FOR IMMEDIATE RELEASE 2000-143 SEC Takes Action Against Four Broker-Dealer Firms and Seven Associated Persons for Failing to Supervise Remote Branch Offices Four of the Firms' Brokers Also Sued for Fraud Washington, D.C., September 27, 2000 - The Securities and Exchange Commission announced today that it has taken action against four broker-dealer firms as well as seven individuals associated with those firms for failing adequately to supervise individual brokers working in small, remote branch offices. Each supervisory failure involved a broker who had a disciplinary history or had been the subject of customer complaints. In addition, each of today's actions charges the president of the broker-dealer with supervisory violations. Actions were brought against four brokers associated with two of these firms for securities fraud. The brokers engaged in a variety of misconduct including unauthorized and unsuitable trading and churning investors' accounts, and theft of investor funds. The misconduct described in these actions involved theft of more than $3.5 million of investor funds and substantial additional losses in customer accounts. SEC Director of Enforcement Richard H. Walker said, "As remote brokerage offices have proliferated in recent years, there have been too many failures in supervision. Investors are well served by effective supervision of these offices, including regular unannounced inspections. Customers of these offices must be assured the full range of investor protections." The misconduct in these cases illustrates why it is crucial for the protection of investors that broker-dealers maintain effective supervisory and compliance procedures. Today's cases illuminate the following principles: (1) supervisory responsibility starts at the top; senior management must ensure that adequate procedures are in place and that sufficient resources are devoted to the implementation of those procedures; (2) supervisory responsibilities must be periodically reassessed in light of changes in the nature and size of the firm's business; and (3) heightened supervision is needed for brokers with disciplinary histories and also where there are indications of potential misconduct. Today's cases are: 1.In the Matter of Signal Securities, Inc., et al. (SEC Contact: Harold Degenhardt, (817) 978-6469) Signal Securities, Inc., a Fort Worth, Texas broker-dealer, Ivan Jerry Singleton, Signal's president and CEO, and Richard E. Bennett, Signal's compliance officer, today settled administrative proceedings filed against them by the Commission. The Order entered finds that from June 1994 through October 1998, Signal, Singleton and Bennett failed reasonably to supervise former Signal registered representative Peter Joseph Cammarano, who had a history of compliance related concerns before joining Signal and who misappropriated $2 million from approximately 30 customers for his own use both prior to and during his association with Signal. The Order finds, among other things, that Signal failed to have appropriate supervisory and compliance controls in place that might have alerted Signal to conduct such as Cammarano's. The Order also finds that Bennett, who from December 1997 through October 1998 was Cammarano's immediate supervisor, failed to adequately respond to and investigate a customer complaint about Cammarano. Signal was censured, ordered to hire an independent consultant to revise its supervisory and compliance procedures and ordered to pay a civil penalty of $50,000. The Commission imposed a six-month proprietary suspension, as well as a six- month supervisory bar against Singleton; he also was ordered to pay a civil penalty of $15,000. The Commission also imposed a four-month supervisory suspension against Bennett. Bennett was also ordered to pay a $10,000 civil penalty. Cammarano previously was enjoined from violations of the federal securities laws and barred from the securities industry based on the conduct described in the Commission civil complaint, and he currently is incarcerated on a related criminal charge. 2.In the Matter of Prospera Financial Services, Inc., et al. (SEC Contact: Harold Degenhardt, (817) 978-6469) Prospera Financial Services, Inc. (formerly known as Addison Securities, Inc.), a Dallas, Texas-based broker-dealer, its former president Jonathan D. Stein, former registered representative Douglas J. Hopwood, and former registered representative Cheryl A. Rodgers, settled administrative proceedings filed against them by the Commission. The Commission found that from 1991 through 1996, Prospera and Stein failed reasonably to supervise Hopwood and Rodgers, who had histories of customer complaints prior to joining Prospera and who misappropriated over a half million dollars in customer funds for their own use while at Prospera. The Commission also found that Prospera and Stein failed to implement adequate internal procedures that might have alerted them to the conduct of Hopwood and Rodgers. Prospera was censured, and ordered to pay a $40,000 civil penalty and to hire an independent consultant to review its supervisory and compliance procedures. The Commission imposed a six-month proprietary suspension and a six-month supervisory suspension against Stein. The Commission imposed broker-dealer bars against Hopwood and Rodgers, as well as cease-and-desist orders. In addition, Rodgers was ordered to disgorge over $96,000, plus prejudgment interest, which payment was waived based upon a demonstrated inability to pay. Hopwood was previously ordered to pay restitution of $687,862, and is presently incarcerated on a 4-8 year prison sentence in a related criminal action based upon the conduct underlying the Commission's findings against him. 3.In the Matter of D.E. Frey and Company, Inc., et al. (SEC Contact: Katherine Addleman, (303) 844-1070) The Commission finds that that D.E. Frey and Company, Inc., a broker-dealer located in Denver, Colorado, and the staff alleges that Dale E. Frey, Frey's president and CEO, and Roger A. Rawlings, a registered principal at Frey, failed to supervise registered representatives at the firm. In addition, administrative proceedings were instituted against two Frey registered representatives, William Lee Jeffers and William C. Piontek. The Commission finds that between 1995 and 1999, D.E. Frey and Company failed reasonably to supervise the actions of Jeffers, Piontek and a third representative, each of whom had a prior disciplinary history or a history of customer complaints, and who engaged in unsuitable and unauthorized trading and churning in customer accounts, including the accounts of elderly clients. The Commission also found that D.E. Frey and Company failed to implement adequate procedures and failed to devote sufficient resources to its supervisory system that could have alerted Frey to such misconduct. D.E. Frey and Company agreed to settle the charges by agreeing to a censure, retention of a consultant to revise its supervisory and compliance procedures and payment of a $100,000 civil penalty. Jeffers consented to a broker-dealer bar. The proceedings filed against Dale E. Frey, Rawlings and Piontek are still pending. 4.In the Matter of First Colonial Securities Group, Inc., et al. (SEC Contact: Luci Jankowski McClure, (215) 597-3330) First Colonial Securities, a broker-dealer located in Boca Raton, Florida, its president and CEO Michael Golden, and Steven D. Schwartz, a shareholder and former compliance officer, today settled administrative proceedings filed against them by the Commission on September 23, 1999. The Order finds that from November 1995 through February 1998, First Colonial, Golden and Schwartz failed reasonably to supervise Robert Tommassello, a former registered principal in the Hazleton, Pennsylvania office of First Colonial, who previously had violated the antifraud provisions of the federal securities laws by misappropriating over $1.3 million dollars of customer funds for his own benefit. The Order finds that First Colonial failed to have procedures in place to detect prior disciplinary histories of new hires, and failed to devote adequate resources to the compliance function despite the sizeable expansion of the firm. The Order also finds that Schwartz, Tommassello's supervisor, failed to perform an annual, unannounced inspection of Tommassello's remote office, as required by the firm's existing procedures. First Colonial and Golden were censured and were ordered to pay civil penalties of $25,000 and $15,000, respectively. The Commission also suspended Schwartz from acting in a supervisory capacity for any broker or dealer for 9 months and ordered him to pay a $10,000 civil penalty.