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News January 23, 2006 Issue

Formerly Barred Individual Allowed Back Into Advisory Industry

For the second time in two years, a broker-dealer who had been kicked out of the investment management industry has found his way back in.

In January 1999, William Masucci settled SEC fraud charges that in the late 1980ís, he instructed registered reps at his brokerage firm to make misrepresentations to investors about penny stock offerings. As part of the settlement, Masucci agreed to a collateral bar: Not only was he permanently barred from association with any broker-dealer, he also was barred from associating with any investment adviser or investment company.

A few months after Masucciís settlement, however, the U.S. Court of Appeals for the District of Columbia circuit, in the Teicher v. SEC case, struck down the SECís use of collateral bars. The court said, in effect, that the SEC could not prophylactically bar a broker-dealer from association with an investment adviser or investment company, any more than it could bar an offending party "from being a retail shoe salesman." In other words, while the SEC can kick a broker out of the brokerage industry, but it canít kick him or her out of other industries, such as the investment management industry, that the broker isnít even in in the first place.

That, of course, is good news for folks like Masucci. Last week, in response to his petition, the SEC issued a short, three-page order lifting the provisions of the January 1999 bar that had prohibited him from associating with investment advisers and investment companies.

Although the Teicher v. SEC case was decided almost seven years ago, Masucci appears to be only the second individual to obtain such relief. The first was Peter Comas, who had the investment management provisions of his collateral bar lifted back in June 2004.