UNITED STATES OF AMERICA Before the SECURITIES AND EXCHANGE COMMISSION SECURITIES EXCHANGE ACT OF 1934 Release No. 40101 / June 19, 1998 ADMINISTRATIVE PROCEEDING File No. 3-9444 ______________________________ : In the Matter of :ORDER MAKING FINDINGS, :IMPOSING REMEDIAL SANCTIONS CORTLANDT CAPITAL CORP., :AND ORDERING RESPONDENTS MAYER AMSEL, and :TO CEASE AND DESIST JOSEPH MICHAEL GUCCIONE, :PURSUANT TO SECTIONS 15(b), :21B AND 21C OF THE SECURITIES Respondents. :EXCHANGE ACT OF 1934 AGAINST :CORTLANDT CAPITAL CORP. AND ______________________________:JOSEPH MICHAEL GUCCIONE I. On September 26, 1997, the Securities and Exchange Commission ( Commission ) instituted these administrative proceedings pursuant to Sections 15(b) and 21C of the Securities Exchange Act of 1934 ( Exchange Act ). II. Respondents Joseph Michael Guccione ( Guccione ) and Cortlandt Capital Corp. (Cortlandt) have each submitted an Offer of Settlement (the Offers) which the Commission has determined to accept. Under the terms of the Offers, Guccione and Cortlandt consent, without admitting or denying the findings contained in this order, solely for the purpose of these proceedings and any other proceedings brought by or on behalf of the Commission or in which the Commission is a party, to the issuance of the Order Making Findings and Imposing Remedial Sanctions and Ordering Respondents to Cease and Desist Pursuant to Sections 15(b), 21B and 21C of the Securities Exchange Act of 1934 Against Cortlandt Capital Corp. and Joseph Michael Guccione ( Order ). III. The Commission makes the following findings:<(1)> RESPONDENTS Joseph Michael Guccione, age 51, resides in North Bellmore, New York. Guccione was the president and a registered principal <(1)> The findings herein are made pursuant to Guccione's and Cortlandt's Offers of Settlement and are not binding on any other person or entity in this or any other proceeding. of Cortlandt from June 1990 to November 1995. ======END OF PAGE 1====== Cortlandt Capital Corp. is a broker-dealer registered with the Commission pursuant to Section 15(b) of the Exchange Act. Cortlandt's principal place of business is New York, New York. At the time of the events described herein, Cortlandt was known as Greenway Capital Corp. OTHER RELEVANT ENTITIES Vertex Industries, Inc. (Vertex) is based in New Jersey and manufactures and sells bar code scanners and provides related operating software. Vertex common stock is registered with the Commission pursuant to Section 12(g) of the Exchange Act. During the relevant time period, Vertex common stock traded over-the-counter as a Nasdaq SmallCap security. On November 26, 1993, Vertex also listed its common stock on the Boston Stock Exchange. SUMMARY From September 1993 through February 1994, Mayer Amsel (Amsel), Cortlandt's head equities trader who also served as a retail broker, and Cortlandt, acting through Amsel, with substantial assistance rendered knowingly or recklessly by Guccione, manipulated the market for Vertex common stock. Between March 2, 1993 and September 2, 1993, Cortlandt's customers, at Amsel's urging, accumulated large, margined positions in Vertex stock after Cortlandt s clearing broker improperly designated Vertex stock a margin security in its internal computer system. <(2)> Upon discovering its mistake in late August 1993, the clearing broker required Cortlandt to reduce the margin debits in its customers accounts, and eventually conducted sell-outs of Cortlandt s customers' margined Vertex holdings. In order to stabilize or increase the price of Vertex stock in the face of substantial selling pressure, Amsel and Cortlandt (1) made unauthorized purchases in customers accounts, (2) refused to execute customers sell orders with respect to Vertex stock, (3) arranged for customers to transfer margined Vertex shares to newly opened accounts at other broker-dealers, (4) directed nominees to purchase stock at other broker-dealers, and (5) interpositioned wholesale broker-dealers between Cortlandt and the nominees in order to disguise Cortlandt as the source of the shares sold to the nominees. Amsel and Cortlandt, therefore, used manipulative and deceptive devices in a scheme to defraud the market for Vertex stock. Guccione worked with Amsel at the trading desk and directly supervised him. Guccione and Cortlandt knew or should have known of Amsel's conduct. Guccione and Cortlandt failed to take appropriate measures to ensure Amsel did not abuse his position as head equities trader. Guccione, therefore, caused and aided and abetted Amsel's and Cortlandt's violations, and Guccione and Cortlandt failed reasonably to supervise Amsel. FACTS From late 1990 to February 1993, Cortlandt customers accumulated positions in Vertex stock. Amsel touted the stock as the next Microsoft to his customers and to other Cortlandt brokers. By February 1993, Cortlandt customers held approximately 260,050 shares of Vertex stock. Cortlandt customers bought all of their Vertex holdings in cash accounts because Cortlandt's clearing broker would not extend credit for purchases of Vertex stock because it was not a margin security under Regulation T of the Exchange Act. Early in 1993, Amsel requested that Cortlandt's clearing broker make Vertex stock a margin security. On March 2, 1993, an employee of the clearing broker improperly designated Vertex stock as a margin security in the clearing broker's internal computer system, thus making it possible for the clearing broker's correspondent firms to purchase Vertex stock on margin. Many Cortlandt customers purchased large amounts of Vertex stock in margin accounts using the buying power of their appreciated Vertex holdings to do so. As Cortlandt customers continued to buy Vertex shares, the stock price rose, creating even more buying power in customers margin accounts and allowing the customers to buy even more Vertex on margin. <(2)> The clearing broker consented to the entry of a cease-and-desist order and the payment of a $50,000 civil penalty for violations of Section 7(c) of the Exchange Act, and Regulation T thereunder, in connection with this matter. National Financial Services Corp., Exchange Act Release No. 38150 (Jan. 10, 1997). ======END OF PAGE 2====== By September 1993, Cortlandt customers holdings in Vertex had quadrupled -- from 260,050 shares as of February 26, 1993 to 1,067,873 shares as of September 2, 1993. The latter amount represented approximately 22% of the total shares outstanding and two-thirds of the float. During this time, the price of Vertex also quadrupled -- from approximately $6 to nearly $22 per share. In late August 1993, the clearing broker determined that it had improperly extended and maintained nearly three million dollars credit on purchases of approximately 900,000 shares of Vertex stock held by Cortlandt's customers. The clearing broker advised Guccione and Cortlandt that it had corrected its erroneous designation of Vertex stock as a margin security, and that resulting debit balances created in Cortlandt's customers accounts had to be eliminated by either depositing cash or other securities into the accounts, or by selling Vertex shares or other securities in the accounts. Both Amsel and Guccione knew that liquidating Cortlandt's customers holdings in Vertex would cause the share price to decline sharply because Vertex stock was illiquid and thinly traded, and Cortlandt controlled approximately two-thirds of the float. The potential consequences to Cortlandt of an imminent sharp decline in the price of Vertex were obvious -- it could cause a wave of margin defaults by Cortlandt customers which could threaten Cortlandt's solvency. In response to this problem, Amsel and Cortlandt employed manipulative and deceptive practices to create artificial demand for, and restrict the supply of, Vertex stock in the market. Amsel restricted the supply of Vertex stock by refusing to execute customers sell orders and by transferring margined shares that would have been sold-out to other broker-dealers, without disclosing to Cortlandt customers or the other broker-dealers the manipulative scheme to support Vertex's stock price. Moreover, Amsel created artificial demand for Vertex stock by making unauthorized purchases in customers' accounts and by directing nominees to purchase shares at other broker-dealers for his benefit. Amsel and his nominees never paid for the majority of these shares, leaving debit balances totaling approximately $2.3 million with six broker-dealers. Finally, Amsel was able to unload thousands of Vertex shares from Cortlandt's proprietary trading account and customers accounts by disguising Cortlandt as the source of shares sold into the market. Amsel did this by interpositioning wholesale broker-dealers between Cortlandt and his nominees who were purchasing Vertex shares at other broker-dealers. Therefore, Cortlandt, acting through Amsel, willfully violated Sections 10(b) and 15(c) of the Exchange Act and Rules 10b-5 and 15c1-2, and Amsel willfully violated Sections 10(b) of the Exchange Act and Rule 10b-5. Guccione knowingly or recklessly rendered substantial assistance to Amsel and Cortlandt in the scheme to manipulate the price of Vertex stock. Guccione not only was the president and a registered principal of Cortlandt, he also functioned as the head of the trading operations of the firm. Guccione spent most of his time in the trading room sitting next to Amsel and other traders at the trading desk. He conducted daily meetings to monitor each traders activities and put limits on the size of Amsel's transactions and positions in Vertex stock. Guccione assisted Amsel by, among other things, refusing to allow customers' sell orders for Vertex stock to be processed, and arranging for the transfer of customers margined Vertex holdings to other unsuspecting broker-dealers. Without the complicity of Guccione, Amsel's and Cortlandt's manipulative and fraudulent scheme could not have succeeded. Guccione and Cortlandt failed to maintain or enforce a reasonable system of supervision or internal controls over Amsel. Guccione was responsible for hiring at Cortlandt, and for ensuring adequate controls were in place. Guccione knew that Cortlandt's designated compliance officer was out of the office, sick, and in the hospital for most of the September 1993 through December 1993 period. Guccione did not appoint a substitute compliance officer. The absence of a compliance officer, among other things, allowed Amsel to abuse his position as head trader. Guccione and Cortlandt also failed reasonably to supervise Amsel despite the existence of numerous red flags which suggested the need for a heightened degree of supervision of Amsel. First, Guccione and Cortlandt knew Amsel was a respondent in a NASD disciplinary proceeding in which it was alleged Amsel had parked stock and used fictitious customers and accounts at a prior employer. Second, Guccione and Cortlandt knew of customer complaints concerning Amsel's unauthorized purchases of Vertex stock in their accounts, and of Amsel's failures to execute customer sell orders for Vertex stock. Third, Guccione and Cortlandt knew that some of Amsel's customers had failed to pay for purchases of Vertex stock in their Cortlandt accounts. Finally, Guccione and Cortlandt knew Amsel's customers had opened new accounts at other broker-dealers in order to transfer margined Vertex shares to those accounts. ======END OF PAGE 3====== Guccione, therefore, caused and willfully aided and abetted Cortlandt's violations of Sections 10(b) and 15(c) of the Exchange Act and Rules 10b-5 and 15c1-2, and Amsel's violations of Section 10(b) of the Exchange Act and Rule 10b-5. Further, Guccione and Cortlandt failed reasonably to supervise Amsel, a person subject to their supervision, with a view to preventing his violations of Section 10(b) of the Exchange Act and Rule 10b-5. Cortlandt has submitted a sworn financial statement and other evidence and has asserted its financial inability to pay a civil penalty. The Commission has reviewed the sworn financial statement and other evidence provided by Cortlandt and has determined that Cortlandt does not have the financial ability to pay a civil penalty. IV. In view of the foregoing, the Commission deems it appropriate and in the public interest to accept the Offers of Settlement of Guccione and Cortlandt. Accordingly, IT IS ORDERED: (a) pursuant to Section 21C of the Exchange Act, that Cortlandt and Guccione cease and desist from committing or causing any violation and any future violation of Sections 10(b) and 15(c) of the Exchange Act and Rules 10b-5 and 15c1-2. (b) that Guccione be, and hereby is, barred from association with any broker, dealer, municipal securities dealer, investment adviser or investment company, with the right to reapply for association after four years to the appropriate self-regulatory organization, or if there is none, to the Commission. (c) that Guccione shall, within twenty (20) days of the entry of this Order, pay a civil money penalty in the amount of $20,000 to the United States Treasury. Such payment shall be: (A) made by United States postal money order, certified check, bank cashier's check or bank money order; (B) made payable to the Securities and Exchange Commission; (C) hand-delivered or mailed to the Comptroller, Securities and Exchange Commission, Operations Center, 6432 General Green Way, Stop 0-3, Alexandria, VA 22312; and (D) submitted under cover letter that identifies Joseph Michael Guccione as a Respondent in these proceedings, the file number of these proceedings, a copy of which cover letter and money order or check shall be sent to Kenneth L. Miller, Assistant Chief Litigation Counsel, Division of Enforcement, Securities and Exchange Commission, 450 5th Street, N.W., Stop 8-8, Washington, D.C. 20549. (d) that the registration of Cortlandt Capital Corp. be, and hereby is, revoked. (e) that the Division of Enforcement may, at any time following the entry of this Order, petition the Commission to: (1) reopen this matter to consider whether Cortlandt provided accurate and complete financial information at the time such representations were made; (2) determine the amount of the civil penalty to be imposed; and (3) seek any additional remedies that the Commission would be authorized to impose in this proceeding if Cortlandt's offer of settlement had not been accepted. No other issues shall be considered in connection with this petition other than whether the financial information provided by Cortlandt was fraudulent, misleading, inaccurate or incomplete in any material respect, the amount of civil penalty to be imposed and whether any additional remedies should be imposed. Cortlandt may not, by way of defense to any such petition, contest the findings in this Order or the Commission s authority to impose any additional remedies that were available in the original proceeding. By the Commission. Jonathan G. Katz Secretary ======END OF PAGE 4======