The opinion of the court was delivered by: WARD
On June 17, 1971, plaintiff Securities and Exchange Commission ("Commission") filed a complaint against defendants Samuel H. Sloan ("Sloan") and Samuel H. Sloan & Co. ("Sloan & Co.") seeking injunctive and other relief for alleged violations of Sections 15(b)(1), 15(c)(3) and 17(a) of the Securities Exchange Act of 1934 ("Exchange Act"), 15 U.S.C. §§ 78 o (b)(1), 78 o (c)(3) and 78q(a), Rules 17 C.F.R. 240.15b1-2, 15c3-1, 17a-3 and 17a-4 promulgated thereunder ("Broker-Dealer Registration ", "Net Capital" and "Bookkeeping Rules").
Thereafter, on June 24, 1971, this Court entered an order, on consent, which preliminarily enjoined defendants from further violations of the net capital and bookkeeping requirements of the federal securities laws.
The action was tried, non-jury, in December 1973 and the Court now makes the following findings of fact and conclusions of law:
1. The Commission is authorized to bring this action pursuant to Section 21(e) of the Exchange Act, as amended, 15 U.S.C. § 78u(e).
2. Sloan & Co. is a sole proprietorship and had its office and place of business at 120 Liberty Street, New York, New York. The office was closed on August 16, 1973. Sloan & Co. has been registered with the Commission as a broker-dealer pursuant to Section 15(b) of the Exchange Act, 15 U.S.C. § 78 o (b), since May 10, 1970. Sloan is the sole proprietor and manager of Sloan & Co.
I. Violations of Section 17(a) of the Exchange Act, 15 U.S.C. § 78q(a), and Rule 17a-3 promulgated thereunder.
3. During January and February 1971, Arthur Bruder ("Bruder"), an investigator on the staff of the Commission, visited the office of Sloan & Co. for the purpose of determining whether the books and records of Sloan & Co. were being maintained properly and on a current basis.
4. During March, April, May, June and August 1971, Sheldon Kanoff ("Kanoff"), also an investigator on the staff of the Commission, visited the office of Sloan & Co. for the same purpose.
5. During May, June and August 1973, George Appoldt ("Appoldt"), another investigator on the staff of the Commission, visited the office of Sloan & Co. for a similar purpose.
6. On August 16, 1973, Kanoff, accompanied by Jerome Selvers ("Selvers"), an attorney on the staff of the Commission, visited the office of Sloan & Co. for the same purpose.
7. As a result of his January 1971 examination of Sloan & Co.'s books and records, Bruder determined that as of January 15, 1971, Sloan & Co. failed to maintain properly and keep current the following books and records: (a) General Ledger -- not properly maintained in that capital and income and expense items were improperly recorded; (b) Trading Account -- not maintained currently; (c) Trial Balance -- not prepared; (d) Account Record of bank balances -- not maintained; (e) Fail to Receive Ledger; Fail to Deliver Ledger; Stock Record -- not maintained currently.
8. Sloan was informed by the Commission of Bruder's determination and was asked to furnish a trial balance and supporting schedules. A trial balance was submitted on January 18, 1971. However, supporting schedules showing firm inventory and fails to deliver and receive were not furnished and Bruder was unable to make a capital computation based on the submission.
9. On February 25, 1971, Bruder observed that neither the stock record nor the customer ledger of Sloan & Co. was up to date, and, since capital was not properly recorded, that the general ledger was inaccurate.
10. On March 19, 1971, Kanoff observed that the books and records of Sloan & Co. indicated a capital contribution of $58,000 by Mr. Joseph Iny. In fact, Mr. Iny never contributed capital to Sloan & Co. but was, instead, a customer of the firm. In addition, although the books and records of the firm included shares of Kaiser Steel Industries in the ...