Anthony A. Adonnino and Thomas Cannizzaro

SECURITIES EXCHANGE ACT OF 1934
Rel. No.48618 / October 9, 2003

Admin. Proc. File No. 3-10916

In the Matter of the Application of ANTHONY A. ADONNINO and THOMAS CANNIZZARO For Review of Disciplinary Action Taken by the NEW YORK STOCK EXCHANGE, INC.

ORDER SUSTAINING DISCIPLINARY ACTION TAKEN BY NATIONAL SECURITIES EXCHANGE

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

ORDERED that the disciplinary action taken by the New York Stock Exchange, Inc. against Anthony A. Adonnino and Thomas Cannizzaro be, and it hereby is, sustained.

By the Commission.

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1 15 U.S.C. § 78k(a). Section 11(a), subject to certain exemptions not relevant here, makes it "unlawful for any member of a national securities exchange to effect any transaction on such exchange for its own account, the account of an associated person, or an account with respect to which it or an associated person thereof exercises investment discretion."

2 17 C.F.R. § 240.11a-1. Rule 11a-1, with certain exceptions not relevant here, prohibits an exchange member, while on the trading floor, from initiating any transaction in any security traded on the exchange for any account "in which such member has an interest, or for any such account with respect to which such member has discretion."

3 As construed by the Commission and the courts, NYSE Rule 401 requires brokers and dealers to conduct their business consistent with high standards of commercial honor and just and equitable principles of trade. Keith Springer, Exchange Act Rel. No. 45439 (Feb. 13, 2002), 76 SEC Docket 2726, 2727 n.2 (citing Sacks v. Reynolds Sec., 593 F.2d 1234, 1242 (D.C. Cir. 1978)).

4 NYSE Rule 440 requires brokers and dealers to make and preserve books and records prescribed by the NYSE and by Exchange Act Rules 17a-3 and 17a-4.

Exchange Act Rules 17a-3 and 17a-4, 17 C.F.R. §§ 240.17a-3 and 240.17a-4, require brokers and dealers to make andpreserve certain books and records regarding executed securities transactions and customer accounts.

5 NYSE Rule 342(a), in relevant part, requires that "[a] person in charge of a group of employees shall reasonably discharge his duties and obligations in connection with supervision and control of the activities of those employees related to the business of their employer and compliance with securities laws and regulations." NYSE Rule 342(b), in relevant part, requires that the person at a member organization who is designated to assume overall responsibility for internal supervision and compliance with securities laws and regulations shall (1) "delegate to qualified principals or employees responsibility and authority for supervision and control of each office, department or business activity, and provide for appropriate procedures of supervision and control," and (2) "establish a separate system of follow-up and review to assure that the delegated authority and responsibility [are] being appropriately exercised."

6 Burwick had done business with AFC in 1993-94, when he was employed as a trader by Oakford Corporation. At that time, his dealings with AFC were through a different representative. Burwick testified that he ended the relationship with that representative because Burwick was annoyed that his account was running a $13,000 deficit. Applicants' conduct during that period is not at issue in this proceeding.

7 In November 1995, AFC billed Burwick $5,698, and was paid$22,840.

8 Between April and August 1996, for example, AFC billed Burwick more than $7,000. Burwick paid nothing.

9 As noted above, see supra n.6, Burwick's account was showing a deficit of approximately $13,000 at the end of 1994. Burwick testified that Cannizzaro agreed that AFC would "cut the deficit in half" if Burwick would resume his business relationship with AFC.

10 Burwick testified that he was "quite sure" that he discussed compensation arrangements with Cannizzaro at about the time Burwick began doing business with AFC in1995. Burwick explained that this discussion was in connection with the proposal that AFC reduce the deficit in Burwick's account by half as a condition of resuming the business relationship. See supra n.9. Although Burwick could not remember a specific conversation in which he discussed establishing the profit-sharing relationship with Adonnino, he testified that, during the period at issue, "[W]henever I would do business with anybody on the floor, . . . they were told that I compensated people with a percentage of the profits. . . . I had an agreement with everybody that was doing business for me and the agreement was that they were getting paid a percentage of the profits."

Burwick testified that the percentage of profits paid to AFC started at 50% in 1993, when he first began doing business with AFC, see supra n. 6, then increased by "about another 10%." Based on AFC's floor work, Burwick's account statements, and check stubs, among other evidence, the Exchange showed payments ranging from 50.0 to 63.7% of profits for the period from June 1995 (when the account emerged from the net loss position it had been operating at since Cannizzaro reintroduced the account to AFC) to May 1997.

11 Joseph Adoninno, a floor clerk with AFC and Applicant Adonnino's brother, testified that IG also sometimes cleared through Bear, Stearns. Jerome Reda, a manager in the NYSE's Market Surveillance Division who appeared as an expert witness, testified that IG cleared only through Ernst & Co.

12 In a December 1995 telephone conversation, Adonnino complained to Gonzalez that the changes were "killing" him because "I have regulations that I have to comply [with] . . . I have to give up the names that I'm going to be giving up beforehand."

13 These rules and regulations include, among others, obtaining fidelity bond coverage pursuant to Exchange Rule 319 and filing certain reports pursuant to Exchange Act Rule 17a-5. See generally NYSE Information Memo No. 91-25 (July 8, 1991), 1991 NYSE Info. Memo LEXIS 39 (discussing regulatory requirements for NYSE members andfirms conducting a public business).

14 See generally John R. D'Alessio, Exchange Act Rel. No. 47627 (April 3, 2003), 79 SEC Docket 3627, 3630-31, appeal pending, No. 03-4883 (2d Cir.)(explaining regulatory background for Section 11(a) and Rule 11a-1).

15 We have previously stated that a compensation arrangement that results in an Exchange member sharing in the performance of an account, regardless of how it is structured, constitutes an "interest" in the account. John R. D'Alessio, 79 SEC Docket at 3637 (quoting New York Stock Exchange, Inc., Exchange Act Rel. No. 41574 (June 29, 1999), 70 SEC Docket 153, 156 (Order Instituting Public Proceedings Pursuant to Section 19(h)(1) of the Securities Exchange Act of 1934, Making Findings and Ordering Compliance With Undertakings)).

16 As noted above, see supra n. 10, Burwick's payments to AFC between June 1995 and May 1997 ranged from 50.0 to 63.7% of profits. These percentages are much more consistent with the testimony that there was an agreement than those in Matter of X, relied on by Applicants as a basis for their claim that the profit-sharing arrangement alleged was not established. In that matter, the Exchange found that evidence of payments ranging from 25.3 to 257.4% of profits was inconsistent with an alleged agreement to pay 70% of profits. Matter of X, New York Stock Exchange Panel Hearing Decision 02-114 (July 29, 2002), www.nyse.com/pdfs/02-114x.pdf.

Applicants argue that Burwick's testimony as to the profit-sharing arrangement was not convincing because he did not demonstrate an independent recollection of the percentages of profits to be shared, either during his investigative testimony or at the hearing, but instead agreed, in both instances, to percentages suggested by NYSE Enforcement. As noted, see supra n. 10 and accompanying text, Burwick testified directly about the profit-sharing arrangement with AFC. The hearing panel found the testimony convincing, as do we, particularly given its consistency with the documentary evidence.

17 The desire to keep prohibited conduct secret is consistent with AFC sending Burwick bills based on a rate of $1.00 per 100 shares executed, and with the testimony of AFC's bookkeeper that no one ever suggested to her that Burwick was paying commissions based on profit sharing.

18 E.g., Kenneth R. Ward, Securities Act Rel. No. 8210 (Mar. 19, 2003), 79 SEC Docket 3035, 3055-56, aff'd, No. 03-60437 (5th Cir. Sept. 25, 2003); Daniel D. Manoff, Exchange Act Rel. No. 46708 (Oct. 23, 2002), 78 SEC Docket 2359, 2363; Joseph S. Barbera, Exchange Act Rel. No. 43528 (Nov. 7, 2000), 73 SEC Docket 2271, 2281 n.30; Cathy Jean Krause Kirkpatrick, 53 S.E.C. 918, 927 (1998).

Also irrelevant is Applicants' argument that disciplining them for violations of Section 11(a) and Rule 11a-1 based on a profit-sharing result rather than an agreement to share profits and losses would constitute an unfair and unconstitutional application of regulatory prohibitions and interpretations that were promulgated after the events in question. Here we find that the profit sharing was by arrangement, not based on a unilateral decision by Burwick; Applicants do not assert lack of notice thattrading in a customer account in which the member shares in profits and losses was prohibited.

19 While the net profit in the account may have made a minor impact on AFC's bottom line, it provided additional income to Cannizzaro.

20 Applicants note that the hearing panel dismissed charges that Peter Cammalleri, the floor broker who executed most of Burwick's orders, had an interest in Burwick's account. They assert that this dismissal is inconsistent with the Exchange's findings of violation by Applicants. We disagree. As we read the hearing panel's decision, Cammalleri's role differed from that of Applicants, as did the evidence pertaining to his knowledge of the profit sharing.

21 See, e.g., Baikie & Alcantara Inc., 47 S.E.C. 851, 853 (1983); James E. Ryan, 47 S.E.C. 759, 763-65 (1982).

22 E.g., LSCO Sec., Inc., 49 S.E.C. 1126, 1130 n.16 (1989); David R. Williams, 48 S.E.C. 122, 123 (1985).

23 Adonnino contends that AFC's involvement with public customers at the time of the NYSE examination was completely different from its involvement with Gonzalez. While the specifics are different, the underlying problem -- improperly doing public customer business -- is the same. The 1995 examination should have heightened Adoninno's sensitivity to the problem, in whatever form it appeared.

Adonnino argues that the Exchange's findings that Adonnino caused AFC to do business with a public customer cannot be reconciled with the hearing panel's finding, in a separate opinion, that Adonnino's brother, Joseph Adonnino, a floor clerk with AFC, was not guilty of charges against him in connection with his handling of Gonzalez's orders and execution reports. We have not reviewed the record in that matter. Based on the hearing panel's decision, however, we note that the charges based on allocations of trades were dismissed as not established as to both Adonnino and Joseph Adonnino. Thus, it appears that the opinions are not inconsistent in that respect. Moreover, although the hearing panel found the evidence insufficient to establish that Joseph Adonnino and the other clerks had any special knowledge of the existence of Gonzalez's personal account, that finding does not apply to Adonnino, who was an AFC principal, not a clerk, and who knew that Gonzalez had a personal account.

24 In his defense, Adonnino points to various sources of potential evidence that he asserts would support a charge of this nature and emphasizes that the NYSE did not introduce such evidence. The argument is unavailing, as the NYSE presented sufficient evidence of its choosing.

25 As we have previously held, a supervisor's participation in the misconduct of subordinates is itself a supervisory failure. John Montelbano, Exchange Act Rel. No. 47227 (Jan. 22, 2003), 79 SEC Docket 1474, 1487.

26 In relevant part, Rule 476(c) allows hearing officers to require the Exchange to permit applicants "to inspect and copy documents or records in the possession of the Exchange which are material to the preparation of thedefense or are intended for use by the Division or Department of the Exchange initiating the proceeding as evidence in chief at the proceeding." Applicants concede that NYSE Enforcement did not memorialize the witness interview in writing or by recording it.

27 Compare Rita H. Malm, 52 S.E.C. 64, 75 n.37 (1994) (disciplinary proceedings conducted by self-regulatory organizations are informal in comparison to proceedings in state and federal courts, and hearing panels have "great latitude" in determining what testimony to allow).

Applicants also contend that they were prejudiced by what they characterize as "the biased and improper shaping of witness testimony" before the hearing. They argue that NYSE Enforcement counsel repeatedly interrupted Burwick's testimony during a deposition for "off the record" discussions with Burwick and that counsel did not, after Burwick's testimony resumed, either state that the off-the-record discussion was non-substantive or indicate what the substance had been. Applicants characterize counsel's actions as "an improper creation of evidence."

While it is better practice for counsel to clarify, after an off-the-record colloquy, whether the colloquy was non-substantive or, if not, what its substance was, we do not conclude on this record that any impropriety occurred. Applicants have not established their claim of prejudice. Further, Burwick's testimony before the hearing panel was subject to Applicants' cross-examination and to critical assessment as to credibility and reliability by the hearing officer and panelists.

28 Under the NYSE's Rules, appeals from hearing panel decisions are to the NYSE's Board of Directors. NYSE Rule 476(f). Oral argument in this proceeding was heldbefore the Board's Committee for Review, which also reviewed the record and the parties' briefs. The Board as a whole, by majority vote, determines the outcome of the proceeding. See NYSE Rule 476(f).

29 Applicants contend that NYSE Enforcement's characterization in the briefs submitted to the Committee for Review of Gonzalez's trading for his own account as "a cherry-picking scheme" is misleading and improper. They argue that Gonzalez was not found to have participated in such a scheme and that the use of thisterm influenced the NYSE to sustain the sanctions against Adoninno.

Gonzalez's conduct was not under review by the NYSE in this proceeding, nor is it the subject of our review. We see no reason to believe that the NYSE was influenced by counsel's use of the term "cherry picking" to characterize Gonzalez's conduct, and, again, our de novo review provides an additional safeguard against any such influence.

30 Section 19(e)(2) of the Exchange Act, 15 U.S.C. § 78s(e)(2). Applicants do not assert, and the record does not show, that the NYSE's action imposes an undue burden on competition.

31 See, e.g., Butz v. Glover Livestock Comm'n Co., 411 U.S. 182, 187 (1973); see also, e.g., John R. D'Alessio, 79 SEC Docket at 3627; Jonathan Feins, Exchange Act Rel. No. 41943 (Sept. 29, 1999), 70 SEC Docket 2116, 2131 n.36.

32 E.g., Howard Perles, Exchange Act Rel. No. 45691 (April 4, 2002), 77 SEC Docket 896, 914; Richard J. Puccio, 52 S.E.C. 1041, 1045 (1996).

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