UNITED STATES OF AMERICA Before the SECURITIES AND EXCHANGE COMMISSION SECURITIES EXCHANGE ACT OF 1934 Release No. 34-40909 / January 11, 1999 ADMINISTRATIVE PROCEEDING File No. 3-9803 ___________________________________ : In the Matter of : ORDER MAKING FINDINGS : AND IMPOSING CERTAIN MARKET MAKING : SANCTIONS AS TO ACTIVITIES ON NASDAQ : HERZOG, HEINE, : GEDULD, INC., : RONALD F. CULLEN, JR. ___________________________________: AND BRADLEY ZIPPER I. In the accompanying Order Instituting Proceedings Pursuant to Sections 15(b) and 21C of the Securities Exchange Act of 1934 and Findings of the Commission ("Order Instituting Proceedings"), the Securities and Exchange Commission ("Commission") instituted these public administrative proceedings against Herzog, Heine, Geduld, Inc.("Herzog"), Ronald F. Cullen , Jr. ("Cullen"), Bradley Zipper ("Zipper"), and others firms and individuals. Contemporaneously, Herzog, Cullen, and Zipper ("Respondents") have submitted their Offers of Settlement ("Offers") in anticipation of the institution of these proceedings, which the Commission has determined to accept. In their Offers, Respondents, solely for the purposes of these proceedings and any other proceedings brought by or on behalf of the Commission or to which the Commission is a party, prior to a hearing pursuant to the Commission’s Rules of Practice, and without admitting or denying the findings herein, except for the findings of Section II.A., which are admitted, have consented to the entry of the Order Instituting Proceedings and this Order Making Findings and Imposing Sanctions as to Herzog, Heine, Geduld, Inc., Ronald F. Cullen, Jr. and Bradley Zipper (which are hereinafter referred to as the "Orders"). The Commission has determined that it is appropriate and in the public interest to accept the Respondents’ Offers and accordingly is issuing this Order. II. On the basis of the Orders and Respondents’ Offers, the Commission finds[1] the following: A. Respondents Herzog, a New York corporation, is registered with the Commission as a broker-dealer pursuant to Section 15(b) of the Securities Exchange Act of 1934 ("Exchange Act"). At all relevant times, Herzog made markets in a number of securities traded in the Nasdaq market. Herzog, Heine, Geduld, Inc.'‘s principal place of business during the relevant time period was New York, New York. Herzog traded Nasdaq stocks for its own accounts and for the accounts of institutional and retail investors. At all times relevant herein, Herzog was a member of the National Association of Securities Dealers, Inc. ("NASD"), a national securities association registered with the Commission under Section 15A of the Exchange Act. Cullen, 33 , resides in Bernardsville, New Jersey and, at all relevant times, was a Nasdaq trader at Herzog. As a Nasdaq trader, Cullen, Jr. was responsible for making markets in certain securities traded on the Nasdaq Stock Market. Zipper, 34 , resides in New York, New York and, at all relevant times, was a Nasdaq trader at Herzog. As a Nasdaq trader, Zipper was responsible for making markets in certain securities traded on the Nasdaq Stock Market. B. Factual Summary In connection with its activities as a Nasdaq market maker, Herzog, Cullen, and Zipper engaged in the following activities, as more fully described in the applicable sections of the accompanying Order Instituting Proceedings, in the following securities and on the following dates. 1. DSPG Manipulation Beginning in August 1994 and continuing through October 1994, respondents PaineWebber and Herzog, and certain Nasdaq traders employed at these firms, engaged in various courses of manipulative conduct with respect to the stock of DSP Group, Inc. ("DSPG"). These courses of conduct involved coordinating the quotations disseminated by these firms on the Nasdaq market, and engaging in other improper conduct, to create prices favorable to PaineWebber and detrimental to the customers of PaineWebber. As a result, certain shareholders of DSPG sold stock at artificially low prices and certain investors purchased DSPG stock at artificially high prices. On August 17, 1994, DSPG announced that a unit of AT&T Corp. had entered into an agreement to use DSPG’s voice- compression technology. This announcement spurred demand for DSPG stock and its price rose 15% on August 17, 1994. Because of these developments, certain existing DSPG shareholders sought to sell at the newly elevated prices and certain investors sought to purchase DSPG stock. a. Improper Market Maker Coordination On a limited number of occasions in the period August through October of 1994, respondent Cullen agreed to coordinate Herzog’s quotations and trading activities in the stock of DSPG, with traders at PaineWebber in attempts, usually successful, to artificially depress the inside bid price, so that PaineWebber could purchase DSPG stock more cheaply, or to artificially raise the inside ask price, so that PaineWebber could sell DSPG stock at higher prices. These coordinated activities were directed at securing a trading advantage for PaineWebber, often at the expense of customers or other market participants. Among other things, such coordination facilitated efforts by PaineWebber to take advantage of an institutional customer that placed "buy on close" orders (i.e., orders to buy filled at the closing inside ask price) for DSPG stock. Traders at PaineWebber, including respondents Coppola and J. Raiola, sought to maximize the prices at which they could sell stock to fill the buy on close orders by coordinating PaineWebber’s quotations in DSPG stock with the quotations displayed on behalf of Herzog by Cullen, in order to artificially elevate the closing ask price. These artificially elevated closing ask prices improperly allowed PaineWebber to execute the buy on close orders at a higher price than would have existed naturally in the market. Thus, they manipulated the market to create prices more favorable to PaineWebber’s proprietary interests and less favorable to the interests of the customer placing these orders. In view of the foregoing, respondents Herzog and Cullen violated Sections 15(c)(1) and (2) of the Exchange Act and Rules 15c1-2 and 15c2-7 thereunder. 21. The Fraudulent Coordination of Quote Movements Herzog engaged in, or caused, the coordinated entry of quotations on Nasdaq in violation of Sections 15(c)(1) and (2) of the Exchange Act and Rules 15c1-2 and 15c2-7 thereunder, in one or more of the respects described in Section II.C.1. of the Order Instituting Proceedings in a market making transaction or a related series of market making transactions in: a. the stock of Microsoft Corp. ("MSFT") on August 8, 1994, aided and abetted by its trader Zipper; b. the stock of United Video Satellite Group, Inc., Class A ("USVGA") on August 9, 1994; c. the stock of Cobra Golf, Inc. ("CBRA") on April 8, 1994; and d. the stock of The AES Corp. ("AESC") on June 17, 1994. 32. Undisclosed Arrangements to Coordinate Quotations Herzog entered, or caused to be entered, in the Nasdaq market fictitious quotations in one or more respects described in Section II.C.2. of the Order Instituting Proceedings in violation of Section 15(c)(2) of the Exchange Act and Rule 15c2-7 thereunder, in a market making transaction or a related series of market making transactions in: a. the stock of Players International, Inc. ("PLAY") on September 20, 1994, aided and abetted by its trader Zipper; b. the stock of Simpson Manufacturing Company, Inc. ("SMCO") on October 11, 1994, aided and abetted by its trader Zipper; c. the stock of NEXTEL Communications, Inc. ("CALL") on April 7, 1994; d. the stock of MTL, Inc. ("MTLI") on September 22, 1994; e. the stock of Players International, Inc. ("PLAY") on September 20, 1994; and f. the stock of Tele-Communications, Inc., Class A ("TCOMA") on September 16, 1994. 43. Intentional Delaying of Trade Reports Herzog engaged in, or caused, a manipulation by delaying trade reporting in one or more of the respects described in Section II.C.3. of the Order Instituting Proceedings in violation of Section 15(c)(1) of the Exchange Act and Rule 15c1-2 thereunder, in a market making transaction or a related series of market making transactions in: a. the stock of Simpson Manufacturing Co., Inc. ("SMCO") on October 5, 1994, aided and abetted by its trader Zipper. 4. Improper DSPG Trading Beginning in August 1994 and continuing through October 1994, respondents PaineWebber, Inc. ("PaineWebber") and Herzog, and certain Nasdaq traders employed at these firms, engaged in manipulative conduct with respect to the stock of DSP Group, Inc. ("DSPG"). This course of conduct involved coordinating the quotations disseminated by these firms on the Nasdaq market, and engaging in other improper conduct, to create prices favorable to PaineWebber and detrimental to the customers of PaineWebber. As a result, certain shareholders of DSPG sold stock at artificially low prices and certain investors purchased DSPG stock at artificially high prices.[2] On a limited number of occasions in the period August through October of 1994, respondent Cullen coordinated Herzog’s quotations and trading activities in the stock of DSPG with a trader at PaineWebber in attempts, usually successful, to deliberately depress the inside bid price or raise the inside ask price, so that PaineWebber could either purchase DSPG stock more cheaply or sell DSPG stock at higher prices. These coordinated activities were directed at securing a trading advantage for PaineWebber, often at the expense of its customers. Among other things, such coordination facilitated efforts by PaineWebber to take advantage of an institutional customer that placed "buy on close" orders (i.e., orders to buy filled at the closing inside ask price) for DSPG stock. PaineWebber trader Joseph H. Raiola sought to increase the prices at which he could sell stock to fill the buy on close orders by coordinating PaineWebber’s quotations in DSPG stock with the quotations displayed on behalf of Herzog by Cullen, thereby improperly elevating the closing ask price at which PaineWebber executed the buy on close orders. The prices they created in the market were more favorable to PaineWebber’s proprietary interests and less favorable to the interests of the customer placing these orders. In view of the foregoing, respondents Herzog and Cullen violated Sections 15(c)(1) and (2) of the Exchange Act and Rules 15c1-2 and 15c2-7 thereunder. **FOOTNOTES** [1]: The findings herein are solely for the purpose of these proceedings, and are not binding on any person not a respondent in these proceedings. [2]: On August 17, 1994, DSPG announced that a unit of AT&T Corp. had entered into an agreement to use DSPG’s voice-compression technology. This announcement spurred demand for DSPG stock and its price rose 15% on August 17, 1994. Because of these developments, certain existing DSPG shareholders sought to sell at the newly elevated prices and certain investors sought to purchase DSPG stock. 1 5. Failure to Keep Accurate Books and Records Herzog failed to keep and maintain accurate books and records in one or more of the respects described in Section II.C.7. of the Order Instituting Proceedings in violation of Section 17(a) of the Exchange Act and Rule 17a-3 thereunder, in a market making transaction or a related series of market making transactions in: a. the stock of NEXTEL Communications, Inc. ("CALL") on April 6, 1994; b. the stock of Tele-Communications, Inc., Class A ("TCOMA") on September 16, 1994; and c. the stock of Microsoft Corp. ("MSFT") on August 8, 1994. 6. Failure to Reasonably Supervise Nasdaq Trading Herzog failed reasonably to supervise its Nasdaq market making activities with a view to preventing future violations within the meaning of Section 15(b)(4)(E) of the Exchange Act, in one or more of the respects described in Section II.C.8.a. and b. of the Order Instituting Proceedings. 7. Unlawful Profits and Other Gains While engaged in certain of the improper activities described above, Herzog obtained unlawful profits and gains, which, together with interest, total $7251.00. III. By reason of the foregoing, Herzog willfully violated Sections 15(c)(1) and (2) and 17(a) of the Exchange Act, and Rules 15c1-2, 15c2-7, and 17a-3 thereunder, and failed reasonably to supervise its Nasdaq trading personnel within the meaning of Section 15(b)(4)(E) of the Exchange Act. Cullen and Zipper willfully aided and abetted and caused violations of Section 15(c)(1) and (2) of the Exchange Act and Rules 15c1-2 and 15c2-7 thereunder. 2 IV. In view of the foregoing and Respondents’ Offers, IT IS HEREBY ORDERED, pursuant to Sections 15(b) and 21C of the Exchange Act, that: 1. Herzog shall cease and desist from committing or causing any violation of, and committing or causing any future violation of Sections 15(c)(1) and (2) and 17(a) of the Exchange Act, and Rules 15c1-2, 15c2-7, and 17a-3 thereunder; 2. Herzog shall, within 10 business days of the entry of this Order, pay a civil penalty in the amount of $610,000.00 by wire transfer in accordance with instructions furnished by the Commission staff, or by U.S. Postal money order, certified check, bank cashier’s check, or bank money order, made payable to the Securities and Exchange Commission, which shall be hand-delivered or mailed to the Comptroller, Securities and Exchange Commission, Operations Center, 6432 General Green Way, Mail Stop O-3, Alexandria, VA 22312, under cover of a letter that identifies Herzog as a Respondent in these proceedings and provides the caption and file number for these proceedings, with (a) written confirmation of payment of such wire transfer, or (b) a copy of such cover letter and money order or check to be sent to Leonard W. Wang, Division of Enforcement, Securities and Exchange Commission, 450 5th Street, N.W., Mail Stop 7-1, Washington, D.C. 20549; 3. Herzog shall, within 10 business days of written notice from the Commission staff or the Independent Consultant (as defined below), pay disgorgement in the amount of $7,251.00 pursuant to Section 21C(e) of the Exchange Act; 4. Herzog shall, within 90 days of the date of the entry of this Order, provide to the independent consultant appointed by the Commission in connection with these proceedings (the "Independent Consultant") a description of its policies, procedures and practices relating to prevention or detection of the types of improper conduct involving Herzog described in Section II of this Order. Within such time as the Commission directs, the Independent Consultant shall review such policies, procedures and practices with a view to determining if they would reasonably be expected to prevent and detect, insofar as practicable, any of the types of improper conduct involving Herzog described in Section II of this Order. Herzog shall cooperate with the Independent Consultant’s review of Herzog’s policies, procedures and practices, and shall, among other things, provide such further information as the Independent Consultant reasonably requests or that Herzog deems relevant to the Independent Consultant’s review, provided, however, that Herzog need not provide any information to which it asserts a valid claim of the attorney-client privilege. The Independent Consultant shall maintain the confidentiality of all materials provided by Herzog and shall not provide the materials to any person, provided, however, that such materials may be provided to the Commission or its staff. If the Independent Consultant concludes that Herzog’s policies, procedures and practices, as presented, would reasonably be expected to prevent and detect, insofar as practicable, any of the types of improper conduct involving Herzog described in Section II of this Order, the Independent Consultant shall inform Herzog of this conclusion in writing, and his or her responsibilities with respect to Herzog shall conclude. If the Independent Consultant cannot conclude that Herzog’s policies, procedures and practices meet the aforesaid standard, he or she may recommend changes in or additions to Herzog’s policies, procedures or practices for the purpose of improving their ability to meet the aforesaid standard. Herzog shall implement all such recommended changes or additions in a timely manner, but in any event no later than three months after receiving the recommendations of the Independent Consultant or such other reasonable time as determined by the Independent Consultant; provided, however, if Herzog believes that a change or addition to its policies, procedures and practices recommended by the Independent Consultant is unduly burdensome or unreasonable, it may: (a) propose an equally effective alternative to the Independent Consultant, and, with the Independent Consultant’s approval, implement that alternative in lieu of the Independent Consultant’s recommended change or addition; or (b) petition the Commission, with notice to the Independent Consultant and the Division of Enforcement, for relief from the recommendation of the Independent Consultant. Within three months of receiving recommendations of the Independent Consultant for changes in or additions to its policies, procedures and practices, Herzog shall report in writing to the Independent Consultant with respect to the implementation of the recommendations and/or any equally effective alternatives approved by the Independent Consultant. If Herzog’s report on implementation is without qualification and states that said recommendations and/or alternatives have been fully and effectively implemented, the Independent Consultant’s responsibilities with respect to Herzog shall conclude. If Herzog’s report on implementation is qualified, or in any respect indicates that implementation is not full and effective, Herzog shall cooperate with all further efforts of the Independent Consultant to ensure that said recommendations and/or alternatives are fully and effectively implemented. When the Independent Consultant concludes that Herzog has fully and effectively implemented said recommendations and/or alternatives, he or she shall inform Herzog in writing of this conclusion and his or her responsibilities with respect to Herzog shall conclude. The fees and expenses of the Independent Consultant arising from his or her review of the policies, procedures and practices of Herzog and the other respondent firms subject to the Independent Consultant’s review shall be prorated evenly among such firms, and in such prorated amounts, be paid by each such firm, provided however, that if the Independent Consultant recommends changes or additions to Herzog’s policies, procedures or practices, the fees and expenses of the Independent Consultant relating to the making and implementation of those recommendations and/or any alternatives approved by the Independent Consultant, and any disagreements relating thereto, shall be paid by Herzog; 5. Cullen shall cease and desist from committing or causing any violation of, and committing or causing any future violation of Sections 15(c)(1) and (2) of the Exchange Act, and Rules 15c1-2 and 15c2-7 thereunder; 6. Zipper shall cease and desist from committing or causing any violation of, and committing or causing any future violation of Sections 15(c)(1) and (2) of the Exchange Act, and Rules 15c1-2 and 15c2-7 thereunder; 7. Cullen shall, within 10 business days of the entry of this Order, pay a civil penalty in the amount of $50,000.00 by wire transfer in accordance with instructions furnished by the Commission staff, or by U.S. Postal money order, certified check, bank cashier’s check, or bank money order, made payable to the Securities and Exchange Commission, which shall be hand-delivered or mailed to the Comptroller, Securities and Exchange Commission, Operations Center, 6432 General Green Way, Mail Stop O-3, Alexandria, VA 22312, under cover of a letter that identifies Cullen as a Respondent in these proceedings and provides the caption and file number for these proceedings, with (a) written confirmation of payment such wire transfer, or (b) a copy of such cover letter and money order or check to be sent to Leonard W. Wang, Division of Enforcement, Securities and Exchange Commission, 450 5th Street, N.W., Mail Stop 7-1, Washington, D.C. 20549; 8. Zipper shall, within 10 business days of the entry of this Order, pay a civil penalty in the amount of $30,000.00 by wire transfer in accordance with instructions furnished by the Commission staff, or by U.S. Postal money order, certified check, bank cashier’s check, or bank money order, made payable to the Securities and Exchange Commission, which shall be hand-delivered or mailed to the Comptroller, Securities and Exchange Commission, Operations Center, 6432 General Green Way, Mail Stop O-3, Alexandria, VA 22312, under cover of a letter that identifies Zipper as a Respondent in these proceedings and provides the caption and file number for these proceedings, with (a) written confirmation of payment of such wire transfer, or (b) a copy of such cover letter and money order or check to be sent to Leonard W. Wang, Division of Enforcement, Securities and Exchange Commission, 450 5th Street, N.W., Mail Stop 7-1, Washington, D.C. 20549; 9. Cullen be, and hereby is, suspended from association with any broker, dealer, municipal securities dealer, investment adviser or investment company, for a period of 12 weeks, effective one day after the date of this Order; Cullen shall provide to the Commission, within 10 days after the end of the 12 week suspension described above, an affidavit that he has complied fully with the sanctions described in this Section; and 10. Zipper be, and hereby is, suspended from association with any broker, dealer, municipal securities dealer, investment adviser or investment company, for a period of 8 weeks, effective one day after the date of this Order; Zipper shall provide to the Commission, within 10 days after the end of the 8 week suspension described above, an affidavit that he has complied fully with the sanctions described in this Section. By the Commission. Jonathan G. Katz Secretary