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The order for proceedings alleges in general that during the period from approximately October 31, 1957, to approximately August 31, 1958, (1) registrant, together with or aided and abetted by Sills and Green, converted funds and stock of its customers and engaged in securities transactions while insolvent, in willful violation of the anti-fraud provisions of the Exchange Act and the Securities Act of 1933 ("Securities Act”) and the rules thereunder;' and (2) that registrant, aided and abetted by Sills, effected securities transactions when its aggregate indebtedness exceeded 2,000% of its net capital in willful violation of Section 15(c)(3) of the Exchange Act and Rule 15c3–1 thereunder (17 CFR 240.15c3-1), filed a false report of financial condition and failed to keep required books and records, in willful violation of Section 17(a) of the Exchange Act and Rules 17a-3 and 17a-1 thereunder (17 CFR 240.17a-3 and 240.17a-5)," and failed to file an amendment to its registration application to correct statements contained therein which had become false, in willful violation of Rule 15b-2 (17 CFR 240.15b-2) under Section 15(b) of the Exchange Act."
Registrant and Sills filed a stipulation, consent and waiver in which, for the purpose of this proceeding, they stipulated to certain facts, waived a hearing, a recommended decision by a hearing examiner and proposed findings of fact and conclusions of law, and consented to the revocation of registrant's registration as a broker and dealer and to a finding that Sills is a cause of any order of revocation which might be entered against registrant. Our findings are based upon an independent review of the record.
2 The provisions are Section 17(a) of the Securities Act and Sections 10(b) and 15(c)(1) of the Exchange Act and Rules 106-5 and 15c1-2 thereunder (17 CFR 240.106-5 and 240.15c1-2). The composite effect of these provisions, as applicable here, is to make unlawful the use of the mails or facilities of Interstate commerce in the sale or purchase of securities by means of a device to defraud, a false or misleading statement of a material fact, or any act, practice or course of business which operates or would operate as a fraud or deceit upon a customer, or by the use of any other manipulative, deceptive or fraudulent device.
3 Section 10(c)(3) of the Exchange Act prohibits the use of the mails or interstate facilities by a broker or dealer la security transactions otherwise than on a national security exchange, in contravention of our rules prescribed thereunder providing safeguards with respect to the financial responsibility of brokers and dealers. Rule 15e3-1 provides, subject to certain exemptions not applicable here, that no broker or dealer shall permit his aggregate indebtedness to all persons to exceed 2,000 percent of his net capital computed as specified in the rule.
4 Section 17(a) of the Exchange Act, as applicable here, requires registered brokers or dealers to keep such books and records and file such reports as we by rules and regulations may prescribe as necessary and appropriate in the public interest or for the protection of investors. Rule 17a-3 specifies the books and records which must be kept including records of all purchases and sales of securities. Rule 17a-5 in pertinent part provides that every registered broker or dealer must file a report of his financial condition annually. The requirement that records be kept and reports be filed embodies the requirement that such records and reports be true and correct.
5 Section 15(b) of the Exchange Act provides in pertinent part that an application for registration as a broker or dealer shall contain such information as we may require by rules and regulations, and Rule 150–2 thereunder provides that if the information in the application or in any supplement thereto is or becomes in accurate, the broker or dealer shall promptly file an amendment correcting such information.
We find, as admitted by registrant and Sills, that from January 1 to August 22, 1958, registrant converted to its own use funds of 19 customers amounting to $28,240 which had been obtained upon the false representation that registrant would use such funds for the purpose of purchasing securities for such customers. During the same period, registrant converted the proceeds of sale of securities entrusted to it by 2 customers upon the false representation that registrant would sell such securities for the customers and pay the proceeds to them. In addition, during the period from October 31, 1957 to August 6, 1958 registrant, without disclosing the fact that it was insolvent, solicited and accepted monies and securities from customers on the representations that it was solvent and ready and able to execute and fill all orders and meet its obligations as they became due.
We find that in these respects registrant, together with or aided and abetted by Sills, who admittedly dominated and controlled registrant and caused it to engage in the conduct described, willfully violated Section 17(a) of the Securities Act and Sections 10(b) and 15(c)(1) of the Exchange Act and Rules 106–5 and 15c1-2 thereunder.7
We further find, as admitted by registrant and Sills, that registrant effected securities transactions during the period October 31, 1957 through August 22, 1958, when its aggregate indebtedness exceeded 2,000 per centum of its net capital as computed under our net capital rule. Registrant also filed a statement of its financial condition as of October 31, 1957, which falsely overstated cash in bank and paid-in capital surplus by the amount of a $10,000 check drawn by Green which had been dishonored and was known to be worthless, and failed to record in any of its books sales of securities to a customer in an aggregate amount of $15,625. In addition, registrant failed to amend its registration application to show that the address of its principal place of business had been changed; that Sills had become the owner of 99% of registrant's stock; and that Maureen LeAndro had resigned as secretary-treasurer of registrant and Mrs. Robert B. Sills had replaced her.
We find that in these respects registrant, aided and abetted by Sills, willfully violated Sections 15(b), 15(c)(3) and 17(a) of the Exchange Act, and Rules 15b-2, 15c3–1, 17a-3 and 17a-5 thereunder. In view of the willful violations we have found, we conclude that it is in the public interest to revoke registrant's registration as a broker and dealer, and we find that Sills is a cause of such revocation.
6 Registrant used the malls and the facilities of interstate commerce to effect transactions in securities during all the periods involved in this proceeding.
7 Cf. Batkin de Co., Securities Exchange Act Release No. 5709 (June 9, 1958); W. F. Coley & Company, Inc., 31 S.E.C. 722 (1950); Lewis H. Ankeny & Co., 29 S.E.C. 814 (1949); Harold G. Wise, 29 8.E.C. 642 (1949).
The record at this time does not include any evidence relating to the issue raised with respect to Green. Our Division of Trading and Exchanges has informed us that service of the order for pro ceeding was not made on Green, that a warrant for his arrest was issued in Florida, and that he is a fugitive. The Division accordingly has filed a motion that we reserve jurisdiction to reopen the record in this proceeding on the request of either Green or the Division for the purpose of presenting evidence on the question raised in the order for proceedings regarding Green. Under the circumstances our order will so provide.
An appropriate order will issue.
By the Commission (Chairman Gadsby and Commissioners Orrick, Patterson, Hastings and Sargent).
The following digest of decisions presents a consolidated summary
The case headnotes have not been carried over verbatim into this
*During the period covered by this volume there were no opinions containing case head-