UNITED STATES OF AMERICA
Before the
SECURITIES AND EXCHANGE COMMISSION

SECURITIES ACT OF 1933
RELEASE NO. 8051 / January 2, 2002

SECURITIES EXCHANGE ACT
RELEASE NO. 45228 / January 2, 2002

ADMINISTRATIVE PROCEEDING
FILE NO. 3-10667

In the Matter of Thomas J. Palazzolo, Respondent.

: : : : : : : : :

ORDER INSTITUTING PROCEEDINGS, MAKING FINDINGS AND IMPOSING REMEDIAL SANCTIONS AND A CEASE AND DESIST ORDER PURSUANT TO SECTION 8A OF THE SECURITIES ACT OF 1933 AND SECTIONS 15(b) AND 21C OF SECURITIES EXCHANGE ACT OF 1934

I.

The Securities and Exhange Commission ("Commission") deems it appropriate in the public interest and for the protection of investors that public administrative and cease and desist proceedings be instituted against Thomas J. Palazzolo ("Palazzolo") pursuant to Section 8A of the Securities Act of 1933 ("Securities Act") and Sections 15(b) and 21C of the Securities Exchange Act of 1934 ("Exchange Act").

II.

In anticipation of the institution of these proceedings, Palazzolo has submitted an Offer of Settlement ("Offer") which the Commission has determined to accept. Solely for the purpose of these proceedings and any other proceedings brought by or on behalf of the Commission, or to which the Commission is a party, and without admitting or denying the Commission's findings contained herein, except the jurisdiction of the Commission over him and over the subject matter herein, and the Commission's findings set forth in Paragraphs III.A.1, which are admitted, Palazzolo hereby consents to the entry of this Order Instituting Proceedings, Making Findings and Imposing Remedial Sanctions pursuant to Section 8A of the Securities Act of 1933, Sections 15(b) and 21C of the Securities Exchange Act of 1934 ("Order").

Accordingly, IT IS HEREBY ORDERED that proceedings pursuant to Section 8A of the Securities Act and Sections 15(b) and 21C of the Exchange Act be and hereby are instituted.

III.

On the basis of this Order and Palazzolo's Offer, the Commission finds that¹:

1. Palazzolo was, at all relevant times, including from April 1997 through October 1997, registered as an associated person of a broker dealer ("the firm") with its principal place of business in New York and branch offices in Chicago and other cities.

2. During the relevant time period, Palazzolo was the assistant equities trader at the firm. As the assistant equities trader, Palazzolo was responsible for calculating the prevailing market price from which markups were calculated on principal transactions. Palazzolo was also responsible for monitoring and trading in the firm's inventory and proprietary accounts, and he set the bid and ask price quotations for the firm. As compensation Palazzolo received a percentage of the commissions and markups charged on trades he executed. During the relevant time period, the firm's customers were charged approximately $227,153.21 in excessive, undisclosed markups on sales of Globalnet, a microcap, penny stock.

3. During the time period April 1997 through October 1997 there was no real customer demand for Globalnet outside of the firm. In fact, during that time period the firm and its customers were responsible for almost 75% of the total trade volume in Globalnet. From April through October 1997, the firm's customers purchased 1,020,430 shares of Globalnet, which constituted 93.8% of all retail customer purchases of Globalnet during that period. The firm also purchased 267,006 shares of Globalnet for its inventory account, equaling almost 40% of all inventory account purchases. Further, between August and October 1997, the firm held the inside bid for Globalnet 98% of the time. Also, the firm only made one sale to another market maker during that period. Thus, there was no actual demand for Globalnet outside of the firm. Rather, the firm was the demand for Globalnet. Therefore, there was no active, competitive market for Globalnet from April through October 1997, but instead, the firm dominated and controlled the market during that period.

4. During this period, Palazzolo calculated the prevailing market price from which markups were calculated using the price at which the firm offered Globalnet to other market makers as the prevailing market price. However, because there was no active, competitive market for Globalnet, but rather the firm dominated and controlled the market, the traders should have used the firm's contemporaneous cost as the prevailing market price when calculating markups. Palazzolo and the firm's other equity trader executed 163 retail sales of Globalnet between April and October 1997 at various markups. Calculating markups using the firm's contemporaneous cost as the prevailing market price, 85% of the trades were executed at markups greater than 10%, and 41% were executed at markups over 25%. Markups greater than 10% are fraudulent per se. Accordingly, Palazzolo charged excessive markups and did not disclose these excessive markups to the firm's customers.

5. As a result of the excessive markups charged to customers Palazzolo received approximately $8,983.00.

Violations

6. As a result of the conduct described above, Palazzolo willfully violated Section 17(a) of the Securities Act and Section 10(b) of the Exchange Act and Rule 10b-5 promulgated thereunder.

7. Palazzolo committed or caused the violations of Section 17(a) of the Securities Act, Section 10(b) of the Exchange Act and Rule 10b-5 promulgated thereunder by committing the violations enumerated in paragraph A.6.

IV.

In light of the foregoing, it is in the public interest to impose the sanctions specified in the Offers submitted by Palazzolo.

Accordingly, IT IS HEREBY ORDERED that

1. Palazzolo, pursuant to Section 8A of the Securities Act and Section 21C of the Exchange Act, cease and desist from committing or causing any violation and any future violation of Section 17(a) of the Securities Act and Section 10(b) of the Exchange Act and Rule 10b-5 promulgated thereunder.

2. Palazzolo be suspended from association with any broker or dealer for a period of twelve months, effective on the second Monday following entry of this Order; and

3. Palazzolo shall within thirty (30) days of the entry of the Order, pay a civil money penalty in the amount of $5,000 to the United States Treasury. Such payment shall be

(a) made by United States postal money order, certified check, bank cashier's check or bank money order; (b) made payable to the Securities and Exchange Commission, Operations Center, 6432 General Green Way, Alexandria, Virginia, 22312-0003; and (c) submitted under the cover letter that identifies Palazzolo as a Respondent in these proceedings, the file number of these proceedings, a copy of which cover letter and money order or check shall be sent to Mary Keefe, Midwest Regional Office, Securities and Exchange Commission, 500 West Madison Street, Suite 1400, Chicago, Illinois, 60661.

4. Palazzolo shall within one hundred and twenty (120) days of the entry of the Order, pay disgorgement in the amount of $8,983.00 plus prejudgment interest in the amount of $1,995.00 to the United States Treasury. Such payment shall be (a) made by United States postal money order, certified check, bank cashier's check or bank money order; (b) made payable to the Securities and Exchange Commission, Operations Center, 6432 General Green Way, Alexandria, Virginia, 22312-0003; and (c) submitted under the cover letter that identifies Palazzolo as a Respondent in these proceedings, the file number of these proceedings, a copy of which cover letter and money order or check shall be sent to Mary Keefe, Midwest Regional Office, Securities and Exchange Commission, 500 West Madison Street, Suite 1400, Chicago, Illinois, 60661.

By the Commission.

Jonathan G. Katz
Secretary

Footnote

http://www.sec.gov/litigation/admin/33-8051.htm