Appellate Court Weighs In on Supermodel Stock Saga

Filing for bankruptcy doesn’t take you off the hook for being reckless with investors’ money, a federal appeals court ruled in a case involving a brash stockbroker and the allure of supermodel Niki Taylor.

In a ruling filed Thursday, the U.S. Court of Appeals for the Third Circuit upheld two lower courts’ rulings that the fresh start of bankruptcy doesn’t apply when it comes to money owed as a result of “grossly reckless behavior.”

The case concerns Steven S. Bocchino, a stockbroker who ran into trouble with the law for two investment opportunities he pitched in 1996. The first was for a company called Traderz Associates Holding Inc., which Mr. Bocchino heard “might go public” and was supported by “some commitment” from Ms. Taylor, a Vogue cover girl (and actual CoverGirl, promoting the makeup brand). The second investment opportunity for which Mr. Bocchino sold shares was for a company whose leader was a law student.

Mr. Bocchino earned more than $50,000 in commissions from the two opportunities, which he neglected to independently investigate before shilling the shares.  That turned out to be a problem because both ventures turned out to be frauds whose leaders were hit with criminal convictions. As a result, the Securities and Exchange Commission chased down Mr. Bocchino and got nearly $180,000 in judgments against him for violating federal securities laws, including by using high pressure sales tactics to lure investors.

Mr. Bocchino sought chapter 13 bankruptcy protection in 2009, during which the SEC asked the court not to discharge the judgments against him. The bankruptcy court ultimately dropped some of the judgments but left Mr. Bocchino liable for nearly $69,000, pointing to his negligence and recklessness in pitching stocks in bogus companies that he hadn’t investigated.

A district court affirmed the bankruptcy court’s ruling last year, finding that the fresh start that bankruptcy offers to an “‘honest but unfortunate’” debtor didn’t apply here. The appeals court agreed.

Reached Thursday, Mr. Bocchino’s attorney, J. Zac Christman, said he is considering asking the appeals court to rehear the case. Mr. Christman argues that a debtor’s recklessness shouldn’t waive him from a discharge of his debts when there was no intent to defraud.

Mr. Bocchino, who Mr. Christman says now works for an electric company, has argued that he believed what he was telling investors was true and that he didn’t intend to mislead anyone. In its ruling, the bankruptcy court found that Mr. Bocchino didn’t “knowingly make any false statements.”

Write to Jacqueline Palank at [email protected]. Follow her on Twitter at @PalankJ