Securities

SEC Sanctions Brokers For Not Obtaining Best Execution

 Rochdale Securities LLC, at one time a small Commission registered broker-dealer based in Stamford, Connecticut, is perhaps best known as the firm where a registered representative and his customer placed orders for over 1.6 million shares of Apple stock. The plan was to keep the stock if it went up and break the trades if it went down. When the stock went down the $1 billion in trades were disavowed leaving the firm with a $5.3 million loss and a net capital violation. The firm eventually went out of business. The registered representative pleaded guilty to criminal charges. U.S. v. Miller, 3:12-mj-00288 (D. Mass); SEC v. Mille, Civil Action No. 3:13-cv-00522(D. Mass. Filed April 15, 2013).

Two more representatives from Rochdale have now been named in SEC enforcement actions. Hal S. Tunick was a representative at the firm from late 2012 through July 2014. Patrick Burke was a representative at the firm from 1998 through late 2012. This time the charge was failing to obtain best execution. In the Matter of Hal S. Tunick, Adm. Proc. File No. 3-16931 (October 28, 2015); In the Matter of Patrick R. Burke, Adm. Proc. File No. 3-16930 (October 28, 2015).

Each proceeding centers on failing to comply with the obligation to obtain best execution for clients in order to generate excess commissions. Mr. Tunick, for example, is alleged to have favored a Proprietary Trader based in San Diego, California. In executing trades for customers of Rochdale, Mr. Tunick routinely favored PT in a way which generated extra commissions for him. He achieved this by contacting PT when he had a customer order and instructing that person to obtain the securities necessary to partially or completely fill the customer order. PT obtained the securities through another firm. PT then took the other side of the Rochdale customer order creating extra commission for Mr. Tunick. Unfortunately for the customer, the price paid was typically not the best available in the market.

The scheme was typically implemented in a series of steps:

  • • Rochdale customer called Mr. Tunick and instructed him to buy, for example, 10,000 of stock A.
  • • Mr. Tunick then called PT and instructed him to purchase 10,000 shares of stock A through another firm.
  • • PT called Mr. Tunick and offered to sell 10,000 shares of Stock A through Rochdale.
  • • Mr. Tunick crossed the customer order with the PT order. Typically, however, the price to the customer was higher than the best price available in the market.

If the Rochdale customer wanted to sell a security the same process was used. Mr. Tunick profited by obtaining a commission from both parties to the transaction. The Rochdale customer typically either overpaid or got a lower price, depending on the transaction, than what was available in the market. The Order in each action alleges violations of Securities Act Section 17(a) and Exchange Act Section 10(b).

Each Respondent settled. Each consented to the entry of a cease and desist order based on the Sections cited in the Order. Each was barred from the securities business and from participating in a penny stock offering. Mr. Burke may apply for reinstatement after five years. Mr. Tunick will pay a civil penalty of $125,000 while Mr. Burke will pay disgorgement of $6,300.00, prejudgment interest and a penalty of $50,000.

 For more news and commentary on developing securities issues, visit SEC Actions, a blog by Thomas Gorman.     

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