The SEC Begins Clean Up of The American Stock Exchange After Years of Neglect

On March 22, 2007, a group of actions were handed out by the SEC surrounding the regulatory self monitoring and enforcement of the American Stock Exchange (“AMEX”). In three separate releases the SEC laid out what it sees an era of neglect within AMEX for the period of 1999 to 2004. The releases were aimed at former AMEX Chairman and CEO Mr. Salvatore F. Sodano, former Vice President Richard Robinson in charge of AMEX’s Derivatives Trading Analysis Department (“DTA”), and the AMEX.

Order # 34-55509, in a matter not yet settled, alleges that Mr. Sodano was derelict in his duties as an officer of AMEX for failing to enforce AMEX rules and securities law. The language of the order is strong stating Mr. Sodano’s failures over the period of 1999 to 2004 created “an environment in which regulation was not a priority.” The SEC found these failures to be especially egregious in lieu of a September 2000 order which the SEC made Sodano aware of similar problems in AMEX’s options and equities markets. The March 2007 order alleges that, despite the Sept. 2000 findings, which Mr. Sodano understood to be dire, he failed to institute regulatory reform centered on correcting the shortfalls and that this lack of attention is emblematic of even broader neglect.

 In order # 34-55508, the SEC accepted an offer to settle from Mr. Robinson to entry of an “[o]rder Instituting Cease-and-Desist Proceedings, Making Findings, and Imposing a Cease-and-Desist Order.” The SEC found that during the period of 1999 to 2003, Mr. Robinson was derelict in his duties. Mr. Robinson was in charge of overseeing the DTA’s “regulatory surveillance programs for the derivative and options markets.” Moreover, as was the case with Mr. Sodano, Mr. Robinson was aware of the September 2000 which listed AMEX’s inadequate regulatory programs. Specifically, Mr. Robinson failed to institute adequate surveillance and enforcement programs in the shadow of the September 2000 order. As a result, Mr. Robinson agrees to “cease and desist from causing any future violations.”

Similarly, in order # 34-55507 the SEC announced it was accepting a settlement offered by AMEX to improve its internal regulatory enforcement mechanisms. In the settlement AMEX consented, without admitting or denying the findings, to an entry of an “[o]rder Instituting Administrative and Cease-and-Desist Proceedings, Making Findings, and Imposing Remedial Sanctions, a Censure, and a Cease-and-Desist Order.”

The SEC determined that AMEX, under the tenure of Mr. Sodano and Mr. Robinson, failed to adequately surveil, investigate and subsequently to enforce rules and or laws of violations to “certain options order handling rules.” Further, AMEX’s internal policies continue to be inadequate. Pursuant to the order AMEX must now institute policies that would enhance its ability to effectively manage its regulatory functioning. The SEC created a four point plan to establish the goal of effective regulatory management. For its part AMEX agrees to be censured, to cease and desist from further violations, and to institute the SEC plan. Primary materials for the case may be found at the DU Corporate Governance website.