cipal officers of North American and who admittedly controlled that company, knew or should have known that the accountant was not independent, and that, by filing an untrue registration statement, they willfully violated those Sections of the Securities Act which specify the information to be included in a registration statement and prospectus. Respondents had been enjoined from offering or selling North American stock in violation of the registration or anti-fraud provisions of the Securities Acts. On the basis of the injunction, the willful violations and respondents' consent, the Commission revoked registrant's registration and found each of the partners a cause of the revocation.2 Theodore A. Landau, doing business as Landau Company, and Scott Taylor & Co., Inc.-The registrations of both firms were revoked because of manipulative practices in the sale of Anaconda Lead & Silver Company stock. Scott Taylor, before acquiring a large block of Anaconda stock from Landau and proceeding to a retail distribution, had asked Landau to insert quotations for the stock in the daily sheets of the National Quotation Bureau, Inc. In March and April 1959, blocks of stock of Anaconda, which had been an inactive company since 1952, were sold at 15 cents and 20 cents per share. Landau inserted bids, generally at $4.25 per share, in the daily sheets from April to mid-August 1959, and Scott Taylor made a distribution of the Anaconda shares in at least 29 states. The Commission found that Scott Taylor represented that the stock was being offered at the market when in fact the market was one made and controlled by Scott Taylor or by Landau. The Commission further found that Scott Taylor violated Rule 10b-6 under the Exchange Act by placing bids for the stock through an intermediary while distributing it. Sales were made by Scott Taylor through long distance telephone solicitations in which purchasers were not informed that Anaconda had been inactive since 1952, and that it had no income, machinery or equipment and practically no funds. Scott Taylor and Stephen N. Stevens, its president, consented to revocation of Scott Taylor's registration and a finding that Stevens was a cause of the revocation, based on the market manipulation and on false and misleading statements made in the sale of the stock. Landau's registration was revoked because of his participation in creating a false impression of market activity in the stock and he was also held responsible for Scott Taylor's acts in furtherance of the fraudulent enterprise." Aldrich, Scott & Co., Inc.-In this proceeding, the registrant and Edward L. Benedict, Jr., who owned 80 percent of its stock and was its * Securities Exchange Act Release No. 6684 (Dec. 15, 1961). * Securities Exchange Act Release No. 6792 (April 30, 1962). president at the time, admitted violations of the anti-fraud provisions of the Securities Acts and of the Commission's net capital requirements and consented to revocation of registrant's registration and a finding that Benedict was a cause of such revocation. The principal issue was whether Walter Scott Aldrich, who was registrant's vicepresident, secretary, and director and a 20 percent stockholder during the time of the violations, should also be found a cause. Aldrich contended, among other things, that he was inexperienced in the securities business and did not take an active part in registrant's business during this period. The Commission rejected his contention and found him a cause of registrant's revocation. It held that he was accountable for registrant's engaging in the securities business while insolvent and with a net capital deficiency, stating that a principal officer, director, and stockholder of a registered broker-dealer has at the least a duty to keep himself informed of the registrant's financial condition and to take those steps necessary to insure compliance with the Exchange Act.* False and misleading statements made in the sale of securities in willful violation of the anti-fraud provisions of the Securities Acts were the bases for revocation of broker-dealer registrations in Murray Securities Corporation, Barclay Securities Corporation, Lindsay Securities Corporation, Hanover Securities Corporation (formerly known as Webster Securities Corporation), Irving Kastner, Biltmore Securities Corp.,10 D. H. Victor & Company, Inc.,11 Luther L. Bost, doing business as L. L. Bost Company,12 Francis J. Brenek and Co., Inc., 13 Jacwin & Costa,14 Michael J. Bogan, Jr., doing business as M. J. Bogan, Jr. & Co.,15 and for denial of registration in Union Securities Corporation.' 16 11 Willful violation of both the anti-fraud and securities registration provisions were the bases for revocation in International Investments, Inc., Empire Underwriters Corporation, Inc.,18 C. H. Abraham & Securities Exchange Act Release No. 6597 (July 18, 1961). 5 Securities Exchange Act Release No. 6635 (Sept. 22, 1961). (Feb. 20, 1962). 26 Co., Inc.,1o A. G. Bellin Securities Corp., 20 Phoenix Securities Corp.,21 L. J. Mack & Company, Inc.,22 Carlton Securities, Inc.,23 Philip Newman Associates, Inc., and Allstate Securities, Inc.25 The registration of D. Earle Hensley Co., Inc. was revoked because, among other things, registrant had engaged in the securities business before becoming registered as a broker-dealer, made misrepresentations in the sale of its stock, misappropriated customers' funds and securities, and was enjoined from various acts and practices. Willful violation of the securities registration provisions was the principal basis for revocation in Pauline Zipperman, doing business as German American Trading Company," and Rockwell Securities Corporation,28 where the registrant had also been enjoined against further violations of such provisions. 31 30 The use of customers' funds or securities for registrant's own purposes, accompanied in most cases by willful violations of the Commission's net capital rule or the anti-fraud provisions of the securities acts by broker-dealers doing business while insolvent, were the causes of revocation in Miller Smith & Co., Inc.,29 Champion & Co., Inc.,3 and Florida Underwriting and Securities Services Corp. The registration of Dayton Company 32 was revoked because it improperly hyopthecated customers' securities and in addition failed to disclose a controlling person in its registration application. Willful violation of the net capital requirements was a basis for revocation in Lambert, M. W., Inc., H. S. Simmons & Co., Inc.,34 Strand Investment Company,35 Whitney & Company, Inc.,36 and Auld & Co., Inc.37 In the last-named case, the registrant was also found to have made false statements in the financial statement filed with its registration application and in an annual financial report. 19 Securities Exchange Act Release No. 6652 (Oct. 10, 1961). 41 43 44 Failure to file required financial reports, coupled in some instances with failure to amend the application for registration to reflect changes of names or business address, caused revocation of the broker-dealer registrations of Robert Lee Long,38 Howell, Kraft & Cummings, Inc.,39 William Douglas Bradford,1o Benjamin Brown Gilbert, doing business as Gilbert & Co., and William Conley Grafton.42 Registration was revoked or denied because of false and misleading statements in the application for registration or statements of financial condition supplemental thereto, and failure to correct them in subsequent amendments in Long Island Securities Co., Inc., and Harry James Van Buskirk, doing business as Associated Loan Counsellors. Failure to maintain current and accurate books or to produce them for Commission inspection were among the grounds resulting in revocation in Quinn, Neu & Co., Inc., and Vincent Associates, Ltd.46 Filing a misleading annual financial report was the basis for the revocation of the registration of Norman Lemmons, Inc." Willful violations of Regulation T of the Board of Governors of the Federal Reserve System regulating the extension of credit by brokers and dealers were the basis for revocation in Empire Securities Corporation.18 The registration of Gibbs & Company was revoked on the basis of a permanent injunction against further violations of the anti-fraud and recordkeeping provisions of the securities acts and Regulation T. 49 45 Suspension Proceedings Section 15 (b) of the Securities Exchange Act authorizes the Commission to suspend a broker-dealer's registration pending final determination as to whether registration should be revoked. In order to suspend registration, the Commission must find, after notice and opportunity for a hearing, that suspension is necessary or appropriate in the public interest or for the protection of investors. The registrations of five broker-dealers were suspended during the past fiscal year after hearings at which the evidence revealed that they were engaging 25 Securities Exchange Act Release No. 6602 (July 20, 1961). Securities Exchange Act Release No. 6599 (July 20, 1961). "Securities Exchange Act Release No. 6603 (July 25, 1961). (July 25, 1961). Securities Exchange Act Release No. 6616 (Aug. 17, 1961). 43 Securities Exchange Act Release No. 6612 (Aug. 4, 1961). 44 Securities Exchange Act Release No. 6612 (Aug. 4, 1961). Securities Exchange Act Release No. 6650 (Oct. 9, 1962). Securities Exchange Act Release No. 6806 (May 16, 1962). 47 Securities Exchange Act Release No. 6725 (Feb. 7, 1962). Securities Exchange Act Release No. 6791 (Apr. 27, 1962). "Securities Exchange Act Release No. 6717 (Jan. 29, 1962). 41 Securities Exchange Act Release No. 6603 in serious misconduct.50 To prevent further harm to investors the Commission determined that it was in the public interest to suspend those registrations pending determination of the question of revocation. The entry of a suspension order is not determinative of the ultimate questions of willful violations or revocation itself. Other Sanctions 57 In one instance during the fiscal year the Commission suspended a registrant from membership in the National Association of Securities Dealers, Inc. for a period of 30 days.51 In addition to revoking their registrations, the Commission also expelled the following broker-dealers from the NASD: Barclay Securities Corporation,52 C. H. Abraham & Co., Inc.,53 D. H. Victor & Company, Inc.,54 Luther L. Bost, doing business as L. L. Bost Company," and Allstate Securities, Inc.56 In Cady, Roberts & Co., the Commission suspended Robert M. Gintel, a partner of this New York Stock Exchange member, from the exchange for 20 days. Gintel had placed shares of CurtissWright Corporation stock in the discretionary accounts of about 30 customers of registrant. On November 25, 1959, the Curtiss-Wright directors voted for a reduced dividend for the fourth quarter. A registered representative of Cady, Roberts, who was a director of Curtiss-Wright, called registrant's office with the news before the dividend reduction was made public on the exchange. Immediately on receiving this information Gintel entered two orders on the exchange, one to sell 2,000 shares of Curtiss-Wright for 10 customers' accounts, the other to sell 5,000 shares short for 11 accounts. These orders were executed on the exchange before news of the dividend cut appeared there on the Dow Jones Ticker Service. When the news was made public the exchange suspended trading in Curtiss-Wright stock because of the large number of sell orders and when trading resumed the price was approximately $3.75 per share lower. 50 Alexander Reid & Co., Inc., Securities Exchange Act Release No. 6727 (Feb. 8, 1962); Fred L. Carvalho, doing business as Capital Investment Co., Securities Exchange Act Release No. 6741 (Feb. 21, 1962); Johnston & Co., Securities Exchange Act Release No. 6760 (Mar. 22, 1962); Brown, Barton & Engel, Securities Exchange Act Release No. 6821 (June 8, 1962); and Smythe Bowers, Hilliard & Co., Inc., Securities Exchange Act Release No. 6831 (June 20, 1962). The U.S. Court of Appeals for the Third Circuit, subsequent to the end of the fiscal year, denied a motion of Brown, Barton & Engel to stay the effectiveness of the suspension order pending determination of an appeal from that order. (C.A. 3, Civil No. 14,080.) 51 Brown, Barton & Engel, Securities Exchange Act Release No. 6751 (Mar. 9, 1962). 52 Securities Exchange Act Release No. 6648 (Oct. 9, 1961). 53 Securities Exchange Act Release No. 6652 (Oct. 10, 1961). 54 Securities Exchange Act Release No. 6700 (Jan. 5, 1962). 55 Securities Exchange Act Release No. 6703 (Jan. 8, 1962). 50 Securities Exchange Act Release No. 6733 (Feb. 14, 1962). 57 Securities Exchange Act Release No. 6668 (Nov. 8, 1961). |