SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.

SECURITIES EXCHANGE ACT OF 1934
Rel. No. 47502 / March 14, 2003

Admin. Proc. File No. 3-9778

In the Matter of the Application of JOHN ROGER FAHERTY For Review of Disciplinary Action Taken by the NATIONAL ASSOCIATION OF SECURITIES DEALERS, INC.

OPINION OF THE COMMISSION

REGISTERED SECURITIES ASSOCIATION -- REVIEW OF DISCIPLINARY PROCEEDINGS
Aiding and Abetting of Violation of Exchange Act

Alleged Aiding and Abetting of Manipulation

Former principal of former member firm was alleged to have aided and abetted manipulative conduct by the former broker-dealer. Held, association's disciplinary sanction set aside.

APPEARANCES:

Martin J. Auerbach, for John Roger Faherty.

Alden S. Adkins, Susan L. Beesley, and Carla J. Carloni, for NASD Regulation, Inc.

Appeal filed: November 13, 1998
Last brief filed: May 5, 1999

I.

John Roger Faherty, who was a registered general securities principal and registered representative of Hibbard, Brown & Co., Inc. ("Hibbard"), a former member of the National Association of Securities Dealers, Inc. ("NASD"), appeals from NASD disciplinary action. The NASD found that Faherty aided and abetted Hibbard'sviolations of Section 15(c)(1) of the Securities Exchange Act of 1934 and Exchange Act Rule 15c2-1 ¹ with respect to Hibbard's scheme to manipulate the price of First National Realty Associates, Inc. ("FNRA") common stock. The NASD barred Faherty from association with any member firm, censured him, and ordered him to pay a $150,000 fine. We base our findings on an independent review of the record.

II.

Faherty's Role at Hibbard. Faherty was hired by Hibbard in July 1988 as a Hibbard Executive Vice President. ² Faherty was head of Hibbard's corporate finance department, which consisted of Faherty and a secretary that Faherty shared. ³ Faherty reported directly to Richard Brown, Hibbard's chief executive officer and president. Faherty was assigned to identify potential underwriting candidates and companies whose securities Hibbard could sell in the retail market. Brown testified that, Faherty suggested "a lot of companies" as potential candidates, half "or more than half we just never did anything with."

While Faherty was head of corporate financing, his authority was circumscribed by Brown. Hibbard's purchase and sale of securities for its inventory required Brown's approval. Brown, not Faherty, set Hibbard's prices. Brown also established Hibbard's markups and markdowns, in consultation with Anthony Nadino, Hibbard's trader. Brown and Nadino had access toHibbard's inventory and trading activity records; Faherty did not. ⁴

FNRA. FNRA was founded in 1988 by former executives and employees of Merrill Lynch Realty Associates, Inc. ("Merrill Lynch Realty"). In 1989, FNRA made an unsuccessful bid to purchase Merrill Lynch Realty and Merrill Lynch Relocation Management. As a result of its attempts to acquire the Merrill Lynch entities, costs of acquisitions of other realty companies, and corporate overhead, FNRA suffered a loss of $1.28 million for the year ending August 31, 1989.

FNRA's management determined to create its own national residential real estate company by acquiring local real estate companies. In April 1990, FNRA merged with Emphatic Mergers, Inc. ("EMI"). EMI was a "blind pool" company promoted by its president, Yves Hentic. ⁵ As a result of the merger FNRA had outstanding 750,000 Class A Warrants and 750,000 Class B Warrants. Each Class A Warrant entitled the holder to purchase one share of FNRA common stock for $2 per share, and each Class B Warrant entitled the holder to purchase one share of FNRA common stock for $2.50 per share.

FNRA's August 1990 post-effective amendment to its Form S-18 Registration Statement ("Post-Effective Amendment") reported that FNRA had 30 branch offices in California, Texas, Georgia, and Florida. ⁶ The Post-Effective Amendment, however, reported continuing losses that the company attributed to lower than expected performance by two real estate companies previously acquired by FNRA, the impact of the San Francisco earthquake on FNRA's largest operating division, and expenses incurred inconnection with the issuance of warrants exchanged for certain loan guarantees.

FNRA required additional working capital to continue its business and its acquisitions. According to the Post-Effective Amendment, there were only 50,000 shares of freely tradeable stock, and no market for the stock had developed. The National Quotation Bureau "Pink Sheets" identified only a single market maker for FNRA.

Hibbard's Contacts with FNRA. In August 1990, a mutual acquaintance of Hentic's and Faherty's suggested to Faherty that FNRA might be attractive to Hibbard. Faherty had at least two meetings with FNRA officials to discuss Hibbard's assisting the company's acquisition of additional capital. ⁷ Faherty testified that he was impressed with FNRA management and thought its plan of acquiring operating real estate companies was a viable one.

FNRA generated business forecasts for Hibbard and Faherty. ⁸ FNRA's former chief financial officer ("CFO") testified that FNRA projected its revenue for 1991 and 1992. According to the CFO, in the summer of 1990 FNRA anticipated losses in the amount of $2.6 million for its fiscal year ending August 31, 1990, a projection provided to Faherty. However, inits annual report on Form 10-K filed December 14, 1990, FNRA reported actual losses of $5.1 million. The CFO stated that FNRA's losses increased because FNRA had changed its revenue recognition policy to recognize revenue when a real estate transaction closed, rather than when the parties executed a real estate contract. The CFO claimed that FNRA had not anticipated the effect that this change would have on the recognition of revenue from its newly acquired subsidiaries. The CFO was uncertain whether FNRA had informed Hibbard about the effect of this change in FNRA's revenue recognition policy.

Faherty suggested to Brown that Hibbard should retail FNRA securities. ⁹ Faherty recommended to Brown that Hibbard acquire an inventory of FNRA stock through purchasing the Warrants "because that's where the float was," and there was little freely trading common stock outstanding. ¹⁰ Faherty also prepared a written memorandum to acquaint Brown with FNRA ("Brown Memorandum") that described FNRA's business plan, management, operations, markets, and financial status. ¹¹ The notation "(OTC - 6 1/2)" appeared at the top of the Brown Memorandum, which, according to Faherty, was the then-current ask quotation for FNRA. ¹² The Brown Memorandum included projections ofrevenue derived from FNRA's information and predicted that FNRA would have $.37 per share earnings in 1991, assuming exercise of the Class A and Class B Warrants. ¹³ Faherty testified that he prepared the Brown Memorandum solely for Brown. Brown testified that he knew FNRA was hoping for a rebound in the real estate market and that he was aware of FNRA's losses from talking to Faherty, FNRA's chairman, and its CFO. ¹⁴

At some point, Faherty recommended that FNRA create Class C and Class D Warrants to make its Class A and Class B Warrants "more attractive." ¹⁵ On September 11, 1990, FNRA issued apress release, announcing that it had authorized 750,000 Class C and 750,000 Class D Warrants. Upon exercise of each Class A Warrant, the holder would receive one Class C Warrant, and, upon exercise of each Class B Warrant, the holder would receive one Class D Warrant. Each Class C Warrant and each Class D Warrant, in turn, could be converted into one share of FNRA common stock, at an exercise price of $3 for Class C Warrants and of $5 for Class D Warrants. Faherty informed Brown that FNRA had authorized the Class C and Class D Warrants.

Hentic gave Faherty a list of broker-dealers that had accounts containing FNRA Class A and Class B Warrants. ¹⁶Faherty provided this information to Hibbard and provided Brown a price range for the purchase of the Class A and Class B Warrants. From the record, however, it appears that Brown did not rely solely on Faherty's information. Brown testified that he likely had Nadino, Hibbard's trader, survey the market. Based on Nadino's information and Brown's own analysis, Brown decided whether, and at what price, to purchase the FNRA Warrants. ¹⁷ On September 14, 1990, Brown authorized Hibbard's purchase of all of the outstanding FNRA Class A and B Warrants at a price of $.75per Warrant. ¹⁸ Through its ownership of these warrants, Hibbard had the right to purchase 1.5 million shares of common stock and thus, upon exercise, control over 97% of FNRA's public float.

Hibbard's Transactions in FNRA. On September 14, 1990, Brown, Faherty, and other Hibbard principals conducted a telephone conference call with Hibbard's sales staff about FNRA. Before the call, Hibbard distributed a research report on FNRA that had been prepared by Hibbard's research department. ¹⁹ Faherty testified that he provided the research department with "company documents" (which Faherty later testified were FNRA's public filings, including the Post-Effective Amendment), to help prepare the research report, and that he reviewed the research department report.

Faherty testified that, during the conference call, he gave an "overview of" FNRA but that he did not discuss FNRA's projections. When asked at the NASD hearing whether price was discussed during the call, Faherty testified that FNRA's "stock price was mentioned." He also said that he could not recall what the price was but believed it was "consistent" with "what the market price was."

Hibbard was not a market maker in FNRA.�²⁰ Between September 14 and October 31, 1990, Hibbard sold over 2 million shares of FNRA common stock to retail customers at prices ranging from $6.50 to $7 per share. Hibbard engaged in wholesale purchases of approximately 22,000 shares and wholesale sales of20,000 shares. ²¹ Hibbard's sales transactions accounted for 92% of the total number of FNRA shares sold, and 99.36% of the total number of FNRA transactions. The remainder of the wholesale market was fragmented among fourteen other broker-dealers. Only 160,000 shares of FNRA were sold in transactions not involving Hibbard.

After Hibbard bought the Class A and Class B Warrants on September 14, 1990, FNRA sought Faherty's assistance to get Hibbard to exercise the warrants because FNRA needed more money for acquisitions. When Faherty asked Brown to exercise the warrants, ²² Brown told Faherty that he would be willing to do so if FNRA would reduce the exercise price of the Class D Warrants from $5 to $3. At the time, Hibbard was short several hundred thousand shares of FNRA stock. In a letter dated October�2, 1990, from FNRA to Faherty, FNRA confirmed its agreement to reduce the exercise price of the Class D Warrants to $3 per share. ²³

Between October 5 and 31, 1990, Hibbard exercised all 1.5 million Class A and Class B Warrants. Hibbard's cost of obtaining FNRA common stock from exercising the Warrants was between $2.75 and $3.25 per share (the Warrant purchase price plus the exercise price) to cover short sales that it had executed at between $6.50 and $7 per share. ²⁴ Hibbard's retailsales prices for FNRA contained markups in excess of 100% over its purchase and exercise price for the FNRA Warrants. Hibbard derived a total of over $14 million from its sales of FNRA. Of that amount, more than $7 million constituted Hibbard's markups in excess of 10 percent.

In April 1992, FNRA filed for protection under Chapter XI of the Bankruptcy Code. ²⁵

III.

In order to conclude that Faherty aided and abetted Hibbard's violation, we must find: (1) Hibbard's manipulation of FNRA securities in violation of the securities laws; (2)�Faherty's substantial assistance in Hibbard's manipulative conduct; and (3) Faherty's general awareness or knowledge that his actions were part of an overall course of conduct that was illegal or improper. ²⁶

A. Whether Hibbard illegally manipulated FNRA securities.

Manipulation is the "intentional interference with the forces of supply and demand" in the market for a security. ²⁷ In determining whether a manipulation has occurred, we "depend oninferences drawn from a mass of factual detail," including "'patterns of behavior,' 'apparent irregularities, and . . . trading data.'" ²⁸ We have considered, among other factors, a firm's control of an abundant supply of a security, the lack of investor interest apart from the firm engaging in the manipulative transactions, and the absence of favorable developments affecting the issuer. ²⁹

Before Hibbard exercised the Class A and Class B Warrants, there were only 50,000 shares of freely tradeable FNRA stock. With the acquisition of the Class A and Class B Warrants, as well as the underwriters' warrants, ³⁰ Hibbard had potential control of over 97% of FNRA's public float.

Before Hibbard began its retail activity in FNRA common stock, there had been very few FNRA trades. Between January and August, prices for FNRA common stock ranged from $2.45 to $2.75 per share. At the beginning of September, there were scattered trades at $6 per share. Although the exercise of the Warrants vastly increased the supply of stock, Brown set the retail price for Hibbard's sales of FNRA above the earlier $6 price. Hibbard's retail price, moreover, was nearly double the firm's cost of purchasing and exercising the FNRA Warrants. Confident of his supply, Hibbard then sold FNRA short into a rising market. ³¹ At the time, there were no developments affecting FNRA. The only apparent reason for the huge increase in retail sales was Hibbard's retail campaign.

Faherty acknowledges that Hibbard held a dominating position in the FNRA market by virtue of its possession of the Warrants. He asserts that we have found that a "rapid price surge dictated by the firm that controlled the security's market" is an indicia of manipulation. ³² Faherty contends that, between September 14and October 31, 1990, the price at which Hibbard sold FNRA stock did not "surge," but only increased from $6.50 to $7, a $.50 rise.

Even if we accepted Faherty's view that there was no substantial price rise in FNRA shares, we believe that the facts demonstrate a manipulation.�³³ Hibbard's sales of FNRA securities increased the supply of FNRA stock over 30 times. This increase in supply, coupled with the lack of developments with respect to FNRA, should have caused the price of FNRA common stock to decrease. ³⁴ Yet, Hibbard sold over two million shares to its retail customers at prices well above the level at which a market composed of no more than 50,000 shares had traded as recently as August. Moreover, it was able to increase its retail price from $6.50 to $7 per share. We conclude that Hibbard was able to maintain this artificial price because it controlled the supply and engaged in a vigorous retail sales program.

We conclude that Hibbard's retail price was manipulated. We therefore agree with the NASD that Hibbard's transactions in FNRA constituted a manipulative, deceptive, and fraudulent device and contrivance in violation of Exchange Act Section 15(c)(1) and Exchange Act Rule 15c2-1.

B. Whether Faherty aided and abetted FNRA's primary violation.

We next consider whether the record demonstrates Faherty's assistance in and awareness of Hibbard's scheme. Faherty assisted in Hibbard's acquiring FNRA's Warrants and thereby madepossible Hibbard's control of the supply of FNRA common stock. Faherty understood that the Warrants "were where the float was." We have previously observed that "price leadership resulting from [a firm's] almost exclusive control of the source of supply empowers the underwriter to set prices arbitrarily." However, we further observed that manipulation requires, in addition, "abuse of that power." ³⁵

We do not believe that the record demonstrates that Faherty had a general awareness of what Hibbard would do with that control. The record contains little information about Faherty's activities after September 14, 1990. Moreover, certain factors identified by the NASD as relevant to its conclusion do not seem to be established in the record.

The NASD stresses that Faherty was the head of corporate finance and asserts that he worked closely with Brown. However, Faherty did not have the power to commit Hibbard to purchase or sell FNRA securities or to exercise its Warrants. He had no control of Hibbard's pricing of securities or its setting of markups or markdowns or the commissions paid to sales personnel. There is also no evidence that, after the September 14 conference call, he participated in Hibbard's sales campaign or in the creation of sales scripts.

Brown's testimony was somewhat dismissive of Faherty's efforts with respect to corporate finance, and Brown substantially reduced Faherty's bonus arrangement. Brown was equally clear that Brown made the determination that Hibbard should acquire the FNRA Warrants and retail FNRA stock. While he considered Faherty's advice, Brown relied on Nadino and his own analysis in making these determinations.

The NASD found that Faherty was the sole contact and source of information between Hibbard and FNRA. However, Brown testified that he met with FNRA management to assess their abilities. Through these discussions, Brown knew that FNRA had previously suffered losses but anticipated improvement in the real estate market. Brown's testimony is confirmed by the affidavit submitted by FNRA's former president about meeting with Brown and Faherty. Nor were Brown and Faherty the only conduits of information between FNRA and Hibbard. FNRA's former CFO also testified to discussions with Hibbard's "analysis department" with respect to FNRA's projections.

The NASD also contends that Faherty provided Brown and Hibbard's sales staff with market information, "including a reference to a suggested market price of $6.50 per share," citing the Brown Memorandum. While the Brown Memorandum bears the notation "(OTC - 6 1/2)," the memorandum does not explain what the notation meant. Faherty testified that it was the contemporaneous ask quotation, and there is nothing in the record that refutes that assertion. ³⁶ There were in fact a handful of trades at $6 per share at the beginning of September. In any event, there is no showing that Brown considered or relied on the Brown Memorandum. Brown's testimony is clear that he determined the price at which Hibbard would sell FNRA. The Brown Memorandum was not provided directly to the sales force. ³⁷

The NASD also complains that the Brown Memorandum contains "certain unduly optimistic projections." FNRA provided thefinancial information and projections to Faherty. FNRA's CFO testified that in August the company did not anticipate the effects that its change in revenue recognition policy would have on its 1990 fiscal year's losses. The CFO, moreover, could not recall whether FNRA informed Hibbard of that policy change. The NASD found that FNRA's CFO, "who was a certified public accountant, had supplied financial information to Faherty upon which Faherty had relied."

The record also does not establish whether any projections were disseminated in the retail market. The NASD found only that Hibbard failed to disclose to its customers the excessive nature of its prices and its dominant position in the FNRA market. It based this finding on Brown's testimony that he did not tell Hibbard's sales force about the acquisition of the Class A and Class B Warrants.

Faherty participated in the telephone conference call about FNRA with the Hibbard sales staff. There are only sketchy details of that conference call in the record. Faherty testified that he provided background about FNRA and "its prospects" and that he indicated that he thought FNRA had a reasonable chance to achieve its business plan. In its opinion, the NASD found Faherty's "contention that prices were not discussed during the conference call/sales meeting to be implausible." However, this is not an accurate characterization of Faherty's testimony. Faherty stated that he believed that price was discussed and that, while he could not recall the particular price mentioned, the price was consistent with the "market price." ³⁸

The NASD points to the fact that Faherty encouraged Brown to exercise the Class A and Class B Warrants and urged Brown to prevent FNRA from "going down the drain" as evidence that Faherty was aware of the scheme. ³⁹ We believe, however, that Faherty'sadvocacy for FNRA is by itself insufficient to conclude that he was aware of Hibbard's scheme.

Indeed, except for the negotiations surrounding the reduction of the exercise price on the Class D Warrants and his urging Hibbard to exercise the Class A and Class B Warrants, the record does not connect Faherty with any of Hibbard's activities in FNRA between September 14 and October 31, 1990. We conclude that, on the record before us, the evidence does not show that Faherty had a general awareness of Hibbard's manipulative scheme.

IV.

Accordingly, we set aside the NASD's findings of violation and the sanctions that it imposed.

An appropriate order will issue. ⁴⁰

By the Commission (Chairman DONALDSON and Commissioners GLASSMAN and CAMPOS); Commissioners GOLDSCHMID and ATKINS not participating.

Jonathan G. Katz
Secretary

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.

SECURITIES EXCHANGE ACT OF 1934
Rel. No. 47502 / March 14, 2003

Admin. Proc. File No. 3-9778

In the Matter of the Application of JOHN ROGER FAHERTY For Review of Disciplinary Action Taken by the NATIONAL ASSOCIATION OF SECURITIES DEALERS, INC.

ORDER SETTING ASIDE DISCIPLINARY ACTION TAKEN BY REGISTERED SECURITIES ASSOCIATION

On the basis of the Commission's opinion issued this day, it is

ORDERED that the disciplinary action taken by the National Association of Securities Dealers, Inc. against John Roger Faherty be, and it hereby is, set aside.

By the Commission.

Jonathan G. Katz
Secretary

Footnotes

¹ 15 U.S.C. § 78o(c)(1); 17 C.F.R. § 240.15c2-1.

² Faherty earned a consulting fee of $15,000 per month, and for his first year at Hibbard received as a bonus a percentage of the gross commissions generated by the firm. Thereafter, Hibbard changed Faherty's bonus arrangement. According to Faherty, in 1990, he received a bonus at the discretion of Hibbard's president or Hibbard's national sales manager. The record does not disclose the amount of Faherty's subsequent bonuses.

Faherty testified that, beginning in the fall of 1990, he became the chairman of and a consultant to an unrelated company and that his consultancy increasingly consumed his time.

³ From time to time, Faherty also had an assistant. However, he did not have an assistant between May and November 1990, the period at issue in this proceeding.

⁴ Hibbard's compliance director also periodically reviewed the firm's trading activity.

⁵ In 1989, EMI had registered an offering of 25,000 units consisting of two shares of common stock, 30 Class A Warrants, and 30 Class B Warrants, at $6.00 per unit. According to EMI's prospectus, EMI had no operations. The proceeds of the offering were to be used to seek potential business combinations, either by merger or acquisition.

⁶ The Post-Effective Amendment registered the shares of FNRA common stock underlying the Class A and Class B Warrants. The Post-Effective Amendment was declared effective August 10, 1990.

⁷ Although Faherty was the sole Hibbard representative during Hibbard's initial contacts with FNRA, other Hibbard personnel dealt with the company. Brown testified that he met with FNRA management to assess their experience. FNRA's former president submitted an affidavit to the NASD averring that, "At a later meeting, Mr. Brown and Mr. Faherty stated that they liked [FNRA]--both its strategy and its management, and were interested in purchasing and exercising the Warrants."

FNRA's former chief financial officer further testified that, at some point, he discussed FNRA's projections with Hibbard's "analysis department" "so they could evaluate the company."

⁸ FNRA's CFO testified that he prepared projections. According to the CFO, FNRA's forecasts assumed that FNRA would be able to increase its share of commissions from the real estate transactions generated by its operating units and that the residential real estate market would improve in the spring of 1991.

⁹ The record is unclear when this conversation occurred.

¹⁰ During the investigation, Faherty testified as follows:

Q. The potential financing arrangements that you and Hibbard Brown were considering, consisting of the exercise of the Warrants, would include the sale of the underlying stock?

A. I mean that--that's not--my decision. You know, I--thought that this was attractive and would recommend to see if we could acquire the Warrants because that's where the float was. I mean there is no . . . big amount of common stock.

¹¹ Faherty testified that he also gave Brown the Post-Effective Amendment, but Brown stated that he did not receive it.

¹² Faherty testified that, while he was uncertain where he obtained the quotation, he thought it came from Hibbard's trading desk. Faherty further claimed that FNRA personnel had told him that FNRA stock had been trading at around $5 per share.

There were few trades in FNRA common stock between January and August 1990. Those trades ranged in price from $2.45 to $2.75. However, at the beginning of September, there were a handful of small trades away from Hibbard at $6 per share.

¹³ FNRA's CFO testified that the projected revenue reported in the Brown Memorandum seemed consistent with FNRA's projections, but that he had never seen the projected earnings per share calculation.

The NASD found the Brown Memorandum's projections of earnings of $.48 "misleading, given the number of shares that would enter the market upon exercise of the Warrants." However, as noted above, the Brown Memorandum also calculated the projected earnings per share assuming exercise of the Warrants. Faherty testified that FNRA had not authorized Class C or Class D Warrants at the time that he wrote the Brown Memorandum.

¹⁴ On August 22, 1990, Brown authorized Faherty to acquire for Hibbard the so-called "underwriter warrants" held by EMI's underwriter. As part of its initial offering, EMI had granted to its underwriter warrants. These warrants granted EMI's underwriter the right to purchase an aggregate of 5,000 shares of EMI common stock and 75,000 EMI Class B Warrants. The underwriter's warrants were exercisable at a price of $6.42 per warrant, and each underwriter warrant gave the holder the right to purchase two shares of common stock and 30 Class B Warrants, which were convertible into common stock. It is unclear from the record whether Hibbard exercised the underwriter warrants.

¹⁵ Faherty testified that he was concerned that exercise of theClass A and Class B Warrants would not generate sufficient working capital for FNRA.

¹⁶ Most of the FNRA Warrants were held by friends or affiliates of Hentic.

Hentic was a long-time client of Allan R. Sacharow at Fahnestock & Company ("Fahnestock"). Hentic introduced Faherty to Sacharow. On August 9, 1990, Faherty's wife, Ninanne Norris, opened an account at Fahnestock. Faherty had authority to trade in Norris' account. On August 24, 1990, Bow Burn Ltd., an account over which Hentic had trading authority, sold 75,000 FNRA Class A and 75,000 Class B Warrants, which Faherty purchased for Norris' account.

¹⁷ There is no evidence in the record of any transactions in FNRA Class A or Class B Warrants before Hentic's sale of Warrants to Norris.

Brown testified that, in general, he considered various factors when purchasing warrants, including the price of the underlying security, the exercise price, and any impediments to exercise, such as the absence of blue sky registration or the existence of lawsuits among insiders.

¹⁸ Brown did not explain why he determined to pay $.75 per Warrant for the FNRA Class A and Class B Warrants. On September 14, 1990, Fahnestock sold Hibbard 117,000 Class A and 117,000 Class B FNRA Warrants at $.75 per Warrant. This sale included the Warrants from Norris' account. Norris made a profit of $102,000.

¹⁹ The research department, which was headed by John Attalienti, was separate from Faherty's corporate finance department. The research department reported to Brown.

²⁰ The Pink Sheets listed the following market makers for FNRA stock for the period of September 14 through October 31, 1990: M. H. Myerson and Company, Inc., Datek Securities Corp., Mascera & Co., Inc., Fahnestock, and Wien Securities Corp. None of these firms listed quotations in the Pink Sheets for FNRA.

²¹ The wholesale transactions were between Hibbard and Datek. Datek purchased over 22,000 shares of FNRA from Hibbard in a series of transactions at prices ranging from $6-1/2 to

$6-7/8. Datek made two sales to Hibbard of 10,000 shares each at $7 and $7-1/4. The NASD concluded that Hibbard's transactions with Datek were an attempt to establish an illusory price and create the impression of interest in FNRA away from Hibbard.

²² Faherty testified that he urged Brown to exercise the Warrants so that FNRA would not "go down the drain."

²³ Faherty testified that the stock underlying the Class C and Class D Warrants was not registered at that time.

²⁴ In a November 26, 1990, letter to Faherty, FNRA requested a meeting with Faherty to discuss exercise of FNRA's C and D Warrants. On November 27, 1990, after the period at issue here, Hibbard wrote a check to FNRA attempting to exercise Hibbard's Class C Warrants. The firm subsequently issued astop payment order on the check because, according to Brown, "they were not registered at the time." Ultimately, Hibbard exercised the FNRA C and D Warrants in late spring and early summer 1991.

The NASD notes that, in the spring of 1991, Hibbard, through Faherty, induced FNRA to lend money to another Hibbard client. While this transaction evidences Hibbard's influence with FNRA, the transaction does not seem related to the manipulative conduct at issue here.

²⁵ Faherty left the securities industry in December 1991.

²⁶ Graham v. SEC, 222 F.3d 994, 1000 (D.C. Cir. 2000); Donald T. Sheldon, 51 S.E.C. 59, 66 (1992), aff'd, 45 F.3d 1515 (11th Cir. 1995).

²⁷ Ernst & Ernst v. Hochfelder, 425 U.S. 185, 199 (1976). See also, Brooklyn Capital & Securities Trading, Inc, 52 S.E.C. 1286, 1290 (1997); Pagel, Inc., 48 S.E.C. 223, 226 (1985), aff'd 803 F.2d 942 (8^th Cir. 1986).

²⁸ Brooklyn Capital, 52 S.E.C. at 1290.

²⁹ Id. at 1290, citing Patten Securities Corp., 51 S.E.C. 568, 573 (1993).

³⁰ See n.14 supra.

³¹ Brown was so confident of his supply that he delayed exercising FNRA Warrants until FNRA agreed to reduce the exercise price of its Class D Warrants.

³² See, e.g., Patten Securities, 51 S.E.C. at 573; Gary E.Bryant, 51 S.E.C. 463, 468 (1993).

³³ A finding of manipulation does not hinge on the presence or absence of any particular device usually associated with a manipulative scheme. Instead, we judge each case on its own facts. Patten Securities, 51 S.E.C. at 574. See also United States v. Regan, 937 F.2d 823, 829 (2d Cir. 1991) (holding that no single set of factors identifies manipulation which encompasses "diverse devices that ingenious minds" have conceived to manipulate securities prices.), cert. denied sub nom, Zarzecki v. United States, 504 U.S. 940 (1992).

³⁴ E.g., Harold B. Hayes, 51 S.E.C. 1294, 1298 (1994) (increase in supply of securities should have had a downward impact on prices).

³⁵ Pagel, 48 S.E.C. at 226. The NASD also notes that Faherty profited by selling Warrants from Norris' account to Hibbard. This action reflects Faherty's knowledge that he was recommending that Hibbard acquire all the FNRA Warrants. The record, however, strongly suggests that this transaction arose from an arrangement between Faherty and Hentic to benefit Faherty. Hentic introduced Faherty to Sacharow at Fahnestock. Hentic and Faherty apparently orchestrated the purchase by the Norris account of Bow Burn's Class A and Class B Warrants. An NASD examiner testified that she had found no information indicating that Hibbard was aware of this transaction.

³⁶ The Market Surveillance Committee, which heard the witnesses and observed their demeanor, did not comment on any witness's credibility.

³⁷ Hibbard's sales staff received at least two research memoranda about FNRA generated by Hibbard's research department (which was independent of Faherty). Faherty provided the research department with "company documents" and reviewed the research department memoranda. The record is unclear as to whether the Brown Memorandum was supplied to the research department.

The degree of Faherty's input in the research memoranda is uncertain. The research department memoranda contain information not in the Brown Memorandum, and the Brown Memorandum reports information (including the (OTC-6-1/2) notation) not incorporated into the research department memoranda.

³⁸ In his investigative testimony, Faherty stated that he would not have been the conference call participant who would have discussed price.

³⁹ Faherty also encouraged FNRA to issue Class C and D Warrants that would be issued to the holder of the Class A and B Warrants upon exercise of the latter Warrants. However, Faherty asserted that he did not believe that exercise of the Class A and B Warrants would generate sufficient working capital for FNRA's operations and acquisitions. His testimony was not refuted.

⁴⁰ We have considered all of the contentions advanced by the parties. We have rejected or sustained them to the extent that they are inconsistent or in accord with the views expressed in this opinion.

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