William C. Piontek
SECURITIES ACT OF 1933
Rel. No.8344 / December 11, 2003
SECURITIES EXCHANGE ACT OF 1934
Rel. No.48903 / December 11, 2003
Admin. Proc. File No. 3-10310
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In the Matter of WILLIAM C. PIONTEK |
ORDER IMPOSING REMEDIAL SANCTIONS
On the basis of the Commission's opinion issued this day, it is
ORDERED that William C. Piontek ("Piontek") be barred from association with any broker or dealer or with any member of a national securities exchange or of a registered securities association, provided, that he may apply to become so associated in a non-supervisory, non-proprietary capacity after two years; and it is further
ORDERED that Piontek cease and desist from committing or causing any violations or any future violations of Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934, and Exchange Act Rule 10b-5; and it is further
ORDERED that Piontek pay a civil money penalty of $50,000.
Piontek's civil money penalty shall be: (i) made by United States postal money order, certified check, bank cashier's check, or bank money order; (ii) made payable to the Securities and Exchange Commission; (iii) delivered by hand or courier to the Office of Financial Management, Securities and Exchange Commission, Operations Center, 6432 General Green Way, Stop 0-3, Alexandria, Virginia 22312 within thirty days of the date of this order; and (iv) submitted under cover letter which identifies
Piontek as the respondent in Administrative Proceeding No. 3-10310. A copy of this cover letter and check shall be sent to Thomas D. Carter, Counsel for the Division of Enforcement, Securities and Exchange Commission, 1801 California Street, Suite 1500, Denver, Colorado 80202.
By the Commission.
Jonathan G. Katz
Secretary
Endnotes
1 The Commission originally instituted these proceedings against respondents Dale E. Frey, Roger A. Rawlings, and William C. Piontek. Without admitting or denying the allegations, Mr. Frey and Mr. Rawlings settled with the Commission. Dale E. Frey, Order Making Findings And Imposing Remedial Sanctions Against Dale E. Frey, Exchange Act Rel. No. 44982 (Oct. 25, 2001), 76 SEC Docket 315 (imposing censure and suspension from association in a supervisory or proprietary capacity with any broker or dealer for twelve months); Roger A. Rawlings, Order Making Findings And Imposing Remedial Sanctions Against Roger A. Rawlings, Exchange Act Rel. No. 44634 (Aug. 1, 2001), 75 SEC Docket 1551 (imposing censure and suspension from association in a supervisory or proprietary capacity with any broker or dealer for one year).
2 15 U.S.C. § 77q(a).
3 15 U.S.C. § 78j(b).
4 17 C.F.R. § 240.10b-5.
5 See Section IV., infra.
6 Frey was registered as a broker-dealer and investment adviser with the Commission. Without admitting or denying the allegations that it failed reasonably to supervise certain sales persons, Frey settled an administrative proceeding with the Commission.D.E. Frey & Company, Inc., Order Instituting Public Proceedings Pursuant to Sections 51(b) and 19(h) of the Securities Exchange Act of 1934, Making Findings and Imposing Remedial Sanctions, Exchange Act Rel. No. 43354 (Sept. 26, 2000), 73 SEC Docket 1240 (imposing censure, ordering compliance with certain undertaking to ensure that its supervisory and compliance policies, procedures and systems were adequate, and ordering a civil money penalty of $100,000).
7 The Qualification Form focused on customer suitability. The Compliance Manual identified factors to be considered in determining whether options were suitable for a customer, including: age, marital status and number of dependents, earned and unearned income, total net worth and liquid net worth, market and financial sophistication and experience, investment objectives, understanding of the potential risks and rewards of a proposed transaction or strategy, ability to undertake the potential financial risks, occupation and previous investment experience.
8 The record does not identify the Equity Compliance Registered Options Principal.
9 Dean had signed a Qualification Form and an Options Agreement in 1994 and 1995, but neither the Frey Senior Equity Registered Options Principal nor the Equity Compliance Registered Options Principal had reviewed the forms or approved options trading for Dean's account. Dean's 1994 Qualification Form contains no signature by a registered options principal. Piontek testified that in 1994, when he moved to Frey, he was not a registered optionsprincipal. On the 1995 form, Piontek signed the form as "ROP" (i.e., registered options principal).
Dean testified that he never intended these documents to serve as a general authorization to engage in options trading. Rather, in 1994 and 1995, part of his account was invested in an investment trust, and he signed these documents solely for use in connection with that investment. The record contained a Qualification Form purportedly for Dean, dated September 22, 1998, but someone other than Dean completed it, and Dean never executed that form.
10 This decline included a one-year drop of $131,000 between July 1997 and June 1998.
11 Beginning on August 26, 1998, Piontek made day-trades, buying, and then selling, ten NASDAQ put options, risking over $41,000, and buying and selling seven NASDAQ call options, risking over $20,000. On August 28, 1998, Piontek again day-traded into and out of fourteen NASDAQ call options, risking over $40,000. Three days later, Piontek bought and sold two NASDAQ put options, risking over $20,000.
12 Dean testified that Piontek told Dean about purchase of the eight put options and that he agreed to participate in the conference call. Piontek, however, did not tell Dean of the thirty-three trades in his account that Piontek had made the previous week, and Dean did not learn of these trades until he received confirmations of the trades later in September 1998.
13 On September 2, 1998, Gillespie instructed Piontek to provide Gillespie with copies of Qualification Forms for fourteen accounts that Piontek represented. On September 16, 1998, Gillespie sent Piontek a memorandum forbidding Piontek from opening options accounts and entering orders until Gillespie had reviewed the account information and approved the trades.
Dominick followed this memorandum with a letter to Piontek, dated September 24, 1998, which stated that the Frey Compliance Steering Committee had prohibited Piontek from executing option transactions in IRA or pension accounts. Dominick's memorandum also noted that options transactions in other types of accounts should not exceed ten percent of a customer's liquid net worth. It further recommended that Piontek obtain letters from customers stating that they wanted options in their accounts. In late September (three weeks after the last trade in Dean's account), Piontek tried to persuade Dean to execute paperwork authorizing options transactions, but Dean refused.
14 Frey listed Chip Owens as the account executive for Dean's account. However, all the trades in Dean's account that are at issue here were effected by Piontek.
15 Hamby's wife never spoke with Piontek or signed any forms.
16 Hamby testified that he had hoped to retire at this time, but he subsequently continued working.
17 Hamby defined conservative investing as managing risks by liquidating any investment that fell more than ten percent.
18 Frey's Supervisory Procedure Manual required all grants of discretion, other than time and price discretion, to be in writing.
19 The law judge found that, despite his authorization of these trades, Hamby did not understand the nature of short-sales or the significant risks involved.
20 Piontek believed that Hamby could tolerate the risk of losing everything in his account.
21 Hamby testified that Piontek told Hamby that both Piontek and Murray maintained positions in the puts. In fact, Piontek did not have a position in puts on that date, and Murray sold his position two days later, October 8, 1998.
22 According to Piontek, given the size of the spread between the bid and the ask prices, the ten percent stop loss order would have immediately triggered a sale of the NASDAQ Options. Hamby did not recall Piontek telling him this.
23 See, e.g., KPMG Peat Marwick LLP, Exchange Act Rel. No. 44050 (Mar. 8, 2001), 74 SEC Docket 1351, 1354, quoting Aloha Airlines v. CAB, 598 F.2d 250, 262 (D.C. Cir. 1979) ("notice is sufficient if the respondent 'understood the issue' and 'was afforded full opportunity' to justify its conduct during the course of litigation.").
24 Id.See also Sandra K. Simpson, Exchange Act Rel. No. 45923 (May 14, 2002), 77 SEC Docket 1983, 2007 n.50.
Piontek has not challenged any of the facts that support the law judge's findings. In his brief, Piontek noted that the law judge's finding of violations were "[b]ased upon careful consideration of the evidence and testimony."
25 Simpson, 77 SEC Docket at 2001, citing Donald A. Roche, 53 S.E.C. 16, 24 (1997) and Messer v. E.F. Hutton & Co., 847 F.2d 673, 678 (11th Cir. 1987) (other citations omitted).
26 Roche, 53 S.E.C. at 24.
27 See Simpson, 77 SEC Docket at 2002-03. See also Justine Susan Fischer, 53 S.E.C. 734, 742 (1998)(NYSE case).
28 J. Stephen Stout, Exchange Act Rel. No. 43410 (Oct. 4, 2000), 73 SEC Docket 1441, 1460.See also Donald T. Sheldon, 51 S.E.C. 59, 74 n.59 (1992) ("the broker has a duty to satisfy himself that speculative investments are suitable for the customer and that the customer understands and is willing to undertake the risks."), aff'd, 45 F.3d 1515 (11th Cir. 1995).
29 The Division's expert witness testified that the day-trading and purchasing of index options in an IRA account constituted an extreme deviation from the standards of the industry.
30 See Henry James Faragalli, Jr., 52 S.E.C. 1132, 1141 (1996); see also Arthur Joseph Lewis, 50 S.E.C. 747, 749 (1991)("[t]he fact that a customer . . . may be wealthy does not provide a basis for recommending risky investments"); David Joseph Dambro, 51 S.E.C. 513, 517 (1993) ("[s]uitability is determined by the appropriateness of the investment for the investor, not simply whether the salesman believes that the investor can afford to lose the money invested.").
31 See John M. Reynolds, 50 S.E.C. 805, 809 (1992)(regardless of whether customer wanted to engage in aggressive and speculative trading, representative was obligated to abstain from making recommendations that were inconsistent with the customer's financial situation), amended on other grounds, Exchange Act Rel. No. 30036A (Feb. 25, 1992), 50 SEC Docket 1839.See also Gordon Scott Venters, 51 S.E.C. 292, 294-95 (1993)(notwithstanding client's interest in investing in speculative securities, broker had duty to refrain from recommending such investments when he learned about his customer's age and financial situation); F.J. Kaufman and Company of Virginia, 50 S.E.C. 164, 168 (1989)("[t]he suitability rule . . . requires a broker to make a customer-specific determination of suitability and to tailor his recommendations to the customer's financial profile and investment objectives").
32 Butz v. Glover Livestock Comm'n Co., Inc., 411 U.S. 182, 185 (1973).
33 15 U.S.C. § 78o(b)(6)(A)(i).See also Exchange Act
§ 19(h)(3)(B), 15 U.S.C. § 78s(h)(3)(B) (authorizing the Commission to suspend or bar a respondent from association with a member of an exchange or a registered securities association). In imposing sanctions against a respondent, we consider the egregiousness of the respondent's actions, the isolated or recurrent nature of the infraction, the degree of scienter involved, the sincerity of any assurances against future violations, the respondent's recognition of the wrongful nature of the conduct, and the likelihood that the respondent's occupation will present opportunities for future violations.See Joseph J. Barbato, 53 S.E.C. 1259, 1281 n.31 (1999); Sheldon, 51 S.E.C. at 86; see also Steadman v. S.E.C., 603 F.2d 1126, 1140 (5th Cir. 1979), aff'd on other grounds, 450 U.S. 91 (1981).
34 It appears that the state actions responded in part to Piontek's history of customer and arbitration complaints for recommending unsuitable or unauthorized trades. The record and CRD show that, since 1994, Piontek had been the subject of at least thirty customer complaints.
35 15 U.S.C. § 77h-1.
36 15 U.S.C. § 78u-3.
37 KPMG, LLP v. S.E.C., 289 F.3d 109, 124 (D.C. Cir. 2002)("[a]bsent evidence to the contrary, a finding of past violation raises sufficient risk of future violation.").
38 15 U.S.C. § 78u-2.
39 15 U.S.C. § 78u-2(a). Section 21B(b) of the Exchange Act, 15 U.S.C. § 78u-2(b), provides for three tiers of civil money penalties. For violations occurring after December 9, 1996, and before February 2, 2001, the maximum first tier penalty against a natural person is $5,500 for each act or omission. 17 C.F.R. § 201.1001. The second tier maximum amount is $55,000 when the act or omission involves fraud, deceit, manipulation, or deliberate or reckless disregard of a regulatory requirement. Id. The Division requests the third tier maximum penalty of $110,000, which applies when, in addition to the above, there are substantial losses, or a significant risk of substantial losses, to the customer or pecuniary gain to the actor. Id.
40 15 U.S.C. § 78u-2(c).
41 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.