ORDER APPROVING APPLICATION FOR RELIEF FROM A STATUTORY DISQUALIFICATION
Daniel V. Covello is subject to a statutory disqualification as the result of an Order Instituting Proceedings, Making Findings and Imposing Remedial Sanctions ("Bar Order") dated April 5, 1984, in which he was barred from being associated with any broker, dealer, municipal securities dealer, or investment company, with the proviso that after 12 months, he could reapply for association with the appropriate self-regulatory organization.1 On the same day, the United States District Court for the Southern District of New York found that Mr. Covello had violated Section 10(b) of the Securities Exchange Act of 1934 ("Exchange Act") and Rule 10b-5 promulgated thereunder, and permanently enjoined Mr. Covello from violating Rules 10b-5 and 14e-3 of the Exchange Act. Also, this same court convicted Mr. Covello of one count of conspiracy and of one count of charging violation of Section 10(b) of the Exchange Act and Rule 10b-5 promulgated thereunder.
The bar stemmed from Mr. Covello's activities in 1981 and 1982. According to the Bar Order, the Securities and Exchange Commission ("Commission") found that Mr. Covello violated Section 10(b) of the Exchange Act and Rule 10b-5 promulgated thereunder by trading while in the possession of material non-public information and knowing or having reason to know or acting in reckless disregard of the fact that the information had been obtained through misappropriation, by a breach of fiduciary or other relationship of trust and confidence or through other wrongful acts.
In August 1985, the New York Stock Exchange, Inc., ("NYSE") filed a Rule 19h-1 notice about the proposed association of Mr. Covello as a bond trader and special limited partner with Mabon Nugent & #$%$ September 13, 1985, the Commission issued an Order ("1985 Order of Approval") consenting to this proposed association. In April 1986, the NYSE filed another notice to approve Mr. Covello as an Allied Member of the NYSE and a general partner of the same firm. On May 27, 1986, the Commission approved that notice. In January 1992, the NYSE filed a notification approving Mr. Covello's association as a general securities representative, bond trader, and special limited partner, again with the same firm. On February 21, 1992, the Commission acknowledged this notification. In April 1994, the National Association of Securities Dealers ("NASD") filed a notification with the Commission approving Mr. Covello to become associated with Patriot Securities, L.P. ("Patriot"), as a general securities representative. Patriot is the predecessor to Tullett Liberty Securities, Inc. ("Tullett").
NASD now proposes to continue Mr. Covello's association as a general securities representative with Tullett, but with less frequent supervision then the 1985 Order of Approval. Under this proposal, Mr. Covello will continue to work out of Tullett's home office as a broker of corporate debt securities. Mr. Covello will be compensated with an annual salary plus a quarterly discretionary bonus.
NASD has filed an application pursuant to Rule 19h-1 under the Exchange Act on behalf of Mr. Covello seeking an order declaring that, notwithstanding the statutory disqualification, the Commission:
1.Will not institute proceedings pursuant to Sections 15(b)(4), 15(b)(6), 19(h)(2), or 19(h)(3) of the Exchange Act solely on the basis of Mr. Covello's position as a general securities representative at Tullett; and
2.Will not direct NASD to bar the proposed association, as provided in Section 15A(g)(2) of the Exchange Act.
In its application, NASD made numerous representations regarding Mr. Covello's proposed association, including the following:
1.Mr. Covello has been in compliance with the terms of his 1985 Order of Approval since it was entered.
2.Tullett's predecessor became a member of NASD in April 1991. Tullett acts as an interdealer broker of corporate debt, US Government securities, mortgage-backed securities, and emerging-market debt. Tullett does not trade as a proprietary trader. Tullett's main office is in New York, New York.
3.Tullett proposes to continue to employ Mr. Covello as a general securities representative, but with less frequent supervision than the 1985 Order of Approval. Under the NASD proposal, Mr. Covello will continue to work out of Tullett's home office as a broker of corporate debt securities. Specifically, Mr. Covello's activities will be limited to the brokering of fixed income transactions with institutional clients in which Tullett is acting in its capacity as an interdealer broker. Mr. Covello will be compensated with an annual salary plus a quarterly discretionary bonus.
4.Mr. Charles Watson will be the primary, responsible supervisor for Mr. Covello. Mr. Watson has been in the securities industry since 1975 and has been a general securities principal since 1995. Mr. Watson has been a desk head at Tullett since 1996. Currently, Mr. Watson is Mr. Covello's desk head. Mr. Watson has no disciplinary or regulatory history.
5.Mr. Watson will perform a quarterly review of Mr. Covello's overall business activities.
6.Mr. Watson will perform a quarterly review of Mr. Covello's trading activity. This review will be evidenced by Mr. Watson initialing a quarterly activity report.
7.Mr. Watson will perform a quarterly review of Mr. Covello's commission runs.
8.Mr. Watson will perform a quarterly compliance review of Mr. Covello for compliance with regulatory procedures and Tullett policies.
9.Mr. Covello will have no supervisory duties.
10.Any personal accounts held by Mr. Covello or any of his immediate family members will be subject to a monthly compliance review. Copies of confirmations and statements generated by those brokerage accounts will be sent directly to Tullett.
11.Mr. Covello will work out of the same office as Mr. Watson, at the same trading desk.
12.Tullett represents that, in addition to this above-mentioned quarterly review, Mr. Covello's activities will also be subject to a daily review as part of Tullett's supervision of its corporate bond business. The daily record of the trading activity of the desk where Mr. Covello will be working indicates the brokers involved in each transaction; each broker's activity can be readily identified and reviewed accordingly. The record of the daily trading activity for Mr. Covello's desk is in the form of a blotter consisting of all trades done for the day by the broker on the desk. All details of each transaction are contained in the blotter. Each trade on the blotter denotes whether a buy or sell, amount, price, security, cusip, trade date, settlement date, commission, counterparty, and the broker handling the trade. The daily review is evidenced by Mr. Watson initialing a daily compliance worksheet. Mr. Watson does not initial each trade by trade but rather initials the daily compliance worksheet.
13.Apart from the disqualifying events, Mr. Covello has had no other disciplinary problems either before or after those events.
14.Mr. Covello meets all applicable requirements for the proposed employment.
The Commission staff, in the exercise of delegated authority (17 CFR 200.30-3(a)(4)), has reviewed the instant application and the record before NASD and, relying on the representations made by Tullett with respect to the supervision of Mr. Covello and the conditions placed on his employment,2 has concluded that it is appropriate for the Commission to approve the application for Mr. Covello's association with Tullett as a general securities representative.
Accordingly, IT IS ORDERED that said application of NASD on behalf of Mr. Covello be, and hereby is, approved.
For the Commission, by the Division of Market Regulation, pursuant to delegated authority.