SECURITIES AND EXCHANGE COMMISSION Washington, D.C. SECURITIES EXCHANGE ACT OF 1934 Rel. No. 41229 / March 30, 1999 Admin. Proc. File No. 3-9651 : In the Matter of the Application of : : ELIEZER GURFEL : c/o David W. O' Brien, Esq. : Michaels, Wishner & Bonner, P.C. : 1140 Connecticut Avenue, NW, Suite 900 : Washington, D.C. 20036 : : For Review of the Disciplinary Action Taken by the : : NATIONAL ASSOCIATION OF SECURITIES DEALERS, INC. : : OPINION OF THE COMMISSION REGISTERED SECURITIES ASSOCIATION -- REVIEW OF DISCIPLINARY PROCEEDINGS Violation of Rules of Fair Practice Conduct Inconsistent with Just and Equitable Principles of Trade Former registered representative of NASD member firm forged, or caused to be forged, the signature of the firm's president on commission checks, and converted the proceeds to his own use. Held, association's findings of violation and sanctions it imposed are sustained. APPEARANCES: David W. O'Brien, of Michaels, Wishner & Bonner, P.C., for Eliezer Gurfel. Alden S. Adkins, Susan L. Beesley, and James S. Wrona, for NASD Regulation, Inc. Appeal filed: July 14, 1998 Last brief received: October 27, 1998 I. Eliezer Gurfel, a former registered representative of International Money Management Group, Inc. (IMMG), a member firm of the National Association of Securities Dealers, Inc. (NASD), appeals from disciplinary action taken against him. The NASD held that Gurfel violated NASD Conduct Rule 2110 when he forged or caused to be forged the endorsement of IMMG's president on four commission checks and deposited them into his personal bank account. [1] The NASD censured Gurfel and barred him from associating with any NASD member in any capacity. We base our findings on an independent review of the record. II. Gurfel entered the securities industry in 1985 and became a general securities representative of IMMG in July 1992. While with IMMG, Gurfel worked out of his home and was compensated on a commission basis. Under an agreement with IMMG, Gurfel received 85% of the commissions he generated, and IMMG retained the remaining 15%. Between January and March 1993, the insurance company ITT- Hartford issued four checks to IMMG. [2] These checks were for commissions that Gurfel generated from his sales of an ITT- Hartford variable annuity product. Although the checks were made payable to the order of "International Money Management," they were sent to Gurfel at his home. IMMG's president testified that it was not ITT-Hartford's "normal practice" to mail commission checks to the firm's registered representatives. Rather, ITT- Hartford typically would send commission checks directly to the firm. IMMG would then negotiate the checks and distribute the commissions to its registered representatives. IMMG's president testified that he did not know why the four commission checks were not handled in this manner. [3] IMMG discovered that it had not received the four commission checks from ITT-Hartford after a routine review of its accounts receivable. The firm learned through further investigation that someone had signed the name of IMMG's president on the backs of the checks and deposited them into Gurfel's bank account. IMMG's president testified that he did not sign any of the commission checks, and that he confronted Gurfel about the checks. When confronted, Gurfel admitted that he forged the president's signature on the checks and deposited the proceeds into his own account. IMMG's president testified that Gurfel repaid IMMG its share of the commissions, totaling approximately $1,450. Gurfel's employment with IMMG ended on November 15, 1993. After leaving IMMG, Gurfel worked as a registered representative for Van Sant and Mewshaw Securities, Inc., another NASD member firm. Gurfel's employment with Van Sant ended on October 31, 1994. Gurfel has not been associated with any NASD member firm since. On November 30, 1995, the NASD's District Business Conduct Committee (DBCC) filed a complaint against Gurfel, alleging that he violated Conduct Rule 2110 by forging or causing to be forged the endorsement of the president of IMMG on the four ITT-Hartford commission checks and by converting the proceeds to his own use. In his answer, Gurfel admitted that he deposited the four checks into his bank account, but denied that he forged any signatures, and asserted that he promptly made full restitution to IMMG for its share of the commissions. Gurfel also argued that the NASD lacked jurisdiction, contending that, since the complaint against him was filed more than two years after his employment with IMMG had ended, under Article IV, Section 4(a), of the NASD By-Laws, it was untimely. A special hearing subcommittee of the DBCC met to consider Gurfel's jurisdictional challenge. The subcommittee rejected the challenge and set a hearing date before the DBCC. Gurfel waived a hearing, but the DBCC decided to hold a hearing "because there were a number of disputed factual issues." Gurfel's attorney then informed the DBCC that Gurfel would not participate in the hearing. The DBCC proceeded with the hearing after informing Gurfel of its intention to do so. At the DBCC hearing, the NASD introduced into evidence the four commission checks issued by ITT-Hartford. The president of IMMG was the sole witness before the DBCC. The DBCC determined that the evidence supported the allegations set forth in the complaint. The DBCC censured and barred Gurfel from associating with an NASD member in any capacity. [4] Gurfel appealed the DBCC's decision to the NASD's National Adjudicatory Council (NAC). The NAC affirmed the DBCC's finding of jurisdiction, holding that the complaint was filed within two years after Gurfel's last association with any NASD member firm, and sustained the disciplinary action against him. Gurfel now seeks review. III. This case presents the threshold issue of whether the NASD properly asserted disciplinary jurisdiction over Gurfel under Article IV, Section 4, of the NASD By-Laws. Section 4 provides, in pertinent part: A person whose association with a member has been terminated and is no longer associated with any member of the Corporation or a person whose registration has been revoked . . . shall continue to be subject to the filing of a complaint under the Code of Procedure based upon conduct which commenced prior to the termination or revocation. . ., but any such complaint shall be filed within: two (2) years after the effective date of termination of registration pursuant to Section 3 above. . . . [5] Section 3 requires an NASD member firm to notify the NASD of the termination of an associated person's registration by filing a Form U-5 or Uniform Termination Notice for Securities Industry Registration within thirty days of the termination. [6] The NAC interpreted Section 4(a) of Article IV to extend NASD jurisdiction over a person until two years after the date of the termination that results in that person not being associated with any NASD member. Gurfel, by contrast, reads Section 4(a) to provide that the two-year period is measured from the termination that relates to the alleged misconduct. Under Gurfel's reading of Section 4(a), the time for filing a disciplinary complaint expired on November 15, 1995, two years after IMMG filed its Form U-5 notifying the NASD of Gurfel's termination. As a result, Gurfel argues, the complaint, filed on November 30, 1995, was fifteen days too late, and the NASD lacked jurisdiction over him. We reject Gurfel's proposed construction of Section 4(a). Section 4(a) governs the retention of jurisdiction over a person who "has been terminated and is no longer associated with any member." (Emphasis added). The provision gives the NASD jurisdiction until "two years after the effective date of termination of registration." As a textual matter, the "termination" to which this phrase must refer is the termination that results in no association with any member; no other "termination" is mentioned in the by-law. [7] Gurfel asserts that certain statements in the rule filings accompanying the 1992 amendments to Section 4(a) of Article IV demonstrate that the two-year time limit was intended to operate like statutes of limitations, which generally run from the time of the wrongful act. These statements are as follows: The NASD has determined to amend the proposed rule change to substitute a fixed two-year jurisdictional period for the proposal to codify the practice of holding the effectiveness of resignations and terminations. . . . The NASD believes that such a fixed two-year time limit will be less intrusive than the current indefinite and potentially unlimited hold process, and will allow sufficient time to bring virtually all disciplinary actions. [8] We discern nothing in these statements that addresses, much less supports, Gurfel's argument. For the foregoing reasons, we find that the two-year period during which the NASD retained jurisdiction to file a disciplinary action against Gurfel began to run on October 31, 1994, when Gurfel terminated his employment with Van Sant and was no longer associated with an NASD member. [9] Because the NASD's complaint was filed on November 30, 1995, it was timely under Article IV, Section 4(a), of the NASD By-Laws, and jurisdiction was proper. [10] IV. Turning to the substantive rule violation, we conclude that Gurfel violated NASD Conduct Rule 2110 by forging or causing to be forged the endorsement of IMMG's president on the backs of the commission checks and converting the proceeds from the checks to his own use. Gurfel admits that he received the commission checks directly from the insurance company and wrongfully deposited them into his bank account. Although Gurfel denies forging any signatures, he has never explained how the purported signature of the president of IMMG came to appear on the checks when Gurfel had sole possession of them. Moreover, IMMG's president's testimony was that he did not endorse any of the ITT-Hartford commission checks; he confronted Gurfel about the checks; and, when confronted, Gurfel apologized for depositing the checks into his own bank account, admitted signing the president's name on the backs of the checks, and agreed to make full restitution to IMMG. Gurfel concedes that this conversation took place, and denies only that he confessed to forgery. The DBCC found the president's testimony to be credible, and we see no basis to disagree. [11] Gurfel contends that he did not intend to convert the firm's funds to his own use, and notes that he reported to IMMG the sales that generated the commissions. Proof of scienter is not required to establish a violation of NASD Conduct Rule 2110. [12] In any event, Gurfel's actions in forging or causing to be forged commission checks on four separate occasions and depositing the proceeds into his own bank account could support a finding that his misappropriation of IMMG's funds was intentional. V. Gurfel challenges the NASD's sanctions as unduly harsh. He argues in mitigation that he has no prior disciplinary record, that he repaid the commissions to IMMG, and that no customer funds were involved. Our review is limited to determining whether the sanctions imposed are either excessive, oppressive, or impose an undue burden on competition. [13] The NASD determined that, even though Gurfel had no previous disciplinary history, he should be severely sanctioned in light of the seriousness of the violations. The NASD was unimpressed by Gurfel's repayment of funds to IMMG, since Gurfel gave back the money only after he was caught, and there was no evidence suggesting Gurfel otherwise would have repaid IMMG. [14] The NASD concluded that Gurfel's continued participation in the securities industry posed a risk to the public and warranted his exclusion from association with any NASD member firm. We note that the censure and bar are within the range of sanctions recommended in the NASD Sanction Guidelines. [15] We conclude that, given the nature of Gurfel's misconduct, the NASD's sanctions are neither excessive nor oppressive nor impose an undue burden on competition. The sanctions imposed on Gurfel are sustained. An appropriate order will issue. [16] By the Commission (Chairman LEVITT and Commissioners JOHNSON, HUNT, CAREY and UNGER). Jonathan G. Katz Secretary **FOOTNOTES** [1]: Conduct Rule 2110 requires observance of "high standards of commercial honor and just and equitable principles of trade." [2]:The checks were in the amounts of $4,700.20, $1,322.17, $853.27, and $2,750, for a total of $9,625.64, and were dated January 12, January 26, February 23, and March 2, 1993, respectively. [3]:Gurfel's attorney, in a letter dated December 9, 1994, to NASD staff, asserted that Gurfel's receipt of ITT- Hartford's commission checks was a "mistake." Counsel explained that, at the time Gurfel received ITT-Hartford's checks, Gurfel had been receiving approximately ten to fifteen checks per month (made payable to him) from other insurance companies for business unrelated to his association with IMMG. As Gurfel expected that ITT-Hartford would send the commission checks directly to IMMG, he did not realize that the four checks from ITT-Hartford (made payable to IMMG) were for commissions that he was obligated to share with the firm. Counsel noted that Gurfel had a "long-standing relationship" with ITT-Hartford, and hypothesized that "it probably was as a result of this relationship" and ITT-Hartford's "relative inexperience" with IMMG that the commission checks were "inadvertently" sent to Gurfel. [4]:The DBCC declined to impose any monetary sanctions in light of Gurfel's filing for personal bankruptcy during the pendency of these proceedings. [5]:NASD By-Laws, Art. IV, § 4(a) (1997) (emphasis added). Before 1992, Section 4(a) gave the NASD only one year after the effective date of termination to file a complaint for misconduct. The amendment extending this period from one year to two years became effective on April 15, 1992, and applies to Gurfel's case. More recently, in January 1998, Section 4 was redesignated, without substantive change, under Article V. See NASD By-Laws, Art. V, § 4 (1998). [6]:NASD By-Laws, Art. IV, § 3(a) (1997). Section 3 has also been redesignated, without substantive change, under Article V. See NASD By-Laws, Art. V, § 3 (1998). [7]:See James L. Owsley, 51 S.E.C. 524 (1993) (upholding the NASD's disciplinary jurisdiction over Owsley under the pre- 1992 version of Section 4(a)). [8]:Securities Exchange Act Rel. No. 30266 (Jan. 17, 1992), 50 SEC Docket 1382, 1384. Prior to adopting the amendments, the NASD followed an uncodified practice of placing a "hold" on terminations for cause when a Form U-5 indicated the possibility of misconduct. The purpose of this practice was to ensure that the NASD had enough time to investigate and bring a disciplinary action. [9]:Although Van Sant's Form U-5 does not appear in the record, neither party disputes that October 31, 1994, was the effective date of termination of Gurfel's registration with that firm. [10]:Gurfel has attached to his brief two letters, dated June 1 and September 23, 1994, respectively, that he received from NASD staff concerning its investigation of the facts in the Form U-5, and requests that they be made part of the record. Gurfel relies on these letters to argue that the NASD had initially construed Section 4(a) to start the running of the two-year time limit from the termination of his registration with IMMG. Under our Rule of Practice 452, we grant leave to adduce additional evidence only where a party can show that the evidence is material, and that reasonable grounds exist for the failure to present the evidence previously. The staff letters merely paraphrase, in general terms, Section 4(a)'s provisions, and thus are not material. In addition, Gurfel has not shown that reasonable grounds exist for his failure to produce the letters previously. As a result, Gurfel's request that the letters be added to the record is denied. [11]:Credibility determinations by the fact finder are entitled to substantial deference and can be overcome only where the record contains "substantial evidence" for doing so. Jay Houston Meadows, Securities Exchange Act Rel. No. 37156 (May 1, 1996), 61 SEC Docket 2444, 2452, aff'd, 119 F.3d 1219 (5th Cir. 1997). The only evidence that Gurfel cites as inconsistent with the president's testimony is the Form U-5 executed by the president upon Gurfel's departure. That the Form U-5 does not mention Gurfel's forgery hardly suggests it did not occur, particularly since the form mentions that Gurfel was allowed to resign after the firm found that he had deposited the four commission checks into his personal bank account. [12]:Michael Alan Leeds, 51 S.E.C. 500, 504 (1993); Ernest A. Cipriani, Jr., 51 S.E.C. 1004, 1006 n.8 (1994). [13]:15 U.S.C. § 78s(e)(2). [14]:See, e.g., Joel Eugene Shaw, 51 S.E.C. 1224, 1227 (1994). [15]:The guideline for "conversion or improper use of funds or securities" states that, in a typical case, "regardless of amount converted," a respondent should be barred in all capacities, ordered to make restitution, and fined five times the amount converted or misappropriated. NASD Sanction Guidelines, at p.11 (1993). Similarly, the guideline for "forgery and/or falsification of records" states that, in a typical case, a bar should be considered. Id. at p.23. [16]:We have considered all of the parties' contentions. We have rejected or sustained these contentions 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. 41229 / March 30, 1999 Admin. Proc. File No. 3-9651 : In the Matter of the Application of : : ELIEZER GURFEL : c/o David W. O' Brien, Esq. : Michaels, Wishner & Bonner, P.C. : 1140 Connecticut Avenue, NW, Suite 900 : Washington, D.C. 20036 : : For Review of the Disciplinary Action Taken by the : : NATIONAL ASSOCIATION OF SECURITIES DEALERS, INC. : : ORDER SUSTAINING 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 National Association of Securities Dealers, Inc. against Eliezer Gurfel be, and it hereby is, sustained. By the Commission. Jonathan G. Katz Secretary