UNITED STATES OF AMERICA before the SECURITIES AND EXCHANGE COMMISSION Securities Exchange Act of 1934 Release No. 37226 / May 20, 1996 Administrative Proceeding File No. 3-8919 ------------------------------- : In the Matter of : : ORDER MAKING FINDINGS AND : IMPOSING REMEDIAL SANCTIONS Orlando Joseph Jett, and : AGAINST MELVIN MULLIN Melvin Mullin : : : ------------------------------- I. On January 9, 1996, the Securities and Exchange Commission ("Commission") instituted a public administrative proceeding, pursuant to Sections 15(b) and 19(h) of the Securities Exchange Act of 1934 ("Exchange Act"), against Melvin Mullin ("Mullin") to determine whether Mullin failed reasonably to supervise a registered representative ("RR"), within the meaning of Section 15(b)(4)(E) of the Exchange Act. Mullin has submitted an Offer of Settlement ("Offer"), which the Commission has determined to accept. Solely for the purpose of these proceedings, and any other proceeding brought by or on behalf of the Commission, or in which the Commission is a party, without admitting or denying the findings contained in this Order Making Findings and Imposing Remedial Sanctions ("Order"), except as to jurisdiction, which Mullin admits, Mullin consents to the issuance of this Order and to the findings and remedial sanctions set forth below. II. On the basis of this Order and the Offer, the Commission finds that:-[1]- ---------FOOTNOTES---------- -[1]-The findings contained herein are made pursuant to Mullin's Offer of Settlement and are not binding on any other (continued...) ==========================================START OF PAGE 2====== 1. Mullin was a RR associated with a certain registered broker-dealer ("broker-dealer") from approximately 1988 until approximately August 1994. He was in charge of the Government Desk at that broker-dealer until approximately February 1993. During the period from approximately July 1991 until approximately February 1993, Mullin was the direct supervisor of a RR who committed the violations of the federal securities laws described in paragraphs II.3. through II.7. below. 2. A RR who served as a trader in the Fixed Income Division ("FID") on the broker-dealer's Government Bond Desk was associated with the broker-dealer from approximately July 1991 until April 17, 1994, when the RR was terminated by the broker-dealer. 3. During the period from at least approximately November 1991 through April 17, 1994, the RR described in paragraph III.C.2 above willfully violated Section 17(a) of the Securities Act of 1933 ("Securities Act") and Section 10(b) of the Exchange Act and Rule 10b-5 thereunder by, in the offer or sale of securities, or in connection with the purchase or sale of securities, by the use of the means or instruments or instrumentalities of transportation or communication in interstate commerce or by the use of the mails, directly or indirectly, employing devices, schemes or artifices to defraud; obtaining money or property by means of, or otherwise making, untrue statements of material facts or omitting 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; or engaging in acts, transactions, practices or courses of business which operated or would operate as a fraud or deceit upon the purchaser. As part of that conduct, the RR engaged in a fraudulent scheme to falsely inflate the profits from his trading of government bonds and their constituent parts. He accomplished this by, among other things, causing entries to be made on the broker-dealer's trading and accounting systems that were recorded by the broker-dealer as profitable trades, when, in fact, these entries ---------FOOTNOTES---------- -[1]-(...continued) person or entity named as a respondent in this or any other proceeding. ==========================================START OF PAGE 3====== did not involve real trades with actual counterparties and, thus, lacked any economic significance. In addition, the RR misrepresented and omitted to state material facts to the broker- dealer's management and other employees in order to conceal his scheme. In 1992, the entries that the RR caused to be made onto the broker-dealer's trading and accounting systems generated approximately $41 million of fictitious profits, which concealed approximately $7 million of actual trading losses in that same year. 4. During the period from approximately November 1991 through approximately March 31, 1994, the broker- dealer willfully violated Section 17(a) of the Exchange Act and Rules 17a-3(a)(1), 17a-3(a)(2) and 17a-3(a)(7) thereunder in that the broker- dealer, while making use of the means and instrumentalities of interstate commerce, or of the mails, and while a registered broker or dealer, failed to make and keep current and accurate (1) transaction journals containing an itemized daily record of the above RR's purchases and sales; (2) ledgers reflecting all assets and liabilities, income and expense and capital accounts; and (3) a memorandum of each of the above RR's purchases and sales on behalf of the broker-dealer. The inaccuracies in the broker- dealer's books and records resulted from the entries made by the RR as described in paragraph II.3. above. 5. During the period from approximately November 1991 through approximately April 1994, the RR described in paragraph III.C.2 above willfully aided and abetted and caused the broker-dealer's violations of Section 17(a) of the Exchange Act and Rules 17a-3(a)(1), 17a-3(a)(2) and 17a-3(a)(7) thereunder as a result of the conduct described in paragraph II.3. above. 6. During the period from approximately March 1992 through approximately March 1994, the broker- dealer filed FOCUS reports, Part I and Part IIA of Form X-17A-5, for the quarters ended March 26, 1992, June 25, 1992, September 24, 1992, December 28, 1992, March 25, 1993, June 24, 1993, September 30, 1993, December 27, 1993, and March 31, 1994, which reports were materially inaccurate and/or incomplete as a result of the conduct described in paragraph III.C.3 above. By reason of the foregoing conduct, the broker-dealer willfully ==========================================START OF PAGE 4====== violated Section 17(a) of the Exchange Act and Rule 17a-5 thereunder. 7. During the period from approximately March 1992 through approximately March 1994, the RR described in paragraph III.C.2 above willfully aided and abetted and caused the broker-dealer's violations of Section 17(a) of the Exchange Act and Rule 17a- 5 thereunder, in that, as a result of the conduct described in paragraph II.3. above, the reports described in paragraph II.6. above were inaccurate. 8. During the period from approximately November 1991 through approximately February 1993, Mullin failed reasonably to supervise the above RR within the meaning of Section 15(b)(4)(E) of the Exchange Act, with a view to preventing the RR's willful violations of Section 17(a) of the Securities Act, Section 10(b) of the Exchange Act and Rule 10b-5 thereunder; and the RR's aiding and abetting violations of Section 17(a) of the Exchange Act and Rules 17a-3(a)(1), 17a-3(a)(2), 17a-3(a)(7) and 17a-5 thereunder, in that Mullin did not monitor the RR's trading activities in sufficient detail to prevent and detect the RR's violations of the federal securities laws. For example, Mullin limited his review of the RR's trading to summary reports of the RR's profit and loss ("P&L") data, net trade date inventory and risk; Mullin did not review the RR's order tickets, the sources of the RR's P&L, the settlement dates for the RR's transactions or the counterparties with whom the RR transacted business; and Mullin failed to investigate the RR's increasing profits, which, for 1992, were approximately 100% greater than the broker-dealer's best ever profits from trading STRIPS. III. In view of the foregoing, the Commission deems it appropriate and in the public interest to impose the sanctions specified in the Offer of Settlement. ACCORDINGLY, IT IS HEREBY ORDERED that: A. Mullin be, and hereby is, suspended from association with any broker, dealer, investment company, investment adviser or municipal securities dealer, for a period of three months, effective on the second Monday after the date of the Order; ==========================================START OF PAGE 5====== B. Mullin be, and hereby is, suspended from association in a supervisory capacity with any broker, dealer, investment company, investment adviser or municipal securities dealer, for a period of three months immediately following the period of his suspension from association; C. Mullin pay a civil penalty in the amount of $25,000, pursuant to Section 21B of the Exchange Act, by transmitting it, within fifteen days after the entry of the Order, in the form of a cashier's check, certified check or U.S. postal money order, made payable to the United States Securities and Exchange Commission to the Comptroller, Securities and Exchange Commission, 450 Fifth Street, N.W., Washington, D.C. 20549, under cover of letter that identifies the respondent and the name and number of the administrative proceeding. A copy of the cover letter shall be simultaneously transmitted to Jonathan A. Gottlieb, Staff Attorney, 7 World Trade Center, New York, NY 10048; and D. Mullin comply with his undertaking to provide to the Commission, within thirty days after the end of the six month period described in paragraphs III.A. and III.B. above, an affidavit that he has complied fully with the sanctions described in paragraphs III.A. and III.B. above. By the Commission. Jonathan G. Katz Secretary