IN THE MATTER OF GILL, POPE CO. Promulgated July 19, 1956 (Securities Exchange Act of 1934-Sections 15 (b) and 15A) BROKER-DEALER REGISTRATION Grounds for Revocation of Registration Grounds for Suspension or Expulsion From NASD Violations of Securities Exchange Act Failure to Keep Books and Records Failure to File Correct Financial Statement Violation of Net Capital Rule False Representation of Ability to Meet Liabilities Where registered broker-dealer's books and records and its financial statement filed with Commission failed to include liability for unexpended balance of advances to it for expenses in connection with underwriting, and where registrant effected transactions when it had no net capital, and obtained money and securities from customers on the representation that it was able to meet all liabilities in connection with customer's transactions when in fact registrant was insolvent, held willful violations of applicable provisions of Securities Exchange Act and Rules thereunder, requiring revocation of registration and expulsion from membership in national securities association. APPEARANCES: Jesse S. Gill and Frank I. Pope, for registrant and pro se. FINDINGS AND OPINION OF THE COMMISSION These are proceedings under Section 15 (b) and Section 15A of the Securities Exchange Act of 1934 (the "Act") to determine whether to revoke the registration of Gill, Pope Co. ("registrant"), a partnership composed of Jesse S. Gill and Frank I. Pipe, or to suspend or expel it from membership in the National Association of Securities Dealers, Inc. ("NASD"), and to determine whether Gill and Pope, or either of them, are the cause of any order of revocation, suspension or expulsion we may enter. The order for proceedings alleges that registrant, aided and abetted by Gill and Pope, violated Section 17 (a) of the Act and Rule X-17A-31 thereunder in failing to reflect a certain liability on its books and records, and violated that Section and Rule X-17A-52 thereunder in filing a report of financial condition that was false and misleading in that it understated registrant's liabilities; effected transactions otherwise than on a national securities exchange when its aggregate indebtedness exceeded 2000 percent of its net capital, in violation of Section 15 (c) (3) of the Act and Rule X-15C3–1 3 thereunder; and in violation of Section 15 (c) (1) of the Act and Rule X-15C2 thereunder, solicited securities transactions upon the representation that registrant was able to meet all liabilities arising in connection therewith, when in fact its liabilities exceeded its assets and it was unable to meet current liabilities. 3 After appropriate notice, a hearing was held before a hearing examiner, at which a stipulation of facts signed by registrant, by Gill and Pope individually, and by counsel for our Division of Trading and Exchanges (the "Division") was received in evidence. Thereafter proposed findings were filed by the Division. The hearing examiner filed a recommended decision in which he found that registrant and Gill and Pope committed the violations charged in the order for proceedings and he recommended revocation of registrant's registration and its expulsion from the NASD, and further found that Gill and Pope should be deemed the cause of any order of revocation and expulsion which may be issued. Our findings are based upon an independent review of the record. 1 Rule X-17A-3 provides in part that every registered broker and dealer shall make and keep current records of original entry of all purchases and sales, all receipts and disbursements, and all debits and credits, and ledgers reflecting all assets and liabilities, income and expense and capital accounts. 'Bule X-17A-5 provides in substance that every registered broker and dealer shall file, during each calendar year, a report of financial condition as of a date not more than 45 day prior to the filing. 'Section 15 (c) (3) provides in substance that no broker or dealer shall use the mails or facilities of interstate commerce to effect over-the-counter transactions in contravention of rules we have prescribed for the protection of investors to provide safeguards with respect to the financial responsibility of brokers and dealers. Rule X-15C3-1 provides that no broker or dealer shall permit his aggregate indebtedness to all other persons to exceed 2000 percent of his net capital, and prescribes the method of computing the amount of aggregate indebtedness and of net capital. 'Section 15 (c) (1) provides in substance that no broker or dealer shall use the mails or instrumentalities of interstate commerce to effect any over-the-counter security transactions by means of any device or contrivance which we define to be deceptive or fraudulent. Rule X-15C1-2 defines a deceptive or fraudulent device or contrivance to include (1) any act, practice or course of business which operates as a fraud or deceit upon any person, and (2) any untrue statement of a material fact, and any omission to state, a material fact necessary to make other statements that were made, not misleading, when the untrue statement or omission occurs with knowledge or reasonable grounds to believe it is untrue or misleading. The issues center principally around an advance of $6,250 made to registrant toward its expenses in acting as underwriter of a public offering of stock of Paleo Oil and Gas Corporation ("Paleo") in 1954. The underwriting agreement provided that registrant was to act on a "best efforts" basis and that Paleo would pay registrant's printing, advertising, mailing and other incidental expenses up to $12,500. In April 1954 registrant was advanced $6,250 toward its expenses. Registrant's activities as underwriter of the Paleo stock resulted in sales of only 200 shares in May 1954, and in December 1954 Paleo advised registrant that it was no longer to act as underwriter. During the period of the underwriting registrant expended approximately $1,000 in connection therewith, leaving a balance due Paleo of approximately $5,000.5 However, the books and records of registrant did not reflect any liability with respect to the unexpended portion of the amount advanced to registrant for expenses. As a result registrant's books and records were incorrect. Accordingly, we find that registrant, aided and abetted by Gill and Pope, violated Section 17 (a) of the Act and Rule X-17A-3 thereunder, and we further find that such violation was willful. In addition, the financial statement of registrant filed on February 17, 1955, as of January 31, 1955, failed to disclose any liability with respect to the balance of the advances and it was therefore not correct and was in violation of Section 17 (a) and Rule X-17A-5. We also find this violation by registrant, aided and abetted by Gill and Pope, to have been willful. With the inclusion among registrant's liabilities of the above described balance of approximately $5,000 its total liabilities exceeded its assets by $2,859.89, so that it would have had no net capital. It is stipulated that the mails and facilities of interstate commerce were used in effecting over-the-counter transactions in securities during the period which is the subject of these proceedings. We accordingly find that registrant, aided and abetted by Gill and Pope, effected transactions when it did not meet the net capital requirements under Section 15 (c) (3) of the Act and Rule X-15C3-1 thereunder and thereby violated those provisions, and we find that this violation was willful. On December 28, 1954, after a series of requests by Paleo beginning in July 1954 for an accounting, registrant sent Paleo a purported itemization of expenses totalling $7,762.34 and requested remittance of the indicated balance due registrant of $1,512.34. However, in the stipulation of agreed facts registrant and Gill and Pope admitted that the total amount and each of the individual items except one were overstated and that the amount actually spent was approximately $1,000. 235 The stipulation also states and we find that Gill and Pope caused registrant to solicit transactions with customers and obtained money and securities from customers on the representation that registrant was able to meet all liabilities in connection with such transactions when in fact registrant was insolvent and its liabilities exceeded its current assets. This conduct, which involved the use of the mails and interstate commerce, constituted a violation of Section 15 (c) (1) of the Act and Rule X-15C1-2 thereunder, and we find that such violation was willful. In view of the above willful violations of the Act and the regulations thereunder, we find that it is in the public interest to revoke registration and to expel registrant from the NASD. We further find that registrant's partners, Gill and Pope, are each the cause of this revocation and expulsion. An appropriate order will issue. By the Commission (Chairman Armstrong, Commissioners Hastings, Patterson and Sargent), Commissioner Orrick absent and not participating. 'Subsequent to the close of the hearing, registrant and Gill and Pope consented to the issuance of an injunction by the Supreme Court of New York prohibiting them from engaging in the securities business in the State of New York. This injunction was not charged as a ground for revocation. 37 S. E. C. IN THE MATTER OF THIRD AVENUE TRANSIT CORPORATION SURFACE TRANSPORTATION CORPORATION OF WESTCHESTER STREET TRANSPORTATION COMPANY, INC. THE WESTCHESTER ELECTRIC RAILROAD COMPANY WARONTAS PRESS, INC. Promulgated July 20, 1956 SECOND SUPPLEMENTAL REPORT ON PROPOSED PLAN OF REORGANIZATION This is a supplemental advisory report of the Commission on a plan of reorganization for Third Avenue Transit Corporation ("Third Avenue"). Our earlier reports dealt with a plan and modifications proposed by the Trustee. The present report treats with a plan proposed by an Adjustment Bondholders Committee, and which is supported by the Trustee. It is the conclusion of the Commission that this plan is fair and equitable and feasible. INTRODUCTION Following the filing of our advisory report of May 8, 1956 and our supplemental report of May 22, 1956, in which we found the Trustee's plan unfair and unfeasible, a proposal was presented by New York City Omnibus Corporation, now called Fifth Avenue Coach Lines, Inc. ("Fifth Avenue"), with the sponsorship of an Adjustment Bondholders Committee, under which Fifth Avenue proposed to acquire certain of the securities of the reorganized company. Further modifications were made to the Trustee's plan designed to meet certain of our views as to fairness and feasibility, and in addition the Fifth Avenue proposal was modified to provide for the acquisition by it of all the stock of the reorganized company in exchange for cash and shares of its own stock. Both plans were referred to the New York |