by Bill Singer
SEC Takes Rare Step and Bars Securities Lawyer
November 11, 2010
In January 2009, SEC Administrative Law Judge (ALJ) Brenda Murray found that securities industry lawyer Steven Altman had engaged in unethical and improper professional conduct while representing a prospective witness for the Division of Enforcement ("Division") in a SEC administrative proceeding. In the Matter of Steven Altman, Esq (Initial Decision Release No. 367, Administrative Proceeding File No. 3-12944, January 14, 2009) at ttp://www.sec.gov/litigation/aljdec/2009/id367bpm.pdf
The ALJ's Initial Decision sought to deny Altman the privilege of appearing before the SEC for a period of nine months.
INITIAL DECISION (ALJ)
According to the ALJ's Initial Decision, in January 2009, Altman was a forty-six year old graduate of Boston University and New York Law School, a member of the New York State Bar, and had been practicing law since 1987. Altman maintained an office in Manhattan where he employed one salaried attorney, who handled the paperwork, while Altman spent his time litigating commercial disputes in courts and before the National Association of Securities Dealers, Inc. (NASD), now known as the Financial Industry Regulatory Authority. Altman did not have an extensive practice before the SEC.
Altman was married in 1987 and divorced in 1999. He testified that he provided financial support for three children, and his fiancée and her child with whom he lived. Altman maintained that in January and February 2004, he was working ten to fourteen hours a day, seven days a week, drinking very heavily, and in a contentious relationship with his ex-wife who has custody of his seven year old twins with whom he has a close relationship. On March 30, 2008, Altman admitted himself to a hospital where he was diagnosed with alcohol and cocaine abuse. He left a twenty-eight day program on April 7, 2008, after eight days and began participating in an out-patient program at a different facility. On May 6, 2008, Altman testified that, since April 8, 2008, he had participated in the out-patient program four days a week and has attended meetings of Alcoholics Anonymous daily.
The Initial Decision found
that Altman offered to have a client evade the Division's service of a subpoena and/or testify falsely in exchange for a financial package from two respondents in the proceeding. The ALJ further found that Altman did so with scienter, and, as a result of his conduct, he violated Disciplinary Rules ("DR") 1-102(A)(4), 102(A)(5), and 102(A)(7) of the New York State Bar Association Lawyer's Code of Professional Responsibility. Pursuant to Rule 102(e)(1)(ii) of the SEC's Rules of Practice and Section 4C of the Securities Exchange Act of 1934, the ALJ suspended Altman from appearing or practicing before the SEC for nine months.Nine Months Not Enough Say OGC
The SEC's Office of the General Counsel ("OGC") appealed the nine-month suspension imposed on Altman in the Initial Decision, and sought an order permanently denying him the privilege of appearing or practicing before the Commission.Bonnie Rosen's Termination
According to the SEC, Altman had known Bonnie Rosen since he was in high school and she worked at a local insurance agency. From November 1999 to October 2003, Rosen worked as an administrative assistant with a salary of $60,000 at Nextgen Inc. ("Nextgen"), a company that was owned by Jay Adoni and shared office space with Harrison Securities, Inc. ("Harrison"), a broker-dealer. Nextgen paid Rosen's salary, but she spent half of her time working for Harrison and its chief executive officer, Frederick C. Blumer, who was Adoni's close business associate.
Sometime in 2003, Rosen called Altman and told him that she had been forced out of her job at Nextgen. Rosen asked Altman for his help in obtaining severance pay from Nextgen and removing her name from two car leases she co-signed for Blumer, who used the cars and paid the leases. Altman testified that he agreed to assist Rosen as a "favor." Altman twice contacted Adoni and requested that he pay Rosen severance and remove her name from the car leases. On both occasions, Adoni refused the requests.
The Division's C&D Case
In 2003, the Division instituted administrative and cease-and-desist proceedings against Harrison, Blumer, and Nebrissa Song, alleging violations of the Exchange Act's books and records, net capital, and financial reporting provisions (hereinafter the "Harrison Proceeding"). Respondents raised as a defense to the books and records charge that they were unable to maintain the firm's general ledger for certain periods because a computer virus corrupted their files. A hearing in the Harrison Proceeding was held on January 20 through January 26, 2004 and March 8 through 10, 2004.
Division Wants to Talk to Rosen
On January 26, 2004, Division staff learned from NASD staff that Rosen had called NASD and claimed to have information adverse to Harrison's and Blumer's computer virus defense. Division staff hoped, but were not sure, that Rosen would be able to testify that there was no computer virus that compromised Harrison's files. Division staff also thought that Rosen might be able to testify about Blumer's accounting practices. Division staff concluded that Rosen might be a good rebuttal witness.
Division staff called Rosen on January 28, 2004 and told her that they learned she might have useful information for the Harrison Proceeding. They asked Rosen if she would be willing to meet or speak with them. Rosen expressed some anxiety about testifying. She mentioned to Division staff that she co-signed two car leases for Blumer, and she was concerned that if Blumer was ordered to pay a civil penalty in the Harrison Proceeding, it might increase the likelihood that he would default on the leases and she would have to pay the remaining balance on the leases. Division staff testified that the car leases were not relevant to their case and were not a subject of interest to them, except insofar as the leases might prevent Rosen from testifying in the Harrison Proceeding. Rosen identified Altman as her attorney and referred Division staff to him.
Altman Speaks to Division As Rosen's Lawyer
On or about January 28, 2004, Division staff spoke with Altman, who identified himself as Rosen's legal representative. During the conversation, Division staff described the nature of the Harrison Proceeding, indicated that it was ongoing, and expressed their interest in possibly using Rosen's testimony as part of their case. Division staff asked Altman if they could interview Rosen. Division staff testified that Altman was "noncommital" about whether Rosen would agree to an interview and said that he would get back to them. Altman asked Division staff who was representing Harrison and Blumer, and they gave him Irving Einhorn's name.
Altman Telephones Einhorn
The SEC concluded that Altman first called Einhorn on or about January 28, 2004. In this conversation, Altman told Einhorn that he represented Rosen and that the Division was interested in possibly using her as a witness in the Harrison Proceeding. Altman also told Einhorn that Rosen had left Nextgen under unfavorable circumstances with little or no severance pay; she had worked for Harrison and Blumer; and she was hostile towards them. Altman gave Einhorn an abbreviated version of his discussions with Adoni and said he thought this would be an opportune time to reinvigorate Rosen's requests for severance pay and removal of her name from the car leases. In his hearing testimony and briefs on appeal, Altman admitted that the Division's interest in Rosen as a witness gave him some leverage to renew her requests.
Einhorn testified that he decided to tape record their subsequent conversations because he believed Altman was engaging in an "extortion attempt" and wanted to protect himself and his clients in the event Rosen testified in the Harrison Proceeding "without being paid off." Einhorn did not tell Altman that he was taping their conversations, and Altman was unaware that he was being taped.
In a taped telephone conversation on February 2, 2004, the following discussion ensued:MR. ALTMAN: I am not going to pull punches with you. They [Division staff] are aware[,] if asked, [Rosen] will testify that there was no virus in the computer,10 and I suspect once they start peeling it away, some other very, very unhelpful stuff with respect to the books and records of the firm --
(Untranscribable)
MR. ALTMAN: As I understand it, [b]ased on her personal knowledge, . . . it was a small suite of executive offices that they all sat in.
MR. EINHORN: Uh-huh.
MR. ALTMAN: And that this was not just a professional relationship, it was personal, not, not in any --
MR. EINHORN: Not a sexual or intimate way.
MR. ALTMAN: Not an intimate way, but a personal basis. And, listen, when you have a $60,000 a year secretary co-signing for cars of a president of a firm, it . . . raises eyebrows initially.11 Frankly, probably all this would have gone away if at least something would have happened,12 but, you know, if that's Fred's [Blumer] view, that is -- you know, it shouldn't have gone forward.
MR. EINHORN: No, no, no, I am here, Steven, trying to figure out what's happening here. So, she hasn't given that testimony?
MR. ALTMAN: That's correct. She is not a registered rep[resentative] so she is not at risk of losing her license if she doesn't appear any place.
MR. EINHORN: Well, suppose she gets a subpoena to appear at the hearing?
MR. ALTMAN: Well, you know[,] if she gets served, then, you know, she is going to be [like] any other human being. I, of course, can't advise her to evade the [subpoena] process, but . . . [m]emory fades and the like.13 And you know[,] I don't know.
MR. EINHORN: So, what you are saying is[,] if they reach some agreement, she would be more favorably inclined?
MR. ALTMAN: That would be my guess as to what her recollection would be, you know.14 I don't have the personal knowledge, and I haven't done a full debriefing of her. I know Fred, I met him, as he may have told you.
MR. EINHORN: Yeah, no, [Fred] told me he likes you.
MR. ALTMAN: I like him. He is a nice guy. This is all silly. I hate to see this happen. Really, it would be terrible.
MR. EINHORN: Okay.
MR. ALTMAN: If somebody just does the right thing,15 and
MR. EINHORN: But you think they learned about this from others and were pointed to her. They have other people lined up that are
MR.ALTMAN: No, no. I don't think that is the case.
MR. EINHORN: You don't think they have other people coming to testify?
MR. ALTMAN: No, no, not with respect to what I talked to you about.
MR. EINHORN: Okay.
MR. ALTMAN: I think if you cut it off with her, then it is closed. 16 That will be[,] you know[,] killing themselves.
You can read the additional taped conversations at http://sec.gov/litigation/opinions/2010/34-63306.pdf
After the hearing in the Harrison Proceeding, Einhorn withdrew as counsel for Harrison and Blumer and disclosed the tapes to law enforcement authorities. In September 2004, the ALJ in the Harrison Proceeding issued an initial decision finding that Harrison and Blumer had violated the federal securities laws, but that Rosen had been "thoroughly impeached" on cross-examination and was not a reliable witness.
The SEC's Opinon on Appeal
Following appeal, the SEC independently reviewed the case and found that Altman had engaged in unethical and improper professional conduct while representing a prospective witness in an SEC administrative proceeding, in violation of state bar disciplinary rules. In a rare move, the SEC permanently denied Altman the privilege of appearing or practicing before the SEC. In the Matter of Steven Altman, Esq, (Securities Exchange Act Of 1934 Rel. No. 63306 / Admin. Proc. File No. 3-12944, November 10, 2010). http://sec.gov/litigation/opinions/2010/34-63306.pdf
Contrary to popular belief, lawsuits are not necessarily effective ways for employers to "send a message." In theory, taking the hard line with settlements and regularly forcing disputes into court or arbitration is supposed to foster the quick resolution of cases for top dollar as former employees quake in their boots with fear. Indeed, that theory is reinforced by every victory.
However, proponents of this take-no-prisoners approach really can't afford so much as one loss out of a hundred. It's that one loss that becomes legendary and is circulated around the industry. It's that one case that gets written up in the "Street Legal" column of Registered Rep. and takes on an afterlife for years to come as an e-mail attached file, as a photocopy in a file drawer, as a linked result to an online search. Without question, this case sets back Wells Fargo/Wachovia far beyond the mere $2,000 net loss.
READ BILL SINGER'S ANALYSIS OF THIS CASE AT
http://registeredrep.com/advisorland/regulatory/finance_best_defense_good/index.html
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