UNITED STATES OF AMERICA

UNITED STATES OF AMERICA

Before the

SECURITIES AND EXCHANGE COMMISSION

SECURITIES EXCHANGE ACT OF 1934

Release No. 83564 / June 29, 2018

ADMINISTRATIVE PROCEEDING

File No. 3-18563

ORDER INSTITUTING ADMINISTRATIVE

PROCEEDINGS, PURSUANT TO SECTION

15(b) OF THE SECURITIES EXCHANGE

ACT OF 1934, MAKING FINDINGS, AND

IMPOSING REMEDIAL SANCTIONS

In the Matter of

BARRY T. EISENBERG

Respondent.

I.

The Securities and Exchange Commission (“Commission”) deems it appropriate and in the

public interest that public administrative proceedings be, and hereby are, instituted pursuant to

Section 15(b) of the Securities Exchange Act of 1934 (“Exchange Act”) against Barry T. Eisenberg

(“Eisenberg” or “Respondent”).

II.

In anticipation of the institution of these proceedings, Respondent has submitted an Offer

of Settlement (the “Offer”) which the Commission has determined to accept. Solely for the

purpose of these proceedings and any other proceedings brought by or on behalf of the

Commission, or to which the Commission is a party, and without admitting or denying the findings

herein, except as to the Commission’s jurisdiction over him and the subject matter of these

proceedings, which are admitted, and except as provided herein in Section V, Respondent consents

to the entry of this Order Instituting Administrative Proceedings, Pursuant to Section 15(b) of the

Securities Exchange Act of 1934, Making Findings, and Imposing Remedial Sanctions (“Order”),

as set forth below.

III.

On the basis of this Order and Respondent’s Offer, the Commission finds 1 that:

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The findings herein are made pursuant to Respondent's Offer of Settlement and are not

binding on any other person or entity in this or any other proceeding.

Summary

Respondent failed reasonably to supervise a registered representative (“RR”) with a view to

preventing and detecting the RR’s violations of the federal securities laws from approximately May

2013 through August 2014 while Respondent and the RR were both associated with Alexander

Capital, L.P. (“Alexander Capital”), a registered broker-dealer. During this time period, the RR

violated Section 17(a) of the Securities Act of 1933 (“Securities Act”) and Section 10(b) of the

Exchange Act and Rule 10b-5 thereunder by, among other things, making unsuitable investment

recommendations to his customers and churning a customer’s account.

Respondent

1.

Eisenberg, 47, is a resident of Allentown, Pennsylvania, and has been associated

with Alexander Capital as a branch manager and registered representative since May 2013. From

May 2013 through September 2014, Eisenberg was the direct supervisor of the RR at Alexander

Capital. Eisenberg holds Series 7, 24 and 63 licenses.

Other Relevant Entity

2.

Alexander Capital, is a Delaware limited partnership with its main office in New

York, New York (the “Manhattan Office”) and, from 2012 until 2014, had a branch office on

Staten Island, New York. It has been registered with the Commission as a broker-dealer since

1996.

Background

3.

Eisenberg joined Alexander Capital in May 2013 as the branch manager of its

Manhattan Office. The RR was also located in the Manhattan Office.

4.

Under Alexander Capital’s written supervisory procedures (“WSPs”), supervisors

were directed to discuss trades that appeared to be unsuitable with the registered representative,

and if the registered representative was unable to show why the trade was suitable, the supervisor

was expected to consider whether disciplinary action was warranted. If the supervisor determined

that there were suspicious transactions in the account, the supervising principal was to contact the

customer directly.

5.

Under the WSPs, supervisors were responsible to ensure that “all transactions

undertaken by individuals under their direct supervision [were] reviewed in such a manner to

reasonably detect and deter any instances of illegal churning in customer accounts.” Supervisors

were specifically directed in the WSPs to look at “turnover rate,” “[c]ost-equity ratio” and “[i]nand-out trading.” Supervisors were required to carefully review exception reports for accounts

with “an excessive amount of client activity” and accounts that seemed “to generate a

disproportionately high amount of commissions relative to the size of the investment.” If there was

a basis for supervisors to suspect churning, the WSPs directed supervisors to interview the

registered representative. If the registered representative could not justify the activity, the

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supervisor was expected to contact the customer and impose sanctions on the registered

representative, “ranging from loss of commissions to temporary suspension of conducting any

activities that require registration.”

6.

From May 2013 through August 2014, while under Eisenberg’s supervision, the RR

made unsuitable investment recommendations and churned a customer’s account.

7.

The RR had no reasonable basis to believe that the pattern of high-cost in-and-out

trading he recommended to at least two customers (Customer A and Customer B) would be

suitable for anyone.

8.

Since the customers incurred costs with every transaction, making a profit

depended upon the price of the security increasing during the brief period the security was held in

the customer accounts. The increase in price had to exceed the combined costs for even a minimal

profit to be realized. The impact of the costs that arose from the excessive trading, however,

doomed any possibility of even a minimal profit.

9.

Turnover rates and cost-to-equity ratios are used to evaluate activity in customer

accounts. Turnover rate is the number of times per year a customer’s securities are replaced by

new securities. The cost-to-equity ratio measures the amount an account has to appreciate annually

just to cover commissions and other expenses. A turnover rate of six or greater or a cost-to-equity

ratio in excess of 20%, can indicate excessive trading.

10.

The annualized turnover rate and cost-to-equity ratios for the two customers were

extremely high and are indicative of excessive trading. The turnover rates for two of the RR’s

customers, Customer A and Customer B, were 51.02 and 57.75, respectively, and the cost-toequity ratios for these two customers were 200.40% and 112.26%, respectively.

11.

The RR held each position in the two customers’ accounts for an average of 14.6

and 13.1 days, respectively.

12.

The total loss for these two customers was $21,859 and $250,885, respectively.

13.

The RR also made recommendations to Customer A that were not suitable for that

customer since the recommendations were incompatible with the customer’s financial needs,

investment objectives, risk tolerance and circumstances while at the same time churning that

customer’s account.

14.

The account opening documents sent to Customer A, which Customer A signed,

were pre-populated with “speculation” as the investment objective and “maximum risk” as the risk

tolerance. These selections did not reflect Customer A’s more conservative investment objective

and risk tolerance.

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15.

The RR made all of the investment recommendations in the account and was

responsible for the volume and frequency of trading. Customer A did not question or

independently evaluate the RR’s recommendations.

16.

Eisenberg, the branch manager of Alexander Capital’s Manhattan Office and the

RR’s direct supervisor, ignored red flags indicating excessive trading and in doing so, failed

reasonably to supervise the RR with a view to preventing and detecting the RR’s violations of the

federal securities laws related to his (1) lack of a reasonable basis for recommendations made to

Customers A and B; (2) unsuitable recommendations made to Customer A; and (3) churning in

Customer A’s account.

17.

An online surveillance tool was furnished to Alexander Capital by its clearing firm.

The online surveillance tool allowed supervisors to record their approval of trades and issued

“alerts” when turnover and commissions reached certain pre-set levels.

18.

The turnover and commission alerts generated by the online surveillance tool

constituted indicia of suspicious trading or “red flags.” Eisenberg had access to the online

surveillance tool and used it in his trade review. The online surveillance tool generated multiple

alerts for the accounts of Customers A and B, but some of these alerts went unreviewed by

Eisenberg, who did not take reasonable action in response to the alerts he did review.

19.

For Customer A’s account, in July 2013 and September 2013 four turnover and

commission alerts were issued. Eisenberg did not review any of these alerts, some of which

remained open for as long as 51 days before being closed automatically by the online surveillance

tool.

20.

In Customer B’s account, Eisenberg noted concerns with the trading as early as

June 2013. Soon after Eisenberg began reviewing the individual trades in Customer B’s account,

commission restrictions were imposed on the RR for this account.

21.

Between May 2013 and August 2014, there were 28 turnover or commission alerts

in the online surveillance tool for Customer B’s account. Eisenberg reviewed 20 of these alerts,

but other than commission restrictions and some trade corrections, took no action reasonably to

supervise the RR.

22.

Between May 2013 and December 2013, Eisenberg reviewed at least six of the 12

turnover and commission alerts issued for Customer B’s account. The review comments in the

system indicated that the account was “being handled within established parameters” and that

commissions had been “capped at 1% max.”

23.

Beginning in January 2014, Eisenberg attempted to limit the commissions in

Customer B’s account to $100 per trade, but the limit was not consistently applied. Eisenberg

failed to monitor whether the RR’s commissions were limited to $100 or whether the RR

continued to engage in excessive trading despite the commission restrictions Eisenberg attempted

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to impose. In fact, the RR continued to engage in excessive trading in Customer B’s account,

which prompted the generation of new alerts.

24.

From January 2014 through August 2014, 16 turnover and commission alerts were

issued in the online surveillance tool for Customer B’s account. Although Eisenberg reviewed 14

of these alerts, he failed to take reasonable action in response. As late as May 27, 2014, the review

comments associated with Eisenberg’s closure of alerts issued on May 10, 2014 indicated that

Customer B’s account was “being handled within established parameters.” If Eisenberg had

followed up reasonably on the turnover and commission alerts generated with respect to the RR’s

handling of the accounts of Customer A and Customer B, it is likely that he would have prevented

and detected the violations of the federal securities laws by the RR.

25.

As a result of the conduct described above, Eisenberg failed reasonably to supervise

the RR within the meaning of Section 15(b)(4)(E) of the Exchange Act, as incorporated by

reference in Section 15(b)(6) of the Exchange Act, with a view to preventing and detecting the

RR’s violations of Section 17(a) of the Securities Act and Section 10(b) of the Exchange Act and

Rule 10b-5 thereunder.

IV.

In view of the foregoing, the Commission deems it appropriate and in the public interest to

impose the sanctions agreed to in Respondent Eisenberg’s Offer.

Accordingly, it is hereby ORDERED that:

A.

Pursuant to Section 15(b)(6) of the Exchange Act, Eisenberg shall be, and hereby is,

subject to the following limitations on his activities:

1.

Respondent Eisenberg shall not act in a supervisory capacity with any

broker, dealer, investment adviser, municipal securities dealer, municipal

advisor, transfer agent, or nationally recognized statistical rating

organization; and

2.

Respondent Eisenberg may apply to act in such a supervisory capacity after

five (5) years to the appropriate self-regulatory organization, or if there is

none, to the Commission.

B.

Any application to act in such a supervisory capacity will be subject to the

applicable laws and regulations governing the reentry process, and permission to act in such a

supervisory capacity may be conditioned upon a number of factors, including, but not limited to, the

satisfaction of any or all of the following: (a) any disgorgement ordered against the Respondent,

whether or not the Commission has fully or partially waived payment of such disgorgement; (b) any

arbitration award related to the conduct that served as the basis for the Commission order; (c) any

self-regulatory organization arbitration award to a customer, whether or not related to the conduct

that served as the basis for the Commission order; any (d) any restitution order by a self-regulatory

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organization, whether or not related to the conduct that served as the basis for the Commission

order.

C.

Respondent shall pay civil penalties of $15,000.00 to the Securities and Exchange

Commission. Payment shall be made in the following installments:

1.

2.

3.

4.

5.

6.

$3,750 within 10 days of the entry of this Order;

$2,250 within 60 days of the entry of this Order;

$2,250 within 120 days of the entry of this Order;

$2,250 within 180 days of the entry of this Order;

$2,250 within 240 days of the entry of this Order;

$2,250 within 300 days of the entry of this Order.

Payments shall be deemed made on the date they are received by the Commission and shall

be applied first to post-Order interest, which accrues pursuant to 31 U.S.C. 3717. Prior to making

the final payment set forth herein, Eisenberg shall contact the staff of the Commission for the

amount due for the final payment, which shall include accrued interest. If any payment is not

made by the date the payment is required by this Order, the entire outstanding balance of civil

penalties, plus any additional interest accrued pursuant to 31 U.S.C. 3717, minus any payments

made, shall be due and payable immediately, without further application.

Payment must be made in one of the following ways:

(1)

Respondent may transmit payment electronically to the Commission, which

will provide detailed ACH transfer/Fedwire instructions upon request;

(2)

Respondent may make direct payment from a bank account via Pay.gov

through the SEC website at http://www.sec.gov/about/offices/ofm.htm; or

(3)

Respondent may pay by certified check, bank cashier’s check, or United

States postal money order, made payable to the Securities and Exchange

Commission and hand-delivered or mailed to:

Enterprise Services Center

Accounts Receivable Branch

HQ Bldg., Room 181, AMZ-341

6500 South MacArthur Boulevard

Oklahoma City, OK 73169

Payments by check or money order must be accompanied by a cover letter identifying

Barry T. Eisenberg as a Respondent in these proceedings, and the file number of these

proceedings; a copy of the cover letter and check or money order must be sent to Sanjay Wadhwa,

Senior Associate Regional Director, Division of Enforcement, Securities and Exchange

Commission, New York Regional Office, Brookfield Place, 200 Vesey Street, Suite 400, New

York, New York 10281-1022.

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D.

Pursuant to Section 308(a) of the Sarbanes-Oxley Act of 2002, as amended, a Fair

Fund is created for the penalties referenced in paragraph C above. Regardless of whether any such

Fair Fund distribution is made, amounts ordered to be paid as civil money penalties pursuant to this

Order shall be treated as penalties paid to the government for all purposes, including all tax

purposes. To preserve the deterrent effect of the civil penalty, Respondent agrees that in any

Related Investor Action, he shall not argue that he is entitled to, nor shall he benefit by, offset or

reduction of any award of compensatory damages by the amount of any part of Respondent’s

payment of a civil penalty in this action (“Penalty Offset”). If the court in any Related Investor

Action grants such a Penalty Offset, Respondent agrees that he shall, within 30 days after entry of

a final order granting the Penalty Offset, notify the Commission's counsel in this action and pay the

amount of the Penalty Offset to the United States Treasury or to a Fair Fund, as the Commission

directs. Such a payment shall not be deemed an additional civil penalty and shall not be deemed to

change the amount of the civil penalty imposed in this proceeding. For purposes of this paragraph,

a “Related Investor Action” means a private damages action brought against Respondent by or on

behalf of one or more investors based on substantially the same facts as alleged in the Order

instituted by the Commission in this proceeding.

V.

It is further Ordered that, solely for purposes of exceptions to discharge set forth in Section

523 of the Bankruptcy Code, 11 U.S.C. §523, the findings in this Order are true and admitted by

Respondent, and further, any debt for disgorgement, prejudgment interest, civil penalty or other

amounts due by Respondent under this Order or any other judgment, order, consent order, decree

or settlement agreement entered in connection with this proceeding, is a debt for the violation by

Respondent of the federal securities laws or any regulation or order issued under such laws, as set

forth in Section 523(a)(19) of the Bankruptcy Code, 11 U.S.C. §523(a)(19).

By the Commission.

Brent J. Fields

Secretary

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