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ROBERT M. KOLACZYNSKI, FORMER REGISTERED REPRESENTATIVE WITH MERRILL LYNCH, PIERCE, FENNER & SMITH, INC., VIOLATED EXCHANGE RULE 723 IN THAT HE RECOMMENDED OPTION TRADING WITHOUT HAVING A REASONABLE BASIS TO BELIEVE THE CUSTOMERS HAD THE EXPERIENCE TO EVALUATE THE RISKS AND WERE FINANCIALLY ABLE TO BEAR THE RISKS; AND ENGAGED IN CONDUCT INCONSISTENT WITH JUST AND EQUITABLE PRINCIPLES OF TRADE IN THAT HE CAUSED TRADING IN THE ACCOUNTS OF CUSTOMERS WHICH WAS EXCESSIVE AND UNSUITABLE IN LIGHT OF THEIR FINANCIAL NEEDS AND INVESTMENT OBJECTIVES, AND CAUSED THE UNSUITABLE USE OF MARGIN IN THE ACCOUNTS OF CUSTOMERS -CONSENT TO CENSURE AND TWO YEAR BAR.

EXCHANGE HEARING PANEL DECISION 90-87

July 6, 1990

An Exchange Hearing Panel met to consider a Stipulation of Facts and Consent to Penalty entered into between the Exchange's Division of Enforcement and Robert M. Kolaczynski, a former registered representative with Merrill Lynch, Pierce, Fenner & Smith, Inc. (the "Firm"). Without admitting or denying guilt, Mr. Kolaczynski consents to a finding by the Hearing Panel that he: I. Violated Exchange Rule 723 in that he recommended option trading without having a reasonable basis to believe the customers had the experience to evaluate the risks and were financially able to bear the risks. Engaged in conduct inconsistent with just and equitable principles of trade in that: (1) he caused trading in the accounts of customers which was excessive and unsuitable in light of their financial needs and investment objectives. he caused the unsuitable use of margin in the accounts of customers.

II.

(2)

For the sole purpose of settling this disciplinary proceeding, the Division of Enforcement and Mr. Kolaczynski stipulate to certain facts, the substance of which follows: 1. Kolaczynski was born on November 26, 1955. He entered the securities industry in May 1980 with

the Firm. In October 1980 he was approved as a Registered Representative with the Firm. In October 1983, Kolaczynski was employed at another firm and remained there until he was discharged in August 1987. Since that time, Kolaczynski has not been employed in the securities industry. 2. The Exchange received an RE-3 Form from the Firm on July 15, 1987, reporting a $22,500 settlement of a customer complaint. Exchange investigation disclosed a second customer complaint. By letter dated December 22, 1987, which Kolaczynski received, the Exchange advised Kolaczynski that it was investigating matters which occurred during his employment at the Firm. While employed at the Firm Kolaczynski serviced the accounts of customers A and B. Customer A opened an account (the "Account") at the Firm in August 1981, with a $70,000 deposit which represented his $35,000 inheritance and most of his savings. At the time he opened the Account, Customer A, a partially disabled Viet Nam veteran with a high school education and little prior investment experience, was employed as a steel worker earning $30,000 per year. In October 1981, the Account was assigned to Kolaczynski. A advised Kolaczynski that his objective was to provide for an early retirement. During the period Kolaczynski was his account executive, A became unemployed. From March 28, 1982 to October 19, 1983, one hundred eighty-one option transactions were effected, margin interest of approximately $7,981 was charged, and the Account was left with a few bond positions and a debit balance of $39,434.35. All transactions in the Account were executed based on Kolaczynski's recommendations. Kolaczynski did not discuss the risks of option trading with A and A has stated he did not understand options. The option trading in the Account was excessive based upon A's investment experience, financial resources and investment objectives. The option trading and the utilization of margin

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during the period March 28, 1982 to October 19, 1983 was unsuitable in view of A's prior investment experience, financial resources and investment objectives. 14. On May 15, 1981, Customer B, a 56 year old widow with a 10th grade education, opened an account at the Firm with the $10,000 proceeds of her husband's life insurance policy. Kolaczynski was B's account executive. On June 23, 1981, a new joint account (the "Joint Account") was opened for B and her daughter. Cash and securities from the original account were transferred to the Joint Account. B's daughter did not make any deposits nor did she exercise any control over the Joint Account. On June 30, 1981, an account for the estate of B's deceased husband was opened with a deposit of 852 shares of XYZ and a $25,000 UVW Bond. On Kolaczynski's recommendation, the securities were liquidated and the proceeds of $59,985.66 were transferred to the Joint Account. B turned over to Kolaczynski for deposit into the Account all of her remaining assets: 492 shares of XYZ and 837 shares of RST, all purchased by her husband during his lifetime, and $1,000 from a savings account. B told Kolaczynski her objective was income and he promised her he could help her earn $40,000 a year. At Kolacynski's suggestion, the 492 shares of XYZ and 837 shares of RST were liquidated and the proceeds of approximately $40,000 were immediately reinvested in securities and options. An option agreement was signed, but B did not understand options or margin. From June 1981 to August 28, 1983, all transactions, with only two exceptions, were based upon Kolaczynski's recommendations. B relied completely on Kolaczynski and when she expressed concern, he told her to remember, "You are always ahead." From June 27, 1981 to August 26, 1983, three hundred fifty equity and option transactions were effected in the Joint Account. Total purchases amounted to $816,826. Total commission, fees and margin interest amounted to approximately $48,876. The average monthly equity was $47,960.

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The annualized turn over ratio was 7.9:1. realized and unrealized loss was $85,930. 25.

The net

The trading was unsuitable and excessive in light of B's investment experience, financial needs and investment objectives. The use of margin was unsuitable in B's account in view of her financial needs and investment objectives. DECISION

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The Hearing Panel, in accepting the Stipulation of Facts and Consent to Penalty, found Mr. Kolaczynski guilty as set forth above by unanimous vote.

PENALTY

In view of the above findings, the Hearing Panel, by unanimous vote, imposed the penalty consented to by Mr. Kolaczynski of a censure and a two year bar from membership, allied membership, approved person status, and from employment or association in any capacity with any member or member organization. For the Hearing Panel

Milton M. Stein Hearing Officer