News Releases

Lehman Brothers Inc. of New York City, a member firm, consented without admitting or denying guilt to findings relating to the testing of its electronic order routing systems, the entry and cancellation of market-on-close and limit-on-close orders and related supervisory deficiencies.

• An NYSE hearing panel found that, on three occasions during June 2003 and once in January 2004, the firm improperly tested its electronic order routing systems’ connectivity to Exchange systems.  The panel found that the orders involved in the tests, which are the subject of this enforcement action, were not denoted as test orders but instead were sent during trading hours to the NYSE trading floor in the guise of actual orders.

• The hearing panel found that, during March 2003-February 2004, the firm entered and/or cancelled over 245 MOC/LOC orders in a variety of securities on 11 trade dates contrary to NYSE rules and policies.

• The panel found that the firm failed to reasonably supervise and implement adequate controls in that it failed to have adequate systems for monitoring the testing of its electronic order routing systems’ connectivity to NYSE systems and by failing to have adequate controls over the entry and cancellation of MOC/LOC orders.

The NYSE imposed a penalty of a censure and $175,000 fine.  Lehman Brothers consented to the penalty.

Morgan Stanley & Co. Incorporated of New York City, a member firm, consented without admitting or denying guilt to findings of a special reserve bank account deficiency and related supervisory violations.

• An NYSE hearing panel found that, on July 29-31, 2002 and contrary to firm policy, the firm’s treasury department used customers’ margined securities as collateral for intra-corporate cash management loans.  The panel found that the firm’s controller’s department, responsible for reserve account calculations, was unaware of the use of these customer securities and did not include them in its calculations.  The hearing panel found that, as a result, on computation day, July 31, 2002, there was a deficiency in the account in the amount of $455 million.

• The panel found that there were supervisory failures, including a lack of written procedures regarding the use of customers’ margined securities as collateral for intra-corporate loans and system inadequacies related to calculations for firm loans and the reserve account.

The NYSE imposed a penalty of a censure and $140,000 fine.  Morgan Stanley consented to the penalty.

Sterne, Agee & Leach, Inc. of Birmingham, Ala., a member firm, consented without admitting or denying guilt to findings of operational, reporting and supervisory deficiencies.

• An NYSE hearing panel found that, during the period 2001-2002, the firm made a deposit in its special reserve bank account for the exclusive benefit of customers that resulted in an overdraft in the firm’s operating account.  The panel found that the firm also filed an inaccurate FOCUS report with the Exchange and failed to submit to the Exchange accurate account-type indicators (or trading data elements) concerning various transactions.

• The hearing panel found that the firm failed to: reasonably supervise the conversion and business activities of an acquired branch office, including failing to adequately identify to the public the firm’s ownership of the office; employ a qualified person acceptable to the Exchange as branch office manager in the office; institute and maintain adequate policies and procedures regarding the processing of letters of authorization at the branch office, including failing to require the branch office manager or other supervisory employee to review and approve all letters of authorization; give timely supervisory approval to new customer account documents; and failed to review and approve a registered representative’s communications with the public.

The NYSE imposed a penalty of a censure and $80,000 fine.  Sterne Agree consented to the penalty.

David Memmott of New York City, a registered representative and managing director in charge of the firm’s block trading desk, consented without admitting or denying guilt to findings that he caused transactions to be effected that had the effect of artificially influencing the price of the common stock of AES Corporation, an NYSE-listed security.

• An NYSE hearing panel found that on April 4, 2002 Memmott approved the facilitation by the firm of a customer’s sale of approximately 4.8 million shares of the stock at $9 per share, which price was approximately five cents above the prevailing market.  The panel found that subsequent to the customer facilitation, as the price of the stock began to decline, Memmott directed his trader to buy the stock at a limit price of $9 per share.  The hearing panel found that the multiple buy orders entered by the trader via the SuperDOT^® system with limit prices of $9 per share had the effect of artificially influencing the price of the stock.

[A disciplinary proceeding has been initiated by the NYSE Division of Enforcement and is currently pending with respect to the trader’s misconduct.]

The NYSE imposed a penalty of a censure, six-week suspension, a $100,000 fine and a requirement that he testify in connection with any disciplinary proceedings involving related matters.  Memmott consented to the penalty.

Firm Official Disciplined for Selling Stock While in Possession of Material Non-Public Information

Walter Fiel McLallen, IV of New York City, a managing director in the high-yield leveraged finance group of his member-firm employer, consented without admitting or denying guilt to findings that he sold shares of the common stock of Hayes Lemmerz International, Inc., a security that was formerly listed on the NYSE, in two accounts over which he had control when he was in possession of material non-public information regarding the issuer.

• An NYSE hearing panel found that, on Aug. 23-24, 2001, McLallen sold 9,000 shares of the stock in accounts he controlled for almost $44,000 while he was in possession of material non-public information that the company might have to restate its financial statements as a result of a potential accounting error.The panel found that, thereafter, the company publicly announced a significant downward adjustment to some of its financial statements.The hearing panel found that by selling his shares in August, McLallen avoided losses of approximately $28,000.

• The panel found that, subsequently, when questioned by the firm regarding his sales of these shares, McLallen made an omission of a material fact by failing to disclose to the firm all of the facts relating to his recent dealings with the issuer.

The NYSE imposed a penalty of a censure, six-month bar and a $25,000 fine.  McLallen consented to the penalty.

Kenneth M. Cohen of Yardley, Penn., a former registered representative, consented without admitting or denying guilt to findings of sales practice misconduct in seven customer accounts and certain books-and-records violations.

• An NYSE hearing panel found that, during the period January 1998-February 2001, Cohen committed sales practice and other violations in the accounts of at least seven customers.  The panel found that: with respect to one customer’s account, he effected unsuitable equity transactions, used margin unsuitably, misrepresented the risks associated with certain securities he had recommended, effected excessive transactions and mismarked order tickets relating to transactions he effected in that customer’s account; with respect to a second customer’s account, he effected unsuitable equity and corporate bond and/or note transactions, used margin unsuitably, misrepresented the risks associated with certain securities he had recommended and mismarked order tickets relating to transactions he effected; and, with respect to a third customer’s account, he effected unsuitable equity and corporate bond and/or note transactions, misrepresented the risks associated with certain securities he had recommended, mismarked order tickets relating to transactions he effected and caused the customer to provide the firm with non-solicitation letters for transactions that he had, in fact, solicited.

• The hearing panel found that, with respect to four additional customer accounts, Cohen effected unsuitable corporate bond and/or note transactions and misrepresented the risks associated with certain securities transactions he had recommended.

The NYSE imposed a penalty of a censure and four-year bar.  Cohen consented to the penalty.

Robert Neal Imhoff of Salt Lake City, Utah, a former registered representative, consented without admitting or denying guilt to findings that he engaged in sales practice misconduct in nine customer accounts.

• An NYSE hearing panel found that, during the periods November 1999-August 2000 and April-June 2001, Imhoff effected approximately 550 discretionary transactions in the accounts of nine customers with their oral but not written authorization.  The panel found that he also effected transactions that were unsuitable and excessive in the accounts of two of the nine customers and shared in the losses of a third.

The NYSE imposed a penalty of a censure and three-year bar.  Imhoff consented to the penalty.

Richard H. Levy of New York City, a registered representative, managing director of the firm and the head trader of the firm’s block trading desk, consented without admitting or denying guilt to findings that he engaged in sales practice misconduct in four customer accounts.

• An NYSE hearing panel found that, during the period July 19-24, 2001, Levy convinced three institutional customers and one firm proprietary trader to accept losing transactions that he had effected without legitimate orders.   The panel found that, by accepting the trades, the four customers suffered an immediate loss of approximately $270,000.  The panel also found that, when Levy effected the trades, he had failed to complete order tickets and then completed order tickets after trade execution for the accounts of the four customers who agreed to accept the trades.

• The hearing panel found that, thereafter, Levy attempted to share in the losses in the accounts of the institutional customers by telling them that he would “make them whole.” 

The NYSE imposed a penalty of a censure and eight-month bar.  Levy consented to the penalty.

Sandro Corio Flores of Miami, Fla., a former registered representative, consented without admitting or denying guilt to findings that he engaged in sales practice misconduct in the accounts of eight customers and that he failed to cooperate in an investigation by the NYSE Division of Enforcement.

• An NYSE hearing panel found that, during 2000 and while employed at his member-firm employer’s Sao Palo, Brazil office, Flores caused confirmations and account statements of the customers to be sent to a Coral Gables, Fla. post office box under his control without the knowledge of his member-firm employer, and at various times retrieved and destroyed the mail sent to these customers.  The panel also found that Flores caused his member-firm employer’s books and records to be inaccurate and failed to comply with a request by the Exchange for testimony.

The NYSE imposed a penalty of a censure, a bar until he complies with the Exchange’s request and an additional six-month bar from the time he fully complies.  Flores consented to the penalty.

William Matthew Lelich of Birmingham, Mich., a former registered representative, consented without admitting or denying guilt to findings that he engaged in sales practice misconduct in eight customer accounts.

• An NYSE hearing panel found that, from April 1999-January 2001, Lelich exercised discretionary power in the accounts of eight customers without first obtaining the written authorization of the customers and without first notifying and obtaining the approval of another person at the firm with authority to approve the handling of such accounts.  The panel also found that Lelich accepted orders in the account of two of the customers from a third party without obtaining the written authorization of the customers.

The NYSE imposed a penalty of a censure and five-month bar.  Lelich consented to the penalty.

Douglas Smith of Hoover, Ala., a registered representative, consented without admitting or denying guilt to findings that he engaged in sales practice misconduct in four customer accounts.

• An NYSE hearing panel found that, during 1997-1998, Smith effected numerous transactions in high-yield, below-investment-grade bonds in the accounts of four elderly customers that were unsuitable in view of the customers’ ages, investment experience, income and financial resources.

The NYSE imposed a penalty of a censure and two-month bar.  Smith consented to the penalty.

Edwin L. Dunn of Palm Harbor, Fla., a registered representative, was found guilty of engaging in sales practice misconduct in four customer accounts.

• An NYSE hearing panel found that, during 1998-1999, Dunn omitted to disclose to the customers the fact that they were buying 20-year maturity CDs.  The panel found that, while the customers had different levels of knowledge about the interest terms and the terminology of callable CDs, all of them were unaware of the 20-year term.  The hearing panel found that, although there was adequate written disclosure of the terms, Dunn needed to do more given that the customers were relatively unsophisticated investors, purchasing a product with significant differences from their previous CDs.

The NYSE imposed a penalty on Dunn of a censure and two-month suspension.

Qunaco Mitchell of Flint, Mich., a former non-registered employee of a member firm, consented without admitting or denying guilt to a finding that she engaged in acts detrimental to the interest or welfare of the Exchange.

• An NYSE hearing panel found that, in January 2003, Mitchell was convicted of one felony count of attempted embezzlement from the firm of over $60,000 in customer funds.

The NYSE imposed a penalty of a censure and permanent bar.  Mitchell consented to the penalty.

Rhonda S. Whiteaker of Dayton, Ohio, a former non-registered employee of a member firm, consented without admitting or denying guilt to findings that she misappropriated funds belonging to her member-firm employer.

• An NYSE hearing panel found that, in December 2001, Whiteaker misappropriated funds from her member-firm employer by, among other things, signing the branch operations manager’s name to a check issued by the firm made payable to cash in the amount of $400, without the manager’s authorization or consent.

The NYSE imposed a penalty of a censure and permanent bar.  Whiteaker consented to the penalty.

Patrick Michael Kelly of Rancho Palos Verdes, Calif., a former registered representative, consented without admitting or denying guilt to findings that he failed to disclose his criminal history to his member-firm employer and to the Exchange.

• An NYSE hearing panel found that, during the period September 2001-March 2002, Kelly failed to report to his member-firm employer his arrest and convictions in 2001 and 2002 for willfully identifying himself to a peace officer upon detention as a fictitious person, a misdemeanor, and for a felonious violation of the California health and safety code, respectively.  The convictions subjected Kelly to a statutory disqualification until January 14, 2012.  The panel found that Kelly also made misstatements about his criminal history on amended Forms U-4 filed with the Exchange.

The NYSE imposed a penalty of a censure and ten-year bar.  Kelly consented to the penalty.

Sandra Marie Butay of Medford, Ore., a former non-registered employee of a member firm, consented without admitting or denying guilt to a finding that she failed to disclose her criminal history to her member-firm employer.

• An NYSE hearing panel found that Butay failed to disclose, on an employment application submitted to her member-firm employer, a 1993 felony conviction for unlawfully obtaining food stamps, which conviction subjected her to a statutory disqualification.

The NYSE imposed a penalty of a censure and two-year bar.  Butay consented to the penalty.

Donna Marie Goggans of Woodside, N.Y., a former non-registered employee of a member firm, was found guilty of failing to cooperate in an investigation by the NYSE Division of Enforcement.

• An NYSE hearing panel found that Goggans failed to comply with requests by the Exchange for information.

The NYSE imposed a penalty on Goggans of a censure and permanent bar.

Artiece Lanier Brown, Sr. of Jersey City, N.J., a former non-registered employee of a member firm, was found guilty of failing to cooperate in an investigation by the NYSE Division of Enforcement.

• An NYSE hearing panel found that Brown failed to provide a written explanation concerning matters that occurred prior to the termination of his employment as a non-registered employee of a member firm.

The NYSE imposed a penalty on Brown of a censure and bar until he complies with the Exchange’s requests, which will become a permanent bar if he does not comply within three months.

Thomas E. Simpson, Jr. of Teaneck, N.J., a former non-registered employee of a member firm, was found guilty of failing to cooperate in an investigation by the NYSE Division of Enforcement.

• An NYSE hearing panel found that Simpson failed to comply with a request by the Exchange to submit his books and records (including books and records as to which he had access or control).

The NYSE imposed a penalty of a censure and bar until he complies with the Exchange’s request, which will become a permanent bar if he does not comply within three months.

Karen Suzanne Friedman of Huntington Beach, Calif., a former registered representative, was found guilty of failing to cooperate in an investigation by the NYSE Division of Enforcement.

• An NYSE hearing panel found that Friedman failed to comply with or respond to requests for information and testimony concerning matters that occurred prior to the termination of her employment with a member firm.

The NYSE imposed a penalty on Friedman of a censure and bar until she complies with the Exchange’s requests.             

Yvonne M. Smith of Winter Springs, Fla., a former non-registered employee of a member firm, was found guilty of failing to cooperate in an investigation by the NYSE Division of Enforcement.

• An NYSE hearing panel found that Smith failed to comply with an Exchange request for testimony.

The NYSE imposed a penalty on Smith of a censure and bar until she complies with the Exchange’s request.