SECURITIES AND EXCHANGE COMMISSION Washington, D.C. SECURITIES EXCHANGE ACT OF 1934 Rel. No. 37463 / July 22, 1996 Admin. Proc. File No. 3-8894 ------------------------------------------------- : In the Matter of the Application of : : JAMES ALAN SCHNEIDER : 167 Grange Avenue : Fair Haven, New Jersey 07701 : : For Review of Disciplinary Action Taken by the : : NEW YORK STOCK EXCHANGE, INC. : : ------------------------------------------------- OPINION OF THE COMMISSION NATIONAL SECURITIES EXCHANGE -- REVIEW OF DISCIPLINARY PROCEEDINGS Violations of Rules and Regulations Failure to Furnish Information to the NYSE Within the Time Period the Exchange Required Failure to Comply with Recordkeeping Requirements Inaccurate FOCUS Report Acts Detrimental to the Interest or Welfare of the Exchange Making Misstatements and Omissions of Fact on a Submission Filed with the Exchange Where a former member, and subsequent lessee member, of a national securities exchange failed to furnish information within the time period required, failed to comply with recordkeeping requirements, filed an inaccurate FOCUS Report, committed acts detrimental to the interest or welfare of the Exchange and made misstatements and omissions of fact on a submission, held, exchange's findings of violations and the sanctions it imposed sustained. APPEARANCES: William A. Despo, for James Alan Schneider. Arthur S. Okun, Margaret T. Roussel, and Lawrence B. Carlson, for the New York Stock Exchange, Inc. Appeal Filed: December 8, 1995 Briefing Completed: March 27, 1996 ==========================================START OF PAGE 2====== I. James Alan Schneider, formerly a member of the New York Stock Exchange, Inc. ("NYSE" or "Exchange") and currently a lessee member, appeals from NYSE disciplinary action. The NYSE found that Schneider failed to furnish information to it within the required time periods in violation of NYSE Rule 476(a)(11) and failed to keep and preserve certain records in violation of Section 17(a) of the Securities Exchange Act of 1934 ("Exchange Act"), and Rules 17a-3(a)(2) and 17a-4(b) thereunder, and NYSE Rule 440. The NYSE also found that Schneider filed an inaccurate Financial and Operational Combined Uniform Single Report ("FOCUS Report") in violation of Exchange Act Rule 17a-5 and that Schneider caused a lien to attach to his NYSE membership, which constituted an act detrimental to the interest or welfare of the Exchange, in violation of NYSE Rule 476(a)(7). Finally, the NYSE found that Schneider made misstatements and omissions of fact on a submission filed with the Exchange, in violation of NYSE Rule 476(a)(10). The NYSE censured Schneider, fined him $15,000, and suspended him for six months from membership, allied membership, or approved person status in the NYSE or association with any member or member organization. The NYSE required that, for a five-year period, Schneider have an accountant or another qualified person make and maintain his books and records. Our findings are based on an independent review of the record. II. Many of the essential facts supporting the violations are not seriously in dispute. In June 1991, the NYSE issued a report, based upon an examination (the "June 1991 report"), detailing deficiencies in Schneider's financial and operational procedures. The NYSE requested a written response from Schneider within thirty days. In August, September, and November, the NYSE sent four letters to him seeking a response within specified deadlines. Schneider did not respond until December 6, 1991 (which was within the time specified in the November letter). In May, June, and August 1994, the NYSE made requests that Schneider produce his tax returns for 1991, 1992, and 1993. -[1]- By letter dated August 25, 1994, Schneider produced his 1991 tax returns and explained that he had not filed returns for 1992 and 1993. In October 1995 Schneider produced his 1992 and 1993 returns. In January 1992, the NYSE issued a report, based upon a special examination (the "January 1992 report"), finding that Schneider had failed to keep ledgers (or other records) reflecting all assets and liabilities, income and expense and capital accounts (for July 1991); failed to preserve bank ---------FOOTNOTES---------- -[1]- Of three letters from the NYSE requesting Schneider's returns, only the June 16 letter set an explicit deadline (June 28, 1994). Schneider failed to meet this deadline. ==========================================START OF PAGE 3====== statements and cash reconciliations (for July and October 1991); and failed to preserve bills reflecting commissions receivable (for the period March through October 1991). In July 1991, Schneider filed a false FOCUS Report. In that document, he reported that, as of June 30, 1991, he owned 30,000 shares of Sheffield Exploration Co. although the securities were not in his account until August 1991. Schneider failed to provide documentary evidence that he owned the securities as of June 30, despite numerous requests from the NYSE. Schneider also failed to disclose a liability to the NYSE of $7,527. In May 1993, a bank obtained a judgment against Schneider and his wife in the amount of $874,051. In settlement of this judgment, the Schneiders voluntarily granted the bank a security interest in and lien on all of their assets, including his NYSE membership. On or after July 20, 1993, Schneider filed with the NYSE a Uniform Application for Securities Industry Registration or Transfer (Form U-4). He falsely answered "no" to the question "Has any self-regulatory organization . . . disciplined you by . . . barring or suspending your association with its members, or restricting your activities?" In 1989, he had been barred by the NYSE from registration as a Registered Competitive Market Maker for three years. He falsely answered "no" to the question "Are you now the subject of any . . . investigation . . . that could result in a `yes' answer to parts A-H of this item?" In March 1992, the NYSE had notified him that he was the subject of an investigation. He falsely answered "no" to the question "Do you have any unsatisfied judgments or liens against you?" At the time, a bank had unsatisfied judgments against him and had a lien on all of his assets. III. At the outset, we note that Schneider concedes certain violations. He does not deny that he failed to report the $7,527 liability in his firm's FOCUS Report or that he committed the recordkeeping violations noted in the January 1992 report in violation of Exchange Act Section 17(a) and Rules 17a-3(a)(2) and 17a-4(b) thereunder and NYSE Rule 440. -[2]- Concerning the Exchange's requests for a response to the June 1991 report, Schneider argues that the NYSE initially told him that he did not need to respond and subsequently extended the deadline. The record does not support this claim. While initially Schneider may have been confused by the NYSE's letter transmitting a copy of the report, the three subsequent letters from the NYSE adequately informed him of his obligation to respond. The NYSE did not grant Schneider an extension; each time he missed a deadline, the NYSE established a new one. Given ---------FOOTNOTES---------- -[2]- These recordkeeping violations were described in the January 1992 report. ==========================================START OF PAGE 4====== Schneider's delay in the face of the NYSE's repeated requests and deadlines, we find that Schneider violated NYSE Rule 476(a)(11). Schneider contends that his 1992 and 1993 tax returns did not exist when the NYSE requested them. -[3]- He should have kept the NYSE informed as to the status of these returns and should have submitted the 1991 returns promptly. His failure to comply within the required time period violated NYSE Rule 476(a)(11). Schneider argues that he orally represented that he owned the Sheffield Exploration Co. stock and the NYSE failed to offer any evidence to rebut the representation. The NYSE demonstrated, however, that the securities were not placed in Schneider's account until August 1991, weeks after the date of the FOCUS Report, and that Schneider failed to respond to repeated requests for documentation of his ownership as of June. This is sufficient to sustain the NYSE's findings that Schneider filed a false FOCUS Report. -[4]- Schneider argues, citing New Jersey law, that the lien on his NYSE membership was created as a matter of law, resulting from the "foreclosure judgment" against him. -[5]- The cited provision does not appear to have any applicability to the judgement entered against Schneider. He voluntarily subjected his property, including his membership, to a lien. Accordingly, we sustain the NYSE's findings that Schneider violated NYSE Rule 476(a)(7). Schneider claims that his failure to disclose on his Form U-4 the fact that he had been barred by the NYSE was due to a typographical error. We do not find this explanation adequate. Given both the simplicity of the document and its importance, we think it fair to hold Schneider responsible for its contents. Schneider denies that he was aware that he was the subject of an investigation and contends that the NYSE failed to produce evidence that he was. We disagree. In March 1992 he had been informed by the NYSE that he was the subject of an investigation. Although over a year had passed by the time he completed his Form U-4, the investigation had not been closed. Schneider should not have indicated that he was not under investigation without checking with the NYSE. Accordingly, we sustain the NYSE's ---------FOOTNOTES---------- -[3]- The record does not contain evidence as to when Schneider filed his 1992 and 1993 tax returns with the Internal Revenue Service. -[4]- Moreover, as noted above, Schneider concedes his failure to disclose the liability of $7,527. -[5]- N.J. 2A:17-18 (concerning levy and sale of property under an execution issued by a court on a judgment). ==========================================START OF PAGE 5====== findings that Schneider filed a Form U-4 that contained misstatements and omissions of fact. IV. Schneider makes a series of due process claims based upon his absence from the Exchange floor, from October 1993 to January 1994, after the NYSE confronted him regarding the lien that he had granted on his membership. He claims that he left as a result of the NYSE summarily suspending him without due process. Schneider claims that the NYSE staff failed to inform the hearing panel of his suspension. Finally, he asserts that, by disciplining him in this proceeding, the NYSE has sanctioned him twice for granting the lien. We reject each of these contentions. -[6]- First, the NYSE did not suspend Schneider's privileges. Rather, the Exchange suggested that he leave the floor due to his uncertain financial situation and Schneider followed this suggestion. He had the option of requesting the Exchange to institute a summary proceeding, which he could have appealed. Second, Schneider had an opportunity (which he did not use) to inform the hearing panel of his alleged suspension. Third, even if the NYSE did summarily suspend Schneider's membership in 1993, NYSE Rule 475(g) provides that the NYSE may bring disciplinary proceedings for the same underlying conduct. 7/ V. Schneider contends that the sanctions are excessive compared to other cases. Determining what sanctions are appropriate depends upon the particular circumstances of each case. 8/ Moreover, the cases cited by Schneider are distinguishable ---------FOOTNOTES---------- -[6]- We note that Schneider did not raise these claims until 1995, when he appealed the decision of the NYSE hearing panel in this proceeding. 7/ On June 11, 1996, the Commission received from Schneider a Motion for Leave to Extend the Time Permitted to Seek Reconsideration of the Denial of Oral Argument. The Order for which reconsideration is sought was issued May 2, 1996, and a timely request for reconsideration was due within 10 days of that date. Schneider's Motion is denied. First, he fails to provide an adequate justification for the lateness of the request. Second, the issues raised by his appeal that he argues necessitate oral argument are fully addressed by the record and the briefs, and were duly considered in our disposition herein. 8/ See Hibbard, Brown & Company, Inc., Securities Exchange Act Rel. No. 35476 (March 13, 1995), 58 SEC Docket 2769, 2789 n.67, appeal filed, No. 95-3270 (3d Cir.)(Nadino). ==========================================START OF PAGE 6====== because they were settled; sanctions in settled cases may well differ from those in litigated cases. 9/ 9/ Brian L. Gibbons, Securities Exchange Act Rel. No. 37170 (May 8, 1996), 61 SEC Docket 2597, 2603. ==========================================START OF PAGE 7====== Schneider committed numerous violations, each of which we consider serious. For example, failing to respond to an SRO's requests for information undermines the SRO's ability to fulfill its oversight obligations. 10/ Moreover, SROs must be able to rely on the accuracy and truthfulness of documents filed with them. 11/ We also find it significant that Schneider was disciplined by the NYSE in 1989 for some of the same types of misconduct for which he is being disciplined in this proceeding, namely recordkeeping violations and filing an inaccurate Focus Report. Accordingly, we find the sanctions imposed by the NYSE are neither excessive or oppressive. An appropriate order will issue. 12/ By the Commission (Chairman LEVITT and Commissioners WALLMAN, JOHNSON, and HUNT). Jonathan G. Katz Secretary 10/ Jon R. Butzen, Securities Exchange Act Rel. No. 36512 (November 27, 1995), 60 SEC Docket 2389, 2394. See also Mark Allen Elliott, 51 S.E.C. 1148, 1151 (1994) and Charles R. Stedman, 51 S.E.C. 1228, 1232 (1994). We have also previously indicated the seriousness with which we view recordkeeping violations. Palm State Equities, Inc., Securities Exchange Act Rel. No. 35873 (June 20, 1995), 59 SEC Docket 1812. 11/ Thomas R. Alton, Securities Exchange Act Rel. No. 36058 (August 4, 1995), 59 SEC Docket 2978, appeal filed, No. 95- 70715 (9th Cir.). See also Darrell Steven Dalton, Securities Exchange Act Rel. No. 34963 (November 10, 1994), 57 SEC Docket 3025, 3029 aff'd, 40 F.3d 1240 (3d Cir. 1994) (table) and Robert E. Kauffman, 51 S.E.C. 838, 839 (1993). 12/ All of the arguments advanced by the parties have been considered. They are rejected or sustained 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. 37463 / July 22, 1996 Admin. Proc. File No. 3-8894 ----------------------------------------------- : In the Matter of the Application of : : JAMES ALAN SCHNEIDER : 167 Grange Avenue : Fair Haven, New Jersey 07701 : : For Review of Disciplinary Action Taken by the : : NEW YORK STOCK EXCHANGE, INC. : ------------------------------------------------ ORDER SUSTAINING DISCIPLINARY ACTION TAKEN BY NATIONAL SECURITIES EXCHANGE 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 James Alan Schneider be, and it hereby is, sustained. By the Commission. Jonathan G. Katz Secretary