Sinclair v. Securities and Exchange Commission, 1006
| Decision Date | 21 June 1971 |
| Docket Number | Docket 71-1368.,No. 1006,1006 |
| Citation | 444 F.2d 399 |
| Parties | Edward SINCLAIR, Petitioner, v. SECURITIES AND EXCHANGE COMMISSION, Respondent. |
| Court | U.S. Court of Appeals — Second Circuit |
Lawrence Greenapple, New York City, (Otterbourg, Steindler, Houston & Rosen, New York City, on the brief), for petitioner.
Paul Gonson, Asst. Gen. Counsel, Securities and Exchange Commission, Washington, D. C. (Philip A. Loomis, Jr., Gen. Counsel, David Ferber, Sol., Ralph K. Kessler, Atty., and Kathryn B. McGrath, Atty., Securities and Exchange Commission, Washington, D. C., on the brief), for respondent.
Before KAUFMAN, HAYS, and MANSFIELD,* Circuit Judges.
Upon this petition for review we affirm the order of the Securities and Exchange Commission ("Commission") entered on March 24, 1971, after administrative hearings pursuant to §§ 15(b) and 15A of the Securities Exchange Act of 1934, which barred petitioner from further association with any broker or dealer in securities on the ground that he had wilfully violated and aided and abetted violation of the anti-fraud provisions of § 17(a) of the Securities Act of 1933, 15 U.S.C. 77q(a), §§ 10(b) and 15(c) (1) of the Securities Exchange Act of 1934, 15 U.S.C. §§ 78j(b) and 78o(c) (1), and Rules 10b-5, 15c1-2 and 15c1-4 thereunder, 17 C.F.R. §§ 240.10b-5, 240.15c1-2 and 240.15c1-4(2a-3a).
Sinclair, an order clerk in the trading department of Filor, Bullard & Smyth ("Filor"), a registered broker-dealer, was obligated as a matter of fiduciary duty to use due diligence to obtain the best available price for Filor's customers upon execution of orders placed by them for purchase or sale of securities on the over-the-counter ("OTC") market; and, where a better price was available directly from a dealer in a particular OTC security, Sinclair was not permitted to interpose another broker-dealer at the expense of Filor's customers. W. K. Archer & Co., 11 S.E.C. 635 (1942) affd., 133 F.2d 795 (8th Cir.), cert. denied, 319 U.S. 767, 63 S.Ct. 1330, 87 L.Ed. 1717 (1943); Thomson & McKinnon, Sec. Exch. Act Rel. No. 8310 (May 8, 1968); H. C. Keister & Co., Sec. Exch. Act No. 7988 (1966). There was ample evidence to support the Commission's findings that in 1965 Sinclair made numerous purchases and sales of securities for Filor's customers through the OTC firm of Hoit, Rose & Co. ("Hoit") rather than directly with dealers quoting the securities involved in the daily "Pink Sheets" published by the National Quotation Bureau, Inc. This procedure of interpositioning Hoit between Filor and the executing dealers, or market makers, caused Filor's customers in many transactions to pay higher prices for securities purchased by them, or to receive lower prices for securities sold by them than would have been the case if Sinclair had dealt directly with the executing dealer. For instance, in 90% of 189 such interpositions in 1965, Hoit promptly executed the trade at a profit with dealers listed in the Pink Sheets.
There was also substantial evidence supporting the Commission's finding that Sinclair engaged in such interpositioning for the purpose of increasing his own personal commissions at the expense of Filor's customers, for whom he did not obtain the best available prices. This was accomplished by an arrangement whereby reciprocal orders were received by him from Hoit for execution by Filor, upon which Sinclair received 30% of Filor's commissions. In 1965, for instance, approximately 55% of Sinclair's commissions were derived from such reciprocal business flowing from Hoit. Sinclair's fraudulent purpose was further evidenced by the fact that he concealed his interpositioning of Hoit from his supervisors by falsely entering on Filor order tickets the names of brokers other than Hoit as the executing dealers. In a substantial number of transactions the names were those of dealers with whom Hoit placed the transactions at a profit to Hoit.
Sinclair contends that while he interposed Hoit in the transactions, there was nothing wrong with interposition per se, and that he used due diligence to obtain the best price for Filor's customers by his securing quotations from other dealers wherever possible. He further seeks to excuse his conduct on the ground that Filor did not have facilities equal to Hoit's for obtaining quotations from brokers appearing in the Pink Sheets. However, substantial evidence supports the Commission's rejection of these contentions. Filor was a larger firm than Hoit and Filor's records reveal that in 1965 it had 20 direct wires to OTC dealers. The speed with which Hoit was able, upon receipt of an...
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