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DANIEL VILLALOBOS, FORMER NON-REGISTERED EMPLOYEE OF MERRILL LYNCH, PIERCE, FENNER & SMITH, INC., VIOLATED EXCHANGE RULE 477 IN THAT HE FAILED TO COMPLY WITH THE EXCHANGE'S WRITTEN REQUESTS FOR INFORMATION, AND ENGAGED IN CONDUCT INCONSISTENT WITH JUST AND EQUITABLE PRINCIPLES OF TRADE IN THAT HE MISAPPROPRIATED FUNDS BELONGING TO HIS MEMBER ORGANIZATION EMPLOYER -- PERMANENT BAR.

EXCHANGE HEARING PANEL DECISION 89-47

May 16, 1989

An Exchange Hearing Panel conducted a hearing on charges brought by the Exchange's Division of Enforcement against Daniel Villalobos, a former non-registered employee of Merrill Lynch, Pierce, Fenner & Smith, Inc. Villalobos was charged with having: I. Violated Exchange Rule 477 in that he failed to comply with the Exchange's written requests to furnish a detailed explanation regarding matters occurring prior to the termination of his employment. II. Engaged in conduct inconsistent with just and equitable principles of trade in that he misappropriated funds belonging to his member organization employer. Villalobos did not submit an Answer to the Charge Memorandum. Neither Villalobos nor any person on his behalf appeared at the hearing in this matter. At the hearing, the Division of Enforcement moved, pursuant to Exchange Rule 476, to have the facts contained in the Charge Memorandum deemed admitted since Villalobos had failed to file an Answer. After receiving evidence, the Hearing Panel granted the motion, and found that: Background 1. Daniel Villalobos was born on March 9, 1962. Villalobos was employed as a non-registered employee in the mutual fund department of a New Jersey office of Merrill Lynch, Pierce, Fenner & Smith, Inc. (the "firm") until he voluntarily resigned in December of 1987. Subsequent to his resignation, Villalobos moved to California where he became employed at a branch office of the firm as an administrative assistant.

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On May 9, 1988, the Exchange received a Form RE-3 from the firm reporting that Villalobos misappropriated firm funds while employed as a non-registered employee at a New Jersey office of the firm. Villalobos was terminated from employment on April 26, 1988. Failure to Cooperate

4. The firm reported Villalobos's last known address in California. 5. By letter dated August 18, 1988, sent to Villalobos's address by certified mail, return receipt requested with a copy sent by first class nail, Villalobos was advised that the Exchange was investigating certain matters occurring prior to the termination of his employment and his detailed written explanation was requested. The copy of the letter sent by first class mail was not returned. The letter sent by certified mail was returned unclaimed. During a telephone conversation on September 15, 1988 with a staff member of the Division of Enforcement, Villalobos was advised that if he did not respond to the Exchange requests, it would be recommended that a disciplinary proceeding be brought against him based upon his failure to cooperate. In this telephone conversation, Villalobos verified that his mailing address was the address given by the firm. By letter dated September 15, 1988, sent by certified mail, return receipt requested, with a copy sent by first class mail, a second request for a written explanation was sent to Villalobos at his last known address. The letter enclosed a copy of the August 18, 1988 letter and advised that a failure to supply the requested information May result in a recommendation that a formal disciplinary proceeding be initiated based upon such, failure. The copy of the letter sent by first class mail was not returned. The letter sent by certified mail was returned unclaimed. -3To date, the Exchange has received no response from Villalobos to the letters dated August 18, 1988 and September 15, 1988. Misappropriation of Funds 9. As a non-supervisory employee of the firm's mutual fund department in New Jersey, Villalobos was responsible for researching and resolving all disparities between firm account records and the account records of mutual fund companies with which the firm aid business. Villalobos had the authority to request the issuance of firm checks payable to firm mutual fund customers. On December 17, 1987, the firm received a check from XYZ, Inc., a mutual fund company, in the amount of $35,509.05, payable to the firm.

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The XYZ check represented a refund of amounts paid by the firm to XYZ to purchase mutual funds. Representatives of the firm were uncertain as to why XYZ sent the refund check. Villalobos was given the XYZ check to determine the basis for the refund. Villalobos deposited the XYZ refund check in the clearing account maintained for John Doe, Inc. (Doe), a broker dealer. Villalobos then authorized the drawing of four checks from the Doe account approximating the amount of the XYZ refund check. Three of the checks were drawn in the amount of $9,877.00. The fourth check was drawn in the amount of $5,871. Villalobos endorsed the four checks payable to Doe by signing Doe's endorsement. Villalobos then endorsed the checks with his name and deposited the checks into his bank accounts. On April 26, 1988, Villalobos provided the firm with a written signed statement admitting to the misappropriation of firm funds. DECISION

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The Hearing Panel, by unanimous vote, found Villalobos guilty as charged. PENALTY In view of the above findings, the Hearing Panel, by unanimous vote, determined that Villalobos be permanently barred 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

John J Mulcahy, Jr. Chief Hearing Officer