The Securities and Exchange Commission
has ordered the now-defunct broker-dealer Dolphin & Bradbury Inc.
, and its former top executive, Robert J. Bradbury
, to pay more than $1 million for violating the securities fraud laws by selling investors bonds based on offering documents that "recklessly" omitted critical information.
found that the firm and Bradbury
misled investors in connection with $75.4 million of bonds sold by Pennsylvania's Dauphin County General Authority in July 1998 to finance the purchase of the Forum Place office building in Harrisburg because the offering documents did not disclose that the building's largest tenant was leaving.
Dolphin & Bradbury underwrote the bonds.
The ruling comes as the Philadelphia-based broker-dealer, which was built up by Bradbury's father and which employed both Robert Bradbury
daughter, Wendy, has been shut down, Robert Bradbury said Friday.The firm, however, still exists as a corporation and its application to withdraw its broker-dealer registration has been pending at the SEC
since March. Reached at his home Friday, Bradbury who owns 38% of the firm and had served as its chairman and chief executive officer, said he could not comment on the ruling or whether he might appeal it because he had not seen it yet.
's lawyer, Philip Kircher of Cozen O'Connor, said he
would advise Bradbury
to appeal because the finding of recklessness is not supported by the facts.Kircher said Bradbury told one investor about the PennDOT move and that there is reason to believe that the other investors knew about it.
...The SEC said that conduct by the firm and Bradbury with respect to the omission "constituted an extreme departure of the standards of ordinary care" and that this behavior violated federal securities law.
The commission said also that Dolphin & Bradbury
violated the Municipal Securities Rulemaking Board's Rule G-17 on fair dealing, and that Bradbury
aided and abetted the firm in that violation.The SEC
ordered the firm to pay a civil penalty of $400,000 and to disgorge $313,995.31 in ill-gotten gains.Sources said the firm also would have to pay prejudgment interest on the disgorgement amount totaling about $210,000.The SEC
to pay a civil penalty of $82,000.
Those penalties, which total over $1 million, were slightly less than what the enforcement staff had sought.The staff asked for a $550,000 civil penalty against the firm and aan $110,000 penalty against Bradbury
.It had also asked that the firm and Bradbury
both be required to disgorge ill-gotten gains and the administrative law judge set this amount at $482,560.50.
The SEC commissioners lowered the disgorgement amount to $313,995 to avoid imposing liability against the firm for bonds sold to Putnam Investments, which had been told by Bradbury
about the PennDOT move.They lowered the civil penalties after determining the firm and Bradbury
had no prior disciplinary history and that these amounts would be sufficient to deter misconduct by others.
The commission plans to put all of the money it receives from the case into a newly created "Fair Fund" so that it can be distributed to investors harmed by the violations.
In their ruling, the SEC commissioners noted that Bradbury
lawyers had argued at a hearing last November that the offering documents were sufficient because they disclosed that the bonds, many of which were long-term, were backed by the revenues from short-term leases and there was no guarantee that the tenants would renew their leases.
But the SEC
found that these disclosures were "not sufficient to render the omission of PennDOT's
intended move immaterial."Bradbury
had also argued that it was not necessary to disclose PennDOT's
planned move because local newspapers had publicly reported this information.The commissioners said, "publication of a few articles in local newspapers with limited circulation and discussion at DCGA meetings that were open to the public" do not make the information widely available publicly.
Lawyers for Bradbury
arguing the case before the SEC
had told the commission that while Bradbury
might have been negligent, he
was not reckless and did not engage in intentional wrongdoing.They said he
told Putnam about the PennDOT move, arranged tours of the Forum Place
building for investors and never attempted to restrict the flow of any information about the building.The lawyers also claimed it would be unfair to find Bradbury was reckless when others involved in the transaction were not charged with any violations, except the DCGA, which settled charges of negligence with the SEC in April 2004.
The SEC commissioners noted that Bradbury
could not recall reviewing the official statement and never told his
own counsel - the underwriters' counsel - about PennDOT's
planned departure.They cited guidance issued by the SEC
in 1988 and 1994 that states underwriters have "a duty to the investing public to have a reasonable basis for recommending any municipal securities, and [a] responsibility, in fulfilling that obligation to review in a professional manner the accuracy of statements made in connection with the offering.
"Moreover, we have observed that, when municipal securities professionals underwrite a bond offering, they impliedly represent to the investing public that they have a 'reasonable basis for belief in the truthfulness and completeness of the key representations made in any disclosure documents used in the offerings,' " the commissioners said.
"We cannot accept that someone with Bradbury
's experience in municipal financing and with Bradbury's
knowledge of PennDOT's
intended move would fail to recognize that the intended move would be significant to investors and that the failure to disclose that move would render the information provided misleading," they said.