SECURITIES AND EXCHANGE COMMISSION Washington, D.C. SECURITIES EXCHANGE ACT OF 1934 Rel. No. 40013 / May 20, 1998 Admin. Proc. File No. 3-9241 __________________________________________________ : In the Matter of the Application of : : BOLESLAW WOLNY : 328 Spring Street : Tannersville, NY 12485 : : 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 REVOCATION OF REGISTRATION OF ASSOCIATED PERSON AND DENIAL OF MEMBER'S CONTINUANCE APPLICATION Registered securities association denied member firm's application to retain its membership if it employed as a registered representative an individual who is subject to a statutory disqualification resulting from a felony conviction for money laundering and revoked individual's registration with association and terminated individual's association with member firm. Held, appeal proceedings are dismissed. APPEARANCES: Boleslaw Wolny, pro se. Alden Adkins and Craig L. Landauer, for NASD Regulation, Inc. Appeal filed: March 11, 1997 Last Brief received: June 24, 1997 I. Boleslaw Wolny appeals from the denial by the National Association of Securities Dealers, Inc. ("NASD") of an application by Kingston Securities Corp. ("Kingston" or the "Firm") to remain an NASD member if it employed Wolny. Wolny is subject to a statutory disqualification based on his conviction in the United States District Court for the District of Utah on ======END OF PAGE 2====== October 13, 1996 for money laundering. <(1)> He was sentenced to home confinement with electronic monitoring for 180 days, placed on probation for three years, and fined $10,000. He appealed his conviction, and during the pendency of this proceeding, his conviction was affirmed. <(2)> We base our findings on an independent review of the record. II. Wolny's arrest and conviction arose from an incident in March 1994 while Wolny was a registered representative with Kingston. Wolny had been registered as a general securities representative since 1985, and with Kingston since 1989. He had no record of prior disciplinary actions. Kingston has been a member of the NASD since 1968 and is engaged in a general securities business. At the time of the proceeding, the Firm employed 2 registered principals and 16 registered representatives (no other individuals subject to a statutory disqualification), and had no branch offices. The Firm's only disciplinary record consisted of a Letter of Caution for net capital violations uncovered in a 1994 examination. Wolny's brother-in-law, formerly a registered representative at another firm, asked Wolny to go to Salt Lake City, Utah and meet an unknown person, who sought to open a securities account at Kingston with a large amount of cash. In response, Wolny went to Salt Lake City with two empty suitcases to meet the prospective client and carry away the cash. The "client" was, in fact, a government agent engaged in a "sting" operation designed to capture two attorneys attempting to launder drug money. Wolny was convicted for his part in the transaction. <(3)> On October 18, 1996, Kingston, with Wolny, filed a Membership Continuance Application giving the NASD notice of Wolny's conviction. On November 8, 1996, the NASD notified Wolny and Kingston that it was commencing proceedings to determine, in light of Wolny's conviction, whether it was in the public interest to allow Wolny to remain registered with the NASD or associated with an NASD member. Under Article II, Section 3 of the NASD's By-Laws, the NASD may bar a person from becoming associated with or continuing in association with a member if such person is subject to a "statutory disqualification," as that term is defined in Article II, Section 4(g) of the By-Laws. That section <(1)> Wolny was found guilty after a jury trial of violating 18 U.S.C.  1956(a)(3)(money laundering). U.S. v. Boleslaw Wolny, No. 2:94CR00037-003 (entered on docket Oct. 16, 1996). <(2)> U.S. v. Boleslaw Wolny, 133 F.3d 758 (10th Cir. 1998). His sentence was stayed pending the outcome of his appeal. <(3)> The two attorneys were indicted for more serious crimes. ======END OF PAGE 3====== provides, generally, that a felony conviction within 10 years constitutes a statutory disqualification. This definition parallels that found in Section 3(a)(39)(F) of the Securities and Exchange Act of 1934 ("Exchange Act"). NASD Rules of Procedure 9620 (Revocation Proceedings) and 9640 (Eligibility Proceedings) set forth applicable procedures where the NASD believes a statutory disqualification exists. A subcommittee of the Statutory Disqualification Committee ("SD Committee") of NASD Regulation, Inc. held a hearing on December 17, 1996, in which Wolny, the president of the Firm, and the chief executive officer of the Firm participated. The SD Committee cautioned Wolny at the outset of the hearing that the Committee could not consider a collateral attack on the underlying conviction. The Committee added, however, that Wolny would be given the opportunity to "tell his story," since the indictment and judgment, entered into the record before the SD Committee, do not explain the specific circumstances leading to the conviction. While the SD Committee correctly adhered to the NASD's policy of prohibiting collateral attacks on underlying convictions, it was appropriate to consider the circumstances leading to Wolny's conviction. <(4)> Wolny testified that his brother-in-law, for whom he had worked a few years earlier at a broker-dealer other than Kingston, asked him to go to Utah to obtain a large amount of cash from a "client." Wolny stated that the specific amount -- a million dollars -- was not mentioned to Wolny until he arrived in Utah. Wolny testified that he consulted his supervisor at Kingston who told him the Firm needed to obtain a currency form for such a cash customer. <(5)> Accordingly, Wolny obtained a blank Currency Transaction Report form from a bank. The securities account was to be a trust account and Robert J. Nielson, an attorney whom Wolny had not met, was to be the trustee. Wolny sent the Currency Transaction Report form to Nielson. Nielson sent Wolny certain information relating to the opening of the securities account with Kingston prior to Wolny's departure for Utah, but did not return the currency form. On Wolny's arrival in Utah, he was met by Nielson, and was joined by another attorney whom Wolny knew (Paul Garfinkle). Together they joined the "client" at a hotel room in Utah. At the hearing before the SD Committee, Wolny stated, "I know I went there to meet the client and to bring this money to deposit with Kingston Securities for investments." He further admitted that he "was thinking of generating commissions from this <(4)> See Jan Biesiadecki, Exchange Act Rel. No. 39113 (Sept. 22, 1997), 65 SEC Docket 1321, 1324. <(5)> The supervisor correctly advised Wolny that any time the Firm deposited $10,000 or more in cash, the form had to be filled out. See 31 C.F.R. 103.22(a)(1)(1994). ======END OF PAGE 4====== particular client in the future, after discussing . . . what kind of investments he had in mind." In response to questions by the panel Wolny stated further: that he was asked by the "client" to count the cash, but that he never touched it; that he did not have an opportunity to ask Nielson or the client to fill out the currency form; and that some other persons (who turned out to be government agents) walked into the hotel room and said "freeze," whereupon the agents arrested Wolny and the two attorneys. At this hearing Wolny related that the evidence at the criminal trial included a "tape" of this meeting that contained a discussion about laundering drug money. Wolny claimed, however, that he had not heard the statements during the meeting. In its membership continuance application, Kingston's president stated his belief that Wolny did not know the source of the cash, and that Wolny had with him a copy of the proper deposit form required by the bank for cash deposits, but was never allowed to complete the deposit form and have it signed by the customer. The Firm proposed to continue to employ Wolny as a general securities representative to work from the Firm's office. He would be supervised by the president, a registered principal, who would initial each of Wolny's order tickets and question him about each transaction. Wolny would not be permitted to accept cash payments. Kingston's president testified at the hearing that the Firm would like to have Wolny continue with them and that Wolny had worked very hard. He felt that Wolny had complied with the rules for depositing cash and had obtained the currency form. The president also briefly described the Firm's business. The Firm's business is half in common stocks, usually listed on Nasdaq, and half in bonds. The Firm does not make markets and is usually self-clearing. It does not maintain margin accounts and does not transact any business in options. On January 31, 1997, the NASD, in a decision issued by its National Business Conduct Committee based on a review of both the record and the recommendation of the SD Committee, revoked Wolny's registration as a representative. It decided that Wolny's conviction "arose as a result of [his] activities as a registered representative" and was "recent and serious." The count of the indictment of which the jury found Wolny guilty alleged that Wolny had the "intent to conceal and disguise the . . . source of property believed to be the proceeds of specified unlawful activity . . . ." The NASD noted that Wolny and others had attempted to transfer $1,000,000 in cash from an unknown client to buy securities without asking for or receiving a Currency Transaction Report Form from the client. The NASD concluded that "the public interest and protection of investors would be best served by the revocation of the association of Boleslaw Wolny from Kingston Financial." III. ======END OF PAGE 5====== The standards that govern our review of this appeal are contained in Section 19(f) of the Exchange Act. If we find that "the specific grounds" on which the NASD based its actions "exist in fact," that the NASD's actions are in accordance with its rules, and that those rules were applied in a manner consistent with the purposes of the Exchange Act, we must dismiss the appeal unless we find that the NASD's action imposes an undue burden on competition. <(6)> We find that the specific grounds on which the NASD based its actions "exist in fact." Section 3(a)(39)(F) of the Exchange Act provides that a person is subject to a statutory disqualification if the person has been convicted of any felony within 10 years. The NASD thus correctly found that Wolny was subject to a statutory disqualification by virtue of his 1996 conviction for money laundering. Wolny's argument that the felony of which he was convicted is required by Section 3(a)(39)(F) to be "any other felony of Section 15(b) of this title" is incorrect. The words "of Section 15(b) of this title" do not, as Wolny asserts, follow the words "any other felony" in Section 3(a)(39)(F). For this reason, too, Wolny's argument that his constitutional due process rights were violated because the Exchange Act does not provide proper notice of the consequences of Wolny's felony conviction is irrelevant. Wolny additionally focuses on the NASD's observation in its decision that his conduct "arose as a result of Mr. Wolny's activities as a registered representative." Wolny appears to believe that the NASD thus concluded that Wolny's statutory disqualification was based on that part of Section 3(a)(39)(F) referring to a conviction "of any offense specified in subparagraph (B)" of Section 15(b)(4)(B)(ii) of the Exchange Act. Those specified offenses include any conviction that "arises out of the conduct of a broker [or] dealer . . . ." <(7)> Wolny makes numerous arguments based on his construction of Section 15(b)(4) to establish that his conviction for money laundering is not covered by that provision. These arguments misread the NASD's decision. The statement concerning the relationship between Wolny's criminal conduct and his business as a registered representative of a broker-dealer is made in the context of the NASD's discussion of whether it is in the public interest to permit Wolny to associate with Kingston. The NASD's finding that Wolny is subject to a statutory disqualification does not make any reference to whether his conduct arose out of his activities as a registered <(6)> Section 19(f) of the Exchange Act. See Jan Biesiadecki, supra. See also Rosario R. Ruggiero, Exchange Act Rel. No. 37070 (Apr. 5, 1996), 61 SEC Docket 2060; M.J. Coen, 47 S.E.C. 558, 563 (1981) (explaining the Section 19(f) standard). Wolny does not argue, and the record does not support a conclusion, that the NASD's action imposes an undue burden on competition. <(7)> Exchange Act Section 15(b)(4)(B)(ii). ======END OF PAGE 6====== representative, but mentions only his felony conviction for money laundering. This conviction constitutes "any other felony" within the meaning of Section 3(a)(39)(F). For this reason, we need not address the merits of Wolny's statutory construction of Section 15(b), and whether Wolny's conduct arose "out of the conduct of a broker [or] dealer" within the meaning of that provision. Wolny also makes various arguments that his conviction is not covered by Section 15(b)(4)(D),(E), or (G), which also are referenced in Section 3(a)(39)(F) as bases for a statutory disqualification. These arguments are misplaced for the same reasons as his argument concerning 15(b)(4)(B). We also find that the NASD's actions were in accordance with its rules, and that those rules were applied in a manner consistent with the purposes of the Exchange Act. The NASD eligibility criteria, set forth in Article II, Sections 4(g)(1) and (2) of the NASD By-Laws, generally conform to the statutory disqualification provisions of the Exchange Act. Section 15A(g)(2) of the Exchange Act gives the NASD authority to bar any person who, like Wolny, is subject to a statutory disqualification. Based on our review of the record and the procedures that the NASD followed, we find that its decision to prohibit Wolny's association with Kingston was in accordance with its rules. The NASD noted the seriousness and the recent timing of the conviction, and that the conduct underlying the conviction related to his role as a registered representative. The NASD concluded that, on these facts, it would not be in the public interest for Wolny to continue to be associated with Kingston. We believe that the NASD's determination gives proper regard to the public interest and the protection of investors. <(8)> Wolny contends that it was error for the NASD not to consider the relatively light sanction imposed on him by the federal court as the result of his conviction. He maintains that the actions of the trial judge in imposing the minimum sentence possible and staying the sentence pending his appeal are significant and should have been considered by the NASD. His sentencing situation was made clear during the hearing before the SD Committee, however, and was noted by the NASD in issuing its decision. As noted earlier, the NASD focussed on the seriousness of the violation. Wolny also argued that this proceeding is premature because he filed an appeal of his conviction, and that the NASD and the Commission should wait for the ruling by the U.S. Court of Appeals for the Tenth Circuit on the underlying conviction. As noted earlier, the Tenth Circuit affirmed <(8)> Morton Kantrowitz, Exchange Act Rel. No. 37071 n.11, (Apr. 5, 1996), 61 SEC Docket 2065; Halpert & Co., Inc., 50 S.E.C. 420, 422 (1990) ("particularly in matters involving a firm's employment of persons subject to a statutory disqualification, it is appropriate to recognize the NASD's evaluation of appropriate business standards for its members"). ======END OF PAGE 7====== the conviction during the pendency of this proceeding. <(9)> Wolny's argument is therefore moot. We note, moreover, that a conviction is a final decision for the purpose of determining whether a statutory disqualification exists. <(10)> Wolny further contends that, since he already has been convicted criminally, the NASD proceeding constitutes a second prosecution and punishment for the same underlying activity in violation of his rights pursuant to the Double Jeopardy Clause of the Fifth Amendment of the United States Constitution. Wolny is mistaken. First, the Double Jeopardy Clause applies only to the government. The NASD is a private party and, "while [it] is a closely regulated corporation, it is not a governmental agency . . . ." <(11)> Second, even if the Double Jeopardy Clause applied to actions taken by the NASD, recent case law makes clear that it would not serve as a barrier to a statutory disqualification proceeding. In Hudson v. United States, 118 S.Ct. 488 (1997), the Office of the Comptroller of the Currency imposed monetary penalties and barred the petitioners from participation in the affairs of any banking institution. Petitioners subsequently were indicted for essentially the same conduct and sought dismissal of the indictment under the Double Jeopardy Clause. The Supreme Court made clear that a civil remedy is not "punishment" for purposes of the Double Jeopardy Clause. The Court noted that the Double Jeopardy Clause protects "only against multiple criminal punishments for the same offense." <(12)> The Court then sought to determine whether the banking sanctions at issue there were civil or criminal. The Court observed that the power to debar was conferred upon the banking agencies, and found that granting to an <(9)> See n.2, supra. <(10)> Cf. Elliott v. S.E.C., 36 F.3d 86, 87 (11th Cir. 1994), cert. denied, 118 S.Ct. 1512 (1998) (Commission administrative proceeding barred Elliott in proceeding pursuant to Sections 15(b)(6)(A)(ii) and (iii) while his criminal conviction was being appealed); Paul M. Kaufman, 44 S.E.C. 374, 376 (1970) (noting, in Commission proceeding, that a conviction is a final judgment with respect to the disqualification of a lawyer to practice before the Commission). <(11)> Jones v. S.E.C,, 115 F.3d 1173, 1183 (4th Cir. 1997), cert. denied, 118 S.Ct. 1512 (1998) (agreeing with the argument "the double jeopardy clause is not applicable [to the NASD] because the NASD is a private party and not a governmental agent . . . .") <(12)> Hudson, 118 S.Ct. at 493 (1997) (emphasis added). ======END OF PAGE 8====== administrative agency the power to impose this sanction was "prima facie evidence that Congress intended to provide for a civil sanction." <(13)> The Court stressed that "only the clearest proof" would suffice "to override legislative intent and transform a civil remedy into a criminal penalty." <(14)> The Court stated that this determination should be made with reference to the factors enumerated in its decision in Kennedy v. Mendoza-Martinez. <(15)> There, the Court considered: [w]hether the sanction involves an affirmative disability or restraint, whether it has historically been regarded as a punishment, whether it comes into play only on a finding of scienter, whether its operation will promote the traditional aims of punishment-retribution and deterrence, whether the behavior to which it applies is already a crime, whether an alternative purpose to which it may rationally be connected is assignable for it, and whether it appears excessive in relation to the alternative purpose assigned. <(16)> As the Hudson Court recognized, debarment has not historically been viewed as punishment. "'[R]evocation of a privilege voluntarily granted,' such as debarment, 'is characteristically free of the punitive criminal element.'" <(17)> The Court further made clear that debarment "is 'certainly nothing approaching the infamous punishment of imprisonment.'" <(18)> The Court determined that the banking sanctions were civil, and the Double Jeopardy Clause was not an obstacle to a criminal proceeding. The United States Court of Appeals for the Second Circuit recently applied the Supreme Court's analysis in Hudson to the question of whether remedies sought by this Commission in an injunctive proceeding are civil in nature. <(19)> That court concluded that disgorgement is civil, because, in part, it has not historically been considered a criminal sanction and because it has a clear rational purpose other than punishment <(13)> Id. at 495. <(14)> Id. at 493. <(15)> 372 U.S. 144 (1963). <(16)> Id., 168-169. <(17)> Hudson, 118 S.Ct. at 496, citing Helvering v. Mitchell, 303 U.S. 391, 399, n.2 (1938). <(18)> Id. at 496, quoting Flemming v. Nestor, 363 U.S. 603, 617 (1960). <(19)> S.E.C. v. Palmisano, 135 F.3d 860 (2d Cir. 1998). ======END OF PAGE 9====== (ensuring that the defendant does not profit from his illegal acts). Similarly, the court concluded that the monetary fines sought by this Commission were civil because Congress expressly designated them as civil and because the deterrent effect of the fines serves important nonpunitive goals, such as encouraging investor confidence. <(20)> In light of the analysis in Hudson and Palmisano, we conclude that a statutory disqualification proceeding is civil in nature. The NASD's procedures with respect to persons subject to statutory disqualifications are analogous to the debarment procedures that the Supreme Court found in Hudson to be "characteristically free of the punitive criminal element." As for the factors in Mendoza-Martinez that the Hudson Court identified as guidelines in this analysis, statutory disqualification procedures do not involve affirmative disability or restraint, do not come into play only on a finding of scienter, and do not promote aims of punishment-retribution. As with the action sought by this Commission in Palmisano, the action taken here by the NASD serves a clear, rational goal other than punishment. Congress granted the self-regulatory organizations ("SROs") the authority to deny SRO membership to those subject to a statutory disqualification if required in the public interest or for the protection of investors. <(21)> Thus, even if the Double Jeopardy Clause applied to an action by the NASD, we conclude that a statutory disqualification proceeding would not be barred. Wolny further asserts that NASD policy in statutory disqualification cases of "routinely opposing requests for stays of sanctions pending Commission review" resulted in a denial of due process to him. On March 11, 1997, we denied Wolny's request to stay the NASD's order pending the outcome of this appeal. Wolny bases his argument on language found in the NASD Disciplinary Procedures Guide, pp. 24-5, advising that statutory disqualification decisions will become effective immediately and that the NASD "routinely opposes" stay requests made to the Commission with respect to such proceedings. He contends that the NASD's "routine" opposition of his request to us for a stay pending his appeal means that "the NASD cavalierly, quickly and summarily denied [his] request for a stay." This contention misperceives the nature of the NASD's action with respect to his stay request. The NASD, in opposing Wolny's stay request, was acting as a litigant opposing Wolny during his appeal to us. In such a posture, the NASD did not have the authority, and did not purport, to grant <(20)> See also Cole v. U.S. Department of Agriculture, 133 F.3d 803 (11th Cir. 1998). See also De Veau v. Braisted, 363 U.S. 144, 160 (1960)(If a sanction is designed to protect the public from harm, the sanction is remedial in nature). <(21)> See Exchange Act Section 15A(g)(2). See also Benjamin G. Sprecher, Exchange Act Rel. No. 38485 (Apr. 8, 1997), 64 SEC Docket 720 and cases cited therein. ======END OF PAGE 10====== or deny Wolny's request. In acting on the request, we did so pursuant to our authority under Section 19(f) of the Act and the procedures set forth in our Rule of Practice 401. Wolny suggests in his Reply Brief that there is some connection between the NASD's "routine" objection to Wolny's stay request and the statement in our March 11, 1997 order denying the request that "any decision on the merits must await a review of the record." It is unclear what Wolny intends by this portion of his Reply Brief. The NASD fully briefed its opposition to Wolny's stay request and, on the basis of the submissions by both Wolny and the NASD, we determined that Wolny had not shown that a stay was warranted under applicable legal standards for the issuance of stays. We declined to make any determination of the merits of Wolny's appeal, as opposed to the merits of his stay request, until we had reviewed the entire record. An appropriate order will issue. <(22)> By the Commission (Chairman LEVITT and Commissioners JOHNSON, HUNT, and UNGER); Commissioner CAREY not participating. Jonathan G. Katz Secretary <(22)> We have considered all of the parties' contentions. We have rejected or sustained them 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. 3-9241 __________________________________________________ : In the matter of the Application of : : BOLESLAW WOLNY : 328 Spring Street : Tannersville, NY 12485 : : 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 Boleslaw Wolny from the denial by the National Association of Securities Dealers, Inc. of the application filed by Kingston Securities Corporation to continue as a member if it employs Boleslaw Wolny be, and it hereby is, dismissed. By the Commission. Jonathan G. Katz Secretary