SEC Upholds Suspension of Brokerage Employee

The Securities and Exchange Commission on Wednesday upheld an administrative law judge’s ruling suspending a former PaineWebber manager for six months because she failed to properly supervise an employee who stole more than $100,000 from clients.

The SEC said it found that while manager of PaineWebber’s Beverly Hills office from 1987 through May, 1988, Patricia Johnson disregarded firm procedures and ignored numerous red flags that should have prompted her to scrutinize the activities of broker David Zetterstrom. She did so despite numerous complaints from clients, the SEC said.

The agency cited a case involving a customer who complained about Zetterstrom in October, 1987, saying that he told her he had sold her Pennzoil Co. shares at $61 each when the actual price was $51 apiece.

Johnson and other PaineWebber officials placed Zetterstrom on probation early in 1988 because of the complaints. He was fired June 10 of that year and committed suicide three days later. A subsequent PaineWebber audit found that he had misappropriated $114,500 from three clients.

The judge ruled against Johnson in April of 1994; she appealed the next month. Her attorney, Arthur Hahn, said they will appeal the SEC’s decision. Under the law, such appeals may be made to the U.S. Circuit Court of Appeals.

“We’ve always taken the position that we will appeal it because, one, we think the decision is wrong on the merits, and because the SEC had no justification for waiting more than five years after the events to bring the case,” said Hahn, an attorney at Katten Muchin & Zavis in Chicago.

“This is a violation of a federal statute and made for an unfair trial,” he said.