SECURITIES AND EXCHANGE COMMISSION Washington, D.C. SECURITIES EXCHANGE ACT OF 1934 Rel. No. 40738 / December 2, 1998 Admin. Proc. File No. 3-9575 ___________________________________________________ : In the Matter of the Application of : : LANCE E. VAN ALSTYNE : 51 Poppy Hills Road : Laguna Niguel, California : : For Review of Action Taken by the : : NATIONAL ASSOCIATION OF SECURITIES DEALERS, INC. : ___________________________________________________: OPINION OF THE COMMISSION REGISTERED SECURITIES ASSOCIATION -- REVIEW OF ASSOCIATION ACTION DENYING MOTION TO SET ASIDE A DEFAULT DECISION Jurisdiction to Review Action of Association Registered securities association denied motion of person formerly associated with a member to set aside a default decision on grounds that he never received the association's complaint or decision. Held, because the Commission lacks jurisdiction to review the denial of the motion and because the Commission will not accept individual's application as a late-filed appeal of the default decision, the application for review is dismissed. APPEARANCES: Irving M. Einhorn, for Lance E. Van Alstyne. Alden S. Adkins and Norman Sue, Jr., for NASD Regulation, Inc. Appeal lodged: April 8, 1998 Briefing completed: July 29, 1998 I. Lance E. Van Alstyne, formerly associated with Merchant Banking Services, Inc. ("MBSI" or the "firm"), a former member of the National Association of Securities Dealers, Inc. ("NASD"), seeks review of NASD action. In a default decision, the District Business Conduct Committee ("DBCC") of the NASD found that Van Alstyne violated NASD Membership and Registration Rule 1021, NASD Conduct Rule 2110, and NASD Procedural Rule 8210. [1] The NASD censured Van Alstyne, fined him $95,000, and barred him from associating with any member of the NASD in all capacities. Subsequently, the National Adjudicatory Council ("NAC") of the NASD denied Van Alstyne's request to set aside the default decision. Van Alstyne appeals from this denial. As discussed below, we do not have jurisdiction to review this matter, and we will not accept the application as a late-filed appeal, under Section 19(d)(2) of the Securities Exchange Act of 1934 ("Exchange Act"), 15 U.S.C. 78s(d)(2). To the extent we make findings in this matter, we do so based on an independent review of the record. II. As part of an investigation into certain activities at MBSI, the NASD sent two requests to Van Alstyne to review the books and records of MBSI and certain affiliated entities. These requests were sent by both certified and regular mail to Van Alstyne's residential address of record in Laguna Niguel, California, as listed in the NASD's Central Registration Depository ("CRD"), in November 1995 and February 1996. The requests for information were also sent by regular and certified mail to an address that Van Alstyne had provided for his mother in Boston, Massachusetts ("Boston address"), and to a person previously identified as Van Alstyne's attorney. Van Alstyne failed to respond to either request. In March 1997, the NASD sent by certified and regular mail to Van Alstyne's CRD address two requests that Van Alstyne testify and produce documents at the NASD's offices relating to MBSI and its affiliates. The NASD also sent these requests by regular and certified mail to the Boston address and to an address in Dana Point, California provided by a search service ("Dana Point address"). [2] Van Alstyne failed to appear as scheduled. In March and April 1997, the NASD sent two notices of complaint to Van Alstyne providing a copy of the complaint that alleged three causes of action against him: (1) that he actively engaged in the management of MBSI without registering as a principal in violation of NASD Membership and Registration Rule 1021 and NASD Conduct Rule 2110; (2) that he and another employee of MBSI offered and sold to customers securities in a company for which no registration statement had been filed in contravention of Section 5 of the Securities Act of 1933, 15 U.S.C. 77e, conduct charged as violating Conduct Rule 2110; and (3) that his refusal to respond to the requests for information violated NASD Conduct Rule 2110 and NASD Procedural Rule 8210. [3] The notices of complaint were sent by both certified and regular mail to Van Alstyne's CRD address and the Boston address, and by regular mail to the Dana Point address. [4] Van Alstyne never filed an answer to the complaint or otherwise responded to the notices of complaint. The notices of complaint sent to Van Alstyne's CRD address were returned by the U.S. Postal Service unopened and marked as either "unclaimed" (the first notice of complaint sent by certified mail) or "refused" (the first and second notices of complaint sent by regular mail and the second notice of complaint sent by certified mail). The mailings sent to the Boston and Dana Point addresses likewise were returned. On July 28, 1997, the DBCC issued a default judgment against Van Alstyne. The DBCC found that Van Alstyne was deemed to have received the notices of complaint by virtue of the mailings to his most recent CRD address of record. [5] It also determined that Van Alstyne admitted the allegations in the complaint by his failure to submit an answer. [6] The DBCC found, based on the applicant's admissions and a review of the documentation submitted by the NASD, that Van Alstyne violated NASD Membership and Registration Rule 1021, NASD Conduct Rule 2110, and NASD Code of Procedure Rule 8210. The DBCC imposed against Van Alstyne a censure, a $95,000 fine, and a bar from associating in any capacity with any member of the NASD. On July 28, 1997, the NASD mailed the decision to Van Alstyne by both regular and certified mail to his CRD address, the Boston address, and the Dana Point address. [7] The decision sent by regular mail to Van Alstyne's CRD address was returned with the notations "moved" and "forwarding order expired." The decision sent by certified mail to Van Alstyne's CRD address was returned with the notation "forwarding order expired." The regular and certified mailings to the Boston and Dana Point addresses were returned to the NASD unopened. Van Alstyne did not appeal the DBCC's decision to the NASD's National Business Conduct Committee ("NBCC") within 15 days as required under NASD rules. [8] In December 1997, Van Alstyne moved to set aside the default decision. The NASD staff opposed Van Alstyne's motion. In support, Van Alstyne submitted declarations in which he asserted "categorically" and "unequivocally" that he was never served with a copy of the NASD's complaint or default decision. He stated that he first became aware of the existence of the proceeding against him when his former attorney notified Van Alstyne, in November 1997, that the attorney had read in a newspaper article that the NASD had sanctioned Van Alstyne. While Van Alstyne admits that he has resided continuously at the address indicated as his CRD address in the NASD's records since early 1994, he declared that he never refused any mailings from the NASD and never instructed anyone else at his CRD address to refuse such mailings. On March 6, 1998, the NAC denied Van Alstyne's motion to set aside the default decision. III. A. Our authority to review the action of a self-regulatory organization ("SRO") is governed by Section 19(d) of the Securities Exchange Act of 1934 ("Exchange Act"), 15 U.S.C. 78s(d). We may review an SRO action, including an NASD action, that is required to be filed with the Commission under Section 19(d)(1) -- that is, an action in which the SRO (1) imposes a final disciplinary sanction on any member or person associated with a member; (2) denies membership or participation to any applicant; (3) prohibits or limits any person in respect to access to services offered by such organization or any of its members; or (4) bars any person from becoming associated with a member of the SRO. [9] While the DBCC's July 28, 1997 default decision against Van Alstyne imposed disciplinary sanctions on Van Alstyne, Van Alstyne's appeal to us is from the NAC's denial of his motion to set aside default. We lack authority under Section 19(d) to review that action, because the NAC's order does not fall within the actions enumerated under Section 19(d)(1). As an initial matter, we disagree with Van Alstyne's claim that the NAC's decision "effectively imposed" a "final disciplinary sanction." The NAC's decision here imposed no disciplinary sanction. By Van Alstyne's reasoning, the denial of any collateral motion seeking to vacate a final SRO decision -- no matter how long after the decision became final and regardless of the reason for the motion -- could constitute imposition of a "final disciplinary sanction" so as to provide this Commission with jurisdiction under Section 19(d). However, "[p]arties to administrative proceedings have an interest in knowing when decisions are final and on which decisions their reliance can be placed." [10] Similarly, the NAC's order did not, as Van Alstyne claims, deny or condition his membership or participation. The NAC's ruling also did not limit or prohibit Van Alstyne's access to NASD services, nor bar Van Alstyne from becoming associated with a member of the NASD. Rather, the NAC merely denied a motion collateral to an underlying disciplinary action in which Van Alstyne already had been sanctioned. [11] The fact that Van Alstyne may have been affected adversely by the NAC's denial does not transform the denial into a reviewable NASD order. [12] We conclude that we lack jurisdiction to review the NAC's order because it is not one of the actions enumerated under Section 19(d)(1). Consistent with our conclusion here, we previously have found that we lacked jurisdiction to review the NASD's denial of a motion for a late appeal. In that case, a default decision was entered after a series of complaints was mailed to the applicant's last known address as reflected in the NASD's records and was returned as unclaimed or refused. [13] We also held recently that we lacked jurisdiction to review an order dismissing a customer complaint, reasoning that the SRO imposed no sanction and that dismissal was not one of the actions included under Section 19(d)(1) for which notice to this Commission is required. [14] B. In the interests of finality, only under extraordinary circumstances will we authorize the filing of a late appeal from an SRO action that is subject to the Section 19(d)(1) filing requirement. [15] Van Alstyne's April 1998 application was made some months after the NASD filed the DBCC decision with us in November 1997. Even if we were to construe Van Alstyne's application for review as a late appeal of the DBCC's July 28, 1997 default decision, we would conclude that Van Alstyne has made no showing warranting our acceptance of a filing outside of the time limits specified in the statute. [16] The NASD followed its procedures and made exhaustive efforts to serve Van Alstyne by mailing the NASD complaints and the DBCC decision to his CRD address as indicated in the NASD's records (as well as to the Boston and Dana Point addresses) by both regular and certified mail. Van Alstyne, by operation of NASD rules in effect during the period, is deemed to have received a copy of the DBCC default decision "by the mailing of the notice to that person at his last known address as reflected on the Association's records." [17] Although Van Alstyne claims that he never actually received the NASD complaint or decision in this case, he admits that he has resided continuously at his CRD address since early 1994. [18] We decline to afford Van Alstyne, under these circumstances, the extraordinary relief of a late appeal from the NASD's default determination. [19] For the reasons discussed above, we dismiss Van Alstyne's application for review. An appropriate order will issue. [20] By the Commission (Chairman LEVITT and Commissioners JOHNSON, HUNT, CAREY and UNGER). Jonathan G. Katz Secretary **FOOTNOTES** [1]: This action is governed by the NASD rules in effect prior to August 7, 1997, because the first attempted service of the complaint in this case occurred before that date. See Exchange Act Rel. No. 38908 (August 7, 1997), 65 SEC Docket 265 (order approving proposed NASD rule changes). NASD Membership and Registration Rule 1021(a), NASD Manual at 3171 (CCH 1996) required that all individuals who "are to function as principals" with a member of the NASD "shall be registered as such with the Association in the category of registration appropriate to the function to be performed . . ." NASD Conduct Rule 2110, NASD Manual at 4111 (CCH 1996) provided that a member of the NASD "shall observe high standards of commercial honor and just and equitable principles of trade." NASD Procedural Rule 8210(a), NASD Manual at 7241 (CCH 1996) provided that the NASD "shall have the right: (1) to require a member of the Association, person associated with a member, or person no longer associated with a member when such person is subject to the Association's jurisdiction to report, either informally or on the record, orally or in writing with regard to any matter involved in any such investigation or hearing, and (2) to investigate the books, records and accounts of any such member or person with relation to any matter involved in any such investigation or hearing." [2]:The NASD, additionally, sent the requests by facsimile and regular mail to Van Alstyne's attorney. [3]: The NASD complaint also alleged NASD rule violations against other respondents who are not the subject of this appeal. [4]:A copy of the complaint was also sent by regular mail to the person identified as Van Alstyne's attorney. [5]: NASD Code of Procedure Rule 9134, NASD Manual at 7312 (CCH 1996) provided that "[a]ny person shall be deemed to have received notice to which he is entitled under any provision of this Code by the mailing of the notice to that person at his last known address as reflected on the Association's records." [6]:NASD Code of Procedure Rule 9216(c), NASD Manual at 7322 (CCH 1996) provided that "[i]f no answer is received by the [DBCC] within the time required by the second notice, the [DBCC] may consider the allegations of the complaint as admitted by the respondent." [7]: The NASD submitted to this Commission proof of this service; it did not provide this proof in opposing before the NAC Van Alstyne's motion to set aside the default. [8]:See NASD Code of Procedure Rule 9310(a), NASD Manual at 7341 (CCH 1996). [9]:See Russell A. Simpson, Exchange Act Rel. No. 40690 (November 19, 1998), ___ SEC Docket ___; Frank R. Rubba, Exchange Act Rel. No. 40238 (July 21, 1998), 67 SEC Docket 1775, 1777; Morgan Stanley & Co., Inc., Exchange Act Rel. No. 39459 (Dec. 17, 1997), 66 SEC Docket 351, 353-54. [10]:Nequoia Association, Inc. v. U.S. Dept. of Interior, 626 F. Supp. 827, 836 (D. Utah 1985). [11]:Van Alstyne's deadline to file an appeal to the NBCC expired 15 calendar days after the DBCC's decision, and the DBCC's ruling became final 45 calendar days after the decision when neither Van Alstyne nor the NBCC moved to review the DBCC ruling. See NASD Code of Procedure Rules 9225(c), 9310(a), NASD Manual at 7327, 7341 (CCH 1996). The July 28, 1997 default decision of the DBCC thus imposed the "final disciplinary sanction" subject to the Section 19(d)(1) notice requirement. Pursuant to this provision, the NASD filed with us on November 17, 1997 a notice of the DBCC decision. [12]:See Morgan Stanley & Co., 66 SEC Docket at 355. [13]:See William T. Banning, 50 S.E.C. 415 (1990). See also Datek Securities Corp., Exchange Act Rel. No. 32306 (May 14, 1993), 54 SEC Docket 199 (Commission lacked jurisdiction to review NBCC's denial of applicants' motion for late appeal filed approximately two weeks late). [14]:See Russell A. Simpson, Exchange Act Rel. No. 40690 (November 19, 1998), ___ SEC Docket ___. See also Tague Securities Corp., 47 S.E.C. 743, 745 (1982) (application for review dismissed for lack of jurisdiction where, inter alia, action by Exchange was not an attempt to penalize or discipline applicant and where no notice of a disciplinary action was filed under Section 19(d)(1)). [15]:See, e.g., David L. Turnipseed, 48 S.E.C. 689, 689 n.1 (1987) (recognizing our discretion to review late filed appeals). Compare Farmers Export Co. v. United States, 758 F.2d 733, 737 (D.C. Cir. 1985) ("[p]etitions to reopen previously final agency decisions are to be granted only in the most extraordinary circumstances") (citations omitted). [16]:Under Section 19(d)(2) of the Exchange Act, 15 U.S.C. 78s(d)(2), an application for review to this Commission generally must be filed within 30 days after the date notice of the action is filed with this Commission under Section 19(d)(1) and received by the aggrieved person. Van Alstyne did not seek Commission review of the DBCC decision within the 30 day period permitted by Section 19(d)(2). Under Section 19(d)(2), however, this Commission may consider appeals filed "within such longer period as [we] may determine." [17]:NASD Code of Procedure Rule 9134, NASD Manual at 7312 (CCH 1996). [18]:See Banning, 50 S.E.C. at 416 (registered person has the duty "to receive and read mail sent to him" at his CRD address). [19]:Van Alstyne focuses on the NASD staff's failure to provide proof in its pleadings before the NAC that the July 28, 1997 DBCC decision was served properly on Van Alstyne. While we do not condone this omission, we do not find that it constitutes the extraordinary circumstances necessary to permit our review of the default decision. [20]:Because we lack jurisdiction to review Van Alstyne's application for review, we do not consider the merits of the allegations concerning rule violations. We have considered all of the arguments for and against jurisdiction advanced in the briefs. We reject or accept them to the extent that they are inconsistent or in accord with the views expressed herein. UNITED STATES OF AMERICA before the SECURITIES AND EXCHANGE COMMISSION SECURITIES EXCHANGE ACT OF 1934 Rel. No. 40738 / December 2, 1998 Admin. Proc. File No. 3-9575 ___________________________________________________ : In the Matter of the Application of : : LANCE E. VAN ALSTYNE : 51 Poppy Hills Road : Laguna Niguel, California : : For Review of Action Taken by the : : NATIONAL ASSOCIATION OF SECURITIES DEALERS, INC. : ___________________________________________________: ORDER DISMISSING APPLICATION FOR REVIEW On the basis of the Commission's opinion issued this day, it is ORDERED that the application of Lance E. Van Alstyne for review of action taken by the National Association of Securities Dealers, Inc. be, and it hereby is, dismissed. By the Commission. Jonathan G. Katz Secretary