## Facts

- Christopher J. Benz served as branch manager of a broker-dealer’s Los Angeles office after previously working on the firm’s New York trading desk.
- As branch manager, Benz performed supervisory functions, including reviewing order tickets and account activity, approving new accounts and cross trades, responding to customer complaints, and holding himself out as branch manager in correspondence.
- A senior registered representative in the branch, Elias Argyropolous, generated substantial revenue and was described by firm leadership as potentially problematic.
- During Benz’s tenure, Benz became aware of warning signs relating to Argyropolous, including regulatory subpoenas/document requests, unusually high margin calls in customer accounts, and customer complaints.
- Benz notified the firm’s president/CEO about subpoenas and margin concerns, discussed complaints with the CEO and Argyropolous, and sent a memorandum expressing concern about Argyropolous’s activity.
- NASD disciplinary proceedings alleged Argyropolous engaged in sales-practice abuses and manipulative/deceptive conduct and that Benz failed to supervise and failed to enforce firm supervisory procedures.
- NASD found Benz violated NASD Rules of Fair Practice Article III, §§ 1 and 27 and imposed censure, a $7,500 fine, costs, and a requirement that Benz requalify as a general securities principal before acting as a principal again.
- Benz sought SEC review under Exchange Act § 19(d), arguing he lacked real authority over Argyropolous because ultimate control rested with the CEO.

## Issues

1. Whether Benz, as branch manager, had supervisory responsibility for Argyropolous despite claims that the firm’s CEO retained actual control.
2. Whether substantial evidence supported findings that Benz failed to adequately supervise and failed to enforce written supervisory procedures, violating NASD Rules of Fair Practice Article III, §§ 1 and 27.
3. Whether the NASD sanctions (censure, fine, costs, and requalification) were excessive or unwarranted.

## Decision

- The SEC sustained NASD’s findings that Benz was a supervisor as to Argyropolous and failed adequately to supervise and enforce the firm’s supervisory procedures.
- The SEC rejected Benz’s argument that retained authority at the home office negated branch-level supervisory responsibility.
- The SEC concluded Benz did not respond sufficiently to multiple red flags and did not ensure that written procedures were implemented in practice.
- The SEC sustained the sanctions as remedial and not excessive: censure, $7,500 fine, costs, and requalification as a general securities principal before resuming principal duties.

## Legal Principles

- Supervisory responsibility turns on actual authority and functions performed, not on assertions that another manager retained ultimate control.
- A branch manager with day-to-day oversight remains responsible for supervising associated persons in the branch and for ensuring supervisory procedures are enforced.
- When red flags arise (e.g., regulatory subpoenas, abnormal margin activity, customer complaints), a supervisor must take decisive, heightened steps reasonably designed to detect and prevent misconduct; merely reporting concerns upward may be insufficient.
- A supervisor’s inability to hire, fire, or impose ultimate discipline does not eliminate supervisory duties; the supervisor must still seek effective controls within available authority and press for appropriate measures.
- Written supervisory procedures must be implemented and followed; having procedures “on paper” does not satisfy supervisory obligations if they are not effectively applied.

## Conclusion

The SEC affirmed NASD discipline against a branch manager who, despite clear indications of potential misconduct by a high-producing representative, failed to take adequate supervisory action and failed to ensure the firm’s written supervisory procedures were meaningfully enforced, and it upheld remedial sanctions including requalification before resuming principal responsibilities.


In re Application of Christopher J. Benz, Exchange Act Release No. 38440, Admin. Proc. File No. 3-8986 (S.E.C. Mar. 26, 1997)