SECURITIES AND EXCHANGE COMMISSION Washington, D.C. SECURITIES EXCHANGE ACT OF 1934 Rel. No. 39796 / March 25, 1998 Admin. Proc. File No. 3-9206 _________________________________________________ : In the Matter of the Application of : : JAMES A. GOETZ : 983 12th Avenue : Dickinson, ND 58601 : : 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 Conduct Inconsistent with Just and Equitable Principles of Trade Associated person of member firms obtained $1,600, as a donation for his daughter's private high school, through his member firm's matching gifts program, by misrepresenting that he had contributed, as required, personal funds in that same amount. Representative also knowingly received a tuition offset in return for the matching gift, in further violation of the terms of the firm's program. Held, association's finding of violations sustained, but sanctions imposed modified. APPEARANCES: Daniel J. Chapman, of Chapman & Chapman, P.C., for James A. Goetz. Norman Sue, Jr. and Vickie R. Olafson, for NASD Regulation, Inc. Appeal filed: December 17, 1996 Last brief received: April 8, 1997 I. James A. Goetz, formerly an investment company and variable contract products representative with Prudential Insurance Company of America ("Prudential") and Pruco Securities Corporation, members of the National Association of Securities Dealers, Inc. ("NASD"), appeals from NASD disciplinary action. The NASD found that, during the period from March 1992 to May 1993, Goetz violated Article III, Section 1 of the NASD's Rules of Fair Practice (the "Rules") [/] by representing to the Prudential Foundation Matching Gifts Program ("Program") that he had contributed a total of $1,600 in personal funds to a private high school, when he had not, in order to obtain for the school a matching gift in that amount. The NASD also found that Goetz knew or should have known that the funds contributed by the Program to the school were used to pay his daughter's tuition, and that this use amounted to a personal benefit to Goetz expressly prohibited by the Program's terms. The NASD censured Goetz, fined him $2,500, assessed costs of $1,240, and barred him in all capacities. We base our findings on an independent review of the record. II. Prudential, through the Prudential Foundation (an affiliated corporate entity), operates the Program, in which Prudential employees may participate. Upon application to the Program, Prudential generally will match dollar for dollar an employee's contribution to a qualified charity. The Program's terms specify that Prudential's matching gift is for the unrestricted use of the charity and cannot be used to cancel an employee's personal obligation. Goetz stated that he first learned about the Program through another Prudential employee, after Goetz voiced concerns to that colleague about paying his daughter's tuition fees to Trinity High School ("Trinity"). The colleague allegedly told Goetz that other agents were using the Program to subsidize tuition and then forwarded an application to Goetz. [/] Over about a one-year period, Goetz submitted four separate applications to the Program. These applications indicated that Goetz had donated a total of $1,600 to Trinity. [/] In response to these applications, Prudential contributed to Trinity a total of $1,600 through the Program. The Program applications that Goetz signed in each instance (and which Goetz concedes he read briefly) include the following statement directly above the donor's signature line: This gift (and its stated value), is made from my personal funds or property, fully qualifies as a charitable donation for personal income tax purposes, and is for the use of the above-named institution. Goetz, however, had not donated personal funds or property to Trinity. The terms of the Program specifically prohibited the cancellation of an employee's personal obligation or an employee's receipt of anything of value in return for the donation. In signing the Program application forms Goetz agreed to and verified the following: I understand The Prudential Foundation's matching gift is for the unrestricted use of the institution and not for any specific purpose designated by me, including the cancellation of any personal obligation. I verify that in return for this gift I have not received or will not receive any payment, product, service or anything else of value whatsoever. Nonetheless, Prudential's $1,600 contribution to Trinity was credited in four installments to Goetz's daughter's Trinity tuition account. [/] III. We find, as did the NASD, that Goetz obtained $1,600 from the Program for his daughter's high school by misrepresenting that he had made a donation of personal funds in that same amount. Moreover, the record supports the NASD's additional finding that Goetz benefited personally from the Program and knew that, contrary to the express terms of the Program and his own verifications to the Program administrators, the high school was crediting to his daughter's tuition account Prudential's matching gifts. By signing the applications and the verification described above, Goetz had an obligation to assure that he did not personally benefit from the matching funds. The evidence establishes that Goetz failed to fulfill this obligation. We find that Goetz's unethical business conduct violated Article III, Section 1 of the Rules. A. While Goetz admits that he did not donate personal funds or property, he nonetheless insists that he submitted the applications in the belief that it was acceptable to donate his "services" to the school in lieu of the requisite personal funds or property. Goetz further insists that he in fact donated services valued in excess of $1,600. [/] We are not persuaded that Goetz acted in good faith here. When questioned initially about the matter by a Prudential investigator, Goetz did not advise that his contributions were in the form of services. To the contrary, Goetz initially stated that he used traveler's checks to make the donations. He later changed his story, advising at one point that his four donations were cash payments made with money left over from vacation, and at another that he gave the high school cash he had around the house. Only after several discussions with the investigator did Goetz admit that he had not donated personal funds. [/] Goetz's claim that he donated services rather than funds is a last-ditch attempt to rationalize his misconduct. Goetz's claim also is inconsistent with the record documentation. Two of the four applications indicate that Goetz's donation was by check. Goetz did not indicate on any of the applications that he had donated services. Moreover, the application form specifies that a donation made other than by cash, check, or credit card must "fully qualif[y] as a charitable donation for personal income tax purposes" and must be submitted with a statement confirming value. Goetz did not attach to any of the applications the requisite statement confirming the value of any services donated. B. Goetz strongly contests the finding that he knew that Program matching funds were used to pay his daughter's tuition. Goetz acknowledges that he was aware that his daughter's tuition was being paid out of a school scholarship account, and that he also knew that the Program matching funds were going into the general account of the school. Goetz insists, however, that "from that point on [he] was not familiar with how the school did their books or transferred money." Goetz's admissions in correspondence to the NASD, his testimony, and his repeated submission of applications to the Program, however, support our finding. Goetz admitted in a December 1994 letter to the NASD that his initial involvement with the Program came about because he "was worried about being able to afford tuition . . ." and that "[my colleague] told me that I could use the Gift Foundation to help pay tuition. He told me a lot of agents do that and it was common practice within the company. At first I rejected the idea . . . . I felt though, that if a veteran agent was using the foundation in this way, that this must be an acceptable practice." Goetz later conceded during testimony before the NASD that on four occasions he applied to the Program for matching gifts "to help offset tuition." [/] While Goetz also testified that he had no idea that his daughter's tuition account was being credited each time the school received a donation from the Program -- because his daughter was on full scholarship and Goetz did not receive tuition statements -- it would be nonsensical (and incredible) for Goetz both to apply again and again to the Program with the purpose of subsidizing tuition, and not to know that Prudential's funds for which he had applied were being used for just that purpose. [/] IV. Goetz's misconduct here -- disregarding his employer's foundation's fundamental rules for securing payment of matching gifts, causing the foundation to believe that he had donated personal funds, and verifying falsely that he was not benefitting personally from the matching gifts -- reflects directly on Goetz's ability both to comply with regulatory requirements fundamental to the securities business and to fulfill his fiduciary responsibilities in handling other people's money. We accordingly reject Goetz's claim that "at its most heinous worst, [his conduct] is nothing but a technical omission to follow rules [and] . . . has nothing to do with his functions as a securities salesman." [/] This business-related misconduct is actionable under NASD Rules as unethical conduct. We consistently have held, as we do here, that such misconduct may violate Article III, Section 1 of the NASD Rules. [/] V. As we have stated, Goetz's misuse of Prudential's charitable donation matching gifts program was not merely a "technical omission to follow rules." We agree with the NASD that a significant sanction is appropriate here. However, we view the bar imposed by the National Business Conduct Committee ("National Committee"), to which Goetz appealed the District Business Conduct Committee's ("District Committee") order censuring and fining Goetz, as excessive. [/] The National Committee, notably, explained that a bar was necessary in light of Goetz's "fraudulent actions, which transpired over the course of a period of approximately one year, and Goetz' initial attempts to conceal his fraud." Goetz, however, was not charged with fraud. Under all the circumstances presented, we deem it to be in the public interest to couple the bar with a right to reapply after one year to become associated with a member firm. Given Goetz's failure to act ethically, the public interest will be served if the NASD retains control over Goetz's participation in the securities industry. We sustain the additional sanctions imposed as neither excessive nor oppressive. An appropriate order will issue. [/] By the Commission (Chairman LEVITT and Commissioners JOHNSON AND HUNT); Commissioner UNGER dissenting; Commissioner CAREY not participating. Jonathan G. Katz Secretary **FOOTNOTES** [/]:/The NASD recently revised and renumbered its rules; no substantive changes were made to the particular rule at issue here. Article III, Section 1 of the Rules [now Conduct Rule 2110] requires adherence to "high standards of commercial honor and just and equitable principles of trade." [/]:/Goetz stated that his colleague told him that he himself had used the Program to assist in the payment of private school tuition. The colleague allegedly stated that he collected tuition payments from other parents, deposited them into his bank account, and then wrote a check to the private school as a donation. The school subsequently received a matching gift from the Program for the amount of the colleague's donation check. The colleague testified before the District Business Conduct Committee ("District Committee") that he had no recollection of any conversation with Goetz concerning the Program. He also testified, however, that, given the lapse of time, he was not certain he had not spoken to Goetz. The District Committee found that, "[e]ven if [the colleague] had characterized the Program as alleged by Respondent Goetz, he was not Respondent Goetz's supervisor. Respondent Goetz cannot absolve himself of responsibility because of a purported conversation with a co-worker." [/]:/Each of the applications at issue requested that Prudential match, through the Program, Goetz's $400 donation to Trinity. The applications were dated March 9, 1992, August 7, 1992, February 10, 1993, and May 3, 1993. The Program application form requests identification of the employee's gift as check, credit card, property, stock, life insurance, or other (and provides space for an explanation of "other"). On two of the four applications the word "check" is circled. On the remaining two applications the form of donation is not identified. [/]:/The record reflects that, on Trinity's receipt of Prudential's matching gift checks, the Goetz's tuition account was credited in the amount of the donations. Tuition statements identified the source of the funds as Prudential in one instance and as scholarships in the remaining instances. [/]:/Goetz asserts that his services to the high school included teaching a class at the school, working in the school kitchen, collecting tickets, and assisting with set-up at various school functions. [/]:/Goetz later attributed his differing stories to the stress he was under in his job, medication he was taking for depression, and the fact that he "panicked" when he was questioned. [/]:/Goetz was asked whether he was using the Program to pay tuition and responded "Yes . . . . All four times. It was to offset the tuition, yes." [/]:/Goetz testified that Trinity's superintendent determined who received scholarships and that the process was somewhat arbitrary. Goetz also testified that Trinity's superintendent told him "not to worry about tuition." Goetz initially applied to the Program on March 9, 1992, for matching funds. On March 10, 1992, the superintendent signed the application certifying that Trinity had received Goetz's gift. Goetz subsequently applied for a full-tuition scholarship on June 22, 1992. Funds were applied to the Goetz's tuition account on July 28, 1992, and Prudential was identified as the source. The superintendent approved Goetz's application for full scholarship on August 3, 1992. In an October 10, 1994, letter to the NASD, the superintendent states, among other things, that Goetz requested "full tuition aid." This statement is followed immediately by the statement that "I knew that there would be monies coming in from the Prudential Foundation." The superintendent subsequently states that "[i]t isn't just a coincidence that he [Goetz] received scholarship aid in the amount of the Prudential gift. I thought is [sic] was good business sense." [/]:/Goetz was terminated by Prudential after its investigation into this matter. Goetz claims that his termination was retaliatory because he had agreed to testify against Prudential in another matter. Goetz also suggests that this NASD disciplinary action, which was prompted by the Form U-5 reporting Goetz's termination, is somehow infected, and that the small amount of money at issue here and the fact that no customers were involved make this case suspect. Our de novo review of this matter convinces us that Goetz violated the NASD's Rules in connection with his use of the Program. We are not persuaded by Goetz's claim that this proceeding represents an injudicious exercise of the NASD's discretion simply because no customer was involved and no customer's funds were jeopardized or misappropriated. Compare Seaton v. SEC, 670 F.2d 309, 311 (D.C. Cir. 1982) (affirming our determination to sustain sanctions imposed for violation of Article III, Section 1 "despite the fact [that] there was no finding [of fraud or] harm to any investor," in light of our explanation that the "pattern of dishonesty" in petitioner's dealings was a matter "of serious concern affecting the public interest"). [/]:/See, e.g., Leonard John Ialeggio, Securities Exchange Act Rel. No. 37910 (October 31, 1996), 63 SEC Docket 363 (violation of Article III, Section 1 of the NASD's Rules where registered representative retained reimbursement from a member firm for travel expenses that he did not incur and induced payment of country club initiation fees when not entitled to such payment); Henry E. Vail, Securities Exchange Act Rel. No. 35872 (June 20, 1995), 59 SEC Docket 1805, aff'd, 101 F.3d 37 (5th Cir. 1996) (violation of Article III, Section 1 of the NASD Rules where salesman of NASD member firm misappropriated funds of an unrelated organization for which he served as treasurer and represented they were in a firm account); Timothy L. Burkes, 51 S.E.C. at 359-60, aff'd, 29 F.3d 630 (9th Cir. 1994)(Table) (violation of Article III, Section 1 where associated person caused unearned commissions to be improperly credited to his commission account); Thomas R. Alton, Securities Exchange Act Rel. No. 36058 (August 4, 1995), 59 SEC Docket 2978, aff'd, 105 F.3d 664 (9th Cir. 1996)(Table) (misrepresentations included in securities professionals' registration form violated Article III, Section 1); Thomas E. Jackson, 45 S.E.C. 771, 772 (1975) ("Although [respondent's] wrongdoing in this instance [forging signatures on insurance applications to obtain commissions] did not involve securities, the NASD could justifiably conclude that on another occasion it might."). [/]:/We recognize that Rule 9313 of the NASD's Code of Procedure expressly gives the National Committee the authority to increase sanctions. [/]:/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. UNITED STATES OF AMERICA before the SECURITIES AND EXCHANGE COMMISSION SECURITIES EXCHANGE ACT OF 1934 Rel. No. Admin. Proc. File No. 3-9206 _________________________________________________ : In the Matter of the Application of : : JAMES A. GOETZ : 983 12th Avenue : Dickinson, ND 58601 : : For Review of Disciplinary Action Taken by the : : NATIONAL ASSOCIATION OF SECURITIES DEALERS, INC. : _________________________________________________: ORDER SUSTAINING FINDINGS OF VIOLATION AND MODIFYING SANCTIONS IMPOSED BY REGISTERED SECURITIES ASSOCIATION On the basis of the Commission's opinion issued this day, it is ORDERED that the findings of violation made by the National Association of Securities Dealers, Inc. ("NASD") against James A. Goetz, and the Association's assessment of costs be, and they hereby are, sustained; and it is further ORDERED that the sanctions imposed on James A. Goetz are modified as follows: (1) the censure and fine of $2,500 are sustained; (2) the bar in all capacities is vacated; and (3) James A. Goetz hereby is barred with a right toreapply after one year to become associated with an NASD member. By the Commission. Jonathan G. Katz Secretary