Morton Kantrowitz
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
SECURITIES EXCHANGE ACT OF 1934
Rel. No. 44239 / May 1, 2001
Admin. Proc. File No. 3-10349
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In the Matter of the Application of MORTON KANTROWITZ For Review of Action Taken by the |
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OPINION OF THE COMMISSION
REGISTERED SECURITIES ASSOCIATION - REVIEW OF DENIAL OF MEMBERSHIP CONTINUANCE APPLICATION
Registered securities association denied member's application to permit employment of individual subject to two statutory disqualifications, a conviction and an injunction. Held, association's action sustained and appeal dismissed.
APPEARANCES:
Morton Kantrowitz, pro se.
Norman Sue, Jr., Susan L. Beesley, and Nancy C. Libin, for NASD Regulation, Inc.
Appeal filed: October 16, 2000
Briefing completed: February 20, 2001
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.1 The application was necessary because Kantrowitz is subject to two statutory disqualifications, aconviction and an injunction.2 We base our findings on an independent review of the record.
II.
All-Tech Direct, Inc., an NASD member firm, filed an application with the NASD seeking permission to employ Kantrowitz to trade for the firm's proprietary account and to market All-Tech's proprietary trade execution system. 3 In 1988, while employed as a trader for a member firm, Kantrowitz agreed to "park" securities for another broker-dealer, an action that resulted in false entries in the broker-dealer's FOCUS report. As a consequence of that misconduct, Kantrowitz pled guilty in October 1992, in the Supreme Court of New York, to charges of falsifying business records in the second degree, a misdemeanor.4 Many years earlier, in April 1969, Kantrowitz consented, in a Commission injunctive action, to a permanent injunction against further violations of antifraud provisions of the securities laws.5
All-Tech proposed that Kantrowitz be employed in its Boca Raton, Florida branch office under the supervision of Scott Raybin, its Boca Raton branch manager and the only All-Tech employee in that office. In rejecting All-Tech's application, the NASD noted Kantrowitz's "pattern of securities-related misconduct" and the supervisory deficiencies recently found at another All-Tech branch office. Most significantly, the NASD found that Raybin not only lacked the necessary supervisory experience, but also the requisite industry experience to supervise a statutorily disqualified person such as Kantrowitz. Accordingly, the NASD concluded that, even with the supervisory procedures outlined by All-Tech, it could not approve Kantrowitz's proposed association with that firm.
III.
The standards that govern our review of the NASD's action are contained in Section 19(f) of the Securities Exchange Act.6 If we find that "the specific grounds" on which the NASD based its action "exist in fact," that the NASD's determination was in accordance with its rules, and that those rules are, and were applied in a manner, consistent with the purposes of the Act, we must dismiss Kantrowitz's appeal unless we find that the NASD's action imposes an undue burden on competition.
Kantrowitz does not dispute the existence of grounds for the NASD's action. Nor does he claim that the NASD did not follow its rules, that the rules do not accord with the purposes of the Exchange Act, or that the NASD's action imposes a burden on competition. However, he objects to the NASD's application of its rules.
Kantrowitz asserts, among other things, that he did not realize that the conduct that led to his conviction was wrong. He argues that the eight-year period following his conviction, during which he has been excluded from the securities business, is excessive for a misdemeanor, and points out that during that period he provided assistance to federal and state regulatory authorities. He further asserts that no customer or trader ever complained about him during his lengthy career in the securities industry; that he will be under close supervision in his new employment; and that, in the future, he will obey all rules and regulations.
IV.
We are constrained to dismiss Kantrowitz's appeal. As noted above, the NASD's decision was to a substantial degree based on Raybin's lack of supervisory experience. Kantrowitz and the NASD now inform us that Raybin has left All-Tech. According to Kantrowitz, Raybin has been replaced by one Tony Vascone, who is assertedly better qualified to supervise him.
All-Tech did not file an amended application with the NASD proposing that Vascone be substituted for Raybin as Kantrowitz's supervisor. Had it done so, the NASD would have been required to conduct additional proceedings to consider Vascone's qualifications and determine whether to permit Kantrowitz's association with All-Tech in light of the change in circumstances. We cannot make that evaluation on the basis of the record before us.
In determining whether to permit the employment of a statutorily disqualified person, the quality of the supervision to be accorded that person is of the utmost importance. We have made it clear that such persons must be subject to stringent oversight by supervisors who are fully qualified to implement the necessary controls.7 In the present situation, Kantrowitz's proposed supervision is a question mark. In light of that circumstance, his employment with All-Tech cannot be approved. We accordingly conclude that the NASD's rules were applied in a manner consistent with the purposes of the Exchange Act, and that it is appropriate in the public interest and for the protection of investors to dismiss Kantrowitz's appeal.
An appropriate order will issue.8
By the Commission (Acting Chairman UNGER and Commissioners HUNT and CAREY).
Jonathan G. Katz
Secretary
SECURITIES EXCHANGE ACT OF 1934
Rel. No. 44239 / May 1, 2001
Admin. Proc. File No. 3-10349
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In the Matter of the Application of MORTON KANTROWITZ For Review of Action Taken by the |
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ORDER DISMISSING REVIEW PROCEEDING
On the basis of the Commission's opinion issued this day, it is
ORDERED that the appeal of Morton Kantrowitz from action taken by the National Association of Securities Dealers, Inc. be, and it hereby is, dismissed.
By the Commission.
Jonathan G. Katz
Secretary
Footnotes
| 1 | In 1996, we dismissed Kantrowitz's appeal from the NASD's denial of another member firm's application to employ him. Morton Kantrowitz, 52 S.E.C. 721 (1996). |
| 2 | See Sections 15A(g)(2) and 3(a)(39) of the Securities Exchange Act, 15 U.S.C. §§ 78o-3(g)(2) and 78c(a)(39)(F). Article II, Section 3(c) of the NASD's By-Laws provides that the NASD may bar a person's association with a member if that person is subject to a disqualification, as defined in Article II, Section 4 of the By-Laws. |
| 3 | See Rules 9521 thru 9526 of the NASD's Code of Procedure governing such applications. |
| 4 | People v. Kantrowitz, Ind. No. 289/91 (S.Ct. N.Y.). Kantrowitz was sentenced to a one-year period of conditional discharge. Under New York law, a sentence of conditional discharge may be imposed in cases where a court wishes to place specific obligations on a defendant, but determines that probation supervision is unnecessary or inappropriate. NY CLS Penal § 65.05 (1995). |
| 5 | SEC v. American Continental Industries (D.Md). Kantrowitz was enjoined from violating Section 17(a) of the Securities Act and Sections 10(b) and 15(c)(2) of the Exchange Act and Rules 10b-5 and 15c2-7 thereunder, 15 U.S.C. §§ 77q, 78j and 78o and 17 C.F.R. §§ 240.10b-5 and 15c2-7.
Subsequently, in a related Commission administrative proceeding, Kantrowitz was suspended from association with any broker or dealer for three months, based on findings that heaided and abetted a manipulative scheme by placing fictitious quotations in the pink sheets published by the National Quotation Bureau, Inc. See Wellington Hunter dba Wellington Hunter Associates, Securities Exchange Act Release No. 9480 (February 8, 1972) (notice of finality); Alessandrini & Co., 1971 SEC LEXIS 3975 (December 10, 1971) (initial decision). |
| 6 | 15 U.S.C. § 78s(f). |
| 7 | See William J. Haberman, Securities Exchange Act Release No. 40673 (November 12, 1998), 68 SEC Docket 1527, 1535, aff'd, 205 F.3d 1345 (8th Cir. 2000); Louis A. Frangos, 49 S.E.C. 865, 867 (1988); M.J. Coen, 47 S.E.C. 558, 562-563 (1981). |
| 8 | We have considered all of the parties' contentions. We have rejected or sustained them to the extent that they are inconsistent or in accord with the views expressed in this opinion. |