Stephen R. Moynahan has been barred from acting as a supervisor at a broker-dealer firm, suspended from the dealer community for six months, and ordered to pay $140,000 under a settlement of Securities and Exchange Commission charges that he failed to supervise Robert J. Bradbury, the former head of Dolphin & Bradbury Inc., who allegedly defrauded Pennsylvania school districts.
"Supervising the people you're assigned to supervise is an important part of complying with the federal securities laws," Mark Zehner, the SEC's Philadelphia-based regional municipal securities counsel, said yesterday, a day after the commission entered into the settlement with Moynahan.
The settlement comes as Bradbury, 62, is facing the Dec. 8 start of a criminal trial for allegedly selling four Pennsylvania school districts unsuitable, risky notes without disclosing their risks between 1998 and 2004. The notes were used to finance a speculative golf course project.
The bonds went into default in September 2004, causing the school districts to lose $10.5 million. The SEC has also charged Bradbury with securities fraud and violating its Rule 15c2-12 on disclosure, but the case is on hold until the criminal matter is resolved.
According to the SEC, Moynahan, 61, was president and chief executive officer of the now-defunct Dolphin & Bradbury and had a 33% to 50% ownership interest in the firm from 1996 through 2004, when Bradbury sold the notes to the school districts.
Bradbury was chairman, treasurer, and chief operating officer of the firm and served as an investment banker during that period of time. He also had a 33% to 50% ownership share. When his conduct came to light during the fall of 2004, Moynahan, who had been unaware of the conduct, resigned from the firm.
"However, as president of Dolphin & Bradbury, Moynahan was generally responsible for firm supervision, and the firm's procedures expressly assigned certain supervisory duties to him," the SEC said in its settlement order. "Moynahan failed to review the firm's written supervisory procedures, failed to establish, or delegate to anyone else, responsibility for establishing reasonable supervisory procedures with respect to the firm's underwriting business, failed to adequately comply with many of the provisions of the written supervisory procedures that were in place, and failed to affirmatively delegate to anyone else responsibility for supervising Bradbury."
As a result, he violated the Municipal Securities Rulemaking Board's Rule G-27 on supervision, the SEC said.
"The president of a corporate broker-dealer is responsible for compliance with all of the requirements imposed on his firm unless and until he reasonably delegates particular functions to another person in that firm, and neither knows nor has reason to know that such person's performance is deficient," the SEC said.
The commission ordered Moynahan to cease and desist from further violations of G-27, barred him from association in a supervisory or proprietary capacity with any broker-dealer, suspended him for six months from association with any broker-dealer, and ordered him to disgorge $1 in ill-gotten gains as well as to pay $140,000 in civil monetary penalties.
Moynahan can reapply for a broker-dealer license, but his reentry into the market will be contingent on several factors, including whether he pays any arbitration-related awards to customers, the SEC said. The order said the commission took into account Moynahan's cooperation with the staff's investigation when it imposed the sanctions on him.