In the Matter of First Albany Corporation, John T. Batal and Michael R. Lindburg

First Albany Corporation (FAC) (defendant) was a broker-dealer registered with the Securities and Exchange Commission (SEC) (plaintiff). Michael Lindburg (defendant) was FAC’s vice president, general counsel, and chief compliance officer. John Batal (defendant) was the Boston office’s branch manager. Lindburg was responsible for compliance and could impose discipline for policy violations. A certain registered representative (RR) in the Boston office was restricted from soliciting purchases of a particular bank stock because his customers already owned a concentrated position with a large margin debt. No procedures were implemented to detect and prevent violations of the restriction. The RR executed cross trades (including wash sales) and falsely marked order tickets “unsolicited.” If customers complained or there was a margin issue, the RR canceled the trades and rebilled them to other accounts. The RR misappropriated customer funds and made unauthorized transfers between customer accounts. The compliance department reviewed the RR’s trading activity, but the firm’s trading reports did not identify cross trades or wash sales. Branch managers approved order-ticket changes, but no procedures were in place other than to ask the branch manager about his procedures. When the National Association of Securities Dealers (NASD) inquired about the RR’s trading, Lindberg accepted the RR’s statement that all trades were unsolicited. After a compliance audit revealed that the Boston office’s order tickets did not indicate whether a transaction was solicited or unsolicited, Batal failed to respond to a request that he detail the corrective steps being implemented, and Lindburg did not take further action. Lindburg was notified that the RR’s canceling and rebilling activity was unexplainable but did not conduct further inquiry or follow up when the RR stopped obtaining the required approvals for margin purchases. The SEC instituted administrative proceedings against FAC, Batal, and Lindburg for failing to supervise the RR, made findings, and imposed sanctions.