99/23

June 18,1999

Notice to Members #53/99

By way of an Offer of Settlement, the Member Firm, Goepel McDermid Inc. ("Goepel McDermid") and Dwayne William Strocen ("Strocen"), at the time of the infractions an Approved Person employed by Goepel McDermid, have agreed to the imposition of the following penalties by the Exchange:

Strocen, for violation of By-Law 5.01(2), Rule F.1.01.2 and Rule F. 2.22:

1. payment of a fine in the amount of $5,000;
2. a requirement to re-write and pass the examination based on the Conduct and Practices Handbook for Securities Industry Professionals;
3. a requirement to re-write and pass the examinations based on the Derivatives Fundamentals Course and the Options Licensing Course prior to being registered to trade options;
4. a requirement to be on strict supervision for a period of one year after returning to the industry; and,
5. an assessment of investigative costs in the amount of $1,000.

Goepel McDermid, for violation of Exchange Rule F.1.01:

1. payment of a fine in the amount of $5,000, and
2. an assessment of investigative costs in the amount of $2,500.

Rule F.1.01.1.b, states in part that every Member is required to diligently supervise all accounts handled by their investment advisers.

By-Law 5.01(2), states in part that an infraction means any conduct, proceeding or method of business not expressly provided for in the by-law, rules or regulations which is unbecoming or inconsistent with just and equitable principles of trade or detrimental to the interests of the Exchange or the public.

Rule F.1.01.2, states in part that no Member or approved person shall accept an order from a client or make a recommendation to a client without determining the general investment needs and objectives of the client, the appropriateness of a recommendation made to that client and the suitability of a proposed purchase or sale for that client.

Rule F. 2.22.2, states in part that investment advisers shall not, subject to Rule F.3.04, handle a discretionary order or exercise any discretion in the handling of an account of a client of a Member.

Strocen was an Approved Person employed by Goepel McDermid during the period September 4, 1998, to November 26, 1998.

On September 26, 1998, a joint account was opened for a client (the "Client"), with Strocen as the Investment Adviser. The Client's new client application form ("NCAF") disclosed a liquid net worth of $200,000. The Client arranged to transfer (the "Client Account Transfer") the portfolio valued at approximately US$120,000 (the "Portfolio") from another Member Firm to Goepel McDermid.

On October 9, 1998, Strocen met the Client to discuss strategies for hedging the Portfolio.

On October 13, 1998, Strocen executed an order for 28 Standard & Poor’s 500 Index Option Put Contracts at a total cost of U.S. $122,805 (the "S&P Option") without an explicit order from the Client. The Client had not given Strocen written authorization to exercise discretion over the account and Goepel McDermid had not accepted the Client Account as discretionary. Strocen thereby violated Exchange Rule F. 2.22.2

The S&P Option was approximately equivalent to the entire value of the Client's portfolio. The number of contracts purchased far exceeded the number required to hedge the portfolio. Strocen’s purchase of the S&P Option was not consistent with the Client's investment objectives, was excessive in the circumstances, and placed the Client's portfolio at risk. Strocen thereby violated Exchange Rule F.1.01.2.

Upon receipt of the S&P Option confirmation on October 15, 1998, the Client contacted Strocen to question the S&P Option. Strocen agreed to reverse the S&P Option from the Client's account. Strocen did not remove the S&P Option from the Client's account, and did not notify Goepel McDermid until November 18, 1998, by which time the value of the S&P Option had declined to approximately US$7,200. In the interim, Strocen failed to advise Goepel McDermid that the Client was not responsible for paying for the S&P Option, and misled Goepel McDermid about the value of securities being transferred to the Client's account. Strocen thereby violated Exchange By-Law 5.01(2).

At the time Strocen was hired by Goepel McDermid, as a condition of his registration, Strocen was placed on strict supervision by the Exchange. The strict supervision required in part, that all orders be verified by a senior officer prior to entry, that all client accounts be reviewed for suitability, and that margin be properly maintained in all accounts.

Goepel McDermid reviewed the S&P Option prior to entry and relied on Strocen's assurance that the S&P Option was suitable to hedge the Client's portfolio. A review of the NCAF would have disclosed that the S&P Option was approximately equal to the Client's entire liquid net worth. The number of contracts grossly exceeded the number required to hedge the Client's portfolio, and, therefore, the S&P Option was not suitable for the Client's account.

The Client Account Transfer resulted in no cash or securities being deposited into the Client's account until November 5, 1998. The account was under-margined as of October 14, 1998, until the S&P Option was reversed from the Client's account on November 25, 1998. Strocen supplied copies of previous Member Firm statements for the Client’s account disclosing the securities apparently in transit. The marginable value of those securities was insufficient to meet the required margin for the Client's account.

On November 4, 1998, Goepel McDermid signed Strocen's strict supervision report verifying, in part, that all client accounts had been reviewed for suitability of investments, and that margin had been maintained where applicable. In fact, the S&P Option was not suitable and proper margin had not been maintained.

Goepel McDermid failed to diligently supervise Strocen and the Client account and thereby violated Exchange Rule F.1.01.1.b.

Goepel McDermid reversed the Client Trade and terminated Strocen’s employment.

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