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U.S. Securities and Exchange Commission

Before the

Securities Exchange Act of 1934
Release No. 51270 / February 28, 2005

Admin. Proc. File No. 3-11686

In the Matter of the Application of


For Review of Disciplinary Action Taken By NASD



On January 21, 2005, NASD requested that we dismiss an Application for Review, filed on September 24, 2004, by L.H. Ross & Company, Inc. ("L.H. Ross" or the "Firm"), an NASD member firm, appealing a temporary cease-and-desist order (the "TCDO") that had been imposed on the Firm by NASD. For the reasons discussed below, we have determined to grant NASD's motion.


NASD issued the TCDO based on its finding that L.H. Ross had violated Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934, and Exchange Act Rule 10b-5,1 / as well as NASD Conduct Rules 2110 and 2120,2 / by making material misrepresentations and omissions of fact in connection with the offer and sale of the Firm's preferred stock in two private placement offerings during 2003 and 2004, and by engaging in unauthorized transactions involving such stock.

NASD instituted the TCDO proceedings in conjunction with disciplinary proceedings brought against the Firm (the "Disciplinary Proceedings").3 / The TCDO was intended to prevent further violations by the Firm pending the issuance of a decision in the Disciplinary Proceedings. NASD Procedural Rule 9840(c) provides that TCDOs "shall remain effective and enforceable until the issuance of a decision under Rule 9268 or Rule 9269," i.e., a decision of a hearing panel or a default decision in NASD disciplinary proceedings.

On January 14, 2005, an NASD hearing panel issued a decision (the "January Decision") in the Disciplinary Proceedings finding that L.H. Ross had violated registration and antifraud provisions of the securities laws and NASD rules.4 / Based on these findings, the hearing panel expelled the Firm, fined it $500,000, and ordered it to pay more than $11 million in restitution, plus prejudgment interest and hearing costs. In addition, the hearing panel issued a permanent cease-and-desist order against the Firm which imposed essentially the same requirements on the Firm as had the TCDO, including a requirement that the Firm collect from its parent holding company, and deposit into escrow, $2 million (the "Escrow Requirement").5 /


NASD contends that, pursuant to its rules, the issuance of the hearing panel's decision in the Disciplinary Proceedings had the effect of terminating the TCDO. Thus, according to NASD, the Firm's appeal is moot because, as a consequence of the issuance of the January Decision, there is no longer a final disciplinary sanction for the Commission to review. The Firm agrees that, "[b]ecause the TCDO is no longer in effect," the appeal is moot.6 /

Accordingly, IT IS ORDERED that the application for review filed by L.H. Ross & Company, Inc. of a temporary cease-and-desist order issued by NASD be, and it hereby is, dismissed.

By the Commission.

Jonathan G. Katz

1 / 15 U.S.C. 77q(a), 15 U.S.C. 78j(b), and 17 C.F.R. 240.10b-5.

2 / NASD Conduct Rule 2110 requires NASD members to observe high standards of commercial honor and just and equitable principles of trade. Conduct Rule 2120 prohibits NASD members from effecting any transaction in, or inducing the purchase or sale of, any security by means of any manipulative, deceptive or other fraudulent device or contrivance.

3 / NASD instituted both the TCDO proceedings and the Disciplinary Proceedings on July 23, 2004.

4 / The hearing panel found violations of Securities Act Sections 5 and 17(a); Exchange Act Section 10(b); and Exchange Act Rule 10b-5, as well as violations of NASD Conduct Rules 2220 and 2110.

5 / L.H. Ross filed requests with the Commission and the United States Court of Appeals for the District of Columbia Circuit to issue an emergency stay of the Escrow Requirement pending the Firm's intended appeal of the January Decision by NASD's National Adjudicatory Council ("NAC"). Both requests for a stay were denied. L.H. Ross & Co., Inc., No. 05-1024, 2005 U.S. App. LEXIS 1677 (Feb. 1, 2005); L.H. Ross & Co. Inc., Admin. Proc. File No. 3-11803 (Jan. 27, 2005).

On February 1, 2005, the NAC, in an expedited suspension proceeding against the Firm, found that the escrow requirement included in the TCDO was invalid and that the Firm's failure to comply with that escrow requirement could not serve as a basis for the Firm's suspension.

6 / However, the Firm specifically does not concede "that the NASD's exercise of its temporary cease and desist powers was valid" and states it will continue to challenge the provisions of the TCDO that were incorporated into the PCDO in its appeal to the NAC.


Modified: 03/01/2005