On Appeal from an Order of the Securities and Exchange Commission (No. 0090-1)
The opinion of the court was delivered by: Ambro, Circuit Judge
Submitted Under Third Circuit LAR 34.1(a) April 4, 2005
Before: BARRY, AMBRO and COWEN, Circuit Judges
David Levine and Triple J Partners (collectively "Levine") petition for review of the decision of the Securities and Exchange Commission ("SEC") sustaining (1) the determination of the New York Stock Exchange ("NYSE") that they had violated § 11(a) of the Securities Exchange Act of 1934 (hereinafter "Exchange Act") and SEC Rule 11a-1(a) (as well as various other SEC and NYSE rules), and (2) the NYSE's imposition of sanctions for those violations. *fn1 We deny the petition.
I. Factual Background and Procedural History
Although many issues have been raised in this appeal,*fn2 we discuss only the issue of (and therefore only the facts relating to) Levine's alleged violation of § 11(a) of the Exchange Act, 15 U.S.C. § 78k(a)(1), and its implementing regulation, SEC Rule 11a-1(a), 17 C.F.R. § 240.11a-1(a), as we discern nothing to add to the SEC's treatment of the other issues and certainly nothing that would cause us to question the SEC's rulings.
At the time of the events at issue in this case (1996 to 1998), David Levine was a lessee member of the NYSE, a selfregulatory organization registered under the Exchange Act. Levine was also the principal of Triple J Partners ("Triple J"), a partnership also a member of the NYSE. Levine was at this time an independent floor broker, commonly referred to as a "two-dollar broker," i.e., for every 100 shares traded through him a commission of $2.00 was charged.
One of Levine's customers while he was a two-dollar broker was Tribeca Capital Corporation ("Tribeca"). Tribeca's principal, Timothy J. Barry, had been a friend of Levine's since the late 1980s. Tribeca also was a public customer of the Oscar Gruss & Sons ("Oscar Gruss") clearing firm.
Instead of placing orders for securities with Levine by first going through Oscar Gruss, as public customers like Tribeca must, Barry (for Tribeca) placed orders directly with Levine for shares of Putnam Intermediate Government Trust ("PGT"). The NYSE floor specialist who handled PGT was William Shanahan, who Levine testified was "one of [his] best friends." Shanahan allowed Levine to circumvent NYSE procedures for placing orders in PGT. Among other things, Shanahan at times allocated more stock to Tribeca than the volume that was indicated on the order list Levine gave Shanahan for PGT for a particular trading day. The NYSE investigator who conducted the investigation into Levine's conduct testified before the NYSE that Oscar Gruss (and thus Tribeca) had the bulk of the transactions in PGT for the sample period that he reviewed. The investigator also testified that he did not think it was necessary to conduct a profit/loss analysis of Tribeca's trades in PGT because, due to the way the trades were made (which he described as "buying at a low price and selling at the next available high price"), there was no way that there could have been a loss.
Levine claimed that he had a negotiated rate arrangement with Tribeca. According to him, such an arrangement meant that a customer could pay its broker whatever the customer wanted. Levine, however, also testified that he initially charged Tribeca a commission of $2.00 per 100 shares traded for it and that the rate later increased to $3.00 per 100 shares when Tribeca switched from Oscar Gruss to a different clearing firm.
From February 1996 to August 1996, Levine received several overpayments from Tribeca. For example, in February 1996, he received from it $120,000 in payment even though, if Levine had been paid at his $2.00 per 100 shares rate, he would have been entitled to only about $32,000 in commissions. On the other hand, after Shanahan was removed from his position as a NYSE floor specialist, there was a five-month period (September 1996 to January 1997) during which Levine was paid nothing by Tribeca even though he was entitled to about $99,000 in commissions. The net, however, was that, from January 1996 to February 1998, Tribeca paid Levine about $330,000 more than he was entitled if paid at his claimed billing rates.
Levine testified that Tribeca was not the only customer that paid him whatever it wanted or that missed payments. He explained that when customers missed payments, it was usually because their money was tied up. He also speculated that when Barry (on behalf of Tribeca) sent him large overpayments, ...