Wheat, First Securities, Inc., f/k/a First Union Capital Markets Corp. and Teressa L. Cawley

SECURITIES EXCHANGE ACT OF 1934
Rel. No.48378 / August 20, 2003

Admin. Proc. File Nos. 3-9688 and 3-9794

In the Matter of

WHEAT, FIRST SECURITIES, INC.
f/k/a FIRST UNION CAPITAL MARKETS CORP.

and

TERESSA L. CAWLEY

ORDER IMPOSING REMEDIAL SANCTIONS

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

ORDERED that Teressa L. Cawley be, and she hereby is, suspended for three months from association with any broker, dealer, or municipal securities dealer, effective at the opening of business on August 29, 2003; and it is further

ORDERED that Teressa L. Cawley and Wheat, First Securities,

Inc., f/k/a First Union Capital Markets Corporation, cease and desist from committing or causing any violations or future violations of Section 15B(c)(1) of the Securities Exchange Act of 1934, including failing to deal fairly with all persons and not engage in any deceptive, dishonest, or unfair practice under Rule G-17 of the Municipal Securities Rulemaking Board; and it is further

ORDERED that Teressa L. Cawley pay a civil money penalty of $15,000, and that Wheat, First Securities, Inc., f/k/a First Union Capital Markets Corporation, pay a civil money penalty of $20,000; and it is further

ORDERED that Wheat, First Securities, Inc., f/k/a First Union Capital Markets Corporation, disgorge $114,493.31, plus prejudgment interest, calculated in accordance with the Commission's Rule of Practice 600(b); and it is further

ORDERED that the Division of Enforcement submit to the Commission a proposed disgorgement plan in accordance with Rule ofPractice 610 within 60 days of payment of the amount of disgorgement.

Payment of the civil penalty shall be made within 21 days of the issuance of this order. The civil penalty shall be (a) made by United States postal money order, certified check, bank casher's check, or bank money order; (b) made payable to the Securities and Exchange Commission; (c) mailed or delivered by hand to the Comptroller, 6432 General Green Way, Alexandria, VA 22312; and (d) submitted under cover letter that identifies the particular respondent in these proceedings, as well as the Commission's administrative proceeding file number. A copy of this cover letter and money order or check shall be sent to Teresa J. Verges, Southeast Regional Office, Securities and Exchange Commission, 801 Brickell Avenue, Suite 1800, Miami, FL 33131.

By the Commission.

Jonathan G. Katz
Secretary

1 First Union, based in Charlotte, North Carolina, was a principal subsidiary of First Union Corporation, a bank holding company. In January 1998, First Union Corporation acquired Wheat, First Securities, Inc. and merged First Union Capital Markets Corporation with Wheat, First Securities, Inc. In September 2001, First Union Corporation merged with Wachovia Corporation. The new Wachovia Corporation provides retail brokerage services under different names, including First Union Securities, Inc., the successor to Wheat First Securities, Inc. In May 2002, Wachovia Corporation's retail brokerage arm became Wachovia Securities.
2 Under Section 15B(a)(1) of the Securities Exchange Act of 1934, a broker or dealer may not engage in interstate trade in municipal securities unless the broker or dealer registers under that Section or under Exchange Act Section 15, 15 U.S.C. § 78o. See 15 U.S.C. § 78o-4(a)(1) (prohibiting "any municipal securities dealer (other than one registered as a broker or dealer under section 15 of this title) to make use of the mails or any means or instrumentality of interstate commerce to effect any transaction in, or to induce or attempt to induce the purchase or sale of, any municipal security unless such municipal securities dealer is registered in accordance with this subsection.").
3 On August 27, 1998, the Commission brought this proceeding against First Union under Sections 15(b), 15B(c), 19(h), and 21C of the Securities Exchange Act of 1934. On December 23, 1998, the Commission charged Cawley under the same provisions. On January 25, 1999, the First Union and Cawley actions were consolidated.
4 The applicable version of MSRB Rule G-17 provided that, "[i]n the conduct of its municipal securities business, each broker, dealer, and municipal securities dealer shall deal fairly with all persons and not engage in any deceptive, dishonest, or unfair practice." See MSRB Manual (CCH)

¶ 3581 at 4871.

In June 2000, the MSRB amended Rule G-17 by replacing the term "municipal securities business" with the term "municipal securities activities." The MSRB stated that the amendment effected only a technical change to the Rule. Notice of Filing and Immediate Effectiveness of Proposed Rule Change by the Municipal Securities Rulemaking Board Consisting of Technical Amendments to Rules A-3, G-15, G-17 and G-18, Exchange Act Rel. No. 42830 (May 25, 2000), 72 SEC Docket 1428, 1429.
5 Exchange Act Section 15B(c)(1) prohibits a broker, dealer, or municipal securities dealer from "effect[ing] any transaction in," or "induc[ing] or attempt[ing] to induce the purchase or sale of," a municipal security in contravention of any MSRB rule. 15 U.S.C. § 78o-4(c)(1).
6 See MSRB Rule G-3(b) (qualification requirements of municipal securities principals), MSRB Manual (CCH) ¶ 3511 at 3271-3.
7 Cawley's superiors testified that they understood from the outset that consultants were hired to assist First Union in obtaining business. They further testified that they did not think it was a problem for consultants to be paid based on the business that they generated.
8 At the hearing, Book contradicted his investigative testimony and stated that he "had a standard range of fees." Book elaborated that he "would have had a number, probably in the $25,000 to $50,000 a year range, to have [his] services available." After observing Book's demeanor at the hearing, the law judge found Book's investigative testimony to be more reliable than his hearing testimony. See Michael J. Fee, 50 S.E.C. 1124, 1125 (1992) (upholding administrative law judge's refusal to credit respondent's hearing testimony when it contradicted earlier, sworn investigative testimony), aff'd, 998 F.2d 1002 (3d Cir. 1993) (Table). The law judge observed that Book, who admitted to being Cawley's close personal friend and professional associate, sought to testify in Cawley's favor, but that his "almost total lack of recall" about the specifics of his payment arrangement with First Union and his lack of memory on other matters were "telling."
9 See discussion infra Section II.I.
10 The record is unclear whether the 20% arrangement was to be based on First Union's fees, as the law judge found, or on its "profits," as stated in Cruz's June 1994 memorandum. If the arrangement were to be based on "profits," the record is also unclear as to how those "profits" were to be calculated. However, the record supports the finding that the parties informally arranged for Book to receive payments in addition to his monthly retainer as compensation for securing BrowardCounty business.
11 Credibility determinations by the fact-finder are entitled to considerable weight, and can be overcome only when there is "substantial evidence" for doing so. See Anthony Tricarico, 51 S.E.C. 457, 460 (1993). The record in this case contains no such evidence.
12 In a typical advance refunding, the municipality issues a new offering of tax-exempt bonds to fund retirement of a pre-existing issue of bonds bearing higher interest rates. SEC v. Rauscher Pierce Refsnes, Inc., 17 F. Supp. 2d 985, 991 n.8 (D. Ariz. 1998). The proceeds of the new bond offering are invested in U.S. Treasury securities and used to pay off the old bonds as they mature. Id.
13 Cawley admitted at the hearing that she knew in April 1993 that Commissioner Cowan was the Chairman of Broward County's Selection/Negotiation Committee. Cawley denied knowing at the time that she hired Book that he was Commissioner Cowan's close friend. Cawley admitted, however, that she did learn "at some point" of their relationship.
14 See Fla. Stat. ch. 218.386(1)(a) (defining "finder" to mean "a person who is not regularly employed by, or not a partner or officer of, an underwriter, bank, banker, or financial consultant or adviser and who enters into an understanding with either the issuer or the managing underwriter, or both, for any paid or promised compensation or valuable consideration directly or indirectly, expressly or impliedly, to act solely as an intermediary between such issuer and managing underwriter for the purpose of influencing any transaction in the purchase of such bonds").
15 See discussion infra Section II.G.
16 Cawley testified that First Union paid Book only $1,000 for May 1993 because he did not begin performing services until the middle of the month. However, Book did not recall receiving half-month payments.
17 The one-page opinion letter recited that First Union sought advice concerning "agreements between various parties and [First Union] for the primary purpose of providing services to First Union, relating to the purchase of municipal bonds and other certificates of indebtedness ("Bonds") from various governmental issuers ("Issuer")."

It is undisputed that outside counsel was unaware of, and gave Cawley no advice regarding, the Agreement or its warranty provision. Outside counsel had no knowledge of First Union's retention of Book.
18 On cross-examination by Cawley's counsel, outside counsel testified that he believed the date on the opinion letter was more accurate than the dates entered on his time sheets because he was a late-biller, and because he would not have back-dated the letter. On re-direct examination, however, outside counsel could not explain why, if he had done the work on or about May 1, 1993, he would have made two separate billing entries in June 1993. Outside counsel acknowledged that someone else could have backdated the letter.
19 The law judge found that some of these fees were for work unrelated to Book's efforts in Broward County.
20 Cawley admitted that Cruz called and asked her if First Union owed Book money, but claimed that he did not mention Broward County. Cawley also admitted that she spoke to Book the next day, but she denied discussing Cruz's call.
21 At the hearing, a First Union Corporation vice president and assistant general counsel confirmed that payments to Book were made through a First Union "business development" account.
22 Cruz testified that, because he did not sign this memorandum, he was unsure whether it had been sent to his superior.
23 In a letter to Commission staff during its investigation of this case, the same First Union Corporation vice president and assistant general counsel who testified before the law judge admitted that Book assisted First Union in obtaining its award of the Agreement. She also admitted that First Union paid Book's $4,350 invoice based on his representation that he was to receive a percentage of First Union's profits on the third refunding.
24 This language was identical to that contained in Fla. Stat. ch. 218.38(1)(c)1 (requiring municipality to file with the Florida Division of Bond Finance on forms prescribed by the Division information regarding "[a]ny fee, bonus, or gratuity paid by any underwriter or financial consultant, in connection with the bond issue, to any person not regularly employed or engaged by such underwriter or consultant") ("the Florida reporting statute").
25 Bond counsel further testified that, in completing the BFForms, he did not rely on any rules promulgated by the Florida Division of Bond Finance. Rather, he was guided by the plain language of the BF Forms. Bond counsel was unaware of any relationship between First Union and Book.
26 See, e.g., Order Approving Proposed Rule Change of MSRB Relating to Activities of Financial Advisors, Exchange Act Rel. No. 30258 (Jan. 16, 1992) ("The MSRB . . . believes that the existence of the conflict of interest [faced by a dealer acting as both financial advisor and placement agent on the same issue] is contrary to the fiduciary obligations of municipal securities professionals acting as financial advisors to issuers . . . . "); Notice of Filing of Fair Practice Rules, [1977-1987 Transfer Binder], MSRB Manual (CCH) ¶ 10,030 at 10,377 (Sept. 20, 1977) (stating, in the context of MSRB Rule G-23, that a municipal securities professional serving as financial advisor "acts in a fiduciary capacity as agent" for the state or local governmental unit); In re O'Brien Partners, Inc., Securities Act Rel. No. 7594 (Oct. 27, 1998) (violations of Sections 17(a)(2) and 17(a)(3) of the Securities Act for failure to make full disclosure in breach of fiduciary duty owed as municipal financial advisor).
27 SEC v. Cochran, 214 F.3d 1261, 1264 n.2 (10th Cir. 2000).
28 See, e.g., MSRB Interpretation of February 10, 1984, MSRB Manual (CCH) ¶ 3571.24 at 4534.

First Union and Cawley raise numerous claims under Florida law, including the claim that a Florida administrative regulation allegedly implementing the reporting statute relieved them of any duty to report Book's fees on the BF Forms. They do not claim that they were aware of or relied on the regulation at the time of the events at issue. Their asserted compliancewith state law reporting requirements does not abrogate their disclosure obligations under federal law.
29 See MSRB Rule G-2 (the term "municipal securities dealer" as used in the MSRB's rules refers to and includes its respective associated persons), MSRB Manual (CCH) ¶ 3251 at 3202. Cawley asserts that the Division failed to produce evidence of harm to investors or the marketplace. No such proof is required to establish an MSRB Rule G-17 violation.
30 The principal elements required to establish Cawley's liability for aiding and abetting are: (1) First Union violated Exchange Act Section 15B(c)(1); (2) Cawley provided "substantial assistance" to First Union; and (3) Cawley rendered such assistance knowingly or recklessly. See Sharon M. Graham, 53 S.E.C. 1072, 1080 (1998), aff'd, 222 F.3d 994, 1000 (D.C. Cir. 2000). Cawley's conduct satisfied these elements.
31 See Wonsover v. SEC, 205 F.3d 408, 414 (D.C. Cir. 2000) (a culpable intent is not required in order to find that a wrongdoer acted willfully.). Cawley participated in the third refunding transaction as the principal of the underwriter. The law judge found that Cawley had no obligation to disclose fees intended to be paid by her former employer. The Division has not appealed that determination.
32 Respondents argue that Exchange Act Section 15B(c)(1) also applies only to persons "acting as" a municipal securities dealer. This section, however, prohibits a municipal securities dealer from violating any MSRB rule. MSRB Rule G-17 applies to a municipal securities dealer acting as a financial advisor.
33 See Notice of Filing of Fair Practice Rules, [1977-1987 Transfer Binder] MSRB Manual (CCH) ¶ 10,030 at 10,373 (Sept. 20, 1977) (adopting commentator's suggestion to expand scope of proposed Rule G-17 to cover conduct in the municipal securities business, rather than conduct solely involving transactions in municipal securities; stating that such an expansion is appropriate since "the activities of a municipal securities professional relate not only to transactions actually effected, but to a variety of other matters, including financial and investment advice") (emphasis supplied).

We reject First Union's attempt to narrow the types of financial advisory services covered by MSRB Rule G-17. This Rule applies to all financial advisory services, and not merely to portfolio or escrow investment advice, as urged by First Union.
34 MSRB Rule G-1(b)(2), MSRB Manual (CCH) ¶ 3501 at 3251.
35 MSRB Rule G-3(b)(i)(B), MSRB Manual (CCH) ¶ 3511 at 3271-3.
36 For support, First Union and Cawley cite Upton v. SEC, 75 F.3d 92 (2d Cir. 1996), among other cases. There, the court held that respondent was denied due process because he did not have sufficient notice of a Commission interpretation. Id. at 98. Here, by contrast, we have evaluated First Union's and Cawley's conduct in light of well-established disclosure requirements.
37 Grayned v. City of Rockford, 408 U.S. 104, 108 (1972).
38 See Jonathan Feins, Exchange Act Rel. No. 3-8721 (Sept. 29, 1999), 70 SEC Docket 2116, 2128 and cases cited therein.
39 Id.
40 Id. at 2128-29.
41 The MSRB recently noted that Rule G-17 encompasses two basic principles: an antifraud prohibition and a general duty to deal fairly even in the absence of fraud. The MSRB stated that Rule G-17 "was implemented to establish a minimum standard of fair conduct." Interpretative Notice Regarding Rule G-17, on Disclosure of Material Facts (Mar. 20, 2002).
42 SEC v. Dain Rauscher, Inc., 254 F.3d 852, 856 (9th Cir. 2001) (holding that negligence is the standard for liability underMSRB Rule G-17). See Aaron v. SEC, 446 U.S. 680, 696-97 (1980) (interpreting Section 17(a)(2) of the Securities Act of 1933, which prohibits any person from obtaining money or property "by means of any untrue statement of a material fact or any omission to state a material fact," and Securities Act Section 17(a)(3), which prohibits any person from "engag[ing] in any transaction, practice, or course of business which operates or would operate as a fraud or deceit," to contain no scienter requirement); SEC v. Capital Gains Research Bureau, Inc., 375 U.S. 180, 200 (1963) (interpreting Section 206(2) of the Investment Advisers Act of 1940, which prohibits an investment adviser from engaging in any practice which "operates as a fraud or deceit upon any client or prospective client," to contain no scienter requirement).
43 In the Matter of Municipal Securities Rulemaking Board, Order Approving Proposed Rule Change, Exchange Act Rel. No. 15247 (Oct. 19, 1978), 15 SEC Docket 1323, 1324.
44 Id. For this reason, we reject Respondents' similar argument concerning MSRB Rule G-37 (requiring, among other things, that municipal securities dealers record and disclose political contributions) and Rule G-38 (requiring municipal securities dealers to disclose their use of consultants), both of which were approved in 1996 after the events underlying this matter took place. See Order Approving Proposed Rule Change by the Municipal Securities Rulemaking Board Relating to Consultants, Exchange Act Rel. No. 36727 (Jan. 17, 1996), 61 SEC Docket 254.
45 See Notice of Filing of Fair Practice Rules, [1977-1987 Transfer Binder], MSRB Manual (CCH) ¶ 10,030 at 10,377 (Sept. 20, 1977) (The MSRB, in considering the adoption of Rule G-23, stated that it addressed only "certain aspects of the conduct of a municipal securities professional acting as a financial advisor.").
46 Order Approving Proposed Rule Change by the Municipal Securities Rulemaking Board Relating to Activities of Financial Advisors, Exchange Act Rel. No. 41217 (March 26, 1999), 69 SEC Docket 1286, 1286.
47 See MSRB Rule G-23(d), MSRB Manual ¶ 3611 at 5052-53.
48 The Agreement was executed in June 1993. The Commission's order instituting proceedings was filed against First Union on August 27, 1998, and against Cawley on December 23, 1998.
49 A person "effects" securities transactions by participating in such transactions "at key points in the chain of distribution." Massachusetts Financial Services, Inc. v. SIPC, 411 F. Supp. 411, 415 (D. Mass.) (defining "effects" in the context of Exchange Act Section 3(a)(4), 15 U.S.C. § 78c(a)(4)), aff'd, 545 F.2d 754 (1st Cir. 1976). The Commission's staff has stated that such participation includes assisting an issuer to structure a prospective securities transaction and to identify potential purchasers of securities, soliciting securities transactions, and participating in the order-taking or order-routing process. MuniAuction, Inc., 2000 SEC No-Act LEXIS 659 (Mar. 13, 2000). See also Financial Surveys, Inc., 1973 SEC No-Act LEXIS 210 (July 30, 1973) (stating that the term "effect," as used in Exchange Act Section 3(a)(4),"should be construed broadly to encompass not only persons who are engaged directly in the offer or sale of securities, but also those persons who perform other than purely ministerial or clerical functions with respect to securities transactions.").

Additionally, Webster's Third New International Dictionary (1971) defines the term "effect" to mean "to cause to come into being" or "to bring about." Id. at p. 724. It defines the term "induce" similarly to mean "to bring on or about," "to effect or to cause," and "to influence or to persuade." Id. at p. 1154.
50 E.g. Russell Ponce, Exchange Act Rel. No. 43245 (Aug. 31, 2000), 73 SEC Docket 442, 466-67 & n.55 (evidence of conduct outside the limitations period is admissible to show motive, intent, or course of conduct), appeal pending, No. 00-71398 (9th Cir. Nov. 1, 2000).
51 First Union and Cawley cite United States v. Rudi, 927 F. Supp. 686 (S.D.N.Y. 1996), for the proposition that the MSRB rule violation must have a sufficient nexus to the sale of municipal securities to establish an Exchange Act Section 15B(c)(1) violation. In Rudi, the district judge concluded that the conduct underlying the MSRB rule violation was "too remote and peripheral," "no more than an afterthought," and "only accidentally a part" of the sale of municipal securities. Id. at 688. The district judge accordingly dismissed the Section 15B(c)(1) charge against the defendant. By contrast, First Union's and Cawley's non-disclosure of material information cannot be characterized as an "afterthought" or an "accidental" part of their deceptive course of dealing. Rather, these actions were an integral part of, and in furtherance of, their initial deception in concealing from the County the payments made to Book.
52 See, e.g., William H. Gerhauser, 53 S.E.C. 933, 945 (1998).
53 Rule of Practice 320, 17 C.F.R. § 201.320.
54 See Charles D. Tom, 50 S.E.C. 1142, 1145 (1992) (factors to consider in evaluating probative and reliability of hearsay include the possible bias of the declarant, the type of hearsay at issue, whether the statements are written, signed, and sworn, whether the statements are contradicted by direct testimony, whether the declarant is available to testify, and whether the hearsay is corroborated).
55 Even if the Federal Rules of Evidence applied, the law judge properly admitted the evidence as non-hearsay. See Fed. R. Evid. 801(d)(2)(B) (a statement in which the party manifests an adoption or belief in its truth is an admission by a party-opponent); Fed. R. Evid. 801(d)(2)(A) (a party's own statement in either an individual or representative capacity is an admission by a party-opponent); Fed. R. Evid. 801(d)(2)(D) (a statement by a party's agent concerning a matter within the scope of his agency made during the existence of the relationship is an admission by a party opponent).
56 For this same reason, we find no abuse of discretion in the exclusion of a letter written by the Division and sent to opposing counsel stating that two County officials had confirmed they had not been contacted by any First Union representative.
57 See Fairbank v. Hardin, 429 F.2d 264, 267 (9th Cir. 1970) (law judge has wide latitude as to all phases of the conduct of the hearing); see also Rule of Practice 111(d), 17 C.F.R. § 201.111(d) (stating, among other things, that the law judge has the authority to "regulat[e] the course of a proceeding and the conduct of the parties and their counsel").

First Union's reliance on Perry v. Leeke, 488 U.S. 272 (1989), is misplaced. There, the Supreme Court held that it was not a Sixth Amendment violation to deny a criminal defendant the right to confer with counsel while he is testifying. In so holding, the Supreme Court affirmed that the district court, in its discretion in regulating the conduct of the trial, may impose restrictions on an attorney's contact with witnessesduring trial. See id. at 281-84.
58 See 5 U.S.C. § 557(d)(1)(B) ("[N]o member of the body comprising the agency, administrative law judge, or other employee who is or may reasonably be expected to be involved in the decisional process of the proceeding, shall make or knowingly cause to be made to an interested person outside the agency an ex parte communication relevant to the merits of the proceeding.").
59 See, e.g., Pioneer Hotel, Inc. v. NLRB, 182 F.3d 939, 944 (D.C. Cir. 1999) ("[T]he only prohibited communications [under 5 U.S.C. § 557(d)] are those with interested person[s] outside the agency") (internal quotations omitted).
60 See 17 C.F.R. § 200.111(a)(2) ("No member of the Commission or decisional employee shall make or knowingly cause to be made to any interested person outside the agency an ex parte communication relevant to merits of the proceeding.").
61 See Jay Frederick Keeton, 50 S.E.C. 1128, 1136 & n.28 (1992) (noting that the Commission's de novo review of the record "further dissipates the possibility of abuse") (citing cases).
62 See Rule of Practice 360 (an initial decision does not become final when a petition for review is filed), 17 C.F.R. § 201.360; W. David East, Jr., Exchange Act Rel. No. 43569 (Nov. 16, 2000), 73 SEC Docket 2538 (order dismissing proceeding).
63 Section 2462 provides that, "[e]xcept as otherwise provided by Act of Congress, an action, suit or proceeding for the enforcement of any civil fine, penalty, or forfeiture, pecuniary or otherwise, shall not be entertained unless commenced within five years from the date when the claim first accrued." See Johnson v. SEC, 87 F.3d 484, 492 (D.C. Cir. 1996) (holding that Section 2462's limitations period applied to certain Commission administrative proceedings).
64 See, e.g., SEC v. First City Fin. Corp., 890 F.2d 1215, 1230 (D.C. Cir. 1989); SEC v. Hughes Capital Corp., 124 F.3d 449, 455 (3d Cir. 1997).
65 See, e.g., SEC v. Bilzerian, 29 F.3d 689, 697 (D.C. Cir. 1994) ("Whether or not [defendant's] securities violations injured others is irrelevant to the question whether disgorgement is appropriate. The primary purpose of disgorgement is not to refund others for losses suffered but rather `to deprive the wrongdoer of his ill-gotten gain.'").

As discussed previously, the law judge found that there were no violations with respect to the second refunding. The Division has not appealed that finding. We decline to consider whether the false warranty outside the limitations period would support First Union's disgorgement of the fees that it received for the second refunding, in addition to those received in connection with the first and third refundings.
66 15 U.S.C. §§ 78o(b)(6) and 78o-4(c)(4).
67 See Steadman v. SEC, 603 F.2d 1126, 1140 (5th Cir. 1979), aff'd, 450 U.S. 91 (1981).
68 The Division did not appeal the length of Cawley's suspension.
69 15 U.S.C. § 78u-3.
70 KPMG Peat Marwick LLP, Exchange Act Rel. No. 43862 (Jan. 19, 2001), 74 SEC Docket 384, 436, reh'g denied, Exchange Act Rel. No. 44050 (Mar. 8, 2001), 74 SEC Docket 1351, petition denied, 289 F.3d 109 (D.C. Cir. 2002). These factors are considered by the Commission in determining the appropriate-ness of any sanctions to be imposed in the public interest.
71 KPMG Peat Marwick LLP, 74 SEC Docket at 1360-61.
72 Id. at 1360.
73 Exchange Act Section 21C authorizes the Commission to impose cease-and-desist orders for violations of the Exchange Act or "any rule or regulation thereunder." 15 U.S.C. § 78u-3. Because we find that the imposition of cease-and-desist orders against First Union and Cawley is justified based on the Exchange Act Section 15B(c)(1) violations, we do not address First Union's argument that an MSRB rule violation cannot be the basis for a cease-and-desist order under Exchange Act Section 21C.
74 See KPMG Peat Marwick LLP, 74 SEC Docket at 429.
75 See id. at 429-30 & n.120.
76 We were given cease-and-desist authority in the Securities Enforcement Remedies and Penny Stock Reform Act of 1990, Pub. L. No. 10-429, 104 Stat. 931 (1990).
77 See S. Rep. No. 101-337, at 19 (1990); H.R. Rep. No. 101-616, at 23 (1990), reprinted in 1990 U.S.C.C.A.N. 1379, 1391-92.
78 KPMG Peat Marwick LLP, 74 SEC Docket at 433 & 435.
79 Id. at 434.
80 15 U.S.C. § 78u-2. Section 21B specifies a three-tier system for assessing the amount of the penalty. The first tier provides for a maximum of $5,000 for an individual and $50,000 for a firm. Id. The second tier provides for a maximum of $50,000 for an individual and $250,000 for a firm if the misconduct involved fraud, deceit, manipulation, or deliberate or reckless disregard of a regulatory requirement. Id. The third tier provides for a maximum of $100,000 for an individual and $500,000 for a firm if the misconduct involved fraud, deceit, manipulation, or deliberate or reckless disregard of a regulatory requirement, and resulted in, or created asignificant risk of, substantial loss to others or resulted in substantial pecuniary gain to the violator. Id.

The Commission increased the amounts for violations occurring after December 9, 1996, and again, for violations occurring after February 2, 2001. See 17 C.F.R. §§ 201.1001 (1996 adjustment) and 201.1002 (2001 adjustment).
81 Although we have found that Respondents' conduct justifies second-tier penalties, the penalty assessed against First Union is below the limit for a first-tier penalty which may be assessed for any violative act or omission. See 15 U.S.C. § 78u-2.
82 15 U.S.C. § 78u-3(e) (authorizing disgorgement in cease-and-desist proceedings); see also Exchange Act Section 21B(e)

(authorizing disgorgement in monetary penalty proceedings), 15 U.S.C. § 78u-2(e).
83 First City Fin. Corp., 890 F.2d at 1231; SEC v. Patel, 61 F.3d 137, 139 (2d Cir. 1995); First Jersey Sec., 101 F.3d 1450, 1475 (2d Cir. 1996). Even if the County were ineligible to receive disgorgement, we could still require disgorgement of First Union's ill-gotten gains. See, e.g., First City Fin. Corp., 890 F.2d at 1231.
84 First City Fin. Corp., 890 F.2d at 1232.
85 Id.
86 Contrary to First Union's suggestion, the fees paid to Book in breach of the warranty provision are not the proper measure of its disgorgement liability. These fees do not reflect the financial gain obtained by First Union as a result of its wrongful activities.
87 We note that the Division and Cawley evaded Rule 450's page limit requirements when they submitted briefs incorporating by reference certain pleadings filed before the law judge. This resulted in their submission of composite briefs that greatly exceeded the page limits set forth in Rule 450(c). The practice of incorporating pleadings submitted before the law judge (or self-regulatory organization) contravenes Rule 450(c). It also "unnecessarily confuses and diffuses the issues presented" on appeal. Fleming v. County of Kane, 855 F.2d 496, 498 (7th Cir. 1988) (per curiam) (parties should not adopt briefs previously filed in support of motions at the district court level); see also Varda, Inc. v. Ins. Co. of North America, 45 F.3d 634, 640-41 (2d Cir. 1995). Henceforth, we will not consider any briefs that exceed the page limitations in the absence of a duly filed motion.
88 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.

Last Reviewed or Updated: Dec. 18, 2023