TD -0.0154 Tc 0.8554 Tw (NASD's decision-making) Tj
ET
72 588.24 27 0.6 re f
BT
72 576 TD
-0.0133 Tc 0.0133 Tw (process\); ) Tj
49.2 0 TD -0.039 Tc 0.159 Tw (In re Steven B. ) Tj
75 0 TD -0.0816 Tc 0 Tw (Theys) Tj
28.92 0 TD 0 Tc 0.12 Tw (, 51 ) Tj
21.24 0 TD -0.0039 Tc 0.1239 Tw (S.E.C. 473, 481, n. 23 \(1993\) \(respondents are not entitled to) Tj
ET
121.2 574.08 103.92 0.6 re f
BT
72 561.84 TD
-0.012 Tc 2.292 Tw (discover ) Tj
45.84 0 TD -0.0273 Tc 2.3073 Tw (investigatory reports\); ) Tj
113.28 0 TD -0.0338 Tc 2.3738 Tw (In re David R. ) Tj
80.64 0 TD 0.006 Tc 2.394 Tw (Esco, Jr.) Tj
43.44 0 TD 0 Tc 2.4 Tw (, 46 ) Tj
25.8 0 TD 0 Tc (S.E.C. 1205, 1207, n. 7 \(1978\)) Tj
ET
231.12 559.92 124.08 0.6 re f
BT
72 547.68 TD
-0.0106 Tc 0.2746 Tw (\(same\). The alleged bias of an NASD investigator is insufficient to invalidate an entire decision.) Tj
0 -14.16 TD -0.0349 Tc 2.1949 Tw (In re Frank J. ) Tj
75.24 0 TD 0 Tc 0 Tw (Custable) Tj
42 0 TD 2.16 Tw (, 51 ) Tj
25.32 0 TD -0.0185 Tc 2.2625 Tw (S.E.C. 643, 650 \(1993\). In any event, Respondents suffered no) Tj
ET
72 531.6 117.24 0.6 re f
BT
72 519.36 TD
-0.0193 Tc 0.0193 Tw (prejudice because the allegedly tainted declarations have been excluded from evidence.) Tj
418.08 5.52 TD /F0 8.04 Tf
0.06 Tc 0 Tw (23) Tj
-382.08 -39.12 TD /F0 12 Tf
-0.0131 Tc 4.5971 Tw (Third, Respondents argue that, during the DBCC hearing, District Director, ) Tj
410.28 0 TD -0.069 Tc 0 Tw (Lani) Tj
-446.28 -14.16 TD -0.004 Tc 1.204 Tw (Woltman \(") Tj
57.72 0 TD -0.0192 Tc 1.2672 Tw (Woltman"\), improperly influenced the proceedings and caused the hearing panel to) Tj
-57.72 -14.16 TD -0.0152 Tc 1.5192 Tw (modify an earlier ruling in a manner that was adverse to the Respondents. Respondents have) Tj
0 -14.16 TD -0.0093 Tc 0.335 Tw (presented no direct evidence to establish that ) Tj
220.2 0 TD -0.0156 Tc 0.3756 Tw (Woltman acted improperly, and the staff denies the) Tj
-220.2 -14.16 TD -0.0195 Tc 3.1395 Tw (Respondents' allegation. In any event, Respondents cannot show that ) Tj
366.84 0 TD -0.0313 Tc 3.2713 Tw (Woltman's allegedly) Tj
-366.84 -14.16 TD -0.0111 Tc 0.7966 Tw (improper influence prejudiced them; the full District Committee ultimately adopted the Hearing) Tj
0 -14.16 TD -0.0112 Tc 0.5792 Tw (Panel's initial ruling, and we uphold that initial ruling after an independent review of the record.) Tj
T* -0.016 Tc 0 Tw (See) Tj
17.28 0 TD 0 Tc 0.36 Tw ( ) Tj
3.36 0 TD -0.0393 Tc 0.3993 Tw (In re David A. ) Tj
ET
72 384.72 17.28 0.6 re f
BT
165.96 386.64 TD
-0.0274 Tc 0 Tw (Gingras) Tj
37.8 0 TD 0 Tc 0.36 Tw (, 51 ) Tj
21.72 0 TD -0.0176 Tc 0.4842 Tw (S.E.C. 622 \(1992\) \(prejudice cured by independent review of the) Tj
ET
92.64 384.72 111.12 0.6 re f
BT
72 372.48 TD
-0.0225 Tc 0.0225 Tw (record\); ) Tj
40.8 0 TD -0.0314 Tc 0.0314 Tw (In re Charles L. Campbell) Tj
124.32 0 TD 0 Tc 0 Tw (, 49 ) Tj
21 0 TD -0.0057 Tc 0.0057 Tw (S.E.C. 1047 \(1989\) \(same\).) Tj
ET
112.8 370.56 124.32 0.6 re f
BT
108 338.88 TD
-0.0233 Tc 3.8273 Tw (Finally, Respondents allege that this disciplinary proceeding was motivated by the) Tj
-36 -14.16 TD -0.0134 Tc 0.1654 Tw (NASD's animus toward firms that deal in penny stocks. No showing of selective prosecution has) Tj
0 -14.16 TD -0.0077 Tc 0.8402 Tw (been made. To establish selective prosecution, one must show both that he was singled out for) Tj
T* -0.016 Tc 0.1875 Tw (enforcement action while others similarly situated were not, and that the action was motivated by) Tj
T* -0.0162 Tc 0.5262 Tw (arbitrary or unjust considerations, such as race, religion or the desire to prevent the exercise of a) Tj
T* -0.0172 Tc 0 Tw (constitutionally) Tj
74.4 0 TD 0.1772 Tw (-protected right. ) Tj
83.52 0 TD -0.0072 Tc 0.2472 Tw (U.S. v. Huff) Tj
59.4 0 TD -0.0056 Tc 0.2456 Tw (, 959 F.2d 731 \(8th ) Tj
96.12 0 TD 0.0012 Tc 0.2388 Tw (Cir. 1992\); ) Tj
56.16 0 TD -0.0173 Tc 0.2573 Tw (C.E. Carlson, Inc. v.) Tj
ET
229.92 266.16 59.4 0.6 re f
441.6 266.16 98.4 0.6 re f
BT
72 253.92 TD
0.012 Tc 0 Tw (S.E.C.) Tj
31.08 0 TD -0.0038 Tc 0.0038 Tw (, 859 F.2d 1429, 1437 \(10th ) Tj
136.92 0 TD -0.0141 Tc 0.0141 Tw (Cir. 1988\). Neither showing has been made here.) Tj
234.72 5.52 TD /F0 8.04 Tf
0.06 Tc 0 Tw (24) Tj
ET
72 252 31.08 0.6 re f
BT
72 174.48 TD
/F0 9.96 Tf
0 Tc 0.03 Tw ( ) Tj
75.6 0 TD ( ) Tj
ET
72 176.52 144 0.48 re f
BT
72 167.28 TD
/F0 6.48 Tf
0 Tw (23) Tj
36 -4.56 TD /F0 9.96 Tf
-0.0212 Tc 1.2403 Tw (Respondents' counsel very capably and effectively cross-examined the testifying witnesses, utilizing their) Tj
-36 -11.76 TD -0.0043 Tc 0.9063 Tw (questionnaires and declarations. In fact, on the basis of Respondents' cross examination, the Panel determined that) Tj
0 -11.76 TD -0.0157 Tc 0.9633 Tw (the methodology used by staff in obtaining information for and creating customer declarations was flawed and of) Tj
T* -0 Tc 0.0305 Tw (questionable reliability.) Tj
0 -19.2 TD /F0 6.48 Tf
0 Tc 0 Tw (24) Tj
36 -4.56 TD /F0 9.96 Tf
-0.0034 Tc 0.1534 Tw (During oral argument on appeal, counsel for Respondents alleged that a ) Tj
289.68 0 TD -0.004 Tc 0.214 Tw (newspsaper article cited officials of) Tj
-325.68 -11.76 TD -0.015 Tc 0.2092 Tw (NASD Regulation describing this case as a vehicle by which the organization was "going to make its presence felt in) Tj
0 -11.76 TD 0.0061 Tc 0.8639 Tw (the penny stock area." Tr. p. 17. This newspaper article was not part of the record on appeal and, therefore, we) Tj
T* 0.0044 Tc 0.0256 Tw (cannot consider it.) Tj
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0 -33.6 TD -0.0049 Tc 0.2449 Tw (There is little more that this organization can do to ) Tj
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36 -33.6 TD -0.021 Tc 1.121 Tw (Knight's conduct was egregious, and there are no mitigating factors present. Therefore,) Tj
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36 -33.6 TD 0.018 Tc 0 Tw (C.) Tj
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0.06 Tc 0 Tw (28) Tj
8.16 -5.52 TD /F0 12 Tf
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0 -14.16 TD -0.006 Tc 0.006 Tw (requiring the individual to ) Tj
128.52 0 TD -0.0334 Tc 0.0334 Tw (requalify by examination.) Tj
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326.4 0 TD -0.0141 Tc 2.0541 Tw (e: \(1\) prior or other) Tj
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0 -14.16 TD -0.0208 Tc 0.6426 Tw (pending\); \(3\) length of time functioning as unregistered/improperly registered; \(4\) knowledge of) Tj
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T* -0.0121 Tc 0.6841 Tw (problem; \(7\) extent of supervisory procedures in place at time of violation to detect and prevent) Tj
T* -0.0117 Tc 3.5037 Tw (registration deficiencies; \(8\) nature and extent of unregistered person's responsibilities; \(9\)) Tj
T* -0.0215 Tc 0.0215 Tw (explanation for failure to register properly; \(10\) other mitigating or aggravating factors.) Tj
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T* -0.024 Tc 1.464 Tw (limited disciplinary history.) Tj
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0.06 Tc 0 Tw (29) Tj
8.16 -5.52 TD /F0 12 Tf
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-162.48 -14.16 TD -0.0073 Tc 1.2473 Tw (sanctions imposed against ) Tj
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50.4 0 TD -0.0163 Tc 2.2778 Tw (Gallison are reduced by $4,000 to reflect the dismissal of two Penny Stock Rules) Tj
-50.4 -14.16 TD -0.025 Tc 0.385 Tw (violations by ) Tj
65.76 0 TD -0.015 Tc 0.405 Tw (Budke; \(3\) the fine imposed against Knight for his supervisory violation is reduced) Tj
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0 -14.16 TD -0.0134 Tc 1.7395 Tw (Sanctions Guideline; and \(4\) we impose against Knight a 15-day suspension in all capacities.) Tj
T* -0.0167 Tc 0.0167 Tw (Accordingly, we order that sanctions be imposed as follows:) Tj
0 -33.6 TD -0.15 Tc 0.87 Tw (La ) Tj
16.08 0 TD 0.0264 Tc 0 Tw (Jolla) Tj
22.8 0 TD -0.0211 Tc 0.7411 Tw (: censure; $297,380 fine, jointly and severally with ) Tj
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0 -14.16 TD -0.0162 Tc 0.4962 Tw (restitution/rescission, jointly and severally with ) Tj
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124.56 0 TD 0.0013 Tc 0 Tw (Gallison.) Tj
-160.56 -33.6 TD 0.0015 Tc (Gallison) Tj
40.68 0 TD -0.0266 Tc 0.7466 Tw (: censure; $297,380 fine, jointly and severally with La ) Tj
268.2 0 TD -0.0054 Tc 0.7654 Tw (Jolla; $50,000 fine, individually;) Tj
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108 466.32 TD
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T* -0.0218 Tc 3.1417 Tw (restitution/rescission, jointly and severally with La ) Tj
264 0 TD 0.0053 Tc 3.2047 Tw (Jolla; $8,260.75 in DBCC costs,) Tj
-264 -14.16 TD -0.0427 Tc 0.0427 Tw (jointly and severally with La ) Tj
139.92 0 TD 0.022 Tc 0 Tw (Jolla.) Tj
-175.92 -33.6 TD -0.016 Tc (Knight) Tj
33.24 0 TD -0.0191 Tc 0.2248 Tw (: censure; $95,854.55 fine; bar from associating with any NASD member in any principal) Tj
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(Harold B. )Tj
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(Mehlmann, Robert C. Weaver,)Tj
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(Gerald R. )Tj
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(Budke, Christopher S.)Tj
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(Jolla Capital Corporation,)Tj
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( )Tj
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(Dated:)Tj
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( February 5, 1999)Tj
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(On September 5, 1997, the District Business Conduct Committee for Distri\
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(\("DBCC"\) issued a decision in which it found that the following respon\
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(Jolla Capital Corporation \("La)Tj
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(Jolla" or "the Firm"\), Harold B. )Tj
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(Gallison"\), Gregory K. )Tj
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(Mehlmann"\),)Tj
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(Robert C. Weaver \("Weaver"\), Gerald R. )Tj
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(Budke \(")Tj
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(Budke"\), and Christopher S. Knight)Tj
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(\("Knight"\) \(collectively, "Respondents"\).)Tj
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( The Respondents appealed that decision pursuant to)Tj
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(their customers; that La )Tj
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(NASD's Membership and Registration Rules by)Tj
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(office. We further find that )Tj
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(Jolla and )Tj
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(Gallison are censured;)Tj
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(barred from engaging in penny stock transactions in any capacity; fined \
$297,380, jointly and)Tj
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(severally; fined $50,000 each individually; and required to present proo\
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(recission to their damaged customers. )Tj
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