Opinion ID: 675852
Heading Depth: 2
Heading Rank: 2

Heading: orkin's liability for markup violations

Text: 41 Orkin has maintained throughout these proceedings that he had no responsibility or authority to set the retail price for Ortech stock because his employment agreement with Tri-Bradley permitted him to conduct securities business only under the complete supervision of the Denver home office. He claims that his employment agreement rendered him a mere order taker for the home office, which retained sole authority to set retail prices and execute trades. He asserts that as a result, he appropriately relied on his superiors, Mernah and Hurtado, to comply with the NASD pricing rules. 42 The Fifth Circuit Court of Appeals recently rejected the argument that stock brokers or salesmen are exempt from responsibility for fair pricing under Sections 1 and 4 of the NASD Rules. Amato v. SEC, 18 F.3d 1281 (5th Cir.) cert. denied, --- U.S. ----, 115 S.Ct. 316, --- L.Ed.2d ---- (1994). We adopt the Fifth Circuit's reasoning in Amato. As an initial matter, anyone associated with a NASD member firm has the same duties and obligations as the firm under the Rules. Id. at 1284. 43 The Amato court concurred with the SEC's finding that the salesman was liable for charging excessive markups because he was intimately involved in the pricing of securities within the parameters set by his firm's trading department. Id. at 1283. Moreover, because the salesman purchased stock from customers which he then resold to other customers, he was in a position to know the firm's cost, unlike many stock brokers. Id. This knowledge, similar to that possessed by Orkin in this case, was the key to the salesman's liability. Furthermore, a salesman cannot absolve himself of responsibility for compliance with the NASD Rules simply by relying on the directives of his superiors. In re Dan King Brainard, 47 S.E.C. 991, Securities Exchange Act Release No. 20,408 (November 22, 1983), 29 S.E.C. Docket 268, 1983 WL 35834,  4 (S.E.C.). 44 The SEC's finding that Orkin was liable for markup violations because he knew or should have known that the retail prices were excessive is amply supported by the record. Orkin's knowledge concerning the Ortech market and Tri-Bradley's cost to acquire Ortech stock put him in a position to know that the prices Tri-Bradley charged his customers were excessive. He also should have known that because the Ortech market was obscure and thinly traded that quotations were an unreliable basis upon which to calculate markups. 12 In addition, Orkin solicited the orders and participated in the pricing of Ortech stock by suggesting prices his customers should offer. 13 He also stood to benefit from the sales in the form of commissions based on the retail price. Because of his knowledge and involvement, Orkin abrogated his fiduciary responsibility to his customers by standing by while they were charged exorbitant prices. The SEC did not err in holding Orkin liable for excessive markups.