SECURITIES AND EXCHANGE COMMISSION Washington, D.C. SECURITIES EXCHANGE ACT OF 1934 Rel. No. 37849 / October 22, 1996 Admin. Proc. File No. 3-8438 ----------------------------------- : In the Matter of : : RICHARD J. PUCCIO : 50 Roosevelt Avenue : Syosset, New York : : ----------------------------------- OPINION OF THE COMMISSION BROKER-DEALER PROCEEDINGS Ground for Remedial Action Consent Injunction Where salesman of registered broker-dealer was permanently enjoined, with his consent, from violating antifraud provisions of the securities acts, held, in the public interest to bar salesman from association with any broker or dealer with the proviso that, after five years, he may reapply for such association. APPEARANCES: Marvin Gersten, of Gersten, Savage, Kaplowitz & Curtin, LLP, for Richard J. Puccio. Richard H. Walker, James P. Bodovitz, David G. Rizzo, Ellen N. Hersh, Petra T. Tasheff, and Christopher J. Mahon, for the Division of Enforcement. Appeal filed: July 25, 1995 Briefing completed: September 28, 1995 Oral argument: July 23, 1996 I. Richard J. Puccio, a former salesman for Stratton Oakmont, Inc. ("Stratton"), a registered broker-dealer, appeals from the decision of an administrative law judge. The law judge found that, on November 4, 1992, Puccio was permanently enjoined, with his consent, from violating the antifraud provisions of Section 17(a) of the Securities Act and Section 10(b) of the Securities ==========================================START OF PAGE 2====== Exchange Act and Rule 10b-5 thereunder. 1/ The law judge concluded that Puccio should be barred from association with any broker or dealer, with a right to reapply for such association after five years. Our findings are based on an independent review of the record. II. Puccio worked at Stratton for more than two years, from March 1989 to June 1991. It is undisputed that, during that time, Stratton was operating a classic boiler room. The brokers sat "cheek by jowl" in a room the size of a basketball court. All of their desks were lined up side by side in rows. The firm held mandatory sales meetings every morning at 8:30 a.m. at which time sales techniques were demonstrated and scripts for the firm's "house stocks" (i.e., those in which the firm made a market) were distributed. Brokers were expected to follow the scripts and only give customers the information they contained. Brokers were discouraged from doing any outside research, and told to rely on the firm's research and representations. Aside from training in high pressure sales techniques, brokers received no instruction from Stratton management. After the morning sales meeting, brokers were expected to spend the entire day (except for a lunch break) on the telephone. The firm expected a high volume of sales, and if brokers did not stay on the phone, they were fired. Stratton was run like a "boot-camp", with all of the brokers' activities closely monitored and scripted by the firm's principals. At the end of the day, a second sales meeting was held at which time each broker was required to report his production for the day. As we have previously stated, the allegations in an injunctive complaint settled by consent may be given considerable weight in assessing the public interest in a subsequent proceeding. 2/ The charges against Puccio may be summarized as follows. When soliciting customers, Puccio engaged in boiler room sales practices and made material misrepresentations with respect to the stocks he was selling. He also made fraudulent representations with respect to Stratton's expertise and reputation. Puccio failed to disclose that Stratton house stocks were speculative and that the issuers were new companies with low revenues and low or negative earnings. He made baseless price 1/ SEC v. Stratton Oakmont, Inc., et al., 92 Civ. 1993 (JES) (S.D.N.Y.). 2/ Charles Phillip Elliott, 50 S.E.C. 1273, 1277 (1992), aff'd, 36 F.3d 86 (11th Cir. 1994). ==========================================START OF PAGE 3====== predictions, stating, in some instances, that the prices of house stocks would more than double in a short period of time. He discouraged unsolicited customer sell orders without regard to his customers' best interests, and made material misrepresen- tations when doing so. If customers insisted on selling, he induced other customers to purchase the stock without disclosing that he was recommending a purchase simply to find a buyer for the selling customer's stock. He falsely stated that "traders" were sitting next to him buying large blocks of the securities he was recommending. And, on at least three occasions, he called the customer of another salesman and introduced himself as that salesman, inducing the unwitting customer to purchase a Stratton house stock. Puccio's admissions at the hearing herein show that he engaged in knowing misconduct. Puccio was admittedly aware that he was required to have a personal understanding of the stocks he was recommending. Yet he conducted no independent research, and simply passed along to customers the information that was given to him by Stratton management even when he had a strong basis for questioning its accuracy. For example, Puccio admitted seeing the prospectuses for IPS Health Care, Inc. and Ropak Laboratories, two securities that he recommended to customers. Both prospectuses disclosed a substantial number of negative factors about those companies that would clearly have been material to prospective investors. However, Puccio admitted that he never told customers anything negative about the stocks he was selling. Although he claimed that he only looked at the front of the IPS prospectus and never read it through (which in itself is indicative of the way he conducted business), even a cursory examination of the cover page would have disclosed the following statement: "The purchase of the Units offered by this Prospectus is speculative and involves a substantial degree of risk. Prospective investors should carefully consider the factors set forth under `Risk Factors.'" Puccio further admitted that he knowingly misrepresented Stratton's research capabilities 3/ and, on occasion, impersonated other salesmen. He stated that the reason for the firm's policy of discouraging customer sales was its desire to avoid negative price pressure on house stocks, a circumstance that he did not disclose to customers. He acknowledged that, when he dissuaded customers from selling, he was not acting in their best interests but simply obeying the firm. In fact, he 3/ Puccio conceded that he falsely identified another salesman at Stratton as the firm's research analyst, and gave a fictitious description of the purported analyst as "fat, bald and badly dressed." ==========================================START OF PAGE 4====== conceded that he always did what the firm wanted him to do regardless of anything else he thought or knew. At oral argument before us, Puccio's counsel admitted that Puccio's conduct at Stratton was "egregious". Counsel stated that no claim was being made that Puccio "was wrongfully accused" because "[h]e wasn't." He also acknowledged that the situation at Stratton was such that it upset everyone in the industry who looked at it, and asserted that, if everybody at that firm had been barred for life, he would not be arguing on Puccio's behalf. Puccio's conduct both prior and subsequent to his employment at Stratton casts further doubt on his fitness to engage in the securities industry. Prior to his employment at Stratton, Puccio worked for another registered broker-dealer, Investors Center, Inc. ("ICI"). While employed at ICI, Puccio sold a security to an Oklahoma resident although the security, ICI and Puccio were not registered in that state. According to Puccio, when he asked how to open the account and effect the trade, ICI management instructed him to use a fictitious New York address for the account. Subsequently, the Oklahoma Department of Securities brought proceedings against Puccio which he settled by, among other things, paying a $500 fine. Pursuant to the settlement, at a time when he was employed by Stratton and engaging in the egregious misconduct set forth above, Puccio filed a sworn affidavit in the Oklahoma action that stated in part as follows: "The [Oklahoma violative] incident . . . was that of an inexperienced broker taking at face value improper instruction from his supervisors. The supervision at Stratton Oakmont is vastly superior to that at ICI, and now that I am aware of the consequences, and the risks posed to investors by such conduct, [I] will be particularly cautious to assure that such actions are not repeated." After leaving Stratton, Puccio was employed by another brokerage firm, Josephthal, Lyon & Ross, Inc. Once again ignoring his obligation to make an independent investigation of the securities he was recommending, 4/ Puccio simply relayed to customers the information contained in fact sheets supplied by his employer. 4/ See, e.g., Hanly v. SEC, 415 F.2d 589, 595-597 (2d Cir. 1969). ==========================================START OF PAGE 5====== III. Puccio contends that the sanction assessed by the law judge is excessive under the factors cited by the Court of Appeals for the Fifth Circuit in Steadman v. SEC. 5/ In our view, as set forth below, the application of those factors shows that Puccio's sanction is fully merited. Puccio's misconduct could hardly be more serious. For more than two years, he engaged in high pressure, fraudulent sales tactics in utter disregard of his obligations to customers and their welfare. Even his own attorney conceded that Puccio's conduct was egregious. We are not dealing here with an isolated instance of misbehavior. Even before he was employed at Stratton, Puccio violated the securities laws at ICI. Then, at Stratton, he engaged in a broad pattern of fraudulent conduct over an extended period of time. When he finally arrived at Josephthal, he continued his practice of parroting to customers whatever information on a security he received from management without making any independent investigation. Puccio seeks to minimize the degree of his scienter. He seeks to portray himself as a young, inexperienced broker who believed that the sales information given to him by Stratton's principals was in the best interests of his customers. He argues that all of his violative conduct resulted from Stratton's training and supervision. We do not subscribe to Puccio's view of his conduct. While he may have been relatively inexperienced at the outset, it could not have taken him very long to realize exactly what kind of operation Stratton was running. Yet rather than seeking other employment, he stayed on and flourished in that environment. For more than two years, he wholeheartedly embraced Stratton's fraudulent boiler room tactics, earning more than $100,000 a year. Puccio cannot claim that he unknowingly relied on his supervisors, the same defense he asserted in the Oklahoma proceedings. In this instance, he was admittedly aware that he was engaging in improper conduct. We question the sincerity of any assurances by Puccio that he will not engage in future violations. We note that, after he had been working at Stratton for nearly two years, he filed a 5/ The factors are "the egregiousness of the defendant's actions, the isolated or recurrent nature of the infraction, the degree of scienter involved, the sincerity of the defendant's assurances against future violations, the defendant's recognition of the wrongful nature of his conduct, and the likelihood that the defendant's occupation will present opportunities for future violations." 603 F.2d 1126 at 1140 (5th Cir. 1979), aff'd on other grounds, 450 U.S. 91 (1981). ==========================================START OF PAGE 6====== sworn affidavit with Oklahoma authorities assuring them that he would be careful to guard against any repetition of his conduct at ICI where he "[mistakenly took] at face value improper instruction from his supervisors." Puccio further complains that the sanction assessed by the law judge is unfair since it is harsher than those meted out to Daniel Porush, one of Stratton's principals, and Clifford Sharfman, a fellow salesman at Stratton. He also asserts that, although Stratton employed 80 brokers and 120 cold callers, he is one of only a small number of persons who have been unfairly singled out for disciplinary action. We reject these contentions. Porush was sanctioned pursuant to an offer of settlement. 6/ As we have repeatedly pointed out, "it is well established that respondents who offer to settle may properly receive lesser sanctions than they otherwise might have received based on `pragmatic considerations such as the avoidance of time-and-manpower-consuming adversary proceedings.'" 7/ The sanction imposed on Sharfman to which Puccio refers was not imposed by this Commission but by the District Court in our injunctive action. 8/ Although we sought a permanent injunction against Sharfman, the Court excluded him from the securities business for only one year. While, as Puccio points out, the Court cited what it considered the lenient treatment accorded Porush, the Court also stated that it was unable to conclude that Sharfman was aware of the high probability that his representations to customers were false. We have no difficulty in concluding that Puccio was aware of that probability. Puccio's claim that he was unfairly singled out is equally without merit. The fact that proceedings have not been brought against others at Stratton is irrelevant. Moreover, to establish a claim of selective prosecution, a respondent must demonstrate not only that he was unfairly singled out, but that his prosecution was motivated by improper considerations such as race, religion, or the desire to prevent the exercise of a 6/ Stratton Oakmont, Inc., et al, Securities Exchange Act Release No. 33778 (March 17, 1994), 56 SEC Docket 822. Porush was fined $100,000, and suspended for one year from association in a supervisory capacity with any broker, dealer, investment company, investment adviser or municipal securities dealer. 7/ See David A. Gingras, 50 S.E.C. 1286, 1294 (1992), and the cases there cited. 8/ SEC v. Stratton Oakmont, Inc., 92 Civ. 1993 (JES) (S.D.N.Y., April 21, 1995). We grant Puccio's request to admit the Court's bench opinion into evidence. ==========================================START OF PAGE 7====== constitutionally-protected right. 9/ No such showing was made here. Finally, Puccio argues that we may not properly consider the Oklahoma proceeding against him because it was not charged in the order for proceedings. He also appears to contend that it was necessary for that order to repeat all of the allegations in the injunctive complaint against him. These contentions are without merit. No allegation was required with respect to the Oklahoma proceeding. As we have previously pointed out, "respondents in disciplinary proceedings must or should be aware that their prior disciplinary records are almost always a significant factor in determining appropriate sanctions, and will normally be taken into account." 10/ The order for proceedings herein explicitly refers to the allegations in the injunctive complaint, which was itself admitted into evidence. Moreover, since this proceeding is based on Puccio's consent injunction, the charges in the injunctive complaint are taken into account as a matter of course in assessing the proper sanction in the public interest. 11/ In light of the foregoing, we conclude that the sanction assessed by the law judge is more than warranted in the public interest. 12/ An appropriate order will issue. By the Commission (Chairman LEVITT and Commissioners WALLMAN, JOHNSON, and HUNT). Jonathan G. Katz Secretary 9/ See George H. Rather, Jr., Securities Exchange Act Release No. 36688 (January 5, 1996), 61 SEC Docket 36, 39 n.5, and the authorities there cited. 10/ Howard Alweil, 51 S.E.C. 14, 17 (1992). 11/ See Charles Phillip Elliott, supra. 12/ All of the contentions advanced by the parties have been considered. They are rejected or sustained to the extent that they are inconsistent or in accord with the views expressed herein. UNITED STATES OF AMERICA before the SECURITIES AND EXCHANGE COMMISSION SECURITIES EXCHANGE ACT OF 1934 Rel. No. 37849 Admin. Proc. File No. 3-8438 ----------------------------------- : In the Matter of : : RICHARD J. PUCCIO : 50 Roosevelt Avenue : Syosset, New York : : ----------------------------------- ORDER IMPOSING REMEDIAL SANCTION On the basis of the Commission's opinion issued this day, it is ORDERED that Richard J. Puccio be, and he hereby is, barred from association with any broker or dealer with the proviso that, after five years, he may reapply for such association. Such application should be made to the appropriate self-regulatory organization or, if there is none, to the Commission. By the Commission. Jonathan G. Katz Secretary