SECURITIES EXCHANGE ACT OF 1934
Rel. No. 45437 / February 13, 2002
Admin. Proc. File No. 3-10461
In the Matter of the Application of FRANK KUFROVICH
For Review of Action Taken by the NATIONAL ASSOCIATION OF SECURITIES DEALERS, INC. |
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ORDER DISMISSING REVIEW PROCEEDING
On the basis of the Commission's opinion issued this day, it is
ORDERED that the application for review filed by Frank Kufrovich be, and it hereby is, dismissed.
By the Commission.
Jonathan G. Katz
Secretary
Footnotes
| 1 | In a letter dated November 22, 2000, U.S. Probation Officer Gregory J. Amantia informed the NASD that Kufrovich continued to comply with all aspects of Federal supervision and continued to progress with regard to mental health counseling. |
| 2 | In 1990, Congress expanded the scope of statutorydisqualification to include conviction for "any other felony within ten years of the date of the filing of an application for membership or participation." The NASD amended its by-laws to incorporate this change in 1997. Section 3(a)(39)(F) of the Exchange Act, 15 U.S.C. §78c(a)(39)(F); Section 15(b)(4)(B) of the Exchange Act, 15 U.S.C. § 78o(b)(4)(B); NASD By-Laws, Article III, Section 4(g)(2), NASD Manual at 1307 (April 2000). |
| 3 | NASD By-Laws, Article 3, Section 3(d), NASD Manual at 1305 (April 2000). |
| 4 | According to the NASD's complaint, the PP&T sales literature "falsely promised a guaranteed minimum return of 16.5% per year . . . , emphasized the use of Marriott Corporation's name when Marriott Corporation had no relationship to the partnership, . . . [and] generally lacked material information regarding the risks of the partnership and made only promissory statements which caused them to be misleading." |
| 5 | Under NASD By-Laws, Article 3, Section 3(d), NASD Manual at 1305 (April 2000), a member firm may request relief from ineligibility to associate with a disqualified person pursuant to the Rules of the Association. The firm may file such application on its own behalf and on behalf of a current or prospective associated person. |
| 6 | When pressed on cross-examination, Dr. Vicary conceded that he could not say that Kufrovich did not represent at least a minimal risk to the investing public, because "[e]verybody is a potential risk." |
| 7 | Section 19(f) of the Exchange Act, 15 U.S.C. § 78s(f); see, e.g., Stephen L. Keidaish, Exchange Act Rel. No. 43555 (November 14, 2000), 73 SEC Docket 2505, 2507. |
| 8 | NASD Manual at 7428 (April 2000). |
| 9 | Procedural Rule 9523 requires that these documents be filed at least ten business days prior to the hearing. The Department of Member Regulation staff filed them on a Thursday prior to a Wednesday hearing. After Kufrovich objected to the late filing, the NASDR Office of General Counsel advised the parties that the hearing panel had determined to postpone the hearing in order to provide Kufrovich time to review the materials. Kufrovich's counsel, in response, agreed in writing to waive any objection concerning the timing of the staff's filing of the materials, representing that it was "critical" that the hearing be held as scheduled and noting that the Department of Member Regulation staff had agreed not to object to any request to supplement the record before or within a reasonable time period after the hearing. Kufrovich now asserts that "[t]he proper way to handle this failure [to file timely] would have been for the hearing panel to have excluded the recommendation, exhibit and witness lists of the NASD Department rather than forcing Bryan Funding, Inc. and Mr. Kufrovich to either waive its objection to the NASD's failure or postpone the hearing." Kufrovich, however, does not suggest that he asked the committee to follow this course. |
| 10 | Section 15A(g)(2) of the Exchange Act, 15 U.S.C. § 78o-3(g)(2). See also Article 3, Section 3(d) of the NASD By-Laws at 1305 (April 2000) ("The Board may, in its discretion, approve the continuance in membership, and may also approve the association or continuance of association of any person, if the Board determines that such approval is consistent with the public interest and the protection of investors."). |
| 11 | 73 SEC Docket at 2508-09. In Keidaish, the Commission reviewed the legislative history of the 1990 amendment to the Exchange Act, which expanded the scope of statutory disqualification to include "any other felony." |
| 12 | Id. |
| 13 | The Commission in Keidaish remanded an NASD determination to deny a member's application to associate with a disqualified individual, Stephen L. Keidaish, because the NASD's opinion included no analysis. The NASD had failed to "identify what risk of harm to markets or investors arises from a conviction for DUI Manslaughter, or from two incidents that happened decades ago when Keidaish was a teenager." 73 SEC Docket at 2509. The NASD also had failed to discuss how the proposed supervision of Keidaish affected the outcome, and to point to any other part of the record (beyond the fact that Keidaish was still on probation and had had a "history of problems with the law") to establish how the purposes of the Act would be furthered by a denial of the application. Id. We stated in Keidaish that, without such analysis, the Commission was unable to determine whether the NASD applied its right to deny the application consistently with the purposes of the Act or not. Id. at 2509-10.
As discussed below, the NASD's decision here sets forth the NASD's analysis and, accordingly, we are able to evaluate the decision under Section 19(f). The decision identifies explicitly the risk of harm that the NASD believes arises from Kufrovich's conviction. The decision also expressly discusses BFI's plan to supervise Kufrovich, finding that the plan fails to provide the required heightened level of supervision necessary to assure that the firm could effectively prevent and detect possible misconduct. Further, the decision points to other evidence in the record -- Kufrovich's prior NASD discipline -- as contributing to its conclusion that "he has shown a tendency toward deceptive conduct." |
| 14 | See, e.g., Edmond M. Kilbourn, 50 S.E.C. 603, 605 (1991). |
| 15 | See, e.g., William J. Haberman, 53 S.E.C. 1024, 1029 (1998) (holding that to protect investors and maintain investor confidence in the markets, securities professionals are obliged to maintain high ethical standards), aff'd, 205 F.3d 1345 (8th Cir. 2000) (Table). |
| 16 | E.g., Dennis Milewitz, 53 S.E.C. 701, 707 (1998). See also Halpert and Co., 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."). |
| 17 | Kufrovich asserts that the NASD failed to "introduce a shred of evidence" contradicting the psychiatrist's and probation officer's shared view that Kufrovich poses no or a minimal risk to investors. Kufrovich appears to be suggesting that, if an applicant offers evidence on the ultimate issue of investor or market risk, Keidaish requires the NASD to counter that evidence with its own witness testimony, exhibits or other refuting evidence. This is not the case. Keidaish permits the NASD to rest its assessment of an application on its analysis of the conviction itself, the facts underlying it, and the various elements of the proposed supervisory plan. See supra note 13. |
| 18 | Kufrovich claims that the plan is satisfactory because it provides for two levels of review of Kufrovich's activities and includes all the factors specified by the NASDR Department of Member Regulation in its Winter 1999 Regulatory and Compliance Alert. Notably, however, the Alert does not suggest that supervision that is, alternatively, intermittent, off-site, and effected by an unqualified person, is acceptable. Further, the cited Alert makes clear that including the specified factors in a supervision plan may not go far enough. According to the Alert, "It is important to note that the quality of the proposed heightened supervisory procedures is an important determining factor in many cases. . . . [¶] These [specified] conditions are generally representative of the supervisory controls Member Regulation will suggest during a[] [statutory disqualification] proceeding. At times, Member Regulation will propose other or additionalconditions or limitations to address and account for the unique facts and circumstances of the particular case." As of the issuance date of this opinion, the Winter 1999 Alert can be accessed via the NASD Regulation, Inc. website at http://www.nasdr.com/3000.asp. |
| 19 | See, e.g., Haberman, 53 S.E.C. at 1031. |
| 20 | Kufrovich argues that the NASD failed to take into consideration BFI's "amended" supervision proposal, pursuant to which Koval offered to move to Los Angeles where Kufrovich would be employed (but not also to curtail his extensive business travel). Kufrovich is mistaken. Had the NAC considered only BFI's original proposal, it would have had no reason to use, as it did, the modifying phrase "under any proposal advanced by the firm," in its statement: "We are not satisfied with any of the supervisory proposals made by BFI. . . . Koval will not be physically present in close proximity to Kufrovich during all working days under any proposal advanced by the Firm."
Kufrovich also claims that BFI further amended its proposal during the subcommittee hearing by "offer[ing] to restrict Mr. Kufrovich's securities activities to when a particular principal was present in the office." Bryan, however, merely stated "We could maybe limit his sales activities to the time that Mr. Koval is in the office. . . ." He did not commit the firm to this tentatively-worded proposal, and the firm, in turn, did not follow up with anything in writing. |
| 21 | Cf. Milewitz, 53 S.E.C. at 706-07 (footnotes omitted)
("The NASD's determination not to permit continued association . . . does not constitute an additional penalty, or even a remedial sanction, imposed on Milewitz because of his 1996 misconduct. It merely denies him relief from a previously existing disqualification. . . . We have held that in engaging in such a judgment, the NASD's consideration of the applicant's disciplinary history prior to the statutory disqualification, including misconduct for which sanctions were imposed previously, does not amount to a further penalty for that prior misconduct."). See also Haberman, 53 S.E.C. at 1032 n.24 ("As necessary or appropriate in furtherance of the purposes of the Exchange Act, we may require stringent supervision of any statutorily disqualified individual, regardless of the size or structure of the supervising firm, whether or not such a requirement place[s] a burden on competition. See Section 19(f) of the Exchange Act; Exchange Servs., Inc. v. SEC, 797 F.2d 188, 191 (4th Cir. 1986) ('The SEC can affirm the NASD, despite the disadvantage to competition, if the decision is necessary or appropriate in furtherance of the purposes of the Act.')."). |
| 22 | We have considered all of the contentions advanced by the parties. We have rejected or sustained them to the extent that they are inconsistent or in accord with the views expressed in this opinion. |