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SECURITIES AND EXCHANGE COMMISSION
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In the Matter of STONEGATE SECURITIES, INC.
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OPINION OF THE COMMISSION
BROKER-DEALER PROCEEDINGS
Grounds for Remedial Action
Failure to Comply with Reporting Requirements
Registered broker-dealers failed to file timely narrative reports on their preparation for the Year 2000 computer problem. Held it is in the public interest for each respondent to be censured, and ordered to cease and desist from further reporting and disclosure violations, and to pay civil money penalties.
APPEARANCES:
Edwin B. Lyon, III, for Stonegate Securities, Inc.
Paul J. Bazil and Laura E. Walker, of Pickard & Djinis, LLP, for J. W. Barclay & Co., Inc.
Kathryn A. Pyszka, Paul Montoya, and Kristopher S. Heston, for the Division of Enforcement.
| Appeal filed: | August 10, 1999 |
| Last brief received: | February 1, 2000 |
| Oral argument held: | July 18, 2001 |
I.
Stonegate Securities, Inc. ("Stonegate") and J.W. Barclay & Co., Inc. ("Barclay") each appeal from the decision of an administrative law judge. The law judge found that Stonegate and Barclay violated Section 17(a) of the Securities Exchange Act of 1934 and Exchange Act Rule 17a-5(e)(5)1 by failing to submit Part II of Form BD-Y2K to the Commission and the National Association of Securities Dealers, Inc. ("NASD") prior to October 5, 1998. The law judge censured Stonegate and Barclay, ordered them to cease and desist from further violations of Exchange Act Section 17(a) and Rule 17a-5 thereunder, and ordered each of them to pay a civil money penalty of $50,000. We base our findings on an independent review of the record, except with respect to those findings not challenged on appeal.2
II.
By the mid-1990s, the existence of the "Year 2000 Problem," a defect in certain software, was well known.3 In July 1998, the Commission determined that the Year 2000 Problem threatened to disrupt capital markets and proposed Exchange Act Rule 17a-5(e)(5) to provide the Commission with adequate information toassess the readiness of the industry to overcome the Year 2000 Problem. The Federal Register release accompanying the final rule stated that the Commission "views the Year 2000 problem as an extremely serious issue. A failure to assess properly the extent of the problem, remediate systems that are not Year 2000 compliant, and then test those systems could endanger the nation's capital markets and place at risk the assets of millions of investors."4
Rule 17a-5(e)(5) required broker-dealers to report on Form BD-Y2K ("Form") to the Commission and, in the case of Stonegate and Barclay, to the NASD regarding their preparations for handling the Year 2000 Problem.5 The Form requested information regarding a broker-dealer's Year 2000 readiness, the personnel responsible for executing the firm's plan to identify and remedy any Year 2000 problem, and the funding of the remediation plan. Broker-dealers with a net-capital requirement of $5,000 or more had to file Part I of the Form by August 31, 1998.6 Broker-dealers with a net-capital requirement of $100,000 or more had to file both Part I and Part II of the Form by August 31.7 Stonegate and Barclay stipulated that they were required to file both parts of the Form.
The NASD worked very hard to assure its members' compliance with Rule 17a-5(e)(5). On July 16, the NASD sent every member an "alert letter" explaining briefly the rule's requirements. Stonegate and Barclay each has stipulated that it received this letter around the time it was sent.
About two weeks later, the NASD sent a package of materials to its members for delivery no later than August 3 ("August 3 package"). The August 3 package contained the following items: "Special Notice to Members 98-63" announcing on its first page the deadline and the filing requirement for both Part I and PartII of the Form; "Report Submission Guidelines From Your DEA" reiterating the deadline and filing requirements; Form BD-Y2K, personalized for use by the addressee broker-dealer; a glossary; and a pre-printed return envelope. Stonegate and Barclay each has stipulated that it received the August 3 package in early August.
The NASD mailed two reminders about the Form before August 31. These reminders repeated the deadline and filing requirements and displayed the toll-free telephone number of a BD-Y2K "help line." The NASD and the Commission also co-sponsored seminars regarding the Form in locations near Stonegate and Barclay.
Stonegate and Barclay each has further stipulated that it did not file any part of the Form by August 31, 1998, and that it failed to file Part II of the Form before October 5, 1998. Each contests the severity of the sanctions and asserts mitigating circumstances. We examine their contentions separately.
III.
A. Stonegate, founded in 1972, is located in Dallas, Texas. In 1998, Edwin Buchanan "Buck" Lyon, III, was Stonegate's President, and his son Edwin Buchanan "Bucky" Lyon, IV, was its Vice-President. Stonegate also employed a secretary.
Buck Lyon told Bucky Lyon to prepare and file the Form. Bucky Lyon testified that he understood Stonegate's obligation to file both parts of the Form by August 31. Neither Lyon could explain Stonegate's filing delay. Buck Lyon testified that Stonegate "bungled the process" and "fumbled the response."
On September 9, the NASD sent letters to every member, including Stonegate, that had not filed the Form by September 4. The letter told Stonegate how to remedy the deficiency, and stated that the firm would receive no further notice regarding its filing status. The NASD's letter also warned that firms not completing their filings by September 21 would be disciplined. The letter enclosed a return envelope and a blank Form. Stonegate stipulated that it received this letter on or about September 10.
Buck Lyon directed the NASD's letter to Bucky Lyon with instructions to get the Form filed immediately. Bucky Lyon filed Part I of the Form that day but did not file a completed Part II then or before September 21. While Bucky Lyon testified that he "left off" Part II when he filed Part I on September 10, in fact he faxed to the NASD Part II of the Form with the identification information written in, but without any narrative responses. As of September 10, Bucky Lyon had not prepared the answers to Part II. Bucky Lyon testified that he thought that filing Part I completed Stonegate's filing obligations, although he also testified that he understood that Stonegate had to file both parts of the Form.
Because Stonegate failed to file Part II of the Form by September 21, Bucky Lyon received a follow-up telephone message on September 25.8 The caller's message stated that Stonegate's filing was incomplete, and requested that he call a toll-free help-line for further information. Bucky Lyon did not return the call until September 30. According to Bucky Lyon, the NASD informed him that Stonegate's Form was incomplete and urged him to file a completed Part II as soon as possible. Bucky Lyon testified that the NASD did not state that Stonegate had to file Part II by October 2 to avoid a Commission enforcement action. Bucky Lyon testified that he immediately began work on Part II after this call.
On October 5, the Division called Stonegate and advised Buck Lyon that the Division was recommending the institution of a proceeding against Stonegate for violation of Rule 17a-5(e)(5). Stonegate filed Part II of the Form that day.
Stonegate stipulated to all the facts necessary to find a violation of Exchange Act Section 17(a) and Rule 17a-5(e)(5) thereunder. The NASD and the Commission repeatedly exerted every possible effort to induce Stonegate to comply. Nonetheless, Stonegate did not file timely or completely. Particularly given the NASD's and the Commission's efforts, we find that the violation was willful.9
B. Stonegate raises procedural objections to the conduct of the hearing. We find, based on our independent review of the record, that Stonegate received a fair hearing.
1. Stonegate objects to the law judge's decision to hold a single, consolidated hearing in Washington, D.C. for four respondents who failed to file Form BD-Y2K timely.10 Stonegate asserts that it was prejudiced by this decision and put tounnecessary expense. However, the Division's case against each of the respondents depended on the same witnesses from the NASD, and trial counsel for Stonegate is also located in Washington, D.C.11 Accordingly, we find that Stonegate was not unfairly prejudiced by having to appear in a single proceeding held in Washington, D.C.12
2. Stonegate asserts that the Division did not deal fairly in settlement negotiations and refused to consider Stonegate's offer to settle for a lesser fine and no cease-and-desist order. We do not consider the results of failed settlement negotiations in our determination of the public interest.13
C. Stonegate argues that the law judge's sanctions are inappropriately harsh and punitive. The imposition of sanctions is, as the Supreme Court has held, peculiarly within an administrative agency's expertise.14
1. Section 15(b)(4) authorizes the Commission to censure any broker-dealer who willfully violates the Exchange Act or arule thereunder, when it is in the public interest.15 In evaluating whether sanctions under Exchange Act Section 15(b)(4) are in the public interest we look for guidance to the factors the United States Court of Appeals for the Fifth Circuit identified in Steadman v. SEC.16
Section 21C authorizes the Commission to order any person who has violated the Exchange Act or a rule thereunder to cease and desist from such violation.17 Section 21B authorizes the Commission to impose civil penalties on persons who willfully violate the Exchange Act or a rule thereunder.18
2. In mitigation, Stonegate argues that its only offense is filing Part II of the Form late and that it filed Part I, which contained -- in a highly condensed format -- all of the information ultimately provided by Part II.19 Part II, however, provided the Commission more detailed information regarding what, if any, problems existed, who was responsible for identifying and attending to them, what funding had been allocated, and what testing had occurred. The Commissiondetermined in 1998 that the Year 2000 Problem was potentially extremely serious, and that it was imperative for the securities industry to address these risks promptly and effectively. The Form allowed the Commission to evaluate the industry's exposure to the problem, and the denial of data, even from a company as small as Stonegate, obstructed that evaluation.20
Stonegate also asserts that it had no significant exposure to the Year 2000 problem, and that it was addressing the minimal exposure it did have. Part II would have allowed the Commission and the NASD to review and validate Stonegate's self-assessment of its exposure. Stonegate further avers that it had nothing to gain from its conduct, and did not profit from it in any way. We accept that assertion as true, but the Commission determined that it needed the information in a timely fashion as evidenced by the extraordinary efforts taken to get it.
Stonegate argues strenuously that the sanction is disproportionate. Stonegate notes that NASD proceedings resulted in fines in the range of $2,500 and $3,500. It also observes that the Commission reached settlements with other broker-dealers who also failed to meet their Form BD-Y2K filing obligations, which settlements range from $10,000 to $15,000. To the extent Stonegate relies on settled cases, "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'."21 We further have repeatedly stated that the assessment of the proper sanctions to be imposed depends "on [the] particular facts and circumstances, and cannot be determined in comparison with the action taken in other cases."22
The NASD worked hard to obtain Stonegate's voluntary compliance. Stonegate had three chances to file both parts of the Form -- August 31, September 21, and October 2 -- and avoid -- or at least mitigate -- discipline.23 Only the October 5 telephone call from the Division informing Stonegate of the proposed disciplinary proceedings induced compliance. This violation is not merely technical.24 On the other hand, Stonegate always acknowledged its violation and has never attempted to excuse it.
Stonegate's forthright acknowledgment of its wrongdoing in this matter persuades us that a reduced, but still substantial, civil money penalty best serves the public interest. Accordingly, we find that it is in the public interest that Stonegate should be censured, ordered to cease and desist from future violations of Section 17(a) of the Exchange Act and Rule 17a-5 thereunder,25 and assessed a civil penalty in the amount of $15,000.26
IV.
A. At the time of the events at issue, Barclay had been in business for over nine years and employed between 55 and 75 registered representatives in New York City. John Bruno, Barclay's president, was its only witness. Bruno testified that he is a hands-on manager; for example, he opens all mail delivered to Barclay regardless of the addressee. Bruno received the NASD's July 16 alert letter regarding the obligation to file the Form although it was addressed to Theo Stavros Basis, Barclay's Chief Compliance Officer through August 5, 1998.27
Bruno assigned Basis the task of completing and filing Barclay's Form BD-Y2K.28 On either August 4 or 5, Bruno had an exit-interview with Basis during which Basis returned unfinished assignments to Bruno. According to Bruno, Basis did not state that the filing of the Form was still pending. Bruno admitted that Basis did not state that he had filed the Form, and Bruno did not ask.
On September 10, Bruno received the NASD's September 9 letter informing Barclay that it had not filed the Form as of September 4, and Bruno "freaked out" when he read it. Bruno ordered Pete Walsh, Barclay's Chief Financial Officer, to file the Form. About an hour after the assignment, Walsh reported that he had filed the Form. Bruno did not examine the filing before Walsh sent it. Walsh filed a completed Part I and a Part II with identification information written in, but without narrative responses.
On September 18, an NASD contractor, The Data Entry Company ("TDEC"), left a message for Steven Gerstel, Barclay's new Chief Compliance Officer, that Part II of Barclay's Form had not been filed. On September 25, TDEC left another message for Gerstel. According to Bruno, on September 28, when Gerstel returned the TDEC call, Susan Murdoch, an NASD Regulation attorney, told Gerstel that Barclay had not filed Part II of the Form.
According to Bruno, Gerstel asked Walsh about the filing. Bruno asserted that neither Gerstel nor Walsh knew that the Form had a Part II. Bruno testified that Walsh told Gerstel he had filed the Form two weeks previously. According to Bruno, Gerstel "closed the book" regarding the filing after speaking with Walsh.
On October 5, the Division notified Barclay that it would recommend the institution of proceedings against Barclay. Bruno called the Commission's Midwest Regional Office for an explanation and was told that Barclay had not filed Part II of the Form. Barclay filed Part II of the Form on October 5.
The law judge found that Bruno testified untruthfully that Basis did not inform Bruno during the exit interview that the Form remained unfiled.29 The law judge also refused to credit Bruno's testimony regarding Gerstel's actions. She did not accept Bruno's testimony that Gerstel did not know that the Form had two parts or that Gerstel "closed the book" on the filing issue when Walsh told him that the form had already been filed, even though the NASD had just told him that Barclay's filing was incomplete. Other aspects of Bruno's testimony are inconsistent with the remaining evidence.30
In any event, Bruno's testimony, even if truthful, does not explain Barclay's late filing. Basis left Barclay on August 5, almost four weeks before the August 31 deadline and two months before the Division called Barclay. The first page of the NASD's communications to its members between July 16 and August 31 made clear the Form's requirements and the applicable deadline. Between August 31 and October 5, Barclay had additional opportunities -- brought to its attention by a letter and telephone calls -- to complete its filing, but did not.
Barclay stipulated all the facts necessary to find that it committed the alleged violation. Bruno's testimony did not explain, much less excuse, Barclay's conduct. Accordingly, wefind that Barclay willfully violated Section 17(a) of the Exchange Act and Rule 17a-5(e)(5) thereunder.31
B. Barclay's claim that a series of miscommunications caused its late filing neither excuses its conduct nor persuades us that the token sanctions proposed at the oral argument would serve the public interest. Barclay's recent disciplinary history is an aggravating factor. In 1997, the State of Massachusetts sanctioned Barclay for selling securities without being registered. In 1998, the NASD sanctioned Barclay for allowing a registered representative to work without appropriate continuing education credits. In 1998, the State of South Dakota obtained a cease-and-desist order, since vacated, regarding cold calling by a Barclay employee when Barclay was not registered in South Dakota. Although Barclay characterizes this matter as a simple, and irrelevant, case of unlicenced solicitation, pertinent documents in the record reveal a highly relevant similarity to this proceeding. The South Dakota authorities received a citizen complaint and sent Barclay a questionnaire regarding its business activities in the state. After Barclay failed to answer the questions to the regulators' satisfaction, they obtained a cease-and-desist order against Barclay for its failure to respond to the questionnaire. That order was vacated on March 5, 1998, pursuant to a consent agreement between Barclay and South Dakota. Accordingly, we conclude that Barclay has a recent history of failing to respond to regulatory inquiries regarding its business activities.
Before the law judge, Barclay refused to accept responsibility for its failure. Bruno's testimony was an exercise in finger-pointing that explained nothing. Moreover, Barclay's reliance upon testimony that the law judge did not credit to bolster claims of inadvertence suggests that Barclay has not grasped that its violation was both serious and wrong.32
We find that Barclay should be censured and ordered to cease and desist from further violations of Section 17(a) of theExchange Act and Rule 17a-5 thereunder. Moreover, we find that, given Barclay's disciplinary history, its disregard of repeated entreaties to comply with its BD-Y2K filing requirement, and its failure to appreciate its regulatory responsibilities, Barclay should be ordered to pay a civil money penalty in the amount of $25,000.
An appropriate order will issue.33
By the Commission (Commissioners HUNT and UNGER); Chairman PITT participating for quorum purposes, and abstaining.
Jonathan G. Katz
Secretary
In the Matter of STONEGATE SECURITIES, INC.
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ORDER IMPOSING REMEDIAL SANCTIONS
On the basis of the Commission's opinion issued this day, it is
ORDERED that Stonegate Securities, Inc. be censured; and it is further
ORDERED that J. W. Barclay & Co., Inc. be censured; and it is further
ORDERED that Stonegate Securities, Inc. cease and desist from committing or causing any violation and committing or causing any future violation of Section 17(a) of the Securities Exchange Act of 1934 and Rule 17a-5 thereunder; and it is further
ORDERED that J. W. Barclay & Co., Inc. cease and desist from committing or causing any violation and committing or causing any future violation of Section 17(a) of the Securities Exchange Act of 1934 and Rule 17a-5 thereunder; and it is further
ORDERED that Stonegate Securities, Inc. pay a civil money penalty of $15,000; and it is further
ORDERED that J. W. Barclay & Co., Inc. pay a civil money penalty of $25,000.
Stonegate Securities, Inc.'s and J. W. Barclay & Co., Inc.'s payments of the civil money penalties shall be: (i) made by United States postal money order, certified check, bank cashier's check, or bank money order; (ii) made payable to the Securities and Exchange Commission; (iii) delivered by hand or courier to the Comptroller, Securities and Exchange Commission, 450 5thStreet, N.W., Washington, D.C. 20549 within thirty days of the date of this order; and (iv) submitted under cover letter which identifies Stonegate Securities, Inc. or J. W. Barclay & Co., Inc. as the respondent in this proceeding, and the file number of this proceeding. A copy of this cover letter and check shall be sent to Kathryn A. Pyszka, Counsel for the Division of Enforcement, Securities and Exchange Commission, Midwest Regional Office, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661.
By the Commission.
Jonathan G. Katz
Secretary
| 1 | 15 U.S.C. § 78q(a); 17 C.F.R. § 240.17a-5(e)(5). |
| 2 | Rule of Practice 451(d), 17 C.F.R. § 201.451(d), permits a member of the Commission who was not present at oral argument to participate in the decision of the proceeding if that member has reviewed the oral argument transcript prior to such participation. Chairman Pitt, who was not a member of the Commission at the time that the Commission heard oral argument in this matter, has reviewed the transcript of the oral argument. |
| 3 | Rule 17a-5(e)(5) defined the Year 2000 Problem to encompass problems arising from:
(A) Computer software incorrectly reading the date "01/01/00" as being the Year 1900 or any other incorrect year; Rule 17a-5(e)(5)(i), 17 C.F.R. § 240.17a-5(e)(5)(i). |
| 4 | Reports to be Made by Certain Brokers and Dealers, 63 Fed. Reg. 37,668 (July, 13, 1998), 67 SEC Docket 1320 [hereinafter "Reports"]. |
| 5 | Under Rule 17a-5(a)(5)(v), the NASD is the Designated Examining Authority ("DEA") for Stonegate and Barclay. |
| 6 | 17 C.F.R. § 240.17a-5(e)(5)(ii)(A). Part I had a "check-the-box" format. Broker-dealers had to file additional reports -- not at issue here -- by April 30, 1999. |
| 7 | 17 C.F.R. § 240.17a-5(e)(5)(iii)(A). Part II required a more detailed, narrative response regarding the issues covered by Part I. As the Commission noted, "[t]he narrative discussion is designed to provide the Commission . . . with additional information on the Year 2000 efforts of those broker-dealers who pose the greatest risk to customers and the market if they are not . . . compliant." Reports, supra note 4 at 37,668. |
| 8 | The NASD had hired The Data Entry Company ("TDEC") to make NASD-scripted follow-up calls and log the results. Buck Lyon did not know of this telephone call until the hearing. |
| 9 | Jacob Wonsover, 205 F.3d 408, 414 (D.C. Cir. 2000) ("Generally, [willful] means. . . that [a] person . . . knows what he is doing. It does not mean that, in addition, he must suppose that he is breaking the law."); Hammon Capital Mgmt. Corp., 48 S.E.C. 264, 265 (1985) (violations of reporting obligations willful even if inadvertent), aff'd without op., 760 F.2d 260 (3d Cir. 1985). Here, respondent knew what it had not done, and even knew that the filing was legally required. |
| 10 | Two of the respondents below have not appealed, and the initial decision has become final as to them. V.B.C. Securities, Exchange Act Rel. No. 41844 (Sept. 9, 1999), 70 SEC Docket 1629; William Scott & Co., L.L.C., Exchange Act Rel. No. 41845 (Sept. 9, 1999), 70 SEC Docket 1630. |
| 11 | Rule of Practice 201 provides that "proceedings involving a common question of law or fact may be consolidated for hearing . . .". 17 C.F.R. § 201.201. Moreover, Stonegate was represented at the hearing by the same counsel that represents Barclay. |
| 12 | Stonegate also makes unsupported allegations of bias or unprofessional conduct by the law judge. Stonegate's brief stated "[c]learly we caught [the law judge] in a really bad mood. Either that or there is an agenda underway that we were neither aware of nor understood." Contrary to Stonegate's allegations, we find that the law judge administered this case fairly and with consideration for the substantive and procedural positions of both sides. See Jay Houston Meadows, 52 S.E.C. 778, 787 (1996) (both sides subjected to limitation by law judge), aff'd, 119 F.3d 1219 (5th Cir. 1997). |
| 13 | Moreover, settlement negotiations are not usually part of a record and are not normally considered on review. Rule of Practice 240(c)(6), 17 C.F.R. § 201.240(c)(6). Cf. Eric M. Diehm, 51 S.E.C. 938, 942 (1994) (NASD rules deem a rejected offer of settlement withdrawn and without effect); Fed. R. Evid. 408 ("Evidence of conduct or statements made in compromise negotiations is . . . not admissible."). |
| 14 | Butz v. Glover Livestock Comm'n Co., 411 U.S. 182, 185 (1973). |
| 15 | 15 U.S.C. § 78o(b)(4). |
| 16 | Steadman v. SEC, 603 F.2d 1126, 1140 (5th Cir. 1979), aff'd on other grounds, 450 U.S. 91 (1981). These factors are: the egregiousness of the respondent's actions; the isolated or recurrent nature of the violation; the degree of scienter involved; the sincerity of the respondent's assurances against future violations; respondent's recognition of the wrongful nature of its conduct; and, the likelihood that respondent will have opportunities for future violations. |
| 17 | 15 U.S.C. § 78u-3. |
| 18 | 15 U.S.C. § 78u-2. To determine whether civil penalties are in the public interest, we examine whether the illegal activities involved, inter alia: deliberate or reckless disregard of a regulatory requirement; the harm caused to another person; the extent to which any person was unjustly enriched; the respondent's prior disciplinary history; deterrence; and other matters as justice may require. 15 U.S.C. § 78u-2(c). |
| 19 | Stonegate suggests in its briefs that it filed Part II only one business day after the October 2 deadline. However, the filing deadline for both parts of the Form was August 31, 1998; Stonegate missed the expiration of the additional time allowed for filing the Form and thereby avoiding a Commission enforcement action. Stonegate also notes that it timely filed its April 30, 1999, Form BD-Y2K. This timely filing does not alter its failure to file Part II timely in 1998. |
| 20 | At the oral argument, Stonegate noted that the Year 2000 Problem proved less severe than the contemporary, credible, worst-case scenarios predicted. At the time, the Commission could not predict the result of the Year 2000 Problem. The Commission undertook this reporting requirement as a reasonable measure to ascertain the potential threat to investors and capital markets from the Year 2000 Problem and to focus broker-dealers on identifying and remediating in a timely fashion systems vulnerable to the Year 2000 Problem. |
| 21 | David A. Gingras, 50 S.E.C. 1286, 1294 (1992) (quoting Nassar & Co., 47 S.E.C. 20, 26 (1978)); see also Butz, 411 U.S. at 187 (sanction imposed not invalid because in excess of sanctions in other cases). |
| 22 | See e.g. Russo Securities, Inc., Exchange Act Rel. No. 44186 (Apr. 17, 2001), 2001 SEC LEXIS 693 at *40 n.59 (citing Butz, 411 U.S. at 187 (1973)), appeal filed, No. 01-4100 (2d Cir. June 18, 2001). |
| 23 | Stonegate presented evidence that other firms received letters notifying them that they had not filed Part II, while Stonegate received only the "no filing" advice. As a witness from the NASD explained, the NASD tailored the letters to particular filing problems. Because Stonegate did not file at all, the NASD's letter stated that fact. No evidence showed that a firm, like Stonegate, that initially failed to file either portion of the Form received a second letter after a partial filing. |
| 24 | See Touche Ross & Co. v. Redington, 442 U.S. 560, 569 (1979)(Reports required by Section 17(a) enable the Commission to fulfill its regulatory and oversight duties). Stonegate claims it has had a "spotless" compliance record. This is not strictly true: in 1989, the NASD sanctioned Stonegate for filing several financial reports late. Stonegate settled the matter, accepting an NASD censure and paying a $250 fine. However, given the age of the violation and the minor sanction imposed, we have given little weight to this earlier violation in determining what sanctions are in the public interest. |
| 25 | Buck Lyon initially argued that a cease-and-desist order would damage his non-securities businesses, although he did not provide evidence to support his assertion. However, Lyon has since informed us that he is no longer associated with Stonegate, and we consider this argument to be moot. |
| 26 | Stonegate asserts that the law judge imposed sanctions based, in part, on the increased time and cost attributable to holding a hearing. We wish to make clear that we have not considered the administrative resources expended in thehearing in our independent assessment of the public interest. |
| 27 | In early July, Basis notified Bruno that he had found other employment. Bruno persuaded Basis to stay until early August to help respond to an "intense" NASD on-site audit. |
| 28 | The reason for this assignment is unclear. The July 16 alert letter did not include the Form or detailed instructions. There is no evidence that Barclay obtained the Form elsewhere. The next NASD notice regarding the Form was the August 3 package. Barclay stipulated that it received this package in early August, leaving Basis no more than one or two days to complete the assignment. |
| 29 | We have held that "credibility determinations by the fact finder are entitled to substantial deference and can be overcome only where the record contains 'substantial evidence' for doing so." Sharon M. Graham, Exchange Act Rel. No. 40727 (Nov. 30, 1998) 68 SEC Docket 2056, 2073 n.39, aff'd No. 99-1029 (D.C. Cir. Aug. 18, 2000). See also Meadows, 52 S.E.C. at 784. We find no basis for overturning the finding of the law judge. |
| 30 | Bruno's testimony that Gerstel did not know the Form had two parts is also inconsistent with the evidence. Gerstel knew after speaking to the NASD on September 28 that the Form had two parts, both of which Barclay had to file, and that the NASD believed that Barclay had filed only Part I. |
| 31 | Wonsover, 205 F.3d at 414; Hammon Capital Mgmt. Corp., 48 S.E.C. at 265. |
| 32 | In mitigation, Barclay argues that its only offense is filing Part II of the Form late. Barclay argues further that the Commission had access to all the information needed in Part I of the Form; therefore, the Commission was not harmed by Barclay's conduct. Barclay argues that it had only insignificant exposure to the Year 2000 problem and was aggressively addressing the minimal exposure it did have. Barclay also asserts that it had nothing to gain from filing Part II of the Form late. Finally, Barclay argues that it timely filed its April 30, 1999 Form BD-Y2K. We reject these assertions for the same reasons we rejected Stonegate's arguments. See discussion at III.C.2 supra. |
| 33 | We have considered all of the parties' contentions. We have rejected or sustained these contentions to the extent that they are inconsistent or in accord with the views expressed herein. |
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Modified: 10/15/2001