N Financial Secretary Incorporated Suspense Account by liaoqinmei


									                 NEW YORK STOCK EXCHANGE LLC

NYSE HEARING PANEL DECISION 06-16                                        May 10, 2006

                                           * * *

       Violated Section 17(a) of Securities Exchange Act of 1934 and Rules 17a-3
       and 17a-4 thereunder and NYSE Rule 440 by failing to make and/or
       maintain accurate and complete records of reconciliation of suspense account
       funds and copies of employee internal account trading reports; violated
       NYSE Rule 342 by failing to provide for, establish, and maintain adequate
       procedures and controls, including system of follow-up and review of certain
       business activities in order to ensure compliance with NYSE Rules and
       federal laws regarding wire-fund transfers from suspense accounts,
       documentation pertaining to movement of funds from suspense accounts,
       and approval and review of employee-trading accounts held outside firm in
       violation of NYSE Rule 407 – Consent to censure and $200,000 fine.


For the Division of Enforcement                           For Respondent
Martin S. Mazur, Esq.                                     Patrick Patalino, Esq.
Kathleen S. Lynch, Esq.

                                           * * *

A Hearing Panel of the New York Stock Exchange (“NYSE” or the “Exchange”) met to consider
a Stipulation of Facts and Consent to Penalty entered into between the NYSE’s Division of
Enforcement (“Enforcement”) and Credit Suisse First Boston LLC as the successor in interest to
Donaldson Lufkin & Jenrette Securities Corp. (“Respondent” or the “Firm” or “CSFB”), a
member organization. Without admitting or denying guilt, Respondent consented to a finding by
the Hearing Panel that it violated:

      I.   Section 17(a) of the Securities Exchange Act of 1934 and Rule 17a-3 and 17a-
           4 thereunder and NYSE Rule 440 by failing to make and/or maintain accurate
           and complete records of reconciliation of suspense account funds and copies
           of employee internal account trading reports.

        II.   NYSE Rule 342 in that Respondent failed to provide for, establish, and
              maintain adequate procedures and controls, including a system of follow-up
              and review of certain business activities in order to ensure compliance with
              NYSE Rules and federal laws regarding: wire-fund transfers from suspense
              accounts; documentation pertaining to movement of funds from suspense
              accounts; and approval and review of employee-trading accounts held outside
              the firm in violation of NYSE Rule 407.

For the sole purpose of settling this disciplinary proceeding, Enforcement and Respondent Firm
stipulate to certain facts, the substance of which follows: * T

                                      Background and Jurisdiction

         1.   CSFB, a member organization of the Exchange, headquartered in New York, is part
              of the Credit Suisse First Boston business unit, a global investment bank, whose
              businesses include securities underwriting, sales and trading, investment banking,
              private equity, financial advisory services, investment research, and asset

         2.   On November 3, 2000, CSFB acquired Donaldson, Lufkin & Jenrette Securities
              Corporation (‘DLJ”), another NYSE member firm. During the relevant time period,
              the Credit Suisse First Boston business unit had approximately 23,400 employees


         3.   This case was opened as a consequence of the investigation of Robert A. Mauri
              (“Mauri”). In HPD 02-124, Mauri received the sanction of a censure and permanent
              bar for failure to comply with the Exchange’s requests for a written statement
              regarding allegations that he caused improper wire fund transfers and misappropriated
              DLJ funds and funds from CSFB after its merger with DLJ. During the period 1997
              through 2001, Mauri caused funds in the amount of approximately $3,400,000 to be
              wired from DLJ/CSFB’s suspense accounts into personal securities and banking
              accounts held by Mauri, his family and a friend. 1 Certain deficiencies in DLJ’s and
              CSFB’s supervision of wire fund controls, suspense accounts and employee personal
              trading accounts maintained away from the firm resulted in failures to detect and
    Hearing Panel Note: The facts, allegations, and conclusions contained in paragraphs 1 to 25 are taken
    from the executed Stipulation of Facts and Consent to Penalty between Enforcement and Respondent.
    No changes have been made to the stipulated paragraphs by the Hearing Panel, except that pseudonyms
    have been provided to protect the privacy of non-parties.
    The suspense account bookkeeping system allowed the Firm’s Clearance Department to book an entry
    of a debit or credit to an internal ledger, on an interim basis, that it did not know how to apply. Funds
    were booked to suspense accounts for a variety of reasons, including post-execution price changes or
    trade cancellations, over payment by a counter-party, or clerical errors in the counter-party’s wire

             prevent Mauri’s misconduct. Upon discovery of the misconduct CSFB notified
             various regulators and assisted the United States Attorney’s Office in a federal
             prosecution of Mauri. Mauri pled guilty and was sentenced to over four years’
                                      Mauri’s Wire Transfers

        4.   Mauri was employed with DLJ from 1990 to November 2000 and CSFB from
             November 2000 to March 2001. He worked in the Operations Group (“Operations”)
             Fixed Income Division and provided support services for the trading of fixed income
             products. Mauri’s responsibilities included tracking, clearing, and/or allocating
             securities or funds. These were the key areas where Mauri developed his knowledge
             of the Firm’s systems of internal controls. 2

        5.   Mauri was Director of Allocations (“Allocations”) at DLJ from 1997 to Spring 2000.
             Allocations personnel would assist Clearance in researching and resolving the
             appropriate application of suspense accounts funds.

        6.   Clearance was responsible for researching the appropriate place to apply cash entered
             in suspense accounts, often by consulting persons outside of Clearance who might
             have knowledge about the entry. Clearance would determine if the cash belonged to
             DLJ and would make the appropriate booking entry to debit the cash from the
             suspense account. The process of researching and reconciling suspense items was
             referred to as “cleaning up” suspense. (Although Mauri did not have direct oversight
             responsibility for wire transfers as the Director of Allocations in 1997, he was in a
             position to advise Clearance personnel about where and how to apply suspense

        7.   Clearance required little documentation before wiring suspense funds. Generally, the
             authorizing document consisted of nothing more than a computer printout evidencing
             the existence of the suspense item to be cleared, and a request from a DLJ employee
             (which could include front desk or Allocations personnel) who had reason to know
             how the suspense item should be applied. The request would include the wire
             instructions information needed to send the funds, and it could be handwritten or oral.
             Clearance did not require any documentation from the recipient of the wire, either to
             verify the recipient’s claim of entitlement to the funds or to verify the recipient’s wire
             instructions. Moreover, Clearance did not confirm the recipient’s account

        8.   At DLJ, Mauri had been a supervisor in Clearance from approximately 1995 through
             1996 and therefore was familiar with the cleaning up suspense account process.
             Mauri would give an employee working in Clearance a computer print-out of the
             suspense item (indicating the number of the suspense account, the date and amount)
             with his handwritten wire instructions indicating the name of the destination bank, the

    Mauri left CSFB in March 2001and joined Firm A as Director of Whole Loan Operations until his
    resignation on January 4, 2002. He is not currently employed in the securities industry.

              account number of the brokerage firm (in the case of wires to DLJ or Firm B) and the
              number of the account at the bank or brokerage firm to be credited.

        9.    While Mauri was Director of Allocations at DLJ, between May 1997 and March
              2000, he caused 35 improper wire transfers to be sent to his accounts totaling
              approximately $450,000.

       10.    After Mauri left Allocations in Spring 2000, he transmitted many of his wire transfer
              directions to Clearance by e-mail. During the period from April through November
              2000, Mauri caused 25 improper wire transfers to be sent to his and his friend’s
              accounts, which amounted to approximately $1,350,000. After the merger, between
              December 2000 through March 21, 2001, Mauri caused 28 wires to be sent to his and
              his friend’s accounts totaling approximately $1.5 million. While employed at Firm A,
              Mauri caused approximately $100,000 to be wired from CSFB to his accounts. 3

DLJ Audit Department Reviews

       11.    DLJ missed opportunities to detect Mauri’s improper wire transfers during his
              employment with the Firm. DLJ’s Internal Audit department raised concerns about
              inadequate wire control procedures and aged suspense account balances during the
              period 1997 through May 1998. In a September 1998 audit report (“September 1998
              Report”) it was recommended that Fixed Income management implement controls for
              wire transfers that would require Clearance supervisors to verify instructions against
              letters of authorization from the recipient. Additionally, among other things, the
              report recommended that negative confirmations be sent to the counter-parties to
              verify wire instructions. The report was circulated to among others, the Director of
              Internal Audits.

       12.    On March 10, 1998, a Clearance supervisor at DLJ, issued a memorandum instructing
              all Clearance personnel to follow procedures outlined therein, which required that no
              wire transfers could be made for one particular suspense account identified in the
              memorandum, unless a letter was received from the customer and, that the wire
              transfer had to be reviewed and approved by a supervisor. These procedures were
              similar to the recommendations for all suspense accounts contained in the audit
              report. However, the instructions in the memorandum were not adopted as Firm
              policy and were not implemented by the Firm’s employees. One year after the
              issuance of the memorandum Mauri caused $21,104 to be wired from the one
              suspense account that had been cited in the Clearance memorandum to one of his
              outside brokerage accounts.

    On the last day of his employment with CSFB, Mauri requested that suspense funds be wired to his and
    his friend’s Firm B accounts. Five weeks later, a CSFB employee, who had worked with Mauri on
    resolving such items, contacted him for advice relating to the wires. According to CSFB’s report of its
    internal investigation, which CSFB provided to the NYSE, Mauri provided the information to rewire
    the funds to his and his friend’s accounts and the employee did so without informing any supervisors
    that Mauri had been contacted regarding the items.

       13.    A second audit commenced in July 2000 by DLJ Internal Audit was planned to
              encompass the aged suspense accounts and wire transfer procedures, in part due to the
              concerns raised in its 1998 Report. However, in late August 2000, when DLJ and
              CSFB announced their merger, DLJ Internal Audit immediately stopped its internal
              audit work and turned to merger and integration tasks. An integrated audit
              department resumed the audit work in November or December 2000. However, the
              wire transfer clearance procedure was not part of this audit, so the follow-up to the
              1998 Report was never completed.

Mauri’s Personal Accounts

       14.    During the period of his employment with DLJ/CSFB, Mauri maintained as many as
              11 outside brokerage accounts at Firm B which he opened between 1990 and 2000.
              These accounts were opened for Mauri, his wife and three children. In addition to the
              Firm B accounts, Mauri opened one internal account with DLJ in 1995. All of the
              accounts were opened while Mauri was at DLJ.

       15.    Exchange Rule 407(b) provides, in pertinent part, that no employee associated with a
              member organization shall have a securities account with respect to which such
              person has either a financial interest or the power, directly or indirectly, to make
              investment decisions at another member organization or domestic or foreign non-
              member broker-dealer, investment adviser, bank or other financial institution without
              the prior written consent of another person designated by the member organization
              under Exchange Rule 342(b)(1) to sign such consents and review such accounts.

       16.    DLJ and CSFB did not have adequate controls relating to Mauri’s brokerage
              accounts. It appears that Mauri was able to maintain numerous trading accounts at
              Firm B for almost a decade at DLJ and for four months with CSFB without
              undergoing any official approval process. When Mauri finally sought approval for
              his outside brokerage accounts in 1999, he obtained permission to maintain seven
              Firm B accounts, even though the accounts did not satisfy DLJ’s criteria for outside
              accounts. 4

       17.    Although Mauri had his Firm B accounts since 1990, DLJ’s records reflected it only
              began receiving duplicate account statements in December 1997. Those duplicate
              records were being forwarded to DLJ’s Corporate Secretary who was not involved in

    DLJ’s policy, with limited exception, did not permit employees to maintain brokerage accounts at other
    institutions. Exceptions to the DLJ policy could be approved, for example, for “discretionary” external
    accounts, which were accounts, managed by a registered broker or investment advisor whose
    investment decisions could not be influenced by the employee. In addition, no exceptions (for the
    discretionary accounts or otherwise) were allowed unless the employee received written approval from
    the employee’s supervisor and from the Compliance Department. The powers of attorney, which Mauri
    provided for some of his Firm B Accounts, did not relinquish his control to instruct his broker to
    execute trades in his accounts, contrary to the Firm’s policies.

              reviewing employee-trading activity. DLJ also did not have any record of having
              received any duplicate statements for Mauri during the period September 1998
              through December 1998. However, beginning in January 1999, and continuing
              through January 2001, the monthly account statements reflected that Firm B was
              sending duplicate statements to the Compliance Department, as well as to Mauri’s

Supervisory Review of Employee Accounts

       18.    DLJ did not provide supervisors with any detailed guidance of their duties and
              responsibilities for reviewing permissible outside trading accounts for employees
              reporting to them. The primary focus of such reviews was to ensure that employees
              were not violating the prohibition against trading on the basis of material, nonpublic
              information or on information that was proprietary to DLJ and CSFB, post-merger.

       19.    According to Mauri’s account statements, he actively traded both his Firm B accounts
              as well as his DLJ accounts during the period 1997 through 2001. The Firm’s records
              disclosed that Mauri carried large positions in speculative securities and carried large
              balances which were out of proportion to his compensation. However, neither the
              Firm B account statements nor the DLJ’s internal employee account trading reports
              reflected that the transfers into Mauri’s accounts were initiated at DLJ.

                                      Firm’s Internal Investigation

       20.    Mauri’s misappropriation was discovered when CSFB hired a former Firm B
              employee whose responsibilities included reconciliation of suspense items. The newly
              hired former Firm B employee recognized that funds from a suspense account were
              being wired to a retail brokerage account at Firm B. He immediately reported the
              matter to CSFB. Thereafter the Firm launched a complete investigation and
              discovered Mauri’s improper wire transfers.

       21.    After an extensive review process, the Firm identified 90 improper wire transfers
              from May 1997 through May 2001, initiated by Mauri, totaling approximately $3.4
              million. Sixty of these wire transfers, totaling approximately $1.8 million, took place
              at DLJ. The remaining thirty wire transfers, totaling approximately $1.6 million
              occurred after the merger with CSFB. Of the $3.4 million misappropriated by Mauri,
              his friend’s account had received approximately $205,573. The Firm examined
              Mauri’s brokerage and bank accounts and determined that Mauri and his friend
              sustained trading losses of approximately $2.1 million. The Firm recovered $895,000
              in cash and securities from Mauri’s and his friend’s accounts in January 2002, in
              addition to approximately $360,000 in funds held in Mauri’s and his family’s bank
              and brokerage accounts that had been frozen by CSFB at the outset of its
              investigation. 5 However, a total of $45,000 that Mauri misappropriated remained
              unaccounted for.

    CSFB initiated litigation against Mauri, his wife, and his friend and obtained a restraining order
    freezing all assets.

                                      Books and Records

    22.    Exchange Rule 440 requires that every member and member organization make and
           preserve books and records as the Exchange may prescribe and as prescribed by
           Section 17(a) of the Securities Exchange Act of 1934 (“Exchange Act”) and Rules
           17a-3 and 17a-4 thereunder. On one or more occasions, the Firm failed to make
           and/or maintain accurate and complete records of reconciliation of suspense accounts
           and copies of employee internal account trading reports.

Suspense Account Records

    23.    The documentation which Clearance required before wiring suspense accounts funds
           was insufficient for verification purposes. Clearance did not require any
           documentation from the recipient of the wire, either to verify the recipient’s claim of
           entitlement to the funds or to verify the recipient’s wire instructions.

Employee Internal Account Trading Reports

    24.    The employee trading reports called the “MAXX Reports” were reviewed by DLJ
           Compliance and the employee’s supervisor. Although the MAXX reports were
           prepared electronically, they were sent to Compliance and supervisors in hard copy.
           CSFB could not locate the MAXX reports relating to Mauri’s accounts – such reports
           typically reported securities transactions and fund transfers. Moreover, DLJ’s system
           did not require supervisors to confirm to Compliance that they had reviewed an
           employee’s MAXX report.

                                     Other Factors Considered

    25.    The Firm has informed the Exchange and the Exchange has considered the following
           circumstances in connection with the matters set forth below:

      a)      The Firm discovered the violative conduct and promptly brought this matter to the
              Exchange’s attention.

      b)      Sixty of the 90 improper wired transfers took place while Mauri was at DLJ.

      c)      The Firm fully cooperated with the Exchange’s investigation by, among other
              things, providing copies of the report of its internal investigation into Mauri’s
              misconduct and provided access to its records and information.

      d)      The Firm cooperated in the federal prosecution of Mauri.

      e)      Since the merger, the Firm has enhanced its policies and procedures with respect
              to suspense accounts, approval of wire transfers and review of employee trading
              accounts held outside the Firm, minimizing the possibility of this type of
              occurrence being repeated.

          f)      Wire Transfers - CSFB implemented various corrective actions regarding wire
                  transfers. Wire transfers, such as the ones utilized by Mauri, now require the
                  approval of at least two individuals at initiation and the approval of two other
                  individuals at execution. No manual transfers are to be made without full
                  supporting documents, to evidence that the transfer relates to a legitimate
                  transaction and such transfers require dual approval by authorized signers. The
                  Firm requires both authorized signatories to review the supporting documentation,
                  especially with respect to transfers to third parties. Further, periodic unannounced
                  reviews of wire transfer activity is conducted by the Firm.

          g)      Employee Trading Activity - CSFB has enhanced its supervision and review of
                  employee trading activity and implemented more limitations upon the use of
                  outside accounts. According to the Firm, all new outside accounts are evaluated
                  and approval is given only to those accounts which meet the current guidelines.
                  The Firm has established written guidelines to supervisors for reviewing
                  employee trading which includes factors that each supervisor should carefully
                  consider during such review. 6

          h)      Aged Suspense Funds – CSFB discontinued the use of DLJ’s process of
                  addressing aged suspense funds backlogs and instead implemented an automated
                  system developed at CSFB. Additionally, CSFB’s internal audit department
                  currently performs yearly audits of the mortgage business, including its operations
                  support functions. The Internal Audit Department covers all aspects of the
                  mortgage business, including its operational support functions, on a rotational
                  basis. Certain aspects of these activities are covered every year.

          i)      Internal Audit Recommendations - The Firm has made enhancements to its
                  Action Tracking System (“ATS”), which is used to track the implementation of
                  Audit and Regulatory recommendations. Among other things, Internal Audit now
                  has a system in place to verify the completion of remedial measures implemented
                  to address audit recommendations.


The Hearing Panel, in accepting the Stipulation of Facts and Consent to Penalty, found
Respondent guilty as set forth above by unanimous vote.

    These factors include, but are not limited to, whether the review is being conducted by the supervisor
    with the most relevant information about the employee, whether the employee has access to and is
    acting on proprietary information, whether the volume of trading activity detracts the employee from
    his job responsibilities, whether there are significant trading inconsistencies or changes in investment
    strategies, whether the employee has relationships with corporate insiders, and whether cash
    transactions (with regard to the size and movement of funds in and out of the account) are in line with
    the employee’s compensation.


In view of the above findings, the Hearing Panel, by unanimous vote, imposed the penalty
consented to by Respondent of a censure and a fine of $200,000.

                                                   For the Hearing Panel

                                                   Vincent F. Murphy - Hearing Officer
                                                   Paul W. Brandow
                                                   John S. French

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