Amex Agrees to Settlement with SEC, Including Cease-and-Desist Order and Censure
Washington, D.C., March 22, 2007 – LawFuel – US Securities Law – The Securities and Exchange Commission today issued a settled cease-and-desist order against American Stock Exchange LLC for failing to enforce compliance with securities laws and rules and failing to comply with its record-keeping obligations. In the order, the Commission found that from at least 1999 through June 2004, the Amex failed adequately to surveil for violations of order handling rules by Amex members and failed to keep and furnish surveillance and other records.
In addition, the Commission instituted contested administrative proceedings against Salvatore F. Sodano, the Amex’s former chairman and chief executive officer, alleging that he failed to enforce compliance with federal securities laws and exchange rules by Amex members and persons associated with those members.
Linda Chatman Thomsen, Director of the Commission’s Division of Enforcement, said, “Enforcing compliance with federal securities laws, and a self-regulatory organization’s own rules, is a central function of a self-regulatory organization. Today’s action against the Amex demonstrates that the Commission will be vigilant in making certain that SROs fulfill their regulatory responsibilities.”
SEC Associate Director Scott W. Friestad said, “Senior management of a self-regulatory organization play a critical role in establishing a culture of compliance and are ultimately responsible for ensuring that the organization is meeting its regulatory objectives. Our action against Mr. Sodano alleges that he improperly abdicated his oversight responsibilities and ignored repeated red flags regarding the Amex’s regulatory deficiencies.”
In its order against the Amex, the Commission found that, from at least 1999, the Amex was on notice that its surveillance, investigatory, and enforcement programs were inadequate. The Amex previously had consented to the issuance of a Sept. 11, 2000, order that, in part, directed the Amex to enhance and improve its regulatory programs for surveillance, investigation, and enforcement of the options order handling rules. The Commission found that, notwithstanding the September 2000 order, the Amex’s surveillance programs for options order handling remained inadequate to detect violations of firm quote, customer priority, limit order display, and trade reporting, and other rules. When the Amex’s surveillance programs detected rule violations, the Amex failed to investigate violations properly, improperly excused violations, and failed to pursue adequately disciplinary actions for rule violations. The Commission also found that as late as June 2004, the Amex had similar deficiencies in its surveillance for equity order handling and floor broker violations. In addition to the deficiencies in the Amex’s surveillance, investigatory, and enforcement programs, the Commission found that the Amex failed to keep and furnish certain records relating to its surveillance, investigatory, and enforcement activities and further furnished the Commission with inaccurate documents.
Pursuant to the order, the Commission censured the Amex and ordered it to cease and desist from violating Sections 17(a)(1) and 19(g)(1) of the Exchange Act and Exchange Act Rule 17a-1. The Commission further ordered the Amex to comply with undertakings (1) to file a rule proposal with the Commission to enhance its trading systems so that specialists systemically will be prevented from violating the Amex’s customer priority rules; (2) to enhance the Amex’s training programs so that floor members and members of the Amex’s regulatory staff responsible for surveillance, investigation, and regulation will be required to receive annual training related to compliance with federal securities laws and Amex rules; and (3) to retain an auditor to conduct three biennial audits of the Amex’s surveillance, examination, and disciplinary programs related to trading. Without admitting or denying the Commission’s findings, the Amex consented to the issuance of the Commission’s order.
In the separate, related proceeding against Sodano, the former chairman and CEO of the Amex, the Division of Enforcement alleged that the Amex’s regulatory failures resulted in large part from Sodano’s failures to make regulation an Amex priority, to pay adequate attention to regulation, to put in place an oversight structure to monitor compliance, to ensure that regulatory staff was properly trained, and to dedicate sufficient resources to regulation. These failures were particularly significant with respect to the Amex’s options market because Sodano knew the Amex had been previously sanctioned by the Commission for its inadequate options regulation in the September 2000 order and that the Commission had ordered the Amex to enhance and improve its regulatory programs for surveillance, investigation, and enforcement of the options order handling rules. The proceedings instituted today against Sodano, pursuant to Section 19(h) of the Exchange Act, will determine whether Sodano failed, without reasonable justification or excuse, to enforce compliance with the federal securities laws, rules, and regulations, and Amex rules, by members of the Amex and persons associated with those members.
In a third, related proceeding, the Commission issued an order against Richard Robinson, a former Amex vice president responsible for overseeing the Amex’s regulatory surveillance programs for the derivatives and options markets. The Commission found that Robinson was a cause of the Amex’s violations by failing to oversee properly the Amex’s surveillance program for derivatives and options, by failing to maintain properly Amex investigative files, and by signing and submitting an affirmation to the Commission on behalf of the Amex that contained inaccurate representations relating to the Amex’s regulatory program. Without admitting or denying the Commission’s findings, Robinson consented to the issuance of an order directing him to cease-and-desist from causing violation of Sections 17(a)(1) and 19(g)(1) of the Exchange Act and Exchange Act Rule 17a-1.