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U.S. Securities and Exchange Commission

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.

SECURITIES EXCHANGE ACT OF 1934
Rel. No. 42772 / May 11, 2000

Admin. Proc. File No. 3-9649


In the Matter of the Application of

JEFFREY AINLEY HAYDEN

For Review of Disciplinary Action Taken by the

NEW YORK STOCK EXCHANGE, INC.


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OPINION OF THE COMMISSION

    NATIONAL SECURITIES EXCHANGE -- REVIEW OF DISCIPLINARY PROCEEDINGS

      National securities exchange found that associated person of member made unsuitable investment recommendations to customers, made material misrepresentations and omissions about the investments and returns from those investments, and made or caused omissions and inaccuracies in customer account documents. Held, proceeding set aside because length of time between the violative conduct and the initiation of the disciplinary proceeding violated fundamental principles of fairness.

APPEARANCES:

    Peter J. Anderson and Sarah B. Estes, of Sutherland, Asbill & Brennan, LLP, for Jeffrey Ainley Hayden.

    David P. Doherty, Regina C. Mysliwiec, Susan Light, and Michael Krevor, for the New York Stock Exchange, Inc.

Appeal filed: July 8, 1998

Last brief filed: November 9, 1998

I.

Jeffrey Ainley Hayden ("Hayden"), a former registered representative with Dean Witter Reynolds, Inc. ("Dean Witter"), a member firm of the New York Stock Exchange, Inc. ("NYSE" or "Exchange"), appeals from the Exchange's disciplinary actionagainst him. The Exchange Hearing Panel ("Hearing Panel") found that between 1982 and 1990 Hayden recommended and purchased limited partnership investments for 17 customers without informing them of the risks underlying those investments. The Hearing Panel also found that forms for these customers' accounts contained inaccurate information regarding their financial situations, and that, in some instances, this information was omitted entirely from the forms. The Hearing Panel concluded that Hayden's conduct in making unsuitable recommendations and in making misrepresentations and omissions was inconsistent with just and equitable principles of trade pursuant to Exchange

Rule 476(a) and that he violated Rules 17a-3 and 17a-4 under the Securities Exchange Act of 1934 and Exchange Rule 440 by providing inaccurate information in Dean Witter's books and records. 1

The Hearing Panel censured Hayden, barred him for six years from membership or association in any capacity with any Exchange member or member organization, and permanently barred him from selling limited partnerships. On appeal, the Exchange's Board of Directors sustained the Hearing Panel's decision. Hayden now appeals that decision. We base our findings on an independent review of the record.

II.

Hayden does not dispute the findings of violations made by the Exchange or argue that the sanctions are inappropriate for those violations. He argues only that, pursuant to 28 U.S.C. § 2642 and the Due Process Clause of the Constitution, the Exchange's disciplinary action against him is time-barred because the conduct in question occurred more than five years before the Exchange brought its proceeding. 2 Because we are dismissing for other reasons, we need not address these arguments.

We view Hayden's appeal as a challenge to the viability of the Exchange's disciplinary proceeding given the delay in the underlying proceedings. We agree that this delay rendered the proceeding against Hayden inherently unfair.

Standards of Fairness for Administrative Proceedings

Disciplinary proceedings against members of an exchange and their associated persons are governed by Section 6(b)(7) of the Exchange Act, which provides that an exchange may not be registered with the Commission unless its rules "provide a fair procedure for the disciplining of members and persons associated with members[.]" 3 Section 19(e)(1)(A) of the Exchange Act governs our review of disciplinary actions taken by self regulatory organizations ("SROs"). This section provides that, in reviewing an SRO proceeding, we shall determine whether the member or person engaged in the conduct found by the SRO, whether the conduct violated the SRO rules at issue, and whether those rules were applied in a manner consistent with the purposes of the Exchange Act. 4 In applying this section, we have indicated that a fundamental principle governing all SRO disciplinary proceedings is fairness. 5

Application of Fairness Principle to Hayden

Hayden's misconduct occurred from February 1982 to April 1990. The Exchange began its investigation in May 1993 and brought these charges in November 1996, approximately fourteen years after the first act of misconduct and over six years after the last incident. 6 As the Exchange candidly notes in its brief, it was informed about significant misconduct by Hayden through a referral in 1991 to its Division of Enforcement of a "voluminous" sales practice examination report.

Without further inquiry, we cannot find, as a factual matter, that Hayden's ability to mount an adequate defense was impaired by the Exchange's delay. However, the Exchange doeshave a statutory obligation to ensure the fairness and integrity of its disciplinary proceedings. We believe that the delay in the underlying proceedings was inherently unfair.

Accordingly, we set aside the disciplinary action imposed by the New York Stock Exchange against Hayden.

An appropriate order will issue. 7

By the Commission (Chairman LEVITT and Commissioners JOHNSON, HUNT, CAREY and UNGER).

Jonathan G. Katz
Secretary



UNITED STATES OF AMERICA
before the
SECURITIES AND EXCHANGE COMMISSION

SECURITIES EXCHANGE ACT OF 1934
Rel. No. 42772 / May 11, 2000

Admin. Proc. File No. 3-9649


In the Matter of the Application of

JEFFREY AINLEY HAYDEN

For Review of Disciplinary Action Taken by the

NEW YORK STOCK EXCHANGE, INC.


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ORDER DISMISSING DISCIPLINARY ACTION TAKEN BY REGISTERED SECURITIES ASSOCIATION

On the basis of the Commission's opinion issued this day, it is

ORDERED that the disciplinary action taken by the New York Stock Exchange, Inc. against Jeffrey Ainley Hayden, be and it hereby is, set aside.

By the Commission.

Jonathan G. Katz
Secretary


Footnotes

1 Exchange Act Rules 17a-3 and 17a-4 require brokers and dealers to keep up-to-date books and records regarding executed securities transactions and customer accounts.

17 C.F.R. §§ 240.17a-3 and 240.17a-4. NYSE Rule 440 requires members of the Exchange to make and preserve books and records prescribed by the Exchange and by Exchange Act Rules 17a-3 and 17a-4.

2 Section 2462 provides a general five-year limitations period applicable to government action for the enforcement of "any civil fine, penalty, or forfeiture, pecuniary or otherwise." The United States Court of Appeals for the District of Columbia Circuit in Johnson v. SEC, 87 F.3d 484, 492 (D.C. Cir. 1996), has applied this limitations period to certain Commission proceedings.
3 15 U.S.C. § 78f(b)(7) (1994).
4 15 U.S.C. § 78s(e)(1)(A) (1994).
5 See U.S. Associates, Inc., 51 S.E.C. 805, 810 (1993); see also Scattered Corporation, Securities Exchange Act Rel. No. 40646 (November 9, 1998), 68 SEC Docket 1413, 1421-22 (Commission must first examine whether SRO's disciplinary proceeding was fair).
6 The Exchange's charge against Hayden alleges that "[i]n or about 1991 and 1992 . . . Hayden falsely reassured" a customer that his investments were not a cause for concern. However, the Hearing Panel did not make findings regarding these allegations.
7 We have considered all of the arguments advanced by the parties. We reject or sustain them to the extent that they are inconsistent or in accord with the views expressed in this opinion.

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Modified: 04/25/2001