§ 78o. registration and regulation of brokers and dealers...broker or dealer registered under this...

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Week 1 Section 15(a)(1); (b)(1)-(6); and (c) of the Securities Exchange Act of 1934

15 U.S.C.A. § 78o

§ 78o. Registration and regulation of brokers and dealers

(a) Registration of all persons utilizing exchange facilities to effect

transactions; exemptions

(1) It shall be unlawful for any broker or dealer which is either a person other than a

natural person or a natural person not associated with a broker or dealer which is a

person other than a natural person (other than such a broker or dealer whose

business is exclusively intrastate and who does not make use of any facility of a

national securities exchange) to make use of the mails or any means or

instrumentality of interstate commerce to effect any transactions in, or to induce or

attempt to induce the purchase or sale of, any security (other than an exempted

security or commercial paper, bankers' acceptances, or commercial bills) unless

such broker or dealer is registered in accordance with subsection (b) of this section.

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Section 3(a)(4) of the Exchange Act of the Securities Exchange Act of 1934

15 U.S.C.A. § 78c

§ 78c. Definitions and application

(a) Definitions

When used in this chapter, unless the context otherwise requires--

…

(4) Broker

(A) In general

The term “broker” means any person engaged in the business of effecting

transactions in securities for the account of others.

(B) Exception for certain bank activities

A bank shall not be considered to be a broker because the bank engages in

any one or more of the following activities under the conditions described:

(i) Third party brokerage arrangements

The bank enters into a contractual or other written arrangement with a

broker or dealer registered under this chapter under which the broker

or dealer offers brokerage services on or off the premises of the bank

if--

(I) such broker or dealer is clearly identified as the person

performing the brokerage services;

(II) the broker or dealer performs brokerage services in an area

that is clearly marked and, to the extent practicable, physically

separate from the routine deposit-taking activities of the bank;

(III) any materials used by the bank to advertise or promote

generally the availability of brokerage services under the

arrangement clearly indicate that the brokerage services are

being provided by the broker or dealer and not by the bank;

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(IV) any materials used by the bank to advertise or promote


arrangement are in compliance with the Federal securities laws

before distribution;

(V) bank employees (other than associated persons of a broker

or dealer who are qualified pursuant to the rules of a self-

regulatory organization) perform only clerical or ministerial

functions in connection with brokerage transactions including

scheduling appointments with the associated persons of a broker

or dealer, except that bank employees may forward customer

funds or securities and may describe in general terms the types

of investment vehicles available from the bank and the broker or

dealer under the arrangement;

(VI) bank employees do not receive incentive compensation for

any brokerage transaction unless such employees are

associated persons of a broker or dealer and are qualified

pursuant to the rules of a self-regulatory organization,except that

the bank employees may receive compensation for the referral of

any customer if the compensation is a nominal one-time cash fee

of a fixed dollar amount and the payment of the fee is not

contingent on whether the referral results in a transaction;

(VII) such services are provided by the broker or dealer on a

basis in which all customers that receive any services are fully

disclosed to the broker or dealer;

(VIII) the bank does not carry a securities account of the

customer except as permitted under clause (ii) or (viii) of this

subparagraph; and

(IX) the bank, broker, or dealer informs each customer that the

brokerage services are provided by the broker or dealer and not

by the bank and that the securities are not deposits or other

obligations of the bank, are not guaranteed by the bank, and are

not insured by the Federal Deposit Insurance Corporation.

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(ii) Trust activities

The bank effects transactions in a trustee capacity, or effects

transactions in a fiduciary capacity in its trust department or other

department that is regularly examined by bank examiners for

compliance with fiduciary principles and standards, and--

(I) is chiefly compensated for such transactions, consistent with

fiduciary principles and standards, on the basis of an

administration or annual fee (payable on a monthly, quarterly, or

other basis), a percentage of assets under management, or a flat

or capped per order processing fee equal to not more than the

cost incurred by the bank in connection with executing securities

transactions for trustee and fiduciary customers, or any

combination of such fees; and

(II) does not publicly solicit brokerage business, other than by

advertising that it effects transactions in securities in conjunction

with advertising its other trust activities.

(iii) Permissible securities transactions

The bank effects transactions in--

(I) commercial paper, bankers acceptances, or commercial bills;

(II) exempted securities;

(III) qualified Canadian government obligations as defined

in section 24 of Title 12, in conformity with section 78o-5 of this

title and the rules and regulations thereunder, or obligations of

the North American Development Bank; or

(IV) any standardized, credit enhanced debt security issued by a

foreign government pursuant to the March 1989 plan of then

Secretary of the Treasury Brady, used by such foreign

government to retire outstanding commercial bank loans.

(iv) Certain stock purchase plans

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(I) Employee benefit plans

The bank effects transactions, as part of its transfer agency

activities, in the securities of an issuer as part of any pension,

retirement, profit-sharing, bonus, thrift, savings, incentive, or

other similar benefit plan for the employees of that issuer or its

affiliates (as defined in section 1841 of Title 12), if the bank does

not solicit transactions or provide investment advice with respect

to the purchase or sale of securities in connection with the plan.

(II) Dividend reinvestment plans


activities, in the securities of an issuer as part of that issuer's

dividend reinvestment plan, if--

(aa) the bank does not solicit transactions or provide

investment advice with respect to the purchase or sale of

securities in connection with the plan; and

(bb) the bank does not net shareholders' buy and sell

orders, other than for programs for odd-lot holders or

plans registered with the Commission.

(III) Issuer plans


activities, in the securities of an issuer as part of a plan or

program for the purchase or sale of that issuer's shares, if--



securities in connection with the plan or program; and




(IV) Permissible delivery of materials

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The exception to being considered a broker for a bank engaged

in activities described in subclauses (I), (II), and (III) will not be

affected by delivery of written or electronic plan materials by a

bank to employees of the issuer, shareholders of the issuer, or

members of affinity groups of the issuer, so long as such

materials are--

(aa) comparable in scope or nature to that permitted by

the Commission as of November 12, 1999; or

(bb) otherwise permitted by the Commission.

(v) Sweep accounts

The bank effects transactions as part of a program for the investment

or reinvestment of deposit funds into any no-load, open-end

management investment company registered under the Investment

Company Act of 1940 [15 U.S.C.A. § 80a-1 et seq.] that holds itself out

as a money market fund.

(vi) Affiliate transactions

The bank effects transactions for the account of any affiliate of the bank

(as defined in section 1841 of Title 12) other than--

(I) a registered broker or dealer; or

(II) an affiliate that is engaged in merchant banking, as described

in section 1843(k)(4)(H) of Title 12.

(vii) Private securities offerings

The bank--

(I) effects sales as part of a primary offering of securities not

involving a public offering, pursuant to section 3(b), 4(2), or 4(5)

of the Securities Act of 1933 or the rules and regulations issued

thereunder;

(II) at any time after the date that is 1 year after November 12,

1999, is not affiliated with a broker or dealer that has been

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registered for more than 1 year in accordance with this chapter,

and engages in dealing, market making, or underwriting

activities, other than with respect to exempted securities; and

(III) if the bank is not affiliated with a broker or dealer, does not

effect any primary offering described in subclause (I) the

aggregate amount of which exceeds 25 percent of the capital of

the bank, except that the limitation of this subclause shall not

apply with respect to any sale of government securities or

municipal securities.

(viii) Safekeeping and custody activities

(I) In general

The bank, as part of customary banking activities--

(aa) provides safekeeping or custody services with

respect to securities, including the exercise of warrants

and other rights on behalf of customers;

(bb) facilitates the transfer of funds or securities, as a

custodian or a clearing agency, in connection with the

clearance and settlement of its customers' transactions in

securities;

(cc) effects securities lending or borrowing transactions

with or on behalf of customers as part of services provided

to customers pursuant to division (aa) or (bb) or invests

cash collateral pledged in connection with such

transactions;

(dd) holds securities pledged by a customer to another

person or securities subject to purchase or resale

agreements involving a customer, or facilitates the

pledging or transfer of such securities by book entry or as

otherwise provided under applicable law, if the bank

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maintains records separately identifying the securities and

the customer; or

(ee) serves as a custodian or provider of other related

administrative services to any individual retirement

account, pension, retirement, profit sharing, bonus, thrift

savings, incentive, or other similar benefit plan.

(II) Exception for carrying broker activities


in activities described in subclause (I) shall not apply if the bank,

in connection with such activities, acts in the United States as a

carrying broker (as such term, and different formulations thereof,

are used in section 78o(c)(3) of this title and the rules and

regulations thereunder) for any broker or dealer, unless such

carrying broker activities are engaged in with respect to

government securities (as defined in paragraph (42) of this

subsection).

(ix) Identified banking products

The bank effects transactions in identified banking products as defined

in section 206 of the Gramm-Leach-Bliley Act [15 U.S.C.A. § 78c note].

(x) Municipal securities

The bank effects transactions in municipal securities.

(xi) De minimis exception

The bank effects, other than in transactions referred to in clauses (i)

through (x), not more than 500 transactions in securities in any

calendar year, and such transactions are not effected by an employee

of the bank who is also an employee of a broker or dealer.

(C) Execution by broker or dealer

The exception to being considered a broker for a bank engaged in activities

described in clauses (ii), (iv), and (viii) of subparagraph (B) shall not apply if

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the activities described in such provisions result in the trade in the United

States of any security that is a publicly traded security in the United States,

unless--

(i) the bank directs such trade to a registered broker or dealer for

execution;

(ii) the trade is a cross trade or other substantially similar trade of a

security that--

(I) is made by the bank or between the bank and an affiliated

fiduciary; and

(II) is not in contravention of fiduciary principles established

under applicable Federal or State law; or

(iii) the trade is conducted in some other manner permitted under rules,

regulations, or orders as the Commission may prescribe or issue.

(D) Fiduciary capacity

For purposes of subparagraph (B)(ii), the term “fiduciary capacity” means--

(i) in the capacity as trustee, executor, administrator, registrar of stocks

and bonds, transfer agent, guardian, assignee, receiver, or custodian

under a uniform gift to minor act, or as an investment adviser if the

bank receives a fee for its investment advice;

(ii) in any capacity in which the bank possesses investment discretion

on behalf of another; or

(iii) in any other similar capacity.

(E) Exception for entities subject to section 78o(e) of this title

The term “broker” does not include a bank that--

(i) was, on the day before November 12, 1999, subject to section

78o(e) of this title; and

(ii) is subject to such restrictions and requirements as the Commission

considers appropriate.

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(F) Joint rulemaking required

The Commission and the Board of Governors of the Federal Reserve System

shall jointly adopt a single set of rules or regulations to implement the

exceptions in subparagraph (B).

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15 U.S.C.A. § 78c


…

(5) Dealer

(A) In general

The term “dealer” means any person engaged in the business of buying and

selling securities (not including security-based swaps, other than security-

based swaps with or for persons that are not eligible contract participants) for

such person's own account through a broker or otherwise.

(B) Exception for person not engaged in the business of dealing

The term “dealer” does not include a person that buys or sells securities (not

including security-based swaps, other than security-based swaps with or for

persons that are not eligible contract participants) for such person's own

account, either individually or in a fiduciary capacity, but not as a part of a

regular business.

(C) Exception for certain bank activities

A bank shall not be considered to be a dealer because the bank engages in

any of the following activities under the conditions described:

(i) Permissible securities transactions

The bank buys or sells--







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(ii) Investment, trustee, and fiduciary transactions

The bank buys or sells securities for investment purposes--

(I) for the bank; or

(II) for accounts for which the bank acts as a trustee or fiduciary.

(iii) Asset-backed transactions

The bank engages in the issuance or sale to qualified investors,

through a grantor trust or other separate entity, of securities backed by

or representing an interest in notes, drafts, acceptances, loans, leases,

receivables, other obligations (other than securities of which the bank is

not the issuer), or pools of any such obligations predominantly

originated by--

(I) the bank;

(II) an affiliate of any such bank other than a broker or dealer; or

(III) a syndicate of banks of which the bank is a member, if the

obligations or pool of obligations consists of mortgage

obligations or consumer-related receivables.

(iv) Identified banking products

The bank buys or sells identified banking products, as defined in

section 206 of the Gramm-Leach-Bliley Act [15 U.S.C.A. § 78c note].

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157 RIZEK v. S.E.C. Cite as 215 F.3d 157 (1st Cir. 2000)

garding how Footman had intimidated her into not testifying against him after he had been charged with deriving support from a minor prostitute (A.M.). A.M. had even brought intimidation charges against Foot- man while he was in pre-trial detention for this offense and had sought a restraining order against him. The trial judge credited A.M.’s testimony that Footman had intimidated her into dropping her request for the restraining order and not testifying against him.

This is one area of the Guidelines where individualized attention to the defendant is encouraged. That this individualized attention worked to Footman’s detriment is a function of his incorrigibility, not of an error by the district court.

2. Departure Under U.S.S.G. § 5K2.4

Footman separately argues that a second upward departure, pursuant to U.S.S.G. § 5K2.4, was error because the abductions of A.M. and S.O. (the rape and beating of S.O. in November 1996 and the beating of A.M. in February 1997) were not committed to facilitate the commission of an offense of conviction.

[19, 20] Whether the abductions were committed to facilitate the offenses for which Footman was convicted is a question of fact. We review the district court’s fact findings at sentencing for clear error. See United States v. Li, 206 F.3d 78, 85–86 (1st Cir.2000). We otherwise review the district court’s decision to depart from the sentencing guidelines for abuse of discretion. See id.

The abductions postdate the transportation offenses forming the basis for the 18 U.S.C. § 2423(a) charge, Footman argues, and so cannot be counted. Because the trial judge could reasonably conclude that the abductions did facilitate criminal conduct for which Footman was charged and convicted, we need not decide whether an abduction that clearly postdates the criminal act for which a defendant is convicted could support a departure under § 5K2.4.

[21] Footman was charged with and convicted of conspiracy to transport wom- en (including minors) across state lines for the purpose of prostitution from in or about June 1996 until in or about April 1997. The abductions occurred during this period and clearly ‘‘facilitated’’ the commission of the conspiracy. Cf. United States v. Uccio, 940 F.2d 753, 760 (2d Cir.1991) (affirming § 5K2.4 departure for kidnaping and assault of coconspirator). Further, Footman was charged with and convicted of a substantive transportation offense that occurred in March 1997. Be- cause the abductions occurred prior to the commencement of that offense, the trial judge could reasonably conclude that they facilitated that offense. Footman did not commit either of the acts in private. The record evidence is more than sufficient to have allowed the trial judge to conclude that Footman carried out these attacks in front of other prostitutes in order to send a message. The district court committed no abuse of discretion in deciding to depart upward on this basis.

III

We affirm Footman’s conviction and sentence.

Al RIZEK, Petitioner,

v.

SECURITIES AND EXCHANGE COMMISSION, Respondent.

No. 99–2114.

United States Court of Appeals, First Circuit.

Heard May 12, 2000.

Decided June 16, 2000.

President of investment company peti-

tioned for review of order of Securities and

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158 215 FEDERAL REPORTER, 3d SERIES

Exchange Commission (SEC), permanent- ly barring him from securities industry and imposing $100,000 civil penalty. The Court of Appeals, Lynch, Circuit Judge, held that: (1) permanent bar did not require showing that less drastic remedy would not suffice to protect public, and (2) SEC did not abuse its discretion in imposing permanent bar and civil penalty for churning.

Affirmed.

1. Securities Regulation O40.14(2) Sanctions order of Securities and Ex-

change Commission (SEC) must be upheld unless order is gross abuse of discretion.

2. Securities Regulation O40.14(2) Securities and Exchange Commis-

sion’s (SEC) sanctions must be affirmed unless unwarranted in law or without justification in fact.

3. Securities Regulation O40.14(2) Requirement that Securities and Ex-

change Commission (SEC) adequately set forth grounds for its decision does not mean that SEC can only impose permanent bar from securities industry if it shows that less drastic remedy would not suffice to protect the public. Securities Exchange Act of 1934, § 15(b)(6)(A), as amended, 15 U.S.C.A. § 78o(b)(6)(A).

4. Securities Regulation O40.14(2) Securities and Exchange Commission

(SEC) did not abuse its discretion in imposing permanent bar and civil penalty of $100,000 on president of investment company for his excessive margin trading of zero-coupon bonds for customers with conservative objectives. Securities Exchange Act of 1934, §§ 15(b)(6)(A), 21B(b), as amended, 15 U.S.C.A. §§ 78o(b)(6)(A), 78u–2(b).

5. Securities Regulation O40.14(1) No greater degree of scienter was

needed to justify sanction imposed by Se-

curities and Exchange Commission (SEC) for churning violation than scienter needed to establish violation for which sanction was imposed. Securities Exchange Act of 1934, § 15(b)(6)(A), as amended, 15 U.S.C.A. § 78o(b)(6)(A).

6. Securities Regulation O40.14(2) There was ample evidence to support

conclusion of Securities and Exchange Commission (SEC), in imposing permanent bar on president of investment company for his excessive margin trading of zero- coupon bonds for customers with conservative objectives, that president acted willfully and recklessly. Securities Exchange Act of 1934, § 15(b)(6)(A), as amended, 15 U.S.C.A. § 78o(b)(6)(A).

7. Securities Regulation O40.14(2) Petitioner waived claim that he was

unable to pay civil penalty imposed by Securities and Exchange Commission (SEC), by not raising argument before SEC. Securities Exchange Act of 1934, §§ 21B(b), 25(c)(1), as amended, 15 U.S.C.A. §§ 78u–2(b), 78y(c)(1).

Jose R. Riguera, with whom John R. Squitero and Katz, Barron, Squitero & Faust, P.A. were on brief, for petitioner.

Catherine A. Broderick, Counsel to the Assistant General Counsel, with whom Mark Pennington, Assistant General Coun- sel, and Meyer Eisenberg, Deputy General Counsel, were on brief, for respondent.

Before LYNCH and LIPEZ, Circuit Judges, and KEETON, District Judge.*

LYNCH, Circuit Judge.

Al Rizek was a vice president of Paine- Webber Incorporated of Puerto Rico. Over a ten-month period in 1993 he churned the accounts of five customers, causing losses of approximately $195,000 on accounts with average balances that totaled about $700,- 000. This violated Section 10(b) of the Securities Exchange Act of 1934, 15 U.S.C.

* Of the District of Massachusetts, sitting by designation.

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78j, and Rule 10b–5, 17 C.F.R. § 240.10b– 5. Although his customers indicated that they had conservative investment objectives, Rizek pursued the extremely risky strategy of trading U.S. Treasury bonds in an attempt to take advantage of short- term fluctuations in the market. He mag- nified the risk by trading the accounts on margin.

In 1999, the Securities and Exchange Commission ordered that Rizek be perma- nently barred from the securities industry, cease and desist from violations, pay a civil penalty of $100,000, and disgorge over $120,000. In doing so, the SEC departed from the recommendations of its own Ad- ministrative Law Judge, who would have imposed a disgorgement of over $275,000, but only a two-year suspension. See generally In re Al Rizek, Exchange Act Re- lease No. 41,725, 70 S.E.C. Docket 705 (Aug. 11, 1999), available in 1999 WL 600427.

Rizek, by petition for review of the SEC order, challenges the permanent bar order and the civil penalty; he does not chal- lenge the findings that he excessively traded the accounts. The essence of his argument is that the SEC was wrong in finding he had the degree of scienter required for such a sanction: while his investment strategy may have been wrong, he had a good faith belief in it, he meant no harm, and he is remorseful. From this he argues that a permanent bar from the industry where he has supported himself and his family for fifteen years is arbitrary and capricious, and so should be reversed. He also urges that this court adopt a rule that when the Commission imposes a permanent bar, the most drastic sanction available, it must show that a less drastic remedy would not suffice to protect the public.

We decline that invitation and affirm the Commission order.

I.

There is very little dispute about the underlying facts, which we take from the

record before the Commission. The par- ties disagree, however, as to the conclusions that may be drawn from those facts.

The five customers in question—Eddie Figueroa, Jorge Donato, Jose Acevedo, Hector Torres Nadal, and Herminio R. Cintron—opened their accounts with Rizek in 1990 and 1991. Only Donato and Cin- tron had some prior experience investing in securities. Acevedo and Torres had purchased CDs or similar investment products, while Figueroa had previously kept his money in a savings account.

Four of the customers’ new account forms listed ‘‘speculation’’ last among pos- sible investment objectives, while Rizek’s record of Torres’s account does not men- tion speculation at all. Donato told Rizek that he was primarily interested in long- term bonds and the ‘‘safety of [his] investment.’’ Acevedo testified that he was looking for a long-term investment; he was not willing to speculate or risk any of his principal. Cintron was planning for his retirement and his children’s education; he testified that he was looking for ‘‘some- thing that was safe’’; Torres was also sav- ing for retirement and described himself as ‘‘very cautious’’ and interested in ‘‘some- thing that was protected and secure.’’ Fi- gueroa testified that he was willing to take ‘‘any type of risk,’’ but that Rizek had counseled him that ‘‘given the small amount of money that [he] had, the most convenient thing was to put most of the savings into some safe investments and devote a small amount to moderate type of risk.’’

Torres and Cintron testified that Rizek never asked them later if they wanted to change their investment objectives to indicate a willingness to speculate. Acevedo, Donato, and Figueroa testified that they could not recall if Rizek had ever asked them about changing their objectives.

In early 1993, Rizek recommended a strategy of short-term trading of zero-coupon bonds to certain of his customers, including the five whose accounts are at issue here. Zero-coupon bonds are U.S.

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government instruments that accumulate interest until maturity, rather than paying interest periodically. The value of a zero- coupon bond is very sensitive to changes in interest rates. Rizek recommended that his customers purchase the bonds on margin, which significantly increased the face value amounts of the trades, thus magnify- ing the potential gains and losses. Pur- chasing on margin meant that the customers had to make monthly margin interest payments to PaineWebber; it also placed them at risk of being forced to sell at a loss to meet a margin call.

The SEC Division of Enforcement’s expert witness testified that there was no economic logic to Rizek’s trading strategy of swapping zero-coupon bonds, because bond prices move in parallel with each other. The expert stated that only a ‘‘very sophisticated, experienced investor’’ could have understood Rizek’s strategy and its risks. On the other hand, Rizek’s expert witness testified that trading zero-coupon bonds was an ‘‘accepted trading strategy,’’ but conceded that Rizek’s customers would have had to be able to tolerate ‘‘aggressive risk’’ for the strategy to have been appropriate for them.

Figueroa, Torres, and Cintron testified that they always followed Rizek’s investment recommendations, while Donato said that he followed them ‘‘ninety-nine percent’’ of the time. Acevedo testified that he could not remember refusing any of Rizek’s recommendations during the relevant period.

During the fifteen-month period from January 1993 to March 1994, the five accounts had average monthly balances of approximately $50,000; $85,000; $86,000; $165,000; and $312,000. During this time, Rizek carried out approximately $24 million in transactions on the accounts, gener- ating tens of thousands of dollars in commissions and margin interest fees. For example, Rizek effected $1.6 million in transactions on the account with the $50,000 average balance, incurring average annual commissions of about $16,000 and

interest fees of over $5,000. On the larg- est account, Rizek carried out $9.3 million in transactions, which generated average annual commissions of more than $82,000 and interest fees of over $30,000. All told, Rizek’s strategy led to losses of approximately $195,000 on the five accounts, which had average monthly balances totaling about $700,000.

II.

[1] A sanctions order of the Commis- sion must be upheld unless the order is a ‘‘gross abuse of discretion.’’ A.J. White & Co. v. SEC, 556 F.2d 619, 624 (1st Cir.) (internal quotation marks omitted), cert. denied, 434 U.S. 969, 98 S.Ct. 516, 54 L.Ed.2d 457 (1977); see also Lawrence v. SEC, 398 F.2d 276, 280 (1st Cir.1968).

[2] Congress has charged the Commis- sion with protecting the investing public. See, e.g., 15 U.S.C. § 78j(b) (referring to ‘‘rules and regulations TTT the Commission may prescribe TTT for the protection of investors’’); see also Pierce v. SEC, 239 F.2d 160, 163 (9th Cir.1956) (‘‘The Com- mission is given the duty to protect the public. What will protect the public must involve, of necessity, an exercise of discre- tionary determination.’’). And so the question of the appropriate remedy is ‘‘peculiarly a matter for administrative compe- tence.’’ Butz v. Glover Livestock Comm’n Co., 411 U.S. 182, 185, 93 S.Ct. 1455, 36 L.Ed.2d 142 (1973) (quoting American Power & Light Co. v. SEC, 329 U.S. 90, 112, 67 S.Ct. 133, 91 L.Ed. 103 (1946)) (internal quotation marks omitted); see also Phelps Dodge Corp. v. NLRB, 313 U.S. 177, 194, 61 S.Ct. 845, 85 L.Ed. 1271 (1941) (‘‘[T]he relation of remedy to policy is peculiarly a matter for administrative competenceTTTT’’). As a result, the Com- mission’s sanctions must be affirmed unless ‘‘unwarranted in law or TTT without justification in fact.’’ American Power & Light, 329 U.S. at 112–13, 67 S.Ct. 133.

Rizek contends that his conduct was at most negligent and naive. He says that

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the violations involved only five of his 400 customers; that his strategy relied on pre- dictions from Paine Webber’s chief econo- mist; and that he stopped investing in zero-coupon bonds when his customers be- gan to lose money. He also points to the fact that he has given assurances against future violations. Rizek claims that the bar is improperly punitive in nature and not meant to protect the investing public.

Rizek argues that this court should fol- low Steadman v. SEC, 603 F.2d 1126 (5th Cir.1979), aff’d on other grounds, 450 U.S. 91, 101 S.Ct. 999, 67 L.Ed.2d 69 (1981). Rizek claims Steadman held that a court should not affirm a permanent bar, the most drastic sanction available, unless the SEC has shown that no lesser remedy will suffice to protect the public interest. See id. at 1140.

We think Rizek’s argument confuses two concepts. We understand Steadman to articulate no more than the well-established rule that agencies must sufficiently articulate the grounds of their decisions so that appellate courts are able to perform their function of judicial review meaning- fully. The Supreme Court made this point about the need for adequate SEC findings in SEC v. Chenery Corp., 318 U.S. 80, 94, 63 S.Ct. 454, 87 L.Ed. 626 (1943) (‘‘[T]he orderly functioning of the process of review requires that the grounds upon which the administrative agency acted be clearly disclosed and adequately sustained.’’); see also Beck v. SEC, 413 F.2d 832, 834 (6th Cir.1969). This court has made the point in various contexts involving judicial review of administrative actions, and at times has remanded to the agency when it has not provided such an explanation. See, e.g., City of Boston v. U.S. Dep’t of Hous. and Urban Dev., 898 F.2d 828, 835 (1st Cir.1990); Jasinskas v. Bethlehem Steel Corp., 735 F.2d 1, 5 (1st Cir.1984).

[3] To say that the Commission must adequately set forth its grounds is far different from saying that the agency’s discretion as to remedy is curtailed by judge-made rules, such as a rule that a permanent bar may be imposed only if the agency has explained to the satisfaction of a court why no lesser remedy will do. If that is what Steadman intended, then we respectfully disagree. As the Butz Court said in reversing a court of appeals that had overturned an administrative agency’s choice of sanctions, ‘‘[w]e search in vain for that requirement in the statute.’’ Butz, 411 U.S. at 186, 93 S.Ct. 1455. Section 15(b)(6)(A) of the Securities Exchange Act authorizes the Commission to issue a permanent bar if it finds that such a bar ‘‘is in the public interest.’’ 15 U.S.C. § 78o(b)(6)(A). Considerable deference should be given the Commission’s ultimate judgment about what will best protect the public.1

We also note that the term ‘‘permanent bar’’ is more than a bit of a misnomer. It does not literally mean that the sanctioned person may never reenter the securities industry. In fact, there are two routes back in. First, Rizek may later apply to the SEC for consent to associate with an entity that is not a member of a self- regulatory organization such as the Na- tional Association of Securities Dealers (NASD). See SEC Rule of Practice 193, 17 C.F.R. § 201.193(a). Second, Rizek may find a NASD member firm willing to employ him, and that firm may apply to NASD to have Rizek become associated with it. See By–Laws of The National Association of Securities Dealers, Inc., art. III, § 3(d). NASD’s approval of any such application is subject to whatever further action the Commission may take. See id., art. III, § 3(f).2 This is a remarkably porous definition of a permanent bar.

1. That is not to say there is no room for a

court to find that a particular sanction is an abuse of discretion. See, e.g., Hateley v. SEC, 8 F.3d 653, 655–57 (9th Cir.1993) (reducing a disgorgement order which was approximately

ten times the amount of the petitioner’s unjust enrichment).

2. The Commission must act on NASD’s ap-

proval of such an application within 30 days

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[4] The Commission said it was imposing a permanent bar on Rizek because of the egregiousness of his violation; because there was little basis to credit his claim of remorse (he was remorseful about the losses, but not about using the strategy which caused the losses); and because Rizek, who was at the time president of his own investment company,3 posed a substantial threat to public investors.

The activity was egregious. These five clients were unsophisticated in the world of investing and trusted Rizek to handle their savings conservatively. In some in- stances these were their life savings, their funds for retirement, or their funds for educating their children. On average balances in the five accounts totaling $700,- 000, Rizek engaged in over $24 million in transactions over a ten month period. The transaction costs equaled roughly 40% of the account balances; one customer lost about 50% of his account. While his customers lost $195,000, Rizek received about $125,000 in commissions.

There is no doubt that Rizek churned the accounts. Churning is commonly said to have three elements: (1) control of the customer’s account by the broker, either explicit or de facto; (2) excessive trading in light of the customer’s investment objectives; and (3) scienter—the required state of mind for liability under Section 10(b) and Rule 10b–5. See Tiernan v. Blyth, Eastman, Dillon & Co., 719 F.2d 1, 2 (1st Cir.1983); see also, e.g., Craighead v. E.F. Hutton & Co., 899 F.2d 485, 489 (6th Cir. 1990); Laird v. Integrated Resources, Inc., 897 F.2d 826, 838 (5th Cir.1990); Hotmar v. Lowell H. Listrom & Co., 808 F.2d 1384, 1385 (10th Cir.1987). Rizek focuses on the third element.

The Supreme Court has said that scienter is ‘‘a mental state embracing intent to

deceive, manipulate, or defraud.’’ Ernst & Ernst v. Hochfelder, 425 U.S. 185, 194 n. 12, 96 S.Ct. 1375, 47 L.Ed.2d 668 (1976). This circuit has accepted as meeting the requirement of scienter a form of reckless- ness that is not merely ordinary negligence, but is more like a lesser form of intent. See Greebel v. FTP Software, 194 F.3d 185, 199 (1st Cir.1999). We have defined reckless conduct as ‘‘a highly un- reasonable omission, involving not merely simple, or even inexcusable, negligence, but an extreme departure from the standards of ordinary care, and which presents a danger of misleading buyers or sellers that is either known to the defendant or so obvious the actor must have been aware of it.’’ Id. at 198 (quoting Sundstrand Corp. v. Sun Chem. Corp., 553 F.2d 1033, 1045 (7th Cir.1977)).

[5] Rizek argues that while the Com- mission may have been entitled to find that he had the degree of scienter needed to establish a churning violation, a greater degree of scienter is needed to justify the sanctions imposed. There is no statutory basis to distinguish between the scienter needed to establish a violation for which a sanction may be imposed administratively and the scienter needed to warrant a particular penalty. At most, Rizek’s argument goes to the Commission’s exercise of its discretion. And the Commission found that even if Rizek had a good faith belief in the efficacy of his strategy, ‘‘he had no justification for recommending it to unsophisticated customers who were incapable of making an independent judgment, when he knew that the extremely high risk was directly contrary to the customers’ conservative investment objectives.’’ In re Al Rizek, Exchange Act Release No. 41,725, 70 S.E.C. Docket 705 (Aug. 11, 1999),

of receiving notice of the approval; if it chooses, it may extend the period for an additional 60 days. See 17 C.F.R. § 240.19h– 1(a)(7).

3. Rizek argues that his own firm is now de-

funct and so he cannot be a threat to others.

The point, rather, is one of protecting the investing public, and the Commission has concluded that it would protect the public by precluding Rizek from further association with the industry.

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available in 1999 WL 600427 at *6. That finding is adequate support for the remedy.

[6] In any event, this case involves churning plus. The Commission also found that ‘‘Rizek was well aware that he had acted improperly in recommending his strategy, and tried to conceal his conduct from his firm.’’ Id. Rizek both misled his firm’s management and attempted to mis- lead the Commission. Paine Webber management had become concerned about Riz- ek’s trading strategy and questioned him about it at four meetings. Rizek responded by giving the firm a list of clients whose strategies, he said, had changed so that ‘‘speculation’’ was now a high ranking ob- jective. In addition, at the hearings before the ALJ, Rizek testified that he had called all of the customers in November 1993 and all of them agreed to the reordering of their investment objectives. But the facts were to the contrary: none of the customers testified that Rizek had sought or received their permission to change their investment objectives. There was ample evidence to support the Commission’s conclusion that Rizek acted willfully and recklessly.

Under these circumstances, there is sim- ply no viable argument that the permanent bar was an abuse of discretion, or that it was punitive and not meant to protect the investing public. See, e.g., Sheldon v. SEC, 45 F.3d 1515, 1519 (11th Cir.1995) (affirming permanent bar); Sartain v. SEC, 601 F.2d 1366, 1376 (9th Cir.1979) (same); O’Leary v. SEC, 424 F.2d 908, 912 (D.C.Cir.1970) (same); Fink v. SEC, 417 F.2d 1058, 1060 (2d Cir.1969) (same).

III.

Rizek also challenges the imposition of a $100,000 civil penalty. Under Section 21B(b) of the Act, there is a three-tiered system for assessing civil penalties, rang- ing from a first tier penalty of $5,000 to a third tier penalty of $100,000. See 15 U.S.C. § 78u–2(b). The requirements for

imposition of the third tier penalty are set forth at 15 U.S.C. § 78u–2(b)(3):

(3) Third tier

Notwithstanding paragraphs (1) and (2), the maximum amount of penalty for each such act or omission shall be $100,000 for a natural person or $500,000 for any other person if—

(A) the act or omission described in subsection (a) of this section involved fraud, deceit, manipulation, or deliberate or reckless disregard of a regulatory requirement; and

(B) such act or omission directly or indirectly resulted in substantial losses or created a significant risk of substantial losses to other persons or resulted in substantial pecu- niary gain to the person who committed the act or omission.

[7] In turn, the statute sets forth six factors which the Commission may consid- er in assessing monetary penalties:

(1) whether the act or omission for which such penalty is assessed involved fraud, deceit, manipulation, or deliberate or reckless disregard of a regulatory requirement;

(2) the harm to other persons resulting either directly or indirectly from such act or omission;

(3) the extent to which any person was unjustly enriched, taking into account any restitution made to persons injured by such behavior;

(4) whether such person previously has been found by the Commission, another appropriate regulatory agency, or a self-regulatory organization to have violated the Federal securities laws, State securities laws, or the rules of a self-regulatory organization, has been enjoined by a court of competent jurisdiction from violations of such laws or rules, or has been convicted by a court of competent jurisdiction of violations of such laws or of any felony or misdemean-

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or described in section 78o(b)(4)(B) of this title;

(5) the need to deter such person and other persons from committing such acts or omissions; and

(6) such other matters as justice may require.

Id. § 78u–2(c). To the extent Rizek argues he is unable to pay the penalty, we note that he did not raise the argument before the Commission, and so it is waived. See 15 U.S.C. § 78y(c)(1). For the same reasons there was no abuse of discretion in the permanent bar order, there was no abuse of discretion in the imposition of the civil penalty.

We affirm the Commission’s order.

UNITED STATES of America, Plaintiff, Appellee/Cross–

Appellant,

v.

James E. COFIELD, Jr., Henry F. Ow- ens, III, Owens & Associates, and Roxse Homes, Inc., Defendants, Appel- lants/Cross–Appellees.

Nos. 99–1122, 99–1335, 99–1123, 99–1268.

United States Court of Appeals, First Circuit.

Heard April 5, 2000.

Decided June 19, 2000.

The United States sued former owner

of housing project with mortgage insured by the Department of Housing and Urban Development (HUD), and its former chairman of the board and attorney, to recover money alleged to have been improperly

Massachusetts, Edward F. Harrington, J., entered judgment against all defendants for the amounts paid, plus pre-judgment interest, but rejected the government’s request for double damages and attorney fees. Chairman and attorney appealed and the United States cross-appealed. The Court of Appeals, Boudin, Circuit Judge, held that: (1) attorney was an ‘‘agent’’ within meaning of statute defining ‘‘any person’’ who may be a defendant in suit under the applicable statute; (2) defendants failed to show that suit reflected deliberate racial discrimination, as consti- tuting selective enforcement; (3) evidence supported recovery; (4) under the applicable statute, award of attorney fees is required save for rare cases in which special circumstances would render an award unjust; (5) the government’s refusal to settle for the amount of improper payments did not constitute ‘‘special circumstances’’ war- ranting denial of attorney fees; and (6) decision whether the award of double damages is just in the particular circumstances is left to the informed judgment of the district court, but remand was required on this issue.

Affirmed in part and vacated and remanded in part.

1. United States O82(3.5)

Attorney for housing project with mortgage insured by the Department of Housing and Urban Development (HUD) was an ‘‘agent’’ within meaning of statute defining ‘‘any person’’ who may be a defendant in suit ‘‘to recover any assets or income used by any person’’ in violation of a regulatory agreement or an applicable regulation, where the expenditures that the district court found to be improper were payments to attorney or his law firm by the project; statute does not restrict definition of agent to managing agents. Housing and Community Development Act of 1987, § 421(a), 12 U.S.C.A. § 1715z– 4a(a).

paid by project to attorney. The United States District Court for the District of

See publication Words and Phras- es for other judicial constructions and definitions.

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S.E.C. v. RIDENOUR Cite as 913 F.2d 515 (8th Clr. 1990)

515

plaint or written objections from which we that: (1) record supported finding that bro- can infer that the deputy sheriff's know!- ker-dealer misused relationship with clients edge of or involvement in Webster's deten- and defrauded them in violation of federal tion extended beyond the time of arrest. securities law; (2) account executive's level Therefore, we affirm the dismissal of the of activity and maintenance of regular eli- action against the deputy sheriff as friv- entele for his private bond deals made him olous. a broker-dealer subject to registration re-

quirements; and (3) findings in prior crimi- CONCLUSION

For the foregoing reasons, we reverse the district court's dismissal of Webster's complaint insofar as it states a claim against the sheriff and remand for further proceedings in accordance with this opinion. We affirm the district court's dismissal of Webster's complaint in all other re- spects.

SECURITIES AND EXCHANGE COMMISSION, Appellee,

v.

Robert L. RIDENOUR, Appellant.

No. 89-2534.

United States Court of Appeals, Eighth Circuit.

Submitted June 11, 1990.

Decided Sept. 5, 1990.

The Securities and Exchange Commis-

sion filed an action against an account executive in the institutional bond department of a brokerage who had allegedly violated federal securities provisions. The United States District Court for the Southern Dis- trict of Iowa, Donald E. O'Brien, J., found defendant had violated federal securities laws and ordered him to disgorge $470,- 287.23 in profits earned through interpos- ing defendant's undisclosed personal account in bond transactions with his customers and his employer. Defendant appealed. The Court of Appeals, Larson, Senior Dis- trict Judge, sitting by designation, held

nal tax trial were not entitled to collateral estoppel effect.

Affirmed as modified. 1. Securities Regulation 60.32(2)

An account executive in institutional bond department of a brokerage whose clients relied on him to quote them the best available market price for the purchase and sale of securities because of the unique relationship of trust and confidence the broker-dealer had developed with them over the years, had misused his relationship with his clients and defrauded them in violation of federal securities laws by failing to disclose profits he obtained from bond transactions with them, even though broker-dealers normally did not owe a duty to those trading in bonds. Securities Act of 1933, § 17(a), 15 U.S.C.A. § 77q(a); Se- curities Exchange Act of 1934, § 10(b), 15 U.S.C.A. § 78j(b).

2. Securities Regulation 11.20 An account executive in the institution-

al bond department of a brokerage was a broker-dealer whose failure to register as such violated federal securities laws; there was evidence that he was involved in a series of municipal and corporate securities transactions with a high level of activity, and that he attempted to obtain and keep a regular clientele for his "private" bond deals which he negotiated out of his brokerage office on his own behalf. Securities Exchange Act of 1934, § 15(a)(1), 15 U.S. C.A. § 78o (a)(1).

3. Judgment 648

Acquittal on criminal tax charges was not entitled to collateral estoppel effect in civil securities trial as to amount of profits broker made on improper bond transactions; primary issue in tax trial was wheth-

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er broker had willfully failed to report his income from the transactions, not whether defendant had shared profits from transactions with another person.

William Sidney Smith, Des Moines, Iowa, for appellant.

Eric Summergrad, Washington, D.C., for appellee.

Before MAGILL and BEAM, Circuit

Judges, and LARSON,* Senior District Judge.

LARSON, Senior District Judge.

Defendant Robert Ridenour appeals from the district court's 1 judgment finding Ri- denour had violated federal securities laws and ordering that Ridenour disgorge $470,- 287.23 in profits earned through interpos- ing Ridenour's undisclosed personal account in bond transactions with his customers and his employer, Dean Witter. Riden- our contends the court misunderstood the bond market in concluding that he owed a fiduciary duty to customers with whom he traded, that his failure to disclose his iden- tity and his trading activity did not constitute unlawful interpositioning, and that he did not violate broker-dealer registration requirements. Ridenour further contends the court erred in determining the amount of profits he must disgorge, by failing, inter alia, to give collateral estoppel effect to findings in a criminal case in which Ridenour was acquitted of charges that he willfully filed false federal income tax returns.

We affirm the district court's rulings re- garding Ridenour's civil liability under federal securities laws, and, with the exception of $2,241.27 in profits which the government now concedes were obtained through trades which did not involve any fraud on Ridenour's part, we affirm the court's judgment requiring Ridenour to disgorge the profits he obtained through use of his nominee accounts.

* The HONORABLE EARL R. LARSON, Senior United States District Judge for the District of Minnesota, sitting by designation.

I.

Robert Ridenour was a very sophisticated, very successful bond dealer, who was employed by Dean Witter from Sep- tember, 1979, through April, 1984. Riden- our worked in the institutional bond department, and his clients were primarily Iowa banks. Ridenour's job as an account executive was to contact these banks, and various individuals as well, to buy and sell government and municipal securities on behalf of Dean Witter. The Toy National Bank, United Central Bank, and First Com- munity Bank and Trust were among Riden- our's clients.

In 1985, the Securities and Exchange Commission brought a civil complaint against Ridenour, alleging he had violated section 17(a) of the Securities Act of 1933, 15 U.S.C. § 77q(a), and sections 10(b) and 15(a) of the Securities Exchange Act of 1934, 15 U.S.C. §§ 78j(b) & 78o(a), as well as Rule 10b-5, 17 C.F.R. § 240.10b-5. The basis of the SEC's complaint was a series of trades Ridenour effected on his own behalf between 1979 and 1981 through use of nominee accounts at the Toy National Bank and at First Community Bank and Trust. During this two year period, Riden- our participated in over 100 "matched transactions" in which he would buy a security from a client through these nominee accounts, without informing the client that he was the buyer, and then resell the same security within a short period of time at a profit, usually on the same day.

Expert testimony at trial revealed that Ridenour's profit rate was an "extraordi- nary" 94% on these trades. Ridenour never disclosed this profit to his clients or to Dean Witter. Many of the trades involved Richard Hickman, a vice president at Unit- ed Central Bank. Hickman testified that, since 1976, Ridenour had spent a lot of time with him, teaching him "a lot about municipal securities, government securities, doing sales, teaching me about the municipal 1. The Honorable Donald E. O'Brien, United

States District Judge for the Southern District of Iowa.

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S.E.C. v. RIDENOUR Cite as 913 F.2d 515 (8th Clr. 1990)

517

market, how the government markets not owe a duty to those who are trading in worked." Tr. at 841. As a result of these bonds, because the dealer makes no repre- contacts, according to Hickman, "everyone sentations about the price the dealer in the [investment] department felt as close quotes, other than it is what the dealer is or closer to Bob Ridenour than anybody willing to pay. The SEC argues, however, else. He had educated, had been helpful to that the issue in this case is not what the everyone in the department, and we all felt usual practice is but what Ridenour's rela- very close to him." Tr. at 854. tionship with his customers was. The dis-

As a regional dealer firm, United Central trict court agreed, finding that Ridenour Bank's investment department was often was sophisticated and his clients were gulli- asked to buy and sell securities. In a typi- ble: they relied on him to quote them the cal bond transaction, Hickman would call best available market price for the pur- Ridenour on behalf of a customer looking chase and sale of securities because of the to sell; Hickman would tell Ridenour of unique relationship of trust and confidence three bids he had obtained for the bonds that Ridenour had developed with them and would ask Ridenour if he could do over the years. As a result, the court better. Ridenour would utilize his expertise and resources to bid only on those transactions that were "winners:" where he was able immediately to arrange a sale of the bonds at a higher price. He would pocket the profit, without disclosing the higher resale price to Hickman.

Ridenour utilized the same type of transaction with other clients, who similarly relied on his market expertise. On some occasions, Ridenour even bargained with clients on "both ends of the transaction," agreeing to purchase bonds from one client through one of his nominee accounts, and then immediately selling the same bonds to another client, again secretly pocketing the profits. Ridenour basically contends on appeal that this practice is acceptable. He argues the district court erred in concluding that his conduct violated federal securities laws, because, according to Ridenour, his conduct was "fair" in the bond business. Ridenour argues he was not acting as a fiduciary on behalf of his customers. He claims his failure to disclose his participation in the transactions was not a mate- rial omission because customers do not care to whom they sell bonds or from whom they are purchasing them: what matters is the price. Ridenour says he never told his customers he would get them the "best price," so he was under no obligation to act on their behalf to do so.

[1] The SEC acknowledges in its brief on appeal that in the usual bond transaction, a broker-dealer such as Ridenour does

concluded Ridenour had misused his relationship with his clients and had defrauded them in violation of federal securities laws. See 15 U.S.C. §§ 77q(a) & 78j(b); 17 C.F.R. § 240.10b-5. See generally Sinclair v. SEC, 444 F.2d 399, 400-01 (2d Cir.1971); Archer v. SEC, 133 F.2d 795, 799-800 (8th Cir.), cert. denied, 319 U.S. 767, 63 S.Ct. 1330, 87 L.Ed. 1717 (1943). We have reviewed the record and find no reversible error in the court's findings or conclusions.

[2] Ridenour's arguments that he need not register as a broker-dealer pursuant to 15 U.S.C. § 78o (a)(1) are equally unavail- ing. It is undisputed that, during the period from 1979 to 1981, Ridenour engaged in a series of transactions involving municipal and corporate securities. We agree with the government that Ridenour's level of activity during this period made him more than an active investor. Ridenour attempted to obtain and keep a regular clientele for his "private" bond deals, which he negotiated out of his office at Dean Witter, albeit on his own behalf. We find no error in the court's conclusion that Ridenour was a broker-dealer, and that his failure to register as such violated section 15(a)(1) of the Securities Exchange Act, 15 U.S.C. § 78o (a)(1).

II.

An individual found liable for fraudulent- ly trading federal securities may properly be ordered to disgorge any ill-gotten profits. See SEC v. Tome, 833 F.2d 1086, 1096 (2d Cir.1987), cert. denied, 486 U.S. 1015,

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108 S.Ct. 1751, 100 L.Ed.2d 213 (1989). Ri- denour contends that the district court erred in determining the amount of profits he made on bond transactions involving his customers or those with whom he had a fiduciary relationship, because, according to Ridenour, he shared those profits with others, including Hickman of United Cen- tral Bank. Hickman testified he did not receive any of the profits from the transactions at issue in this case, and the district court credited this testimony.

[3] Ridenour argues that a judgment of acquittal in a prior criminal case brought by the Justice Department against him pre- cludes the court from finding that Hickman did not share in any profits in the "matched transactions" cited by the SEC. We cannot agree. The doctrine of collateral estoppel applies only when the issue sought to be precluded is the same as that involved in the prior litigation, the issue was actually litigated and the party sought to be es- topped was given a full and fair opportuni- ty to be heard on the issue, and determination of the issue was essential to a valid and final judgment. See Wellons, Inc. v. T.E. /bberson Co., 869 F.2d 1166, 1168 (8th Cir.1989); Lovell v. Mixon, 719 F.2d 1373, 1376 (8th Cir.1983).

In the prior criminal case, Ridenour was charged with willfully filing false federal income tax returns for the years 1980, 1981, and 1982. We have reviewed Chief Judge Vietor's factual findings from the criminal trial and agree with the government that these findings do not constitute a determination that Ridenour shared the profits from the transactions at issue in this case with Hickman. Not only did the criminal case involve significantly more transactions than at issue here, but the primary issue was whether Ridenour had "willfully" failed to report his income from these transactions.2 Moreover, even if the court had decided the precise issue of Hick- man's involvement in the transactions at issue here, collateral estoppel does not apply when the prior action involves a different, and more rigorous, standard of proof. See United States v. One Assortment of

2. Chief Judge Vietor concluded the government had failed to prove beyond a reasonable doubt that Ridenour had not acted in good faith in

89 Firearms, 465 U.S. 354, 362, 104 S.Ct. 1099, 1104-05, 79 L.Ed.2d 361 (1984).

Nonetheless, the government has conceded on appeal that the district court erred in including the profits from eight specific transactions in its disgorgement order because, for those transactions (nos. 15, 25, 26, 77, 81, 85, 102, and 114 on plaintiff's exhibit 130), the government presented insufficient evidence of fraud on Ridenour's part. The district court's disgorgement order accordingly should be re- duced by $2,241.27.

III.

For all of the foregoing reasons, the judgment of the district court is affirmed, with the exception of the amount of profits Ridenour must disgorge. In lieu of the government's concession of a failure of proof on eight specific transactions, the court's judgment should be modified to re- duce the amount of profits by $2,241.27, reflecting a total of $468,045.96 in profits which Ridenour must disgorge in accordance with the court's order.

In re COMMONWEALTH COMPANIES, INC. and Commonwealth Electric Co.,

Inc., Debtors.

UNITED STATES of America, Appellant,

v. COMMONWEALTH COMPANIES, INC. and Commonwealth Electric Co.,

Inc., Appellees.

No. 89-1797NE.

United States Court of Appeals, Eighth Circuit.

Submitted Feb. 16, 1990.

Decided Sept. 6, 1990.

United States brought adversary pro-

ceeding for exception or relief from stay to

reporting his profits as ordinary income rather than on Schedule D, based on advice he received from a lawyer and a CPA.

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13

Section 10(b) of the Securities Exchange Act of 1934

15 U.S.C.A. § 78j

§ 78j. Manipulative and deceptive devices

It shall be unlawful for any person, directly or indirectly, by the use of any means or

instrumentality of interstate commerce or of the mails, or of any facility of any

national securities exchange—

…

(b) To use or employ, in connection with the purchase or sale of any security

registered on a national securities exchange or any security not so registered, or any

securities-based swap agreement1 any manipulative or deceptive device or

contrivance in contravention of such rules and regulations as the Commission may

prescribe as necessary or appropriate in the public interest or for the protection of

investors.

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14

Section 17(a) of the Securities and Exchange Act of 1934

15 U.S.C.A. § 78q

§ 78q. Records and reports

(a) Rules and regulations

(1) Every national securities exchange, member thereof, broker or dealer who

transacts a business in securities through the medium of any such member,

registered securities association, registered broker or dealer, registered

municipal securities dealer municipal advisor,,1 registered securities

information processor, registered transfer agent, nationally recognized

statistical rating organization, and registered clearing agency and the

Municipal Securities Rulemaking Board shall make and keep for prescribed

periods such records, furnish such copies thereof, and make and disseminate

such reports as the Commission, by rule, prescribes as necessary or

appropriate in the public interest, for the protection of investors, or otherwise

in furtherance of the purposes of this chapter. Any report that a nationally

recognized statistical rating organization is required by Commission rules

under this paragraph to make and disseminate to the Commission shall be

deemed furnished to the Commission.

(2) Every registered clearing agency shall also make and keep for prescribed


such reports, as the appropriate regulatory agency for such clearing agency,

by rule, prescribes as necessary or appropriate for the safeguarding of

securities and funds in the custody or control of such clearing agency or for

which it is responsible.

(3) Every registered transfer agent shall also make and keep for prescribed

periods such records, furnish such copies thereof, and make such reports as

the appropriate regulatory agency for such transfer agent, by rule, prescribes

as necessary or appropriate in furtherance of the purposes of section 78q-1 of

this title.

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Form BD

OMB APPROV

AL OMB Number: 3235-0012 Expires: July 31, 2016 Estimated average burden hours per response. . . . . . . 2.75 per amendment . . . . . . . . 0.33

Uniform Application for Broker-Dealer Registration

20170604

Persons who respond to the collection of information contained in this form are not required to respond unless the form displays

SEC1490 (1-08) a currently valid OMB control number.

20170604

A. GENERAL INSTRUCTIONS FORM BD INSTRUCTIONS

1. Form BD is the Uniform Application for Broker-Dealer Registration. Broker-Dealers must file this form to register with the Securities and Exchange Commission, the self-regulatory organizations, and jurisdictions through the Central Registration Depository (“CRD”) system, operated by FINRA.

2. UPDATING – By law, the applicant must promptly update Form BD information by submitting amendments whenever the

information on file becomes inaccurate or incomplete for any reason. 3. CONTACT EMPLOYEE – The individual listed as the contact employee must be authorized to receive all compliance

information, communications, and mailings, and be responsible for disseminating it within the applicant’s organization.

4. GOVERNMENT SECURITIES ACTIVITIES

A. Broker-dealers registered or applicants applying for registration under Section 15(b) of the Exchange Act that conduct (or intend to conduct) a government securities business in addition to other broker-dealer activities (if any) must file a notice on Form BD by answering “yes” to Item 2B.

B. Section 15C of the Securities Exchange Act of 1934 requires sole government securities broker-dealers to register with the

SEC. To do so, answer “yes” to Item 2C if conducting only a government securities business.

C. Broker-dealers registered under Section 15(b) of the Exchange Act that cease to conduct a government securities business

must file notice when ceasing their activities in government securities. To do so, file an amendment to Form BD and answer “yes” to ltem 2D.

NOTE: Broker-dealers registered under Section 15C may register under Section 15(b) by filing an amendment to Form BD and answering “yes” to Items 2A and 2D. By doing so, broker-dealer expressly consents to withdrawal of broker-dealer’s registration under 15C of the Exchange Act.

5. FEDERAL INFORMATION LAW AND REQUIREMENTS – An agency may not conduct or sponsor, and a person is not required to respond to, a collection of information unless it displays a currently valid control number. Section 15, 15B, 15C, 17(a) and 23(a) of the Exchange Act authorize the Commission to collect the Information on this Form from registrants. See 15 U.S.C. 78o, 78o- 4, 78o-5, 78-q and 78w. Filing of this Form is mandatory; however the social security number information, which aids in identifying the applicant, is voluntary. The principal purpose of this Form is to permit the Commission to determine whether the applicant meets the statutory requirement to engage in the securities business. The Form also is used by applicants to register as broker- dealers with certain self-regulatory organizations and all of the states. The Commission and the Financial Industry Regulatory Authority, Inc. maintain the files of the information on this Form and will make the information publicly available. Any member of the public may direct to the Commission any comments concerning the accuracy of the burden estimate on application facing page of this Form, and any suggestions for reducing this burden. This collection of information has been reviewed by the Office of Management and Budget in accordance with the clearance requirements of 44 U.S.C. §3507. The information contained in this form is part of a system of records subject to the Privacy Act of 1974, as amended. The Securities and Exchange Commission has published in the Federal Register the Privacy Act Systems of Records Notice for these records.

B. PAPER FILING INSTRUCTIONS (FIRST TIME APPLICANTS FILING WITH CRD AND WITH SOME JURISDICTIONS)

1. FORMAT

A. A full paper Form BD is required when the applicant is filing with the CRD for the first time. In addition, some jurisdictions may require a separate paper filing of Form BD. The applicant should contact the appropriate jurisdiction(s) for specific filing requirements.

B. Attach an Execution Page (Page 1) with original manual signatures to the initial Form BD filing. C. Type all information. D. Give the name of the broker-dealer and date on each page. E. Use only the current version of Form BD and its Schedules or a reproduction of them.

2. DISCLOSURE REPORTING PAGE (DRP) – Information concerning the applicant or control affiliate

that relates to the occurrence of an event reportable under Item 11 must be provided on the applicant’s appropriate DRP(BD). If a control affiliate is an individual or organization registered through the CRD, such control affiliate need only complete 20170604

Part I of the applicant’s appropriate DRP(BD). Details of the event must be submitted on the control affiliate’s appropriate DRP(BD) or DRP(U-4). Attach a copy of the fully completed DRP(BD), or DRP(U-4) previously submitted. If a control affiliate is an individual or organization not registered through the CRD, provide complete answers to all of the items on the applicant’s appropriate DRP(BD).

3. SCHEDULES A, B AND C – File Schedules A and B only with initial applications for

registration. Use Schedule C to update Schedules A and B. Individuals not required to file a Form U-4 (individual registration) with the CRD system who are listed on Schedules A, B, or C must attach page 2 of Form U-4. The applicant broker-dealer must be listed in Form U-4 Item 20 or 21. Signatures are not required.

4. SCHEDULE D – Schedule D provides additional space for explaining answers to Item 1C(2), and ‘’yes’’ answers to items 5, 7,

8, 9,10,12, and 13 of Form BD.

C. ELECTRONIC FILING INSTRUCTIONS (APPLICANTS/ REGISTERED BROKER-DEALERS FILING AMENDMENTS WITH CRD)

1. FORMAT

A. Items 1-13 must be answered and all fields requiring a response must be completed before the filing will be accepted.

20170604

B. Applicant must complete the execution screen certifying that Form BD and amendments thereto have been executed properly and that the information contained therein is accurate and complete.

C. To amend information, applicant must update the appropriate Form BD screens. D. A paper copy, with original manual signatures, of the initial Form BD filing and amendments to Disclosure Reporting Pages

(DRPs BD) must be retained by the applicant and be made available for inspection upon a regulatory request.

2. DISCLOSURE REPORTING PAGE (DRP) – Information concerning the applicant or control affiliate that relates to the occurrence of an event reportable under Item 11 must be provided on the applicant’s appropriate DRP(BD). If a control affiliate is an individual or organization registered through the CRD, such control affiliate need only complete the control affiliate name and CRD number of the applicant’s appropriate DRP(BD). Details for the event must be submitted on the control affiliate’s appropriate DRP(BD) or DRP(U-4). If a control affiliate is an individual or organization not registered through the CRD, provide complete answers to all of the questions and complete all fields requiring a response on the applicant’s appropriate DRP(BD) screen.

3. DIRECT AND INDIRECT OWNERS – Amend the Direct Owners and Executive Officers screen

and the Indirect Owners screen when changes in ownership occur. Control affiliates that are individuals who are not required to file a Form U-4 (individual registration) with the CRD must complete page 2 of Form U-4 (i.e., submit/file the information elicited by the Personal Data, Residential History, and Employment and Personal History sections of that Form). The applicant broker-dealer must be listed in Form U-4 Item 20 or 21.

The CRD mailing address for questions and correspondence is:

NASAA/FINRA CENTRAL REGISTRATION DEPOSITORY P.O. BOX 9495 GAITHERSBURG,

MD 20898-9495

EXPLANATION OF TERMS (The following terms are italicized throughout this form.)

1. GENERAL

APPLICANT – The broker-dealer applying on or amending this form.

CONTROL – The power, directly or indirectly, to direct the management or policies of a company, whether through ownership of securities, by contract, or otherwise. Any person that (i) is a director, general partner or officer exercising executive responsibility (or having similar status or functions); (ii) directly or indirectly has the right to vote 25% or more of a class of a voting security or has the power to sell or direct the sale of 25% or more of a class of voting securities; or (iii) in the case of a partnership, has the right to receive upon dissolution, or has contributed, 25% or more of the capital, is presumed to control that company. (This definition is used solely for the purpose of Form BD.)

JURISDICTION – A state, the District of Columbia, the Commonwealth of Puerto Rico, the U.S. Virgin Islands, or any subdivision or regulatory body thereof.

PERSON – An individual, partnership, corporation, trust, or other organization.

SELF-REGULATORY ORGANIZATION – Any national securities or commodities exchange or registered securities association, or registered clearing agency.

2. FOR THE PURPOSE OF ITEM 5 AND SCHEDULE D

SUCCESSOR - An unregistered entity that assumes or acquires substantially all of the assets and liabilities, and that continues the business of, a registered predecessor broker-dealer, who ceases its broker-dealer activities. [See Securities Exchange Act Release No. 31661 (December 28, 1992), 58 FR 7 (January 4, 1993)]

3. FOR THE PURPOSE OF ITEM 11 AND THE CORRESPONDING DISCLOSURE REPORTING PAGES (DRPs)

CONTROL AFFILIATE – A person named in Items 1A, 9 or in Schedules A, B or C as a control person or any other individual or organization that directly or indirectly controls, is under common control with, or is controlled by, the applicant, including any current employee except one performing only clerical, administrative, support or similar functions, or who,

20170604

regardless of title, performs no executive duties or has no senior policy making authority.

INVESTMENT OR INVESTMENT-RELATED – Pertaining to securities, commodities, banking, insurance, or real estate (including, but not limited to, acting as or being associated with a broker-dealer, municipal securities dealer, government securities broker or dealer, issuer, investment company, investment adviser, futures sponsor, bank, or savings association).

INVOLVED – Doing an act or aiding, abetting, counseling, commanding, inducing, conspiring with or failing reasonably to supervise another in doing an act.

FOREIGN FINANCIAL REGULATORY AUTHORITY – Includes (1) a foreign securities authority; (2) other governmental body or foreign equivalent of a self-regulatory organization empowered by a foreign government to administer or enforce its laws relating to the regulation of investment or investment-related activities; and (3) a foreign membership organization, a function of which is to

2

20170604

regulate the participation of its members in the activities listed above. PROCEEDING – Includes a formal administrative or civil action initiated by a governmental agency, self-regulatory organization or a foreign financial regulatory authority; a felony criminal indictment or information (or equivalent formal charge); or a misdemeanor criminal information (or equivalent formal charge). Does not include other civil litigation, investigations, or arrests or similar charges effected in the absence of a formal criminal indictment or information (or equivalent formal charge).

CHARGED – Being accused of a crime in a formal complaint, information, or indictment (or equivalent formal charge).

ORDER – A written directive issued pursuant to statutory authority and procedures, including orders of denial, suspension, or revocation; does not include special stipulations, undertakings or agreements relating to payments, limitations on activity or other restrictions unless they are included in an order.

FELONY – For jurisdictions that do not differentiate between a felony and a misdemeanor, a felony is an offense punishable by a sentence of at least one year imprisonment and/or a fine of at least $1,000. The term also includes a general court martial.

MISDEMEANOR – For jurisdictions that do not differentiate between a felony and a misdemeanor, a misdemeanor is an offense punishable by a sentence of less than one year imprisonment and/or a fine of less than $1,000. The term also includes a special court martial.

FOUND – Includes adverse final actions, including consent decrees in which the respondent has neither admitted nor denied the findings, but does not include agreements, deficiency letters, examination reports, memoranda of understanding, letters of caution, admonishments, and similar informal resolutions of matters.

MINOR RULE VIOLATION – A violation of a self-regulatory organization rule that has been designated as “minor’’ pursuant to a plan approved by the U.S. Securities and Exchange Commission. A rule violation may be designated as “minor’’ under a plan if the sanction imposed consists of a fine of $2,500 or less, and if the sanctioned person does not contest the fine. (Check with the appropriate self-regulatory organization to determine if a particular rule violation has been designated as “minor” for these purposes).

ENJOINED – Includes being subject to a mandatory injunction, prohibitory injunction, preliminary injunction, or a temporary restraining order.

20170604

3

20170604

FORM BD PAGE 1

(Execution Page)

UNIFORM APPLICATION FOR BROKER-DEALER REGISTRATION Date: SEC File No: 8- Firm CRD No.:

OFFICIAL USE OFFICIAL

USE ONLY

WARNING: Failure to keep this form current and to file accurate supplementary information on atimely basis, or the failure to keep accurate books and records or otherwise to comply withthe provisions of law applying to the conduct of business as a broker-dealer wouldviolate the Federal securities laws and the laws of the jurisdictions and may result indisciplinary, administrative, injunctive or criminal action.

APPLICATION AMENDMENT

1. Exact name, principal business address, mailing address, if different, and telephone number of applicant:

A. Full name of applicant (if sole proprietor, state last,

first and middle name): B. IRS Empl. Ident. No.:

C. (1) Name under which broker-dealer business primarily is conducted, if different from Item 1A.

(2) List on Schedule D, Page1, Section I any other name by which the firm conducts business and where it is used.

D. If this filing makes a name change on behalf of the applicant, enter the new name and specify whether the name change is of the

applicant name (1A) or business name (1C): Please check above._

E. Firm main address: (Do not use a P.O. Box)

_____ (Number and Street) (City) (State/Country) (Zip+4/Postal Code)

Branch offices or other business locations must be

reported on Schedule E. F. Mailing address, if

different:

_____

G. Business Telephone Number:

EXECUTION:

For the purposes of complying with the laws of the State(s) designated in Item 2 relating to either the offer or sale of securities orcommodities, the undersigned and applicant hereby certify that the applicant is in compliance with applicable state surety bondingrequirements and irrevocably appoint the administrator of each of those State(s) or such other person designated by law, and thesuccessors in such office, attorney for the applicant in said State(s), upon whom may be served any notice, process, or pleading in any action or proceeding against the applicant arising out of or in connection with the offer or sale of securities or commodities, or out of the violationor alleged violation of the laws of those State(s), and the applicant hereby consents that any such action or proceeding against the applicant may becommenced in any court of competent jurisdiction and proper venue within said State(s) by service of process upon said appointee with the same effect as if applicant were a resident in said State(s) and had lawfully been served with process in said State(s).

The applicant consents that service of any civil action brought by or notice of any proceeding before the Securities and Exchange Commissionor any self-regulatory organization in connection with the applicant’s broker-dealer activities, or of any application for a protective decree filed by theSecurities Investor Protection Corporation, may be given by registered or certified mail or confirmed telegram to the applicant’s contactemployee at the main address, or mailing address if different, given in Items 1E and IF.

The undersigned, being first duly sworn, deposes and says that he/she has executed this form on behalf of, and with the authority of, said applicant. The undersigned and applicant represent that the information and statements contained herein, including exhibits attached hereto, and other information filed herewith, all of which are made a part hereof, are current, true and complete. The undersigned and applicant further represent that to the extent any information previously submitted is not amended such information is currently accurate and complete.

Date (MM/DD/YYYY) Name of Applicant

By: _

Signature Print Name and Title

Subscribed and sworn before me this day of , by

Year Notary PublicThis page must always be completed in full with original, manual signature and notarization. To amend, circle items being amended. Affix notary stamp or seal where applicable.

DO NOT WRITE BELOW THIS LINE - FOR OFFICIAL USE ONLY 20170604

SE

CU

RIT

IES

AN

D E

XC

HA

NG

E C

OM

MIS

SIO

N If applicant is registered or registering with the SEC, check here and answer Items 2A

through 2D below.

YES NO

A. Is applicant registered or registering as a broker-dealer under Section 15(b) or Section15B of the

Securities Exchange Act of 1934? ..................................................................................................................................

B. Is applicant registered or registering as a broker-dealer under Section 15(b) of the Securities Exchange

Act of 1934 and also acting or intending to act as a government securities broker or dealer? ..................................

C. Is applicant registered or registering solely as a government securities broker or dealer under Section

15C of the Securities Exchange Act of 1934?

S R

O

AMEX BSE CBOE CHX NSX FINRA NQX NYSE PHLX ARCA ISE OTHER (specify)

JU

RIS

DIC

TIO

N

Alabam

a

Alaska

Arizona

Arkansa

s

Californi

a

Colorad

o

Connec

ticut

Hawaii

Idaho

Illinois

Indian

a Iowa

Kansa

s

Kentu

cky

Louisi

ana

Maine

Michiga

n

Minnes

ota

Mississi

ppi

Missouri

Montan

a

Nebras

ka

Nevad

North

Carolina

North

Dakota

Ohio

Oklahom

a Oregon

Pennsylv

ania

Puerto

Rico

Rhode

Texa

s

Utah

Verm

ont

Virgin

Islands

Virginia

Washing

ton West

Virginia

Wisconsi

FORM BD PAGE 2

Applicant Name:

Date: Firm CRD No.:


USE ONLY

2. Indicate by checking the appropriate box(es) each governmental authority, organization, or jurisdiction in which the applicant is registered or registering as a broker-dealer.

3. A. Indicate legal status of applicant.

Corporation Sole Proprietorship Other (specify) Partnership Limited Liability Company

B. Month applicant’s fiscal year ends:

C. If other than a sole proprietor, indicate date and place applicant obtained its legal status (i.e., state or country where incorporated, where partnership agreement was filed, or where applicant entity was formed):

State/Country of formation: Date of formation: (MM/DD/YYYY)

Schedule A and, if applicable, Schedule B must be completed as part of all initial applications. Amendments to these schedules must be provided on Schedule C

4. If applicant is a sole proprietor, state full residence address and Social Security Number.

Social Security Number: – –

__________________________________________________________________________________________________________________ (Number and Street) (City) (State/Country) (Zip+4/Postal Code)

5. Is applicant at the time of this filing succeeding to the business of a currently registeredbroker-dealer?

Do not report previous successions already reported on Form BD.

YES NO

6. Does applicant hold or maintain any funds or securities or provide clearing services for any other broker or dealer?

7. Does applicant refer or introduce customers to any other broker or dealer? .....................................................................

20170604

FORM BD PAGE 3

Applicant Name:

Date: Firm CRD No.:


USE ONLY

8. Does applicant have any arrangement with any other person, firm, or organization under which:

A. any books or records of applicant are kept or maintained by such other person,

firm or organization? ................... B. accounts, funds, or securities of the

applicant are held or maintained by such other person, firm, or organization?

C. accounts, funds, or securities of customers of the applicant are held or maintained by such other person, firm or organization? ................................................................................................................................

YES NO

9. Does any person not named in Item 1 or Schedules A, B, or C, directly or indirectly:

A. control the management or policies of the applicant through agreement or

otherwise? ............................................ B. wholly or partially finance the

business of applicant?

...................................................................................................

Do not answer “Yes” to 9B if the person finances the business of the applicant through: 1) a public offering of securities made pursuant to the Securities Act of 1933; 2) credit extended in the ordinary course of business by suppliers banks

10. A. Directly or indirectly, does applicant control, is applicant controlled by, or is applicant under common control with, any partnership, corporation, or other organization that is engaged in the securities or investment advisory business? .........................................................................................................................................................................

If “Yes” to Item 10A, complete appropriate items on Schedule D, Page 2, Section V.

B Directly or indirectly is applicant controlled by any bank holding company

11. Use the appropriate DRP for providing details to “yes” answers to the questions in Item 11. Refer to the Explanation of

CR

IMIN

AL

DIS

CL

OS

UR

E

A. In the past ten years has the applicant or a control affiliate:

(1) been convicted of or pled guilty or nolo contendere (“no contest’’) in a domestic, foreign or military court

to any felony? ...........................................................................................................................................................

(2) been charged with any felony?

............................................................................................................................... B.

In the past ten years has the applicant or a control affiliate:

(1) been convicted of or pled guilty or nolo contendere (“no contest’’) in a domestic foreign or military court to a misdemeanor involving: investments or an

REG

ULA

TOR

Y A

CTI

ON

DIS

CL

OS

UR

E

C. Has the U.S. Securities and Exchange Commission or the Commodity Futures Trading Commission ever:

(1) found the applicant or a control affiliate to have made a false statement or

omission? ....................................... (2) found the applicant or a control affiliate to have

been involved in a violation of its regulations or statutes? ......

(3) found the applicant or a control affiliate to have been a cause of an investment-related business having its

authorization to do business denied, suspended, revoked, or restricted? ...........................................................

20170604

FORM BD PAGE 4

Applicant Name:

Date: Firm CRD No.:


USE ONLY

REG

ULA

TOR

Y A

CTI

ON

DIS

CL

OS

UR

E

D. Has any other federal regulatory agency, any state regulatory agency,

or foreign financial regulatory authority:

(1) ever found the applicant or a control affiliate to have made a false statement or omission or been dishonest, unfair, or unethical? .................................................................................................................................................

(2) ever found the applicant or a control affiliate to have been involved in a violation of investment-related

regulations or statutes? ...........................................................................................................................................

(3) ever found the applicant or a control affiliate to have been a cause of an investment-related business having its authorization to do business denied, suspended, revoked, or restricted? ......................................................

(4) in the past ten years, entered an order against the applicant or a control affiliate in connection with an

investment-related activity? .....................................................................................................................................

(5) ever denied, suspended, or revoked the applicant’s or a control affiliate’s

registration or license or otherwise, by order, prevented it from associating with an investment-related business or restricted its activities? ..........

E. Has any self-regulatory organization or commodities exchange ever:

(1) found the applicant or a control affiliate to have made a false statement or

omission? ....................................... (2) found the applicant or a control affiliate to have

been involved in a violation of its rules (other than a violation d i t d “ i l i l ti ’’ d l d b th U S

YES NO

CIV

IL J

UD

ICIA

L D

ISC

LO

SU

RE

H. (1) Has any domestic or foreign court:

(a) in the past ten years, enjoined the applicant or a control affiliate in connection with any investment-related

activity? ..............................................................................................................................................................

(b) ever found that the applicant or a control affiliate was involved in a violation of investment-related statutes or regulations? ..................................................................................................................................................

( ) di i d t t ttl t t i t t

FIN

AN

CIA

L D

ISC

LO

SU

RE

I. In the past ten years has the applicant or a control affiliate of the applicant ever been a securities firm or a control affiliate of a securities firm that:

(1) has been the subject of a bankruptcy petition?

..................................................................................................... (2) has had a

trustee appointed or a direct payment procedure initiated under the

Securities Investor Protection Act? ...........................................................................................................................................................................

20170604

FORM BD PAGE 5

Applicant Name:

Date: Firm CRD No.:


USE ONLY

12. Check types of business engaged in (or to be engaged in, if not yet active) by applicant. Do not check any category that accounts for (or is expected to account for) less than 1% of annual revenue from the securities or investment advisory business.

A. Exchange member engaged in exchange commission business other

than floor activities ...................................... B. Exchange member engaged

in floor activities

.............................................................................................................. C. Broker

or dealer making inter-dealer markets in corporate securities over-the-counter

............................................. D. Broker or dealer retailing corporate equity

securities over-the-counter ....................................................................... E.

Broker or dealer selling corporate debt securities

........................................................................................................ F. Underwriter

or selling group participant (corporate securities other than mutual funds)

........................................... G. Mutual fund underwriter or sponsor

............................................................................................................................... H.

Mutual fund retailer

.....................................................................................................................................

.................... I. 1. U.S. government securities dealer

..........................................................................................................................

2. U.S. government securities broker .........................................................................................................................

J. Municipal securities dealer

.....................................................................................................................................

........ K. Municipal securities broker.

.....................................................................................................................................

....... L . Broker or dealer selling variable life insurance or annuities

......................................................................................... M. Solicitor of time

deposits in a financial institution

.......................................................................................................... N. Real

estate syndicator. .

.....................................................................................................................................

............. O. Broker or dealer selling oil and gas interests

................................................................................................................ P. Put

EM

C

E

MF

ID

M

BD

R

B

D

D

U

S

G

MF

U MF

R

G

S

D

G

SB

MS

D

MS

B

VL

A

SS

L

13. A. Does applicant effect transactions in commodity futures, commodities or commodity options as a broker for others or as a dealer for its own account? .............................................................................................................

B. Does applicant engage in any other non-securities business?

YES NO

20170604

Schedule A of FORM BDDIRECT OWNERS AND EXECUTIVE OFFICERS

(Answer for Form BD Item 3)

Applicant Name:

Date: Firm CRD No.:

OFFICIAL USE

1. Use Schedule A only in new applications to provide information on the direct owners and executive officers of the applicant. Use Schedule

2. List below the names of:

(a) each Chief Executive Officer, Chief Financial Officer, Chief Operations Officer, Chief

Legal Officer, Chief Compliance Officer, Director, and individuals with similar status or functions;

(b) in the case of an applicant that is a corporation, each shareholder that directly owns 5% or more of a class of a voting security of the

applicant, unless the applicant is a public reporting company (a company subject to Sections 12 or 15(d) of the Securities Exchange Act of 1934); Direct owners include any person that owns, beneficially owns, has the right to vote, or hasthe power to sell or direct the sale of, 5% or more of a class of a voting security of the applicant. For purposes of this Schedule, a person beneficially owns any securities (i) owned by his/her child, stepchild, grandchild, parent, stepparent, grandparent, spouse, sibling, mother-in-law, father-in-law, son-in- law, daughter-in-law, brother-in-law, or sister-in-law, sharing the same residence; or (ii) th t h / h h th i ht t i ithi

3. Are there any indirect owners of the applicant required to be reported on Schedule B? Yes No

4. In the “DE/FE/I” column, enter “DE” if the owner is a domestic entity, or enter “FE” if owner is an entity incorporated or domiciled in a foreign country, or enter “I” if the owner is an i di id l

5. Complete the “Title or Status” column by entering board/management titles; status as partner, trustee, sole proprietor, or shareholder;

d f h h ld th l f iti d (if th i i d)6. Ownership codes are: NA - less than 5% B - 10% but less

than 25% D - 50% but less than 75% A - 5% % C % % %

7. (a) In the “Control Person” column, enter “Yes” if person has “control” as defined in the instructions to this form, and enter “No” if the person does not have control. Note that under this definition most executive officers and all 25% owners, general partners, and trustees would be “control persons”.

(b) In the “PR” column, enter “PR” if the owner is a public reporting company under

FULL LEGAL NAME (Individuals: Last Name, First Name, Middle Name)

DE/FE/I

Title or Status

Date Title or Status Acquired Ownership

Code

Control Person

CRD No. If None: S.S. No., IRS Tax No.

or Employer ID.

Official Use

Only

MM YYYY PR

20170604

Schedule B of FORM BD INDIRECT OWNERS

(Answer for Form

BD Item 3)

Applicant Name:

Date: Firm CRD No.:

OFFICIAL USE

1. Use Schedule B only in new applications to provide information on the indirect owners

of the applicant. Use Schedule A in new applications to provide information on direct owners File all amendments on Schedule C Complete each column

2. With respect to each owner listed on Schedule A, (except individual owners), list below:

(a) in the case of an owner that is a corporation, each of its shareholders that beneficially owns, has the right to vote, or has the power to sell or direct the sale of, 25% or more of a class of a voting security of that corporation;

For purposes of this Schedule, a person beneficially owns any securities (i) owned by his/her child, stepchild, grandchild, parent, stepparent, grandparent, spouse, sibling, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law, or sister-in-law, sharing the same residence; or (ii) that he/she has the right to acquire, within 60 days, through the exercise of any option, warrant or right to purchase the security.

(b) in the case of an owner that is a partnership, all general partners and those limited and special partners that have the right to receive upon dissolution, or have contributed, 25% or more of the partnership’s capital; and

(c) in the case of an owner that is a trust, the trust and each trustee. 3. Continue up the chain of ownership listing all 25% owners at each level. Once a public reporting company (a company subject to Sections 4. In the “DE/FE/I” column, enter “DE” if the owner is a domestic entity, or enter “FE” if owner isan entity incorporated or domiciled in a foreign

country or enter “I” if the owner is an individual5. Complete the “Status” column by entering status as partner, trustee, shareholder, etc.,

and if shareholder, class of securities owned (if more than one is issued).

6. Ownership codes are: C - 25% but less than 50% D - 50% but less than 75% E 75% or more F Other General Partners7. (a) In the “Control Person” column, enter “Yes” if person has “control” as defined in the instructions

to this form, and enter “No” if the person does not have control. Note that under this definition most executive officers and all 25% owners, general partners, and trustees would be“control persons”.

(b) In the “PR” column, enter “PR” if the owner is a public reporting company under Sections 12 or 15(d) of the Securities Exchange Act of 1934.

FULL LEGAL

NAME (Individuals: Last Name, First

DE/FE/I

Entity in Which

Interest is

Status

Date Status

AcquiredOwner

ship ode

Control Person

CRD No. If None: S.S. No., IRS Tax No. or Employer ID.

Official Use Only M YYYY P

20170604

Schedule C of FORM BD AMENDMENTS TO

SCHEDULES A & B (Amendments to answers for

Form BD Item 3)

Applicant Name:

Date: Firm CRD No.:

OFFICIAL USE

1. This Schedule C is used to amend Schedules A and B of Form BD. Refer to those schedules for specific instructions for completing this

2. In the Type of Amendment (“Type of Amd.”) column, indicate “A” (addition), “D” (deletion), or“C” (change in information about the same

)3. Ownership codes are: NA - less than 5% B - 10% but less than 25% D - 50% butless than 75% F - Other General Partners

A 5% b t l th 10% C 25% b t l th 50% E 75%4. List below all changes to Schedule A: (DIRECT OWNERS AND EXECUTIVE OFFICERS)

FULL LEGAL NAME

(Individuals: Last Name, First Name, Middle Name)

DE/FE/I

Type of

Amd.

Title or Status

Date Title or Status Acquired

Control Ownership Code

CRD No. Person

If None: S. S. No., IRS Tax No or Employer ID

Official Use Only

MM YYYY PR

5. List below all changes to Schedule B: (INDIRECT OWNERS)

FULL

LEGAL NAME

(

DE/FE/I

Type of

Amd

Entity in Which

Interest is O d

Status

Date Status Acquire

Ownership Cod

Control Person

CRD No. If None: S.S.

No., IRS Tax No. or

E l ID

Official Use OnlM

MYYYY

PR

20170604

Schedule D of FORM BD Page 1

Applicant Name:

Date: Firm CRD No.:


USE ONLY

Use this Schedule D Page 1 to report details for items listed below. Report only new information or changes/updates to previously submitted details. Do not repeat previously submitted information.

This is an INITIAL AMENDED detail filing for the Form BD itemsSECTION I Other Business Names

(Check if applicable) Item 1C(2) List each of the “other’’ names and the jurisdiction(s) in which they are used.

1. Name Jurisdiction 2. Name Jurisdiction

3. Name Jurisdiction 4. Name Jurisdiction

SECTION ll Other Business

(Check one) Item 12Z Item 13B Applicant must complete a separate Schedule D Page 1 for each affirmative response in this sectionBriefly describe any other business (ITEM 12Z); or any other non-securities business (ITEM 13B). Use reverse side of this sheet for additional comments if necessary.

SECTION III Successions

(Check if applicable) Item 5 Date of Succession MM DD YYYY

/ / Name of Predecessor

Firm CRD Number IRS Employer Identification Number (if any)

SEC File Number (if any)

Briefly describe details of the succession including any assets or liabilities not assumed by the successor. Use reverse side of this sheet for additional comments if necessary.

SECTION IV Introducing and Clearing Arrangements / Control Persons / Financings

(Check one) Item 7 Item 8A Item 8B Item 8C Item 9A Item 9B

Applicant must complete a separate Schedule D Page 1 for each affirmative response in this section including any multiple responses to any item. Complete the “Effective Date’’ box with the Month, Day and Year that the arrangement or agreement becameFirm or Organization Name CRD Number (if any)

Business Address (Street, City, State/Country, Zip+4 Postal Code) Effective Date MM DD Y YYY

/ /

Termination Date MM DD Y YYY

/ / Individual Name (if applicable) (Last, First, Middle) CRD Number (if any)

Business Address (if applicable) (Street, City, State/Country, Zip+4 Postal Code) Effective Date MM DD Y YYY

/ /


/ /

Briefly describe the nature of reference or arrangement (ITEM 7 or ITEM 8); the nature of the control or agreement (ITEM 9A); or the method and amount of financing (ITEM 9B). Use reverse side of this sheet for additional comments if necessary.

20170604

3

Partnership, Corporation, or Organization Name CRD Number (if any)

( check only one)

This Partnership, Corporation, or Organization controls applicant is controlled by applicant is under common control with applicant Business Address (Street, City, State/Country, Zip+4/Postal Code) Effective Date

MM DD Y YYY

/ /


/ /

Is Partnership, Corporation or Organization a foreign entity?

Yes No

If Yes, provide country of domicile or incorporation:

Check “Yes” or “No” for activities of this partnership, Securities Yes No corporation, or organization: Activities:

Investment Advisory Yes No Activities:

Briefly describe the control relationship. Use reverse side of this sheet for additional comments if necessary.


Applicant Name:

Date: Firm CRD No.:


USE ONLY

Use this Schedule D Page 2 to report details for Item 10A. Report only new informationor changes/updates to previously submitted details. Do not repeat previously submittedinformation. Supply details for all partnerships, corporations, organizations, institutionsand individuals necessary to answer each item completely. Use additional copies ofSchedule D Page 2 if necessary.

Use the “Effective Date” box to enter the Month, Day, and Year that the affiliation waseffective or the date of the most recent change in the affiliation.

10A. Directly or indirectly, does applicant control, is applicant controlled by, or is applicant under common control with, any partnership, corporation, or other organization that is engaged in the securities or investment advisory business?

SECTION V Complete this section for control issues relating to ITEM 10A only.

The details supplied relate to:

Partnership, Corporation, or Organization Name CRD Number (if any) 1

( check only one)

This Partnership, Corporation, or Organization controls applicant is controlled by applicant is under common control with applicant

Business Address (Street, City, State/Country, Zip+4/Postal Code) Effective Date Termination Date MM DD Y YYY MM DD Y YYY

/ / / /

Is Partnership, Corporation or If Yes, provide country of domicile Check “Yes” or “No” for Investment Organization a foreign entity? or incorporation: activities of this partnership, Securities Yes No Advisory Yes No

Yes No corporation, or organization: Activities: Activities:


Partnership, Corporation, or Organization Name CRD Number (if any)

2

( check only one)

This Partnership, Corporation, or Organization controls applicant is controlled by applicant is under common control with applicant Business Address (Street, City, State/Country, Zip+4/Postal Code) Effective Date Termination Date

MM DD Y YYY MM DD Y YYY

/ / / /

Is Partnership, Corporation or If Yes, provide country of domicile Check “Yes” or “No” for Investment Organization a foreign entity? or incorporation: activities of this partnership, Securities Yes No Advisory Yes No

Yes No corporation, or organization: Activities: Activities:


If applicant has more than 3 organizations to report, complete additional Schedule D Page 2s. 20170604


Applicant Name:

OFFICIAL USE

OFFICIAL

USE ONLY

Date: Firm CRD No.:

Use this Schedule D Page 3 to report details for Item 10B. Report only new information or changes/updates to previously submitted details. Do not repeat previously submitted information. Supply details for all partnerships, corporations, organizations, institutions and individuals necessary to answer each item completely. Use additional copies of Schedule D Page 3 if necessary.

Use the “Effective Date” box to enter the Month, Day, and Year that the affiliation was effective or the date of the most recent change in the affiliation.

This is an INITIAL AMENDED detail filing for Form BD Item 10B

10B. Directly or indirectly, is applicant controlled by any bank holding company, national bank, state member bank of the Federal

Reserve System, state non-member bank, savings bank or association, credit union, or foreign bank?

SECTION VI Complete this section for control issues relating to ITEM 10B only.

Provide the details for each organization or institution that controls the applicant, including each organization or institution in the applicant’s chain of ownership. The details supplied relate to:

Financial Institution Name CRD Number (if applicable)

1 Institution Type (i.e., bank holding company, national bank, state member bank of the Federal Reserve System, state Effective Date MM DD YYYY

non-member bank, savings association, credit union, or foreign bank) / / Termination Date MM DD YYYY

/ / Business Address (Street, City, State/Country, Zip+4/Postal Code) If foreign, country of domicile or incorporation















/ / 20170604

Business Address (Street, City, State/Country, Zip+4/Postal Code) If foreign, country of domicile or incorporation


If applicant has more than 4 organizations/institutions to report, complete additional Schedule D page 3s.

20170604

Schedule E of FORM BD

Applicant Name:

Date: Firm CRD No.:

OFFICIAL USE

INSTRUCTIONS

General: Use this schedule to register or report branch offices or other business locations of the applicant. Repeat Items 1-12 for each branch office or other business location. Each item must be completed unless otherwise noted. Use additional copies of this schedule as necessary. If this branch office or other business location is using a name in connection with securities activities other than the applicant’s name, such name must be reported under Item 1C(2) on Page 1 of this Form.

Specific: Item 1. Specify only one box. Check “Add” when a branch office or other business location is opened and the applicant is filing the

initial notice, “Delete’’ when a branch office or other business location is closed, and “Amendment” to indicate any other change to previously filed information.

Item 2. CRD will assign this branch number when the applicant adds a branch office or other business location as discussed in Item 1 above. If known, complete this item for all deletions and

amendments. Item 3. The Billing Code is an alpha/numeric value consisting of up to eight characters. It is the responsibility of the firm to

establish and maintain its own unique billing codes. This is not a required field. Item 4. Complete this item for all entries. A physical location must be included; post office box designations alone are not sufficient. Item 5. Complete this item only when the applicant changes the address of an existing branch office or other business location. Item 6. If the branch office or other business location occupies or shares space on premises within a bank, savings bank or

association, credit union, or other financial institution, enter the name of the institution in the space provided. Item 7. Complete this item for all entries. Enter the name of the supervisor or registered representative in charge who is physically at this location. Item 8. Provide the CRD number for the branch office supervisor named in Item 7. Item 9. Complete this item for all entries. Provide the date that the branch office or other business location was opened (ADD), closed (DELETE), or the effective date of the change (AMENDMENT). Item 10. Check “Yes” or “No” to denote whether the location will be an Office of Supervisory Jurisdiction (OSJ) as defined in FINRA rules. It 11 Ch k “Y ” “N ” t d t h th th l ti i b i l ti th t ill t t t itt

1. Check only one box: Add Delete Amendment

2. CRD Branch Number 6. _____________________________________________________________________ Institution Name (if applicable)

3. Billing Code __________________________________________________________ 7. _____________________________________________________________________

Supervisor Name

4. ____________________________________________________________________ 8. _____________________________________________________________________ Street CRD Number of Supervisor

____________________________________________________________________ 9. _____________________________________________________________________ P.0. Box (if applicable), Suite, Floor Effective Date (MM/DD/YYYY)

____________________________________________________________________ 10. OSJ Yes No City, State/Country, Zip Code + 4/Postal Code

If applicant is changing the address, enter the new address in Item 5. 11. Yes No

5. ____________________________________________________________________ Street If Yes, indicate each Item 11 subset that applies:

____________________________________________________________________ A B C D P.0. Box (if applicable), Suite, Floor

____________________________________________________________________ 12. FINRA Jurisdiction City, State/Country, Zip Code + 4/Postal Code

1. Check only one box: Add Delete Amendment

2. CRD Branch Number 6. _____________________________________________________________________ Institution Name (if applicable)

3. Billing Code __________________________________________________________ 7. _____________________________________________________________________

Supervisor Name

4. ____________________________________________________________________ 8. _____________________________________________________________________ Street CRD Number of Supervisor

____________________________________________________________________ 9. _____________________________________________________________________ P.0. Box (if applicable), Suite, Floor Effective Date (MM/DD/YYYY)

____________________________________________________________________ 10. OSJ Yes No City, State/Country, Zip Code + 4/Postal Code

If applicant is changing the address, enter the new address in Item 5. 11. Yes No

5. ____________________________________________________________________ Street If Yes, indicate each Item 11 subset that applies:

____________________________________________________________________ A B C D P.0. Box (if applicable), Suite, Floor

____________________________________________________________________ 12. FINRA Jurisdiction City, State/Country, Zip Code + 4/Postal Code

20170604

CRIMINAL DISCLOSURE REPORTING PAGE (BD)

GENERAL INSTRUCTIONS This Disclosure Reporting Page (DRP BD) is an INITIAL OR AMENDED response used to report details for affirmative responses to Items 11A and 11B of Form BD;

Check ; item(s) being responded to:

11A In the past ten years has the applicant or a control affiliate: (1) been convicted of or pled guilty or nolo contendere (“no contest”) in a domestic, foreign, or military court to any felony? (2) been charged with any felony?

11B In the past ten years has the applicant or a control affiliate: (1) been convicted or pled guilty or nolo contendere (“no contest”) in a domestic, foreign or

military court to a misdemeanor involving: investments or an investment-related business, or any fraud, false statements or omissions, wrongful taking of property, bribery, perjury, forgery, counterfeiting, extortion, or a conspiracy to commit any of these offenses?

(2) been charged with a misdemeanor specified in 11B(1)? Use a separate DRP for each event or proceeding. An event or proceeding may be reported for more than one person or entity using one DRP. File with a completed Execution Page.

Multiple counts of the same charge arising out of the same event(s) should be reported on the same DRP. Unrelated criminal actions, including separate cases arising out of the same event, must be reported on separate DRPs. Use this DRP to report all charges arising out of the same event. One event may result in more than one affirmative answer to the above items.

If a control affiliate is an individual or organization registered through the CRD, such control affiliate need only complete Part I of the applicant’s appropriate DRP (BD). Details of the event must be submitted on the control affiliate’s appropriate DRP (BD) or DRP (U-4). If a control affiliate is an individual or organization not registered through the CRD, provide complete answers to all the items on the applicant’s appropiate DRP (BD). The completion of this DRP does not relieve the control affiliate of its obligation to update its CRD records.

Applicable court documents (i.e., criminal complaint, information or indictment as well as judgment of conviction or sentencing documents) must be provided to the CRD if not previously submitted. Documents will not be accepted as disclosure in lieu of answering the questions on this DRP.

PART I A. The person(s) or entity(ies) for whom this DRP is being filed is (are):

The Applicant

Applicant and one or more control affifiate(s)

One or more control affiliate(s)

If this DRP is being filed for a control affiliate, give the full name of the control affiliate below (for individuals,

Last name, First name, Middle name). If the control affiliate is registered with the CRD, provide the

CRD number. If not, Indicate “non-registered’’ by checking the appropriate checkbox.

NAME OF APPLICANT APPLICANT CRD NUMBER

BD DRP - CONTROL AFFILIATE

CRD NUMBER

This Control Affiliate is Firm Individual

Registered: Yes No

NAME (For individuals, Last, First, Middle)

This DRP should be removed from the BD record because the control affiliate(s) are no longer associated with the BD.

B. If the control affiliate is registered through the CRD, has the control affiliate submitted a DRP

20170604

(with Form U-4) or BD DRP to the CRD System for the event? If the answer is “Yes,’’ no other information on this DRP must be provided.

Yes No

NOTE: The completion of this Form does not relieve the control affiliate of its obligation to update its CRD records.

(continued)

20170604

PART II

CRIMINAL DISCLOSURE REPORTING PAGE (BD) (continuation)

1. If charge(s) were brought against an organization over which the applicant or control affiliate exercise(d) control: Enter organization name, whether or not the organization was an investment-related business and the applicant’s or control affiliate’s position, title or relationship.

2. Formal Charge(s) were brought in: (include name of Federal, Military, State or Foreign Court, Location of Court - City or County and State or Country, Docket/Case number).

3. Event Disclosure Detail (Use this for both organizational and individual charges.)

A. Date First Charged (MM/DD/YYYY): Exact Explanation

If not exact, provide explanation:

B. Event Disclosure Detail (include Charge(s)/Charge Description(s), and for each charge provide: 1. number of counts, 2. felony or

misdemeanor, 3. plea for each charge, and 4. product type if charge is investment-related):

C. Did any of the Charge(s) within the Event involve a Felony? Yes No

D. Current status of the Event? Pending On Appeal Final

E. Event Status Date (complete unless status is Pending) (MM/DD/YYYY): Exact Explanation


4. Disposition Disclosure Detail: Include for each charge, A. Disposition Type [e.g., convicted, acquitted, dismissed, pretrial, etc.], B. Date, C. Sentence/Penalty, D. Duration [if sentence-suspension, probation, etc.], E. Start Date of Penalty, F. Penalty/Fine Amount and G. Date Paid.

5. Provide a brief summary of circumstances leading to the charge(s) as well as the disposition.

Include the relevant dates when the conduct which was the subject of the charge(s) occurred. (The information must fit within the space provided.)

20170604

REGULATORY ACTION DISCLOSURE REPORTING PAGE (BD)

GENERAL INSTRUCTIONS

This Disclosure Reporting Page (DRP BD) is an INITIAL OR AMENDED response used to report details for affirmative responses to Items 11C, 11D, 11E, 11F or 11G of Form BD; Check ; item(s) being responded to: 11C. Has the U.S. Securities and Exchange Commission or the Commodity Futures Trading Commission ever:

(1) found the applicant or a control affiliate to have made a false statement or omission? (2) found the applicant or a control affiliate to have been involved in a violation of its regulations or statutes? (3) found the applicant or a control affiliate to have been a cause of an investment-related business having its authorization to do business denied, suspended, revoked, or restricted? (4) entered an order against the applicant or a control affiliate in connection with investment-related activity? (5) imposed a civil money penalty on the applicant or a control affiliate, or ordered the applicant or a control affiliate to cease and desist from any activity?

11D. Has any other federal regulatory agency, any state regulatory agency, or foreign financial regulatory authority: (1) ever found the applicant or a control affiliate to have made a false statement or omission or been dishonest, unfair, or unethical? (2) ever found the applicant or a control affiliate to have been involved in a violation of investment-related regulations or statutes? (3) ever found the applicant or a control affiliate to have been a cause of an investment-related business having its authorization to do business denied, suspended, revoked, or restricted? (4) in the past ten years, entered an order against the applicant or a control affiliate in connection with an investment-related activity? (5) ever denied, suspended, or revoked the applicant’s or a control affiliate’s registration or license or otherwise, by order, prevented it from associating with an investment-related business or restricted its activities?

11E. Has any self-regulatory organization or commodities exchange ever:

(1) found the applicant or a control affiliate to have made a false statement or omission? (2) found the applicant or a control affiliate to have been involved in a violation of its rules (other than a violation designated as a “ minor rule violation’’ under a plan approved by the U.S. Securities and Exchange Commission)? (3) found the applicant or a control affiliate to have been the cause of an investment-related business having its authorization to do business denied, suspended, revoked, or restricted? (4) disciplined the applicant or a control affiliate by expelling or suspending it from membership, barring or suspending its association with other members, or otherwise restricting its activities?

11F. Has the applicant’s or a control affiliate’s authorization to act as an attorney, accountant, or federal contractor ever been revoked or suspended? 11G. Is the applicant or a control affiliate now the subject of any regulatory proceeding that could result in a “yes” answer to any part of 11C, D, or E?

Use a separate DRP for each event or proceeding. An event or proceeding may be reported for more than one person or entity using one DRP. File with a completed Execution Page.

One event may result in more than one affirmative answer to Items 11C, 11D, 11E, 11F or 11G. Use only one DRP to report details related to the same event. If an event gives rise to actions by more than one regulator, provide details for each action on a separate DRP.

It is not a requirement that documents be provided for each event or proceeding. Should they be provided, they will not be accepted as disclosure in lieu of answering the questions on this DRP.

If a control affiliate is an individual or organization registered through the CRD, such control affiliate need only complete Part I of the applicant’s appropriate DRP (BD). Details of the event must be submitted on the control affiliate’s appropriate DRP (BD) or DRP (U-4). If a control affiliate is an individual or organization not registered through the CRD, provide complete answers to all the items on the applicant’s appropriate DRP (BD). The completion of this DRP does not relieve the control affiliate of its obligation to update its CRD records.

PART l RT I

A. The person(s) or entity(ies) for whom this DRP

is being filed is (are): The Applicant Applicant and one or more control affiliate(s) One or more control affiliate(s)

If this DRP is being filed for a control affiliate, give the full name of the control affiliate below (for individuals, Last name, First name, Middle name).

If the control affiliate is registered with the CRD, provide the CRD number. If not, indicate “non-registered’’ by checking the appropriate checkbox.



CRD NUMBER This Control Affiliate is Firm Individual

Registered: Yes No



B. If the control affiliate is registered through the CRD, has the control affiliate submitted a DRP

(with Form U-4) or BD DRP to the CRD System for the event? If the answer; “Yes,” no other information on this DRP must be provided.

Yes No

NOTE: The completion of this form does not relieve the control affiliate of its obligation to update its CRD records.

20170604

(continued)

20170604

PART ll

REGULATORY ACTION DISCLOSURE REPORTING PAGE (BD) (continuation)

1. Regulatory Action initiated by: SEC Other Federal State SRO Foreign

(Full name of regulator, foreign financial regulatory authority, federal, state or SRO)

2. rincipal Sanction: (check i t it )

Civil and Administrative Penalty(ies)/Fine(s) Bar Cease and Desist Censure Denial

Disgorgement Expulsion Injunction

Restitution Revocation Suspension

Other Sanctions:

3. Date Initiated (MM/DD/YYYY): Exact Explanation


4. Docket/Case Number:

5. Control Affiliate Employing Firm when activity occurred which led to the regulatory action (if applicable):

6. Principal Product Type: (check appropriate item)

Annuity(ies) - Fixed

Annuity(ies) - Variable

Derivative(s)

Direct Investment(s) - DPP & LP Interest(s)

Investment Contract(s)

Money Market Fund(s)

CD(s)

Commodity Option(s)

Debt - Asset Backed

Equity - OTC

Equity Listed (Common & Preferred Stock)

Futures - Commodity

Mutual Fund(s)

No Product

Options

Debt - Corporate

Debt - Government

Futures - Financial

Index Option(s)

Penny Stock(s)

Unit Investment Trust(s)

Debt - Municipal Insurance Other

Other Product Types:

7. Describe the allegations related to this regulatory action. (The information must fit within the space provided.):

8. Current Status? Pending On Appeal Final 9. If on appeal, regulatory action appealed to: (SEC, SRO, Federal or State Court) and Date Appeal Filed:

20170604

(continued)

20170604

REGULATORY ACTION DISCLOSURE REPORTING PAGE (BD) (continuation)

If Final or On Appeal, complete all items below. For Pending Actions, complete Item 13 only.

10. How was matter resolved: (check appropriate item)

Acceptance, Waiver &

Consent (AWC)

Consent

Decision

Decision & Order of Offer of Settlement

Dismissed

Order

Settled

Stipulation and Consent

Vacated

11. Resolution Date (MM/DD/YYYY): Exact Explanation

If not exact, provide explanation: 12. A. Were any of the following Sanctions Ordered? (Check all appropriate items):

Monetary/Fine Revocation/Expulsion/Denial Disgorgement/Restitution

Amount: $ Censure Cease and Desist/Injunction Bar Suspension

B. Other Sanctions Ordered:

________________________________________________________________________________________________________________________________________________

________________________________________________________________________________________________________________________________________________

________________________________________________________________________________________________________________________________________________

C. Sanction detail: If suspended, enjoined or barred, provide duration including start date

and capacities affected (General Securities Principal, Financial Operations Principal, etc.). If requalification by exam/retraining was a condition of the sanction, provide length of time given to requalify/retrain, type of exam required and whether condition has been satisfied. If disposition resulted in a fine, penalty, restitution, disgorgement or monetary compensation, provide total amount, portion levied against applicant or control affiliate, date paid and if any portion of penalty was waived:

________________________________________________________________________________________________________________________________________________

________________________________________________________________________________________________________________________________________________

________________________________________________________________________________________________________________________________________________

________________________________________________________________________________________________________________________________________________ 13. Provide a brief summary of details related to the action status and (or) disposition and

include relevant terms, conditions and dates. (The information must fit within the space provided.)

________________________________________________________________________________________________________________________________________________

________________________________________________________________________________________________________________________________________________

________________________________________________________________________________________________________________________________________________

________________________________________________________________________________________________________________________________________________

________________________________________________________________________________________________________________________________________________

________________________________________________________________________________________________________________________________________________

________________________________________________________________________________________________________________________________________________

________________________________________________________________________________________________________________________________________________

________________________________________________________________________________________________________________________________________________

________________________________________________________________________________________________________________________________________________

________________________________________________________________________________________________________________________________________________

________________________________________________________________________________________________________________________________________________

20170604

CIVIL JUDICIAL ACTION DISCLOSURE REPORTING PAGE (BD)


This Disclosure Reporting Page (DRP BD ) is an INITIAL OR AMENDED response used to report details for affirmative responses to Item 11H of Form BD;


11H(1) Has any domestic or foreign court: (a) in the past ten years, enjoined the applicant or a control affiliate in connection with any investmenf-related activity? (b) ever found that the applicant or a control affiliate was involved in a violation of investment-related statutes or regulations? (c) ever dismissed, pursuant to a settlement agreement, an investment-related civil action brought against the applicant

or a control affiliate by a state or foreign financial regulatory authority? 11H(2) Is the applicant or a control affiliate now the subject of any civil proceeding that could result

in a “yes” answer to any part of 11H?


One event may result in more than one affirmative answer to Item 11H. Use only one DRP to report details related to the same event. Unrelated civil judicial actions must be reported on separate DRPs.



PART I

A. The person(s) or entity(ies) for whom this DRP

is being filed is (are): The Applicant Applicant and one or more control affiliate(s) One or more control affiliate(s)

If this DRP is being filed for a control affiliate, give the full name of the control affiliate below (for

individuals, Last name, First name, Middle name). If the control affiliate is registered with the CRD,

provide the CRD number. If not, indicate “non-registered’’ by checking the appropriate

checkbox.



CRD NUMBER This Control Affiliate is Firm Individual

Registered: Yes No



B. If the control affiliate is registered through the CRD, has the control affiliate submitted a DRP (with Form U-4) or BD DRP to the CRD System for the event? If the answer is “Yes,’’ no other information on this DRP must be provided.

Yes No NOTE: The completion of this Form does not relieve the control affiliate of its obligation to update its CRD records.

PART ll

20170604

1. Court Action initiated by: (Name of regulator, foreign financial regulatory authority, SRO, commodities exchange, agency, firm, private plaintiff, etc.)

(continued)

20170604

CIVIL JUDICIAL ACTION DISCLOSURE REPORTING PAGE (BD) (continuation)

2. Principal Relief Sought: (check appropriate item)

Cease and Desist

Disgorge Money Damages (Private/Civil

Restraining Civil Penalty(ies)/Fine(s)

Injunction Restitution Other

Other Relief Sought:

3. Filing Date of Court Action (MM/DD/YYYY): Exact Explanation

If not exact, provide explanation: 4. Principal Product Type: (check appropriate item)

Annuity(ies) -

Derivative(s) Investment Contract(s) Annuity(ies) - Direct Investment(s) - DPP & Money Market Fund(s) CD(s) Equity - OTC Mutual Fund(s) Commodity Equity Listed (Common & No Product Debt - Asset Futures - Commodity Options Debt - Corporate Futures - Financial Penny Stock(s) Debt - Index Option(s) Unit Investment Trust(s) Debt - Municipal Insurance Other

Other Product Types:

5. Formal Action was brought in (include name of Federal, State or Foreign Court, Location of Court - City or County and State or Country, Docket/Case Number):

6. Control Affiliate Employing Firm when activity occurred which led to the civil judicial action (if applicable):

7. Describe the allegations related to this civil action. (The information must fit within the space provided.):

8. Current Status? Pending On Appeal Final

9. If on appeal, action appealed to (provide name of court): Date Appeal Filed (MM/DD/YYYY):

10. If pending, date notice/process was served (MM/DD/YYYY): Exact Explanation


20170604

(continued)

20170604

CIVIL JUDICIAL ACTION DISCLOSURE REPORTING PAGE (BD) (continuation)

If Final or On Appeal, complete all items below. For Pending Actions, complete Item 14 only.

11. How was matter resolved: (check appropriate item)

Consent

Dismissed

Judgment Rendered

Opinion

Settled

Withdrawn Other

12. Resolution Date (MM/DD/YYYY): Exact Explanation


13. Resolution Detail:

A. Were any of the following Sanctions Ordered or Relief

Monetary/Fine Revocation/Expulsion/Denial Di t/R tit ti Amount $ Censure Cease and Ba Suspensio

B.

Other Sanctions:

C . Sanction detail: if suspended, enjoined or barred, provide duration including start date

and capacities affected (General Securities Principal, Financial Operations Principal, etc.). If requalification by exam/retraining was a condition of the sanction, provide length of time given to requalify/retrain, type of exam required and whether condition has been satisfied. If disposition resulted in a fine, penalty, restitution, disgorgement or monetary compensation, provide total amount, portion levied against applicant or control affiliate, date paid and if any portion of penalty was waived:

14. Provide a brief summary of circumstances related to action(s), allegation(s),

disposition(s) and/or finding(s) disclosed above. (The information must fit within the space provided.):

20170604

BANKRUPTCY / SIPC DISCLOSURE REPORTING PAGE (BD)

G E N E R A L I N S T R U C T I O N S

This Disclosure Reporting Page (DRP BD) is an INITIAL OR AMENDED response used to report details for affirmative responses to Item 11I of Form BD;


11I In the past ten years has the applicant or a control affiliate of the applicant ever been a securities firm or a control affiliate

of a securities firm that:

(1) has been the subject of a bankruptcy petition?

(2) has had a trustee appointed or a direct payment procedure initiated under the Securities Investor Protection Act?




PART I

A. The person(s) or entity(ies) for whom this DRP is being filed is (are):

The Applicant Applicant and one or more control affiliate(s)

One or more control affiliate(s)

If this DRP is being filed for a control affiliate, give the full name of the control affiliate below (for individuals, Last name, First name, Middle name).

If the control affiliate is registered with the CRD, provide the CRD number. If not, indicate “non-registered’’ by checking the appropriate checkbox.



CRD NUMBER

Registered: Yes No


This Control Affiliate is Firm Individual

This DRP should be removed from the BD record because the control affilliate(s) are no longer associated with the BD.

B. If the control affiliate is registered through the CRD, has the control affiliate submitted a DRP (with Form U-4) or BD DRP to the CRD System for the event? If the answer is “Yes,’’ no other information on this DRP must be provided.

Yes No NOTE: The completion of this Form does not relieve the control affiliate of its obligation to update its CRD records.

20170604

PART ll

1. Action Type: (check appropriate item)

Bankruptcy Declaration Receivership

Compromise

Liquidated Other

2. Action Date (MM/DD/YYYY): Exact Explanation


(continued)

20170604

BANKRUPTCY / SIPC DISCLOSURE REPORTING PAGE (BD) (continuation)

3. If the financial action relates to an organization over which the applicant or control affiliate exercise(d)

control, enter organization name and the applicant’s or control affiliate’s position, title or relationship:

________________________________________________________________________________________________________________________

Was the Organization investment-related? Yes No

4. Court action brought in (Name of Federal, State or Foreign Court), Location of Court (City or County and State or Country), Docket/Case

Number and Bankruptcy Chapter Number (if Federal Bankruptcy Filing):

________________________________________________________________________________________________________________________

5. Is action currently pending? Yes No

6. If not pending, provide Disposition Type: (check appropriate item)

Direct Payment P d

Dismissed Satisfied/Released

Discharged Dissolved SIPA Trustee Appointed

Other

7. Disposition Date (MM/DD/YYYY): Exact Explanation


8. Provide a brief summary of events leading to the action and if not discharged, explain. (The information must fit within the space provided.):

_______________________________________________________________________________________________________________________

_______________________________________________________________________________________________________________________

_______________________________________________________________________________________________________________________ 9. If a SIPA trustee was appointed or a direct payment procedure was begun, enter the

amount paid or agreed to be paid by you; or the name of the trustee:

Currently Open? Yes No

Date Direct Payment Initiated/Filed or Trustee Appointed (MM/DD/YYYY): Exact Explanation


10. Provide details to any status/disposition. Include details as to creditors, terms,

conditions, amounts due and settlement schedule (if applicable). (The information must fit within the space provided.)

_______________________________________________________________________________________________________________________

_______________________________________________________________________________________________________________________

_______________________________________________________________________________________________________________________

_______________________________________________________________________________________________________________________

_______________________________________________________________________________________________________________________

_______________________________________________________________________________________________________________________

_______________________________________________________________________________________________________________________

_______________________________________________________________________________________________________________________

_______________________________________________________________________________________________________________________

_______________________________________________________________________________________________________________________

_______________________________________________________________________________________________________________________ 20170604

BOND DISCLOSURE REPORTING PAGE (BD)


This Disclosure Reporting Page (DRP BD) is an INITIAL OR AMENDED response used to report details for affirmative responses to Item 11J of Form BD;

Check ; item(s) being responded to: 11J Has a bonding company ever denied, paid out on, or revoked a bond for the applicant?




1. Firm Name: (Policy Holder)

2. Bonding Company Name:

3. Disposition Type: (check appropriate item)

Denied Payout Revoked 4. Disposition Date (MM/DD/YYYY): Exact Explanation

If not exact, provide explanation: 5. If disposition resulted in Payout, list Payout Amount and Date Paid:

6. Summarize the details of circumstances leading to the necessity of the bonding company

action: (The information must fit within the space provided.)

20170604

JUDGMENT / LIEN DISCLOSURE REPORTING PAGE (BD)


This Disclosure Reporting Page (DRP BD) is an INITIAL OR AMENDED response used to report details for affirmative responses to Item 11K of Form BD; Check ; item(s) being responded to:

11K Does the applicant have any unsatisfied judgments or liens against it?




1. Judgment/Lien Amount:

2. Judgment/Lien Holder:

3. Judgment/Lien Type: (check

appropriate item) Civil

Default Tax

4. Date Filed (MM/DD/YYYY): Exact Explanation


5. Is Judgment/Lien outstanding? Yes No

If No, provide status date (MM/DD/YYYY): Exact Explanation


If No, how was matter resolved? (check appropriate item)

Discharged Released Removed Satisfied

6. Court (Name of Federal, State or Foreign Court), Location of Court (City or County and State or Country) and Docket/Case Number:

7. Provide a brief summary of events leading to the action and any payment schedule

details including current status (if applicable). (The information must fit within the space provided.):

20170604

1

Week 1 Section 15(a)(1); (b)(1)-(6); and (c) of the Securities Exchange Act of 1934

15 U.S.C.A. § 78o

§ 78o. Registration and regulation of brokers and dealers

(a) Registration of all persons utilizing exchange facilities to effect

transactions; exemptions

(1) It shall be unlawful for any broker or dealer which is either a person other than a

natural person or a natural person not associated with a broker or dealer which is a

person other than a natural person (other than such a broker or dealer whose

business is exclusively intrastate and who does not make use of any facility of a

national securities exchange) to make use of the mails or any means or

instrumentality of interstate commerce to effect any transactions in, or to induce or

attempt to induce the purchase or sale of, any security (other than an exempted

security or commercial paper, bankers' acceptances, or commercial bills) unless

such broker or dealer is registered in accordance with subsection (b) of this section.

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2


15 U.S.C.A. § 78c


(a) Definitions

When used in this chapter, unless the context otherwise requires--

…

(4) Broker

(A) In general

The term “broker” means any person engaged in the business of effecting

transactions in securities for the account of others.

(B) Exception for certain bank activities

A bank shall not be considered to be a broker because the bank engages in

any one or more of the following activities under the conditions described:

(i) Third party brokerage arrangements

The bank enters into a contractual or other written arrangement with a

broker or dealer registered under this chapter under which the broker

or dealer offers brokerage services on or off the premises of the bank

if--

(I) such broker or dealer is clearly identified as the person

performing the brokerage services;

(II) the broker or dealer performs brokerage services in an area

that is clearly marked and, to the extent practicable, physically

separate from the routine deposit-taking activities of the bank;

(III) any materials used by the bank to advertise or promote


arrangement clearly indicate that the brokerage services are

being provided by the broker or dealer and not by the bank;

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3

(IV) any materials used by the bank to advertise or promote


arrangement are in compliance with the Federal securities laws

before distribution;

(V) bank employees (other than associated persons of a broker

or dealer who are qualified pursuant to the rules of a self-

regulatory organization) perform only clerical or ministerial

functions in connection with brokerage transactions including

scheduling appointments with the associated persons of a broker

or dealer, except that bank employees may forward customer

funds or securities and may describe in general terms the types

of investment vehicles available from the bank and the broker or

dealer under the arrangement;

(VI) bank employees do not receive incentive compensation for

any brokerage transaction unless such employees are

associated persons of a broker or dealer and are qualified

pursuant to the rules of a self-regulatory organization,except that

the bank employees may receive compensation for the referral of

any customer if the compensation is a nominal one-time cash fee

of a fixed dollar amount and the payment of the fee is not

contingent on whether the referral results in a transaction;

(VII) such services are provided by the broker or dealer on a

basis in which all customers that receive any services are fully

disclosed to the broker or dealer;

(VIII) the bank does not carry a securities account of the

customer except as permitted under clause (ii) or (viii) of this

subparagraph; and

(IX) the bank, broker, or dealer informs each customer that the

brokerage services are provided by the broker or dealer and not

by the bank and that the securities are not deposits or other

obligations of the bank, are not guaranteed by the bank, and are

not insured by the Federal Deposit Insurance Corporation.

20170604

4

(ii) Trust activities

The bank effects transactions in a trustee capacity, or effects

transactions in a fiduciary capacity in its trust department or other

department that is regularly examined by bank examiners for

compliance with fiduciary principles and standards, and--

(I) is chiefly compensated for such transactions, consistent with

fiduciary principles and standards, on the basis of an

administration or annual fee (payable on a monthly, quarterly, or

other basis), a percentage of assets under management, or a flat

or capped per order processing fee equal to not more than the

cost incurred by the bank in connection with executing securities

transactions for trustee and fiduciary customers, or any

combination of such fees; and

(II) does not publicly solicit brokerage business, other than by

advertising that it effects transactions in securities in conjunction

with advertising its other trust activities.

(iii) Permissible securities transactions

The bank effects transactions in--











(iv) Certain stock purchase plans

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5

(I) Employee benefit plans


activities, in the securities of an issuer as part of any pension,

retirement, profit-sharing, bonus, thrift, savings, incentive, or

other similar benefit plan for the employees of that issuer or its

affiliates (as defined in section 1841 of Title 12), if the bank does

not solicit transactions or provide investment advice with respect

to the purchase or sale of securities in connection with the plan.

(II) Dividend reinvestment plans


activities, in the securities of an issuer as part of that issuer's

dividend reinvestment plan, if--



securities in connection with the plan; and




(III) Issuer plans


activities, in the securities of an issuer as part of a plan or

program for the purchase or sale of that issuer's shares, if--



securities in connection with the plan or program; and




(IV) Permissible delivery of materials

20170604

6


in activities described in subclauses (I), (II), and (III) will not be

affected by delivery of written or electronic plan materials by a

bank to employees of the issuer, shareholders of the issuer, or

members of affinity groups of the issuer, so long as such

materials are--

(aa) comparable in scope or nature to that permitted by

the Commission as of November 12, 1999; or

(bb) otherwise permitted by the Commission.

(v) Sweep accounts

The bank effects transactions as part of a program for the investment

or reinvestment of deposit funds into any no-load, open-end

management investment company registered under the Investment

Company Act of 1940 [15 U.S.C.A. § 80a-1 et seq.] that holds itself out

as a money market fund.

(vi) Affiliate transactions

The bank effects transactions for the account of any affiliate of the bank

(as defined in section 1841 of Title 12) other than--

(I) a registered broker or dealer; or

(II) an affiliate that is engaged in merchant banking, as described

in section 1843(k)(4)(H) of Title 12.

(vii) Private securities offerings

The bank--

(I) effects sales as part of a primary offering of securities not

involving a public offering, pursuant to section 3(b), 4(2), or 4(5)

of the Securities Act of 1933 or the rules and regulations issued

thereunder;

(II) at any time after the date that is 1 year after November 12,

1999, is not affiliated with a broker or dealer that has been

20170604

7

registered for more than 1 year in accordance with this chapter,

and engages in dealing, market making, or underwriting

activities, other than with respect to exempted securities; and

(III) if the bank is not affiliated with a broker or dealer, does not

effect any primary offering described in subclause (I) the

aggregate amount of which exceeds 25 percent of the capital of

the bank, except that the limitation of this subclause shall not

apply with respect to any sale of government securities or

municipal securities.

(viii) Safekeeping and custody activities

(I) In general

The bank, as part of customary banking activities--

(aa) provides safekeeping or custody services with

respect to securities, including the exercise of warrants

and other rights on behalf of customers;

(bb) facilitates the transfer of funds or securities, as a

custodian or a clearing agency, in connection with the

clearance and settlement of its customers' transactions in

securities;

(cc) effects securities lending or borrowing transactions

with or on behalf of customers as part of services provided

to customers pursuant to division (aa) or (bb) or invests

cash collateral pledged in connection with such

transactions;

(dd) holds securities pledged by a customer to another

person or securities subject to purchase or resale

agreements involving a customer, or facilitates the

pledging or transfer of such securities by book entry or as

otherwise provided under applicable law, if the bank

20170604

8

maintains records separately identifying the securities and

the customer; or

(ee) serves as a custodian or provider of other related

administrative services to any individual retirement

account, pension, retirement, profit sharing, bonus, thrift

savings, incentive, or other similar benefit plan.

(II) Exception for carrying broker activities


in activities described in subclause (I) shall not apply if the bank,

in connection with such activities, acts in the United States as a

carrying broker (as such term, and different formulations thereof,

are used in section 78o(c)(3) of this title and the rules and

regulations thereunder) for any broker or dealer, unless such

carrying broker activities are engaged in with respect to

government securities (as defined in paragraph (42) of this

subsection).

(ix) Identified banking products

The bank effects transactions in identified banking products as defined

in section 206 of the Gramm-Leach-Bliley Act [15 U.S.C.A. § 78c note].

(x) Municipal securities

The bank effects transactions in municipal securities.

(xi) De minimis exception

The bank effects, other than in transactions referred to in clauses (i)

through (x), not more than 500 transactions in securities in any

calendar year, and such transactions are not effected by an employee

of the bank who is also an employee of a broker or dealer.

(C) Execution by broker or dealer

The exception to being considered a broker for a bank engaged in activities

described in clauses (ii), (iv), and (viii) of subparagraph (B) shall not apply if

20170604

9

the activities described in such provisions result in the trade in the United

States of any security that is a publicly traded security in the United States,

unless--

(i) the bank directs such trade to a registered broker or dealer for

execution;

(ii) the trade is a cross trade or other substantially similar trade of a

security that--

(I) is made by the bank or between the bank and an affiliated

fiduciary; and

(II) is not in contravention of fiduciary principles established

under applicable Federal or State law; or

(iii) the trade is conducted in some other manner permitted under rules,

regulations, or orders as the Commission may prescribe or issue.

(D) Fiduciary capacity

For purposes of subparagraph (B)(ii), the term “fiduciary capacity” means--

(i) in the capacity as trustee, executor, administrator, registrar of stocks

and bonds, transfer agent, guardian, assignee, receiver, or custodian

under a uniform gift to minor act, or as an investment adviser if the

bank receives a fee for its investment advice;

(ii) in any capacity in which the bank possesses investment discretion

on behalf of another; or

(iii) in any other similar capacity.

(E) Exception for entities subject to section 78o(e) of this title

The term “broker” does not include a bank that--

(i) was, on the day before November 12, 1999, subject to section

78o(e) of this title; and

(ii) is subject to such restrictions and requirements as the Commission

considers appropriate.

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10

(F) Joint rulemaking required

The Commission and the Board of Governors of the Federal Reserve System

shall jointly adopt a single set of rules or regulations to implement the

exceptions in subparagraph (B).

20170604

11


15 U.S.C.A. § 78c


…

(5) Dealer

(A) In general

The term “dealer” means any person engaged in the business of buying and

selling securities (not including security-based swaps, other than security-

based swaps with or for persons that are not eligible contract participants) for

such person's own account through a broker or otherwise.

(B) Exception for person not engaged in the business of dealing

The term “dealer” does not include a person that buys or sells securities (not

including security-based swaps, other than security-based swaps with or for

persons that are not eligible contract participants) for such person's own

account, either individually or in a fiduciary capacity, but not as a part of a

regular business.

(C) Exception for certain bank activities

A bank shall not be considered to be a dealer because the bank engages in

any of the following activities under the conditions described:

(i) Permissible securities transactions

The bank buys or sells--







20170604

12





(ii) Investment, trustee, and fiduciary transactions

The bank buys or sells securities for investment purposes--

(I) for the bank; or

(II) for accounts for which the bank acts as a trustee or fiduciary.

(iii) Asset-backed transactions

The bank engages in the issuance or sale to qualified investors,

through a grantor trust or other separate entity, of securities backed by

or representing an interest in notes, drafts, acceptances, loans, leases,

receivables, other obligations (other than securities of which the bank is

not the issuer), or pools of any such obligations predominantly

originated by--

(I) the bank;

(II) an affiliate of any such bank other than a broker or dealer; or

(III) a syndicate of banks of which the bank is a member, if the

obligations or pool of obligations consists of mortgage

obligations or consumer-related receivables.

(iv) Identified banking products

The bank buys or sells identified banking products, as defined in

section 206 of the Gramm-Leach-Bliley Act [15 U.S.C.A. § 78c note].

20170604

13

Section 10(b) of the Securities Exchange Act of 1934

15 U.S.C.A. § 78j

§ 78j. Manipulative and deceptive devices

It shall be unlawful for any person, directly or indirectly, by the use of any means or

instrumentality of interstate commerce or of the mails, or of any facility of any

national securities exchange—

…

(b) To use or employ, in connection with the purchase or sale of any security

registered on a national securities exchange or any security not so registered, or any

securities-based swap agreement1 any manipulative or deceptive device or

contrivance in contravention of such rules and regulations as the Commission may

prescribe as necessary or appropriate in the public interest or for the protection of

investors.

20170604

14

Section 17(a) of the Securities and Exchange Act of 1934

15 U.S.C.A. § 78q

§ 78q. Records and reports

(a) Rules and regulations

(1) Every national securities exchange, member thereof, broker or dealer who

transacts a business in securities through the medium of any such member,

registered securities association, registered broker or dealer, registered

municipal securities dealer municipal advisor,,1 registered securities

information processor, registered transfer agent, nationally recognized

statistical rating organization, and registered clearing agency and the

Municipal Securities Rulemaking Board shall make and keep for prescribed


such reports as the Commission, by rule, prescribes as necessary or

appropriate in the public interest, for the protection of investors, or otherwise

in furtherance of the purposes of this chapter. Any report that a nationally

recognized statistical rating organization is required by Commission rules

under this paragraph to make and disseminate to the Commission shall be

deemed furnished to the Commission.

(2) Every registered clearing agency shall also make and keep for prescribed


such reports, as the appropriate regulatory agency for such clearing agency,

by rule, prescribes as necessary or appropriate for the safeguarding of

securities and funds in the custody or control of such clearing agency or for

which it is responsible.

(3) Every registered transfer agent shall also make and keep for prescribed

periods such records, furnish such copies thereof, and make such reports as

the appropriate regulatory agency for such transfer agent, by rule, prescribes

as necessary or appropriate in furtherance of the purposes of section 78q-1 of

this title.

20170604