Joseph J. Porco, Managing Director, Independent Asset Management

The Securities and Exchange Commission May 6, 2010 

Mary L. Schapiro, Chairman 

100 F Street North East 

Washington DC 20549 

From: 

Cc: Commissioner Kathleen L. Casey Joseph J. Porco 

Commissioner Elisse B. Walter 

Commissioner Luis A. Aguilar 

Commissioner Troy A. Paredes 

XT 

Managing Director 

Independent Asset Management 

Po Box 379 

Cc: Office of the Secretary Newtown CT 06470 

Elizabeth M. Murphy, Secretary 



Stop 1090 

RE: Surplus funds from the Matters of: Bear Wagner Specialists LLC: Admin. Proc. File No. 3 

11445: Fleet Specialist, Inc: Admin. Proc. File No. 3-11446: LaBranche & Co. LLC: Admin. 

Proc. File No. 3-11447: Spear, Leeds & Kellogg Specialists LLC: Admin. Proc. File No. 3 

11448: Van der Moolen Specialists USA, LLC: Admin. Proc. File No. 3-11449: Performance 

Specialist Group LLC: Admin. Proc. File No. 3-11558: SIG Specialists, Inc: Admin. Proc. File 

No. 3-11559 

Dear Commissioner, 

Enclosed is a letter requesting financial relief to be paid out of the Surplus funds (from the above 

referenced matter) to Independent Asset Management and it principals, George Szele and Joseph 

Porco. I have tried the best I can to articulate my request. 

I have included copies of background information, including multiple correspondence written to 

your office in 2006 by Congressman Shays on our behalf. 

You should be receiving a letter from our current Congressman, Chris Murphy shortly. His office 

is aware of our situation and I have reached out to him for assistance. 

I was glad to hear that Robert Peacock's comments will soon be posted. Robert was one of the 

other eight that previously commented. Despite the struggle and hardship we have endured my 

faith and trust remains that your office will do the correct thing and right the wrong that has been 

done to us. 

I can be reached at . 

Sincerely, 

Joseph J. Porco 


Independent Asset Management

The Securities and Exchange Commission May 4, 2010 

Mary L. Schapiro, Chairman 



Cc: Commissioner Kathleen L. Casey 

Commissioner Elisse B. Walter 

Commissioner Luis A. Aguilar 

Commissioner Troy A. Paredes 

Cc: Office of the Secretary 

Elizabeth M. Murphy, Secretary 



Stop 1090 

RE: Surplus funds from the Matters of: Bear Wagner Specialists LLC: Admin. Proc. File No. 3 

11445: Fleet Specialist, Inc: Admin. Proc. File No. 3-11446: LaBranche & Co. LLC: Admin. 

Proc. File No. 3-11447: Spear, Leeds & Kellogg Specialists LLC: Admin. Proc. File No. 3 

11448: Van der Moolen Specialists USA, LLC: Admin. Proc. File No. 3-11449: Performance 

Specialist Group LLC: Admin. Proc. File No. 3-11558: SIG Specialists, Inc: Admin. Proc. File 

No. 3-11559 

Dear Chairman Mary L. Schapiro, 

On behalf of Independent Asset Management LLC and its principals, I am writing to you to 

request emergency relief of our damages from the remaining surplus funds of 130 million dollars. 

We had previously provided our comments on January 24lh 2006 regarding the distribution of 

funds and asked for relief for the damages caused to our company. We provided evidence as to 

how the specialist fraud damaged our company and explained in detail the extent that this fraud 

hurt us personally. 

On October 17th, 2006, our CT Congressman Shays wrote to Chairman Cox (for a 2nd time) on 

our behalf regarding our meeting meting at your NYC office, which was held on September 29th 

2006 with David Rosenfeid, David Markowitz and Sanjay Wadhwa. That day we provided 

personal testimony regarding our damages for your records. 

In his letter to Chairman Cox, Congressman Shays noted that his understanding was that our 

meeting was productive, but our follow up request for further discussion was never granted. It 

seems our damages and need for relief has been forgotten or dismissed by the subjective 

narrowing of the definition of "injured customers". It is our position that the Distribution Plan

unreasonably failed to allocate compensatory damages to those injured, specifically, Independent 

Asset Management lie (IAM), and its principal's, George Szele and Joseph J. Porco. Up until this 

point, the method of distribution unequally treated persons who were similarly situated. I beseech 

you to remedy this situation. 

Since we were not included, the Distribution Plan's method of distribution did not address our 

special damages, and thereby has fostered unfairness. Now that there is a surplus remaining, I 

respectfully request that David Rosenfeid, David Markowitz and Sanjay Wadhwa be consulted 

regarding the content of the meeting held onSeptember 29th 2006. 

To date, neither Independent Asset Management lie (IAM), nor its principal's, George Szele and 

Joseph J. Porco have received any relief for damages. In our letter we forwarded on October 6, 

2006, we again outlined why we were special victims of the fraud, with special and unique 

damages. 

Now that SEC has distributed all other funds as it determined was necessary and a surplus 

remains, I request that consideration be given address our damages. It would be extremely 

unfortunate if the Commission dismissed our damages, when it is within the Commission's power 

to right the wrong that has been done to us. The facts are that we were damaged by the fraud 

perpetrated by the Specialist firms and the NYSE failure to regulate them. It is my understanding 

that only eight comment letters were sent in and Independent Asset Management's letter was one 

of them. Only eight entities responded with comment and request for relief or suggestions. 

The general response in the Order Approving a Distribution Plan, 

Release No. 53823 / May 17,2006: In the Matters of: Bear Wagner Specialists LLC: Admin. 

Proc. File No. 3-11445: Fleet Specialist, Inc: Admin. Proc. File No. 3-11446: LaBranche & 

Co. LLC: Admin. Proc. File No. 3-11447: Spear, Leeds & Kellogg Specialists LLC: Admin. 

Proc. File No. 3-11448: Van der Moolen Specialists USA, LLC: Admin. Proc. File No. 3 

11449: Performance Specialist Group LLC: Admin. Proc. File No. 3-11558: SIG Specialists, 

Inc: Admin. Proc. File No. 3-11559, 

indicated that the Commission's position at that time was that damages of the sort claimed by 

IAM and the SC Traders were speculative, remote, and "notoriously" difficult to calculate. We 

outlined our damages and gave testimony on Friday, September 29,', 2006 at your NYC office. It 

is not difficult to calculate our damages and we are ready to assist you in doing so. We ask that 

the Commission reconsider its position and pay us out of the 130 million dollar surplus, which is 

left over. We estimated our damages appropriately and again, implore you for relief. 

The Commission stated that neither it's staff nor the fund administrator has the knowledge or 

expertise to evaluate these claims, and doing so would require the expenditure of considerable 

resources. I respectfully ask...is this our fault? Shouldn't the SEC have or be given the resources and 

expertise to protect and reimburse United States citizens with the very funds it collects from penalties 

paid by those which committed the fraud? 

If considerable effort is required to address our concerns, shouldn't the effort be made? Is it not the 

role of the Commission to undertake what is necessary to do the right thing? The mission of the U.S. 

Securities and Exchange Commission is to protect investors, maintain fair, orderly, and efficient 

markets, and facilitate capital formation. Our company was damaged. If we are not given relief from 

the damages of the fraud, how were we protected?

I don't believe that David Rosenfeid, David Markowitz and Sanjay Wadhwa dispute that we were 

damaged. You now have 130 million dollar surplus left over. What considerable resources would it 

take to sit down with us and determine an amount, which the Commission feels is reasonable to 

reimburse us for our lost income caused by the specialist fraud? 

The Commission stated that "if speculative consequential damages are entertained, there are 

potentially millions of claimants (there are over 2.6 million violative trades, each of which may have 

resulted in some consequential harm to some person), and the process of adjudicating the relative 

merits of all these claims would quickly dissipate the Remaining Funds." Respectfully, this position is 

now erroneous because the funds have not been dissipated and there is a surplus. Furthermore, have 

any other people (of these potentially millions of claimants) who suffered consequential harm from 

the 2.6 million violative trades come forward to ask for relief? I do not believe they have. Still, to 

date, only a handful of comments have been submitted. We however, did come forward and have 

made every effort and have endured much personal hardship while we pursued this matter over the 

last few years. 

The Commission disagreed with Empire's suggestion that the Remaining Funds should be 

distributed pro-rata to the injured, because The Commission believed at the time that such 

payments would result in the injured customers obtaining an undeserved windfall. Independent 

Asset Management and its principals never asked the Commission for a pro-rata distribution and 

we are not asking the Commission for a windfall. Rather, we ask for reasonable payment for 

damages, from which we have never recovered. Our damages are not speculative, remote, nor 

"notoriously" difficult to calculate. 

I therefore request that the SEC reconsider our special circumstances, and recognize that were 

financially devastated by the NYSE Fraud, and therefore conclude that we are entitled to financial 

relief. We seek and claim damages suffered as a result of the NYSE Fraud. We seek and claim 

that we are entitled to an amount to be paid from the estimated $130 million of funds left over 

now that the contemplated payments have been made. We hope that your office will consider our 

original request, submitted on January 24th 2006, but we areopen to any discussions with your 

office that will result in a fair resolution to this matter. Our previous office location has been 

closed. I can be reached at the address below. 

Sincerely, ^ 

/JosephJ. Porco, 


Independent Asset Management LLC 

PO Box 379 

Newtown CT 06470 

jp@independentfunds.com 

http://www.sec.gOv/litigation/admin/311445.shtml

Congressman 

Christopher Shays 

Fourth District Connecticut 

Office*: 

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Offices: 

[0Middle Street. 11th Floor 

Bridgeport, CT06(604-4223 

Government Center 

8S8 Washington Boulevard 

Stamford. CT 06901-2927 

Il261ongworth Building 

Washinj^.n. 1X12fl5i>-0?04 

Telephones: 

DRIDCEFoft.T: 579-3870 

NoR*-AtK: 866-6469 

RlDGEFIEIXfc 438-3955 

SKEl*ON: 402-0426 

StamkjM* JS7-&77 

Washington.DO 202 225-5541 

E-mail: 

rcp.shjv\{«',maU.housc.2

Broadening the class of "Injured Customers" and distributing 

penalties to derivative claimants will further thestated goals of the 

Fair Fund, because ViolativeTransactionstriggered a chain of 

devastating consequential damages. Unfortunately, the Plan's 

current form mistakenlyassumesthe activities undertaken by certain 

Specialists at the NYSE victimized onlythose persons or entities 

thatopened an account, in their name, with a clearing member. 

Furthermore, Section 308(a) of theSarbanes-Oxley Act provides that 

civil penalties canbe added to Disgorgement Funds for the"reliefof 

victims" and that civil penalties can be addedto and becomepart of 

thedisgorgement fund "forthebenefit of the victims ofsuch 

violations." The Sarbanes-Oxley Act specifically uses the term 

"victims." The Act does not use the term "owners ofa security 

account" which is what the SEC definition of"injured customer" 

really means. 

At least one company in Connecticut, IndependentAsset 

Management (IAM), is adversely affected by the currentdefinition 

of "injured customer" andI refer to IAM's letterto myoffice and 

comments to the SEC dated January 24,2006, which are enclosed. 

If you have any questions, pleasedo not hesitate to contact me or 

Jordan Press ofmy staffat 202/225-5541. Thank you for your 

consideration. 

Member ofQongress 

Enc. 

cc: Commissioner Cynthia Classman 

Commissioner Paul Atkins 

Commissioner Roel Campos 

Commissioner Annette Nazareth 

Linda C. Thomseri, Director ofEnforcement 

The Honorable Mike Oxley, Chairman House Financial 

Services Committee 

The Honorable Richard Baker, Chairman, House Financial 

Services Subcommittee on Capital Markets, Insurance and 

Government Sponsored Enterprises

Congressman 



Offices; 

l

The Honorable Christopher Cox - October 17, 2006 - Page 2 

Enclosure 

cc: Commissioner Paul Atkins 

Commissioner Roe! Campos 

Commissioner Annette Nazareth 

Commissioner Kathleen Casey

Office of the Secretary 

United States Securities and Exchange Commission 

100 F Street N.E. 

Washington, D.C. 20549-9303 

George Szele & Joseph Porco 

Principals and Managing Directors 

Independent Asset Management, LLC 

177 Broad Street, Suite 1051 

Stamford, CT 06901 

(203)355-1160 

January 24, 2006 

Comments 

Admin. Proc. File Nos. 3-11445,3-11446,3-11447, 

3-11448,3-11449,3-11558,3-11559 ("NYSE Fraud") 

FUND ADMINISTRATOR'S PROPOSED FAIR FUND DISTRIBUTION PLAN 

I. Factual Background 

Independent Asset Management, LLC ("IAM") is a trading manager, commodity pool 

operator, and commodity trading advisor. Established on February 16, 2001, IAM is the 

trading manager for The Independent Fund Limited ("IFL"), a Bermuda fund registered 

with the Bermuda Monetary Authority ("BMA"). 

In the months of January 2003 to March 2003, under the direction of IAM and with IFL 

investors' approval, IFL invested $4,500,000 in Sea Carriers Limited Partnership I ("Sea 

Carriers"). Furthermore, IAM introduced investors to Sea Carriers, which resulted in an 

additional $2,350,000 being invested in Sea Carriers. Therefore, IAM/IFL efforts 

represented approximately 34.5% of Sea Carriers assets (at peak assets under management) 

at the inception of Sea Carriers trading. By October of 2003, as investors redeemed from 

Sea Carriers, IAM/IFL efforts represented approximately 61% ofSea Carriers assets. 

The expertise of Sea Carriers was trading baskets of stocks listed on the NYSE, by 

transmitting unconditional market orders to buy or sell though the NYSE's Super DOT 

system. Agreeing to have IFL and its other investor contacts make this asset allocation 

decision, IAM did not know that the fraudulent practices of NYSE Specialists primarily 

targeted the order flow of Sea Carriers. Subsequently, according to press reports on the 

criminal investigation by Federal prosecutors, certain Specialists had a "screw the DOT 

orders" mentality.

Independently of IAM and before IAM's involvement in this matter, a securities account 

was opened at Spear, Leeds & Kellogg by R. Allan Martin in the name of Empire 

Programs. Mr. Martin/Empire had a joint venture1 with Sea Carriers, whereby Empire 

Programs provided trading capital, and Sea Carriersand its independent traders/contractors 

designed and. executed the trading strategy.2 

In naming Empire Programs as co-lead plaintiff in the class action lawsuit against the 

NYSE and its member firms, Federal Judge Robert Sweet determined that Empire 

Programs has the largest financial interest in the matter of the NYSE Fraud. As such, 

Empire is likely to be paid a larger sum of money than any other "Injured Customer" 

identified by the Fund Administrator. 

In court papers filed during his bid to be named lead plaintiff, Mr. Martin asserted that he 

has no obligation to share or allocate with any other parties the settlement amounts to 

which Empire Programs may be entitled. Specifically, Mr. Martin, in his May 12, 2004 

Declaration in connection with Empire's Lead Plaintiff Motion filed in U.S. District Court, 

stated, "Empire and Empire alone owns its claims herein. . ." (the "claims herein" being 

any disbursements of reimbursement of losses, prejudgment interest, and/or penalties). As 

a result of Mr. Martin's claims, Sea Carriers filed a lawsuit against Empire Programs in the 

U.S. District Court, Southern District of New York (Index No. 04-CV-7395). Among 

other things, Sea Carriers has petitioned Judge Sweet to block any payments to Empire 

Programs by the Fund Administrator. 

The NYSE Fraud diminished Net Trading Profits generated by both the Empire 

Programs/Sea Carriers joint venture and the capital invested in Sea Carriers by IFL. As 

such, it adversely affected not only Empire Programs but also Sea Carriers, IAM and the 

other traders Sea Carriers had independently contracted. Sea Carriers and its independent 

traders were all compensated based solely upon performance. The NYSE Fraud 

diminished the actual performance and therefore the amount that Sea Carriers and its 

independent traders earned. 

II. Summary ofComments 

A. The class of "Injured Customers" in the Fund Administrator's Distribution 

Plan should be changed to include certain injured persons other than 

account parties and Nominees identified by Clearing Members, and these 

additional injured persons ("Derivative Claimants") should be eligible to 

receive distributions of compensatory Disgorgement Amounts, with 

prejudgment interest. 

1"Joint venture" is the term R. Allan Martin used todescribe the arrangement between Empire Programs and 

Sea Carriers. 

2The terms of the Empire Programs/Sea Carriers jointventure were straightforward. Ona monthly basis, 20 

25% of Net Trading Profits (trading profits less commissions and SEC fees) were paid out to traders that Sea 

Carriers independently contracted. Joint venture expenses (which included but were not limited to utility 

costs, office rent, and data costs) were then deducted from the remaining Net Trading Profits, if any. Any 

amount remaining was split 50% to Empire Programs, 50% to Sea Carriers.

B. Derivative Claimants should be eligible to receive distributions of penalties 

and consequential damages, whether Derivative Claimants receive 

compensatory Disgorgement Amounts or not. 

C. If the Plan is not changed to accommodate the two requests above, language 

in the Commission's final order should nevertheless: 

III. Discussion 

1. Maintain jurisdiction over this matter even after the Fund 

Administrator has made all distributions; 

2. Issue an express finding that the Specialist Firms' trading violations 

have injured persons besides account parties—specifically, third 

parties positioned to benefit (or lose) from transactions involving the 

Specialist Firms and the account parties; 

3. Make Injured Customers acknowledge, as a precondition to their 

receipt of distributions, their legal obligation to share distributions 

with third party beneficiaries of the transactions at issue; and 

4. Permit Derivative Claimants to seek further SEC review if such 

Injured Customers do not so share the distributions received. 

A. The class of "Injured Customers" should include certain injured persons 

other than account parties. 

The class of "Injured Customers" should be broadened for three reasons. First, this 

interpretation is consistent with the stated goals of the Fair Fund. Second, some Injured 

Customers have expressed a subversive intention not to share distributions with other 

parties whom Violative Transactions affect. Third, the nature of the entity comprising an 

Injured Customer might give the partner of an Injured Customer a direct pro rata interest in 

distribution proceeds. 

First, according to the Commission, Fair Fund distributions aspire to redress injuries 

arising "as a result of the Specialist Firms' trading violations."3 The current Distribution 

Plan therefore limits the class of claimants to "the customers who were injured as a result 

of Violative Transactions.4 Without any stated legal justification, however, the Plan 

interprets "Injured Customers" to include only account parties identified by Clearing 

Members or Nominees.5 This interpretation clashes with the Commission's stated intent, 

because Violative Transactions were the proximate cause of substantial economic injuries 

beyond those to account parties. The Plan acknowledges that "one transaction could 

3Notice of Proposed Distribution Plan and Opportunity for Comment at2. 

4Fund Administrator's Proposed Fair Fund Distribution Plan at4. 

5Fund Administrator's Proposed Fair Fund Distribution Plan at5.

epresent a block of trades from more than one Injured Customer."6 Thus, if a Clearing 

Member identifies "multiple Injured Customers" for one transaction, the Fund 

Administrator allocates the Disgorgement Amount "to each Injured Customer pro rata."7 

If, however, a Violative Transaction caused an Injured Customer in turn to injure multiple 

Derivative Claimants, and a Derivative Claimant therefore loses investors, the Plan 

unreasonably fails to allocate compensatory distributions pro rata to each injured 

Derivative Claimant. Such a failure unequally treats persons who are similarly situated. 

Second, the Distribution Plan should not make it easy for Injured Customers to subvert the 

Commission's intent by withholding distributions from other parties whom Violative 

Transactions affect. Perhaps the Fund Administrator has assumed that consequential 

injuries are matters to be resolved between an Injured Customer and a Derivative 

Claimant—not between them and the Commission. As shown by the example of Empire, 

however, some Injured Customers have already decided, if possible, not to share their 

distributions with Derivative Claimants. The statements by Empire do not directly affect 

IAM, because Empire has not been IAM's partner. Moreover, IAM is confident that its 

own partner, Sea Carriers, will not similarly fail to share distributions with IAM. Empire's 

statements, however, exemplify a problem that will only worsen if the Commission does 

not speak to the issue. Indeed, the Plan's failure to address this issue has perhaps 

prevented even IAM's partner, Sea Carriers, from granting written assurances that 

distributions will be shared without litigation. 

Third, the Plan fails to recognize that the nature of the entity comprising an Injured 

Customer might give the partner of an Injured Customer a direct pro rata interest in 

distribution proceeds. The Uniform Partnership Act, for example, rebuttably presumes 

property purchased with partnership funds to be partnership property, notwithstanding the 

name in which title is held.8 The current Plan's simplistic method ignores such 

complexities, thereby fostering unfairness. 

B. Derivative Claimants should be eligible to receive distributions of penalties 

and consequential damages. 

By definition, a"penalty" punishes a person for the commission of a crime.9 Accordingly, 

the essential element of the penalties in this matter is the fact that they deprive the 

Specialists of certain monies—not the fact that Injured Customers receive them. 

Distributions of penalties will therefore penalize the Specialists just as much if Derivative 

Claimants receive them as if Injured Customers receive them. 

6Fund Administrator's Proposed Fair Fund Distribution Plan at 5. 

7Fund Administrator's Proposed Fair Fund Distribution Plan at 6. 

"Property is presumed to be partnership property if purchased with partnership assets, even if not acquired 

in thename of thepartnership or of one or more partners with an indication in the instrument transferring title 

to the property of the person's capacity as a partner or of the existence of a partnership." Uniform 

Partnership Act§ 204(c) (1997), posted at http://www.law.upenn.edu/bll/ulc/fnact99/1990s/upa97fa.htm (last 

visited Jan. 23, 2006). The Uniform Partnership Act of 1997 has been adopted in every state except 

Louisiana. 

9See, e.g.. Black's Law Dictionary: Pocket Edition, ed. Bryan A. Garner (West Group 1996) at475.

Similarly, by definition, "consequential damages" arise not from the immediate act of the 

party, but in consequence of such act—such as if a person throws a log into the public 

streets and another falls upon it and becomes injured by the fall.10 Violative Transactions 

in the current matter triggered a chain of effects that resulted in numerous consequential 

damages. Injuries to Derivative Claimants fall under the heading of "consequential 

damages," both because Injured Customers passed their losses on to Derivative Claimants 

and because Derivative Claimants suffered further financial harm as a result of their 

injured track record. 

IAM's and IFL's clients and contacts included a pension fund, as well as other institutional 

and high net worth investors. Because IAM is a young firm, performance is the most 

critical element to growth, in terms of raising funds under management. Performance 

(growth) is critical both to survival and to maintaining strategic relationships with 

operations including, but not limited to, administration, accounting and auditing.11 

The NYSE Fraud robbed IAM (the trading manager), IFL (the fund) and its contacts of 

performance. The NYSE Fraud thereby materially damaged the ability of IAM and IFL to 

raise assets from 2003 through 2005. 2 During this very period, the rest of the hedge 

fund/alternative investment sector experienced explosive and unprecedented growth. 

Moreover, as investors began to withdraw their funds from IFL, and as assets under 

management declined, management fees were lost—management fees that were necessary 

for the principals of IAM personally to survive. Therefore, besides diminishing the 

performance generated by Sea Carriers, the NYSE Fraud set off a wave of related events 

that drove IAM to the brink of financial ruin and in doing so caused IAM's principals and 

10 See id. at 163. 

11 Despite its relative youth, IAM quickly established a strong reputation, until the NYSE Fraud took this 

major asset away. Before founding LAM, George Szele worked at Societe Generale, Goldman Sachs, and 

State Street Global Advisors. Raising the capital to found IAM, setting up a premier team of administrators 

and accountants, setting up an office in Stamford, and securing the necessary regulatory registrations—all 

these accomplishments directly resulted from hard work and the reputation George had nurtured over ten 

years. In buildinga fully scalablebusiness, whichcouldhandle assetsup to $1 billion, the principalsofIAM 

negotiated and secured contracts with companies regarded by investors as "pillars in the institutional 

community," thereby ensuring investor confidence in proper administration, reporting and auditing for the 

fund. IAM secured back office relationships with OSI (now part of Sungard), Forum Fund Services (now 

part of CitiGroup) and KPMG. Each of these groups took 1AM and the fund on with the expectation of 

significant growth of assets over two to three years. 

Specifically, as existing investors grew more and more discontent with performance, IAM began to lose 

credibility with its back office vendors and its administrator. OSI/Sungard was the first to resign. This event 

triggered concern among the remaining investors but also required LAM to spend time and effort to find a 

replacement administrator and in essence start over. Next, IAM's offshore administrator, Forum Fund 

Services, resigned. This eventcaused further concern with remaining investors and required IAM to spend 

the time andeffort to find a replacement offshore administrator. Remaining investors had concerns regarding 

performance and concerns regarding the resignations of IAM's strategic administrative partners. Then 

KPMG suggested that it would be mutually practical, due to the fund's size and the cost to audit the fund, 

that the auditing relationship be terminated. This event caused additional concern with the remaining 

investors and required LAM to spend the time and effort to find a replacement auditor. Each required restart 

consumed significant resources.

their families to accumulate personal debt and to suffer credit damage, as well as 

professional and personal embarrassment.13 

The Administrator has properly identified Sea Carriers as an Injured Customer. As Sea 

Carriers receives payments of Disgorgement Amounts and prejudgment interest from the 

Escrow Agent, it will pass on the appropriate share of such payments to IAM/IFL.14 In 

addition to any such compensatory payments by Sea Carriers, however, IAM and its 

principals (George B. Szele and Joseph J. Porco) have suffered extraordinary consequential 

damages. They therefore seek reimbursement for such damages from the Fair Fund. The 

Proposed Distribution Plan assumes that the only victims of the NYSE Fraud are those 

persons or entities that opened an account, in their name, with a clearing member. This is 

not a valid assumption. Accordingly, the SEC should consider the special circumstances 

of those consequential victims, like IAM/IFL, whom the NYSE Fraud financially 

devastated, and should make special payments to those victims out of any funds left over, 

now estimated to be $50-70 million. 

C. If the Plan is not changed to accommodate the two requests above, and if 

Injured Customers do not so share the distributions received, language in 

the Commission's final order should empower Derivative Claimants to seek 

further SEC review. 

Administrative burdens might prevent the Commission from granting our requests above. 

If so, certain provisions in the Commission's final order could, in the alternative, mitigate 

the kinds of problem that our requests anticipate. First, an express finding that the 

Specialist Firms' trading violations have injured persons besides account parties— 

specifically, third parties positioned to benefit (or lose) from Violative Transactions— 

13 Upon launching the company, IAM had borrowed money from family and friends. IAM has been unable 

to repay these obligations, which exceed $500,000. In an effort to keep the company going, the principals of 

IAM worked tirelessly to develop alternatives to generate income and were forced to dilute equity to raise 

capital to pay the rent and other expenses. IAM's principals have not received their full salaries for several 

years. Both principals have been forced to borrow additional funds to pay personal creditors and basic living 

expenses, and both have incurred tremendous personal debt. To date the company owes its 

principals/managing directors in excess of about $1,000,000. Even if IAM survives, the equity interest of its 

principals has been significantly diluted as a result ofthe sale ofequity. 

The intimate partnership between IAM/IFL and Sea Carriers caused IAM/IFL to invest in Sea Carriers in 

human ways that increased the consequential damages arising after the Specialists injured Sea Carriers. In 

addition to IFL being an investor in Sea Carriers, IAM's principal, George Szele, also bought and sold 

baskets of stock for the Partnership. At the request of IFL's investors, George spent the majority of his time 

from 2003 to March 2005 in the Sea Carriers office. George traded approximately 200,000,000 shares of 

stock listed on the NYSE as a Sea Carriers trader or independent contractor in overseeing the interests of 

IAM/IFL clients. Some 20%-25% of the net trading results from his activity as a trader on behalf of IFL 

would have been payable at the end of each month and paid to the fund. The NYSE Fraud diminished his 

actual trading performance and as a direct result, diminished the share of the distribution of trading profits for 

the fund. Furthermore, as the NYSE Fraud became public knowledge, 1AM allocated time and resources to 

assist Sea Carriers in its various legal activities to recover damages. IAM also felt it had a fiduciary duty to 

its clients and contacts to solicit the assistance of persons including, but not limited to, Connecticut 

Congressman Shavs. particularly when the NYSE failed to turn the violation data over to the Administrator 

in a timely fashion (the NYSE had been named as a defendant in the class action lawsuit).

would facilitate efforts by Derivative Claimants to seek redress from Injured Parties. 

Second, making Injured Customers acknowledge, as a precondition to their receipt of 

distributions, their legal obligation to share distributions with third party beneficiaries 

would encourage Derivative Claimants and Injured Customers to resolve any dispute 

without litigation. Finally, by maintaining jurisdiction after the Fund Administrator has 

made all distributions, the Commission should make provisions for Derivative Claimants 

to seek further SEC review if Injured Customers do not so share the distributions received. 

IV. Conclusion (Specific Actions Sought) 

The NYSE Fraud has created a mess. Judging by the data released in the Proposed Plan 

(i.e., $157,624,364 in disgorgement amounts on over 2.6 million transactions identified by 

the NYSE's Self Regulatory Organization as "Violative Transactions"), the NYSE Fraud 

was a "skimming scheme," skimming (stealing) anywhere from a fraction of a cent per 

share to three cents, five cents, or twenty five cents or more per share. 

Because the NYSE Fraud skimmed just pennies off the reported execution price ,some 

Injured Customers, unaware that they had been victimized in the first place, will be 

shocked to get a check from the escrow agent of the Fund Administrator. Certain of these 

victims may not even be aware that the NYSE Fraud took place. Some of the large Wall 

Street firms that routinely participate in what is known as "program trading" will not be 

surprised when they receive a check, but they will likely have no clue as to when specific 

violations occurred. Nor will the amount of check be material to their overall financial 

statements, as such program trading activity is a miniscule percentage of their overall 

business models. 

One category of victims, however, was devastated by the NYSE Fraud. This category 

includes a small business (IAM) that focused all of its resources and assets in a trading 

strategy that fell smack in the crosshairs of the NYSE Fraud. The traded stocks included 

TXN, MOT, MER, C, EMC, GLW, GE, GS, JPM, JNJ, MWD, TYC, MRK, AOL, IBM, 

AIG, TER, VZ, PFE, LLY, ADI, GTE and others—the most liquid and largest capitalized 

stocks listed on the NYSE. According to the SEC, six particular stocks per Specialist firm 

accounted for the vast majority of Violative Transactions. The SEC listing included all the 

stocks listed above. The trading strategy transmitted all of its orders (unconditional market 

orders to buy or sell) through the NYSE's Super DOT system, the epicenter of the NYSE 

Fraud. Under the circumstances, a small business has little or no chance to survive. 

Upon the request of IAM's principal, George Szele, Congressman Christopher Shays 

forwarded correspondence to the SEC regarding the Distribution Plan. In his letter to 

Chairman W.H. Donaldson, on September 22, 2004, Congressman Shays not only points 

his concern for smaller firms but also emphasizes the degree of financial hardship that the 

NYSE Fraud has forced smaller firms to endure. 

" ...I am particularly concerned because Sea Carriers, a small trading firm 

in Greenwich, Connecticut that expects to be a beneficiary of the SEC's 

settlement with the specialist firms, is on the verge of bankruptcy while

awaiting settled reimbursement. While I realize that some beneficiaries of 

the disbursement fund may be large firms that are financially able to be 

patient during the delay, this is not the case with a small firm such as Sea 

Carriers." 

A. Summary ofComments on the Proposed Distribution Plan: 

1. IAM requests that the Administrator provide (in the form of a computer file) 

immediate access to all the Violative Transactions that have been identified to date 

as being allocated to Sea Carriers, including the detailed explanation for^each 

transaction, which includes: 

Prejudgment Interest Amount 

Clearing member number 

Clearing member name 

Trade date 

Security symbol 

Firm mnemonics 

Branch and sequence codes 

Turn around code 

Transaction type 

Number of shares 

Time of trade 

Specialist Firm 

Disgorgement Amount 

Execution Price 

CUSIP number 

Principal/agency code 

2. IAM requests that, as new Violative Transactions are identified by the clearing 

members (i.e., Calyon or SLK), IAM be granted immediate access to the new 

trades being added. 

3. When making a distribution to Sea Carriers, the Administrator should include a 

detailed breakdown, per Violative Transaction, of the all the information listed in 

comment #1 above. With this information, Sea Carriers will be able to determine 

the exact amount owed to IAM and its clients. With this information, Sea Carriers 

will be able precisely to calculate the amount due to IFL for the trading activity 

performed by George Szele in his capacity as a trader for the Partnership. 

4. The delay in reimbursing damages caused by the NYSE Fraud has only 

exacerbated the financial devastation of IAM. The SEC and Fund Administrator 

should take all actions necessary immediately to reimburse damages to all the 

victims. Specifically, Goldman Sachs/Spear, Leeds & Kellogg should be given an 

order by the SEC to complete the entire required submission to the Fund

Administrator within 7 days or face a $100,000 per day fine until Fund 

Administrator's request for information is completely fulfilled. Goldman Sachs 

and SLK are named as defendants in the ongoing class action lawsuit. 

Furthermore, the SEC and Fund Administrator should streamline future interactions 

so as to permit the reimbursement of damages as soon as possible. 

5. On the top of page 4 of his proposed Distribution Plan, the Administrator described 

a "retroactive surveillance" conducted by the NYSE to identify Violative 

Transactions. The Administrator also indicated that the surveillance used "certain 

time parameters." The particulars of such "retroactive surveillance" should be 

publicly disclosed in its entirety and without ambiguity as to methods/parameters, 

scope, etc. Public disclosure of this information, however, should not delay the 

distribution of funds to the NYSE Fraud victims. 

B. Summary of comments on "the use to be made of any funds left over after the 

contemplated payments have been made" (currently estimated to be $50-70 

million). 

The NYSE Fraud caused material consequential damages to IAM/IFL, as outlined 

herein. It caused investor withdrawals, strategic partners' resignations, and loss of 

income to principals, all of whom had to focus on recovering damages, thereby 

diverting limited resources away from core business activities, etc. These damages 

are over and above the calculated damages that the Administrator will be 

forwarding to Sea Carriers. 

IAM therefore asks that the SEC consider IAM's special circumstances, its 

financial devastation by the NYSE Fraud, and conclude that IAM is entitled to 

additional compensation with respect toall the consequential damages suffered as a 

result of the NYSE Fraud. IAM seeks and claims it is entitled to a direct payment 

of $10 million to be paid from the estimated $50-70 million of funds left over. 

C. Summary of further comments 

If the Plan is not changed to accommodate the requests above, and if Injured 

Customers do notso share the distributions received, language in the Commission's 

final order should empower DerivativeClaimants to seek further SEC review. 

Sincerely yours, 

George Szele and Joseph Porco 

Principalsand Managing Directors 

IndependentAsset Management, LLC.

Yahoo! Mail - robertpeacockl@yahoo.com Page 1 of 2 

^ MAIL Print -Close Window 

Date: Fri, 6 Oct 2006 07:48:36 -0700 (POT) 

From: "Robert Peacock" 

Subject: Request for Meeting 

To: "Christopher Cox" 

"Jordan Press" , "David Rosenfeid" >, "David A. 

_ Markowitz" , "Sanjay Wadhwa" < >, 'Thomas B. McVey" 

, "George Szele" , "Joe Porco" 

Yahoo! Mail - Page 2 of2 

George Szele 

Joseph Porco 

Principals and Managing Directors of Independent Asset Management 

Stamford, Connecticut 

Robert Peacock 

Independent Contractor/Trader 

Summit, New Jersey 

cc: Christopher Shays 

Member of Congress 

David Rosenfeid, Associate Regional Director, SEC, New York 

David Markowitz, Assistant Regional Director, SEC, New York 

Sanjay Wadhwa, Branch Chief, SEC, New York 

Thomas B. McVey 

Williams Mullen, attorney for Independent Asset Management, LLC 

Washington, DC 

http://us.f515.mail.yahoo.com/ym/ShowLetter?box=Sent&MsgId=6116_1086005_300212... 10/6/2006

SECURITES EXCHANGE ACT OF 1934 

Release No. 53823 / May 17,2006 

In the Matters of 

Bear Wagner Specialists LLC 

Admin. Proc. File No. 3-11445 

Fleet Specialist, Inc. 


LaBranche & Co. LLC 

UNITED STATES OF AMERICA 

Before the 

SECURITIES AND EXCHANGE COMMISSION 


Spear, Leeds & Kellogg Specialists LLC ORDER APPROVING A 

Admin. Proc. File No. 3-11448 DISTRIBUTION PLAN 

Van der Moolen Specialists USA, LLC 


Performance Specialist Group LLC 


SIG Specialists, Inc. 


Respondents. 

SUMMARY 

In March and July 2004, the Commission entered into settlements with the seven 

specialistfirms operatingon the New York Stock Exchange ("NYSE"). The Commission's 

orders (Securities Exchange Act Release Nos. 49498 - 49502, and Nos. 50075 - 50076) (the 

"Settlement Orders") provided, among other things, for payment ofdisgorgement and civil 

penalties totaling, in theaggregate, over$247 million. The Settlement Orders further provided 

that the disgorgement and civil penalties were to be placed in Fair Funds to be distributed 

pursuant to a distribution plan drawn up by a fund administrator, Heffler, Radetich & Saitta 

L.L.P. ("Hefiler") was appointed the fund administrator in October 2004. 

On September 8, 2005, Heffler submitted a proposeddistribution plan to the 

Commission's Office of the Secretary. In accordance with the previousorders in this matter, the 

Plansets forth the steps Heffler has taken, and will take, to identify the customers injured as a 

result ofeach specialist firm's trading violationsas determinedby the Commission staff and the 

NYSE in connection with the Settlement Orders. The Plan further prpvides a mechanism for 

calculating each injured customer'sdistribution amount anda mechanism for making actual

distributions. Finally the Plan provides a verification procedure whereby persons may determine 

whether they are in the classof injured customers, and, if so, verify the accuracy of their 

distribution amount. 

On December 27, 2005, the Commission published a Notice of Proposed Distribution 

Planand Opportunity forComment ("Notice") inconnection with the above proceedings 

(Securities Exchange Act Release No. 53025) pursuant to Rule 1103 of the Commission's Rules 

on Fair Fund and Disgorgement Plans, 17 C.F.R. § 201.1103. This Notice advised interested 

parties that they could obtain a copy ofthe proposed plan ofdistribution ofmonies placed into 

Fair Funds authorized by the Commission, pursuant to Section 308(a)ofthe Sarbanes-Oxley Act 

of 2002 (the "Plan"), by visiting http://www.sec.gov/litigation/admin/34-53025-pdp.htm or 

www.hrsclaimsadministration.com. or by submitting a written request to Ronald A. Bertino, c/o 

Heffler, Radetich & Saitta, LLP, 1515 Market Street, Suite 1700, Philadelphia, PA 19102. The 

Notice also advised that all persons desiring to comment on the Plan, or the use to be made of 

any funds left after the contemplated payments have been made ("Remaining Funds"), may 

submit their views, in writing, no later than January 26, 2006. The Notice stated that such 

Remaining Funds could total anywhere between $50 and $70 million. 

In response to the Notice, eight persons (five individuals and three entities) submitted 

comments to the Office of the Secretary. Five of the comment letters were submitted by persons 

formerly associated or affiliated with an entity namedSea Carriers Limited Partnership I ("Sea 

Carriers"), who argue, generally, that the Plan should not be limited to compensating injured 

customers who actually traded, but should be broadened to provide compensation to persons who 

allegedly suffered derivative or consequential harm from the improper trading. Some of these 

persons also claim that they should receive significant portions ofany Remaining Funds because 

they were particularly harmed by the specialist firms' misconduct. Another comment letter 

suggests that the Commission should publish a list of the violative trades and the identities of the 

injured customers. The two remaining comment letters address only the use of the Remaining 

Funds, both suggesting that such funds be paid to the injured customers either on a pro-rata basis 

or in the form of post-judgment interest calculated through the date of distribution. 

After careful consideration, the Commission has concluded that the Plan should be 

modified to include the payment ofpost-judgment interest to injured customers, subject to 

adequate tax documentation, calculated through the date ofdistribution, and approved with such 

modification. 

FACTS 

A. The Commission's Actions and the Fund Administrator's Proposed Plan 

In the Settlement Orders, the Commission found that the specialist firms had been filling 

customer orders through proprietary trades rather than throughother customer orders, thereby 

causing customer orders to be disadvantaged. The extent of the violative trading was determined 

through the use ofa retroactive surveillanceconductedby the NYSE, which identified a large 

number ofspecific transactions where specialists had unlawfully either traded ahead of 

executable customer orders, or interpositioned themselves between two customer orders that

should have been matched against one another. The surveillance enabled the Commission staff 

and the NYSE to calculate precisely the dollar amount by which a particular customer order had 

been disadvantaged by a specific violative trade. The disgorgement paid by each specialist firm 

was therefore tied to the specific violative trades identified by the Commission staff and the 

NYSE. The specialist firms were also ordered to pay civil penalties tied to the amount of 

customer harm caused by the identified violative trades. All told, the seven specialist firms paid 

$247,028,778 in disgorgement and civil penalties. 

Each of the Settlement Orders provided for the appointment of a fund administrator, and 

specified the fund administrator's function and the uses to which the disgorgement and civil 

penalties are to be used: 

The disgorgement and the civil penalties which shall be added to a 

Fair Fund (the "Distribution Fund") shall be maintained in an 

interest-bearing account and shall be distributed pursuant to a 

distribution plan (the "Plan") drawn up by an administrator (the 

"Administrator") to be chosen by the staffofthe Commission and 

the NYSE. The Administrator shall identify the customers who 

were injured as a result of [the specialist firm's] trading violations 

as determined [in the Settlement Order] by the Commission staff 

and the NYSE. The Distribution Fund shall be used: (i) to pay the 

costs of administering the Plan; (ii) to reimburse injured customers 

for their loss; and (iii) to pay prejudgment interest to injured 

customers. The Commission shall determine the appropriate use 

for the benefit ofinvestors ofany funds left in the Distribution 

Fund following such payments. Under no circumstances shall any 

partofthe Distribution Fund be returned to [the specialist firm]. 

In October 2004, the Commission issued orders that, among other things, created Fair 

Funds, appointed Heffler administrator of the Fair Funds, and directed the transfer ofsettlement 

funds into escrow accounts for investment and subsequent disbursement to injured customers. 

On September 8, 2005, Heffler submitted a proposed Plan for Commission approval. The 

proposed Plan is divided into three phases: the initial phase requires Heffler to identify the 

customers who were injuredas a result ofthe previously identified violative trades. The second 

phase requires Heffler to calculate each injured customer's distribution amount, which is the sum 

of the disgorgement amount and prejudgment interest. The final phase ofthe Plan requires 

Heffler to distribute the distribution amounts to the injured customers. In addition, the Plan sets 

forth verification procedures to afford injured customersan opportunity to verify their status and 

the amount of their distribution. On December 27,2005, the Commission issued the Notice, 

which gave the public 30 days to submit comments on the various procedures set forth in the 

Plan, as well as the use to be made ofany Remaining Funds.

B. Public Comments Concerning the Proposed Distribution Plan 

Eight persons submitted comments in response to the Notice. Five of the letters came 

from persons formerly associated or affiliated with Sea Carriers, a Connecticut-based trading 

company that ceased operations in March 2005, who claim that they suffered injury as a result of 

the specialists' trading violations and deserve compensation, even though they are not the named 

customers connected to the disadvantaged trades. Two comment letters were submitted 

concerning the use of the Remaining Funds, one by a trading company, Empire Programs Inc. 

("Empire"), and the other by a Washington-based advocacy group, the Washington Legal 

Foundation ("WLF"). These comments are limited to the use to be made of the Remaining 

Funds, and suggest that such funds should be paid to the injured customers either on a pro-rata 

basis or in the form of post-judgment interest calculated through the date of distribution. The 

final comment, which was submitted by an individual affiliated with Zermatt Capital 

Management, a Utah-based investment adviser, suggests that the Commission publish a list of 

the violative trades and the identities of the injured customers on its website. The Commission's 

responses to these comments are discussed below. 

1. Comments from Persons Formerly Associated with Sea Carriers 

The five persons formerly associated with Sea Carriers include three individuals who 

identify themselves as former "independent contractors/traders" for Sea Carriers (the "SC 

Traders"), an entity, Independent Asset Management ("IAM"), which managed a fund that 

invested in Sea Carriers, and an individual who describes herself as a former 

"programmer/trader" at Sea Carriers who also invested in Sea Carriers and in IAM. The letters 

assert, in nearly identical language, that the Plan should not be limited to compensating injured 

customers who actually traded, but should be broadened to allow compensation of persons who 

may have derivative claims or may have suffered consequential damages as a result of the 

specialist misconduct. Although the arguments overlap, these commentators appear to be 

making three distinct claims: a) that the fund administrator should look past the account holder 

and distribute funds to persons who have a derivative interest in the account; b) that the class of 

claimants eligible to receive disgorgement funds should not be limited to injured customers but 

should be broadened to include other persons who were derivatively injured by the specialists' 

misconduct; and c) that the Remaining Funds should be used to pay consequential damages to 

persons who were affected by the misconduct. The Commission addresses each of these claims 

in turn: 

a. Looking Past the Account Holder 

Some of the Sea Carriers commentators argue that the Plan unfairly limits the class of 

"injured customers" to the account holders, identified by clearing firms and nominees, whose 

trades were disadvantaged.! These commentators claim that they have a derivative interest in the 

1The Plan defines a "Nominee" as "a brokerage firm, bank, investment firm, etc., with current or 

former clients that are Injured Customers." When a disadvantaged trade is placed through what 

appears to be a nominee account, Heffler contacts the named account holder to verify whether

usiness of the account holder, or in the trades themselves, and are thus entitled to compensation. 

For example, the SC Traders claim that Sea Carriers had a joint venture agreement with Empire, 

a large trading firm, pursuant to which Empire provided trading capital and Sea Carriers and the 

SC Traders designed a trading strategy and executed trades through an account held in Empire's 

name. The SC Traders claim that they were supposed to sharein the net trading profits their 

trades generated. The SC Traders argue that they were deprived of trading profits by the 

specialists' misconduct, and thus have a derivative claim to any recovery obtained by Empire. 

As a result, the SC Traders want Heffler to allocate any funds that Empire may be due to Sea 

Carriers and the SC Traders on a pro rata basis,consistent with the terms ofthe alleged joint 

venture agreement. Similarly, IAM wants the Plan to specifically recognize the validity of 

derivative claims IAM may have - as the manager of a fund that invested in Sea Carriers 

against Sea Carriers. 

The Commission disagrees with the suggestion that the fund administrator should look 

beyond the account holders to determine whether any other person has a claim, contractual or 

otherwise, to the assets ofan account that might be entitled to a distribution. These are 

essentially disputes among private parties that are best resolved by the parties themselves or 

through the judicial system. The Commission is aware that Sea Carriers is presently involved in 

a lawsuit against Empire in federal district court, Sea Carriers Corp. v. Empire Programs, Inc., 

04-CV-7395 (SDNY 2004), regarding this same issue, namely whether Sea Carriers should share 

in any recovery Empire might obtain in a distribution from Heffler or in a related class action. 

Among the matters at issue in that lawsuit are whether Sea Carriers ever had a joint venture 

agreement with Empire, and the terms of that agreement. These matters are most appropriately 

resolved in the context of that lawsuit rather than by the fund administrator.2 Heffler has neither 

the account is a proprietary account or a nominee account. If the account is a nominee account, 

Heffler asks the nominee to identify the clients who placed the disadvantaged trades. 

2As part ofthe lawsuit, Sea Carriers moved the court inJanuary 2005 for emergency relief to 

enjoin Heffler from distributing any funds to Empire, and to enjoin Empire from accepting any 

such funds, until Sea Carrier's right to share in the distribution is adjudicated. On February 16, 

2005, the court denied the motion, without prejudice, because ofthe absence ofany need for 

immediate relief. In November 2005, Sea Carriers filed a motion for partial summary judgment 

on the issue ofwhether there was a joint venture between Sea Carriers and Empire. Opposing 

and reply papers have been filed and the summary judgment motion is presently pending before 

the court. On January23,2006, Sea Carriers asked Heffler to withhold any payments to Empire, 

and informed Heffler that Sea Carriers planned to renew its motion for injunctive relief. On 

March 22, 2006, Sea Carriers again filed a motion for injunctive relief, seeking, among other 

things, to enjoin Empire and its President, Robert A. Martin ("Martin"), from receiving or 

accepting any distributions from Heffler, or to compel Empire and Martin to deposit all 

distributions with the clerk of the court. This motion was instituted by Order to Show Cause and 

included an application for a temporary restraining order ("TRO"). On March 23, 2006, the 

court, after a hearing on the merits, denied Sea Carriers' application for a TRO. The preliminary 

injunction hearingwas adjournedwithout date. All ofthe issues concerning the disposition of 

any distribution funds that Empire may receive are therefore pending before the federal district

the resources northe expertise to makesuchjudgments, which require complex legal and factual 

findings about the business arrangements and contractual undertakings of the parties. Heffler's 

identification ofthe customers injured asa result ofthe specialists' trading violations is properly 

limitedto identifying the account holder whose trade was disadvantaged and making 

distributions to thataccount holder. If others have claims to that money - because they are 

partners, joint venturers, shareholders, investors, or otherwise have an interest in the business of 

the accountholder- those disputes shouldbe resolved in another forum, rather than by the fund 

administrator.3 

b. Expanding the Class of Injured Customers to Include Other Injured Persons 

Several of the commentators argue generally that the class of injured customers should 

not be limited to persons who actually traded, but should be broadened to include any person 

who suffered some loss that can be derivatively connected to the specialists' misconduct. For 

example, IAM asserts that "the class of'Injured Customers' in the Fund Administrator's 

Distribution Plan should be changed to include certain injured persons other than account parties 

and Nominees identified by Clearing Members, and these additional injured persons ("Derivative 

Claimants") should be eligible to receive distributions of compensatory Disgorgement Amounts, 

with prejudgment interest." There are two possible ways to interpret such claims: (i) the 

commentators are seeking to be added to the class of injured customers; and (ii) the 

commentators are suggesting that, in the alternative, their claims should be satisfied out of the 

Remaining Funds. The Commission's response to item (ii) is discussed in paragraph c. below. 

court, and the Commission anticipates that the court will be able to take any steps necessary to 

protect the interests of the parties involved in this active litigation. 

3The types of judgments that IAM and the SC Traders would have the fund administrator make 

are very different from those that the fund administrator will make when it looks behind nominee 

accounts to determine the identity of the customer who placed the disadvantaged trade. A 

nominee is, by definition, acting on behalfofanother person. When a client ofa brokerage firm 

or other financial institution places a trade, the broker will often execute the trade through an 

omnibus or other joint trading account in the name of the broker, and then allocate the trade to 

the customer's account. In those situations it is appropriate for the fund administrator to seek 

from the broker the name ofthe actual customer who placed the trade in order to make a 

distribution to that client. IAM and the SC Traders, on the other hand, are asking the fund 

administrator to look behind proprietary accounts to determine whether any person other than 

the named account holder has an interest, contractual or otherwise, in that account. In the case of 

nominee accounts, the fund administrator's task is fairly mechanical: it involves seeking from the 

nominee the name ofthe client on whose behalf the nominee placed the trade, and to whose 

account the trade is subsequently allocated. To go behind proprietary accounts to determine 

whether some person other than the account holder has a derivative interest in the account is a far 

more complicated task, involving complex factual and legal determinations that the fund 

administrator is ill-equipped to make.

The Commission disagrees with the suggestion that persons who suffered some loss that 

might be derivatively connected to the specialists' misconduct should be included in the class of 

injured customers. This approach would not be consistent with the theory of the underlying case 

as embodied in the Settlement Orders entered in this matter. The Settlement Ordersrequire the 

fund administratorto "identify the customers who were injured as a result of the [specialist 

firm's] trading violations as determined [in the Settlement Orders] by the Commission staff and 

the NYSE," and specify that the distribution funds are to be used to pay administrative expenses, 

"to reimburse injured customers for their loss" and "to pay prejudgment interest to injured 

customers" Emphasisadded. The disgorgement obtained in this matter was tied to specific 

violative transactions that disadvantaged "customerorders," resulting in precisely quantifiable 

harm to identifiable customers. The Settlement Orders were structured to ensure that the 

disgorged funds are returned to those customers as compensation for the quantifiable harm they 

suffered. The Settlement Orders also make clear that the injured customers are to be the priority 

recipients of further distributions by specifying that they should receive prejudgment interest. 

Changing the class of"injured customers" to include "additional injured persons" who have 

derivative claims would not be consistent with the plain language and intent of the Settlement 

Orders.4 

c. Use of the Remaining Funds 

The Settlement Orders provide that "the Commission shall determine the appropriate use 

for the benefit of investors of any funds left in the Distribution Fund" after the contemplated 

payments to injured customers and for administrative expenses have been made. Several of the 

commentators argue that even if the class ofinjured customers is not broadened to include 

additional persons who suffered derivative injuries, the Remaining Funds could be used to 

compensate persons who suffered derivative or consequential damages. For example, two of the 

SC Traders and IAM argue that they should receive large sums of money - ranging from 1.5 

million to 10 million dollars - out ofthe Remaining Funds, because they claim that the specialist 

firms' improper conduct ultimately led Sea Carriers to go out ofbusiness, causing the SC 

Traders to lose their jobs and miss out on large profits they would have otherwise obtained, and 

causing IAM's business to suffer. 

As discussed below, the Commission finds that the Plan should be modified to provide 

for the payment of post-judgment interest to injured customers, but should not be further 

modified at this time to address the use of any Remaining Funds. Although the Notice solicited 

comment regarding the Remaining Funds, the comments received reflect a fairly narrow range of 

options that may not be in the best interest of investors overall. Using the Remaining Funds to 

pay consequential damages would be particularly problematic. For example, the SC Traders and 

IAM seek compensation for such things as loss of future business, loss of earnings, loss of 

investment opportunities, and loss ofbusiness reputation. One ofthe SC Traders, without 

elaboration/asserts a claim to 1.5 million dollars ofthe Remaining Funds because he was 

4Expanding the class of claimants eligible to receive disgorgement funds to include persons 

other than the injured customers would necessarily reduce the pool of money available to 

compensate the actual customers. Depending on how broadly the claimant class was expanded, 

this approachcould result in the injured customers not being made whole.

"deprived ofcurrentand potential future income as a trader" resulting from "the financial 

hardship and damages inflicted as a result of the fraudulent activity of the N.Y.S.E. specialist 

firms." A second SC Trader, who was a partnerat Sea Carriers, claims that he is "entitled to a 

direct paymentof$4,000,000" because his "income and equity in Sea Carriers could have grown 

by tens ofmillions ofdollars" in the absence ofthe specialist firms' improper conduct. IAM, 

which manages a fund that invested $4.5 million in Sea Carriers, asserts that the derivative or 

consequential damages suffered by Sea Carriers, resulting from its alleged joint venture with 

Empire, caused IAM and its fund, in turn, to suffer material consequential damages, resulting in 

"investor withdrawals, strategic partners' resignations, and loss of income to principals, thereby 

diverting limited resources away from core business activities, etc." Claiming that it was 

"financially devastated" by the specialist firms' improper conduct, IAM states that "it is entitled 

to a direct payment of $10 million to be paid from the [Remaining Funds]." 

Consequential damages of the sort claimed by IAM and the SC Traders are speculative, 

remote, and notoriously difficult to calculate. Neither the Commission staff nor the fund 

administrator has the knowledge or expertise to evaluate these claims, and doing so would 

require the expenditure ofconsiderable resources. If speculative consequential damages are 

entertained, there are potentially millions ofclaimants (there are over 2.6 million violative trades, 

each of which may have resulted in some consequential harm to some person), and the process of 

adjudicating the relative merits ofall these claims would quickly dissipate the Remaining Funds. 

The Commission shall therefore address the use to be made ofany Remaining Funds at a later 

date, after the public is given further opportunity for comment. In the meantime, the 

Commission shall approve the Plan, as modified to provide post-judgment interest payments, so 

that injured customers can begin receiving funds as soon as possible. 

2. Other Comments Concerning the Use of the Remaining Funds 

Two other commentators wrote with suggestions concerning the use of the Remaining 

Funds. In its comment letter, WLF urges the Commission to provide more detail as to how it 

intends to use the Remaining Funds. WLF contends that it is not sufficient, under Rule 

1101(b)(5) ofthe Fair Fund Rules, for the Plan to merely provide that the Commission shall 

determine the appropriate use ofany Remaining Funds at some unspecified date in the future. 

Instead, WLF argues that the Plan should set forth those appropriate uses, and provide interested 

parties an opportunity to comment on those uses. However, Rule 1101(b)(5) of the Fair Fund 

Rules merely requires there be "a provision for the disposition ofany funds not otherwise 

distributed." The Commission believes that by setting forth a termination date for the Fair Funds 

and providing that the Commission shall determine the appropriate use for the benefit of 

investors of any funds left in the Fund following all payments, the Plan satisfies the requirements 

ofRule 1101(b)(5). The Commission, however, agreeswith WLF's suggestion that there be 

further opportunity for public comment on the use of the Remaining Funds. 

Substantively, WLF suggests that the Commission distribute the Remaining Funds to the 

injured customers, in the form of post-judgment interest, and Empire, in its comment letter, 

suggests that the Commission distribute the Remaining Funds to the injured customers on a pro 

rata basis. Specifically, WLF argues that it "would be wholly appropriate for the Commission to 

awardadditional interest - calculated through the date ofdistribution - for the Injured

Customers." The Commission agrees with WLF's suggestion that injured customers should 

receive post-judgment interest:5 such payments will more fully compensate injured customers by 

taking account of the time-value of the money they are owed. The Commission, however, 

disagrees with Empire's suggestion that the Remaining Funds should be distributed pro-rata to 

the injured customers, because such payments would result in the injured customers obtaining an 

undeserved windfall. The Commission believes that the determination of what to do with any 

Remaining Funds left after the payments to injured customers, including payments of postjudgment 

interest, should be made by the Commission at a laterdate, after farther public notice 

and comment. 

3. Comment Regarding Publication ofViolative Trades and Injured Customers 

One commentator, Franco MortarottiofZermatt Capital Management, suggests that a list 

of the violative trades and the identities of the injured customers be published on a website. The 

Commission disagrees with this suggestion. Disclosing the identities ofthe injured customers 

and information about their trades raises serious privacy concerns. Indeed, divulging certain 

identifying information may run afoul of the privacy laws in effect in the various domestic and 

foreign jurisdictions where the injuredcustomers may reside. In any event, the Plan provides a 

verification procedure whereby personsmay determine whether they are in the class ofinjured 

customers, and, ifso, verify the accuracy oftheir distribution amount. The verification 

procedure provides an efficient mechanism for persons to determine whether they are eligible for 

a distribution without raisingthe kind of privacy concerns that would be implicated by 

publishing a list of injured customers and their trades. 

Accordingly, IT IS HEREBY ORDERED, pursuant to Rule 1104 ofthe Commission's 

Rules on Fair Fund and Disgorgement Plans, 17 C.F.R. § 201.1104, that the Distribution Plan is 

modified to include the paymentofpost-judgmentinterest to injured customers, subject to 

adequate tax documentation, calculated through the date of distribution, and approved with such 

modification. 

By the Commission. 

Nancy M. Morris 

Secretary 

The fund administrator may not be able to make post-judgment interest payments to every 

injured customer because, underthe Internal Revenue Code, payments ofpost-judgment interest 

can only be made to persons who have submitted certain tax documentation. The Plan, as 

modified, makesclear that the fund administrator needonly make payments ofpost-judgment 

interest where the proper tax documentation is made available by the injured customer. 

o

Joseph J. Porco, Managing Director, Independent Asset Management

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