Notice of Disciplinary Action against Quad Capital, LLC, a former
Member Organization, and Keith Robert Bolognese, Guerino
Ciampi and John Vincent Guarino, former co-founding owners,
control persons and associated persons of Quad Capital, LLC
To:

Members, Member Organizations, Participants and Participant Organizations

From:

John C. Pickford, Enforcement Counsel, NASDAQ OMX PHLXSM

DATE:

November 23, 2015

Enforcement No. 2015-11; FINRA Matter No. 20100221850-03 (incl. 20110284443) 1
On November 20, 2015, the Business Conduct Committee (the “Committee”) issued adisciplinary decision against Quad Capital, LLC (“Quad Capital” or the “Firm”), a former member
organization of the NASDAQ OMX PHLX LLC (“PHLX” or the “Exchange”), andKeith Robert Bolognese, Guerino Ciampi and John Vincent Guarino, former co-founding owners,
control persons and associated persons of Quad Capital (the “Individual Respondents”)(collectively, “Respondents”). In connection with a Statement of Charges issued in this action,
Respondents submitted an Offer of Settlement, Stipulation of Facts and Consent to Sanctions(“Offer”). Solely to settle these proceedings, and without admitting or denying the charges,Respondents consented to findings that:(1) during the period from December 1, 2009 through August 31, 2011 (the “Rule 105 ReviewPeriod”), Quad Capital violated Rule 105 of Regulation M of the Securities Exchange Act of 1934(“Rule 105”) in connection with 44 offerings, and Quad Capital, and Messrs. Bolognese, Ciampi
and Guarino violated Exchange Rules 748 and 707 by failing to ensure the Firm had an adequate
supervisory system with respect to Rule 105;(2) the Firm violated Rule 200(f) of Regulation SHO by failing to institute a written plan oforganization upon seeking to apply an aggregation unit structure under the Rule beginning on or
about May 20, 2010 (which continued through 2013);(3) the Firm violated Rule 203(b)(1) of Regulation SHO and Exchange Rule 760 from July 12,2010 to July 16, 2010, by effecting eight short sales without first borrowing or arranging toborrow the shares, or having reasonable grounds to believe that it could have borrowed theshares, and by failing in 937 instances to document the quantities of shares it had allegedly
borrowed or arranged to borrow to effect the short sales and failing to document the identitiesof the lenders that had allegedly lent the stock to the Firm, and(4) the Firm violated Exchange Rules 748 and 707 by having inadequate written supervisory
procedures between at least May 2010 and May 2012 with respect to: (i) order marking;(ii) borrowing and delivery requirements when effecting short sales; (iii) obligations of Members
and Member Organizations; (iv) position limits; (v) exercise limits; (vi) liquidating positions;1

Concurrent Notices of Disciplinary Action in this Matter also separately have been posted concerning: (i) the Firm’sformer Chief Compliance Officer, and (ii) the Firm’s former Chief Executive Officer ( who also was a co-founding ownerand control person of the Firm).

(vii) limits on uncovered short positions; (viii) various restrictions on exchange optionstransactions and exercises; and (ix) Exchange Rule 1042(f) and (g), and Commentaries .05,.06, and .08.
The Decision found, among other things, that the Firm did not comply with various criteria toqualify for Rule 105’s bona fide purchase exception during the Rule 105 Review Period, and also
treated its individual proprietary traders’ accounts as separate accounts for Rule 105 purposes
beginning on or about May 20, 2010, without qualifying for the separate account exception. For
example, Quad Capital’s proprietary traders (including the Individual Respondents) routinely
shared information about each other’s trading strategies and positions, while purporting torespectively maintain separate accounts. It was not uncommon for one proprietary trader tomonitor another trader’s account, or to take trading actions on another trader’s behalf, while thelatter was away from the office or away from his trading desk. Additionally, the IndividualRespondents, as owners, had master access to view, and did view other traders’ accounts,
including securities positions in real-time for risk-management purposes, even though they eachmaintained personal proprietary trading accounts under the Firm’s purported “separate account”
structure. They also had systems permission access to take actions in others’ trading accounts
at that time. As a consequence, the Firm was not eligible for the separate account exception.
During the Rule 105 Review Period, however, some of the Rule 105 violations were not as aconsequence of the Firm’s misapplication of the bona fide purchase or separate accountexceptions.
Bolognese, Ciampi and Guarino failed to provide for appropriate supervisory control at Quad
Capital and to reasonably discharge those duties to prevent and detect, insofar as practicable,
violations of Rule 105. Specifically, they failed to ensure the Firm’s Chief Executive Officer (who
had overall authority and responsibility for supervision at Quad Capital until his voluntary
departure from the Firm in March 2011,) and the Firm’s Chief Compliance Officer (who wasdelegated front-line supervisory responsibilities at the Firm throughout the Rule 105 ReviewPeriod) provided for appropriate supervisory controls in the performance of theirdesignated/delegated supervisory functions. Further, the Individual Respondents failed toensure the written supervisory procedures were reasonably designed to comply with Rule 105.
None of the Firm’s applicable versions of its written supervisory procedures contained any
express supervisory reviews for Rule 105. Further, the Firm could not provide any documentary
evidence during the Rule 105 Review Period to corroborate that Firm personnel performed any
ongoing reviews for Rule 105 compliance, beyond the provision of sporadically maintained
offering sheets that generally only evidenced certain traders’ specified participation interest
levels in particular offerings.
The Offer submitted by Respondents was accepted by the Committee and was the basis of its
Decision. The Committee concurred in the sanctions consented to by them, and ordered theimposition of the following sanctions: (i) Respondents each are censured; (ii) Quad Capital shallbe liable to pay a fine of $2.5 million (consisting of $2,350,000 for the Rule 105 and associatedsupervisory violations and $150,000 for the Regulation SHO and remaining supervisory andrecordkeeping violations); and (iii) Bolognese, Ciampi and Guarino each shall be suspended
from serving in a supervisory capacity with any member organization for a period of one month(and upon completing such supervisory suspension, shall be required to pass or re-take (asapplicable) a Series 24 supervisory exam in order to serve in a supervisory capacity with amember organization in the future); and, in the event that Quad Capital fails to pay the above
full amount of $2.5 million, Bolognese, Ciampi and Guarino shall each be liable to the Exchange
for one third of any such unpaid amount.
For more information, contact:•John C. Pickford, Assistant General Counsel, NASDAQ OMX PHLX, at +1 215 496 5273

 Copyright 2009 The NASDAQ OMX Group, Inc. All Rights Reserved.

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