INITIAL DECISION RELEASE NO. 126 ADMINISTRATIVE PROCEEDING FILE NO. 3-8699 UNITED STATES OF AMERICA Before the SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 _______________________________ : In the Matter of : : FIRST JERSEY SECURITIES, INC. : INITIAL DECISION and ROBERT E. BRENNAN : May 29, 1998 ______________________________: APPEARANCES: Mark A. Kreitman, Judith R. Starr, and Christian J. Mixter for the Division of Enforcement, Securities and Exchange Commission David M. Schraver for Respondent Robert E. Brennan BEFORE: Brenda P. Murray, Chief Administrative Law Judge I. Introduction and Procedural History On May 19, 1995, the Securities and Exchange Commission ( Commission ) issued an Order Instituting Proceedings ( OIP ) pursuant to Sections 15(b) and 19(h) of the Securities Exchange Act of 1934 ( Exchange Act ) based on the same allegations that were the basis for the civil action it had initiated against these Respondents in 1985. See SEC v. First Jersey Securities, Inc. and Robert E. Brennan, No. 85 Civ. 8585 (S.D.N.Y.). The OIP alleges that First Jersey Securities, Inc. ( First Jersey ), at the time a registered broker-dealer, and its owner, Robert E. Brennan, engaged in a massive fraud in violation of several provisions of the federal securities laws. Specifically, the OIP alleges that from November 1982 through at least February 15, 1985: i) First Jersey and Mr. Brennan willfully violated Section 17(a) of the Securities Act of 1933 ( Securities Act ); ii) Mr. Brennan willfully aided, abetted, counseled, commanded, induced, or procured violations by First Jersey of Section 17(a) of the Securities Act, and he failed reasonably to supervise First Jersey with a view to preventing its violations of Section 17(a); iii) First Jersey and Mr. Brennan willfully violated Section 10(b) of the Exchange Act and Rule 10b-5 thereunder; iv) Mr. Brennan willfully aided, abetted, counseled, commanded, induced, or procured violations by First Jersey of Section 10(b) of the Exchange Act and Rule 10b-5 thereunder, and he failed reasonably to supervise First Jersey with a view to preventing its violations of Section 10(b) and Rule 10b-5; v) First Jersey willfully violated Section 15(c) of the Exchange Act and Rule 15c1-2 thereunder; and vi) Mr. Brennan willfully aided, abetted, counseled, commanded, induced, or procured violations by ======END OF PAGE 1====== First Jersey of Section 15(c) of the Exchange Act and Rule 15c1-2 thereunder, and he failed reasonably to supervise First Jersey with a view to preventing its violations of Section 15(c) and Rule 15c1-2.<(1)> The Commission dismissed the proceeding against First Jersey in 1996.<(2)> Following a forty-one day bench trial in 1994, Judge Richard Owen issued a decision on June 19, 1995, which, based on the findings discussed later, permanently restrained and enjoined First Jersey and Mr. Brennan from violating Section 17(a) of the Securities Act, Section 10(b) of the Exchange Act, and Rule 10b-5 thereunder. SEC v. First Jersey Securities, Inc. and Robert E. Brennan, 890 F. Supp. 1185 (S.D.N.Y 1995) [hereinafter First Jersey I]. With his decision, Judge Owen signed detailed findings of fact submitted by the plaintiff, having found them clearly proven. See First Jersey I, 890 F. Supp. at 1213 n.39.<(3)> On September 1, 1995, the Commission issued an Amended OIP, adding as a cause of action in this proceeding the judgment in First Jersey I. On October 5, 1995, I postponed the scheduled hearing indefinitely based on the parties agreement set out in a proposed Consent Order to Stay Administrative Proceedings ( Consent Order ) which they submitted. The Consent Order provided that a hearing in this administrative proceeding would be stayed pending full and final resolution of Mr. Brennan s appeal of First Jersey I. See First Jersey Securities, Inc., Order Accepting Consent Agreement, Denying Motion to Strike, and Postponing Hearing, 1995 SEC LEXIS 3017 (Oct. 5, 1995).<(4)> The Consent Order is attached as an exhibit to the Joint Motion to Certify to the Commission Proposed Consent Order Staying Administrative Proceeding filed on October 2, 1995. On December 10, 1996, the United States Court of Appeals for the Second Circuit ruled against First Jersey and Mr. Brennan in their appeal of First Jersey I. SEC v. First Jersey Securities, Inc., 101 F.3d 1450 (2d Cir. 1996) [hereinafter First Jersey II]. The appellate court affirmed Judge Owen s findings of: i) securities fraud violations that included excessive markups and failing to disclose to customers the nature of the market and the firm s control of it; ii) Mr. Brennan s liability as a <(1)> The OIP also specifies five actions by the courts and the National Association of Securities Dealers ( NASD ) between 1984 and 1990 which name the Respondents or related persons as defendants or responsible persons. <(2)> See First Jersey Securities, Inc., Opinion of the Commission, 62 SEC Docket 37 (May 30, 1996). <(3)> The findings of fact are at 1995 U.S. Dist. LEXIS 8795 at *88. <(4)> This Order was issued on and is dated October 5, 1995. The LEXIS-NEXIS copy shows a date of November 2, 1995. In the Order, I denied the parties request for certification and ordered limited implementation of the Consent Order which provided that Mr. Brennan would not be associated with a broker or dealer during the pendency of the stay. ======END OF PAGE 2====== primary violator or control person; and iii) disgorgement. The court, however, reversed Judge Owen s decision to appoint a special agent to determine whether First Jersey engaged in additional violations. First Jersey II, 101 F.3d at 1479. On October 6, 1997, the Supreme Court denied First Jersey s and Mr. Brennan s petition for writ of certiorari. First Jersey Securities, Inc. v. SEC, 118 S. Ct. 57, 1997 U.S. LEXIS 4652 (1997). I called a prehearing conference on November 13, 1997, because the Supreme Court s action was the final resolution of First Jersey I which ended the stay under the terms of the Consent Order. At the prehearing, the parties indicated they did not want a hearing and I put in place a procedural schedule to resolve the outstanding issues. The evidentiary record consists of the following: i) the decision in First Jersey I; ii) Judge Owen s Detailed Findings of Fact which are attached to the decision in First Jersey I; iii) the decision in First Jersey II; and iv) pages 90 through 109 of the transcript of hearings before United States Bankruptcy Judge Kathryn C. Ferguson in In re Robert E. Brennan, Docket No. 95-35502, held on June 2, 1997, and complete transcripts of hearings before Judge Ferguson on October 15, 1997, and October 20, 1997. The parties submitted these documents in three filings: i) the Division s Notice of Record Submission, dated November 13, 1997; ii) the Respondent s Notice of Record Submission, dated December 5, 1997; and iii) the Division s Notice of Record Countersubmission, dated December 17, 1997. I denied the Division s motion to further supplement the evidentiary record with additional evidence included in its Supplemental Notice of Record Submission, dated January 7, 1998.<(5)> See First Jersey Securities, Inc., Order on Division s Motion to Enlarge the Record (Jan. 15, 1998). The Division filed its Brief on Issue of Relief on February 9, 1998, the Respondent filed its Brief in Opposition on February 27, 1998, and the Division filed its Brief in Reply on March 3, 1998. II. Issue <(5)> The Commission s present or new Rules of Practice took effect on July 24, 1995, so that the former rules apply to this proceeding. All references are to the former rules which were in effect at the time the Commission issued the initial OIP. Rule 20(a)-(b), similar to existing Rule 350, discusses the contents of the record in proceedings before an administrative law judge. Since the Division filed its Supplemental Notice and the attached additional evidence with the Commission s Office of the Secretary, it became part of the record in this proceeding. See Rule 20(a)(1); see also new Rule 350(a). According to Rule 20(b), however, [d]ocuments offered in evidence . . . but excluded by the hearing officer . . . shall not be considered part of the record. See also new Rule 350(b) ( Any document offered in evidence but excluded . . . shall not be considered part of the record. ). I did not accept the additional evidence as part of the evidentiary record and, therefore, did not consider it in making my decision. ======END OF PAGE 3====== The parties agree the only issue to be decided is whether it is in the public interest to sanction Mr. Brennan and, if so, what sanction is appropriate. See Statement of Position in Response to the Court s Order of October 20, 1997, at 3-4; November 13, 1997, Prehearing Tr. at 5-9; Division s Brief on Issue of Relief at 1, 9; Respondent s Brief in Opposition at 1. III. Findings and Conclusions<(6)> First Jersey was founded in 1974 as a discount broker-dealer specializing in the underwriting, trading, and distribution of low-priced securities or penny stocks. The vast majority of securities traded by First Jersey were sold primarily in the over-the-counter market and not listed on any national exchange. By 1985, the firm operated 32 branch offices throughout the United States from its main offices in New York, New York and Red Bank, New Jersey. It had more than 500,000 retail-customer accounts and employed approximately 1,200 salespersons or "registered representatives." As a director and the 100% owner of First Jersey, Mr. Brennan was a person associated with a broker-dealer at all relevant times. In his capacity as president, chief executive officer, and sole shareholder, Mr. Brennan controlled every aspect of First Jersey s operations. During the period 1982 through 1985, First Jersey and Mr. Brennan operated a pervasive fraud on hundreds of thousands of retail customers in violation of the federal securities laws. First Jersey I, 890 F. Supp. at 1209. First Jersey acted as the sole underwriter for new issues of securities that were sold in "units" consisting of a combination of shares of common stock and warrants that could later be redeemed for common stock. It had sales personnel in a group of branch offices first sell a particular unit and then, shortly thereafter, urge the clients who had purchased those securities to resell them to First Jersey at a slight profit to the client. The firm then split the repurchased units and sold the components separately through other branch offices to new customers, at a significantly higher total price than the firm had paid the original customer for the unit. The scheme was facilitated through the hiring and handling of the firm s sales staff. First Jersey s sales personnel typically had no prior experience in the securities business,<(7)> were given inadequate <(6)> My findings and conclusions are based on the record. I applied preponderance of the evidence as the applicable standard of proof. I have considered all proposed findings and conclusions and all contentions, and I accept those that are consistent with this decision. First Jersey I and First Jersey II contain an exhaustively detailed description of First Jersey s and Mr. Brennan s fraudulent activities. Even so, a general summary of those facts is necessary to provide a proper context for the conclusions in this decision. <(7)> Not atypical were a salesperson who had been a waiter in a restaurant, one who had been a bellman in a Playboy Club, and another who had been an employee of a convenience store. First Jersey I, 890 F. Supp. at 1188 n.4. ======END OF PAGE 4====== information about the securities they sold, and were kept in the dark about the methods of the firm s sales operations. Registered representatives spent the first two weeks of a working month "cold calling" individuals in order to identify persons who might be interested in purchasing a security recommended by the firm. In approximately the third week of the month, the branch manager informed the sales personnel that a recommendation would be forthcoming from the research department but gave no specific information about the security. The sales staff then renewed contacts with their potential customers to determine how much money a customer would be willing to invest in a First Jersey-recommended security. During the fourth week of the month, the branch manager conducted a sales meeting to disclose the name of the recommended security. Only one security was recommended to a given branch at the time, but not all of the branches received the same recommendation. The sales staff spent the remainder of the month attempting to sell only the recommended security to their clients using, almost verbatim, a scripted sales pitch. The salespersons were unaware of the firm's original underwriting of the unit or that the firm immediately split repurchased units into component securities and sold them at a price higher than the repurchase price. They were forbidden to discuss the recommendations for their branch with their counterparts at other First Jersey branches in order to prevent them from learning that some branches were buying back units cheaply while other branches were selling components from those units to other firm clients at inflated markups. In addition, the selling procedures and compensation structure at the firm made it highly unlikely that First Jersey salespersons would recommend that their customers purchase any securities other than the one currently recommended by the firm. The evidence concerned only six offerings out of the many securities that First Jersey handled. Judge Owen found that First Jersey made a profit of more than $27 million from its fraudulent sales of just three securities in 1982-83, one security in 1983, one security in 1984, and one security in 1985. First Jersey I, 890 F. Supp. at 1187-88, 1193, 1211. In operating this scheme, First Jersey and Mr. Brennan violated Section 17(a) of the Securities Act, Section 10(b) of the Exchange Act, and Rule 10b-5 because they deliberately used fraudulent devices in the offer, purchase, and sale of securities. Specifically, First Jersey and Mr. Brennan withheld material information from customers and made excessive markups in the prices of the unbundled securities. Judge Owen concluded that: defendants conduct with respect to the sales and resales of securities to First Jersey s customers, as described above, violated Section 17(a) of the Securities Act . . . and Section 10(b) of the . . . Exchange Act . . . and Rule 10b-5 thereunder, . . . and constituted a massive and continuing fraud on its customers, founded on the use of fraudulent devices in the offer, purchase, and sale of securities. The whole point of the scheme was to leave both the customers selling securities back to it (usually units ) and the customers purchasing securities from it (usually unit components), completely ignorant of the way in which First Jersey had in all other respects dealt in those securities, and as to the sales of the components, First Jersey s salesmen knew almost nothing about the companies, and knew they were selling to buyers who knew even less. Particularly in a ======END OF PAGE 5====== factual context where First Jersey dominated and controlled the markets for the respective securities, this is unquestionably securities fraud under decisions that go back over fifty years. Id. at 1195. He also found that Mr. Brennan was personally and primarily responsible for the securities law violations: The proof at trial showed plainly that Brennan was a hands- on manager who was intimately involved in the operations of First Jersey, including all significant decisions regarding the firm s underwriting, retail sales and trading activities. Brennan signed every one of the underwriting agreements at issue in this case and admitted that he typically participated in the key decision to split units into their component securities. . . . . Thus, the evidence compels the conclusion than that Brennan is primarily liable with First Jersey for the securities violations in this case. Id. at 1201. IV. Public Interest Mr. Brennan contends that: i) he should be permanently barred from being associated with a broker or dealer as specified in the Consent Order; ii) the Commission cannot legally impose a collateral bar or penny stock bar; and iii) even if the Commission could impose a collateral bar or a penny stock bar, it should not do so because they are not warranted. See Respondent s Brief in Opposition. The Division contends that: i) the terms of the Consent Order, as interpreted in my Order Accepting Consent Agreement, were in the nature of an interim stay and not a final resolution; ii) I am not bound by the agreement of the parties without Commission approval of the agreement; iii) the interim consent order did not resolve the issue of what relief the public interest requires in light of the decision in First Jersey I; iv) the public interest warrants a collateral bar and penny stock bar; and v) such a sanction may legally be imposed in this case. See Division s Brief on Issue of Relief; Division s Brief in Reply. A. The Consent Order The first issue to be resolved is whether the terms of the Consent Order are binding and should be enforced. The Division changed its position from the one it took in the Consent Order because of the Commission s decision in Meyer Blinder, 65 SEC Docket 1970 (Oct. 1, 1997). In view of that decision, it will not now recommend that the Commission enter a final order in this matter that does not include a full collateral bar.<(8)> <(8)> The Division now requests that Mr. Brennan be permanently barred from association with any broker, dealer, member of a (continued...) ======END OF PAGE 6====== I reject Mr. Brennan s position that I am bound by the following terms of the Consent Order: If the district court s judgment in [First Jersey I] is finally affirmed insofar as it holds that Brennan violated the antifraud provisions of the federal securities laws and he is enjoined from violating any of such provisions in the future, then Brennan consents to the entry of an order permanently barring him from associating with a broker or dealer. I reach this conclusion for several reasons. Rule 8(a) outlined the appropriate procedures for seeking and obtaining Commission approval for the resolution of an administrative proceeding by agreement or settlement of the parties.<(9)> There was no provision in Rule 8(a) that authorized an administrative law judge to accept, approve, or enforce an offer of settlement. To the contrary, Rule 8(a)(3) explicitly reserved such powers with the Commission: Final acceptance by the Commission of any offer of settlement will be only by its Findings and Opinion issued in the proceedings. <(10)> The parties never applied to the Commission pursuant to the procedures outlined in Rule 8(a). Instead, they asked me to certify the Consent Order to the Commission and when I denied their request and ordered the terms of Consent Order to take effect, they did not present their proposed Consent Order to the Commission as an offer of settlement. In addition, in my Order Accepting Consent Agreement, I stated: This Consent Order reflects an agreement of the parties which is in the nature of a temporary stay, not a final resolution of the proceeding by consent or settlement. It postpones final resolution of issues the Commission set for hearing until other events occur. . . . By the terms of the Consent Order, Mr. Brennan has agreed not to be associated with a broker or dealer during the pendency of the stay. The language I used is unambiguous and reflected my intent to postpone this administrative proceeding until final resolution of the parallel civil matter. When that occurred, I expected that this administrative proceeding would proceed to final resolution of the issues the Commission set for hearing. The parties again could have made an application to the <(8)>(...continued) national securities exchange or registered securities association, investment adviser, investment company, or municipal securities dealer and from participating in any offering of penny stock. Such a sanction, where the bar sought is industry-wide, is referred to as a collateral bar. <(9)> Rule 240 of the Commission s new Rules of Practice discusses procedures for proposing and approving offers of settlement and is similar to former Rule 8(a). <(10)> New Rule 240 contains similar language: Final acceptance of any offer of settlement will occur only upon the issuance of findings and an order by the Commission. ======END OF PAGE 7====== Commission proffering a proposed offer of settlement. They declined to do so. A second reason for my determination is that the Commission directed in the OIP and the amended OIP that a public proceeding would be instituted and a hearing would be held before an administrative law judge to determine whether the allegations in the OIPs were true, to afford Respondents an opportunity to establish any defenses, and to determine what, if any, remedial action is appropriate pursuant to Sections 15(b) and 19(h) of the Exchange Act. Respondent declined his opportunity for a hearing. November 13, 1997, Prehearing Conference Tr. at 5-6. It is customary for the Division at the conclusion of the hearing or in its initial brief to recommend a sanction and for the Respondent to reply to the Division s recommendation. The presiding judge is not bound by the positions of the parties. The presiding administrative law judge in this proceeding should have the same ability to decide what sanction, if any, is in the public interest. Finally, there is no indication that Mr. Brennan was caught by surprise or that his ability to defend himself has been damaged by the Division s call for a collateral bar after it agreed to the terms of the Consent Order. At the prehearing on November 13, 1997, Mr. Brennan rejected the Division s suggestion that a hearing be held on the collateral bar issue. Id. B. Sanction Determining what sanction, if any, is appropriate in the public interest requires consideration of: the egregiousness of the defendant's actions, the isolated or recurrent nature of the infraction, the degree of scienter involved, the sincerity of the defendant's assurances against future violations, the defendant's recognition of the wrongful nature of his conduct, and the likelihood that the defendant's occupation will present opportunities for future violations. Steadman v. SEC, 603 F.2d 1126, 1140 (5th Cir. 1979), aff'd on other grounds, 450 U.S. 91 (1981). The severity of a sanction depends on the facts of each case and the value of the sanction in preventing a recurrence. Berko v. SEC, 316 F.2d 137, 141 (2d Cir. 1963); Richard C. Spangler, Inc., 46 S.E.C. 238, 254 n.67 (1976); Leo Glassman, 46 S.E.C. 209, 211-12 (1975). Judge Owen considered most of the Steadman criteria in First Jersey I and, based on his findings of fact and conclusions of law, enjoined Mr. Brennan from violating Section 17(a) of the Securities Act, Section 10(b) of the Exchange Act, and Rule 10b-5 thereunder, and ordered First Jersey and Mr. Brennan jointly and severally to disgorge $22,288,099, plus $52,689,894 in prejudgment interest. First Jersey I, 890 F. Supp. at 1209- 12; First Jersey II, 101 F.3d at 1476. Judge Owen determined that the Commission had overwhelmingly proven that First Jersey and Mr. Brennan had acted with scienter in that they deliberately used fraudulent devices in violation of the antifraud provisions of the securities statutes. First Jersey I, 890 F. Supp. at 1209. In addition, he determined that First ======END OF PAGE 8====== Jersey and Mr. Brennan acted with full knowledge of their illegal activity: Defendants First Jersey s and Brennan s conduct, was entirely purposeful. It was planned this way. This is clear not only from the patterned and repeated format of the trading, but also from the simple programmed structure of First Jersey s marketing system. Defendants orchestrated every facet of First Jersey s branch office network to ensure that the firm s underwritings and other low-priced stock recommendations were sold when they wanted - where they wanted - at prices determined not by market forces but by First Jersey itself. Its salesmen themselves, with minimal information and the incentive of earning as much as ten percent (plus a five percent managers override) on a customer s investment dollar, were accordingly able to sell to the firm s customers securities at illegal mark-ups up to as much as 150 percent. Id. at 1195. Judge Owen found that First Jersey and Mr. Brennan wilfully and deliberately violated established law forbidding excessive markups as well. Id. at 1197. Judge Owen concluded that, [o]n the clear evidence in this case, defendants repeated violations of the securities laws were flagrant and deliberate, as opposed to merely technical in nature. Id. at 1210. Judge Owen found Mr. Brennan to be completely without remorse for the violations proven in this case. Id. at 1210. Judge Owen found that it is highly likely that future violations might occur given that Mr. Brennan and his colleagues have continued to carry on business activities in the securities industry over the years, offending various federal and state securities laws, and that Mr. Brennan is in a position to do so in the future.<(11)> Id. Mr. Brennan did not offer any evidence to mitigate the damning findings in First Jersey I. C. Conclusion The evidence is that Mr. Brennan has compiled a record in the securities industry that is almost unmatched for illegality and blatant defiance of established norms of honesty and fair dealing. Moreover, Mr. Brennan did not acknowledge any wrongdoing when he filed his brief in this proceeding in February 1998, despite adverse rulings by courts at three levels. At the trial before Judge Owen, Mr. Brennan complained that the action was rooted in a malice and venom on the part of some people at the Commission. Id. at 1210. Judge Owen found that Mr. Brennan evidenced no remorse for the massive losses he caused to unsuspecting investors, and it appeared to Judge Owen that, given the opportunity, Mr. Brennan will highly <(11)> Judge Owen was convinced that the violations proved at the trial were in all probability only the tip of the iceberg and ordered that a special agent be appointed to determine whether there were more violations. First Jersey I, 890 F. Supp. at 1212-13. As mentioned above, the Second Circuit reversed this part of the decision. First Jersey II, 101 F.3d at 1479. ======END OF PAGE 9====== likely commit future violations.<(12)> Id. at 1210. Mr. Brennan has expressed no remorse in his filings in this administrative proceeding and, based on this record, I consider it almost certain that he will continue to violate the securities statutes if allowed to participate in the industry. Other relevant factors that permeate the record are Mr. Brennan s untruthful testimony under oath, his lack of candor, and the threats he issued to persons who cooperated in the Commission s inquiry. Examples of Mr. Brennan s inconsistent testimony, threats, and intimidation are described in Judge Owen s decision. See id. at 1193 n.11, 1207, 1208 n.30, 1210 n.33. Mr. Brennan has made no effort to reimburse clients who lost funds from his illegal actions. Instead, Mr. Brennan chose to file for bankruptcy to prevent the Commission from enforcing the judgment in First Jersey I, with the result that the Commission has not obtained any of the funds that Mr. Brennan was ordered to disgorge and has been forced into additional litigation in the bankruptcy court to preserve its judgment. Division s Brief in Opposition at 6 n.5. In the bankruptcy proceeding, Judge Ferguson noted that Mr. Brennan claimed that he was unaware of the size of his liabilities, yet he was present in court when the Commission opened its case with a demand for $78,000,000. Judge Ferguson found colorable claims for fraudulent transfers present and appointed a trustee to replace Mr. Brennan, the debtor in possession. June 2, 1997, Hearing (J. Ferguson) Tr. at 101. Finally, it is highly material in determining the appropriate relief that over many years there have been numerous other securities regulatory proceedings involving First Jersey, Mr. Brennan, and other principals and associates. See, e.g., Richard J. Puccio, 63 SEC Docket 158, 164 (Oct. 22, 1996) (quoting Howard Alweil, 51 S.E.C. 14, 17 (1992)). Application of the Steadman criteria demonstrates that is that it is necessary in the public interest to impose the most severe sanction possible against Mr. Brennan with the broadest possible applicability. In Meyer Blinder, the Commission reasoned that [c]ollateral bars should be used in cases where it is contrary to the public interest to allow someone to serve in any capacity in the securities industry. Meyer Blinder, 65 SEC Docket at 1981. The Commission stated: In determining whether to impose a collateral bar, we consider foremost whether the misconduct is of the type that, by its nature, flows across various securities professions and poses a risk of harm to the investing public in any such profession. We also consider whether the egregiousness of the respondent s misconduct demonstrates the need for a comprehensive response in order to protect the public. Id. See also Victor Teicher, Exchange Act Release No. 40010, 1998 SEC LEXIS 980 (May 20, 1998). I reject Mr. Brennan s argument that the factors <(12)> According to the Division, the bankruptcy court, applying a clear and convincing standard, found that Mr. Brennan was unable to live up to his obligations as a debtor in possession and removed him from control over his assets. Division s Brief On Issue of Relief at 2. ======END OF PAGE 10====== Commissioner Hunt cited in his dissent in Meyer Blinder are persuasive that the Commission cannot legally impose a collateral bar or penny stock bar in this case. Respondent s Brief in Opposition at 6-7. The majority opinion is the controlling precedent and, at this time, Meyer Blinder is the controlling case law on this issue.<(13)> Mr. Brennan s illegal activities were most egregious, and his purposeful fraud is susceptible to replication in various securities professions and poses a risk of harm to the investing public. It is relevant that Judge Owen found that Mr. Brennan has numerous other firms which he either owns, controls, or at which he has associations through which he has the power to and does continue his activities in the securities field. First Jersey I, 890 F. Supp. at 1208. Mr. Brennan has demonstrated that he lacks the qualities necessary in, and expected of, a securities professional. Investors will be at risk if he is allowed to participate in the securities industry. I find, therefore, that Mr. Brennan should be barred from association with a broker, dealer, member of a national securities exchange or registered securities association, investment adviser, investment company, or municipal securities dealer and from participating in an offering of penny stock.<(14)> V. Order Based on the findings and conclusions set forth above, I ORDER, pursuant to Sections 15(b) and 19(h) of the Exchange Act, that Robert E. Brennan is barred from being associated with a broker, dealer, member of a national securities exchange or registered securities association, investment adviser, investment company, or municipal securities dealer and from participating in an offering of penny stock. This order shall become effective in accordance with and subject to the provisions of Rule 17(f) of the Commission's former Rules of Practice. Pursuant to that rule, this initial decision shall become the final decision of the Commission as to each party who has not filed a petition for review pursuant to Rule 17(b) within 15 days after service of the initial decision upon that party, unless the Commission, pursuant to Rule 17(c), determines on its own initiative to review this initial decision as to a party. If a party timely files a petition for review, or the Commission acts to review as to a party, the initial decision shall not become final as to that party. <(13)> Since the Meyer Blinder decision, the Commission s administrative law judges have taken a case-by-case approach in determining the appropriateness of collateral bars in their initial decisions. See, e.g., Martin Kaiden, Initial Decision Release No. 124, 1998 SEC LEXIS 487 (March 24, 1998); Ted Harold Westerfield, Initial Decision Release No. 120, 66 SEC Docket 1616 (Feb. 9, 1998); Robert Sayegh, Initial Decision Release No. 118, 65 SEC Docket 2262, (Oct. 10, 1997). <(14)> Mr. Brennan s 1995 injunction eliminates his statute of limitations concerns as to the age of the underlying violations and the applicability of the penny stock bar. ======END OF PAGE 11====== ___________________________ Brenda P. Murray Chief Administrative Law Judge ======END OF PAGE 12======