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UNITED STATES OF AMERICA
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In the Matter of
J.W. BARCLAY & CO., INC. |
: : : : : : : : : : : : : : : |
ORDER MAKING FINDINGS AND IMPOSING REMEDIAL SANCTIONS BY DEFAULT AGAINST J.W. BARCLAY & CO., INC. |
The Securities and Exchange Commission (SEC or Commission) instituted this proceeding against J.W. Barclay & Co., Inc. (Barclay) and others on April 24, 2002, pursuant to Section 8A of the Securities Act of 1933 (Securities Act) and Sections 15(b) and 21A of the Securities Exchange Act of 1934 (Exchange Act).1 Barclay filed an answer through counsel on June 5, 2002.
On February 6, 2003, Barclay's counsel filed a motion for leave to withdraw from representation. Among other things, the motion stated that Barclay "does not maintain an office since it does not conduct any business." The motion further stated that Barclay's only current address is a post office box in New Jersey. Counsel filed a supplement to his motion on February 13, 2003. He advised that no successor attorney or officer of Barclay would continue Barclay's defense, and that Barclay intended to default.
On March 4, 2003, the Division of Enforcement (Division) moved for the entry of an order making findings and imposing remedial sanctions against Barclay (March 4 Motion). Pursuant to Rule 155(a) of the Commission's Rules of Practice, 17 C.F.R. §; 201.155(a), I now grant the Division's motion.
I find that the following allegations in the OIP, dated April 24, 2002, are true as to Barclay.2
Barclay registered with the Commission as a broker and a dealer in December 1988 (Barclay Answer). Between June 1997 and December 1998, the times relevant to this proceeding, Barclay was a member of the National Association of Securities Dealers (NASD). Barclay was a privately held corporation principally owned by John A. Bruno (Bruno) and Michael J. Wills (Wills).
At the relevant times, Bruno was Barclay's president, executive officer, and majority shareholder. Wills was Barclay's vice president, managing partner, senior sales manager, and minority shareholder. The other six Respondents named in the OIP were registered representatives who were associated with Barclay at various times between 1994 and 2000. Bruno and Wills acted as supervisors at Barclay, and the registered representatives were subject to their supervision.
From June 1997 through December 1998, the registered representatives engaged in several types of misconduct in the accounts of their customers, including unauthorized trading, unsuitable trading, and churning. The registered representatives also made materially misleading statements or omissions when dealing with their customers and failed to execute sell orders or to follow other instructions from their customers.
By such misconduct, the registered representatives willfully violated Section 17(a) of the Securities Act in that they, in the offer or sale of securities, by the use of the means or instruments of transportation or communication in interstate commerce or by the use of the mails, directly or indirectly: employed devices, schemes, or artifices to defraud; obtained money or property by means of untrue statements of material fact or omitted to state material facts necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading; and engaged in transactions, practices, or courses of business which would or did operate as a fraud or deceit upon purchasers of such securities.
By such misconduct, the registered representatives also willfully violated Section 10(b) of the Exchange Act and Rule 10b-5 thereunder, in that they, in connection with the purchase or sale of securities, by use of the means or instrumentalities of interstate commerce, or by use of the mails or of the facilities of any national securities exchange, directly or indirectly: employed devices, schemes, or artifices to defraud; made untrue statements of material fact or omitted to state material facts necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading; and engaged in acts, practices, or courses of business which would or did operate as a fraud or deceit upon any person.
Barclay failed reasonably to supervise the activities of the registered representatives with a view toward detecting and/or preventing violations of the federal securities laws. Barclay instituted an inadequate supervisory system by failing to hire enough supervisors for the number of registered representatives associated with it, and by failing to establish adequate procedures designed to detect and prevent sales practice violations and securities fraud resulting from those violations. Barclay also ignored or failed to recognize red flags regarding the registered representatives' misconduct, including scores of customer complaints, the recommendations of Barclay's compliance director to discipline and/or fire certain registered representatives and to improve the firm's supervisory procedures, and examination reports and letters from the NASD concerning Barclay's supervisory personnel and procedures. Based on the foregoing, Barclay failed reasonably to supervise within the meaning of Section 15(b)(4)(E) of the Exchange Act.
The Division seeks an order revoking Barclay's registration as a broker and a dealer and imposing a $50,000 civil penalty against Barclay (March 4 Motion at 5, 11). The Division does not seek a cease-and-desist order or disgorgement of ill-gotten gains. The Division advises that Barclay's registration with the NASD has been cancelled for failure to pay fees (March 4 Motion at 6 n.2). The Division also reports that Barclay has failed to pay the $25,000 civil penalty imposed by the Commission in Stonegate Secs., Inc., 76 SEC Docket 111 (Oct. 15, 2001) (March 4 Motion at 10 n.5).3
On the basis of the foregoing, and on additional information submitted into the record by the Division, it is appropriate in the public interest to impose the sanctions sought by the Division.
Pursuant to Section 15(b)(4) of the Securities Exchange Act of 1934, IT IS ORDERED THAT Barclay's registration as a broker and a dealer is revoked; and
Pursuant to Section 21B of the Securities Exchange Act of 1934, IT IS FURTHER ORDERED THAT Barclay shall pay a civil penalty of $50,000 within twenty-one days of the date of issuance of this Order.
Such payment shall be made by United States postal money order, certified check, bank cashier's check, or bank money order and made payable to the Securities and Exchange Commission. Payment, and a cover letter identifying the Respondent and the proceeding designation, should be delivered to the Office of Financial Management, Securities and Exchange Commission, Operations Center, 6432 General Green Way, Stop 0-3, Alexandria, Virginia 22312. A copy of the cover letter and the money order or check should be sent to Kathryn A. Pyszka, Senior Trial Counsel, Securities and Exchange Commission, Midwest Regional Office, 175 West Jackson Blvd., Suite 900, Chicago, Illinois 60604.
__________________________________
James T. Kelly
Administrative Law Judge
1 Although the Commission invoked Section 21A of the Exchange Act in the caption of the Order Instituting Proceedings (OIP) and in OIP ¶ III.B, that provision is limited to civil penalty sanctions in federal court for insider trading violations. Section 21B of the Exchange Act governs civil penalty sanctions in administrative proceedings, and I find that it was properly invoked against Barclay in OIP ¶ III.E. Section 21C of the Exchange Act governs cease-and-desist order sanctions in administrative proceedings. This OIP did not seek a cease-and-desist order against Barclay (OIP ¶ III.B).
2 The findings in this Order are not binding on any other persons in this proceeding or on persons in any other proceeding.
3 Barclay filed audited annual reports with the Commission on Form X-17A-5 for the years ending December 31, 1999, and December 31, 2000, but it has not filed any audited annual reports since then (official notice of Commission's files pursuant to Rule 323 of the Commission's Rules of Practice, 17 C.F.R. §; 201.323). The notes to the independent auditor's report in Barclay's 2000 annual report state that the firm ceased operations and closed its New York City office in December 2000 because it was in a net capital deficit condition. Barclay's corporate charter was administratively dissolved by the Florida Department of State, Division of Corporations, in September 2001, for failure to file an annual report (official notice of Florida records pursuant to Rule 323 of the Commission's Rules of Practice). OIP ¶ II.A.1 recites that Barclay "is headquartered in New Jersey." That is literally true. However, Barclay's current "headquarters" consists of a New Jersey post office box on which a year's lease was prepaid. The lease expires in March 2003 (Feb. 13, 2003, Supplement to Motion For Leave to Withdraw as Counsel). The likelihood that the Commission will be able to turn any civil penalty sanction into cash should be considered against this background.
http://www.sec.gov/litigation/admin/33-8203.htm
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