The allegations read: The securities and exchange commission ("commission") deems it appropriate and in the public interest that public administrative and cease-and-desist proceedings be, and hereby are, instituted pursuant to section 8a of the securities act of 1933 ("securities act") and sections 15(b) and 21c of the securities exchange act of 1934 ("exchange act") against garrett gaylor ("gaylor" or "respondent"). The commission finds that gaylor willfully violated section 17(a) of the securities act and section 10(b) of the exchange act and rule 10b-5 thereunder, which prohibit fraudulent conduct in the offer or sale of securities and in connection with the purchase or sale of securities. For twelve customers, gaylor recommended a high-cost pattern of frequent trading that he had no reasonable basis to believe was suitable for those customers. The high-cost pattern of frequent trading implemented by gaylor was almost certain to result in losses if implemented in any account and did produce losses in the accounts of all twelve customers. Gaylor determined, on a trade-by-trade basis, the amount to charge in commissions on agency trades and mark-ups and mark-downs on principal trades. Gaylor received a percentage of the commissions, mark-ups and mark-downs as compensation, with the balance retained by his firm. In addition, the firm charged customers a fixed "postage" fee of $75. Gaylor' high-cost pattern of frequent trading that he recommended served to enrich himself at the expense of those customers. In view of the commission structure and the short holding periods averaging just 14.9 days and representing the average amount of time that gaylor held position in customer accounts, there was virtually no chance of a customer achieving even a minimal profit. The twelve customers experienced losses of approximately $741,230, and their accounts had an average cost-to-equity ratio and a turnover that was well above the benchmarks for excessive trading. Gaylor also made material misrepresentations and omissions to customers. Gaylor failed to disclose to the customers that the pattern of frequent trading that he recommended, combined with the high per trade transaction costs, was extremely likely to cause losses. This was material information that a reasonable investor would consider important in making an investment decision. Finally, although the customers' accounts were non-discretionary, gaylor executed unauthorized trades in their accounts. Gaylor communicated with his customers almost exclusively by telephone. A comparison of trading and the firm's phone records revealed large numbers of trades for all customers with no call with the customer in advance of the trade, as would be required for a non-discretionary account. Gaylor received $264,694 in commissions and fees as a result of the fraudulent conduct and material misrepresentations described above.
