by Bill Singer
Tenet Healthcare, Archipelago, Andover and PCX : A Regulatory Trip And Fall Down Memory
October 19, 2011
Nine-year-old securities trades. An eight-year-old regulatory investigation. Ahhh . . . nothing like the rotting stink of yet another Wall Street regulatory mess that's festered for far too long.
The 2003 PCX Investigation
In January 2003, PCX Equities, Inc. ("PCX") opened an investigation of possible market manipulation related to twenty-six transactions executed on November 1, 2002, involving shares of Tenet Healthcare Corp. ("THC"). In furtherance of its investigation, on January 14, 2003, the PCX mailed a Request for Information to Michael Picozzi III ("Picozzi"), the founder and sole owner of Andover Brokerage ("Andover"), a former member firm of PCX Equities, Inc. PCX"). The Request for Information was purportedly sent to Picozzi, care of Andover's mailing address.
On March 3, 2003, SunGard Data Systems ("SunGard") purchased substantially all of Andover's assets.
Did You Ever Notice?
On October 23, 2003, not having received any responses from Picozzi or Andover, PCX filed a Complaint against Picozzi and Andover. The Complaint charged the two respondents with violating PCX Rule 10.2(d) for failing to furnish information and testimony requested by PCX and, as such, for obstructing a PCX regulatory investigation.
After the March 2003 sale of Andover to SunGard, SunGard controlled Andover's former office space, and a SunGard subsidiary ("Assent LLC") operated Andover's former business. AlthoughPCX purportedly sent several requests for information to Picozzi care of Andover's address, Picozzi asserts that Assent never informed him of such mail - and never forwarded anything to him. Pointedly, although PCX mailed the Complaint to Picozzi (care of Andover), he asserts that he never even saw the pleading until 2010. Moreover, Picozzi says that Assent's general securities principal would have handled any incoming mail to Andover.
SIDE BAR: Just as they never replied to the requests for information, Picozzi and Andover failed to respond to the Complaint. On October 25, 2004, PCX issued a Notice of Summary Determination, which Censured and Permanently Barred Picozzi and Andover from association with any PCX member or member organization - however, the Noticeprovided that if Picozzi and Andover "fully cooperated" with PCX within three months that "the permanent bar would be lifted and an appropriate sanction for obstructing the investigation be imposed."
The Window Slammed Shut
It should come as no surprise that PCX's three-month window offering to drop the Bars in exchange for Picozzi and Andover's cooperation slammed shut without so much as a peep from Picozzi or Andover. On top of I never got your mail, Piccozzi adds a frustrated, petulant retort that you didn't even need to get that information from me. Picozzi argued that the information PCX sought during the investigation was readily available and would have shown that he had not engaged in improper conduct in connection with the THC transactions.
What the ????
Following his March 2003 sale of Andover to SunGard, Picozzi was subject to a five-year non-competition agreement. After the expiration of that non-compete, in early 2010, Picozzi decided to re-enter the securities industry.
I'm guessing that Picozzi got one hell of a nasty surprise. According to Picozzi, he was shocked to learn that he had been barred by PCX for not responding to mail that he never got.
Blast from the Past: Prior to the closing of the merger between the New York Stock Exchange, Inc. ("NYSE") and Archipelago Holdings, Inc. on March 7, 2006, the markets currently known as NYSE Arca, Inc. and NYSE Arca Equities, Inc. were known as Pacific Exchange, Inc. and PCX Equities, Inc. respectively.
The Regulatory Gordian Knot
Which delivers us, in 2010, to the somewhat comical disaster of a seemingly intractable Gordian Knot of a regulatory nightmare.
We got a regulator that has ceased to be - and that regulator barred a member firm that no longer exists. We also got that same vanished regulator imposing a Bar against an individual who was charged with failing to answer the regulator's mail or respond to its warnings - but for the fact that, well, you know, Picozzi claims that he never got and never saw any of the documents sent to him by the regulator that no longer is.
Appeal to the SEC
On May 17, 2011, Picozzi petitioned the SEC to vacate PCX's default summary determination. PCX's successors in interest, NYSE Euronext and NYSE Regulation, Inc. (collectively, the "NYSE"), did not oppose the petition, noting the limited evidentiary record and the time elapsed.
Yeah, okay - limited evidentiary record and elapsed time. Sure. Got it. However, let's not sweep everything so quickly under the carpet. Let's at least give some weight to the fact that the NYSE conceded that there was "uncertainty" about whether Picozzi received notice of the Complaint or the Notice of Summary Determination before 2010.
Ah, yes, nothing like a little bit too little evidence and a little bit too much time and a little bit of uncertainty.
In light of the NYSE's admission that it didn't exactly have the most ironclad record of PCX's trail leading up to and including the Bar, the NYSE gets some credit for conceding that it had "reason to believe that Picozzi did not in fact deliberately obstruct or impede the Investigation, and did not have the opportunity to defend himself in the Proceeding." In the Matter of the Application of MICHAEL PICOZZI III For Review of Disciplinary Action by PCX Equities, Inc. (Opinion/Securities And Exchange Commission / Securities Exchange Act Of 1934 Rel. No. 65569 / Admin. Proc. File No. 3-14396 / October 14, 2011).
Order
Given the unique facts of this case, including the lack of evidence surrounding PCX's attempts to serve Picozzi and the NYSE's non-opposition of Picozzi's petition, the SEC ordered that the disciplinary action taken by PCX against Picozzi be set aside.
And you wonder why Madoff never got caught? Geesh! All we need here is a cream pie, some seltzer, and a banana peel - oh, and let's toss in the red clown nose. Like I said, ya gotta love the state of regulation on Wall Street.