U.S. SECURITIES & EXCHANGE COMMISSION

Olde Discount Settles Sales Practice Abuses Suit

FOR IMMEDIATE RELEASE
98-83
                                       

Olde Discount Corp. and Three Senior Officials To Pay More Than $5 Million to Settle Sales Practice Abuses Suit

Olde's Compensation, Production, Hiring and Training Policies Created An Environment In Which Fraudulent Sales Practices Occurred

     Washington, D.C., September 10, 1998 - The Olde Discount Corp. and three senior officials, including its founder and Chairman Ernest Olde, today agreed to pay more than $5 million in fines to the Securities and Exchange Commission to settle a fraudulent sales practice suit.
     The Commission found that Olde Discount Corp. willfully violated the antifraud provisions of the federal securities laws. The Commission determined that Olde's compensation, production, hiring, and training policies created an environment that enabled the firm's brokers to engage in abusive sales practices, such as churning, unauthorized and unsuitable trading, and lying to customers. The Commission also
found that Ernest J. Olde, founder and chairman of Olde's parent company, failed to supervise and caused the violation of the antifraud provisions and that Stanley A. Snider, Olde's former director of national sales, and Daniel D. Katzman, a former Olde regional manager, induced and caused the violation of such provisions.
     The Commission ordered Olde to pay a $4 million civil penalty, and Messrs. Olde, Snider and Katzman to pay $1 million, $100,000, and $50,000 in penalties, respectively. In addition, the Commission barred Snider and Katzman from association with any broker, dealer, municipal securities dealer, investment adviser or investment company, with the right to reapply for association in a non-supervisory capacity
after 5 years. Ernest Olde was suspended from association from such entities for 1 year. The Commission also ordered each of the respondents to cease and desist from further violations.
     Olde also is to waive applicable statutes of limitation defenses in related arbitration proceedings filed by present or former Olde customers by March 9, 1999.
     Arthur Levitt, Chairman of the Securities and Commission, said, "This action makes clear that brokerage firms must place the interests of their clients first, and must avoid practices that put the firm and its brokers in conflict with the interests of its clients. The abuses the SEC found were egregious and well outside the industry's `best practices' as laid out in the Tully Report. This case should send a very strong message that abusive practices will be vigorously punished and that officials at all levels will be held accountable."
     Richard H. Walker, Director of the Commission's Division of Enforcement, said, "Where the practices of a firm and its senior officials create a climate that invites the abuse of customers, the firm and those involved must bear the consequences. This case will hopefully prompt all firms to actively review their compensation, production, hiring and training policies in order to minimize these risks."
     The Commission found that Olde's compensation and production policies created an environment where the pressure to sell overshadowed customer suitability determinations. The Commission also found that Olde's hiring and training practices encouraged the use of high pressure sales techniques.
     Under its compensation policies, Olde gave substantially higher payouts to its brokers for selling special venture stocks (stocks recommended by Olde) than for other stocks. Olde used sales credits to pay different levels of compensation for different special venture stocks and alerted its brokers to stocks with high credits. Many brokers concentrated their selling efforts on such stocks, a practice known as "credit shopping." The Commission found that a system that gives brokers additional compensation for the sale of particular products creates the potential for a conflict of interest between the brokerage firm and its customers. Olde's compensation system induced its brokers to sell those stocks in which they had the greatest financial interest without considering the suitability of such stocks for their customers.
     Olde's production policies created overt pressure to sell. Olde brokers were required, in order to maintain their commission privileges, to sell an average of two new special venture stock positions every day, net of any positions sold, worth at least $20,000 in the aggregate. By requiring brokers to build positions in special venture stocks or run the risk of termination or a lower commission payout, Olde insured that its brokers would continue to aggressively sell special venture stocks. In addition, to
avoid having Olde reassign their customers, brokers needed to convince each of their customers to buy at least one Olde recommended security every six months. Sales transactions did not count, nor did purchases of non-Olde recommended stocks.
     Olde's hiring and training practices encouraged the brokers' use of high pressure sales techniques. Brokers were taught to "cross-sell," that is to convince customers who wanted to buy non- Olde recommended stocks, on which brokers received little compensation, to buy special venture stocks instead. Brokers were told, "Why let someone buy a stock you're not going to get paid on?" Brokers were taught to create "a sense of urgency" and to tell customers that if they did not buy immediately, they would not be able to get the stock tomorrow. Brokers were to continue to "pitch" a stock to their customers until they agreed to buy. Brokers were also taught to use sales scripts that contained false statements, such as "the price of the stock is going up" and that the broker had been "watching the stock for two years." In addition, brokers were told to make misleading statements to customers concerning the financial interest of Olde and the brokers in effecting transactions for customers.
     Working in the environment created by these policies, certain Olde brokers at various branch offices throughout the country churned customer accounts, engaged in unauthorized and unsuitable trading, and used high pressure sales methods to induce customers to buy special venture stocks.
     As part of the Commission's order, Olde is also to adopt and implement those policies and procedures as may be recommended by an independent consultant, who is to review Olde's compensation, production, hiring and training policies.
     Each of the respondents consented to the entry of the Commission's order without admitting or denying its findings.
     
     For further information, please contact:
     Richard Wessel, Administrator of the Atlanta District Office, at (404) 842-7610, or
     Richard Murphy, Senior Trial Counsel, at (404) 842-7665

      See Administrative Proceeding File No. 3-9699, in the matter of Olde Discount Corp., Ernest J. Olde, Stanley A. Snider, and Daniel D. Katzman

http://www.sec.gov/news/olde.htm
Last update: 09/10/98