-------------------- BEGINNING OF PAGE #1 ------------------- UNITED STATES OF AMERICA Before the SECURITIES AND EXCHANGE COMMISSION SECURITIES EXCHANGE ACT OF 1934 Release No. 36408 / October 23, 1995 INVESTMENT ADVISERS ACT OF 1940 Release No. 1531 / October 23, 1995 ADMINISTRATIVE PROCEEDING File No. 3-8790 ------------------------------ : IN THE MATTER OF : ORDER MAKING FINDINGS AND : IMPOSING REMEDIAL SANCTIONS MICHAEL H. NOVICK : and M.H. NOVICK AND COMPANY : ------------------------------ I. In connection with public administrative proceedings instituted pursuant to Sections 15(b) and 19(h) of the Securities Exchange Act of 1934 ("Exchange Act") and Sections 203(e) and 203(f) of the Investment Advisers Act of 1940 ("Advisers Act"), Respondents Michael Herbert Novick ("Novick") and M.H. Novick and Company ("Novick & Co.") have submitted an Offer of Settlement ("Offer") to the Securities and Exchange Commission ("Commission"), which the Commission has determined to accept.-[1]- Solely for the purpose of this proceeding and any other proceeding brought by or on behalf of the Commission, or in which the Commission is a party, and without admitting or denying the Commission's findings, except the findings contained in Section II. 1. through 4. below, which are admitted, and the Commission's jurisdiction, which is also admitted, Novick and Novick & Co. consent to the entry of findings and remedial sanctions set forth below. II. On the basis of this Order Instituting and the Offer submitted by Novick and Novick & Co., the Commission finds that: 1. Novick is 56 years old and a resident of Boulder, Colorado. 2. Novick was a registered representative from January 1963 until April 1990. 3. From August 1972 until April 1990, Novick was the president and owner of Novick & Co. 4. Novick & Co. was a broker-dealer and an investment adviser registered with the Commission, with its principal place of business located in Minneapolis, Minnesota. 5. In April 1990, Novick entered into a Consent Order --------- FOOTNOTES --------- -[1]- The Order Instituting Public Administrative Proceedings against Novick and Novick & Co. was issued by the Commission on August 23, 1995. -------------------- BEGINNING OF PAGE #2 ------------------- with the State of Minnesota Securities Division, based on a variety of violations, wherein he agreed to resign and surrender his Minnesota securities agent license. 6. In April 1990, Novick & Co. terminated operations after the State of Minnesota Securities Division revoked its broker-dealer license and ordered its assets placed in escrow. 7. In July 1990, Novick & Co. was expelled from NASD membership. 8. In May 1991, Novick & Co's broker-dealer registration with the Commission was cancelled. 9. On September 22, 1992, the National Association of Securities Dealers, Inc. ("NASD") censured, fined, and barred Novick from association with any NASD member based on its findings that Novick charged excessive mark-ups on certain common stock sales. On September 2, 1994, the Commission remanded the case for a clarification of the factors the NASD considered in imposing a sanction against Novick, but sustained the NASD's findings of serious violations committed by Novick. 10. On July 31, 1995, the U.S. District Court for the District of Minnesota permanently enjoined Novick, pursuant to his consent, without admitting or denying the allegations against him, from violating Section 17(a) of the Securities Act of 1933 ("Securities Act") and Section 10(b) of the Exchange Act and Rule 10b-5 thereunder. SEC v. Novick, Civil Action No. 3-93-782. 11. From at least June 1989 through approximately April 1990, Novick engaged in unauthorized trading of securities with a market value in excess of $1,000,000 in at least four customer accounts; including unauthorized options trading in at least three of his customers' accounts. 12. In or about November 1989, Novick fraudulently induced one of his customers to engage in a series of options trades by misrepresenting that prior options trades recommended by Novick to the customer had been profitable, when in fact they had lost money. 13. When customers for whose accounts Novick had engaged in unauthorized trading called to complain about these transactions, Novick made affirmative misrepresentations to these customers in order to conceal his misconduct. Novick falsely represented to these customers that the unauthorized transactions in stocks and options appearing on their account statements were due to clerical errors and other mistakes made by, among others, Novick & Co.'s clearing agent. 14. In January and February 1990, a client asked Novick to put $225,000 worth of stock certificates into street name and then place the shares in his brokerage account in order to facilitate their future sale. Novick never put the certificates into street name. Instead, on or about March 22, 1990, Novick fraudulently pledged these certificates to another client as purported security for an investment. 15. As a result of the foregoing conduct, Novick willfully violated Section 17(a) of the Securities Act and Section 10(b) of the Exchange Act and Rule 10b-5 thereunder. IV. -------------------- BEGINNING OF PAGE #3 ------------------- In view of the foregoing, the Commission deems it in the public interest to impose the sanctions specified in the Offer. Accordingly, IT IS HEREBY ORDERED that, effective immediately: Novick is barred from association with any broker, dealer, municipal securities dealer, investment adviser or investment company. Novick & Co.'s registration as an investment adviser is revoked. For the Commission, by its Secretary, pursuant to delegated authority. Jonathan G. Katz Secretary