SECURITIES AND EXCHANGE COMMISSION Washington, D.C. SECURITIES EXCHANGE ACT OF 1934 Rel. No. 34-40028 / May 17, 1998 Admin. Proc. File No. 3-8925 __________________________________________________ : In the Matter of the Application of : : LEONARD JOHN IALEGGIO : 2565 Holly Oak Drive : Danville, California 94506 : : 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 on Remand Proceedings previously remanded to registered securities association, for consideration of an appropriate sanction, where registered representative and associated person of a member firm had requested and retained reimbursement for expenses he did not incur and induced company to pay club initiation fees when he was not entitled to such payment. Held, sanctions assessed by association after remand sustained. APPEARANCES: Alvin L. Fishman, of Tesler, Sandmann & Fishman, for Leonard John Ialeggio. Alden S. Adkins and Norman Sue, Jr., for NASD Regulation, Inc. Appeal filed: August 4, 1997 Last brief filed: November 13, 1997 I. Leonard John Ialeggio, formerly an Agency Manager and Vice President of Marketing at Home Life Insurance Company ("Home Life"), and at the time of his misconduct a registered representative at W.S. Griffith & Co., Inc., Home Life's broker-dealer subsidiary and a National Association of Securities Dealers, Inc. ("NASD" or the "Association") member, again appeals from NASD disciplinary action. On remand from this Commission's decision sustaining the NASD's findings of violation but remanding the ======END OF PAGE 2====== matter to the NASD for resanctioning, the NASD censured Ialeggio, fined him $15,000, and ordered him to requalify as a general securities representative. <(1)> We base our findings on an independent review of the record. II. When this matter was appealed to us previously, we found that, over a one-and-a-half year period, Ialeggio requested and retained reimbursement for just under $10,000 in travel expenses that Ialeggio previously had billed to a company credit card. As we concluded in our earlier opinion, <(2)> Ialeggio's retention of these company funds, under all the circumstances, constituted conduct inconsistent with Article III, Section 1 of the NASD's Rules of Fair Practice. That rule requires that registered persons observe high standards of commercial honor and adhere to just and equitable principles of trade. <(3)> We also concluded that Ialeggio had admitted that he arranged in July 1989 for his employer to pay a $35,000 country club fee -- a personal expense -- by directing an account administrator to withdraw funds from Ialeggio's contingency override account with Home Life. We found that, through this "back door" means, Ialeggio induced his employer to pay his country club initiation fee, <(4)> and we agreed with the NASD's conclusion that, in so acting, Ialeggio acted at least unethically, and thus violated Article III, Section 1. <(5)> While we sustained the NASD's findings of violation, we remanded this proceeding to the NASD for consideration of an appropriate sanction in light of our conclusion that the NASD's National Business Conduct Committee ("National Committee"), in sustaining the sanctions imposed by the District Business Conduct Committee ("District Committee"), had highlighted certain alleged misconduct that was not charged in the NASD's complaint and was not explored before either the District Committee or the National Committee. III. We issued our remand order in response to Ialeggio's assertion in his first appeal that "had the National Committee considered only the violations properly before it, the National Committee might have determined <(1)> The NASD also assessed costs. <(2)> Leonard John Ialeggio, Securities Exchange Act Rel. No. 37910 (Oct. 31, 1996), 63 SEC Docket 363, 367. <(3)> The NASD recently revised and renumbered its rules; no substantive changes were made to the particular rule at issue here, which is now Conduct Rule 2110. <(4)> Ialeggio, 63 SEC Docket at 368. <(5)> Id. at 369 and n.17. ======END OF PAGE 3====== to exercise its authority to reduce or remit entirely the sanctions imposed by the District Committee," rather than affirm them. <(6)> We no longer need speculate. On remand, the National Committee determined that the District Committee-imposed sanctions affirmed by the National Committee in its first decision -- a censure, a fine of $15,000, and an order to requalify as a general securities representative -- were appropriate for what the National Committee viewed, "without reference to any uncharged matters," as "very troubling" misconduct. The National Committee specified that it had considered that Ialeggio had "displayed neither the understanding that his conduct with respect to expense over-payments and the payment of the [country club] initiation fees was improper, nor remorse for his actions," and that Ialeggio had not made restitution. The National Committee explicitly acknowledged that Ialeggio had no disciplinary history, but advised that it could find no reason to reduce the District Committee's sanctions, given "the injury to the employer, the monetary amounts involved, the fact that two discrete instances of misconduct were alleged and proven, the respondent's lack of remorse and continued claim of justification for his misconduct, and the necessity for specific and general deterrence." IV. Our review of these sanctions is governed by Section 19(e)(2) of the Securities Exchange Act of 1934 ("Exchange Act"), which requires us to determine whether a self-regulatory organization's sanctions are excessive or oppressive or impose an unnecessary or inappropriate burden on competition. We do not find these sanctions excessive, oppressive, or unduly burdensome, and are not persuaded by Ialeggio's claims on this appeal that the sanctions imposed on remand must be overturned. We reject Ialeggio's primary assertion that "[a]ppropriate reconsideration by the [National Committee] should have resulted in a less severe sanction." We remanded this matter to the National Committee to ensure that its sanction determination was confined to the record before it -- we did not direct the NASD to reduce the sanction. We are satisfied that the sanction determination now before us is so confined and is a proper exercise of the National Committee's authority. We are not persuaded by Ialeggio's claim that the NASD "stubbornly and inappropriately continues to cling to the notion" that the facts of the uncharged misconduct have a bearing on the outcome of this matter. Ialeggio's claim is based on a footnote in the NASD's brief to the Commission that attempts to explain the National Committee's reference, in its first opinion, to uncharged misconduct. That footnote, however, does not demonstrate, as Ialeggio urges, that the National Committee "failed to understand the procedural flaw in its deliberations" that caused us to remand this matter. The National Committee's opinion clearly states that its "careful <(6)> Id. at 370. ======END OF PAGE 4====== reconsideration of the appropriate sanctions" was undertaken "without reference to any uncharged matters." Further, contrary to Ialeggio's claim, we do not see any basis for concluding that the $15,000 fine and requalification requirement are arbitrary or punitive sanctions. In support of this claim, Ialeggio emphasizes that there are no "established benchmarks" -- that is, no NASD sanction guideline -- for violation of the requirement to adhere to just and equitable principles of trade. While there is no applicable guideline for Ialeggio's misconduct, we consider the fine imposed lenient for what the National Committee described as Ialeggio's "flagrant breach of his duty" towards his employer. We also view the requalification requirement as a reasoned means of reeducating Ialeggio about his regulatory responsibilities to both his customers and his employer. We therefore are not persuaded by Ialeggio's contentions that, because his misconduct does not relate to any "substantive requirement of the Series 7 examination," the reeducation requirement "lacks any nexus to the findings" against him. In sum, we view the sanctions, considered together, as an appropriate means of furthering what Ialeggio recognizes are essential Association policies of remediation and special and general deterrence. Ialeggio states that he offered "to settle accounts with his former employer," and contends that his "willingness to repay" was disregarded by the National Committee, to his detriment. While there is no dispute that Ialeggio has not made restitution, the record is not clear as to the circumstances surrounding Ialeggio's offer to repay the monies at issue and his employer's response. <(7)> In light of this lack of clarity, we do not view the National Committee's refusal to view as mitigative Ialeggio's claim that he has offered to repay as any indication that the sanctions are excessive or oppressive. Ialeggio also urges us to overturn the sanctions because the National Committee assertedly failed to consider "the type of misconduct, the ramifications of the misconduct and the prior regulatory history (or in this case the lack thereof) . . . ." The National Committee explicitly recognized the nature of Ialeggio's misconduct, and his lack of disciplinary history. Its opinion makes clear that it gave due weight to the fact urged by Ialeggio that "in [Ialeggio's] 28 years of service in the securities industry no other complaints of any fashion have been lodged against" him. Ialeggio correctly points out that the National Committee did not state in its remand opinion that public customers were not harmed here and did not explicitly consider as mitigative the fact that Ialeggio's misconduct involved employer, not customer, funds. We see no impropriety; that Ialeggio abused only his employer's trust is not mitigative. <(7)> As Ialeggio describes the situation to us: "[F]or apparent tactical reasons, [Home Life has] refused to accept the payment and has elected to offset the amounts in question from the sums owed to Appellant, which have yet to be paid to Appellant." ======END OF PAGE 5====== Ialeggio also claims that this proceeding is "fatal[ly]" infected by what he asserts were procedural irregularities before the District Committee. Ialeggio's basis for this claim is a reference in the NASD staff's brief on remand suggesting that the NASD regional counsel had urged the District Committee to apply the NASD sanction guideline for conversion or improper use of funds or securities. Ialeggio claims that he was not put on notice that this guideline was under consideration as the appropriate one; he further claims that he was unfairly sanctioned by application of this guideline. We have reviewed once again the portion of the record in this matter that we reviewed in connection with Ialeggio's first appeal, and we are unable to determine the basis for the NASD staff's suggestion that the conversion guideline had been advocated to the District Committee as an appropriate basis for determining Ialeggio's sanction. There is no discussion about the conversion guideline in either the materials submitted to the District Committee or in the transcript of the hearing before it. In fact, the NASD regional counsel who had presented the case to the District Committee argued in the initial hearing before the National Committee that: As to the sanctions in this case, there isn't any sanction guideline for what has been found here. . . . [ ] Rather, the sanctions in this case result very simply from the District Business Conduct Committee's having looked at the misconduct, just as they would have ten years ago before there were any sanction guidelines . . . . [ ] [W]hat the committee did was just exercise its -- the district committee, was exercise its best judgment in fashioning a remedy. We do not agree that the conversion guideline in fact was applied to Ialeggio. The District Committee did not rely expressly on the conversion guideline (which suggests a fine of between $2,500 and $20,000) in sanctioning Ialeggio. Before the National Committee, Ialeggio urged that the most analogous sanction guideline was the recordkeeping guideline (which suggests a fine of between $1,000 and $20,000). The National Committee, in its initial opinion, did not tie its sanction to any particular guideline and, in its opinion under review here, explicitly stated that "no NASD Sanction Guideline is expressly applicable to the serious misconduct in this matter." We see no basis for a claim of unfairness under these circumstances. <(8)> V. <(8)> Compare, e.g., Sumner B. Cotzin, 45 S.E.C. 575, 580 (1974) (NASD Board of Governors' de novo review of record, followed by this Commission's independent decision as to the validity of the NASD's charges and sanctions dissipates possibility of abuse). ======END OF PAGE 6====== In sum, as we stated in our first opinion in this matter, <(9)> we view Ialeggio's misconduct as casting doubt on his commitment to the fiduciary standards demanded of registered persons. We do not find that the sanctions imposed on remand for this misconduct are either excessive or oppressive or that they impose any unnecessary or inappropriate burden on competition. An appropriate order will issue. <(10)> By the Commission (Chairman LEVITT AND Commissioners JOHNSON, HUNT AND UNGER); Commissioner CAREY not participating. Jonathan G. Katz Secretary <(9)> Ialeggio, 63 SEC Docket at 369. <(10)> All of the contentions advanced by the parties have been considered. They are rejected or sustained to the extent that they are consistent or in accord with the views expressed herein. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. SECURITIES EXCHANGE ACT OF 1934 Rel. No. Admin. Proc. File No. 3-8925 __________________________________________________ : In the Matter of the Application of : : LEONARD JOHN IALEGGIO : 2565 Holly Oak Drive : Danville, California 94506 : : For Review of Disciplinary Action Taken by the : : NATIONAL ASSOCIATION OF SECURITIES DEALERS, INC. : __________________________________________________: ORDER SUSTAINING SANCTIONS IMPOSED ON REMAND BY REGISTERED SECURITIES ASSOCIATION On the basis of the Commission's opinion issued this day, it is ORDERED that the sanctions imposed by the National Association of Securities Dealers, Inc. against Leonard John Ialeggio, and the assessment of costs, be, and they hereby are, sustained. By the Commission. Jonathan G. Katz Secretary