SECURITIES AND EXCHANGE COMMISSION Washington, D.C. SECURITIES EXCHANGE ACT OF 1934 Rel. No. 37955 / November 15, 1996 Admin. Proc. File No. 3-8990 ----------------------------------------------------- In The Matter of the Application of : : WILLIAM JACKSON BLALOCK : 915 Lenox Hill Court : Atlanta, Georgia 30324 : : For Review of Disciplinary Action Taken by the : : NATIONAL ASSOCIATION OF SECURITIES DEALERS, INC. : : ------------------------------------------------------ OPINION OF THE COMMISSION REGISTERED SECURITIES ASSOCIATION -- REVIEW OF DISCIPLINARY PROCEEDINGS Sanctions Imposed by Association Where association, on remand of proceeding against respondent for recalculation of the sanction imposed, recalculated restitution amount, held, sanction assessed by association modified. APPEARANCES: Bruce C. Bailey, of Chambliss & Bahner, PLLC, for William J. Blalock. Alden S. Adkins and Norman Sue, Jr., for NASD Regulation, Inc. Appeal filed: April 24, 1996 Last brief received: August 1, 1996 I. William J. Blalock, formerly associated, as its president and later its chairman, with Atlanta Securities & Investments, Inc. (the "Firm"), a former member of the National Association of Securities Dealers, Inc. ("NASD"), again appeals from NASD ==========================================START OF PAGE 2====== disciplinary action. -[1]- On remand from this Commission for recomputation of sanctions associated with excessive markups, the NASD recalculated the amount of restitution assessed against Blalock. Our findings are based on an independent review of the record. II. When this matter was appealed to us previously, we found, as relevant here, that during a one-month period the Firm, a non- market maker, sold shares of World Wide Medical Technology, Inc. ("WWMT") at a constant price of $2 per share to retail customers. During this month, the Firm purchased the majority of its WWMT inventory from Blalock, although it made some additional purchases from other dealers, at prices ranging from $1.125 to $1.25. We sustained the NASD's finding that the prices were unfair and violative of Article III, Sections 1 and 4 of the NASD Rules of Fair Practice ("Rules"). -[2]- We remanded the proceedings, however, for recalculation of the excessive markups. The NASD had calculated markups based upon three measures of contemporaneous market price: 1) the price the Firm had paid Blalock (so long as the purchase from Blalock took place on the same day as the retail sale); 2) the price the Firm had paid other dealers; -[3]- and 3) in seventeen transactions, the prices in inter-dealer transactions to which the Firm was not a party. This methodology resulted in ---------FOOTNOTES---------- -[1]- Our prior decision affirmed the NASD's findings that the Firm, through Blalock, contravened the registration, pricing, and antifraud provisions of the NASD's Rules of Fair Practice and Rule 10b-9 under the Securities Exchange Act of 1934, in violation of Article III, Sections 1, 4, and 18 of the Rules. The Eleventh Circuit Court of Appeals affirmed this decision in an unpublished opinion. William J. Blalock v. SEC, No. 95-8352, 1996 U.S. App. LEXIS 23847 (11th Cir. August 28, 1996). -[2]- The NASD recently revised and renumbered its Rules of Practice; no substantive changes were made to the particular rules at issue here. Article III, Section 1 [new Rule 2110] requires that members "observe high standards of commercial honor and just and equitable principles of trade." Article III, Section 4 [new Rule 2440] governs markup policy. -[3]- For 24 of the 41 violative transactions, the NASD had used the Firm's cost of acquisition as the basis for the markup. ==========================================START OF PAGE 3====== a determination that Blalock owed restitution in the amount of $118,300. As our opinion stated, however, the trading patterns in the inter-dealer market were "erratic," as reflected by inexplicable price fluctuations. We therefore remanded the proceeding to the NASD with instructions to look to the Firm's own contemporaneous purchase prices to compute all of the markups, including the seventeen transactions whose markups had been based on inter- dealer transactions to which the Firm was not a party. In January 1995, the NASD submitted a recalculation of the markups to Blalock's counsel but received no comments or counterproposals. -[4]- A hearing was held before the National Business Conduct Committee ("National Committee") in February 1996. -[5]- Blalock neither submitted a brief nor participated in the hearing. Counsel for the NASD testified that Blalock refused to either stipulate or offer alternatives to the NASD's recalculation of the overcharges. -[6]- The National Committee accepted the NASD staff's recalculations and ordered Blalock to make restitution in the amount of $75,937.50 plus interest at 9% per annum from October 29, 1988, until paid, to those customers identified in the National Committee decision dated November 29, 1993. III. ---------FOOTNOTES---------- -[4]- The NASD also contacted Blalock's counsel by telephone. Blalock's counsel never provided any substantive response to the proposed calculations. On one occasion, the attorney informed the NASD staff that he had not reached Blalock. During another conversation, the attorney reported that Blalock would not stipulate to the proposed calculations. -[5]- Counsel for Blalock attempted to reschedule the hearing, claiming that Blalock was out of the country. The NASD offered to allow Blalock to participate by telephone. Counsel for Blalock never responded to this offer. On the day of the hearing, counsel for the NASD telephoned Blalock's counsel and left him a message regarding the starting time of the hearing, but Blalock's counsel did not respond. -[6]- The recalculations were based on either the Firm's purchases from Blalock or its purchases from other dealers. ==========================================START OF PAGE 4====== On appeal, Blalock argues that the NASD incorrectly recalculated the restitution amount and that it "might as well have picked this number out of thin air." The NASD, however, presented the proposed restitution amount to Blalock, along with the supporting calculations, over one year prior to the National Committee hearing. These calculations are objective and their methodology clear. Blalock did not contest the calculations. Based on our independent review, the NASD, with one minor exception, appropriately recalculated the restitution amount in accordance with our prior decision. 7/ Blalock argues that the restitution is "gravely unjust" in light of the penalties already imposed on Blalock for his multiple violations. An order for restitution is intended to restore customers' positions by returning to them funds of which they were deprived, as well as stripping the wrongdoer of his ill-gotten gains. 8/ Such an order is well within the NASD's powers. 9/ Moreover, in our prior decision, we determined that the remaining sanctions imposed by the NASD were neither excessive nor oppressive, and we will not revisit that determination. 10/ We remanded this proceeding solely for the purpose of determining the amount of restitution that Blalock must pay to customers who were overcharged. 7/ We arrive at a different conclusion with respect to three transactions that took place on September 30, 1988. In its original proposed calculations, the NASD had used the price at which Blalock sold WWMT shares to the Firm on that day, $1.25, to determine the prevailing market price. In its final calculations, the NASD used, as the basis for the markup, the price at which the Firm had bought shares from another dealer on September 29, 1988, $1.125. We believe that the more contemporaneous transaction was the correct measure and is consistent with the remainder of the NASD's decision. We therefore reduce the total restitution amount to $75,456.25. 8/ See Toney L. Reed, 51 S.E.C. 1009, 1013 (1994). 9/ David Joseph Dambro, 51 S.E.C. 513, 518 (1993). 10/ Bruce Martin Zipper, Securities Exchange Act Rel. No. 35606 (April 17, 1995), 59 SEC Docket 332, 334-35 (refusing to revisit finding made in prior appeal). Similarly, we reject Blalock's attempt again to argue that he was prejudiced as a result of limited discovery. We rejected that argument in the prior appeal. William J. Blalock, 58 SEC Docket at 168- 69 n.36. As noted, our earlier decision in this proceeding was affirmed by the Eleventh Circuit. ==========================================START OF PAGE 5====== Blalock also argues, without any supporting evidence, that he has already paid restitution voluntarily to certain customers. The NASD's order states that Blalock must provide proof that he has satisfied the restitution requirement. To the extent that he can prove that he has already made voluntary restitution to customers prior to the order becoming final, the NASD will reduce the restitution amount accordingly. 11/ We therefore find that Blalock must make restitution in the amount of $75,456.25, together with interest at the rate of 9% per annum from October 29, 1988 until paid. An appropriate order will issue. 12/ By the Commission (Chairman LEVITT and Commissioners WALLMAN, JOHNSON, and HUNT). Jonathan G. Katz Secretary 11/ We reject Blalock's claim that the NASD examiner who performed the recalculation and who appeared at the National Committee hearing is biased against him. Blalock's allegations appear to be based on earlier complaints that he made regarding the examiner's testimony in the initial hearing on this matter. These complaints were dealt with during the initial disciplinary proceeding and in our original opinion. We see no evidence of bias in the examiner's methodology or in the results. 12/ All of the contentions 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 herein. UNITED STATES OF AMERICA before the SECURITIES AND EXCHANGE COMMISSION SECURITIES EXCHANGE ACT OF 1934 Rel. No. 37955 / November 15, 1996 Admin. Proc. File No. 3-8990 ------------------------------------------------- : In the Matter of the Application of : : WILLIAM JACKSON BLALOCK : 915 Lenox Hill Court : Atlanta, Georgia 30324 : : For Review of 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 William J. Blalock be, and it hereby is, sustained, except that the amount of restitution is reduced to $75,456.25. By the Commission. Jonathan G. Katz Secretary