(4) willful violation of any of the provisions of the Securities Act of 1933 or the Securities Exchange Act or any of the Commission's rules and regulations thereunder. Under section 15A of the Securities Exchange Act brokers and dealers may be suspended or expelled by the Commission from membership in a national securities association, and under section 19 (a) (3) from national securities exchanges, for violations of the federal securities laws or the regulations thereunder. Registration may not be denied to an applicant absent evidence of misconduct specified in the act. Other factors, such as bad reputation or character, lack of experience in the securities business or even conviction of the applicant of a felony unrelated to securities transactions, do not constitute statutory grounds for denial of registration as a broker-dealer. Section 15A (b) (4) of the Securities Exchange Act of 1934 provides that in the absence of the Commission's approval or direction, no broker or dealer may be admitted to or continued in membership in a national securities association if the broker or dealer or any partner, officer, director or controlling or controlled person of such broker or dealer was a cause of any order of revocation or suspension or expulsion from membership which is in effect. An individual named as such a cause often is subject to one or more statutory disqualifications under section 15(b) and his employment by any other broker-dealer thus could also become a basis for broker-dealer revocation proceedings against the new employer. The following statistics deal, among other things, with administrative proceedings instituted to deny and revoke registration and to suspend and expel from membership in an exchange or a national securities association: Proceedings pending at start of fiscal year to: Revoke registration_-_ Revoke registration and suspend or expel from NASD or exchanges---- 25 Deny registration to applicants----. Total proceedings pending... Proceedings instituted during fiscal year to: 50 Revoke registration__-- Revoke registration and suspend or expel from NASD or exchanges---- Total proceedings instituted___. Total proceedings current during fiscal year.... 111 161 Disposition of Proceedings Proceedings to revoke registration: Dismissed on withdrawal of registration----. Registration revoked... Total_ Proceedings to revoke registration and suspend or expel from NASD or exchanges: Registration revoked___ Registration revoked and firm expelled from NASD___. Dismissed on withdrawal of registration_--- Dismissed-registration and membership permitted to continue in effect---- Suspended for a period of time from NASD_ Total. Proceedings to deny registration to applicant: Registration denied_____ Dismissed on withdrawal of application__- Dismissed-application permitted to become effective_-- Total_ Total proceedings disposed of.. Proceedings pending at end of fiscal year to: Revoke registration____. Revoke registration and suspend or expel from NASD or exchanges---- 39 Deny registration to applicants--- Total proceedings pending at end of fiscal year__--- Total proceedings accounted for. 6 Administrative proceedings in which action was taken during the year included the following: Suspension Proceedings During the past year the Commission suspended the registration of several broker-dealers pending final determination as to whether their registrations should be revoked. Since suspension has the effect of stopping all securities business by the registrant, this sanction is imposed only in the most serious type of cases where the Commission finds, on the evidence adduced at a hearing, that such action is required, in the public interest and for the protection of investors. A. G. Bellin Securities Corp.-The registrant was found, in connection with the sale of unregistered stock in General Oils & Industries, to have made false and misleading statements regarding, among other things, prospects of profits, payment of dividends, increase in market price, listing on exchange, merger, interest of officials of prominent oil companies in General, and the issuers' ownership of and production from oil and gas properties. In addition, registrant was preliminarily enjoined from selling stock of General. The Commission, on the basis of these findings, held that a sufficient showing had been made to require suspension of registration in the public interest and for the protection of investors. In determining this the Commission stated, ". . . we are required. . . to suspend registration where the record before us on the suspension issue contains a sufficient showing of misconduct to indicate the likelihood that after hearings on the revocation issue registrant will be found to have committed willful violations or any of the other grounds prescribed with respect to the revocation in section 15 (b) will be established, and that revocation will be required in the public interest." The Commission also stated that under the suspension provision, ". . . we are only directed to inquire into the question of whether the public interest or the protection of investors warrants suspension, and there is no requirement that suspension be based upon findings of willful violation or the other grounds specified with respect to revocation." 30 At the close of the fiscal year revocation proceedings were pending against registrant. Herman Bud Rothbard, doing business as Jonathan & Company. Rothbard admitted that he filed a false and misleading financial statement with his application for registration, violated the net capital rule, failed to amend his registration to disclose transfer of control of his business, failed to file a required financial report, and maintained materially deficient books and records and he consented to suspension of his broker-dealer registration. The Commission concluded that suspension was appropriate in the public interest and for the protection of investors. In addition, on June 30, 1959, the Commission revoked Rothbard's registration. This is discussed in more detail later in this report. Jean R. Veditz Co., Inc.-Registrant consented to suspension of its broker-dealer registration. The Commission found suspension to be appropriate in the public interest and for the protection of investors. The order instituting proceedings charged registrant, Jean R. Veditz, its president and sole stockholder, and Ben Goldstein, its sales manager, with violation of the antifraud provisions of the federal securities laws in the offer and sale of stock of Universal Drilling Company. Registrant and Veditz were stated in the order to have been enjoined by the Supreme Court of New York, County of New York, from engaging in certain activities in connection with the purchase and sale 30 Securities Exchange Act Release No. 5966 (May 18, 1959). 31 Securities Exchange Act Release No. 5797 (Oct. 17, 1958). of securities. Revocation proceedings against registrant were pending at the end of the fiscal year. 32 Philip Newman Associates, Inc.-In the latter part of 1958 registrant's books showed sales through the use of the mails of 124,520 unregistered shares of the common stock of Monarch Asbestos Co., Limited. Evidence at the suspension hearing established that, to induce purchase of this stock, registrant made numerous false representations, including among other things, that Monarch was an operating company with highly profitable production, and that Monarch's asbestos mine was adjacent to that of Johns-Manville Corporation and contained asbestos superior to that produced by the latter. It was also falsely represented that Johns-Manville Corporation had determined to acquire or to merge with Monarch and that the market price of Monarch stock had risen and would increase from $5 to $16 per share in from 1 to 6 months. The Commission held that there had been a sufficient showing of willful violations by registrant, including a course of conduct replete with fraud, to make it necessary and appropriate in the public interest and for the protection of investors that registrant's registration be suspended until final determination on the question of revocation. Proceedings on the question of revocation of registrant's broker-dealer registration were pending at the end of the fiscal year.33 --- Alexander Dvoretsky, doing business as Dennis & Company.The Commission found on the basis of stipulations entered into by Dvoretsky that he employed individuals who were permanently enjoined from engaging in certain securities practices and that he willfully violated provisions of the Securities Exchange Act and rules thereunder in that his application for registration denied existence of such injunctions and that he failed to file any correcting amendment to the application to state their existence. He was also found to have willfully violated the Commission's net capital rule and books and records requirements. These violations, the consent and the record so far made, were held to be a sufficient showing to require suspension of registration in the public interest and for the protection of investors. At the end of the fiscal year proceedings to revoke Dvoretsky's registration were still pending.34 Denial Proceedings Kelly Rubenstein, Inc.-William Rubenstein, president and a director of applicant, was found by the Commission to have willfully made a false and misleading statement in the broker-dealer application of Washington Securities Corporation. Both Rubenstein and Washington were found to have willfully violated section 15 (b) of the Securities Exchange Act of 1934 and rule 15b-2 thereunder in not "Securities Exchange Act Release No. 5843 (Dec. 23, 1958). Securities Exchange Act Release No. 5856 (Jan. 15, 1959). "Securities Exchange Act Release No. 5952 (May 12, 1959). promptly filing an amendment correcting the inaccuracy of this information. In addition, the Commission found that Rubenstein, while president, treasurer and a director of Keith Richard Securities Corp. caused that firm to willfully violate Commission rules concerning keeping of books and records. Under all the circumstances, the Commission found it in the public interest to deny the application of applicant and found Rubenstein to be a cause of the denial. However, the order stated that the above findings did not necessarily mean that Rubenstein was permanently barred from registration or from employment by a registered broker-dealer in a supervised capacity upon a proper showing. 35 Alan Russell Securities, Inc.-The Commission denied brokerdealer registration to applicant and named Nathan L. Batterman and Omos Maiers as causes of the denial. The action was based on a permanent injunction issued by the United States District Court for the Southern District of New York against applicant, Batterman and Maiers. The decree, entered by consent, enjoined applicant, Batterman and Maiers from making untrue and misleading statements in connection with the sale of International Ceramic Mining Limited stock in violation of the antifraud provisions of the Securities Act. Leonard Burton Corporation.-Broker-dealer registration was denied applicant and Leonard Burton was named the cause of denial based on willful violations of the antifraud provisions of the Securities Act of 1933 and the Securities Exchange Act. The Commission found that Leonard Burton while employed as a securities salesman by Steven Randall & Co., Inc. made misleading representations in connection with the offer or sale of Texas Union Oil Company stock. Burton represented that there would be no commissions on the sale of the stock and failed to state that Steven Randall & Co., Inc. was selling the stock as principal. Burton also presented an optimistic picture of large and quick increases in the market value of the stock based on actual production without apprising investors of the speculative and contingent factors known by him. The statement that a stock is likely to go up was deemed to imply, "... that there is an adequate foundation for such prediction and there are no known facts which make such a prediction dangerous or unreliable." The Commission rejected registrant's allegation that the practicalities of merchandising the stock excused the registrant from the requirements of disclosure necessary to render the statements made not misleading.37 35 Securities Exchange Act Release No. 5770 (Sept. 8, 1958). 30 Securities Exchange Act Release No. 5779 (Sept. 25, 1958). 37 Securities Exchange Act Release No. 5978 (June 4, 1959). |