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UNITED STATES OF AMERICA
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In the Matter of the Applications of JOHN MONTELBANO
and MICHAEL GALASSO, JR.
For Review of Disciplinary Action Taken by the NATIONAL ASSOCIATION OF SECURITIES DEALERS, INC. |
ORDER DENYING MOTIONS FOR RECONSIDERATION
On January 22, 2003, we issued an opinion sustaining disciplinary action taken by the National Association of Securities Dealers, Inc. ("NASD") against John Montelbano, who was acting president of Monitor Investment Group, Inc., a former NASD member firm, and sustaining most of the NASD's findings of violation against Michael Galasso, Jr., who was Monitor's trader.�1 Montelbano and Galasso now request reconsideration of our decision.
We found that Montelbano and Galasso violated antifraud provisions of the Securities Exchange Act of 1934 and NASD rules by participating in a manipulation of the common stock ofAccessible Software, Inc. ("ASWI"), and that Galasso committed further violations of those provisions by charging customers who purchased ASWI stock excessive markups and bidding for ASWI stock during a distribution of that security. We further found that Montelbano and Galasso committed additional NASD rule violations by giving false testimony in investigative interviews conducted by the NASD staff, and that Montelbano also violated NASD rules by failing to exercise proper supervision over Monitor salespersons.
Montelbano and Galasso were barred from association with any NASD member in any capacity. Montelbano was also suspended from any such association for a period of two years and Galasso for 10 business days, and Montelbano was fined $90,000 and Galasso $81,000. 2 We now turn to the motions for reconsideration.
Montelbano
In our decision, we found that, about a week prior to the start of ASWI trading, Gerard McMahon, Monitor's research director, 3 conducted an ASWI sales meeting for Monitor salespersons at the firm's Third Avenue office in New York City. At that meeting, McMahon made extravagant and fraudulent representations about ASWI in an effort to get salespersons to sell the stock to their customers. We noted that Montelbano attended the meeting, implicitly endorsing McMahon's representations.
Montelbano questions our findings about what he terms a "fictitious ASWI meeting." He points out that salesmen differed about exactly when the meeting took place relative to the start of ASWI trading, and that only one salesman testified to his presence there. He further asks how he could have implicitly endorsed McMahon's representations when, as the salesman stated, Montelbano "didn't do any talking."
There can be little doubt that the ASWI sales meeting took place shortly prior to the start of ASWI trading. Five salesmen testified to that effect. The fact that their recollections mayhave differed as to the exact date of the meeting does not call their testimony into question. Nor is the fact that only one salesman testified to Montelbano's presence any reason to discredit the salesman's testimony. Montelbano cross-examined the salesman who not only repeated his statement but specified exactly where Montelbano was standing at the meeting. At the time of the meeting, Montelbano was holding himself out and acting as Monitor's president. Thus his very presence was an implicit endorsement of McMahon's representations.
Montelbano again denies that he touted and promoted ASWI stock. He characterizes the testimony of salesmen who testified against him as "vague recollections which hold no merit." He also denies that, on the first day of ASWI trading, he told salespersons at Monitor's Broad Street office to turn off their Quotron machines to prevent them from learning that initial ASWI quotations were far below the price they had been directed to enter on customer order tickets. Montelbano asserts that our finding to that effect is unsupported by any testimony. He states that the Broad Street salesmen who said they were told to turn off their machines merely stated that "management" told them to do so, and did not identify Montelbano.
These claims are without merit. As noted in our opinion, the record contains substantial and specific testimony by Monitor salesmen with respect to Montelbano's role in the ASWI manipulation. That testimony clearly demonstrates that Montelbano energized Monitor's sales force to sell speculative ASWI stock at inflated price levels. Moreover, salesman Christopher Gonzalez identified who in "management" instructed Broad Street salesmen to turn off their Quotron machines. He stated that Montelbano and another firm official issued that order, and checked to see that it was obeyed.
Montelbano further asserts that, contrary to the finding in our opinion, he was not the manager of Monitor's Broad Street office. He also renews his claim that witnesses against him were motivated by fear for their safety, pointing to the investigative testimony of a Monitor salesman who stated that he and another salesman were physically assaulted because they failed to push "house stocks," causing other salespersons to be fearful. Montelbano also renews his charge that the NASD acted with "malicious intent" in seeking to introduce into evidence three Monitor employment agreements on which his signature was assertedly forged.
Both Galasso and Wayne Freeman, an NASD supervisor, testified that Montelbano was in charge of Monitor's Broad Streetoffice. Their statements were corroborated by the investigative testimony of William Palla, who served as Monitor's president and later its chairman. Palla stated, "[Montelbano] took care of that particular office, maintained everything, and ran the show." Further confirmation was supplied by Broad Street salesmen Patrick Giglio and Christopher Gonzalez. Giglio testified that Montelbano was the Broad Street branch manager, and Gonzalez stated that Montelbano was his supervisor.
Contrary to Montelbano's suggestion, we did not conclude that the salesman who testified that he was assaulted was lying. We simply noted that there was no evidence that this incident either influenced the witnesses who testified (at a time when Monitor was no longer in business), or prevented any witness from testifying on Montelbano's behalf. As for the assertedly forged employment agreements (which the NASD staff offered to withdraw from evidence), we find no basis for Montelbano's claim of "malicious intent" on the part of the staff. As we previously noted, it appears that Montelbano himself gave the documents to an NASD examiner. Moreover, Montelbano was not prejudiced since we have not placed any reliance on the documents.
Finally, Montelbano renews his complaint about an incident that occurred at the hearing. Galasso, being questioned by McMahon who was appearing pro se, testified that Dennis McCarthy, a former NASD attorney, tried to get him to alter his testimony to implicate other persons. The Hearing Officer initially stated, mistakenly, that the NASD had no authority to compel McCarthy, who was then working for an NASD member firm, to appear and testify. However, she corrected herself, and told McMahon and an attorney representing other respondents that they could file written applications requesting the NASD to obtain McCarthy's appearance. The record does not show, and Montelbano does not claim, that he ever filed such an application.
Montelbano insists that the Hearing Officer did not make a mistake but "purposely tried to keep McCarthy away." We do not agree. Moreover, we fail to see how Montelbano was prejudiced by McCarthy's absence. No claim is made that McCarthy influenced Galasso's testimony or the testimony of any other witness.
Galasso
On August 15, 2001, the Commission's Deputy Secretary wrote to Galasso noting that he had already filed an opening brief and 10 motions, an "unprecedented number of filings." The letter pointed out that Galasso's reply brief had been due on July 27,and stated that any further filing by him "would be contrary to the [Commission's] briefing schedule order."
Galasso had already mailed in another motion, which was filed on August 20, 2001. On August 28, despite the admonition he had received, Galasso wrote to the Deputy Secretary stating that he planned to file at least five more motions, which would delay the filing of his reply brief until November. He also noted an August 23 letter from the NASD to the Commission which stated that, "in view of the frequency and volume of Galasso's motions," the NASD would respond to his latest motion after it received the other motions he had already indicated he would file.
Contrary to the schedule announced in his letter, Galasso filed nothing further until his present petition for reconsideration in February 2003. As part of that petition, Galasso has filed nine new motions seeking to adduce voluminous additional materials into evidence. 4 He has also attached a substantial number of documents to his petition and to addenda to that petition. He further states that he is working on nine more motions to adduce additional evidence, which he expects to complete and file by June.
Galasso asserts that he held back on filing his current batch of motions because the NASD requested that all further motions be submitted as one package. He states that he was unaware that the Commission was in the process of reviewing his case and, had he been warned of that fact, he would have filed his current motions as he completed them. He asserts that, as a result of his failure to do so, our opinion "was based on less than half of [his] defense, or even less than one-third" if his uncompleted motions are taken into account.
Galasso's assertions are frivolous. He would have us believe that he reasonably understood that he had as much time as he wanted to prepare and submit more and more materials in his defense. If nothing else, the Deputy Secretary's letter should have disabused him of that idea.
Our Rule of Practice 470(b) provides that motions for reconsideration should "briefly and specifically state the matters of record alleged to have been erroneously decided, the grounds relied on, and the relief sought." Thus, absentextraordinary circumstances, a motion for reconsideration is not an appropriate vehicle for the attempted submission of new evidence. No such circumstances are present here. In any event, Galasso has failed to show, in accordance with Rule 452 of our Rules of Practice, that the additional evidence he seeks to adduce is material, and that there were reasonable grounds for failing to adduce it previously. Accordingly, his motions are denied, and the documents attached to his petition for reconsideration and the addenda thereto are excluded from the evidentiary record.
In his petition, Galasso argues, based, among other things, on his analysis of ASWI stock symbols, CUSIP numbers, order tickets, and trade confirmations, that Palla, Jeffrey Pokross (a controlling person of Monitor), "some members of Monitor," and Monitor's clearing firm engaged in a fraudulent scam in which Galasso was made "the patsy." He further charges that the NASD subsequently joined in the effort to shift the blame to him. We find no basis for these claims. As we noted in our opinion, Galasso played a central and crucial role in Monitor's ASWI manipulation. He was not unknowingly following orders but knew what he was doing.
Finally, Galasso charges that the NASD manipulated evidence, denied him a fair hearing, and conspired to find him guilty. These claims are totally lacking in merit. The record shows that Galasso received a fair hearing, and the evidence against him is clear. 5
* * * * * * * * * * * *
In light of the foregoing, IT IS ORDERED that the motions for reconsideration filed by John Montelbano and Michael Galasso, Jr. be, and they hereby are, denied.
By the Commission.
Jonathan G. Katz
Secretary
__________________________
| 1 | John Montelbano, Securities Exchange Act Release No. 47227, 79 SEC Docket 1474. We set aside one of the NASD's findings against Galasso. |
| 2 | The fines were suspended until such time as Montelbano and Galasso seek re-entry into the securities industry. |
| 3 | McMahon was a respondent in this proceeding. We found that he participated in the ASWI manipulation and gave false investigative testimony, and sustained the sanctions imposed on him by the NASD. |
| 4 | Galasso describes some of his motions as addenda to prior motions. |
| 5 | As noted above, we set aside one NASD finding against Galasso -- that he assisted in the creation of false customer confirmations. Galasso asks for clarification that our action meant that we dismissed that charge. We confirm that the charge in question has been dismissed. |
http://www.sec.gov/litigation/opinions/34-47624.htm
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