==========================================START OF PAGE 1====== SECURITIES AND EXCHANGE COMMISSION Washington, D.C. SECURITIES EXCHANGE ACT OF 1934 Rel. No. 34-37071 \ April 5, 1996 Admin. Proc. File No. 3-8775 : In the Matter of the Application of : : MORTON KANTROWITZ : 17 Bayowski Road : West Orange, NJ 07052 : : For Review of Action Taken by the : : NATIONAL ASSOCIATION OF SECURITIES DEALERS, INC. : : OPINION OF THE COMMISSION REGISTERED SECURITIES ASSOCIATION -- REVIEW OF DENIAL OF MEMBER'S CONTINUANCE APPLICATION Where registered securities association denied member's application to employ as a registered representative individual who is subject to a statutory disqualification, held, review proceeding dismissed. APPEARANCES: Vincent P. Sarnatora, for Morton Kantrowitz. T. Grant Callery and Craig L. Landauer, for the National Association of Securities Dealers, Inc. Appeal filed: August 7, 1995 Last brief received: November 22, 1995 I. Morton Kantrowitz appeals from the denial by the National Association of Securities Dealers, Inc. ("NASD") of a member firm's application to employ him as a registered representa- ==========================================START OF PAGE 2====== tive. -[1]- The application was necessary because of Kantrowitz's late 1992 misdemeanor conviction. -[2]- Our findings are based upon an independent review of the record. II. While employed as a trader by Nash Weiss Securities, Kantrowitz agreed to "park" securities for Wakefield Financial Corp. ("Wakefield"), a now-defunct broker-dealer firm. This misconduct resulted in false entries in Wakefield's FOCUS report for the period ending September 30, 1988. In October 1992, in the Supreme Court of the State of New York, Kantrowitz pled guilty to the crime of falsifying business records in the second degree, a misdemeanor, and was sentenced to a one-year period of ---------FOOTNOTES---------- -[1]- Under Article II, Sections 3 and 4 of the NASD's By-Laws, the NASD may bar a person from becoming associated or continuing in association with a member if such person is subject to a "disqualification." NASD Manual (CCH) 1123 and 1124, pp. 1043-45. In November 1995 (while this appeal was pending before us) the NASD amended Section 4. Section 4(f) (now renumbered as Section 4(g)) specifies that persons convicted of certain types of criminal conduct are subject to such "disqualification." As explained in n.9, infra, Kantrowitz's conviction falls within former Section 4(f). -[2]- Under New York criminal law, a sentence of conditional discharge may be imposed in cases where a court wishes to place specific obligations on a defendant, but determines probation supervision unnecessary or inappropriate. If the defendant commits an additional offense or violates a condition, the court may revoke the sentence at any time prior to the expiration or termination of the period of conditional discharge. NY CLS Penal 65.05 (1995). A sentence of conditional discharge is deemed tentative to the extent that it may be altered or revoked in accordance with the provision of the penal law under which it was imposed, but for all other purposes is a final judgment of conviction. NY CLS Penal 60.01 (1995). ==========================================START OF PAGE 3====== conditional discharge. -[3]- In November 1992, Nash Weiss terminated Kantrowitz's employment. This was not the first time Kantrowitz was charged with securities-related fraud. In April 1969, in the U.S. District Court for the District of Maryland, Kantrowitz consented to an order permanently enjoining him from further violations of the anti-fraud provisions of the federal securities laws. -[4]- Subsequently, in parallel Commission administrative proceedings, Kantrowitz was suspended from association with any broker-dealer for three months, after he declined to file a petition for review of a hearing examiner's decision. That decision concluded that Kantrowitz, while a trader at Louis B. Meadows & Co., aided and abetted a fraudulent scheme by placing fictitious quotations for a stock in the National Daily Quotations Sheets. -[5]- In May 1995, Rickel & Associates, Inc. ("Rickel"), an NASD member firm since 1979, submitted to the NASD a membership continuance application seeking to continue its NASD membership with Kantrowitz as a supervised employee. -[6]- After a ---------FOOTNOTES---------- -[3]- People v. Morton Kantrowitz (Wakefield Financial Securities Case), Ind. No. 289/91 (S.Ct. N.Y.) (1992). Kantrowitz was alleged to have participated in a broad over-the-counter securities stock-rigging scheme that resulted in indictments of three securities firms and 21 individuals on charges ranging from "enterprise corruption," grand larceny, and scheming to defraud, to falsifying business records and violations of New York's General Business Law. See 23 Securities Regulation and Law Report (BNA) at 121-22 (Feb. 25, 1991). -[4]- This order was entered in settlement of the Commission's complaint in SEC v. American Continental Industries (D. Md. 1969), summarized in Litigation Rel. No. 4296 (Apr. 22, 1969), 1969 SEC LEXIS 1196. -[5]- See Wellington Hunter dba Wellington Hunter Associates, et al., Securities Exchange Act Rel. No. 9480 (Feb. 8, 1972), 1972 SEC LEXIS 1300 (notice of finality); Alessandrini & Co., et al., 1971 SEC LEXIS 3975 (Dec. 10, 1971) (initial decision). -[6]- See Article VII of the NASD's Code of Procedure, NASD Manual (CCH) 3071, p.3039, which sets forth the procedure by which a member may seek (continued...) ==========================================START OF PAGE 4====== panel hearing on the application, in which Kantrowitz and Rickel's proposed supervisor -- Rickel's compliance director and general securities principal -- testified, the Board of Governors ("Board") denied the application. In doing so, the Board expressed its concern both with Kantrowitz's recent, securities- related misconduct that occurred in the course of Kantrowitz's activities as a registered person of an NASD member, and with the fact that Kantrowitz previously was the subject of Commission enforcement action. -[7]- ---------FOOTNOTES---------- -[6]-(...continued) permission to employ a person subject to a disqualification. Rickel is engaged in a general securities business, clears on a fully-disclosed basis, has five branch offices, and employs 34 registered principals and 174 registered representatives. -[7]- The Board further noted that Kenneth Rickel, an owner and control person of Rickel, also is subject to a statutory disqualification triggered by his 1988 conviction for failure to file a currency transaction report. ==========================================START OF PAGE 5====== III. The standards that govern our review of the NASD's action are contained in Section 19(f) of the Securities Exchange Act of 1934 ("Exchange Act"). If we find that "the specific grounds" on which the NASD based its action "exist in fact," that the NASD's determination not to permit Kantrowitz's association is in accordance with its rules, and that such rules are and were applied in a manner consistent with the purposes of the Exchange Act, we must dismiss Kantrowitz's appeal unless we find that the NASD's action imposes an undue burden on competition. -[8]- Kantrowitz does not dispute that the grounds for his disqualification exist or that the NASD's rules permit it to deny association to a person convicted of the offense at issue here. -[9]- Rather, he contends that the NASD's action was based on several irrelevant factors, -[10]- was taken ---------FOOTNOTES---------- -[8]- Section 19(f) of the Exchange Act, 15 U.S.C.  78s(f). See also M.J. Coen, 47 S.E.C. 558, 563 (1981) (explaining the Section 19(f) standard). -[9]- Kantrowitz's conviction falls within two of the specified categories of offenses set forth in Article II, former Section 4 of the NASD's By-Laws as bases for disqualification: it is a recent misdemeanor that both "involves . . . the making of a false report" and that "arises out of the conduct of the business of a broker . . . [or] dealer." NASD Manual (CCH) 1124, pp. 1044-45 (1995 ed.). -[10]- Kantrowitz stresses that the following factors should have been considered instead: that, during his long tenure as a securities trader, Kantrowitz always provided good executions, "clearly demonstrating his servicing the public interest"; that Kantrowitz never has been the subject of a customer complaint; that Rickel's director of compliance -- who is not statutorily disqualified -- would supervise him at Rickel, not Kenneth Rickel; that Kantrowitz would not act in the capacity of a registered representative but would work in a completely different aspect of the business (syndications); that the supervisory procedures Rickel has proposed are "strict"; and that, since his disqualification, Kantrowitz has assisted various regulatory agencies with investigations, and is committed to continuing to do so, "clearly serving the public interest." (continued...) ==========================================START OF PAGE 6====== without careful and deliberate consideration, and is not consistent with the purposes of the Exchange Act. We believe, to the contrary, that the NASD's determination gives proper regard to the public interest and the protection of investors. -[11]- The conviction at issue, while a misdemeanor, reflects poorly on Kantrowitz's integrity. Moreover, the fact that we suspended Kantrowitz, at an earlier point in his career, from association with a broker or dealer, and obtained an injunction against his committing securities fraud, underscores for us, as it did for the NASD, that he lacks the integrity demanded of those working in the securities industry. We are concerned, moreover, that Kantrowitz, through Rickel's compliance director, who filed the brief on Kantrowitz's behalf, now insists that "[a]t the NASD hearing, rather than contest the merits of the statutory disqualification, Kantrowitz candidly and sincerely acknowledged that he had made a mistake." In fact, Kantrowitz advised the hearing panel that his indictment was undeserved: "[Q]uite frankly, I was indicted because [my former wife] had a bad reputation. I was guilty by association. That's a fact. The D.A. told that to my wife." -[12]- ---------FOOTNOTES---------- -[10]-(...continued) Kantrowitz's point regarding Kenneth Rickel is valid, and the rigor of the proposed supervisory procedures has not been questioned. Moreover, we do not wish to discourage Kantrowitz from cooperating with securities enforcement efforts. Nonetheless, under all the circumstances, these considerations, and the others Kantrowitz proffers, are not a basis, taken singly or together, for directing the NASD to permit Kantrowitz's association. -[11]- As we noted in Halpert and Company, Inc. and Samuel M. Tuchman, 50 S.E.C. 420, 422 (1990): "Particularly in matters involving a firm's employment of persons subject to a statutory disqualification, it is appropriate to recognize the NASD's evaluation of appropriate business standards for its members." -[12]- At an earlier point in the hearing he also stated that: "I married the wrong woman last time and, unfortunately, I was guilty by association, because she had a bad reputation. I did not." He later testified: "I am very sorry for what I did and it could never happen again, because I'm a different person now." ==========================================START OF PAGE 7====== In accordance with Section 19(f) of the Exchange Act, this review proceeding must be dismissed. An appropriate order will issue. -[13]- By the Commission (Chairman LEVITT and Commissioners WALLMAN, JOHNSON, and HUNT). Jonathan G. Katz Secretary ---------FOOTNOTES---------- -[13]- All of the applicant's contentions have been considered. They are rejected or sustained to the extent that they are inconsistent or in accord with the views expressed in this opinion. UNITED STATES OF AMERICA before the SECURITIES AND EXCHANGE COMMISSION SECURITIES EXCHANGE ACT OF 1934 Rel. No. 34-37071 \ April 5, 1996 Admin. Proc. File No. 3-8775 : In the Matter of the Application of : : MORTON KANTROWITZ : 17 Bayowski Road : West Orange, NJ 07052 : : For Review of Action Taken by the : : NATIONAL ASSOCIATION OF SECURITIES DEALERS, INC. : : ORDER DISMISSING PROCEEDING TO REVIEW REGISTERED SECURITIES ASSOCIATION'S DENIAL OF MEMBER'S CONTINUANCE APPLICATION On the basis of the Commission's opinion issued this day, it is ORDERED that the proceeding to review the denial by the National Association of Securities Dealers, Inc. of the application filed by Rickel & Associates, Inc. to continue as a member if it employs Morton Kantrowitz be, and it hereby is, dismissed. By the Commission. Jonathan G. Katz Secretary