or the Respondent
Virginia J. Harnisch, Esq.
Andrew J. Goodman, Esq.
W. Kwame Anthony, Esq.

* * *

In a decision dated November 2, 2005 (the Decision), a Hearing Panel of the New York
Stock Exchange (NYSE or the Exchange)
1
found that Respondent James Gerard
OCallaghan (Respondent) violated Section 11(a)(1) and Rule 11a-1(a) of the
Securities Exchange Act of 1934, as well as NYSE Rules 90(a), 95(a), and 476(a)(6), by
executing trades for an account with respect to which Respondent exercised investment
discretion that was maintained at an upstairs member organization. That account traded
securities for the benefit of Respondents father-in-law, among other family members.
The Hearing Panel imposed a penalty of a censure, three-month suspension and $30,000
fine.

Both Respondent and NYSE Regulation, Inc.s Division of Enforcement
(Enforcement) appealed to the Board of Directors of NYSE Regulation, Inc., which on
June 6, 2007, affirmed the Hearing Panels findings on guilt and penalty.

Respondent subsequently appealed to the U.S. Securities and Exchange Commission (the
SEC). On May 20, 2008, the SEC affirmed the NYSEs findings of violations but
remanded the proceeding for reconsideration of the sanctions. See James Gerard
OCallaghan, Exchange Act Release No. 57840, slip op. at 2, 2008 WL 2117162 (May
20, 2008). In particular, the SEC stated,

On remand, the NYSE should address the protective interests to be served
by removing OCallaghan from the floor, the mitigating factors presented
in the record, and any other factors related to whether a suspension is
appropriately remedial and not punitive. OCallaghan, slip op. at 17-18.

1
On March 8, 2006, the New York Stock Exchange, Inc. became the New York Stock Exchange
LLC. On June 18, 2008, the Board of Directors of NYSE Regulation, Inc. remanded the matter
to the Hearing Panel for action consistent with the SEC Opinion.
2


The Hearing Panel ordered the parties to submit Supplemental Briefs. On July 17, 2008,
Respondent filed Respondent James OCallaghans Memorandum on Remand
(Respondents Brief), and on July 18, 2008, Enforcement filed Brief of the Division of
Enforcement of NYSE Regulation Inc. in Support of a Finding that the Three-Month
Suspension and $30,000 Fine Imposed Against James OCallaghan is a Remedial
Sanction (Enforcements Brief).

On July 31, 2008, Respondent filed Respondent James OCallaghans Reply
Memorandum on Remand, and on August 1, 2008, Enforcement filed Division of
Enforcements Reply to Respondent James OCallaghans Memorandum on Remand.


Discussion

On remand, the Hearing Panel reconsidered the penalty, applying the factors set forth in
McCarthy v. SEC, 406 F.3d 179, 190 (2d Cir. 2005), namely, the deterrent value to
Respondent and others, the seriousness of the offense, harm to the trading public, the
potential gain to Respondent, and the potential for repetition in light of the current
regulatory and enforcement regime.

General Deterrence

The SEC stated that the Decision failed to explain how the suspension would protect the
trading public from further harm. OCallaghan, slip op. at 17. In particular, the SEC
pointed to the following statement, which seems to imply that the suspension would
destroy Respondents livelihood:

The final factor is the deterrent value of the penalty. Respondent is a $2
broker, not a specialist or a broker for a large wire house. If Respondent is
not there to service his clients, they will find new brokers to handle their
trades. A specialist or a wire house broker could easily have a job to come
back to after three months. Respondent will likely have to rebuild his
business. The financial and business impact on a $2 broker of a three-
month suspension has the potential to be catastrophic and terminal. This
represents a serious deterrent to other similarly situated brokers.

Decision at 7.


2
Because Vincent F. Murphy, the Hearing Officer who presided over the Hearing Panel that
originally considered this case, has retired, the Chief Hearing Officer presided over the Hearing
Panel on remand.


2 The Hearing Panel did not intend deliberately or effectively to terminate Respondents
business by imposing a suspension of three months in addition to a fine and censure.
Unlike in McCarthy, 406 F.3d at 190, in which the court noted that the record contained
mitigating facts and circumstances, namely, the destruction of the brokerage practice
[respondent] has built during several years of rule-abiding trading, there was no
evidence in the record here, nor was any proffered, to support a contention that a three-
month suspension might be potentially catastrophic and terminal to Respondent.
3
See
also, Schon-Ex, LLC, Exchange Act Release No. 57857, slip op. at 14, 2008 WL
2167941 (May 23, 2008) (Indeed, [respondent] has presented no evidence to support its
contentions that the payment of the fine would work an excessive and punitive result or
cause the destruction of its business.).

Enforcement argued at the hearing in support of a three-year suspension in addition to a
censure and $50,000 fine. Transcript of Hearing (Tr.) at 1239. Respondent did not
offer a specific alternative penalty, but argued that Respondent

has customers, he has spent a long time developing those customers.
Those of you who are brokers on the floor know that if you leave your
customers for even a relatively short time, you lose your customers. A
three-year suspension, plenary suspension for Mr. OCallaghan, would be
the end of his career. It would be a permanent bar.

Tr. at 1272-73; see also Tr. at 1282 (arguing that penalty requested by Enforcement
would ruin Respondents career and life). No argument was made that a three-month
suspension would amount to a permanent bar. Indeed, Respondent acknowledged that
some period of suspension might be appropriate, stating, We are not suggesting here that
a censure and a $30,000 fine is right. Tr. at 1308.

Thus, the statement that a three-month suspension has the potential to be catastrophic
and terminal, is meant to encompass small brokerage firms generally, rather than
Respondent specifically, and to justify imposing such a short period of suspension.
Rather than seeking to destroy Respondents livelihood, the Hearing Panel calibrated a
suspension of three months to serve as a deterrent to other independent brokers, as well as
Respondent, without being punitive or excessive. In doing so, the Panel rejected
Enforcements request for a suspension that would have been twelve times the length of
the suspension it actually imposed.
4
While general deterrence alone is not sufficient
justification for imposing a particular penalty, it is undisputedly a relevant factor.
McCarthy, 406 F.3d at 189; see also, PAZ Securities, Inc. v. SEC, 494 F.3d 1059, 1066
(D.C. Cir. 2007); Arthur James Niebauer, Exchange Act Release No. 54384, 88 S.E.C.
Docket 2728, 2006 WL 2516526, at * 6 (Aug. 30, 2006); In re Investment Planning, Inc.,
Exchange Act Release No. 32687, 54 S.E.C. Docket 1362, 1993 WL 289728, at *5 (July

3
On remand to the Hearing Panel, Respondent requested a hearing but failed to make a proffer as
to what evidence would be presented at such a hearing. His request was, accordingly, denied.

4
Enforcement unsuccessfully appealed the penalty to the NYSE Regulation Board of Directors as
being too lenient.

3 28, 1993) ([T]o be truly remedialsanctions must deter the applicants before us and
others who may be tempted to engage in similar violations.).

Seriousness of the Offense

The offense that Respondent committed is serious. Decision at 6. His actions
undermined trust in the integrity of the market, which can only function properly if
participants operate according to specified rules and expectations. Respondents actions
were repeated over a period of approximately ten months.
5
They constituted a deliberate
pattern of behavior, not an isolated incident or momentary lapse in judgment. See
Niebauer, 2006 WL 2156526, at * 6; cf., Thomas Woodley Heath, III, Decision 07-25 at
5 (NYSE Hearing Board Mar. 15, 2007), appeal docketed, No. 3-12890 (SEC Nov. 14,
2007). In addition, Respondent did not act at the direction of someone else, nor was he a
minor participant. To the contrary, he instigated the misconduct and involved his clerk in
the violative activities. Finally, the rules which Respondent violated were clear-cut and
required no subsequent clarification. Cf., McCarthy, 406 F.3d at 189.

Harm to Trading Public

The Hearing Panel considered the degree of harm to be a mitigating factor. It concluded
that there was little or no harm to the market as a result of Respondents violative
trades. Decision at 6. The Panel acknowledges that there is harm to the integrity of the
marketplace whenever a rule is broken. As Enforcements expert witness testified at the
hearing regarding the reason that a member is not allowed to exercise discretion and
execute orders on the Floor on behalf of a customer:

Because I believe it gives that account an unfair advantage over the
public.Obviously on the trading floor we are privy to a lot of
information, and by executing an order in that way yo