In re COMMONWEALTH
summary
Commonwealth Equity Services, LLP failed to supervise registered representative Bradford Bleidt, who misappropriated over $12 million from 34 customers between 1991 and 2001 by falsifying investment statements and diverting funds to his unaffiliated firm and personal ventures, leading to SEC sanctions, Bleidt’s 11-year prison sentence for mail fraud and money laundering, and a $250,000 civil penalty paid to a victim settlement fund.
paragraph
The SEC found Commonwealth Equity Services, LLP liable for failing to reasonably supervise Bradford Bleidt, a registered representative who defrauded approximately 34 customers of over $12 million from 1991 to 2001 by falsely claiming their funds were invested in securities through his unaffiliated advisory firm, APAM. Bleidt concealed the fraud by sending falsified account statements and redirecting customer checks—intended for investment—to his personal accounts, where he used the money for business ventures, including a radio station, and personal expenses. As a result, Commonwealth agreed to pay a $250,000 civil penalty and $1 in disgorgement, while Bleidt was criminally convicted of mail fraud and money laundering and sentenced to over 11 years in prison.
narrative
Commonwealth Equity Services, LLP d/b/a Commonwealth Financial Network was sanctioned by the SEC for failing to reasonably supervise its registered representative, Bradford C. Bleidt, during his tenure from January 1991 to October 2001. Over that decade, Bleidt defrauded approximately 34 customers by convincing them to liquidate their brokerage accounts and send the proceeds to his unaffiliated investment advisory firm, APAM, falsely representing that the funds would be invested in securities. In reality, he misappropriated over $12 million to fund personal expenses, a Boston radio station, and other unrelated businesses, while concealing the fraud through forged performance reports. Commonwealth’s supervisory failures included allowing Bleidt to operate under a subordinate OSJ manager who effectively oversaw himself, ignoring red flags about his outside business activities, and failing to review incoming customer mail containing checks meant for investment. Bleidt was later criminally convicted of mail fraud and money laundering in July 2005 and sentenced to over 11 years in prison, while the SEC ordered Commonwealth to pay a $250,000 civil penalty and $1 in disgorgement, with funds directed to a Fair Fund for victim compensation. The SEC emphasized that Commonwealth’s lack of policies to monitor outside business activities and incoming financial transactions created an environment where the fraud could flourish undetected for a decade.
Classified investment-adviser-fraud(confidence 100%). EDGAR detection: forms ADV/ADV-E/ADV-W/Form D· recall 33% / precision 13%. detection rule →
Statutes
Parties
bradford c. bleidtcommonwealth equity services, llpfederal securities lawsSecurities and Exchange Commission
Keywords
respondentbleidtcommissioncommonwealthsecuritiesexchangesecurities exchangewhichorderpursuantproceduresexchange commissionproceedingsbusinessfederal securities
Extracted insights
Dollar amounts 2
- $12.00M $12 million $10M–$100M
- $250K $250,000 $100K–$1M
Entities 4
- person bradford c. bleidt
- company commonwealth equity services, llp
- person federal securities laws
- agency Securities and Exchange Commission
Triples 10
- Commonwealth Equity Services, LLP failed to supervise Bradford C. Bleidt during January 1991 to October 2001
- Bradford C. Bleidt defrauded approximately 34 Commonwealth customers
- Bradford C. Bleidt violated federal securities laws
- Commonwealth Equity Services, LLP registered as broker-dealer since 1979
- Commonwealth Equity Services, LLP registered as investment adviser since 1992
- Commonwealth Equity Services, LLP headquartered in Waltham, Massachusetts
- Bradford C. Bleidt associated with Commonwealth January 18, 1991 to October 9, 2001
- SEC filed civil injunctive action against Bradford C. Bleidt and Allocation Plus Asset Management Company, Inc. on November 12, 2004
- Bradford C. Bleidt misappropriated funds from investment advisory clients of millions of dollars
- SEC instituted administrative proceedings against Commonwealth Equity Services, LLP pursuant to Section 15(b) of Securities Exchange Act of 1934
PDF
Text layers
Extracted body text (15,474c)
UNITED STATES OF AMERICA
Before the
SECURITIES AND EXCHANGE COMMISSION
SECURITIES EXCHANGE ACT OF 1934
Release No. 56362 / September 6, 2007
ADMINISTRATIVE PROCEEDING
File No. 3-12749
In the Matter of
COMMONWEALTH
EQUITY SERVICES, LLP
d/b/a COMMONWEALTH
FINANCIAL NETWORK,
Respondent.
ORDER INSTITUTING ADMINISTRATIVE
PROCEEDINGS, MAKING FINDINGS, AND
IMPOSING REMEDIAL SANCTIONS
PURSUANT TO SECTION 15(b) OF THE
SECURITIES EXCHANGE ACT OF 1934
I.
The Securities and Exchange Commission (“Commission”) deems it appropriate and in the
public interest that public administrative proceedings be, and hereby are, instituted pursuant to
Section 15(b) of the Securities Exchange Act of 1934 (“Exchange Act”) against Commonwealth
Equity Services, LLP d/b/a Commonwealth Financial Network (“Commonwealth” or
“Respondent”).
II.
In anticipation of the institution of these proceedings, Respondent has submitted an Offer
of Settlement (the “Offer”) which the Commission has determined to accept. Solely for the
purpose of these proceedings and any other proceedings brought by or on behalf of the
Commission, or to which the Commission is a party, and without admitting or denying the findings
herein, except as to the Commission’s jurisdiction over Respondent and the subject matter of these
proceedings, which are admitted, Respondent consents to the entry of this Order Instituting
Administrative Proceedings, Making Findings, and Imposing Remedial Sanctions Pursuant to
Section 15(b) of the Securities Exchange Act of 1934 (“Order”), as set forth below.
2
III.
On the basis of this Order and Respondent’s Offer, the Commission finds
1
that:
Summary
1. Respondent failed reasonably to supervise Bradford C. Bleidt (“Bleidt”) with a view
to preventing and detecting his violations of the federal securities laws during the ten-year period
that Bleidt was a Commonwealth registered representative from January 1991 to October 2001.
During at least this time period, Bleidt defrauded approximately 34 of Respondent’s customers by
lying about purchases and sales of securities, misappropriating funds, and sending them falsified
statements relating to their investment advisory accounts with Bleidt’s independent advisory firm.
Respondent
2. Respondent is a Massachusetts limited liability partnership, headquartered in
Waltham, Massachusetts and registered with the Commission since 1979 as a broker-dealer
pursuant to Section 15(b) of the Exchange Act and since 1992 as an investment adviser pursuant to
Section 203(a) of the Investment Advisers Act of 1940 (“Advisers Act”).
3. Respondent is organized as a network of independent contractor registered
representatives, most of whom operate out of small independent offices. Certain of these offices act
as Offices of Supervisory Jurisdiction (“OSJ”) of Respondent.
Other Relevant Person
4. Bleidt, 53, was a registered representative associated with Commonwealth in a
Boston, Massachusetts OSJ from January 18, 1991 until October 9, 2001.
5. On November 12, 2004, the Commission filed a civil injunctive action in the United
States District Court for the District of Massachusetts against Bleidt and his investment advisory
firm, Allocation Plus Asset Management Company, Inc. (“APAM”), alleging that Bleidt defrauded
his investment advisory clients of millions of dollars by leading them to believe their money was
invested when in fact he was misappropriating it for his own personal benefit. Many of Bleidt’s
advisory clients also maintained brokerage accounts at Respondent. In that proceeding, the
Commission sought appointment of a receiver, which the court granted. Among other things, the
receiver brokered a settlement between Commonwealth and its former customers pursuant to which
Commonwealth made a payment to a settlement fund, which the receiver distributed to victims.
1
The findings herein are made pursuant to Respondent's Offer of Settlement and are not binding
on any other person or entity in this or any other proceeding.
3
6. On July 26, 2005, Bleidt pled guilty to federal charges of mail fraud and money
laundering in connection with his fraudulent conduct. On December 5, 2005, Bleidt was sentenced
to over 11 years of confinement.
Bleidt’s Misconduct
7. From 1991 to October 2001, Bleidt misappropriated over $12 million from
approximately 34 customers of Respondent. To perpetrate these misappropriations, he asked his
customers to request full or partial liquidation of their brokerage accounts with Respondent, and
then to write a check (or in some cases, send a wire) for the amount liquidated to APAM, his
investment advisory company. APAM was an independent investment adviser registered under the
Advisers Act and not affiliated with or controlled by Commonwealth. APAM did business out of
the same office as the OSJ. Bleidt falsely represented to these customers that their money would
continue to be invested in securities when, in fact, he misappropriated their funds. Bleidt then
deposited these funds into an APAM bank account, of which he had sole control. Bleidt used
funds from this APAM account for various business enterprises, including operating a Boston
radio station, as well as APAM and a related financial planning firm. He also used the customers’
misappropriated funds to pay personal expenses.
8. To further conceal his misappropriations and false representations, Bleidt created
and sent his defrauded customers falsified performance reports in the name of APAM that vastly
overstated the actual value of the accounts, reflected holdings that did not exist, and reflected
purchases and sales of securities that he claimed to have made, but never did.
9. As a result of the conduct described above, Bleidt, during the period that he was
associated with Respondent, willfully violated Section 10(b) of the Exchange Act and Rule 10b-5
thereunder, which prohibit fraudulent conduct in connection with the purchase or sale of securities.
Respondent’s Failure to Supervise
10. While Bleidt was a registered representative associated with Commonwealth, he
also owned the independent office in Boston at which Respondent established an OSJ. Bleidt, not
Respondent, hired the OSJ manager as his employee, and only Bleidt had the ability to increase or
decrease his salary. Both Bleidt and Commonwealth had the ability to terminate him as OSJ
manager. By allowing a person subordinate to Bleidt to supervise Bleidt’s activities concerning
Respondent’s business, Respondent structured its supervisory and compliance functions in a
manner that created an inherent risk that Bleidt would not be adequately supervised. The OSJ
manager’s subordinate status created a conflict of interest that may have compromised his ability to
supervise Bleidt in a reasonable manner. This structure may have been a contributing factor in the
supervisory failures described below.
4
Failure to Have Reasonable Supervisory Procedures to Respond to Red Flags Related to
Outside Business Activities
11. While associated with Respondent, Bleidt was pursuing other business interests
from the same office in which he conducted brokerage activity through Respondent. Respondent’s
supervisory and compliance personnel were aware that he conducted outside business activities,
including two investment advisory businesses and, in the latter part of his association with
Respondent, a minority ownership in a radio station. Respondent failed to establish reasonable
policies and procedures for responding to red flags related to Bleidt’s outside business activities.
Respondent’s staff received but did not review financial statements for one of Bleidt’s businesses,
and thus, ignored a red flag that this business was failing such that he was providing significant
cash infusions to keep it afloat. In addition, no one at Respondent followed up when Bleidt failed
to disclose on Respondent’s forms the source of initial and ongoing capital for his radio station
venture. In fact, these outside business activities were being funded by Bleidt with
misappropriated funds. If Respondent had had in place reasonable policies and procedures to
respond to red flags related to Bleidt’s outside business activities, it is likely that the firm could
have prevented and detected Bleidt’s violations of the federal securities laws.
Failure to Have Reasonable Supervisory Procedures for Review of Incoming Mail
12. Incoming mail at the OSJ was sorted – unopened and unreviewed – into registered
representatives’ mailboxes during the entire time that Bleidt was a registered representative of
Respondent. The lack of review of incoming mail enabled Bleidt to receive checks and related
correspondence from Respondent’s customers who had liquidated their brokerage accounts. These
checks were typically in amounts mirroring the amounts liquidated and were sent to Bleidt for the
purpose of continuing to invest in securities. Respondent failed to establish reasonable policies
and procedures for review of incoming correspondence. For example, Respondent’s written
procedures did not require central mail opening at the OSJ where Bleidt was located, even though
that would have been practicable and feasible to implement. If Respondent had had in place
reasonable policies and procedures for review of incoming correspondence, it is likely that the firm
could have prevented and detected Bleidt’s violations of the federal securities laws.
Conclusions
13. Under Section 15(b)(4)(E) of the Exchange Act, broker-dealers are responsible for
reasonably supervising, with a view to preventing violations of the federal securities laws, persons
subject to their supervision. Commonwealth was responsible for supervising Bleidt.
14. The Commission has repeatedly emphasized that the “responsibility of broker-
dealers to supervise their employees by means of effective, established procedures is a critical
component in the federal investor protection scheme regulating the securities markets.” Dean
Witter Reynolds, Inc., Exchange Act Rel. No. 46578 (October 1, 2002). Section 15(b)(4)(E)
provides that a broker-dealer may discharge this responsibility by having “established procedures,
and a system for applying such procedures, which would reasonably be expected to prevent and
detect” such violations. “Where there has been an underlying violation of the federal securities
5
laws, the failure to have or follow compliance procedures has frequently been found to evidence a
failure reasonably to supervise the primary violator.” In the Matter of William V. Giordano,
Exchange Act Rel. No. 36742 (January 19, 1996). In addition to adopting effective procedures for
supervision, broker-dealers “must provide effective staffing, sufficient resources and a system of
follow up and review to determine that any responsibility to supervise delegated to compliance
officers, branch managers and other personnel is being diligently exercised.” In the Matter of
Mabon, Nugent & Co., Exchange Act Rel. No. 19424 (January 13, 1983).
15. Because Bleidt violated Section 10(b) of the Exchange Act and Rule 10b-5
thereunder, and Commonwealth failed to establish procedures and systems that would reasonably
be expected to prevent and detect such violations, Commonwealth failed reasonably to supervise
Bleidt for purposes of Section 15(b)(4)(E) of the Exchange Act.
Commonwealth’s Remedial Efforts
16. In determining to accept the Offer, the Commission considered the remedial acts
promptly undertaken by Respondent and cooperation afforded the Commission staff.
IV.
In view of the foregoing, the Commission deems it appropriate and in the public interest to
impose the sanctions agreed to in Respondent Commonwealth’s Offer.
Accordingly, pursuant to Section 15(b) of the Exchange Act, it is hereby ORDERED that:
A. Respondent Commonwealth be, and hereby is, censured pursuant to Section 15(b)(4)
of the Exchange Act.
B. Respondent shall, within ten days of the entry of this Order, pay disgorgement of $1
and a civil money penalty in the amount of $250,000 to the Securities and Exchange Commission.
Such payment shall be: (A) made by United States postal money order, certified check, bank
cashier's check or bank money order; (B) made payable to the Securities and Exchange
Commission; (C) hand-delivered or mailed to the Office of Financial Management, Securities and
Exchange Commission, Operations Center, 6432 General Green Way, Stop 0-3, Alexandria, VA
22312; and (D) submitted under cover letter that identifies Commonwealth as a Respondent in
these proceedings, the file number of these proceedings, a copy of which cover letter and money
order or check shall be sent to David P. Bergers, Regional Director, Securities and Exchange
Commission, 33 Arch Street, 23
rd
Floor, Boston, Massachusetts 02110.
C. It is further ordered that, pursuant to Section 308(a) of the Sarbanes-Oxley Act of
2002, a Fair Fund is created for the disgorgement, interest and penalties referenced in paragraph B
above. There may be additional funds from other actions against third parties arising from Bleidt’s
underlying conduct and violations addressed herein that will be added to the Fair Fund and
distributed to injured investors. Regardless of whether any such Fair Fund distribution is made,
amounts ordered to be paid as civil money penalties pursuant to this Order shall be treated as
6
penalties paid to the government for all purposes, including all tax purposes. To preserve the
deterrent effect of the civil penalty, Respondent agrees that it shall not, after offset or reduction in
any Related Investor Action based on Respondent’s payment of disgorgement in this action, argue
that it is entitled to, nor shall it further benefit by offset or reduction of any part of Respondent’s
payment of a civil penalty in this action ("Penalty Offset"). If the court in any Related Investor
Action grants such a Penalty Offset, Respondent agrees that it shall, within 30 days after entry of a
final order granting the Penalty Offset, notify the Commission's counsel in this action and pay the
amount of the Penalty Offset to the United States Treasury or to a Fair Fund, as the Commission
directs. Such a payment shall not be deemed an additional civil penalty and shall not be deemed to
change the amount of the civil penalty imposed in this proceeding. For purposes of this paragraph,
a "Related Investor Action" means a private damages action brought against Respondent by or on
behalf of one or more investors based on substantially the same facts as alleged in the Order
instituted by the Commission in this proceeding.
By the Commission.
Nancy M. Morris
Secretary OCR text (15,354c · tika · 95% conf)
UNITED STATES OF AMERICA
Before the
SECURITIES AND EXCHANGE COMMISSION
SECURITIES EXCHANGE ACT OF 1934
Release No. 56362 / September 6, 2007
ADMINISTRATIVE PROCEEDING
File No. 3-12749
In the Matter of
COMMONWEALTH
EQUITY SERVICES, LLP
d/b/a COMMONWEALTH
FINANCIAL NETWORK,
Respondent.
ORDER INSTITUTING ADMINISTRATIVE
PROCEEDINGS, MAKING FINDINGS, AND
IMPOSING REMEDIAL SANCTIONS
PURSUANT TO SECTION 15(b) OF THE
SECURITIES EXCHANGE ACT OF 1934
I.
The Securities and Exchange Commission (“Commission”) deems it appropriate and in the
public interest that public administrative proceedings be, and hereby are, instituted pursuant to
Section 15(b) of the Securities Exchange Act of 1934 (“Exchange Act”) against Commonwealth
Equity Services, LLP d/b/a Commonwealth Financial Network (“Commonwealth” or
“Respondent”).
II.
In anticipation of the institution of these proceedings, Respondent has submitted an Offer
of Settlement (the “Offer”) which the Commission has determined to accept. Solely for the
purpose of these proceedings and any other proceedings brought by or on behalf of the
Commission, or to which the Commission is a party, and without admitting or denying the findings
herein, except as to the Commission’s jurisdiction over Respondent and the subject matter of these
proceedings, which are admitted, Respondent consents to the entry of this Order Instituting
Administrative Proceedings, Making Findings, and Imposing Remedial Sanctions Pursuant to
Section 15(b) of the Securities Exchange Act of 1934 (“Order”), as set forth below.
2
III.
On the basis of this Order and Respondent’s Offer, the Commission finds1 that:
Summary
1. Respondent failed reasonably to supervise Bradford C. Bleidt (“Bleidt”) with a view
to preventing and detecting his violations of the federal securities laws during the ten-year period
that Bleidt was a Commonwealth registered representative from January 1991 to October 2001.
During at least this time period, Bleidt defrauded approximately 34 of Respondent’s customers by
lying about purchases and sales of securities, misappropriating funds, and sending them falsified
statements relating to their investment advisory accounts with Bleidt’s independent advisory firm.
Respondent
2. Respondent is a Massachusetts limited liability partnership, headquartered in
Waltham, Massachusetts and registered with the Commission since 1979 as a broker-dealer
pursuant to Section 15(b) of the Exchange Act and since 1992 as an investment adviser pursuant to
Section 203(a) of the Investment Advisers Act of 1940 (“Advisers Act”).
3. Respondent is organized as a network of independent contractor registered
representatives, most of whom operate out of small independent offices. Certain of these offices act
as Offices of Supervisory Jurisdiction (“OSJ”) of Respondent.
Other Relevant Person
4. Bleidt, 53, was a registered representative associated with Commonwealth in a
Boston, Massachusetts OSJ from January 18, 1991 until October 9, 2001.
5. On November 12, 2004, the Commission filed a civil injunctive action in the United
States District Court for the District of Massachusetts against Bleidt and his investment advisory
firm, Allocation Plus Asset Management Company, Inc. (“APAM”), alleging that Bleidt defrauded
his investment advisory clients of millions of dollars by leading them to believe their money was
invested when in fact he was misappropriating it for his own personal benefit. Many of Bleidt’s
advisory clients also maintained brokerage accounts at Respondent. In that proceeding, the
Commission sought appointment of a receiver, which the court granted. Among other things, the
receiver brokered a settlement between Commonwealth and its former customers pursuant to which
Commonwealth made a payment to a settlement fund, which the receiver distributed to victims.
1 The findings herein are made pursuant to Respondent's Offer of Settlement and are not binding
on any other person or entity in this or any other proceeding.
3
6. On July 26, 2005, Bleidt pled guilty to federal charges of mail fraud and money
laundering in connection with his fraudulent conduct. On December 5, 2005, Bleidt was sentenced
to over 11 years of confinement.
Bleidt’s Misconduct
7. From 1991 to October 2001, Bleidt misappropriated over $12 million from
approximately 34 customers of Respondent. To perpetrate these misappropriations, he asked his
customers to request full or partial liquidation of their brokerage accounts with Respondent, and
then to write a check (or in some cases, send a wire) for the amount liquidated to APAM, his
investment advisory company. APAM was an independent investment adviser registered under the
Advisers Act and not affiliated with or controlled by Commonwealth. APAM did business out of
the same office as the OSJ. Bleidt falsely represented to these customers that their money would
continue to be invested in securities when, in fact, he misappropriated their funds. Bleidt then
deposited these funds into an APAM bank account, of which he had sole control. Bleidt used
funds from this APAM account for various business enterprises, including operating a Boston
radio station, as well as APAM and a related financial planning firm. He also used the customers’
misappropriated funds to pay personal expenses.
8. To further conceal his misappropriations and false representations, Bleidt created
and sent his defrauded customers falsified performance reports in the name of APAM that vastly
overstated the actual value of the accounts, reflected holdings that did not exist, and reflected
purchases and sales of securities that he claimed to have made, but never did.
9. As a result of the conduct described above, Bleidt, during the period that he was
associated with Respondent, willfully violated Section 10(b) of the Exchange Act and Rule 10b-5
thereunder, which prohibit fraudulent conduct in connection with the purchase or sale of securities.
Respondent’s Failure to Supervise
10. While Bleidt was a registered representative associated with Commonwealth, he
also owned the independent office in Boston at which Respondent established an OSJ. Bleidt, not
Respondent, hired the OSJ manager as his employee, and only Bleidt had the ability to increase or
decrease his salary. Both Bleidt and Commonwealth had the ability to terminate him as OSJ
manager. By allowing a person subordinate to Bleidt to supervise Bleidt’s activities concerning
Respondent’s business, Respondent structured its supervisory and compliance functions in a
manner that created an inherent risk that Bleidt would not be adequately supervised. The OSJ
manager’s subordinate status created a conflict of interest that may have compromised his ability to
supervise Bleidt in a reasonable manner. This structure may have been a contributing factor in the
supervisory failures described below.
4
Failure to Have Reasonable Supervisory Procedures to Respond to Red Flags Related to
Outside Business Activities
11. While associated with Respondent, Bleidt was pursuing other business interests
from the same office in which he conducted brokerage activity through Respondent. Respondent’s
supervisory and compliance personnel were aware that he conducted outside business activities,
including two investment advisory businesses and, in the latter part of his association with
Respondent, a minority ownership in a radio station. Respondent failed to establish reasonable
policies and procedures for responding to red flags related to Bleidt’s outside business activities.
Respondent’s staff received but did not review financial statements for one of Bleidt’s businesses,
and thus, ignored a red flag that this business was failing such that he was providing significant
cash infusions to keep it afloat. In addition, no one at Respondent followed up when Bleidt failed
to disclose on Respondent’s forms the source of initial and ongoing capital for his radio station
venture. In fact, these outside business activities were being funded by Bleidt with
misappropriated funds. If Respondent had had in place reasonable policies and procedures to
respond to red flags related to Bleidt’s outside business activities, it is likely that the firm could
have prevented and detected Bleidt’s violations of the federal securities laws.
Failure to Have Reasonable Supervisory Procedures for Review of Incoming Mail
12. Incoming mail at the OSJ was sorted – unopened and unreviewed – into registered
representatives’ mailboxes during the entire time that Bleidt was a registered representative of
Respondent. The lack of review of incoming mail enabled Bleidt to receive checks and related
correspondence from Respondent’s customers who had liquidated their brokerage accounts. These
checks were typically in amounts mirroring the amounts liquidated and were sent to Bleidt for the
purpose of continuing to invest in securities. Respondent failed to establish reasonable policies
and procedures for review of incoming correspondence. For example, Respondent’s written
procedures did not require central mail opening at the OSJ where Bleidt was located, even though
that would have been practicable and feasible to implement. If Respondent had had in place
reasonable policies and procedures for review of incoming correspondence, it is likely that the firm
could have prevented and detected Bleidt’s violations of the federal securities laws.
Conclusions
13. Under Section 15(b)(4)(E) of the Exchange Act, broker-dealers are responsible for
reasonably supervising, with a view to preventing violations of the federal securities laws, persons
subject to their supervision. Commonwealth was responsible for supervising Bleidt.
14. The Commission has repeatedly emphasized that the “responsibility of broker-
dealers to supervise their employees by means of effective, established procedures is a critical
component in the federal investor protection scheme regulating the securities markets.” Dean
Witter Reynolds, Inc., Exchange Act Rel. No. 46578 (October 1, 2002). Section 15(b)(4)(E)
provides that a broker-dealer may discharge this responsibility by having “established procedures,
and a system for applying such procedures, which would reasonably be expected to prevent and
detect” such violations. “Where there has been an underlying violation of the federal securities
5
laws, the failure to have or follow compliance procedures has frequently been found to evidence a
failure reasonably to supervise the primary violator.” In the Matter of William V. Giordano,
Exchange Act Rel. No. 36742 (January 19, 1996). In addition to adopting effective procedures for
supervision, broker-dealers “must provide effective staffing, sufficient resources and a system of
follow up and review to determine that any responsibility to supervise delegated to compliance
officers, branch managers and other personnel is being diligently exercised.” In the Matter of
Mabon, Nugent & Co., Exchange Act Rel. No. 19424 (January 13, 1983).
15. Because Bleidt violated Section 10(b) of the Exchange Act and Rule 10b-5
thereunder, and Commonwealth failed to establish procedures and systems that would reasonably
be expected to prevent and detect such violations, Commonwealth failed reasonably to supervise
Bleidt for purposes of Section 15(b)(4)(E) of the Exchange Act.
Commonwealth’s Remedial Efforts
16. In determining to accept the Offer, the Commission considered the remedial acts
promptly undertaken by Respondent and cooperation afforded the Commission staff.
IV.
In view of the foregoing, the Commission deems it appropriate and in the public interest to
impose the sanctions agreed to in Respondent Commonwealth’s Offer.
Accordingly, pursuant to Section 15(b) of the Exchange Act, it is hereby ORDERED that:
A. Respondent Commonwealth be, and hereby is, censured pursuant to Section 15(b)(4)
of the Exchange Act.
B. Respondent shall, within ten days of the entry of this Order, pay disgorgement of $1
and a civil money penalty in the amount of $250,000 to the Securities and Exchange Commission.
Such payment shall be: (A) made by United States postal money order, certified check, bank
cashier's check or bank money order; (B) made payable to the Securities and Exchange
Commission; (C) hand-delivered or mailed to the Office of Financial Management, Securities and
Exchange Commission, Operations Center, 6432 General Green Way, Stop 0-3, Alexandria, VA
22312; and (D) submitted under cover letter that identifies Commonwealth as a Respondent in
these proceedings, the file number of these proceedings, a copy of which cover letter and money
order or check shall be sent to David P. Bergers, Regional Director, Securities and Exchange
Commission, 33 Arch Street, 23rd Floor, Boston, Massachusetts 02110.
C. It is further ordered that, pursuant to Section 308(a) of the Sarbanes-Oxley Act of
2002, a Fair Fund is created for the disgorgement, interest and penalties referenced in paragraph B
above. There may be additional funds from other actions against third parties arising from Bleidt’s
underlying conduct and violations addressed herein that will be added to the Fair Fund and
distributed to injured investors. Regardless of whether any such Fair Fund distribution is made,
amounts ordered to be paid as civil money penalties pursuant to this Order shall be treated as
6
penalties paid to the government for all purposes, including all tax purposes. To preserve the
deterrent effect of the civil penalty, Respondent agrees that it shall not, after offset or reduction in
any Related Investor Action based on Respondent’s payment of disgorgement in this action, argue
that it is entitled to, nor shall it further benefit by offset or reduction of any part of Respondent’s
payment of a civil penalty in this action ("Penalty Offset"). If the court in any Related Investor
Action grants such a Penalty Offset, Respondent agrees that it shall, within 30 days after entry of a
final order granting the Penalty Offset, notify the Commission's counsel in this action and pay the
amount of the Penalty Offset to the United States Treasury or to a Fair Fund, as the Commission
directs. Such a payment shall not be deemed an additional civil penalty and shall not be deemed to
change the amount of the civil penalty imposed in this proceeding. For purposes of this paragraph,
a "Related Investor Action" means a private damages action brought against Respondent by or on
behalf of one or more investors based on substantially the same facts as alleged in the Order
instituted by the Commission in this proceeding.
By the Commission.
Nancy M. Morris
Secretary
UNITED STATES OF AMERICA
In the Matter of
COMMONWEALTH EQUITY SERVICES, LLP d/b/a COMMONWEALTH FINANCIAL NETWORK,
Respondent.
Respondent
Other Relevant Person
Bleidt’s Misconduct
Respondent’s Failure to Supervise
IV.