Opinion ID: 553337
Heading Depth: 2
Heading Rank: 1

Heading: The New York Stock Exchange Investigation

Text: 6 In January 1983, Polly Gregory, an investor who had suffered losses when she liquidated her Spreads and who would later become a plaintiff in Cresswell I, wrote to the New York Stock Exchange (NYSE or Exchange), complaining that the information provided her by Bache with respect to the Spreads had been misleading. Gregory's letter was routed to Barbara Krupinski in NYSE's Division of Member Firm Regulatory Services (Services Division), which handled customer complaints about member firms. Krupinski forwarded a copy to William Goldenblum, a Paris-based Bache attorney. Goldenblum responded to Krupinski by letter dated March 28, 1983, stating that Gregory had signed, inter alia, a risk disclosure statement and that Bache's marketing pamphlets were not misleading. 7 Krupinski responded to Gregory by letter dated April 29, 1983, stating that the Exchange had been in contact with Bache concerning her complaint, and sent her a copy of the March 28 letter the Exchange had received from Goldenblum. Krupinski's letter advised Gregory that the Exchange staff does not adjudicate monetary claims or pass upon the merits of them, and suggested that Gregory might wish to consider requesting arbitration. The letter concluded as follows: 8 As part of our regulatory responsibilities, the staff of he [sic ] Exchange examines all customer complaints to determine whether a firm or its representatives committed any violations of Exchange rules or ethical business practices. However, findings of any violations are made only after a full investigation and an administrative hearing before an Exchange hearing panel. Any disciplinary actions taken are made public only through the news media. 9 Communications between the Exchange and Goldenblum continued during the spring of 1983 and included, inter alia, a request by Krupinski for information concerning a 1981 advertisement for the Spreads. 10 In the meantime, other disgruntled Spreads investors, represented by Edward Swan, Esq., had commenced Cresswell I in March 1983. Bache was represented by S & C, which assigned attorneys Marvin Schwartz, a partner, and Howard Burnett and John L. Hardiman, associates, to handle the matter. On June 6, 1983, Bache's Goldenblum informed Hardiman of NYSE's interest in the 1981 advertisement and forwarded to Hardiman copies of Bache's correspondence with NYSE in connection with Gregory's complaint. Bache in-house attorney Barbara Salmanson, after consulting with Schwartz, prepared a response to NYSE's request for information. She sent the response to Krupinski at NYSE on June 8 and sent a copy to Hardiman. 11 In August 1983, NYSE's Services Division referred the matter of the Bache Spreads to the Exchange's Division of Enforcement (Enforcement). On December 5, 1983, Donald E. Shippy, a Senior Enforcement Investigator, wrote Bache General Counsel Loren Schechter, indicating that Enforcement was investigating possible violations by Bache of NYSE's advertising standards. On December 9, Schechter responded that he would look into the matter. In the spring of 1984, there was further correspondence between Bache and Enforcement, and on July 11, 1984, Salmanson wrote Shippy describing the brochure promoting the Spreads and other documents, and stating that investors had been fully informed of the risks involved. A copy of the July 11 letter was sent to Burnett at S & C, who forwarded copies to Hardiman and Schwartz. 12 In August 1985, a settlement was reached between NYSE and Bache whereby, without admitting or denying guilt, Bache consented to a censure and a $5,000 fine. Based on this settlement, NYSE issued a decision in October stating that Bache had failed to disclose sufficiently the risks associated with the Spreads. The settlement was reported in the Wall Street Journal on February 12, 1986. 13