The National Association of Securities Dealers fined daytrading company
and four of its owners $1.5 million for blending its business with a hedge fund, PTJP Partners.
The agency announced the fine last week, two and a half years after the obscure hedge fund first attracted the attention of the
Securities and Exchange Commission
in its investigation of initial public offering allocations.
The NASD said it barred Worldco Chief Executive John G. Miller from serving as a principal of a securities firm for three years. It suspended Worldco founder Peter Bruan for one year, and suspended his sons, Walter Scott Bruan and Christopher Bruan, for four months and 15 days, respectively. Miller was fined $250,000, Peter Bruan was fined $100,000, Walter Scott Bruan $50,000 and Christopher Bruan $30,000. Each of the men is a part owner in the firm, and their fines are part of the $1.5 million overall penalty.
The NASD said Worldco failed to disclose that Peter Bruan, who ran the hedge fund, also had a controlling ownership interest in Worldco when it applied for NASD membership. Bruan was concerned that the hedge fund's ongoing relationships with other broker-dealers would be disrupted if the other firms learned of his ownership of a competitor, the NASD said.
The investigation also said 40 traders, 13 of whom were Worldco employees, regularly traded using the company's proprietary accounts although they were not registered to do so.
The NASD also said Worldco kept inaccurate books and records and submitted inaccurate financial reports to the Securities and Exchange Commission and NASD. The company also misrepresented commission rebates owed to the hedge fund as revenue for the daytrading operation, in anticipation of an initial public offering of its own. According to the NASD, when plans for an IPO faltered, Worldco returned over $5 million to two Bruan family members for the benefit of PTJP and to another hedge fund also connected to the Bruan family.
In settling these charges, Worldco, John Miller, Peter Bruan, Walter Scott Bruan and Christopher Bruan neither admitted nor denied the charges.
In May 2001, Anthony Bruan, the brother of Peter Bruan and a manager of the PTJP fund, testified before a federal grand jury that
Credit Suisse First Boston, Goldman Sachs, Lehman Brothers, Merrill Lynch, Morgan Stanley Dean Witter, Robertson Stephens
Salomon Smith Barney
all demanded a share of trading profits and commitments to buy more shares after initial public offerings of technology companies at a time when shares could skyrocket in value on the day of their debut.