SECURITIES AND EXCHANGE COMMISSION Washington, D.C. SECURITIES EXCHANGE ACT OF 1934 Rel. No. 37953 / November 15, 1996 Admin. Proc. File No. 3-8971 ___________________________________________________ : In the Matter of the Application of : : ROBERT J. SAYEGH : 353 East 83rd Street : New York, NY 10028 : : For Review of Denial of a Member's : Continuance Application by the : : NATIONAL ASSOCIATION OF SECURITIES DEALERS, INC. : ___________________________________________________: OPINION OF THE COMMISSION REGISTERED SECURITIES ASSOCIATION -- REVIEW OF DENIAL OF MEMBER'S APPLICATION FOR ASSOCIATION Where registered securities association denied firm's application to retain its membership if it continued to employ a retail registered representative who is subject to a statutory disqualification, held, appeal proceedings dismissed. APPEARANCES: Robert J. Sayegh, pro se. Craig L. Landauer, for the National Association of Securities Dealers, Inc. Appeal filed: March 6, 1996 Briefing completed: June 21, 1996 I. Robert J. Sayegh appeals from the denial by the National Association of Securities Dealers, Inc. ("NASD") of an application by Stuart, Coleman & Co., Inc. ("Stuart, Coleman") to remain an NASD member if it continued to employ Sayegh. Sayegh is subject to a statutory disqualification because he has been permanently enjoined from violating the antifraud provisions of the securities laws. On November 1, 1995, the United States District Court for the Southern District of New York found that Sayegh had engaged in manipulation of the market for a publicly traded security, thereby violating Section 10(b) of the ==========================================START OF PAGE 2====== Securities Exchange Act of 1934 ("Exchange Act") and Rule 10b-5 thereunder. The District Court entered a permanent injunction prohibiting Sayegh from further violations of these provisions. -[1]- Our findings are based on an independent review of the record. II. Between 1959 and 1969, Sayegh held staff and supervisory positions at the NASD. During the succeeding 26 years, Sayegh was employed in the securities industry. During the period at issue in the injunctive action, Sayegh was a general partner at Moore & Schley Cameron and Co. ("Moore & Schley"). Sayegh was responsible for Moore & Schley's over-the-counter trading and market making, submitting bid and ask prices for securities in which Moore & Schley made a market. Moore & Schley made a market in the American Depository Receipts ("ADRs") of Institute of Clinical Pharmacology ("ICP"), an Irish company. The ICP ADRs were quoted on Nasdaq. Beginning in August 1986, Moore & Schley became the sole active market maker in ICP ADRs. Sayegh had the sole authority to make ICP trades in Moore & Schley's proprietary account. The District Court found that, during 1987 and 1988, Moore & Schley's net capital generally was at or around the required minimum. Because ICP ADRs constituted much of Moore & Schley's capital, any decline in their price would reduce the firm's net capital position. Additionally, many of Moore & Schley's customer accounts held ICP ADRs. A drop in the value of ICP could have resulted in deficits in these customer accounts. The District Court concluded that Sayegh was aware of Moore & Schley's precarious net capital position. There was little if any demand for ICP in the public market during this period. The District Court found that Sayegh and others engaged in numerous fraudulent activities to support artificially the price of ICP and, thereby, Moore & Schley's net capital. Among other things, the District Court found that Sayegh artificially supported the price and controlled the supply ---------FOOTNOTES---------- -[1]- The District Court issued amended findings of facts and conclusions of law on November 21, 1995. SEC v. Sayegh, 906 F. Supp. 939 (S.D.N.Y. 1995). After the NASD issued its order, the Court of Appeals for the Second Circuit affirmed the District Court. SEC v. Militano, No. 95-6407, 1996 WL 282013 (2d Cir. May 29, 1996) (unpublished summary order). Sayegh's petition for rehearing and suggestion for rehearing en banc were denied September 28, 1996. ==========================================START OF PAGE 3====== of ICP ADRs, refused to accept sell orders for these securities, crossed trades and made unauthorized trades in ICP ADRs, directed other broker-dealers to buy these securities on Moore & Schley's behalf, and "parked" ICP ADRs in customer accounts. At the time of the NASD's proceeding, Sayegh was employed as a registered representative at Stuart, Coleman. At the firm, Sayegh dealt solely with retail clients and had no market making responsibilities. III. Section 19(f) of the Exchange Act contains the standards that govern our review of this appeal. If we find that: (1) "the specific grounds" on which the NASD based its actions "exist in fact"; (2) the NASD's actions are in accordance with its rules; and (3) the NASD rules were applied in a manner consistent with the purposes of the Exchange Act; we must dismiss the appeal unless the NASD's action imposes an undue burden on competition. -[2]- We conclude that the "specific grounds" on which the NASD based its actions exist in fact. The District Court entered an amended permanent injunction against Sayegh on November 21, 1995 and detailed Sayegh's violations of the securities laws. -[3]- The Second Circuit affirmed the decision imposing the injunction on May 29, 1996. -[4]- While Sayegh petitioned the Court of Appeals for rehearing, that petition has been denied. In any event, the pendency of such a petition would not alter the "factual" existence of the injunction "and its public interest implications." -[5]- ---------FOOTNOTES---------- -[2]- Section 19(f) of the Exchange Act, 15 U.S.C.  78s(f). E.g., Rosario R. Ruggiero, Securities Exchange Act Rel. No. 37070 (April 5, 1996), 61 SEC Docket 2058, 2060; Luther E. Oliver, 51 S.E.C. 914, 915-16 (1993). -[3]- SEC v. Sayegh, 906 F. Supp. at 939. -[4]- See n. 1 supra. -[5]- Charles P. Elliott, 50 S.E.C. 1273, 1276-77 (1992), aff'd, 36 F.3d 86 (11th Cir. 1994) (per curiam). Sayegh observes that the NASD heard testimony about whether Sayegh would be required to make disgorgement. However, as Sayegh notes, the NASD issued its decision before resolution of this issue. In any event, the disqualifying event is the (continued...) ==========================================START OF PAGE 4====== ---------FOOTNOTES---------- -[5]-(...continued) entry of the injunction against Sayegh. The result of any proceedings for ancillary relief does not provide an independent basis for statutory disqualification. ==========================================START OF PAGE 5====== Before the NASD and in this appeal, Sayegh attacks a number of the findings of the District Court. -[6]- The merits of that proceeding, however, are not before us. Sayegh has had the opportunity to litigate these issues before the courts. Collateral estoppel prevents retrial of the facts underlying the permanent injunction. -[7]- Sayegh complains that the NASD did not consult current NASD employees who had worked with him in the 1950's and 1960's. It was Sayegh's responsibility to marshall the witnesses for his defense. -[8]- Moreover, we note that, while Sayegh mentioned his acquaintance with these employees at the hearing, his statement suggests that he had determined not to contact them because their information might have been stale. -[9]- ---------FOOTNOTES---------- -[6]- Sayegh notes that the conduct occurred in the 1980's and our amended complaint was filed in 1991. However, Sayegh contested these proceedings, as is his right. As we have previously observed, having elected to contest the proceeding, Sayegh cannot complain of the delay from the resulting litigation. Rosario R. Ruggierio, 61 SEC Docket at 2061. During the pendency of the civil injunctive action, Sayegh was not subject to any statutory disqualification. -[7]- Charles P. Elliott, 50 S.E.C. at 1276-77; see generally Robert Blakeney Stevenson, 48 S.E.C. 89, 90 (1985). The NASD also followed its procedures in deciding to prohibit Sayegh's continued association. The NASD notified Sayegh that, pursuant to Article II, Section 3 of its By- Laws and Article VI of its Code of Procedure [new Rule 9620], it was instituting a revocation proceeding to determine whether it was in the public interest to permit Sayegh to remain registered with the NASD or associated with an NASD member. Sayegh and Stuart, Coleman received notice over three weeks before his February 7, 1996 hearing. Sayegh and representatives of Stuart, Coleman participated at that hearing. Sayegh received notice of the NASD's decision to revoke Sayegh's registration. -[8]- See, e.g., Thomas E. Warren, III, 51 S.E.C. 1015, 1020 (1994), aff'd without opinion, 69 F.3d 549 (10th Cir. 1995) (table). -[9]- Sayegh stated to the panel: (continued...) ==========================================START OF PAGE 6====== Sayegh contends that the NASD's action is not in the public interest. Sayegh notes that he had no market making responsibilities at Stuart, Coleman. Instead, he acted solely as a registered representative for retail customers. We also recognize that Stuart, Coleman proposed a plan of heightened supervision for Sayegh. -[10]- Among other things, Stuart J. Voisin, the Chairman and President of Stuart, Coleman, "personally guarantee[d]" Sayegh's compliance with the securities laws. -[11]- Sayegh also asserts that he had 36 years of ---------FOOTNOTES---------- -[9]-(...continued) Prior to coming to this hearing, I pondered quite a bit if I should request for [sic] an affidavit from certain NASD employees who were subordinate to [sic] mine at the NASD in New York before I left there. . . . [W]hat I was going to do is ask them if they would be kind enough to give an affidavit to this Committee of my character and integrity to the extent that they knew it. It's been a long time. -[10]- Those measures included: a) Sayegh and his direct supervisor, James Orazio, the Main Branch Manager at Stuart, Coleman, would be located close to one another; b) Sayegh's orders would be approved prior to entry and reviewed and initialed daily; c) Sayegh would not maintain discretionary control over any customer account; d) Sayegh's client statements would be reviewed monthly; and e) Sayegh would have no association with the firm's trading or market making functions. The firm did not have any other employees who were subject to statutory disqualification. Orazio has no disciplinary history. -[11]- Victor Sicuranza, Director of Compliance and Executive Vice President of Stuart, Coleman, testified that Voisin was willing to become Sayegh's direct supervisor. The NASD has stated to us that it did not reach its conclusions because of any deficiency in the firm's supervision. We note that Voisin's letter asserted that Sayegh should be permitted to continue in the securities industry "prior to his appeal being ruled upon." As noted, the Court of Appeals has affirmed the District Court. Voisin's letter also stated that there are "many 'holes' I perceive in the SEC case . . . [a] case could be made for 'improper political involvement' . . . notwithstanding the fact that the record shows that the true perpetrators 'coped [sic] a (continued...) ==========================================START OF PAGE 7====== experience in the securities industry with no other disciplinary action, aside from the disqualifying injunction, and urges that the NASD's determination has created hardship for his family and him. -[12]- On balance, weighing the recent entry of the injunction and the severity of the violations committed by Sayegh against Sayegh's arguments for continued association, we conclude that the NASD's decision is consistent with the purposes of the Exchange Act. The NASD was properly concerned about the conclusions of the District Court, which found that, over a two- year period, Sayegh manipulated the price of ICP ADRs to maintain Moore & Schley's net capital level. -[13]- Sayegh's experience in the industry further suggests that he should have ---------FOOTNOTES---------- -[11]-(...continued) plea' with the SEC, and gave them Sayegh to lessen their own sentences." We question whether the firm necessarily appreciated the seriousness of the District Court's findings. -[12]- Sayegh notes an error in the NASD's decision. That decision states that Sayegh limited his testimony to the period since his disqualification. As Sayegh correctly notes and as discussed above, Sayegh in fact spent a substantial portion of his testimony discussing his background and challenging the bases for the District Court's entry of the injunction. In spite of this statement in the NASD's opinion, it is clear from the transcript that the NASD hearing panel permitted Sayegh's testimony and asked questions about it. We have reviewed this testimony and considered it. However, as we have stated above, Sayegh's challenges to the injunctive action are inapposite to the issues in this proceeding. -[13]- The NASD quoted the District Court's conclusion: Sayegh's violations were knowing and egregious . . . . The facts show that Sayegh generated and participated in much of the conduct contributing to the manipulation . . . . He fails to recognize the significance of his wrongful conduct and this gives rise to serious doubts about his ability to refrain from engaging in such conduct . . . . [I]t appears that his occupation will present opportunities for future violations of the securities laws. SEC v. Sayegh, 906 F. Supp. at 948. ==========================================START OF PAGE 8====== had greater awareness of the consequences of his actions. -[14]- The NASD properly could conclude that the seriousness of Sayegh's violations made its action appropriate in the public interest. -[15]- In light of the foregoing considerations, we dismiss this appeal. An appropriate order will issue. -[16]- By the Commission (Chairman LEVITT and Commissioners WALLMAN, JOHNSON, and HUNT). Jonathan G. Katz Secretary ---------FOOTNOTES---------- -[14]- Sayegh argues that customers did not suffer losses in ICP, and he was not the subject of customer complaints. We note, however, that the District Court found that customer accounts were used to effectuate the manipulative scheme. In any event, the lack of customer complaints does not establish that Sayegh's continued association is in the public interest. -[15]- Michael Albert Weisser, Securities Exchange Act Rel. No. 36216 (Sept. 11, 1995), 60 SEC Docket 606. -[16]- 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. Admin. Proc. File No. 3-8971 ___________________________________________________ : In the Matter of the Application of : : ROBERT J. SAYEGH : 353 East 83rd Street : New York, NY 10028 : : For Review of Denial of a Member's : Continuance Application by the : : NATIONAL ASSOCIATION OF SECURITIES DEALERS, INC. : ___________________________________________________: ORDER DISMISSING APPEAL OF DENIAL OF MEMBER'S CONTINUANCE APPLICATION TO REGISTERED SECURITIES ASSOCIATION. On the basis of the Commission's opinion issued this day, it is ORDERED that the appeal taken by Robert J. Sayegh from the denial by the National Association of Securities Dealers, Inc. of the application filed by Stuart, Coleman & Co., Inc. to continue as a member if it continues to employ Robert J. Sayegh be, and it hereby is, dismissed. By the Commission. Jonathan G. Katz Secretary