The opinion of the court was delivered by: COOLAHAN
This matter came before the Court for trial, without a jury, wherein the plaintiff, Securities and Exchange Commission, sought a permanent injunction against the defendants. After considering the evidence, the arguments of counsel and the briefs filed on behalf of the respective litigants, the Court makes the following findings of fact based upon the evidence submitted and conclusions of law with respect to the application.
1. The defendant, J. P. Howell & Co., Inc., is a corporation incorporated under the laws of the State of New Jersey with its principal office and place of business at 20 Church Street, Montclair, New Jersey. Since January 7, 1957 the defendant has been and is now a registered broker-dealer in securities, pursuant to Section 15(b) of the Securities Exchange Act of 1934, 15 U.S.C. § 78o(b).
2. The defendant, Michael LaMarca, has been and he is now the president, director, and directly and indirectly beneficial owner of ten (10%) per cent or more of the equity securities of said corporate defendant.
3. On June 13 and June 14, 1960, plaintiff, Securities and Exchange Commission, through the instrumentality of its agent, Raymond J. Wagner, caused an inspection to be made of the books and records of the defendant, J. P. Howell & Co., Inc., pursuant to the authority conferred upon it by Section 17(a) of the Securities Exchange Act of 1934, 15 U.S.C. 78q(a).
4. In analyzing the trial balance of the defendant, J. P. Howell & Co., Inc., as of June 10, 1960, to ascertain whether said defendant was observing the rules, regulations and safeguards adopted by the Securities and Exchange Commission, pursuant to Section 15(c)(3) of the Securities Exchange Act of 1934, and Rule 17 CFR 240.15c3-1 promulgated thereunder to insure the financial responsibility of brokers and dealers, it was ascertained by an analysis of the aforementioned trial balance that the defendant's aggregate indebtedness was $ 21,645.99; its required adjusted net capital was $ 1,082.30; resulting in a net capital deficit of $ 2,121.95; the prescribed addition to its net capital deficit in proprietary securities positions was $ 939.98; its adjusted net capital was a deficit of $ 3,061.93 and the additional capital required to be in compliance with the Rule was therefore $ 4,144.23.
5. In the course of this inspection the plaintiff's authorized representative ascertained further that on or about June 8, 1960 the defendant broker-dealer effected securities transactions with members of the public without advising such customers that the current assets of J. P. Howell & Co. were exceeded by its liabilities or failed to indicate to its customers what the financial condition of the broker-dealer was at the time of the securities transactions or at any other time.
6. That on June 27, 1960 the plaintiff's authorized representative received from the defendant a statement of its financial condition as of June 24, 1960. An analysis of this statement also indicated that additional capital in the sum of $ 282.32 would be required to be in compliance with the ratio limitation.
7. It was also established through the affidavits submitted and made part of this case that the J. P. Howell & Co., Inc., from the period of June 10, 1960 through June 24, 1960 made use of the mails or other means of instrumentalities of Interstate Commerce to effect transactions in, or to induce the purchase or sale of securities (other than an exempted security, commercial paper, bankers' acceptances or commercial bills) otherwise than on a national securities exchange.
8. At the trial of the issue one of the defendants, Michael W. LaMarca, the president of the defendant, J. P. Howell & Co., Inc., admitted that the defendant, J. P. Howell & Co., Inc. was in violation of the plaintiff's rules and regulations but alleged that such violation was inadvertent and not wilfully made. He further alleges that the company's noncompliance with the net capital rule did not in any respect cause any loss to any of its customers, nor did such noncompliance cause any undue risk of loss to its investors.
9. It is LaMarca's contention that when he took over the J. P. Howell & Co., Inc., on May 17, 1960 he gave to the corporation, through the instrumentality of his bookkeeper, some 600 shares of Sutton Leasing Corporation stock which had a market value of some $ 2,400.00. He states he instructed his bookkeeper and cashier to enter this stock on the company books. However, this entry was never made. He further alleges that on or about the time in question he possessed some 60 shares of A.T. & T. stock available to be included in the company's assets, and that the combined value of Sutton Leasing Corporation and A.T. & T. stock amounted to $ 7,700.00, which, if added to the company's assets would bring the firm in compliance with the rule.
1. Prior to the trial of this matter a preliminary injunction had been issued by Judge Smith, then of this Court, which included the following restrictions:
B. The corporate defendant, J. P. Howell & Company, Inc., has been and is now engaged as a broker-dealer in securities and as such broker-dealer during the period from approximately June 10, 1060 to the date hereof has been and is now making use of the mails and of the means and instrumentalities of Interstate Commerce and by such use has effected and is now effecting transactions in, and has been and is now inducing and attempting to induce the purchase and sale of securities (other than an exempted security or commercial paper, bankers' acceptances or commercial bills) otherwise than on a national securities exchange. By such use and during the period from approximately June 10, 1960 to June 24, 1960, ...