SECURITIES AND EXCHANGE COMMISSION Washington, D.C. SECURITIES EXCHANGE ACT OF 1934 Rel. No. 34-39280 / October 27, 1997 Admin. Proc. File No. 3-9189 : In the Matter of the Application of : : LOUIS F. ALBANESE : 64 Brambly Hedge Circle : Fairfield, Connecticut 06430 : : For Review of Disciplinary Action Taken by the : : NEW YORK STOCK EXCHANGE, INC. : : OPINION OF THE COMMISSION NATIONAL SECURITIES EXCHANGE -- REVIEW OF DISCIPLINARY PROCEEDING Violation of Exchange Rule Failure to Provide Requested Testimony Former registered representative of members of national securities exchange failed to provide, in a timely manner, testimony requested by exchange in connection with investigation. Held, exchange's finding of violation and sanctions it imposed are sustained. APPEARANCES: Evan L. Gordon, for Louis F. Albanese. David P. Doherty, Regina C. Mysliwiec, Margaret S. Fox, and Scott M. Gilbert, for the New York Stock Exchange, Inc. Appeal filed: November 19, 1996 Last brief received: February 12, 1997 I. Louis F. Albanese, formerly a registered representative with PaineWebber, Inc. ("PaineWebber") and Prudential Securities, Inc. ("Prudential"), members of the New York Stock Exchange, Inc. ("NYSE" or "Exchange"), appeals from NYSE disciplinary action. <(1)> The NYSE found that Albanese violated Exchange Rule 477 ("Rule 477") by failing to comply promptly with a request by the Exchange's Division of Enforcement ("Division") to testify concerning activities that occurred while Albanese was employed by Exchange members. <(2)> The NYSE censured Albanese and barred him from membership, allied membership, and approved person status, and from employment or association in any capacity with any member or member organization, until he complied with the Exchange's request and then for an additional two weeks. We base our findings on an independent review of the record. II. At some time before October 1995, the Division began an investigation into customer allegations that Albanese engaged in misconduct and into the circumstances surrounding Albanese's suspension by, and his subsequent resignation from, Prudential. <(3)> On October 6, 1995, the Division sent a letter to Albanese requesting that he: (1) explain, in writing, why his association with Prudential had ended, and (2) testify at an on-the-record interview on November 13-14, 1995 concerning the matters under investigation. The letter instructed Albanese to furnish the requested written information and confirm his availability for the interview no later than October 26, 1995. <(4)> In a telephone conversation with Division staff on October 10, 1995, counsel for Albanese ("Counsel") advised that he expected the pending customer arbitrations against Albanese to be <(1)> Albanese currently is associated with Constitution Capital Corporation, a member of the National Association of Securities Dealers, Inc. ("NASD"). <(2)> Rule 477 provides, in relevant part, that the NYSE may require former employees of Exchange members to "testify . . . in conformance with the Constitution and Rules of the Exchange in the same manner and to the same extent as if such person had remained" an employee of an Exchange member. <(3)> Between October 1993 and January 1995, PaineWebber notified the Exchange that six customer arbitration proceedings had been initiated against Albanese and PaineWebber. In March 1995, Prudential notified the Exchange that, in February 1995, it had suspended Albanese for attempting to establish his own broker-dealer without prior permission from Prudential. Albanese resigned from Prudential shortly after that suspension. <(4)> The Charge Memorandum states that Albanese provided the requested written explanation. ======END OF PAGE 2====== resolved by April 1996, and he asked for a postponement of Albanese's testimony until that time. <(5)> The Division denied this request. Two weeks later, on October 25, 1995, Counsel notified the Division that Albanese was unable to testify due to his mental condition. Counsel subsequently provided the Division with a letter dated November 3, 1995 from Gail Korrick, a certified social worker and Albanese's therapist, which stated in full: Mr. Albanese is being seen for an adjustment reaction with severe anxiety due to current business and personal problems. In my professional opinion, he is not capable emotionally of dealing with any additional stress. Therefore, I do not feel he is capable of testifying before the Exchange or properly defending his position. If I can be of any further assistance in this matter please feel free to contact my office. The Division determined that the letter alone did not justify postponement of the interview. It advised Albanese of this conclusion and indicated that it would consider additional information about his condition. Specifically, the Division offered Albanese the opportunity either to submit a written report from Korrick detailing his condition or to undergo an evaluation by Dr. Azariah Eshkenazi, a forensic psychiatrist. In response to the Division's offer, Counsel suggested that the interview be postponed for sixty to ninety days or, alternatively, that Albanese be evaluated by a psychiatrist selected jointly by the parties. <(6)> The Division rejected this counteroffer. <(7)> Counsel then informed <(5)> The NYSE states in its brief that PaineWebber settled the arbitrations on March 29, 1996 for $307,803. <(6)> These discussions took place during a telephone conversation on November 9, 1995 between Division staff, Counsel, and Korrick. Korrick relayed some information regarding Albanese's symptoms to Division staff, who invited her to submit in writing further details about Albanese's condition. Korrick did not do so. <(7)> As a general matter, we repeatedly have held that a member or associated person may not impose conditions under which information will be provided in connection with an investigation by a self-regulatory organization ("SRO"). E.g., Richard J. Rouse, 51 S.E.C. 581, 585-86 (1993) (citing Boren & Co., 40 S.E.C. 217, 225 (1960)); Michael David Borth, 51 S.E.C. 178, 180-81 (1992) (same). ======END OF PAGE 3====== the Division by letter dated November 14, 1995 that his client would not be evaluated by Dr. Eshkenazi and would not provide testimony. <(8)> In December 1995, the Division issued its Charge Memorandum against Albanese alleging failure to comply with an Exchange request for testimony. Following a hearing, in which Albanese participated through Counsel only, an Exchange hearing panel ("Hearing Panel") found that Albanese had violated Rule 477. The Hearing Panel imposed sanctions of a censure, a bar until Albanese complied with the Exchange's request, and a bar for one month following compliance. In late April 1996, approximately one month after the Hearing Panel rendered its decision, Counsel notified the Division that Korrick had "cleared [Albanese] to testify" on or after May 20, 1996. Albanese testified at an on-the-record interview on June 4-5, 1996. On review, the Exchange's Board of Directors ("Board") affirmed the Hearing Panel's finding of violation but modified the sanctions imposed by reducing to two weeks the bar following compliance. III. In order to fulfill its statutory responsibility to regulate its members and protect investors, the Exchange must be able to pursue investigations of allegations of misconduct by its members and associated persons. <(9)> The Exchange lacks subpoena power and therefore necessarily relies upon the full and prompt cooperation of its members and associated persons in conducting an investigation. <(10)> Delay by a <(8)> Counsel's letter stated that "Mr. Albanese will not appear just because you want him to, especially in view of his treating health professional's opinion that to do so would injure his health." The letter further stated that, if the Division were to charge Albanese with a violation of Rule 477, Counsel and Korrick "will appear and advise the hearing panel of what we believe to be our pre-eminently reasonable position." <(9)> Cf. Stratton Oakmont, Inc., Securities Exchange Act Rel. No. 38390 (March 12, 1997), 64 SEC Docket 164, 168 (ability to police members' compliance with federal securities laws and SRO rules is "core component" of SRO's regulatory function); William Edward Daniel, 50 S.E.C. 332, 335-36 (1990) (SRO's responsibility to investigate allegations of misconduct and impose sanctions where appropriate is "integral aspect" of statutory scheme to regulate broker-dealers and protect investors). <(10)> Cf. Richard J. Rouse, 51 S.E.C. at 584 (rule requiring cooperation in NASD investigations necessary in absence of subpoena power); Michael Markowski, 51 S.E.C. 553, 559-60 (1993) (citing Daniel C. Adams, 47 S.E.C. 919, 923 (1983)), aff'd, 34 F.3d 99 (2d Cir. 1994) (same). ======END OF PAGE 4====== member or associated person in providing requested information or testimony impedes an Exchange investigation and consequently may result in harm to investors and to the integrity of the securities markets. <(11)> Albanese does not dispute that he refused to testify until several months after the Exchange had requested that he do so. He contends, however, that the Division should have postponed the interview until his mental health had improved. <(12)> In evaluating Albanese's claim, we begin with the fact that Albanese had a clear obligation to comply with <(11)> Cf. Richard J. Rouse, 51 S.E.C. at 588 (delay by members and associated persons undermines NASD's ability to conduct investigations and thereby protect the public interest; Edward C. Farni, II, 51 S.E.C. 1118, 1121 (1994) (general securities principal hampered NASD investigation by delaying requested testimony for two months). <(12)> Albanese claims that a postponement of the interview was particularly appropriate because the conduct at issue occurred more than five years before the request for his testimony and because the circumstances under which Albanese ended his association with Prudential were better known to his attorney. We do not agree. The Exchange did not learn of Albanese's possible misconduct until well after it occurred. See supra note 3. For this reason, the Division had a heightened interest in proceeding expeditiously with its investigation, so as to lessen the risk that documentary or testimonial evidence (from Albanese himself or from other witnesses to whom Albanese's testimony would direct the Division) would become stale or unavailable. Further, the Exchange was entitled to question Albanese, the direct source for information concerning his suspension by and resignation from Prudential. Albanese asserts, as he did before the Hearing Panel, that the Division had a transcript of Albanese's testimony from a prior arbitration proceeding and, accordingly, "already had exhaustive and complete testimony from Mr. Albanese, under oath" regarding the conduct at issue in the customer arbitrations. The record reveals, however, that at least one of the customer arbitrations appears to have involved allegations unrelated to the subject matter of the prior arbitration proceeding. In any event, regardless of what other information the Division may have had, Albanese was required to provide on-the-record testimony as requested by the Division. Cf. Mark Allen Elliott, 51 S.E.C. 1148, 1151 (1994) (associated person may not "second-guess" NASD's request for information by deciding that response was not necessary in light of wife's responses to NASD). ======END OF PAGE 5====== the Division's request for his testimony. <(13)> Accordingly, Albanese had the burden of demonstrating to the Division that his condition rendered him unable to comply and, accordingly, that his interview should be postponed. Based upon our review of the record, we conclude that Albanese failed to meet his burden. The Division, on receipt of the conclusory letter from Albanese's treating therapist opining that Albanese was not "capable of testifying before the Exchange or properly defending his position," advised Albanese that he would need to provide further written information or submit to a psychiatric evaluation by Dr. Eshkenazi. Albanese refused to comply with either alternative, and he refused to testify as requested. Nor did Albanese present to the Hearing Panel compelling evidence of his inability to comply. <(14)> At the hearing, Dr. Eshkenazi, the Division's expert, testified first. <(15)> <(13)> Cf. Barry C. Wilson, Securities Exchange Act Rel. No. 37867 (Oct. 25, 1996), 63 SEC Docket 272, 276 (associated person has duty to cooperate with NASD investigators and provide requested documentation); Michael David Borth, 51 S.E.C. at 180-81 (registered representative has clear obligation to supply information that NASD requested). The fact that Albanese ultimately testified at an on-the-record interview does not excuse his failure to do so promptly upon the Exchange's request. Cf. Mark Allen Elliott, 51 S.E.C. at 1150 n.8 (submission of requested information after NASD institutes disciplinary proceeding is not a defense to charge of failure to provide requested information); Michael Markowski, 51 S.E.C. at 560 (eventual production of records to which NASD had requested access does not excuse violation). <(14)> Albanese contends that the Hearing Panel failed to give credence to his therapist's professional opinion, "[i]n apparent disregard of principles established by the Americans with Disabilities Act," and that this asserted failure clearly was "based upon either an ignorance of the nature of the illness suffered by [him] or a prejudice against such psychiatric conditions." The record reveals, however, that the Hearing Panel carefully considered the expert testimony presented at the late February 1996 hearing. In fact, at the start of the hearing, the Hearing Panel denied the Division's motion for a directed verdict so as to consider Albanese's claim that his condition precluded him from complying with the Exchange's request. <(15)> Albanese asserts that Eshkenazi's appearance at the hearing as the Division's expert shows that Eshkenazi would have been unable to offer an "objective, unbiased opinion" as to (continued...) ======END OF PAGE 6====== Because Albanese had refused to be evaluated by Eshkenazi during the Division's investigation, Eshkenazi's direct testimony was based upon his consideration of Korrick's November 3, 1995 letter to the Division. Eshkenazi opined that the letter did not provide a sufficient basis from which to conclude that Albanese's condition prevented his participation in an on-the-record interview. He indicated that, if Albanese were to become extremely anxious or experience a panic attack while testifying, Division staff could take a short break in questioning so as to allow Albanese's anxiety to pass. Korrick then testified on Albanese's behalf. <(16)> She stated that Albanese had complained of sleeplessness, irritability, bouts of anger, panic attacks, shortness of breath, nausea, inability to concentrate, flight of thought, and feelings of hopelessness at work. Korrick testified that, given Albanese's "fragile" condition, he would risk "total decompensati[on]" if he were to provide testimony or appear before the hearing panel, and that it could be another three to six months before Albanese was "fully functioning." Korrick indicated that Albanese insisted on continuing to work in the securities industry during the course of his treatment, and that she had agreed to let him do so on at least a part-time basis, because Albanese felt that "[t]he stress and anxiety would be worse sitting [at home] when his livelihood was in the office." <(17)> <(15)>(...continued) Albanese's fitness to testify in the Division's investigation. However, this record provides no basis for concluding that Eshkenazi was biased in favor of the Exchange. <(16)> Prior to the hearing, Counsel had agreed that Korrick would bring her notes from her sessions with Albanese. During cross-examination, the Division attorney asked Korrick if he could see the notes. Korrick stated that she had not been advised that she would be asked to produce them and, consequently, she had not obtained permission from Albanese to do so. The Division attorney reminded the Hearing Officer that this issue had been addressed before the hearing. In reply, Counsel stated that he had agreed Korrick would bring the notes, not that they would be made available. The Hearing Officer, although not persuaded by Counsel's explanation, declined to order Korrick to turn over the notes. <(17)> In addressing the Board during oral argument, Albanese stated: I did go to work because I have two kids. But to say that I was working efficiently the way I did is completely erroneous. I would (continued...) ======END OF PAGE 7====== Eshkenazi was present during Korrick's testimony. On rebuttal, the Division asked Eshkenazi if hearing Korrick's testimony had changed his opinion in any way. Eshkenazi replied: "She essentially confirmed that Mr. Albanese suffered from anxiety disorder. And he experienced a great deal of anxiety when he was asked to come here. Beyond that I cannot see anything else that might prevent him to be competent to testify here or communicate with his counselor and talk to his counselor." The Hearing Panel, on considering this testimony, reasonably determined that Albanese had not demonstrated an inability to comply promptly with the Exchange's request for his testimony. While we sustain the finding of violation in this case, we recognize that there will be situations in which a self-regulatory organization ("SRO") appropriately should postpone an on-the-record interview because the individual adequately establishes that he or she is unable to testify. Under the facts presented here, however, we agree with the Exchange that Albanese failed to demonstrate such inability so as to warrant a postponement. IV. Albanese asserts that he was "punished for being ill" and that, in fact, he provided testimony to the Division as soon as his therapist cleared him to do so. He argues that, under the circumstances of this case, the imposition of a two-week bar following his full compliance with the Exchange's request is "absolutely unwarranted." <(18)> As we repeatedly have stated, however, failing to comply promptly with an SRO request for information subverts the SRO's ability to carry out its <(17)>(...continued) sometimes leave at noon. Other times I would just skip a day. It doesn't mean that . . . I was crazy or . . . couldn't relate to my clients. But I wasn't able to . . . put in a full day as I was capable in the past. <(18)> Albanese also asserts that the two-week bar should be overturned because "[a] search of the Westlaw database has not revealed a single contested case" in which a penalty beyond a bar until cooperation is secured was assessed for failure to cooperate (emphasis in original). It is well settled that the appropriate sanction depends on the facts and circumstances of a particular case and cannot precisely be determined by comparison with action taken in other proceedings. See Butz v. Glover Livestock Commission Co., Inc., 411 U.S. 182, 187 (1973); Hiller v. SEC, 429 F.2d 856, 858-859 (2d Cir. 1970); First Choice Securities Corporation, 50 S.E.C. 1167, 1172 (1992). In any event, Albanese's assertion is inaccurate. See, e.g., Edward C. Farni, II, 51 S.E.C. at 1119 (censure, $10,000 fine, and 30-day suspension imposed where associated person failed to testify timely in connection with NASD investigation). ======END OF PAGE 8====== regulatory responsibilities <(19)> and, therefore, "meaningful sanctions are warranted for a violation of this nature." <(20)> The Board determined to reduce by half the one-month bar following compliance that the Hearing Panel had imposed. We see no reason to reduce it further, as we conclude that, under all the circumstances of this case, the sanctions imposed on Albanese are neither excessive nor oppressive. An appropriate order will issue. <(21)> By the Commission (Chairman LEVITT, Commissioners, JOHNSON AND HUNT). Jonathan G. Katz Secretary <(19)> E.g., Mark Allen Elliott, 51 S.E.C. at 1151; John A. Malach, 51 S.E.C. 618, 621 (1993). <(20)> Michael Markowski, 51 S.E.C. at 560. <(21)> All of the contentions advanced by the parties have been considered. The contentions are rejected or sustained to the extent that they are inconsistent or in accord with the views expressed herein. ======END OF PAGE 9====== UNITED STATES OF AMERICA before the SECURITIES AND EXCHANGE COMMISSION SECURITIES EXCHANGE ACT OF 1934 Rel. No. 39280 / October 27, 1997 Admin. Proc. File No. 3-9189 : In the Matter of the Application of : : LOUIS F. ALBANESE : 64 Brambly Hedge Circle : Fairfield, Connecticut 06430 : : 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 Louis F. Albanese be, and it hereby is, sustained. By the Commission. Jonathan G. Katz Secretary