NASD Records Reveal Herzog Fined $821,250 On 46 Counts Of MMM
By Jack Burney
Published by OTCNN.com
07/20/2000 08:03 AM CST
115 pages of documentation prove it. Market Maker Herzog, Heine, Geduld, Inc. (HRZG) violates SEC and NASD regulations regularly, takes a slap on the wrist from the NASD, and does it again, over and over.
NASD provided the details of HERZ’ remarkable “rap sheet” of violations, under its Public Disclosure Policy.
The records show HERZ has been charged by NASD with 46 counts of repeated stock manipulation over the past 15 years, one as recently as last March. The MM signed consent forms on all 46 counts and paid a total of $827,250 in fines. HERZ has been frequently censured.
The most frequent count of MMM against HERZ was for entering stock quotations containing excess spreads. Other charges ranged the gamut from updating quotes illegally, to unilaterally canceling customer orders.
Most fines were minimal, ranging from $250 to $1,000, though in some instances they rose as high as $10,000 and one was $25,000. The record shows that the fines did not deter HERZ from continue with the same violations repeatedly.
But in one case in January of 1999, filed against 22 MMs, HERZ was fined “$610,000 in civil monetary penalties, and $7,251 in disgorgement of wrongful gains,” for violations arising from its market making activities.
The list included (1) coordination of quotations and transactions by traders in violation of antifraud and fictitious quotation rules, (2) the intentional delay of trade reports, (3) other manipulative activity, (4) failure to honor quoted prices, (5) failure to provide customer orders with best execution.
HERZ was also ordered to cease and desist these MMM activities.
In 1997, the record shows, HERZ was charged by the Department of Justice with antitrust violation of the Sherman Act, 15 U.S.C. Sec. 1, “arising out of price fixing of spreads,” and signed a 5-year stipulation and consent order that is still in effect. HERZ agreed to comply with antitrust laws and to institute a system to monitor and tape record sample calls to ensure compliance with the terms of the consent order.
A partial list of the 46 violations, in the order NASD listed them:
1. 07-08-88 – Violation of Part VI, Sec. 2(D) of Schedule D, for entering NASDAQ quotations containing excess spreads. Fine $1,000.
2. 03-31-00 - Published quotations for securities that had been suspended from trading by the SEC. Fine: $5,000 + revision of procedures.
3. 02-04-86 - Violations of trade reporting. Fine $6,000 and censure.
4. 07-11-97 – Violation of Rule 2110. Canceled six customer transactions, which had been executed through its automated execution service. Fine: $2,500.
5. 11-24-99 - Violations: Engaged in a pattern of late transaction reporting; failed to report the correct time of execution; failed to report whether transactions were buy, sell, or cross. Fine: $5,000.
6. 08-07-96 - Misuse of late modifier in NASDAQ security (AUGI). Fine: $20,000.
7. 12-16-99 - Failed to report municipal securities trades on a timely and accurate basis during the period January through June 1999. Fine: $2,000.
8. 01-11-99 – Violations arising from market making activities: the coordination of quotations and transactions by traders in violation of antifraud and fictitious quotation rules, the intentional delay of trade reports, other manipulative activity, failure to honor quoted prices, failure to provide customer orders with best execution. Fine: $610,000 in civil monetary penalties, $7,251 in disgorgement of wrongful gains, suspensions or bars, cease and desist orders and other sanctions.
9. 07-20-98 - Failed to execute 85 preferenced Selectnet orders at HRZG's published bid or offer in an amount equal to or less than its published quotation, conduct which constitutes separate and distinct violations of SEC Rule 11ac1-1, NASD Conduct Rule 3320 and NASD Marketplace Rule 4613(b). Fine: $10,000 + censure.
10. 08-11-97 - Failed to contemporaneously execute three customer limit orders; improperly reported 48 transactions through the automated confirmation transaction service and failed to establish, maintain and enforce written supervisory procedures with respect to its limit order. Fine: $11,000 + censure.
11. 01-30-98 – Violated NASD Marketplace Rule 6130 for executing 11 short sale transactions without identifying the transactions as short sale in its reporting to the automated confirmation transaction service. Fine: $2,200.
12. 04-23-97 - Violated Marketplace Rule 4613(e) for entering or maintaining quotations in the NASDAQ stock market, during normal business hours, which caused a locked and/or crossed market condition to occur in five securities. Fine: $8,000.
13. 01-27-97 - Violated Conduct Rule 2110 and IM-2110-2 for failing to protect a 300 share limit order at the time it was obligated to do so. Fine: $1,000.
14. 06-10-97 - Violated Marketplace Rule 4613(d) for entering quotations into the NASDAQ system that exceeded the parameters for maximum allowable spreads in five securities on five days. Fine: $5,000.
15. – 04-23-97 – Entered quotations in NASDAQ National Market System securities that exceeded the parameters for maximum allowable spreads. Fine: $15,000.
16. - 07-15-96 - Violation of Part V, Section 2(d) of Schedule D in that on numerous occasions, HRZG entered quotations into the NASDAQ system that exceeded the parameters for the maximum allowable spreads. Fine: $6,000.
17. 02-07-86 - Entered 33 fictitious trade reports into the NASDAQ system in violation of Article III, Sections 1, 5, 18 and 27 of NASD’s Rules of Fair Practice. Fine: $50,000 + censure.
18. – 10-11-95 – Entered quotations into the NASDAQ system that exceeded the parameters for maximum allowable spreads. Fine: $6,500.
19. - 03-26-86 – Entered quotations into the NASDAQ system that were not reasonably related to the prevailing market. Fine: $2,500.
20. – 10-24-94 - Violated Rules of Fair practice by failing to honor the quotations it caused to be disseminated through the NASDAQ system. Fine: $1,000.
21. – 11-23-93 - Entering NASDAQ quotations containing excess spreads. Fine: $4,000.
22. – 03-31-93 – Entering NASDAQ quotations containing excess spreads. Fine: $2,000.
23. – 12-22-99 - Updated quotations in the Bulletin Board system outside the allowable time for updating foreign or ADR securities on the Board. Fine: $2,000.
24. – 12-08-92 - Updated quotations in the Bulletin Board system outside the allowable time for updating foreign or ADR securities on the Board. Fine: $250.
There are 22 more HRZG violations and fines listed by NASD, for excess spreads and false quotes, with fines ranging from $250 to $25,000, on file at OTC News Network.
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