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N E W Y O R K S T O C K E X C H A N G E, I N C.

In the Matter of ) Appeal from Exchange

Luis S. Mendez ) Hearing Panel Decision 89-5l

In the Matter of ) Appeal from Exchange

Nicholas J. Minucci) Hearing Panel Decision 89-52

The decisions of the Hearing Panel rejecting the Stipulation of

Facts and Consent to Penalty ("Stipulation and Consent") entered

into between Luis S. Mendez and the Division of Enforcement

(Exchange Hearing Panel Decision 89-5l) and Nicholas J. Minucci and

the Division of Enforcement (Exchange Hearing Panel Decision 89-52),

are reversed.

In so doing, the Board of Directors accepts the facts stipulated to

and fixes and imposes the penalties agreed to in the Stipulation andConsent of a censure and a $20,000 fine with respect to Luis S.

Mendez and a censure and a $40,000 fine with respect to Nicholas J.

Minucci.

The Hearing Panel met to consider the proposed Stipulation and

Consent entered into by The First Boston Corporation, Luis S. Mendez

and Nicholas J. Minucci. The Hearing Panel accepted the Stipulation

and Consent as it pertained to The First Boston Corporation ("the

firm") and imposed the penalty consented to by the firm (Exchange

Hearing Panel Decision 89-5O). The Hearing Panel rejected the

Stipulation and Consent with respect to Mr. Mendez and Mr. Minucci.

The Board believes the facts stipulated to support a finding that

the offenses consented to by Mr. Mendez and Mr. Minucci were

committed, and believes the penalties agreed to in the Stipulation

to be reasonable and appropriate for the offenses and facts

stipulated.

Accordingly, the Board accepts the findings stipulated to between

the Division of Enforcement and Mr. Mendez, the substance of which

are: that Mendez violated Exchange Rule 342(a) in that he failed to

reasonably discharge his duties and obligations in connection with

supervision and control of the activities of those employees related

to the business of their employer and compliance with securities

laws and regulations with respect to compliance with the Quiet

Restricted List procedure by the Equity Department.

The Board also accepts the findings stipulated to between the

Division of Enforcement and Mr. Minucci, the substance of which are:

that Minucci engaged in violations of Exchange Rule 342(a) in that

he failed to reasonably discharge his duties and obligations in

connection with supervision and control of the activities of those

employees related to the business of their employer and compliance

with securities laws and regulations with respect to (i) compliance

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2with the Quiet Restricted List procedure by the Institutional Block

Trading Desk; and (ii) by ordering a trader to sell a security which

was included on the Quiet Restricted List.

Accordingly, the Board accepts the facts stipulated to between the

Division of Enforcement and Mr. Mendez, and between the Division of

Enforcement and Mr. Minucci, the substance of which are:

1. The firm was incorporated in Massachusetts on

June 27, 1932 and was approved as a member

organization of the Exchange on March 29, 1971.

2. The firm is a broker dealer registered with the

Securities and Exchange Commission (SEC)

providing a broad spectrum of investment banking

and financial services on an international basis.

3. As of December 3l, 1987, the firm had

approximately 12,000 customer accounts and l8

branch offices.

4. Mendez was born on January 6, 1937, and was

approved as an allied member on May 26, 1975. He

has been employed in the securities industry for

about eighteen years. Since November 1984 and at

all relevant times, Mendez was the Co-Head of the

the firm's Equity Department. Mendez is a

Managing Director and member of the firm's

Management Committee.

5. Mendez has also served as a member of the

Exchange Allocation Committee and the Upstairs

Trading Committee, and as an elected member of

the NASD District Business Conduct Committee of

District #l2. During his career in the

Securities Industry, Mendez has not previously

been the subject of any disciplinary action by

any regulatory or self regulatory organization.

6. Minucci was born on July 29, 1945. He was

approved as a registered representative by the

Exchange in the early 1970's, and has been

employed in the securities industry for nineteen

years. He is a Managing Director of the firm

and, since May 1985, has been the Manager of the

firm's Institutional Block Trading Desk ("IBD").

During his career in the Securities Industry,

Minucci has not previously been the subject of

any disciplinary action by any regulatory or self

regulatory organization.

Securities and Exchange Commission Civil Injunction

7. On May 5, 1986, the united States District Court

for the Southern District of New York, in a civil

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3 proceeding, entered a Final Judgment of permanent

Injunction and Other Relief against the firm

enjoining the firm from engaging in transactions,

acts, practices and courses of business which

constitute or would constitute violations of

Section 10(b) of the Securities Exchange Act of

1934 and Rule l0b-5 promulgated thereunder.

8. The firm consented to the entry of the Final

Judgment without admitting or denying the

allegations contained in the SEC's Complaint for

Permanent Injunction and Other Relief ("the

Complaint").

9. The Complaint for Permanent Injunction and Other

Relief filed by the SEC alleged that the firm, in

breach of a duty of trust and confidence to Z

Corporation (hereinafter "Z"), traded in Z's

securities for the firm's account on January 30,

1986, while in possession of material non-public

information provided by Z concerning aforth-coming announcement of a $l.2 billion

addition to Z's property casualty loss reserves,

in violation of Section 10(b) of the Securities

Exchange Act of 1934 and Rule 10b-5 promulgated

thereunder.

10. The Consent Decree which provided for

disgorgement in the amount of $132,138 and the

imposition of a civil fine of $264,276 under the

Insider Trading Sanctions Act of 1984, included

an undertaking requiring the firm to conduct a

review of its Restricted List and Chinese Wall

Procedures and to submit its report of that

review to the SEC.

Statement of Facts

The Acquisition of the Z Material, Non-Public

Information

ll. On January 20, 1986, the treasurer of Z, a large

publicly held insurance company contacted one of

the firm's Corporate Finance Department Managing

Directors for the purpose of arranging a meeting

in order to obtain advice regarding the

ramifications of a possible increase in the

property-casualty loss reserves of Z.

12. On January 21, 1986, Z's Chief Financial Officer

met at Z's headquarters with the firm's Corporate

Finance Department representatives. At this

meeting, the firm representatives were told that

Z's Management was considering making a

recommendation to its Board of Directors of a $1

to $1.5 billion increase in its property casualty

loss reserves.

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4

13. The firm's representatives presented the various

alternatives available to fund the casualty loss

reserves increase. They believed that such

action would negatively affect the short term

value of Z's securities.

14. Following the January 21, 1986 meeting, one of

the firm's representatives contacted the firm's

Legal Department and requested that Z be put on

the Quiet Restricted List ("QRL"). This request

was made because the firm representatives

believed that the subject matter discussed was

"market sensitive information."

January 24, 1986 Z Transaction

15. On January 24, 1986, to facilitate a customer

order to sell 50,500 shares of 2 convertible

preferred stock, the Convertible Preferred

Trading Desk purchased 49,900 shares of thatsecurity on a proprietary basis and executed the

sale of the remaining 600 shares on an agency

basis. The Convertible Preferred Desk also

transferred a 21,000 share position in Z Common

Stock to the Institutional Block Trading Desk.

16. On January 27, 1986, the firm's Legal Department

in the course of its review of trading discovered

the January 24, 1986, Convertible Preferred

Trading Desk position in Z convertible preferred

stock and directed that the position not be

traded. However, the 21,000 share position in Z

common stock at the IBD resulted from an internal

transfer which was not reflected in the trade

runs reviewed by the Legal Department and was not

noted.

17. On January 29, 1986, a written analysis

presenting the alternatives for the financing of

the casualty reserves increase and the probable

impact of the increase on the value of Z

securities, requested on January 24, 1986, was

delivered by the firm to Z's management.

18. The Chief Financial Officer of Z, on the evening

of January 29, 1986, informed the firm that he

expected that Z would publicly announce itsdecision concerning the increase to its casualty

loss reserves after a Z Board of Directors

special meeting to be held on January 30, 1986.

Transmittal of the Z Information to the firm's Trading

Room

19. On January 30, 1986, before Exchange trading had

begun, a firm Corporate Finance Department

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5 representative notified a firm Insurance Analyst

("the Insurance Analyst") that Z would make an

announcement which could have a negative effect

on the value of Z's securities and that he should

be prepared to answer questions thereafter

concerning the market impact of such announcement.

20. The firm's Corporate Finance Department

representative told the Insurance Analyst that he

was conveying material information, that Z was

included on the QRL and instructing him to advise

only his superior of the Z information and that

he or his superior should be available to respond

to inquiries subsequent to the announcement.

21. The Insurance Analyst contacted his superior,

advised him of the Z information and was

instructed to convey that information to Minucci,

the Manager of the Institutional Block Trading

Desk.

22. Following this conversation, the Insurance

Analyst went to the trading floor and spoke to

Minucci at the IBD.

23. During a short conversation, the Insurance

Analyst indicated that a significant negative

announcement with respect to Z would be

forthcoming.

24. Minucci believed that he was receiving only an

analyst's opinion of Z.

The January 30, 1986 Z Transactions

25. Immediately following or at the same time as the

conversation with the Insurance Analyst, Minucci

asked a trader whether he had any exposure in Z

Securities. Upon being told that a long position

of 21,000 shares existed and without checking the

QRL, Minucci directed the trader to liquidate the

position.

26. Acting on Minucci's instructions, the trader sold

the 21,000 share Z position held in the IBD

proprietary account at 9:48 am. at a price of 69

1/8.

27. Shortly after that conversation, the Insurance

Analyst also discussed the Z situation with

Mendez in a brief conversation. Upon checking,

Mendez was not told specifically of any Z

transactions.

28. Shortly thereafter, the trader also purchased 131

Z put options which were sold at a profit the

same day.

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29. Subsequently, the trader purchased additional Z

put options, Z call options and common stock.

Quiet Restricted List and Chinese Wall Procedures

30. The firm's Chinese Wall procedures prohibited the

transmittal of material, non-public information

from the Corporate Finance Department to the

Equity Trading, Sales, and Research Departments.

31. Except for tender offers (where the applicable

SEC rule explicitly dealt with Chinese Wall

Procedures), the firm's procedures to prevent

trading on the basis of material non-public

information focused upon the QRL rather than upon

Chinese Wall Procedures.

32. The firm's QRL was a list of limited circulation

utilized to restrict the issuance of Research

Reports and trading in proprietary and employeeaccounts when the firm, as the result of a

confidential business relationship, acquired

material non-public information.

33. The Legal Department would prepare and distribute

the QRL which list would be retyped every two

weeks if sufficient revisions were necessary.

34. The QRL was distributed to the heads of the

Trading and other departments who generally

orally informed their staff of the content

thereof on a need to know basis.

35. Under the practice in effect at the time, a copy

of the QRL and typed corrections were distributed

to both Mendez and Minucci.

36. If changes were required prior to the written

revision of the QRL, they would be orally

communicated to the recipients of the list.

Mendez's secretary would type them onto the QRL

and provide a corrected copy to Minucci.

37. The Legal Department also reviewed the prior

day's trading to determine whether a QRL security

had been traded.

Deficiencies in the firm's Chinese Wall and

Quiet Restricted List Procedures

Chinese Wall Procedure

38. The firm's Chinese Wall Procedures did not

prevent the dissemination within the firm of

material non-public information emanating from

the Corporate Finance Department in that:

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(i) Information with respect to the Z announcement

was conveyed to the Research Department

without sufficient safeguards to prevent

further dissemination;

(ii) As a consequence, a member of the Research

Department had discussions predicated upon

such information with members of the Equity

Trading Department by engaging in brief

conversations with them on the firm's trading

floor; and

(iii) A member of the Research Department also

discussed the Z information with a member of

the Arbitrage Department staff.

Restricted List Procedure

39. The firm's QRL Procedures and their implementation

did not prevent trading in Z while the firm was inpossession of material non-public information with

regard to that security as follows:

(1) On January 30, 1986 trading in Z securities

occurred despite Z's inclusion on the QRL for

nine days.

(a) while the QRL was distributed to a

Co-Head of the Equity Department and the

Manager of the IBD, procedures were not

in place to assure that they were alerted

to its contents and required to take

appropriate steps to prevent trading in

restricted securities by their

subordinates.

(b) The Co-Head of the Equity Department was

apparently unaware of the QRL's contents

for at least two months;

(c) The Manager of the IBD was unaware that Z

was included on the QRL at the time he

directed a sale in Z; and

(d) Further trading occurred in Z Securities

subsequent to the execution of the

transaction ordered by the Manager of theIBD.

40. The firm has represented that after the

undertaking entered into in conjunction with the

settlement of the SEC's Injunctive proceeding,

Modified Chinese Wall and QRL procedures were

adopted.

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8 Mendez and Minucci

41. As a Co-Head of the Equity Department, Mendez's

responsibilities included the implementation of

the firm's QRL procedures.

42. Mendez was therefore obligated to assure that he

personally or an appropriate subordinate be kept

apprised of the contents of the QRL.

43. The QRL was distributed to Mendez by the firm's

Legal Department and Mendez directed his secretary

to maintain it and notify him and other

responsible personnel of any changes.

44. Mendez has acknowledged that for two months he was

not aware of the contents of or any changes to the

QRL.

45. Mendez's failure to assure that the QRL Procedure

was properly implemented contributed to thetrading which occurred on January 30, 1986 in the

securities of Z, a QRL listed security.

46. Furthermore, Mendez failed to check the QRL after

his conversation with the Insurance Analyst

regarding upcoming significant events affecting Z.

47. In addition, after a later conversation with a

staff member of the Corporate Finance Department

during which he was advised that Z should not be

traded, Mendez neither checked the QRL or took any

other steps to assure that trading would not occur.

48. In fact, unknown to Mendez, further trading in Z

securities occurred subsequent to that

conversation.

49. Minucci, as Manager of the Institutional Block

Trading Desk, was responsible for preventing

trading in QRL listed securities by IBD traders.

50. The QRL was distributed to Minucci and he had the

obligation to be aware of its contents and to take

necessary steps to assure that traders under his

supervision did not effect transactions in QRL

listed securities.

51. On Jannary 24, 1986, an IBD trader reporting to

Minucci acquired a 21,000 share position in Z

Common Stock from the Convertible Preferred Desk

while Z was included on the QRL.

52. However, Minucci was unaware of this position and

that it was in a QRL listed security until January

30, 1986.

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953. On the morning of January 30, 1986, the Insurance

Analyst approached Minucci at the IBD.

54. During a short conversation, the Insurance Analyst

indicated that a significant negative announcement

with respect to Z would be forthcoming.

55. Minucci believed that he was receiving only an

analyst's opinion of Z.

56. Immediately thereafter, Minucci determined from a

trader that a 21,000 share position in Z Common

Stock was being held by the IBD.

57. Without checking the QRL which was in his

possession and which included Z, Minucci

instructed the trader to liquidate the position.

58. After liquidating the 21,000 share position, the

trader engaged, at his own discretion and without

the knowledge of Minucci, in a series of put andcall option transactions in Z and a purchase of Z

Common Stock.

59. Certain of these transactions occurred after

Minucci learned that Z was included on the QRL.

The firm, Mendez, and Minucci have represented the

following:

60. At the time the discussions between Z staff and

the firm representatives were initiated (see

paragraphs 11-l8 above), Mendez and Minucci were

neither involved in nor aware of such discussions.

61. Mendez and Minucci were not made aware of the

transfer, on January 24, 1986, of a 21,000 share

position in Z Common Stock from the firm's

Convertible Preferred Desk to the Institutional

Block Trading Desk.

62. The direction by the firm Legal Department that

the Convertible Preferred Desk position in Z not

be traded was not communicated to Mendez or

Minucci.

63. Minucci was not told the Z information was

confidential when the Insurance Analyst spoke tohim.

64. Mendez was unaware of the sale on January 30, 1986

at 9:48 a.m. of 21,000 shares of Z Common Stock

when it occurred.

65. On January 30, 1986, subsequent to the sale of the

21,000 shares of Z, Minucci, in referring to the

QRL, learned that 2 was on it. He immediately

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10 realized that the 21,000 share trade which he had

directed to be made was in violation of the QRL

procedures and thereafter reported what had

occurred to Mendez.

66. The firm's Legal Department was also alerted to

what had occurred within 24 hours of the 21,000

share trade and the purchase of the put options.

Mendez insisted that the matter be brought to the

attention of the top management of the firm, and

this was done. Minucci cooperated with the firm's

Management in every respect.

67. The matter was thereafter promptly reported to the

Exchange and SEC.

Consideration of SEC Proceeding

68. In entering into this Stipulation of Facts and

Consent to Penalty with respect to the firm, the

Division of Enforcement has taken into account theInjunctive proceeding initiated by the SEC which

resulted in the imposition of sanctions including

disgorgement and a civil fine and also required

that the firm review its Chinese Wall procedures

and submit a report of that review to the SEC.

The Board, in accepting the Stipulation and Consent, finds Mr.

Mendez guilty as set forth in the Stipulation and Consent.

The Board further imposes the penalty consented to by Mr. Mendez of

a censure and a $20,000 fine.

The Board, in accepting the Stipulation and Consent, finds Mr.

Minucci guilty as set forth in the Stipulation and Consent.

The Board further imposes the penalty consented to by Mr. Minucci of

a censure and a $40,000 fine.

January 4, 1990 By the Board of Directors

New York Stock Exchange, Inc.