Markowski v. Securities and Exchange Commission

Michael J. Markowski (plaintiff) was the majority shareholder in and an executive of broker-dealer Global America, Inc. (Global). Joseph Riccio (plaintiff) was Global’s trader. Global was registered with the National Association of Securities Dealers (NASD). In June 1990, Global underwrote an initial public offering (IPO) of the stock of Mountaintop Corporation. Global accounted for the majority of the sales and purchases of Mountaintop stock in Mountaintop’s post-IPO market. In July 1998, the NASD determined that Markowski and Riccio violated the federal securities laws and several NASD Conduct Rules by engaging in manipulative, deceptive, and fraudulent conduct. Specifically, Markowski and Riccio allegedly manipulated the price of Mountaintop’s stock by maintaining high bid prices and buying all unwanted Mountaintop stock. Indeed, upon Global’s cessation of business, Mountaintop’s stock dropped approximately 75 percent in one day. The NASD ordered that Markowski and Riccio be censured and barred from associating with any NASD member and fined them both. Markowski and Riccio appealed to the Securities and Exchange Commission (SEC) (defendant), arguing they did nothing improper because their activities did not involve fictitious transactions (e.g., trades in which the same buyers and sellers exchange a security to make it seem more widely traded). However, the SEC decided that compliance with the Securities Exchange Act of 1934 is determined solely on the alleged violator’s intent to manipulate the market and not whether the relevant trades were nonfictitious. Finding such intent here, the SEC rejected Markowski and Riccio’s appeal and their request for reconsideration. Markowski and Riccio sought judicial review of the SEC’s decision. They again argued that they could not be liable for nonfictitious trades and that the fact that Global lost more than one million dollars on the Mountaintop transactions showed they did not act with scienter (i.e., an intent to deceive) nor did they manipulate the market.