SECURITIES AND EXCHANGE COMMISSION Washington, D.C. SECURITIES EXCHANGE ACT OF 1934 Rel. No. 39242 / October 15, 1997 Admin. Proc. File No. 3-9296 : In the Matter of the Application of : : MARTIN J. CUNNANE, JR. : 3752-62nd Street, Apartment 1B : Woodside, New York 11377 : : 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 Violations of Rules of Fair Practice Unauthorized Trading Registered representative opened accounts for three customers without authorization and effected unauthorized trades in each account. Held, association's findings of violations and sanctions it imposed are sustained. APPEARANCES: Martin J. Cunnane, Jr., pro se. Norman Sue, Jr. and Francine Norz Tobin, for NASD Regulation, Inc. Appeal filed: March 18, 1997 Briefing completed: July 21, 1997 I. Martin J. Cunnane, Jr., who at the time of the events at issue was associated with M. Rimson & Co., Inc. ("Rimson"), formerly a member of the National Association of Securities Dealers, Inc. ("NASD"), appeals from NASD disciplinary action. The NASD found that Cunnane violated Article III, Section 1 of the NASD's Rules of Fair Practice ("Rules") when he opened three customer accounts at Rimson without the authorization of the customers and effected unauthorized transactions in the stock of ======END OF PAGE 2====== Metallurgical Industries, Inc. ("Metallurgical") for those accounts. <(1)> The NASD censured Cunnane, suspended him for three years, and fined him $40,000. <(2)> Our findings are based on an independent review of the record. II. Cunnane does not contest that NASD's findings of fact, nor its conclusion that Cunnane violated Article III, Section 1 of the NASD's Rules. The facts are as follows. In 1992, Cunnane met Leonard Koenig, another registered representative. In August 1992, both Cunnane and Koenig transferred to the Florida branch office of a broker-dealer. There, Cunnane and Koenig had a "partnership-type" arrangement under which they pooled their sales production for purposes of computing commissions. A few months later, Cunnane moved to New York City but continued to maintain contact with Koenig. In September 1993, Cunnane became associated with Rimson in New York City. At the time, he was struggling financially. On October 5, 1993, Koenig, who was then affiliated with PCM Securities Limited, L.P, asked Cunnane to open accounts at Rimson for Kenneth Schwartz, John Hiler, and Frank McTear. According to Cunnane, Koenig claimed that each of these individuals was his customer and that each of them wished to buy Metallurgical stock. Koenig provided Cunnane with the information required to complete Rimson new account forms for Schwartz, Hiler, and McTear. Cunnane did not determine whether Koenig had a power of attorney for any of these accounts. Cunnane immediately opened accounts for each of these customers, and at Koenig's direction Cunnane purchased 20,000 shares of Metallurgical for Schwartz, 15,000 shares for Hiler, and 30,000 shares for McTear. The purchases, which were made at 60 cents a share, accounted for over 99 percent of the volume in Metallurgical on October 5, 1993. On October 6, 1993, Koenig again asked Cunnane to purchase an additional 15,000 shares for Schwartz at 60 cents per share. Cunnane effected the trade. That trade accounted for over 67 percent of the volume in Metallurgical on that date. The customers never paid for these transactions, and the positions were ultimately liquidated on November 2, 1993, without loss to the firm or the customers. <(1)> The NASD has revised and renumbered its Rules, but no substantive changes were made to the particular rule at issue here. Article III, Section 1 of the Rules [new Conduct Rule 2110] requires that members, in the conduct of their business, observe high standards of commercial honor and just and equitable principles of trade. <(2)> The NASD also assessed costs against Cunnane. ======END OF PAGE 3====== Cunnane admits that he has never spoken to Hiler or McTear, and he is "uncertain" whether he contacted Schwartz at some point. <(3)> Schwartz, a Koenig customer at PCM, testified that, prior to receiving confirmations for the Metallurgical trades, he had never heard of Rimson, Metallurgical, or Cunnane. John Hiler, whose brother Michael Hiler was a PCM registered representative, submitted an affidavit stating that, until contacted by the NASD's staff, he had never heard of Rimson, Metallurgical, or Cunnane and that he never authorized any person to effect transactions in Metallurgical on his behalf. <(4)> Before the NASD's Market Surveillance Committee, Cunnane stated that he recognized that his actions were in error and knew that he should not have opened the accounts without speaking directly to the customers. He further admitted that he should not have effected the transactions without either proof that Koenig had the customers' powers of attorney or confirmation that the purchases were authorized by the customers. <(5)> Cunnane also admitted that he had earlier given the NASD staff inaccurate information about his conduct. We sustain the NASD's findings, which are supported on the record, that Cunnane violated Article III, Section 1 of the Rules. <(3)> Cunnane testified variously that he did not contact Schwartz or that he spoke to him after the transactions were executed to determine whether Schwartz would pay for the stock. In his brief to us, he stated that he "continues to be uncertain as to whether he contacted [Schwartz] prior to executing these transactions." <(4)> McTear did not appear in person or by affidavit. Cunnane admits, however, that he never spoke to McTear or received authority from McTear to open the account or purchase Metallurgical. <(5)> Cunnane further testified that Koenig was his former partner and someone Cunnane regarded as a friend. He relied on Koenig's representations that the customers had authorized the purchases of Metallurgical. He claimed that, based on their business dealings, he had no reason to doubt Koenig or not to trust him. Cunnane's purported reliance on Koenig does not excuse his violations. ======END OF PAGE 4====== III. Cunnane challenges the NASD's sanctions, particularly the suspension. Cunnane notes that he has no prior disciplinary history, represents that he received no remuneration for these trades, and asserts that neither the customers nor Rimson was damaged by the trades. Cunnane asserts that these sanctions are punitive and differ from sanctions imposed in similar cases. He also asserts that the sanctions exceed those recommended by the NASD's Sanction Guidelines. We have repeatedly stated that the appropriate remedial action depends on the facts and circumstances of each particular case and cannot be determined precisely by comparison with the action taken in other cases. <(6)> We have also previously noted that the NASD's Sanction Guidelines are not meant to prescribe fixed penalties but merely to provide a "starting point" in the determination of remedial sanctions. <(7)> While the relevant guideline suggests a suspension in all capacities for 5 to 30 days in a "typical case involving customer losses and/or sizable commissions," they suggest a bar in "egregious cases." <(8)> In imposing the sanctions, the NASD found that Cunnane's case presented aggravating circumstances. He opened customer accounts without authorization and engaged in unauthorized trades in the accounts. The NASD also noted that Cunnane gave false testimony to the NASD staff "in an attempt to conceal his misconduct." Before the NASD staff in March 1994, Cunnane claimed that he had obtained the names of Schwartz, Hiler, and McTear from lead cards. He also asserted that each customer had provided Cunnane with the information recorded in the new account cards and had given him the orders to purchase Metallurgical. He described Koenig as an acquaintance and denied that he had ever discussed the customers or Metallurgical with Koenig. The NASD further concluded that he made subsequent admissions of misconduct "only after the NASD staff independently gathered evidence casting serious doubt on the plausibility of his initial version of the events." <(6)> See, e.g., Henry James Faragalli, Jr., Securities Exchange Act Rel. No. 37991 (Nov. 26, 1996), 63 SEC Docket 826. See also Butz v. Glover Livestock Commission Co., Inc., 411 U.S. 182, 187 (1973). <(7)> Peter C. Bucchieri, Securities Exchange Act Rel. No. 37218 (May 14, 1996), 61 SEC Docket 2771, 2779, quoting Peter W. Schellenbach, 50 S.E.C. 798, 803 (1991), aff'd, 989 F.2d 907 (7th Cir. 1993). <(8)> Sanction Guidelines (1993). The Guidelines also recommend fines of between $5,000 and $50,000, plus the amount of any commissions. ======END OF PAGE 5====== We agree with the NASD that "Cunnane knowingly entered into these unauthorized transactions and that his actions were extremely serious." There can be no suggestion that Cunnane misunderstood whether he had authority for his actions. Cunnane opened accounts for persons with whom he was not acquainted, effected trades for those accounts, and then attempted to mislead the NASD staff. We do not find that, under the circumstances, the sanctions imposed by the NASD are excessive or oppressive. An appropriate order will issue. <(9)> By the Commission (Chairman LEVITT, Commissoners HUNT, JOHNSON and WALLMAN) Jonathan G. Katz Secretary <(9)> 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. 39242 / October 15, 1997 Admin. Proc. File No. 3-9296 : In the Matter of the Application of : : MARTIN J. CUNNANE, JR. : 3752-62nd Street, Apartment 1B : Woodside, New York 11377 : : 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 findings of violation made and sanctions imposed by the National Association of Securities Dealers, Inc. on Martin J. Cunnane, Jr., and the Association's assessment of costs, be, and they hereby are, sustained. By the Commission. Jonathan G. Katz Secretary