In the Matter of Reynolds & Co.

39 S.E.C. 902 (1960)

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In the Matter of Reynolds & Co.

Securities and Exchange Commission
39 S.E.C. 902 (1960)

  • Written by Sharon Feldman, JD

Facts

Reynolds & Co. (defendant) was a registered broker-dealer and a member of the National Association of Securities Dealers (NASD) and the New York Stock Exchange. Patrick Coleman (defendant), a salesman in Reynolds’s Carmel office, had trading discretion over four customer accounts. Coleman did not obtain required written authorizations from two customers, effected transactions without the required initialing and approval of a partner, and overtraded the four accounts. William Rice (defendant), Reynolds’s West Coast managing partner and San Francisco branch manager, knew that Coleman traded without approvals. Rice directed that written authorizations be obtained but did not direct monitoring of Coleman’s accounts or initial or approve transactions. Rice and Carmel co-manager Wilfred Aldous (defendant) agreed that trading volumes were unimportant if the accounts were making money. All four accounts sustained losses while generating commissions. In Reynolds’s Chicago office, an employee made unauthorized customer trades and forged customers’ names for over a year. Branch manager Robert Whittaker, employee Elmer Stefany, and partner John White (defendants) knew of circumstances that should have resulted in detection of the misconduct. In Berkeley, assistant manager Wesley Roland (defendant) and other employees made false and misleading statements to induce customers to purchase speculative stocks despite Reynolds’s policy against encouraging speculative investments. Roland failed to tell customers that he was selling his shares and withheld execution of customer buy orders until conduct by Reynolds employees caused the market price to rise. Manager Wilson Dodd (defendant) knew about the speculative-stock recommendations, did not examine the sales literature, and allowed Roland to negotiate trades with other dealers directly by telephone. In Minneapolis, a salesman was given checks drawn on customers’ accounts, permitting misappropriation of customer funds. The Securities and Exchange Commission (plaintiff) instituted proceedings to determine whether to revoke Reynolds’s broker-dealer registration; suspend or expel Reynolds from membership in the NASD or national securities exchanges; and find that Rice, White, Whitaker, Dodd, Aldous, Roland, Stefany, and Coleman (the named individuals) were a cause of any revocation, suspension, or expulsion order.

Rule of Law

Issue

Holding and Reasoning ()

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